You're ignoring the "at a place open to the public or" half of the clause. Both places are restricted, not just when people are around, unless there's case law saying that the one takes precedence over the other.
What on earth are you talking about? Neither your living room nor your car is
open to the public. The first phrase does not apply to the scenario you introduced.
My understanding was that it was distribution that was the problem, not the reproduction proper.
"Subject to sections 107 through 122, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following:
(1) to reproduce the copyrighted work..." 17 USC 106.
If it's reproduction, and it's not authorized, and there's no statutory license in the balance of Chapter 1, it's copyright infringement.
(That said, is there any legal difference between the process to encode a CD onto your computer, and the process to create a ringtone? It sure doesn't seem like there should be one; they're the same technical process.)
17 USC 107 does not apply; fair use covers parody, criticism, reporting, academic uses and other public acts. Setting aside that CD ripping isn't fair use either (it's
personal use), there is a significant difference: making a ringtone involves reproduction, derivation (selection and arrangement), and a change in medium and character of the work. You're not engaging in a noncommercial personal use to enjoy the song; you're engaging in an adaptation to use the work in a manner inconsistent with the copyright owner's interests.
This is entirely academic, however, because no one has ever been sued for making their own ringtone without public distribution. There is nothing to gain by suing someone for it.