Democratic bill could force Apple, AT&T to unlock iPhone

When T-Mobile began selling Apple's iPhone in Germany last fall, a legal skirmish ensued, forcing the wireless carrier to sell it untethered to a contract--at $1,460, no less. T-Mobile eventually persuaded a court that the two-year contract was legal.

Now that same kind of European rule would be imported into the United States--meaning AT&T would be legally required to sell a contract-free iPhone--if a new Democratic proposal in the U.S. House of Representatives becomes law.

Sponsored by Rep. Ed Markey (D-Mass.), a congressman who serves as chairman of a House telecommunications and Internet panel, it's similar to but somewhat more sweeping than a bill proposed in the Senate last year. His subcommittee has scheduled a hearing on the plan for Wednesday morning.

The draft legislation says every mobile provider "shall offer to consumers the opportunity to purchase subsidy-free wireless customer equipment."

The emergence of the 27-page draft bill (PDF), called the Wireless Consumer Protection and Community Broadband Empowerment Act, underscores what is apparently growing concern among congressional Democrats during this session with what they seem to view as insufficiently flexible, forthcoming dealings among wireless carriers and their customers.

Both bills would direct the Federal Communications Commission to establish a number of new rules for wireless carriers. Among other things, those companies would have to give abundant disclosure to their customers about their rate plans in a "clear, plain, and conspicuous manner," breaking out the cost of everything from early termination fees to state and local taxes for the customer.

Carriers would also be obligated to devise more detailed maps of their network coverage areas. And they'd have to permit customers to cancel a contract for any reason without penalty within the first 30 days and to prorate any fees associated with leaving a contract early.

Unlike the Senate bill, Markey's proposal would also dictate that wireless carriers offer customers the choice of buying a wireless service plan with no early termination fee.

Wireless carriers say they charge early termination fees because they've subsidized the cost of the wireless handset used with it, but Markey's draft bill would also require them to offer consumers the ability to buy "subsidy-free" equipment without a long-term service plan--and at the same price as comparable service for a plan with subsidized equipment.

That's where the potential implications for the iPhone and similar devices come in. Right now, signing up for iPhone service is a two-year commitment on top of the price of the gadget itself. But, assuming that AT&T subsidizes at least some of the cost of the phone--one estimate says the subsidy is around $400--Markey's bill would apparently force AT&T to sell it at an unsubsidized price and for a contract length of the customer's choosing.

To be sure, such an option may not even be in some consumers' best financial interests. iPhone unlocking has become a popular pastime, with thousands of consumers buying them without pledging allegiance to AT&T in the first place. But Markey's bill, in the interest of consumer protection, would force carriers to offer such a choice anyway.

The wireless industry has long been lobbying for a uniform set of rules governing its operations from the federal level, complaining that states have imposed a patchwork of obligations for billing and other practices that don't mesh well with the national nature of wireless service. But if its less-than-enthusiastic reaction to the Senate bill is any indication, the House's prescriptive approach likely isn't what it had in mind.

A lobbyist for CTIA-The Wireless Association, which represents the major wireless carriers, is scheduled to speak about the bill at a hearing Wednesday, but the organization declined to speak further about the proposal beforehand.

"Generally, we're looking forward to the hearing and the opportunity to talk about the many consumer benefits that accompany a uniform set of standards for wireless policy in America," CTIA spokesman Joe Farren said Tuesday.

The wireless industry is likely to point out some of the steps it has already undertaken in the absence of regulations in an apparent effort to be more consumer-friendly. Most of the major carriers have announced plans to prorate the early termination fees for their contracts, for instance.

Markey's proposal doesn't stop at wireless issues. It also includes a section that would reserve the right of municipalities to offer their own broadband services--a trend that has encountered mixed success thus far. The bill says such networks "serve the public interest" and that states should not be allowed to make laws thwarting their creation.

Passing federal legislation to promote such offerings isn't new. The idea grew out of attempts by state legislatures, often pressured by major Internet service providers like Verizon and Comcast, to enact laws restricting city governments from getting into the same game. But so far, despite support in both chambers of Congress, no such measure has been made into law yet.

A group of major trade associations representing telephone companies both large and small said in a Tuesday letter to Markey that they're concerned his proposal will create "unintended consequences" that undermine his stated goal of getting affordable broadband to more places.

"We still believe federal municipal broadband legislation would chill private investment in existing and future broadband networks," wrote the association executives. "This ultimately leads to less, not more, broadband deployment as the investment risk for private entities is unnecessarily increased and private capital is displaced with public funds, needlessly burdening taxpayers."