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How far should Congress go in stopping prepaid phone traffickers?

One prevalent issue among prepaid cellular providers is of traffickers. We’ve discussed this at length on Prepaid Reviews, but for a two-sentence re-hash: Many prepaid providers subsidize boxed handsets, like the ones you’d find at Wal-Mart, so more customers can buy the phones. The companies hope to make the money back when the customer purchases minutes, but that plan is thwarted by traffickers who purchase subsidized handsets in bulk, unlock them, and then sell them at a market rate. Prepaid companies lose big, and so they’ve helped propose the Wireless Prepaid Access Enforcement Act of 2009. There’s a lot to it, and Jennifer Granick of Electronic Frontier Foundation has the analysis.

The legislation appears to extend beyond mass traffickers. In other words, while one clause of the legislation would make expressly illegal the purchase of prepaid handsets with the intent to resell or redistribute, another would likely bar any kind of unlocking. Per the bill, it would be illegal for someone who

knowingly purchases and/or handles one or more wireless prepaid access devices for the purpose of, or as part of a scheme involving, modifying, removing, avoiding or overwriting installed software which is designed to cause any such device to operate as a wireless prepaid access device on the wireless network or networks for which such device was sold, unless such purchase or handling is authorized by the wireless service provider or device manufacturer

That describes the process of unlocking. I understand why carriers would want this. While they’re not losing tons of money like they are on mass unlockers, they’re still losing money when someone buys a single handset and then unlocks the phone. For instance, someone can purchase a Virgin Mobile phone from Target for far less than retail value. Virgin expects the customer to make up for the phone subsidy by purchasing minutes, but the customer can instantly go flash the phone to MetroPCS. Virgin is then out the difference between the purchase price and the cost of the phone.

Because the bill would make the act of unlocking a prepaid phone expressly illegal, that would foist the investigation and prosecution costs on government entities (police, FBI, Justice Department). That means a heavier burden on taxpayers. That burden will no longer fall on the shoulders of the prepaid companies. That does seem like one of the less fair aspects of this bill. If companies want to protect their interests, it should be on their dime, not on the taxpayers’.

It would seem that this bill, then would doubly burden American citizens. It would not only prohibit them from unlocking handsets if they are unhappy with a provider’s service, but it would also move the costs of prosecuting these newly defined crimes from the companies to the taxpayers. There might be balance somewhere in this issue, but it appears that it will not be found in the current legislative proposal.