MagicJack Home Cellular Service Could Spark Legal Battle

MagicJack's femtocell service, unveiled with a splash last week at the Consumer Electronics Show, could potentially ignite a legal battle over the way it makes use of radio frequencies licensed to mobile operators.

The service, set to debut in the second quarter, lets users make and receive calls inside their homes using their regular cell phones for US$20 a year. It works by sending calls from a user's GSM (Global System for Mobile Communications) phone to a femtocell connected to their computer. From there, the call is carried as VoIP (voice over Internet protocol).

The catch is that between the mobile phone and the femtocell, the call uses cellular frequencies licensed to either AT&T or T-Mobile. MagicJack says it doesn't need permission from the operators to use those frequencies within the home.

"In your home, you own the frequency," said MagicJack founder Dan Borislow. The MagicJack femtocell is not powerful enough to work outside a 3,000-square-foot home, according to the company. In addition, the software that comes with the femtocell will let users set the power level themselves to cover the appropriate area, with a default of about 500 square feet, Borislow said.

Kevin Werbach, assistant professor of legal studies and business ethics at the University of Pennsylvania's Wharton School, called this a clever argument. "It would arguably be an unreasonable search and seizure under the 4th Amendment to shut down such a transmitter," he said.

Technically, the U.S. Federal Communications Commission doesn't give property rights to cellular operators, instead giving them license to transmit and protection against interference, he said. "Here, the only interference is arguably with the end user who purchases the MagicJack device (and therefore has no objection). I'm not sure this will fly, but I assume it's the argument they will make," he said via e-mail.

Werbach, who served as counsel for new technology policy at the FCC under the Clinton administration and co-led a review of the FCC for President Obama, isn't aware of this argument being tested in the past.

FCC spokesman Bruce Romano said it would be difficult to comment on the legality of the service since he couldn't find any application for the device on file with the agency. Borislow said the MagicJack femtocell has not yet been submitted for FCC approval but that it would be a "slam dunk" to get it approved. The company's original MagicJack, for wireline phones, has FCC approval, he said.

Instead of using the property rights argument, MagicJack might be able to have its femtocell approved under the FCC's so-called Part 15 rules. Part 15 allows products to operate in licensed frequencies without a license if they use very low power to prevent interference, said David Josephson of Josephson Engineering, who is a radio engineer and wireless enthusiast. Borislow said the MagicJack femtocell complies with Part 15 regulations but the company has not submitted the product to the FCC for authorization under those rules.

Neither AT&T nor T-Mobile replied to requests to comment for this story.

The wireless industry is already embroiled in a debate about a type of device that has raised similar issues. Last week, the FCC sought comment on several petitions concerning cellular signal boosters, which are designed to amplify and extend mobile operators' signals into homes and other places where subscribers are unsatisfied with their coverage. Since 2005, five different petitions to the FCC have been filed by entities with different views on signal boosters.

Most notably, the main trade association for U.S. mobile operators, the CTIA, filed a Petition for Declaratory Ruling in 2007 asking the FCC to clarify that it is illegal to use a signal booster without the consent of the spectrum licensee. Last year, the DAS Forum, part of PCIA - The Wireless Infrastructure Association, responded to the CTIA's move with a Petition for Rulemaking that asked the FCC to resolve interference issues without resorting to regulations that inhibit the sale of signal boosters.

The FCC is seeking comment on the various petitions by Feb. 5. Although the wireless MagicJack isn't exactly a signal booster, it raises similar issues about interference and the use of carriers' licensed frequencies, said Paul Sinderbrand, an attorney at Wilkinson Barker Knauer in Washington who has long had experience with wireless issues.

FCC rules prohibit the use of a transmitting device on licensed frequencies without a license, but they allow companies to make and sell devices that the FCC's Office of Engineering and Technology has approved, Sinderbrand said in an e-mail interview. The engineering office looks at devices only in terms of technical rules such as power levels and assumes they will be used legally.

"As a result, FCC-approved signal boosters are being made widely available to the public and are often being installed and operated without a licensee's consent, raising harmful interference concerns," Sinderbrand said.

The CTIA declined to comment on MagicJack's femtocell.

The MagicJack femtocell should be less objectionable to carriers because it only works for people who have chosen to use it, Borislow said. By contrast, anyone who makes a call in a building that has a signal booster is automatically using the booster even if they don't know it's there, he said.

The bigger difference is that MagicJack lets users make calls without using up minutes on a carrier's network. That fact may anger the operators but doesn't give them a stronger legal position, according to Borislow.

"That's not a legal argument. That's just, 'I'm a little crybaby,'" Borislow said.

AT&T has tested femtocells for its subscribers but held off on broad commercial deployment. Ralph De La Vega, president and CEO of AT&T's mobility and consumer markets unit, reportedly said last month that femtocells were still too hard to use.

MagicJack has talked to large carriers in the U.S. that have acknowledged that its femtocell could be useful, Borislow said.

"They have failed strategies. Their femtocells are too expensive and they're too hard to use. We have the only one that makes sense in the world," he said.

"If they were smart they would take me on as a partner, because all I could do is enhance the value they create for their customer," Borislow said. "The biggest complaint is that cell phones don't work in their houses. Now I have a solution."

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