FCC lets Verizon lock cell phones to network for 60 days after activation

Verizon yesterday received the government's permission to lock handsets to its network for 60 days after each device's activation, despite open-access rules that apply to one of Verizon's key spectrum licenses.

The Federal Communications Commission waiver approval said 60-day locks will "allow Verizon to better combat identity theft and other forms of handset-related fraud."

Verizon generally sells its phones unlocked, meaning they can be used on any carrier's network as long as the device and network are compatible with each other. This is largely because of rules the FCC applied to 700MHz spectrum that Verizon bought at auction in 2008. The 700MHz spectrum rules say that a license holder may not "disable features on handsets it provides to customers... nor configure handsets it provides to prohibit use of such handsets on other providers' networks."

But Verizon in February asked the FCC for permission to lock phones for 60 days, saying this is necessary to deter fraud when people buy phones on payment plans that require little or no down payment.

Verizon tries to deter armed robberies

Verizon already locks phones prior to sale in order to deter armed robberies from stores or trucks, and the company unlocks them at the time of activation. But Verizon told the FCC that fraudsters often "use a stolen identity or other fraudulent means to obtain a new handset on an existing customer's account or to open a new wireless service account, and then immediately turn around and sell the handset on the black market without ever paying for the device or the service."

Verizon argued that the 60-day locking period would give the company time to collect and verify the first device payment. The waiting period, says Verizon, would have "minimal, if any" effect on legitimate customers because few ever switch carriers within 60 days.

While the FCC's Wireless Telecommunications Bureau granted Verizon's request for a partial waiver from the open-access rule, it denied Verizon's request for a declaratory ruling "finding the handset unlocking rule already permits such temporary locking."

The FCC is "not persuaded that Verizon's interpretation" of the rule is accurate, the commission order said. "We do, however, find that the limited waiver of the unlocking requirement that Verizon requests would serve the public interest and therefore grant Verizon's request for a partial waiver."

Smaller carriers opposed Verizon request

The FCC approved Verizon's waiver despite opposition from T-Mobile and a trade group that represents rural carriers. T-Mobile told the FCC that "Verizon does not demonstrate that allowing it a 60-day period to lock phones would help address the problem."

T-Mobile continued:

There is no evidence this limited action would have the desired effect. During the proposed 60-day period, a fraudulent party would be required to make a single payment—likely of about $40. Once that payment is made, Verizon would unlock the phone. But $40 is a small price to pay for an unlocked phone. Indeed, the fact that other carriers that lock devices experience this problem as well but only unlock phones based, for example, on payment for the device, demonstrates that a limited locking period may not prevent subscriber fraud and device theft.

T-Mobile imposes a stricter unlocking policy, requiring customers to pay for the entire cost of a phone before unlocking it. But T-Mobile doesn't face the same open-access rules because it uses different spectrum. The company told the FCC that the lack of a rule applying to other carriers "does not justify the Commission waiving a rule that it purposefully applied to spectrum that Verizon holds."

Verizon knew the restrictions when it bid on the spectrum, and "the no-locking provisions of the rules almost certainly affected the auction price of this spectrum," T-Mobile wrote.

The Rural Wireless Association (RWA) argued that Verizon's waiver would have negative effects on rural carriers and rural customers, and said that it opposes device locking in general.

The RWA also said the alleged benefits of a 60-day locking policy "are far outweighed by the public benefits that are derived from Verizon's continued compliance with the rule."

Rural carrier Pine Belt Cellular argued that the 60-day locks will make it harder for people to buy phones from Verizon and then switch to a different carrier.

"Verizon subscribers are given the freedom to, at any time, switch carriers for better wireless coverage or better-priced services and keep their existing handsets—a freedom of choice that no other carrier provides, and a freedom that likely explains, in part, why so many consumers initially select Verizon as their wireless provider," Pine Belt wrote.

Rural customers are often dissuaded from buying the newest and best phones "because the larger carriers offering these devices do not provide strong service—or possibly any service—near the rural consumer's home or place of business," Pine Belt wrote.

FCC: Opposition “unconvincing”

The FCC said it found the RWA and Pine Belt arguments "unconvincing."

"[T]here is no need for rural customers to acquire handsets through Verizon if they intend to use another carrier's service; they can simply buy a handset directly from the manufacturer or through another retail outlet," the FCC said.

The FCC also rejected an argument by Verizon customer Alex Nguyen, who previously filed a net neutrality complaint against Verizon in 2016, when the net neutrality rules were still in place. (The FCC still hasn't ruled on his three-year-old complaint.) More recently, Nguyen urged the FCC to reject Verizon's waiver request, saying it is "inconsistent with the handset-locking prohibition," that it "won't protect customers from identity theft, and won't prevent fraudsters from using other people's money to buy a $999 phone from Verizon."

The FCC said it rejected this argument "because we find that a limited waiver of the handset-unlocking rule will provide Verizon with the tools to reduce identity theft and fraud without imposing an undue burden on Verizon's customers."

Verizon's request for a partial waiver got support from an unlikely source: consumer-advocacy group Public Knowledge, which has opposed Verizon on many other issues. Public Knowledge told the FCC that Verizon's waiver request meets "the high burden required to demonstrate that waiver of the rule would serve the public interest in this specific case."

"Public Knowledge is sympathetic to Verizon's goal of thwarting individuals from using stolen identities and fake credit cards to steal expensive mobile handsets," the group said. "Public Knowledge recognizes that ultimately consumers pay for these losses with increased prices."

But just like the FCC, Public Knowledge opposed Verizon's request for a declaratory ruling that would have changed the effective meaning of the open-access rule. Though Verizon's waiver request is reasonable, the open-access rule's ban on handset locking "is not ambiguous," Public Knowledge said.

The National Telecommunications and Information Administration (NTIA), another federal agency, generally supported the waiver but urged the FCC to require a locking period shorter than 60 days. The commission could "appropriately tailor a waiver in part by requiring Verizon to unlock a newly obtained device as soon as the first payment is successfully processed," the NTIA said.

The FCC rejected the NTIA argument, pointing to Verizon's argument that "60 days is the minimum necessary to accomplish the purpose of the temporary unlocking, in order to allow for the amount of time it takes to receive and process customer payments, to identify fraud via checks from accounts with insufficient funds or stolen debit or credit cards, and to obtain information about transactions through indirect agents or national retailers."

The FCC also said it "agree[s] with Verizon's assessment that the 'added complexity of specifying exceptions' to [the] 60-day waiver of the unlocking rule, as suggested by NTIA, would not 'provide offsetting consumer benefits.'"