Wireless Goes Un-American: Verizon Communications Inc. (VZ), AT&T Inc. (T)

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In what may be one of the most under-reported stories in recent memory, a change to federal law has made it illegal to unlock a mobile phone from the constraints of the carrier through which the device was sold. Sounds complicated? In the simplest terms, even though you buy a phone and theoretically “own” it, you are no longer free to unlock it so that it may be used on the wireless carrier of your choice. The news is a significant positive for carriers like Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) , which will gain greater control over client retention, but as far as I am concerned, it is a violation of some of the very principles that once made America great. In an era when innovation is the last frontier of U.S. dominance, this is a step in the wrong direction.

The new law
The $78 Billion Question Affecting Dividend Stocks TodayUnder the Digital Millennium Copyright Act, it is illegal to “circumvent a technological measure that effectively controls access” to protected or copyrighted material. In the case of phone unlocking, this refers to the software embedded in each device that grants specific access to a carrier. Where the Copyright Office once granted an exception to this law for unlocked phones, as of last weekend, the exemption has been rescinded. This means that individuals who unlock their phones are now breaking the law and are subject to civil suit by the carrier from which they bought the phone.

The DMCA is not without merit, as it is widely credited with creating the environment that allowed social media websites, video sharing, and even the DVD to flourish. A provision of the law provides a level of immunity to intermediaries — if copyrighted material is improperly displayed, the copyright holder can issue a “takedown” order and have the content removed. Under this circumstance, no liability is created for the intermediary. Without such a law, it is hard to imagine how many sites could function.

In the context of phone unlocking, individuals have not been the general focus of civil litigation; those who unlocked large numbers of devices for commercial purposes were the target of most lawsuits. Furthermore, the law only applies to phones that are unlocked against the will of the carrier. In last October’s ruling, the Copyright Office said: “While it is true that not every wireless device is available unlocked, and wireless carriers’ unlocking policies are not free from all restrictions, the record clearly demonstrates that there is a wide range of alternatives from which consumers may choose in order to obtain an unlocked wireless phone.”

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