[Federal Register Volume 89, Number 153 (Thursday, August 8, 2024)]
[Proposed Rules]
[Pages 64843-64851]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16642]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 64
[WT Docket No. 24-186; FCC 24-77; FR ID 234719]
Promoting Consumer Choice and Wireless Competition Through
Handset Unlocking Requirements and Policies
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
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SUMMARY: In this document, the Federal Communications Commission
(Commission) explores the use of handset unlocking policies as a means
to improve consumer choice and flexibility and to enhance competition
across the mobile wireless marketplace as part of the Commission's
ongoing efforts to carry out its statutory obligations to ensure a
competitive marketplace for mobile wireless services. Specifically, the
Commission proposes to require all mobile wireless service providers to
unlock handsets 60 days after a consumer's handset is activated with
the provider, unless within the 60-day period the service provider
determines the handset was purchased through fraud.
DATES: Interested parties may file comments on or before September 9,
2024, and reply comments on or before September 23, 2024. Written
comments on the Paperwork Reduction Act proposed information collection
requirements must be submitted by the public, the Office of Management
and Budget, and other interested parties on or before October 7, 2024.
Written comments on the Initial Regulatory Flexibility Analysis (IRFA)
must have a separate and distinct heading designating them as responses
to the IRFA and must be submitted by the public on or before September
9, 2024.
ADDRESSES: Pursuant to Sec. Sec. 1.415 and 1.419 of the Commission's
rules, 47 CFR 1.415, 1.419, interested parties may file comments and
reply comments on or before the dates indicated on the first page of
this document. Comments may be filed using the Commission's Electronic
Comment Filing System (ECFS). You may submit comments, identified by WT
Docket No. 24-186, by any of the following methods:
Electronic Filers: Comments may be filed electronically
using the internet by accessing the ECFS: https://www.fcc.gov/ecfs.
Paper Filers: Parties who choose to file by paper must
file an original and one copy of each filing.
Filings can be sent by hand or messenger delivery, by
commercial courier, or by the U.S. Postal Service. All filings must be
addressed to the Secretary, Federal Communications Commission.
Hand-delivered or messenger-delivered paper filings for
the Commission's Secretary are accepted between 8 a.m. and 4 p.m. by
the FCC's mailing contractor at 9050 Junction Drive, Annapolis
Junction, MD 20701. All hand deliveries must be held together with
rubber bands or fasteners. Any envelopes and boxes must be disposed of
before entering the building.
Commercial courier deliveries (any deliveries not by the
U.S. Postal Service) must be sent to 9050 Junction Drive, Annapolis
Junction, MD 20701. Filings sent by U.S. Postal Service First-Class
Mail, Priority Mail, and Priority Mail Express must be sent to 45 L
Street NE, Washington, DC 20554.
People with Disabilities. To request materials in
accessible formats for people with disabilities (braille, large print,
electronic files, audio format), send an email to [email protected] or
call the Consumer and Governmental Affairs Bureau at 202-418-0530.
FOR FURTHER INFORMATION CONTACT: Eli Johnson, Attorney Advisor,
Competition and Infrastructure Policy Division, Wireless
Telecommunications Bureau, at 202-418-1395 or [email protected] or
Jennifer Salhus, Attorney Advisor, Competition and Infrastructure
Policy Division, Wireless Telecommunications Bureau, at 202-418-2823 or
[email protected].
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice
of Proposed Rulemaking (NPRM), in WT Docket No. 24-186, FCC 24-77,
adopted on July 18, 2024, and released on July 19, 2024. The full text
of this document is available for public inspection and can be
downloaded at https://docs.fcc.gov/public/attachments/FCC-24-77A1.pdf.
Regulatory Flexibility Act. The Regulatory Flexibility Act of 1980,
as amended (RFA), requires that an agency prepare a regulatory
flexibility analysis for notice and comment rulemakings, unless the
agency certifies that ``the rule
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will not, if promulgated, have a significant economic impact on a
substantial number of small entities.'' Accordingly, the Commission has
prepared an Initial Regulatory Flexibility Analysis (IRFA) concerning
the possible impact of the rule and policy changes contained in the
Notice of Proposed Rulemaking. Written public comments are requested on
the IRFA. Comments must be filed by the deadlines for comments on the
Notice of Proposed Rulemaking indicated in the DATES section of this
document and must have a separate and distinct heading designating them
as responses to the IRFA and must be filed in WT Docket No. 24-186.
Paperwork Reduction Act. This document contains proposed new or
modified information collection requirements. The Commission, as part
of its continuing effort to reduce paperwork burdens, invites the
general public and the Office of Management and Budget (OMB) to comment
on the information collection requirements contained in this document,
as required by the Paperwork Reduction Act of 1995, Public Law 104-13.
In addition, pursuant to the Small Business Paperwork Relief Act of
2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), we seek specific
comment on how we might further reduce the information collection
burden for small business concerns with fewer than 25 employees.
Ex Parte Rules. This proceeding shall be treated as a ``permit-but-
disclose'' proceeding in accordance with the Commission's ex parte
rules. Persons making ex parte presentations must file a copy of any
written presentation or a memorandum summarizing any oral presentation
within two business days after the presentation (unless a different
deadline applicable to the Sunshine period applies). Persons making
oral ex parte presentations are reminded that memoranda summarizing the
presentation must (1) list all persons attending or otherwise
participating in the meeting at which the ex parte presentation was
made and (2) summarize all data presented and arguments made during the
presentation. If the presentation consisted in whole or in part of the
presentation of data or arguments already reflected in the presenter's
written comments, memoranda, or other filings in the proceeding, the
presenter may provide citations to such data or arguments in his or her
prior comments, memoranda, or other filings (specifying the relevant
page and/or paragraph numbers where such data or arguments can be
found) in lieu of summarizing them in the memorandum. Documents shown
or given to Commission staff during ex parte meetings are deemed to be
written ex parte presentations and must be filed consistent with rule
Sec. 1.1206(b), 47 CFR 1.1206(b). In proceedings governed by rule
Sec. 1.49(f) or for which the Commission has made available a method
of electronic filing, written ex parte presentations and memoranda
summarizing oral ex parte presentations, and all attachments thereto,
must be filed through the electronic comment filing system available
for that proceeding, and must be filed in their native format (e.g.,
.doc, .xml, .ppt, searchable .pdf). Participants in this proceeding
should familiarize themselves with the Commission's ex parte rules.
