US networks face lawsuit over locked mobile phones

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2004-11-Jan

Local number portability (LNP) regulations went into effect in the US December 2003 , in a move that's widely expected to inject more competition into the cell phone industry.

But consumer advocates say that carriers should be forced to find ways to guarantee interoperability of locked phones between networks.

The issue has already won the attention of class-action attorneys, with at least one federal antitrust lawsuit awaiting trial in the U.S. District Court for the Southern District of New York. The complaint accuses the top five U.S. cell phone providers of illegally tying their services to the sale of new phones.
 

The defendants deny the charges and say they plan a vigorous defense.
 

In court papers, they argue that handset makers and cell phone carriers have illegally limited competition among themselves by choosing phones from a short list of manufacturers. That's helped shrink the handset equipment market from dozens of major players a decade ago to the 10 that currently sell most of the world's handsets.
 

That argument resonated with the judge in the case, who in August allowed the lawsuit to proceed to trial. "The fact that new handsets must be marketed through, and are programmed and locked by, the wireless service carrier presents an absolute barrier to entry into the handset market," Judge Denise Cote wrote.
 

If successful, the suit could force the cell phone industry to revisit its ubiquitous equipment discounts; carriers currently knock about $200 off the price of a $300 phone, said Michael Kende, principal consultant with Analysys.
 

Carriers first began to install locks in the early 1990s to stop resellers from taking advantage of their subsidies. A few Asian exporters took advantage by buying huge quantities of cheaper phones, then selling them overseas for a profit, according to industry sources.
 

Now "nearly every manufacturer ships phones locked right on the factory floor," said Keith Nowak, a spokesman for Nokia, the world's largest handset maker.
 

That can be a pain for cell phone customers when it comes time to change carriers.
 

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