CRTC says consumers can cancel wireless contracts after two years, no fees

Canadian wireless consumers can cancel long-term wireless contracts with mobile phone providers after two years without any cancellation fees, the CRTC said in new wireless code of conduct regulations, which is expected to mean the end of three-year mobile contracts. Under the code, released Monday, consumers can back out of their wireless contracts after 24 months of service without facing a cancellation fee. That covers contract cancellation charges often of about $50 plus any unpaid portion of the device subsidy that’s left on the contract, which can be in the hundreds of dollars for new smartphones. As a result of the decision, Rogers Communications Inc. will be moving to two-year contracts, Ken Engelhart, Rogers’ senior vice-president of regulatory affairs, told reporters at the Canadian Telecom Summit conference in Toronto on Monday. “Our marketing guys will design new plans for December of this year that have two-year contracts,” Engelhart said, adding that he’s not sure whether the company can adjust its billing systems on time to meet an implementation deadline in December. The Conservative government said Monday it supports the decision. Treasury Board President Tony Clement told reporters on Parliament Hill that the wireless code will give consumers more choice. Clement, the former industry minister, after speaking on the issue in the House, said the dominance of “three or four big carriers who rule the roost” justify the CRTC regulation, and that it may help competition in the wireless sector. He said the government will also introduce new policies to promote competition. “It's important to have more choice, more competition,” Clement said. “There will be policies from our Conservative government to emphasize competition in this industry. It's important to have more choice. It's for this reason that Minister Paradis supported, with our policies, more new entrants and more choice for our contracts.” The issue of contract length, and Canadian wireless providers’ three-year contracts, was a central topic during a weeklong hearing to develop the code in February. At the time, CRTC Chair Jean-Pierre Blais said wireless carriers had failed to provide a "market response" to "overwhelming" concerns from consumers who said in an online consultation that they don't want to be tied to three-year contracts. During the hearing, incumbent carriers Rogers, BCE Inc., and Telus Corp. opposed any restrictions that limited their ability to recoup the cost of subsidizing consumers’ wireless devices with three-year contracts. The new limitations on contracts could affect wireless providers’ pricing if they hope to recoup the cost of their devices over two years instead of three. Engelhart said Monday he couldn’t speculate on how the company’s contracts or pricing would change. The code, which was designed to harmonize rules governing wireless carriers’ relationships with consumers across the country, also imposes a $50 cap on how much providers can charge their customers each month in overage fees if subscribers exceed their monthly data limits, and a $100 cap on international data roaming charges, the commission said, in an effort to prevent “bill shock.” Consumers can opt out of those overage caps, the commission said. Carriers will also be required to unlock mobile phones that are sold “locked” to the provider’s network within 90 days after a consumer purchases the phone through a device subsidy or at any time as necessary if the phone was not purchased through a subsidy. The code also allows consumers to return mobile devices within 15 days if they are unhappy with their service. They may also accept or decline any proposed changes to the “key terms” of their contracts, according to the code. It will also require carriers to provide contracts that are “easy to read and understand,” the commission said. “Every day, Canadians rely on wireless devices while in their homes, at their jobs, at school or travelling abroad,” Blais said in a statement Monday. “The wireless code will contribute to a more dynamic marketplace by making it possible for Canadians to discuss their needs with service providers at least every two years.” Barbara Motzney, the CRTC’s chief consumer officer, said in a telephone interview that the decision is intended to address consumers’ biggest concerns, including contract length, “bill shock,” and device unlocking. Motzney said mobile providers had told the commission that consumers often buy out their contracts after two years. “Two years seems to be, based on the public record, a natural transition point,” she said. “By eliminating high cancellation fees … what’s created is a moment for consumers every two years to consider what their best option is.” Canaccord Genuity analyst Dvai Ghose said in a research note Monday that the restriction on cancellation fees could mean consumers will pay more if carriers change how they subsidize devices. Ghose said the caps on overage