Providing Accountability Through Transparency Act. Consistent with
the Providing Accountability Through Transparency Act, Public Law 118-
9, a summary of the Notice of Proposed Rulemaking will be available on
https://www.fcc.gov/proposed-rulemakings.
Synopsis
I. Introduction
1. With the NPRM, the Commission explores the use of handset
unlocking policies as a means to improve consumer choice and
flexibility and to enhance competition across the mobile wireless
marketplace as part of the Commission's ongoing efforts to carry out
its statutory obligations to ensure a competitive marketplace for
mobile wireless services. Handset unlocking, which allows consumers to
take their existing handset with them when they switch from one mobile
wireless service provider to another, can be an important tool in
facilitating competition and reducing barriers for consumers to switch
between wireless providers. Over the past two decades, the Commission
has adopted handset unlocking requirements for particular providers in
specific circumstances, upon finding that doing so was justified in
each of those instances. In the NPRM, the Commission tentatively
concludes that adopting a broadly applicable set of handset unlocking
requirements for all mobile wireless service providers would serve the
public interest, and we seek comment on which requirements would best
facilitate competition and consumer choice. Specifically, the
Commission proposes to require all mobile wireless service providers to
unlock handsets 60 days after a consumer's handset is activated with
the provider, unless within the 60-day period the service provider
determines the handset was purchased through fraud.
II. Background
2. Unlocking a handset allows consumers to take their existing
handset with them when they switch from one mobile wireless service
provider to another, as long as the consumer's handset is compatible
with the new provider's wireless network. In some instances, handsets
are sold with discounts in exchange for a required service plan
commitment, often months or years in length, or pursuant to a handset
financing plan. Locking software generally is intended to ensure that
handsets will remain active on the network of the provider that sold
the handset (with a discount or with a handset installment plan) for a
certain period of time or amount of usage. A locked handset cannot be
used on a competing service provider's compatible network without the
handset first being unlocked. The unlocking process varies by handset
and by service provider. A service provider may automatically unlock a
handset after certain conditions are met, send instructions to
customers on how to unlock a handset upon request, or complete the
unlocking process in-store. The Commission has found that ``[m]obile
device unlocking facilitates consumer choice among mobile broadband
providers by freeing consumers from having to replace their handset to
use another network, thereby reducing switching costs.''
3. The wireless industry has established six general handset
unlocking commitments as part of the CTIA Consumer Code for Wireless
Service (CTIA Unlocking Commitments). Wireless service providers, such
as AT&T, T-Mobile, and Verizon, who have voluntarily agreed to abide by
these commitments will unlock handsets in a timely manner when they
receive a request from a consumer to unlock a handset once certain
conditions are met. These commitments assist consumers by enhancing
transparency and disclosure of service provider locking polices. These
commitments cover: (1) disclosure; (2) postpaid unlocking policy; (3)
prepaid unlocking policy; (4) notice; (5) response time; and (6)
deployed personnel unlocking policy. In summary, service providers who
abide by these commitments unlock handsets one year after activation
for prepaid, and after fulfilment of a service contract, handset
financing plan, or payment of an early termination fee for postpaid.
4. In addition to the industry's voluntary unlocking standards,
certain wireless service providers, as discussed below, are subject to
unlocking requirements as a result of rules specific
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to certain frequency bands or to merger commitments. These Government-
imposed unlocking requirements are more stringent than the industry's
voluntary unlocking standards. In addition, the providers subject to
these requirements could face possible enforcement action if they were
found to be out of compliance.
5. Section 27.16(e) of the Commission's rules prohibits the locking
of handsets that operate on the 700 MHz C Block frequency bands. Under
this rule, no C Block licensee ``may disable features on handsets it
provides to customers, to the extent such features are compliant with
the licensee's standards . . . nor configure handsets it provides to
prohibit use of such handsets on other providers' networks.'' The
Commission adopted this rule in the 2007 700 MHz Second Report and
Order (72 FR 48814, Aug. 24, 2007) as part of a set of ``open
platform'' requirements imposed upon C Block licensees. Specifically,
the Commission determined that C Block licensees ``will not be allowed
to disable features or functionality in handsets where such action is
not related to reasonable network management and protection, or
compliance with applicable regulatory requirements.'' As an example of
this open platform requirement, the Commission stated that C Block
licensees ``may not `lock' handsets to prevent their transfer from one
system to another.'' The Commission noted that ``[h]andset or phone
`locking' . . . is one practice that arguably prevents consumers from
migrating otherwise technically compatible equipment from one wireless
service provider to another.''
6. As one of the 700 MHz C Block licensees, Verizon must comply
with this requirement. In 2019, however, the Wireless
Telecommunications Bureau granted Verizon a partial waiver of this
unlocking requirement to better combat identity theft and other types
of handset-related fraud. The waiver allows Verizon to lock handsets
that operate on the 700 MHz C Block frequencies for 60 days from the
date the handsets become active on its network. The Bureau found that
allowing handsets to be locked for 60 days to combat handset fraud
would not significantly interfere with the policy objective of enabling
consumers to be able to migrate from one service provider to another on
compatible networks.
