What Ofcom’s New Regulation Means For The Telecoms Industry
On Wednesday Ofcom – the UK Telecoms regulator- announce the not-unexpected outcome of their review into “locked” handsets. In a nutshell, they have banned the practice. This is positioned as a benefit for consumers – freeing them from the restrictive practices of an industry that might otherwise limit their choice. At first glance, it certainly seems Ofcom’s new regulation to be of great benefit to the consumer, but looking closer is it really?
Network locked phones
In the UK and elsewhere, the mobile operators are some of the largest sellers of mobile phones. To encourage new contracts, they would bundle a phone financing solution with network access – and the customer would pay a monthly fee, both to pay for their calls and data, and to pay for the phone in instalments. In theory at least, if the customer failed to pay their bill, the phone would be unusable on the operator’s network (because they controlled access), or any other network (because the phone would not connect).
In the early days of mobile phones this system worked very well, and buying a new phone linked to a contract became very commonplace. As “flagship” phones grew exponentially in price, the desire to encourage upgrades, and the need to finance handsets in order to enable this also grew – and around half of the UK operators continue to use network locking as a means to de-risk this endeavour.
Why only half – well network locking has lost some of its shine.
The case against network locking
Network locking has become ineffective as a sanction for many classes of consumer. For many of us it is extremely unusual to make or receive a phone call as opposed to a WhatsApp, Email or Zoom. Internet-centric apps are perfectly happy with wifi, and the sanction of disabling mobile network access has lost much of its bite. Given it is an expensive system for mobile operators and OEMs to maintain, there is an argument it just isn’t worth the fight.
To make matters worse, there are tens of thousands of ‘markets stalls’ offering to unlock a phone for a fee. Whilst there are legitimate reasons to unlock a phone – there are also more obvious illegitimate ones – and 3rd party unlock has always been on the shady side of the industry. Increasingly, consumers risk cybersecurity and privacy invasions by handing over their phones to be unlocked by unscrupulous parties. Maintaining the desire for phone unlock is only perpetuating this situation.
Finally, the biggest argument against network locking is that consumers hate it. To change network provider, a consumer must jump through hoops – call a helpdesk, listen to music, pay a fee. This is friction and inconvenience that discourages consumers to switch to more competitive networks – and goes against the sort of market dynamics Ofcom want to encourage. Given the industry has failed to address this problem, Ofcom was bound to act.
So at face value, removal of network lock has little negative impact for consumers. It removes friction preventing consumers choosing the best network, with only the minor downside of removing an increasingly ineffective tool from the network operator’s arsenal. For the most part this is good news. It does not, however, address that fact that a flagship phone will still cost £1000 or more – and that network operators are the biggest phone shops in the UK. Without the (admittedly limited) protection offered to the network operator by network lock – will operators still be able to offer the latest flagship phone for “£50 a month”?
The mobile industry remains a major finance provider in the UK and elsewhere. A huge percentage of phones are sold on a financed basis – and a significant number of would be phone buyers are refused credit for those phones globally. Mobile operators – and other phone vendors – still need to control their risk. The Ofcom ruling does not change that need, but other than in one very narrow mechanism, does not prevent them from managing that risk.
How to successfully finance phones.
The simple kneejerk reaction to this change is to only finance phones to those seen as a low credit risk. That certainly is not good for the economy as a whole – or for the majority of consumers.
A more nuanced approach is to find other, better ways of preventing abuse of the handset contract. Linking the handset to network access is a natural inclination for network operators, but they can be viewed as two separate, simultaneous transactions. Whilst network lock is now off the table, there are other approaches, such as disabling devices on non-payment of a handset payment due, remain entirely legitimate, and technically more effective, and can give a much more compelling experience for the consumer.
As a security company with a background in building reliable network lock, we have mixed feelings. Network lock, in its usual form, is bureaucratic and ineffective. Few will mourn its loss. Elsewhere in the world we continue to deploy secure network lock solutions that provide simple app-based unlocking for legitimate purposes and security that protects devices against bulk theft by organized crime, not just individual market traders. Network lock still has its place – but after this ruling, not in the UK.
The opportunity faced by network operators, and other parties, wishing to finance phones, is that there are many customers wanting to do so. The challenge is that there is one less tool to manage the risk inherent in any financing arrangement. This ruling is not a surprise, and Trustonic, and others in the industry, are prepared. We have better solutions to this problem.
Trustonic gives operators device financing flexibility and adaptability, by enabling them to exercise “granular levels of control” to “nudge people back to payment”. Trustonic’s mobile device locking SaaS allows mobile operators to send payment reminder messages as well as provide tools to restrict aspects of device functionality. This could be turning off all data – wifi and cellular, while keeping voice and SMS services for example. Once the customer pays their bill, the device restrictions are lifted. In other words, Trustonic helps mobile operators back to revenue growth, by giving them the tools to say “yes” more, without incurring additional commercial risk.
Get in touch if you want to know more.