[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

[[Page 64844]]

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

[[Page 64845]]

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.

[[Page 64846]]

    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

[[Page 64847]]

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