7. Further, as part of the Verizon-TracFone Order, Verizon agreed
to extend its 60-day unlocking policy to all 700 MHz C Block handsets
purchased from TracFone subject to a two-year waiver of the automatic
unlocking requirement to allow manual unlocking for those TracFone
handsets that did not have automatic unlocking capabilities. For 700
MHz C Block TracFone handsets that operate on its network and lack an
automatic unlocking capability, Verizon agreed to provide these
customers with manual means to unlock their handsets 60 days after
activation. Verizon also agreed that after a two-year period, any new
700 MHz C Block TracFone handsets that Verizon offered and that operate
on its network would be capable of automatically unlocking.
8. As a result of these Commission-imposed unlocking conditions,
Verizon, after the expiration of the initial 60-day period, must
automatically unlock a customer's handset regardless of whether: (1)
the customer asks for the handset to be unlocked or (2) the handset is
fully paid off. With respect to the Verizon unlocking requirements, the
Commission has stated that limiting handset locking periods reduces
barriers to consumers being able to switch between wireless service
providers.
9. Similarly, T-Mobile operates under an unlocking requirement
imposed as a merger condition in connection with the T-Mobile--Sprint
merger. Under merger conditions imposed by the Department of Justice in
connection with the Amended Final Judgment, T-Mobile is required to
unlock prepaid handsets within a year of activation on its wireless
network. The Amended Final Judgment states that T-Mobile must ``unlock
prepaid mobile wireless devices no later than one (1) year after
initial activation, consistent with reasonable time, payment, or usage
requirements.'' With respect to postpaid handsets, the Amended Final
Judgment requires T-Mobile to unlock these handsets only after a
customer fulfills the term of the postpaid service contract or handset
financing plan, or pays any applicable early termination fee.
10. Further, as part of the recent T-Mobile-Mint Mobile/Ultra
Mobile Order, T-Mobile made commitments, which were imposed as merger
conditions, to implement a 60-day handset unlocking period, subject to
certain limitations and exceptions, for all Mint Mobile and Ultra
Mobile handsets activated on the T-Mobile network both before and after
the closing of the transaction. Handsets subject to a financing plan
are not subject to this policy unless a customer pays off the handset
early. T-Mobile agreed to automatically unlock new and existing Mint
Mobile and Ultra Mobile handsets that are capable of automatic
unlocking or provide a means to manually unlock these handsets if they
are not capable of automatic unlocking if the handsets have been
activated on the T-Mobile network for at least 60 days and are not
currently on a handset financing plan. No later than 24 months after
the closing of the transaction, T-Mobile will ensure that all new Mint
Mobile and Ultra Mobile handsets that the company offers will be
capable of automatic unlocking.
11. With the exception of these specific Government-enforced
unlocking requirements, mobile wireless service providers are free to
adjust their unlocking requirements, including increasing the unlocking
waiting period. For instance, T-Mobile recently increased its locking
period for one of its brands, Metro by T-Mobile, from 180 days to 365
days.
III. Discussion
12. In the NPRM, we tentatively conclude that adopting a broadly
applicable set of handset unlocking requirements for all mobile
wireless service providers would serve the public interest, and we seek
comment on which specific requirements would best facilitate
competition and consumer choice. We propose to require all mobile
wireless service providers to unlock handsets 60 days after a
consumer's handset is activated with the provider, unless within the
60-day period the service provider determines the handset was purchased
through fraud. We find that there are several factors favoring our
proposed unlocking policy.
13. First, having a uniform unlocking policy increases market
transparency. We recognize that the CTIA Unlocking Commitments require
service providers to post on their websites their policies on postpaid
and prepaid handset unlocking. Nonetheless, we tentatively conclude
that imposing a uniform handset unlocking policy is likely to increase
the information available to consumers, reduce possible consumer
confusion, and improve consumer choice through improved information.
14. Second, the locking of handsets can pose a barrier to
consumers' ability to switch service providers. Reducing the period
during which a provider can lock a handset should reduce switching
costs and increase a consumer's ability to change providers in response
to changing market prices and service characteristics, new technology,
or changes in a consumer's circumstances or needs, which should
increase consumer welfare. As a result, consumers will incur fewer
direct costs when they do switch and will be less likely to be deterred
from switching because of the locked handset.
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15. Third, by reducing switching costs and increasing consumers'
ability to switch, restrictions on handset locking can increase
competition among wireless providers, which can lead to lower prices,
more attractive service characteristics, and improved service
performance. In this regard, we note that the Commission has found that
handset locking may inhibit competition by making it more difficult for
consumers to switch among service providers, and, in order to encourage
competition and preserve consumer choice and flexibility, it has
adopted handset unlocking requirements in the context of rules for
specific spectrum bands and as merger commitments. Service providers'
handset unlocking practices have also been the subject of consumer
complaints and inquiries received by the Commission.
16. Finally, to the extent the Commission adopts this proposal,
this change would result in all wireless providers facing the same
regulatory constraints, which should reduce regulatory asymmetries and
result in more competitively neutral regulation.
17. We note that regulators in other countries have restricted or
prohibited handset locking on the grounds that it limits consumer
choice and reduces competition. For example, in 2017, the Canadian
Radio-television and Telecommunication Commission (CRTC) required that
all mobile wireless devices provided to consumers by wireless service
providers must be unlocked, and for already locked devices, the
providers were required to unlock the device upon request without
charge. In adopting this requirement, the CRTC found that ``[un]locked
devices offer more consumer choice and convenience, contribute to a
decreased risk of bill shock by providing options to consumers while
travelling abroad, and reduce a significant barrier to switching
wireless service providers by improving device portability.''