charges could reduce carrier revenues and lead to service interruptions for customers who surpass their monthly limits. “On the positive side it should lead to less 'bill shock,' time wasted fighting carriers, which costs carriers money and should reduce churn,” he said. “In addition, this does not seem to cover voice, which would mean that customers cannot be interrupted by loss of service during a phone call.” Ghose said the code "is slightly more onerous for wireless carriers than expected," though it is positive for incumbents because it will supersede provincial wireless consumer protection laws in Quebec, Manitoba, Nova Scotia, and Newfoundland and Labrador. Incumbents Bell, Telus and Rogers had asked the CRTC to impose a national wireless code to reduce inefficiencies resulting from a patchwork of provincial laws. Simon Lockie, chief regulatory officer for new entrant wireless provider Wind Mobile, said in an phone interview that the prohibition on cancellation fees after two years is a “big win” for competition and consumers, and that it would make it easier for customers to switch providers to find better service or a better deal. “This code, and in particular the early cancellation provision, goes a long way to creating a more level playing field for true competition,” Lockie said, whose company is owned by VimpelCom Ltd. “The incumbents have long used these three-year contracts to maintain artificially high profit margins at the expense of Canadians … The easier it is to switch, the easier it is to switch to Wind Mobile," he said. Engelhart said Rogers does not intend to challenge the CRTC decision over the two-year limitation and that the company is willing to “work with” it. Jacqueline Michelis, a spokeswoman for Bell, agreed. She said in an emailed statement that the company now complies with "virtually all" of the code's rules, such as alerting customers about international data usage and unlocking phones. "Bell has always offered 1, 2 or 3 year contracts, and of course no customer is required to take a contract at all. Most have chosen 3 year contracts because of the big price reductions they mean on the latest smartphones. Restricting to 2 years means less flexibility for consumers so it remains to be seen how they'll respond," she said. Engelhart said the code will be good for consumers and it’s better to have a national regulation instead of a patchwork. Engelhart disagreed that the decision will increase competition and Rogers’ churn rate, or the rate at which customers switch to another provider. “Most of us had already changed our contracts as required by the Quebec legislation, where you could cancel anytime, pay off the unamortized subsidy, and unlock your phone,” he said. “The move from three-year to two-year doesn’t really increase your ability to switch.” Ted Woodhead, senior vice-president of government and regulatory affairs at Telus, said in an emailed statement that the company is “well positioned” to support the new wireless code. “We offer phone unlocking for our customers and we already have a cap on international data roaming,” Woodhead said, adding that the code will give consumers a “strong and friendly set of protections.” Bernard Lord, president and CEO of the Canadian Wireless Telecommunications Association (CWTA), said in an interview that the two-year restriction will eliminate options for consumers who want three-year contacts. It will also force changes in the market, he said, as carriers consider options to implement the restriction and other aspects of the code. Consumers' wireless bills in the U.K, Lord said, rose after the country banned three-year contracts. As a result of the policy, providers may increase their monthly pricing and take a hit to their bottom lines, Lord said, adding that CWTA is not planning to appeal the decision. Independent telecom analyst Jean-Francois Mezei criticized the new wireless code on Twitter on Monday for a lack of protection for prepaid wireless subscribers, who are not covered by the code. He said the regulation is “weak” in general though “better than nothing” for consumers without provincial wireless protection laws. Consumer group the Public Interest Advocacy Centre (PIAC) said in a release the code will benefit all wireless consumers. “The Wireless Code has rules to help wireless customers where it counts—the bottom line,” John Lawford, the group’s executive director and general counsel, said in a statement. “It also makes it easier to switch companies because those costs are limited and are clear.” All aspects of the code will come into force for new contracts entered on or after Dec. 2, 2013, the CRTC said. —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Simon Doyle at sdoyle@thewirereport.ca.

CRTC says consumers can cancel wireless contracts after two years, no fees

News | June 3, 2013

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CRTC says consumers can cancel wireless contracts after two years, no fees

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