Bill May Require U.S. Carriers To Drop 2-Year Contracts When Customers Pay Full Price

The U.S. House of Representatives is holding a hearing Wednesday on legislation that would require carriers to offer wireless service without contracts when devices are not subsidized.. The Wireless Consumer Protection bill is sponsored by Rep. Edward J. Markey (D-MA), chairman of the House Subcommittee on Telecommunications and the Internet.

The bill immediately brings to mind the iPhone because AT&T (NYSE: T) requires customers to sign a two-year contract even though the popular $400 device is not subsidised by the carrier. Carriers typically insist on contracts because they discount many of the devices they sell to customers. CNET News.com also notes the legislation mirrors a legal squabble in Europe when T-Mobile was forced to sell an unlocked version of the iPhone for $1,460 in Germany. In the end, T-Mobile eventually persuaded a German court that the two-year contract was legal.

The bill would require wireless carriers to offer consumers the ability to purchase subsidy-free wireless equipment without a long-term service plan at a price no higher than comparable plans offered with subsidized equipment. The bill would also require carriers to prorate early termination fees to ensure that the carrier recovers the cost of the subsidy, but no more. The bill said legislation is necessary "as wireless service is increasingly used and relied upon by residential and business consumers."

Without saying it, the bill would partially create an open access network. Customers would be able to purchase a device from one carrier at full price and take it to another—at least when the device is compatible. Google (NSDQ: GOOG) lobbied hard for such requirements in the current spectrum auction, and even Verizon Wireless (NYSE: VZ) has come out in support of the concept, saying it plans to open up its network this year.