Similarly, Ofcom, the United Kingdom's telecom regulatory agency,
banned the sale of locked handsets in 2020, with the ban becoming
effective in December 2021. Ofcom found, inter alia, that handset
locking: (1) imposed costs and delays on customers seeking to unlock a
device and switch providers; (2) deterred some customers from switching
providers; and (3) reduced competition. Other countries have also
placed limits on the ability of wireless providers to lock customers'
handsets. For example, in 2015, Japan required all wireless providers
to sell wireless devices with their Subscriber Identity Module or SIM
cards unlocked if a customer asked for it. Singapore banned mobile
operators from selling SIM locked devices in 1997 in an effort to
facilitate competition and improve consumer choice.
18. Economic theory also suggests that switching costs, of which
handset locking is a form, may reduce competition by locking in
customers to a particular provider. Large switching costs tend to lock
in buyers when they make an initial purchase, so that they are
effectively buying a series of goods over time. While competition, in
certain circumstances, may be efficient even in the presence of
switching costs, in certain instances, it will not be efficient. For
example, consumers may incur direct costs if they switch providers or
they may be deterred from switching to the provider that best serves
their needs at the lowest price. In addition, while high switching
costs may increase a provider's incentive to compete for a customer
initially, it may reduce its incentive to lower prices in subsequent
periods after a customer is locked in. Thus, a consumer may enjoy lower
prices during the initial period, but then have to pay higher prices in
subsequent periods, or not be able to switch to a provider offering a
superior service or lower price.
19. Consumer groups also support restricting handset locking. They
have ``long argued that `the practice of locking phones can reduce
wireless competition by making it more difficult for consumers to
change carriers, and by reducing the number of devices available on the
secondary market.' '' For example, consumers may incur direct costs if
they actually switch, and if they do not, they may not end up
purchasing from their preferred provider. Consumer groups further note
that ``[s]maller carriers, new entrants, and [mobile virtual network
operators or] MVNOs in particular may be disadvantaged in the
marketplace due to a lack of handset availability.'' Further, they
explain that ``[l]ocked phones, particularly those tied to pre-paid
plans, can disadvantage low-income customers most of all, since they
may not have the resources to switch carriers or purchase new phones.''
In addition, in an ex parte letter filed in the recent T-Mobile-Mint
Mobile/Ultra Mobile proceeding, Verizon contends that the Commission's
approach of imposing handset unlocking requirements on a piecemeal
basis has resulted in asymmetrical regulation and unequal marketplace
conditions among service providers and that such conditions harm
consumers and competition. Another recent ex parte letter from a group
of consumer advocacy organizations and service providers contends that
adopting a uniform handset unlocking policy that applies to all
providers would benefit consumers and promote competition among service
providers.
20. Based on the above discussion, we tentatively conclude that we
should adopt a broadly applicable handset unlocking requirement for all
mobile wireless service providers, and we propose to require all mobile
wireless service providers to unlock handsets 60 days after a
consumer's handset is activated with the provider, unless within the
60-day period the service provider determines the handset was purchased
through fraud. We tentatively conclude that imposing a broadly
applicable handset unlocking requirement would have a larger impact by
promoting greater competitive choices for all mobile wireless
subscribers. We seek comment on this view and on the importance of
adopting a more broadly applicable handset unlocking requirement for
promoting consumer choice and competition. Additionally, we tentatively
conclude that adopting such a requirement would have the benefit of
providing for uniform regulation of all mobile wireless providers.
21. More specifically, we seek comment on whether, in addition to
allowing greater consumer choice, our proposal would increase
competition both with respect to prepaid and postpaid service plans. We
also seek comment on how our proposal might affect the incentive and
ability of wireless providers to continue offering discounts on
handsets, particularly in connection with extended payment plans, and
lower prices on plans with minimum term commitments. We note in this
regard that Verizon, which is subject to a 60-day handset unlocking
requirement, continues to offer discounts on devices purchased under
extended payment plans. In addition, we seek comment on how our
proposed policy might affect lower-income consumers or those with
poorer credit ratings. We also seek comment on other consumer impacts
of the proposed unlocking requirement, including any digital equity
implications. How would a 60-day device unlocking requirement impact
efforts by the Commission, wireless providers, or other stakeholders to
close the digital divide? Would such a requirement increase or decrease
consumer access to or selection of handsets? Further, we seek comment
on whether current handset locking policies have dissuaded consumers
from switching providers to more competitive service offerings. Are
there other practices that may hinder consumer choice when switching
mobile wireless service providers that the Commission
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should address? Finally, we seek comment on any alternative approaches
to handset unlocking that would achieve our objective of promoting
consumer choice and competition.
22. Time Period for Unlocking to Address Handset Fraud. While the
Commission has found that handset unlocking reduces barriers to
changing service providers, the Commission also has determined that
allowing handsets to be locked for 60 days to combat handset fraud does
not significantly interfere with this policy objective. Along these
lines, we propose to require that all mobile wireless service providers
unlock handsets 60 days after a consumer initiates service with the
provider, unless within the 60-day period the service provider
determines the handset was purchased through fraud. Under this
approach, the handset unlocking requirement would apply to all mobile
wireless service providers prospectively and would require them to
unlock all handsets that are activated on their networks after 60 days.
The 60-day period would be consistent with the 60-day handset unlocking
requirement that the Commission has applied previously as described
above.
23. We seek comment on this proposal. Commenters supporting a
handset unlocking rule should provide examples of how the rule should
read. Our proposal includes an exception to the 60-day unlocking
requirement, if during the 60-day locking period a service provider
determines that a handset was purchased through fraud. We seek comment
on how a service provider would determine if a handset was purchased
through fraud. What criteria should the service provider use? Should
the rule permit any other exceptions to deter fraud including instances
where individuals or groups illegally obtain devices and resell them to
the public (i.e., handset trafficking)? For example, should lost or
stolen phones also fall under an exception to the 60-day unlocking
requirement? We seek comment on the potential economic impact or
burdens of a 60-day unlocking requirement, particularly for small and
rural wireless service providers. Would such a general unlocking
requirement affect small and rural wireless service providers and
wireless resellers differently as compared to national service
providers and, if so, how? Is there a different approach to achieving
our objective of promoting consumer choice and competition that we
should consider?
