Wireless carriers may take hit on retroactive wireless code

Wireless carriers may be hit with hundreds of millions of dollars in one-time additional costs as they deal with the CRTC's new wireless code of conduct and unpaid device subsidies on existing wireless contracts after June 2015. “We’ll be trying to clarify some of these things with the CRTC as to whether their intent was to have a retrospective application of the code, and we’ll be discussing this with the commission going forward in very short order,” Ted Woodhead, senior vice-president of government and regulatory affairs at Telus Corp., said in an interview. “We need to engage the commission on this.” In an effort to curb long-term service contracts with three-year terms, the CRTC said last week that its new wireless code will allow consumers to back out of wireless contracts at no cost after their contract is two years old. The code—which will be applied to all new contracts starting Dec. 2 or any contract amended after that date—should also apply to all existing contracts, regardless of their start date, as of June 3, 2015, the CRTC said. That leaves a window between June 3, 2015 and June 2, 2016, when an estimated 6.84 million three-year wireless contracts could be cancelled after two years, each with outstanding device subsidies of $100 or higher, according to an analysis of the numbers by The Wire Report. Wireless providers entice consumers into longer, three-year contracts with significant discounts to high-end smartphones, which carry retail values of up to $900. Consumers pay off the device subsidy through their monthly bills, allowing carriers to recoup the cost of the device over the course of the contract. Customers can also pay off the remainder of the subsidy if they exit the contract early. Wireless providers are expected to respond to the wireless code’s new limit on three-year deals by moving to two-year contracts and reducing the up-front subsidies they offer for new devices. As a result of the code’s June 3, 2015 implementation date, consumers who enter three-year contracts that expire after June 3, 2015 can back out of those contracts after two years at no cost, regardless of any remaining device subsidy, the CRTC told The Wire Report. “Customers that signed 3-year contracts between now and Dec. 2 2013 will be covered by the code on June 3, 2015 (or earlier if they amend, extend or renew their contract),” CRTC spokeswoman Patricia Valladao said an emailed statement. “f they have been under contract for 24 months, they will not be liable for any early cancellation fee.” Incumbent wireless providers BCE Inc., Rogers Communications Inc. and Telus do not issue public data on how many of their subscribers are signed to three-year contracts. Wade Oosterman, president of BCE division Bell Mobility, estimated during a CRTC hearing on the code in February that roughly 70 per cent of Canada’s wireless consumers are in three-year deals. According to data released in the CRTC’s most recent Communications Monitoring Report, Canada’s wireless carriers had 27.4 million customers at the end of 2011 after two years of six per cent annual subscriber growth. If the market rose by another six per cent in 2012, there would be 29.3 million wireless subscribers at the start of this year. Using Oosterman’s 70 per cent estimate—and assuming that roughly one-third of wireless subscribers on three-year contracts have their contracts expire in any given year—about 6.84 million wireless contracts are scheduled to expire between June 3, 2015 and June 2, 2016. If the average consumer owes between $100 and $200 on their device subsidies as they enter the final year of their contract, wireless carriers could be on the hook for up to $1.37 billion if all of those contracts were cancelled after 24 months. Since many of those contracts will be more than 24 months old as of June 3, 2015, the carriers’ average loss per consumer is more likely to top out at around $100, or up to $684 million if every one of those subscribers cancelled after two years. Valladao said the CRTC's decision weighed the carriers’ costs when considering whether to apply the code retroactively to contracts that started in 2015. She said the regulator sought to protect “a large proportion” of wireless customers by mid-2015 and balance the impacts on consumers and wireless providers. “he Commission’s decision was based on the need to consider not only the benefit to consumers, but also the burden on service providers,” Valladao wrote. “This decision was proportionate to that burden and deemed necessary to ensure coverage for all Canadian wireless consumers in an equitable and expedient manner.” Jim Patrick, vice-president at of the Canadian Wireless Telecommunications Association (CWTA), said in an emailed statement that the industry group will also attempt to clarify aspects of the code. “CWTA is still reviewing the Code, to make sure we fully understand all of the details,” Patrick said in an email when asked about the potential impacts of retroactive rules starting in 2015. “If anything is unclear after we’ve looked at it with our members, we may need to go back to the Commission for some help in interpreting a specific word or two, here and there.” Independent telecom consultant Mark Goldberg said in an interview that there is confusion in the industry about the code's application to existing contracts. He pointed to a post on the CRTC’s Twitter feed last week, in which the regulator said the code “does not apply to contracts signed before Dec. 2, 2013.” Valladao said the commission receives requests from the public every day asking for clarification on its decisions. That particular Twitter message, she said, “was meant to clarify for Canadians that today, their contract is not covered by the Code.” There is also confusion as to whether the CRTC has the legal authority to apply the code retroactively, or if it intended to do so. SaskTel filed a legal opinion with the CRTC in March that said the CRTC does not have the jurisdiction to impose the wireless code retroactively. The text of the commission’s decision leaves room for interpretation, stating that the wireless code “should” apply to all contracts on June 3, 2015, not that it “shall” apply. John Lawford, executive director with consumer group the Public Interest Advocacy Centre, said he believes wireless providers will make back their costs even if customers opt out of contracts after two years. “They’re probably quite satisfied the companies have made more than enough back after two years, even when are supposedly amortized over three years in the companies’ minds,” Lawford said. —With reporting by Nicholas Kyonka and nkyonka@thewirereport.caand editing by Simon Doyle at sdoyle@thewirereport.ca

Wireless carriers may take hit on retroactive wireless code

News | June 11, 2013

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Wireless carriers may take hit on retroactive wireless code

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