When the iPhone 5 arrived on doorsteps last week, some Verizon customers were surprised to discover the handset was unlocked on international and US-friendly bands, as iDownloadBlog pointed out. This means customers can sign up for Verizon, stick an AT&T nano SIM in the phone (or chop up a conventional chip) and it'll work out of the box. Granted, it won't connect on the GSM carrier's LTE service, but it will work fine on the older network.
This also means VZW customers can travel overseas and not have to worry about asking Verizon to unlock the phone before they leave. (Traditionally VZW will unlock a phone for customers in good standing after 60 days on contract; unlocking does not absolve you of your two-year contract obligation.)
Earlier models of the iPhone could be unlocked for international use, but not for domestic use on carriers like AT&T or T-Mobile. It's unusual for a carrier to sell a phone that can be easily used on another carrier and polymath Java developer / photographer James Duncan Davidson did some digging to find out why Verizon is now offering the iPhone in an unlocked state.
He tracked down, via Howard Forums, the notion that federal regulations apparently require Verizon (using the 700 Mhz Upper C block of spectrum) to sell the LTE iPhone unlocked. The forum thread points to Title 47, Part 27, Subpart B, Section 27.16 of the Code of Federal Regulations which says:
(e) Handset locking prohibited. No licensee may disable features on handsets it provides to customers, to the extent such features are compliant with the licensee's standards pursuant to paragraph (b)of this section, nor configure handsets it provides to prohibit use of such handsets on other providers' networks.
This wording appears to prohibit Verizon -- the auction winner for the relevant chunk of radio spectrum, which was used for analog UHF television channels until February of 2009 -- from selling the LTE iPhone carrier-locked. There are still some unanswered questions; this doesn't explain why Verizon sells its Android LTE phones locked to its network, for instance.
The implications of these spectrum rules were discussed back at the time of the auction for the spectrum block. This Susan Crawford post, from 2008, notes the rules but also points out that Verizon would be able to claim exceptions for "reasonable network management and protection" and regulatory compliance requirements.
Regardless of the reason why the Verizon iPhone is unlocked, it's an important feature for people to consider when they are shopping for an iPhone, especially if you travel or see yourself switching carriers in the near future. Of course, customers are still under contract with Verizon if they buy the iPhone at a subsidized price, but the convenience of having an unlocked phone may be worth the cost of a two-year customer agreement.