24. Alternatively, should we require service providers to unlock
handsets after a period shorter or longer than 60 days? For example,
should we require all handsets to be unlocked by default upon
activation? Or, should we require all handsets to be unlocked after the
end of the handset's return period or after the first payment on the
handset has been processed? Would a standardized time period of a
certain number of days be easier to implement and enforce than non-
standardized time periods based on return periods or billing cycles?
What is the minimum amount of time service providers need to protect
themselves from handset fraud? Rather than locking handsets, are there
other ways service providers can protect themselves from handset fraud
that would allow the Commission to prohibit the locking of handsets
altogether?
25. How prevalent is handset fraud and would adopting a 60-day
handset unlocking requirement be sufficient to deter fraud? How
prevalent is handset trafficking and would adopting a 60-day handset
unlocking requirement be sufficient to deter trafficking? Commenters
that argue that handset fraud or handset trafficking is common should
provide data supporting this assertion. If a wireless service provider
determines that a handset has been fraudulently purchased, can the
service provider remotely lock the handset at issue or deactivate the
handset so it will no longer operate on the provider's network or any
other wireless network? Do the security features of smartphones sold
today include adequate protection against theft so that service
providers no longer need to lock the handset to prevent theft or
trafficking? For example, could a service provider remotely lock or
deactivate a handset if it determined that it was obtained fraudulently
or stolen? More generally, are there other ways service providers could
protect against fraud or trafficking that would not involve handset
locking? Could a criminal override any of these alternative methods of
fraud or trafficking prevention?
26. Impacts on Contractual Arrangements. As stated above, we
propose to apply this requirement prospectively, and we seek comment on
whether this approach would avoid interfering with current contractual
arrangements between service providers and consumers. What impact would
the rule have on contractual arrangements already in existence between
service providers and consumers? For handsets that have already been
activated on a wireless provider's network, should we continue to rely
on the voluntary unlocking commitments and the Government-imposed
unlocking conditions?
27. We also seek comment on the impact of a 60-day unlocking
requirement in connection with service providers' incentives to offer
discounted handsets for postpaid and prepaid service plans. Verizon,
for example, suggests that providers may rely on handset locking to
sustain their ability to offer handset subsidies and that such
subsidies may be particularly important in prepaid environments. Public
interest groups, on the other hand, argue that locked handsets tied to
prepaid plans can disadvantage low-income customers most of all since
they may not have the resources to switch service providers or purchase
new handsets. They also note that unlocked handsets ``facilitate a
robust secondary market for used devices, providing consumers with more
affordable options.'' We seek comment on these arguments. We also seek
comment on the impact of a 60-day unlocking requirement on the
incentive and ability of a provider to offer term contracts at
discounts.
28. What factors should the Commission consider in determining how
best to balance the needs of service providers to ensure that they are
reimbursed for the handsets that they have subsidized and the needs of
consumers with locked handsets to be able to take their handsets to
another mobile wireless service provider? Given that a 60-day unlocking
requirement already applies to Verizon and Verizon continues to remain
competitive in the marketplace, we anticipate that a rule requiring
unlocking after a 60-day period would maintain provider incentives to
offer handset subsidies while reducing barriers for consumers to switch
among service providers. We seek comment on this view. Do commenters
agree with arguments that such a requirement would benefit smaller
providers, new entrants, and MVNOs, by increasing the number of
handsets available on the secondary market? Would it help consumers by
providing them with more affordable handset options? Should the
Commission consider adopting a different handset unlocking rule for
prepaid and postpaid handsets?
29. Transition Period and Implementation. If we were to adopt a 60-
day unlocking requirement, we seek comment on an appropriate transition
period and on any implementation issues we should consider. Should the
unlocking requirement become effective upon publication of the order
adopting it in the Federal Register or should the Commission provide
for a longer transition period? As noted above, the unlocking process
may vary with different types of handsets. Depending on the handset, a
service provider may automatically unlock the handset, send
[[Page 64848]]
instructions to a customer on how to unlock a handset upon request, or
complete the unlocking process in-store. Given these differences, would
a longer transition period be warranted? If so, what transition period
should we adopt? Are there reasons why we should allow a longer
transition period for non-nationwide service providers, such as small
and rural service providers, as compared to nationwide service
providers? What are the percentages of handsets that are currently
locked and unlocked to wireless networks? Should we require automatic
unlocking for those handsets that can be unlocked automatically?
30. Should we also require that mobile wireless service providers
transition to provide for automatic unlocking of all new handsets that
they offer? The Commission adopted such a requirement as part of the
handset unlocking conditions imposed in the Verizon/TracFone and the T-
Mobile-Mint Mobile/Ultra Mobile transactions. In those cases, Verizon
and T-Mobile, respectively, were required to commit to ensuring that
all new handsets activated on their network would be capable of
automatic unlocking after a two-year period. If we adopt a handset
unlocking requirement generally for all mobile wireless service
providers, should we also require them to ensure that, after a two-year
period, all new handsets activated on their networks will be capable of
automatic unlocking? If so, would automatic unlocking be accomplished
through a software push to a handset or is there another way to
accomplish automatic unlocking? We seek comment on whether there are
any technical or other implementation issues associated with such an
approach and whether these implementation issues might be different for
small or rural service providers.
