Cellphone breakout

A man speaks on a cellphone in front of a display at the 2007 3GSM exposition in Barcelona, Spain. Carriers often subsidize the cost of a handset to entice people to buy a long-term service plan, and they "lock" the phone to make sure the customer can't easily switch to a competing carrier or use it on another company's network. (Manu Fernandez/Associated Press)

"We unlock GSM phones."

Written in red capital letters, the sign is displayed prominently on the front windows of many cellphone stores near the Eaton Centre. The service costs $10 and up, depending on your phone, and one store owner says he can unlock BlackBerrys for $100 to $150.

The stores also offer unlocked GSM phones, selling them alongside locked cellphones tied to a specific carrier's service plan. On the back wall display of Electrotime Inc., for example, unlocked cellphone choices range from the BlackBerry 8800 to Motorola's KRZR and RIZR handsets, at prices from $300 to $500.

Unlocked cellphones are simply handsets that aren't handcuffed to a specific carrier's service package, explains Electrotime Inc. owner Alnoor Gangani. Carriers often subsidize the cost of a handset to entice people to buy a long-term service plan, and they "lock" the phone to make sure the customer can't easily switch to a competing carrier or use it on another company's network. But people are finding that unlocking their phones can have a lot of benefits, and it's becoming a lucrative, though controversial, business.

Unlocking a phone: How it works

A cellphone handset is like a body without a brain. It can't make calls unless it has a thumbnail-sized chip called a SIM card installed. The SIM card identifies an individual phone on a cellular network so that calls can be routed to it as the handset is carried from place to place, so the owner's account can be billed for air time and long-distance fees, and so on.

When a phone is bought on a service plan, the SIM card in that phone is linked to the subscriber's ID information for billing. Most carriers lock the phone by programming its software so that it will only work with the SIM card they provide — try to swap with a card from another carrier because it has a cheaper service plan, for example, and the phone won't recognize it.

An unlocked cellphone is one that will recognize any SIM card. So if you're travelling in Europe and don't want to incur roaming charges or have every local call billed as long distance by your regular North American cellphone carrier, you can buy a local European carrier's card during your stay and pop it into your regular phone.

One caveat: there are two main cellphone networks, and they aren't compatible with one another. One is based on the CDMA standard, which is popular in North America and parts of Asia, and used by Bell and Telus in Canada. The other is GSM, which is used by Rogers in Canada and is the most common cellphone standard outside North America, used by more than 2 billion subscribers in most countries around the world.

An unlocked phone will work on a compatible network — CDMA phones on CDMA networks and GSM handsets on GSM networks. But many CDMA phones have the SIM card built in, and have to be reprogrammed directly to make the phone work on another carrier's network. Most GSM handsets, on the other hand, have a slot that allows a SIM card to be swapped easily by the user.

As a result, unlocked cellphones available in Canada are predominantly GSM models.

Hot market

And who's interested in an unlocked phone?

"They're popular with everyone," Electrotime's Gangani said. "There's the youth market, who want the latest and greatest. There are business people — blue collar, white collar — who travel a lot. Just insert the local SIM card into an unlocked phone, wherever you are, and the phone works. Tourists also buy unlocked phones."

Industry folk such as Gangani talk of unlocked cellphones as a hot market. But the conservative Canadian cellular industry, monopolized by giants Telus, Bell and Rogers, does not advertise unlocked phones.

Quote

'Just insert the local SIM card into an unlocked phone, wherever you are, and the phone works.' — Alnoor Gangani, Electrotime

One reason is the confusion around the legality of unlocking cellphones. Some companies worry they could be challenged in court for unlocking a phone provided by a competitor in order to add a new subscriber to their own network.

"In our world, we don't honour unlocked handsets," said Chris Langdon, Telus vice-president of Network Services. "Unlocking a cellphone is copyright infringement. When you buy a handset from a carrier, it has programming on the phone. It's a copyright of the manufacturer."

Others don't want the hassle of customers asking for support on a phone model unfamiliar to the service provider's technical staff, who are usually only trained to troubleshoot problems with the small group of handsets specifically approved by the carrier.

But one of the biggest reasons, critics say, comes down to money. Canada has seen a phenomenal growth in its cellphone-using population, said Mark Choma, director of communications for the Canadian Wireless Telecommunications Association (CWTA). Canadian wireless phone subscribers numbered 18.5 million at the end of 2006, representing a national wireless penetration rate of approximately 58 per cent, according to the CWTA.