31. Further, we seek comment on how customers should be informed
about a service provider's unlocking policies and whether we should
require service providers to notify their customers when their handset
locking period has ended or when their handsets have been automatically
unlocked. Along these lines, should we require service providers to
post on their websites their unlocking policies? Should we also adopt a
requirement that the unlocking policy be expressed using clear and easy
to understand language? In addition to requiring service providers to
post their unlocking policies on their websites, should we require
service providers to post their unlocking policies in their stores and
that store employees be available to explain the service provider's
unlocking policies to customers at the time they purchase handsets? How
do we ensure that service providers fully disclose to their customers
their unlocking policies at the time a customer purchases a handset?
Further, should we require service providers to notify their customers
when their handsets are ready to be unlocked or that their handsets
have been automatically unlocked? For instance, should we require
service providers to send a text message to a customer's handset when
the locking period for the handset has expired or when the customer's
handset has been automatically unlocked? Should we also require that
the service provider contact the customer by email or by a letter sent
to the customer's billing address? How do we ensure that service
providers fully disclose their unlocking policies to their customers
and that customers are aware that the locking period for their handsets
has ended or that their handsets have been automatically unlocked?
32. Legal Authority. We propose to rely on our legal authority
under title III of the 1934 Communications Act, as amended (the Act) to
protect the public interest through spectrum licensing and regulations
to require mobile wireless service providers to provide handset
unlocking. The Commission relied previously on its title III authority
in prohibiting 700 MHz C Block licensees from locking handsets as part
of a broader set of open platform requirements that were intended to
foster consumer choice and the development of innovative handsets and
applications. In doing so, the Commission noted that its authority
under title III allowed it to establish license conditions and
operational obligations, if the condition or obligation will further
the goals of the Communications Act without contradicting any basic
parameters of the agency's authority.
33. We tentatively conclude that title III also would permit the
Commission to more broadly require unlocking of handsets for all mobile
wireless service providers. For example, section 303(b) directs the
Commission, as required by the public interest, to ``[p]rescribe the
nature of the service to be rendered by each class of licensed stations
and each station within any class.'' Section 303(g) authorizes the
Commission to ``generally encourage the larger and more effective use
of radio in the public interest.'' Section 303(r) provides the
Commission authority to ``make such rules and regulations and prescribe
such restrictions and conditions, not inconsistent with law, as may be
necessary to carry out the provisions of [the Act].'' In addition,
section 316 authorizes the Commission to adopt new conditions on
existing licenses if it determines that such action ``will promote the
public interest, convenience, and necessity.''
34. We propose to rely on this authority to require mobile wireless
service providers to unlock handsets. Our proposal to require unlocking
of handsets would prescribe the nature of service that a mobile
wireless service provider must offer when providing mobile wireless
services. By giving consumers greater freedom to switch between mobile
wireless service providers, the proposed requirement would serve the
public interest and help the Commission meet its responsibility to
ensure the availability of communications services. We tentatively
conclude that such requirements would also be supported by section
332(c)(1) and provisions of title II, which require common carriers'
practices to be ``just and reasonable,'' and prohibit and authorize the
Commission to ``prescribe rules and regulations as may be necessary in
the public interest to carry out the provisions of [the Act.]'' We seek
comment on this analysis and on other sources of authority for handset
unlocking requirements.
35. Promoting Digital Equity and Inclusion. The Commission, as part
of its continuing effort to advance digital equity for all, including
people of color, persons with disabilities, persons who live in rural
or Tribal areas, and others who are or have been historically
underserved, marginalized, or adversely affected by persistent poverty
or inequality, invites comment on any equity-related considerations,
and invites comment on any benefits (if any) that may be associated
with the issues discussed herein. Specifically, we seek comment on how
the potential approaches discussed herein may promote or inhibit
advances in diversity, equity, inclusion, and accessibility, as well as
the scope of the Commission's relevant legal authority.
IV. Initial Regulatory Flexibility Analysis
36. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), the Federal Communications Commission (Commission) has
prepared the Initial Regulatory Flexibility Analysis (IRFA) of the
possible significant economic impact on a substantial number of small
entities by the policies proposed in the Notice of Proposed Rulemaking
(NPRM). The Commission requests written public comments on the IRFA.
Comments must
[[Page 64849]]
be identified as responses to the IRFA and must be filed by the
deadlines for comments provided in the DATES section of this document.
The Commission will send a copy of the NPRM, including the IRFA, to the
Chief Counsel for Advocacy of the Small Business Administration (SBA).
In addition, the NPRM and IRFA (or summaries thereof) will be published
in the Federal Register.
A. Need for, and Objectives of, the Proposed Rules
37. In the NPRM, the Commission explores the use of handset
unlocking policies as a means to improve consumer choice and
flexibility and to enhance competition across the mobile wireless
marketplace. Over the past two decades, the Commission adopted handset
unlocking requirements for particular providers in specific
circumstances, finding that doing so will serve the public interest. In
the NPRM, the Commission tentatively concludes that adopting a broadly-
applicable set of handset unlocking requirements for all mobile
wireless service providers would better serve the public interest and
the Commission seeks comment on which specific requirements would best
facilitate competition and consumer choice. In addition, the Commission
specifically seeks comment on whether a 60-day unlocking rule would
benefit small mobile wireless service providers because consumers could
switch service providers without having to purchase a new handset.
B. Legal Basis
38. The proposed action is authorized pursuant to sections 1, 4(i),
4(j), 303, and 316 of the Communications Act of 1934, as amended; 47
U.S.C. 151, 154(i), 154(j),303, and 316.
C. Description and Estimate of the Number of Small Entities to Which
the Rules Will Apply
39. The RFA directs agencies to provide a description of and, where
feasible, an estimate of the number of small entities that may be
affected by the rules adopted herein. The RFA generally defines the
term ``small entity'' as having the same meaning as the terms ``small
business,'' ``small organization,'' and ``small governmental
jurisdiction.'' In addition, the term ``small business'' has the same
meaning as the term ``small-business concern'' under the Small Business
Act. A ``small-business concern'' is one which: (1) is independently
owned and operated; (2) is not dominant in its field of operation; and
(3) satisfies any additional criteria established by the SBA.
40. Small Businesses, Small Organizations, Small Governmental
Jurisdictions. Our actions, over time, may affect small entities that
are not easily categorized at present. We therefore describe, at the
outset, three broad groups of small entities that could be directly
affected herein. First, while there are industry specific size
standards for small businesses that are used in the regulatory
flexibility analysis, according to data from the Small Business
Administration's (SBA) Office of Advocacy, in general a small business
is an independent business having fewer than 500 employees. These types
of small businesses represent 99.9% of all businesses in the United
States, which translates to 33.2 million businesses.
41. Next, the type of small entity described as a ``small
organization'' is generally ``any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field.''
The Internal Revenue Service (IRS) uses a revenue benchmark of $50,000
or less to delineate its annual electronic filing requirements for
small exempt organizations. Nationwide, for tax year 2020, there were
approximately 447,689 small exempt organizations in the U.S. reporting
revenues of $50,000 or less according to the registration and tax data
for exempt organizations available from the IRS.
42. Finally, the small entity described as a ``small governmental
jurisdiction'' is defined generally as ``governments of cities,
counties, towns, townships, villages, school districts, or special
districts, with a population of less than fifty thousand.'' U.S. Census
Bureau data from the 2017 Census of Governments indicate there were
90,075 local governmental jurisdictions consisting of general purpose
governments and special purpose governments in the United States. Of
this number, there were 36,931 general purpose governments (county,
municipal, and town or township) with populations of less than 50,000
and 12,040 special purpose governments--independent school districts
with enrollment populations of less than 50,000. Accordingly, based on
the 2017 U.S. Census of Governments data, we estimate that at least
48,971 entities fall into the category of ``small governmental
jurisdictions.''
43. Wireless Telecommunications Carriers (except Satellite). This
industry comprises establishments engaged in operating and maintaining
switching and transmission facilities to provide communications via the
airwaves. Establishments in this industry have spectrum licenses and
provide services using that spectrum, such as cellular services, paging
services, wireless internet access, and wireless video services. The
SBA size standard for this industry classifies a business as small if
it has 1,500 or fewer employees. U.S. Census Bureau data for 2017 show
that there were 2,893 firms in this industry that operated for the
entire year. Of that number, 2,837 firms employed fewer than 250
employees. Additionally, based on Commission data in the 2022 Universal
Service Monitoring Report, as of December 31, 2021, there were 594
providers that reported they were engaged in the provision of wireless
services. Of these providers, the Commission estimates that 511
providers have 1,500 or fewer employees. Consequently, using the SBA's
small business size standard, most of these providers can be considered
small entities.
44. Satellite Telecommunications. This industry comprises firms
``primarily engaged in providing telecommunications services to other
establishments in the telecommunications and broadcasting industries by
forwarding and receiving communications signals via a system of
satellites or reselling satellite telecommunications.'' Satellite
telecommunications service providers include satellite and earth
station operators. The SBA small business size standard for this
industry classifies a business with $38.5 million or less in annual
receipts as small. U.S. Census Bureau data for 2017 show that 275 firms
in this industry operated for the entire year. Of this number, 242
firms had revenue of less than $25 million. Additionally, based on
Commission data in the 2022 Universal Service Monitoring Report, as of
December 31, 2021, there were 65 providers that reported they were
engaged in the provision of satellite telecommunications services. Of
these providers, the Commission estimates that approximately 42
providers have 1,500 or fewer employees. Consequently, using the SBA's
small business size standard, a little more than half of these
providers can be considered small entities.
45. Local Resellers. Neither the Commission nor the SBA have
developed a small business size standard specifically for Local
Resellers. Telecommunications Resellers is the closest industry with an
SBA small business size standard. The Telecommunications Resellers
industry comprises establishments engaged in purchasing access and
network capacity from owners and operators of telecommunications
networks and
[[Page 64850]]
reselling wired and wireless telecommunications services (except
satellite) to businesses and households. Establishments in this
industry resell telecommunications; they do not operate transmission
facilities and infrastructure. Mobile virtual network operators (MVNOs)
are included in this industry. The SBA small business size standard for
Telecommunications Resellers classifies a business as small if it has
1,500 or fewer employees. U.S. Census Bureau data for 2017 show that
1,386 firms in this industry provided resale services for the entire
year. Of that number, 1,375 firms operated with fewer than 250
employees. Additionally, based on Commission data in the 2022 Universal
Service Monitoring Report, as of December 31, 2021, there were 207
providers that reported they were engaged in the provision of local
resale services. Of these providers, the Commission estimates that 202
providers have 1,500 or fewer employees. Consequently, using the SBA's
small business size standard, most of these providers can be considered
small entities.
46. Toll Resellers. Neither the Commission nor the SBA have
developed a small business size standard specifically for Toll
Resellers. Telecommunications Resellers is the closest industry with an
SBA small business size standard. The Telecommunications Resellers
industry comprises establishments engaged in purchasing access and
network capacity from owners and operators of telecommunications
networks and reselling wired and wireless telecommunications services
(except satellite) to businesses and households. Establishments in this
industry resell telecommunications; they do not operate transmission
facilities and infrastructure. MVNOs are included in this industry. The
SBA small business size standard for Telecommunications Resellers
classifies a business as small if it has 1,500 or fewer employees. U.S.
Census Bureau data for 2017 show that 1,386 firms in this industry
provided resale services for the entire year. Of that number, 1,375
firms operated with fewer than 250 employees. Additionally, based on
Commission data in the 2022 Universal Service Monitoring Report, as of
December 31, 2021, there were 457 providers that reported they were
engaged in the provision of toll services. Of these providers, the
Commission estimates that 438 providers have 1,500 or fewer employees.