"Canadians really do love their wireless phones," Choma said. "We're the second-highest users of voice minutes in the world, averaging 400 minutes a month. We send more than 18 million text messages a day."

Cellphone carriers don't want to make it easy for customers to switch providers because the cost of acquiring a new cellphone user — in terms of advertising, marketing incentives, handset subsidies and so on — is greater than what they make on the first 12 to 18 months of service, says Joseph D'Cruz, professor of strategic management at University of Toronto's Rotman School of Management.

"Churn numbers [percentage of customers who leave a service] have always been a problem for the cellular market," he said. "Other vendors try and steal customers. Or the customer may try to give one service up for another."

Growing number of sources

But that doesn't mean there aren't customers willing to do a bit of legwork to unlock their phones and save some money. Others want to be able to use the latest and greatest unlocked phone models instead of choosing from the more limited selection of handsets offered by their local carriers.

More and more entrepreneurs are catering to this market. Typically, the unlocked phones available through independent dealers or online sellers have been unlocked using special software.

"Any phone that can be locked can also be unlocked," says Kevin Restivo, senior analyst with technology research and strategy consulting company SeaBoard Group. "All it takes is a matter of knowledge and tools. The more popular the phone, the easier it is to unlock.

"The selection of handsets in Canada pales in comparison to Europe or Asia. There you can get super-cool handsets, WiFi-enabled, with all the bells and whistles. You also have the option of bringing back a phone you purchased there and getting it unlocked here."

Some manufacturers will sell unlocked handsets directly. Palm Canada, for instance, sells the unlocked Palm Treo 680 through its website for $499. Nokia Canada offers the Nokia 7280 and L'Amour Collection — Nokia 7370 and 7380 — through Holt Renfrew.

The unlocked Palm Treo 680 is aimed at the frequent-flier business set, but locked handsets are still the company's biggest market, says Michael Moskowitz, vice-president Americas International for Palm.

Quote

'The beauty of GSM is that you can roam internationally without the roaming charges.' — Michael Moskowitz, Palm

"To be perfectly honest, most of our sales are directly to carriers," he said. "But the beauty of GSM is that you can roam internationally without the roaming charges. We basically provide our customers with a choice."

To lock or to unlock

While unlocked phones offer consumers some advantages, there are also some drawbacks. For many consumers, receiving heavily subsidized or even free handsets in return for signing on to a two- or three-year contract is an attractive offer.

And locked handsets are also optimized for a carrier's network, said Telus's Landong. "Services and handsets are tightly integrated into the carrier's network, and we need the handsets to talk to the network in a specific way in order to send a two-way text message, for example, or access the internet or download music," he said. "If you change these parameters [by unlocking a phone], the services won't work, and it could even damage the handset."

Langdon added that there are also compatibility concerns when consumers buy handsets overseas and try to use them on Canadian networks. "You can have common scenarios where you get a cellphone that was designed in Asia, it gets unlocked, it comes here and it can have a negative impact on the network. For example, it may not hang up properly."

Indeed, unlocked phones may leave consumers stranded. Accessing voice services should generally not pose any problems, experts say, but an unlocked device needs to be configured to use data-transfer services such as accessing the internet and multimedia messaging.

'Civil disobedience movement'

That doesn't mean getting these services to work on an unlocked phone in Canada isn't possible. It takes a little sweet-talking and persistence, but many carriers will provide customer service for unlocked cellphones, said Jesse Hirsh, president of technology consulting firm Openflows.

For Hirsh, buying unlocked cellphones is comparable to starting a civil disobedience movement against the telecommunications industry. With the oligopoly of Telus, Bell and Rogers controlling the market, Canadians shell out twice as much as their American counterparts for the same service, he pointed out. The lack of competition also causes innovation to stagnate, and is one of the reasons that the Canadian cellular industry is light-years behind Europe and Asia in terms of offering new types of services.

"The whole logic of Bell or Rogers is for you to buy in bundles," Hirsh said. "The way the industry is set up here, the culture is to buy your device from a carrier. That's like buying from Leon's "don't pay a cent event" — except it's a loan and you end up paying interest."

"If you go to Asia or Europe, there's a stronger culture to buy unlocked phones," he added. "So you're less dependent on carriers. It's in the consumer's interest to have more competition, to de-link the manufacturer from the service."

The unlocked cellphones market is big, even if it's a grey market that carriers and manufacturers don't necessarily authorize, he added.

"Obviously [carriers] will say it's copyright infringement, because it benefits their interest," Hirsh said. But "this is the age of the internet, where we the consumer define the policy. We should have the freedom of choosing whatever device we want."