Consequently, using the SBA's small business size standard, most of
these providers can be considered small entities.
47. All Other Telecommunications. This industry is comprised of
establishments primarily engaged in providing specialized
telecommunications services, such as satellite tracking, communications
telemetry, and radar station operation. This industry also includes
establishments primarily engaged in providing satellite terminal
stations and associated facilities connected with one or more
terrestrial systems and capable of transmitting telecommunications to,
and receiving telecommunications from, satellite systems. Providers of
internet services (e.g., dial-up ISPs) or Voice over internet Protocol
(VoIP) services, via client-supplied telecommunications connections are
also included in this industry. The SBA small business size standard
for this industry classifies firms with annual receipts of $35 million
or less as small. U.S. Census Bureau data for 2017 show that there were
1,079 firms in this industry that operated for the entire year. Of
those firms, 1,039 had revenue of less than $25 million. Based on this
data, the Commission estimates that the majority of ``All Other
Telecommunications'' firms can be considered small.
D. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements for Small Entities
48. The NPRM explores the use of handset unlocking policies as a
means to improve consumer choice and flexibility and to enhance
competition across the mobile wireless marketplace. The NPRM
tentatively concludes that adopting a broadly-applicable set of handset
unlocking requirements for all mobile wireless service providers would
serve the public interest and seeks comment on which specific
requirements would best facilitate competition and consumer choice. The
NPRM proposes to require all mobile wireless service providers to
unlock handsets 60 days after a consumer's handset is activated with
the provider. If the Commission were to require all service providers
to unlock handsets after a set period of time, the NPRM seeks comment
on an appropriate transition period and on any implementation issues
the Commission should consider. This includes asking whether the
Commission should allow a longer transition period for non-nationwide
service providers, such as small and rural service providers, as
compared to nationwide service providers.
49. If the Commission ultimately decides to adopt its proposed
approach, this could potentially result in additional costs, new or
modified recordkeeping, reporting, or other compliance requirements for
small and other providers. For example, new handset unlocking rules may
require wireless service providers to unlock handsets 60 days after a
consumer initiates service with the provider. New handset unlocking
rules may also require that mobile wireless service providers provide
automatic unlocking for those handsets that can be unlocked
automatically and that they transition to being able to automatically
unlock all handsets that they offer for sale to consumers. The NPRM
seeks comment on the impact of the proposed rule on non-nationwide
service providers, such as small and rural service providers, if the
Commission adopts a generally applicable handset unlocking rule.
50. At present, the record does not include a detailed cost/benefit
analysis that would allow us to quantify the costs of compliance for
small entities, including whether it will be necessary for small
entities to hire professionals to comply with any rules that may be
adopted. Small and other entities are encouraged to quantify the costs
and benefits of any reporting, recordkeeping, or compliance requirement
that may be established in this proceeding. The Commission expects the
comments it receives on its proposals, and the matters discussed in the
NPRM to include information addressing costs, benefits, and other
matters of concern for small entities, which should help the Commission
identify and better evaluate compliance costs and relevant issues for
small entities before adopting final rules.
E. Steps Taken To Minimize the Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
51. The RFA requires an agency to provide, ``a description of the
steps the agency has taken to minimize the significant economic impact
on small entities . . . including a statement of the factual, policy,
and legal reasons for selecting the alternative adopted in the final
rule and why each one of the other significant alternatives to the rule
considered by the agency which affect the impact on small entities was
rejected.''
52. The NPRM seeks comment on implementing a broadly applicable
handset unlocking requirement across the mobile wireless industry and
proposes to require all mobile wireless service providers to unlock
handsets 60 days after a consumer's handset is activated with the
provider. The NPRM
[[Page 64851]]
seeks comment on the economic impact or other burdens of such an
approach, particularly for small and rural wireless service providers.
The NPRM asks whether such a general unlocking requirement would affect
small and rural wireless service providers and wireless resellers
differently as compared to national service providers and, if so, how.
If the Commission were to require all service providers to unlock
handsets after a set period of time, the NPRM seeks comment on an
appropriate transition period and on any implementation issues the
Commission should consider, especially with regard to small and rural
service providers.
53. The Commission expects to consider more fully the economic
impact on small entities following its review of comments filed in
response to the NPRM, including costs and benefits information.
Alternative proposals and approaches from commenters could help the
Commission further minimize the economic impact on small entities. The
Commission's evaluation of the comments filed in this proceeding will
shape the final conclusions it reaches, the final alternatives it
considers, and the actions it ultimately takes to minimize any
significant economic impact that may occur on small entities from the
final rules.
F. Federal Rules That May Duplicate, Overlap, or Conflict With Proposed
Rules
54. None.
V. Ordering Clauses
55. Accordingly, it is ordered that, pursuant to the authority
contained in sections 1, 4(i), 4(j), 303(b),(g),(r), and 316(a),of the
Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 154(j),
303(b),(g),(r), 316(a), the Notice of Proposed Rulemaking is adopted.
56. It is further ordered that, pursuant to applicable procedures
set forth in Sec. Sec. 1.415 and 1.419 of the Commission's rules, 47
CFR 1.415, 1.419, interested parties may file comments on the Notice of
Proposed Rulemaking on or before 30 days after publication in the
Federal Register, and reply comments on or before 45 days after
publication in the Federal Register.
57. It is further ordered that the Commission's Office of the
Secretary shall send a copy of the Notice of Proposed Rulemaking,
including the Initial Regulatory Flexibility Analysis, to the Chief
Counsel for Advocacy of the Small Business Administration.
Federal Communications Commission.
Marlene Dortch,
Secretary.
[FR Doc. 2024-16642 Filed 8-7-24; 8:45 am]
BILLING CODE 6712-01-P