Limits on wireless contract length would be costly, unpopular, Bell says

GATINEAU, Que.—Restrictions that would prevent wireless carriers from offering three-year contracts would lower Canadians' access to technology and would be “anti-consumer,” BCE Inc. said Thursday. “I hope ... that you begin to appreciate that the initial reaction to say, 'remove the three-year contract as an aspect outright,' is actually anti-consumer,” Jonathan Daniels, Bell's vice-president of regulatory affairs, told commissioners during the fourth day of a week-long CRTC hearing to establish a national code of conduct for the wireless industry. “Yes I say that, it's anti-consumer.” Three-year wireless contracts have come under scrutiny at the CRTC hearings after consumer groups and the Competition Bureau said they are among the most frequent causes of consumer complaints about the wireless industry. The Competition Bureau said the contracts are anti-competitive as they prevent consumers from switching providers by requiring them to pay costly fees to terminate their contracts early, and said it would support regulations that would limit contract lengths to two years. Carriers Telus Corp. and Rogers Communications Inc. said at the hearings this week that three-year contracts are necessary to allow them to recoup the costs of subsidizing consumers' smartphones, which can otherwise cost as much as $900 without a contract. The CRTC did not include any proposed regulation of contract duration in a draft code of conduct it released in January. Instead, it proposed to limit how much carriers could charge consumers who opt out of their contracts early by requiring that any “early termination fee” be limited to the value of any discount the consumer received on their phone or monthly services when they signed their contract. On Thursday, CRTC Chair Jean-Pierre Blais said an online consultation the commission launched to encourage public participation in the establishment of the code has received an “overwhelming” response from consumers who do not want to be tied to three-year contracts for their wireless services. He said wireless carriers have failed to provide a “market response” to those concerns because they do not offer one- or two-year contracts. “ problems didn't exist because customers were satisfied and happy,” he said. Claire Gillies, vice-president of marketing at Bell's wireless subsidiary, Bell Mobility, said the company offered shorter-term contracts until the end of 2011 but stopped offering them due to a lack of consumer demand. She said the company's subscribers prefer the longer, three-year contracts that allow them to purchase costly smartphones without paying a hefty price upfront. “They're choosing with their wallet,” she said. “ They're saying, 'I want to get the best devices now at the cheapest price.'” Daniels said the company's subscribers can exit their contracts at any point by paying a termination fee that includes the balance of any discount they received for signing onto a contract. The company typically provides three distinct discounts to customers that sign three-year contracts, he said, including a reduced price on the cost of their phone, an upfront discount on data services, and an “agreement rebate.” He said Canadians also typically purchase new cellphones more frequently than consumers in other countries, despite the fact that three-year contracts are the industry norm. Bell Mobility president Wade Oosterman said any restriction on three-year contracts, or any requirement that carriers offer one- and two-year contracts, would increase carriers' costs as they would be forced to build new “varieties” of rate plans to accommodate the shorter terms. The result, he said, would be higher costs to consumers, or reduced investment in network infrastructure. “There's no doubt that it would increase our costs,” he said. “The more complexity you have to support, the more costs go up.” Daniels said there would also be “soft costs” related to any new contract requirements, such as the company's costs of marketing three difference rate-plans for each device it sells, and for each of its service plans. He speculated that many consumers would ultimately still sign three-year contracts, even if they intend to pay a termination fee to cancel those contracts after two years. Those subscribers, he said, would still pay the same total amount for their phone, monthly services and cancelation fees as they have if they had signed a two-year contract. “When you look at the numbers at the end, someone is better signing a three-year and exiting at two years than signing a two-year because the difference is they don't have to pay the money up front,” he said. Independent telecom consultant Jean-Francois Mezei said a future set of rules for the wireless industry should eliminate contracts completely. He said consumers would be more capable of switching wireless providers, at any time, if they believed they could receive better or cheaper services from an alternative provider, and that this would increase competition in the industry. “Prohibiting contracts for the wireless service may appear to be a strong regulatory move, but it is simpler and more effective than the complex code the commission has proposed,” he said. “Consumers will benefit from competition as carriers will be forced to lower prices for existing customers to retain them.” Blais said the fact that commissioners were asking carriers about mandating one- and two-year contracts did not necessarily mean they would include any such provisions in the wireless code. “Nor does it mean that we will not,” he said. The hearing concludes Friday with presentations from wireless carriers MTS Allstream Inc., Globalive Wireless Management Corp., which operates as Wind Mobile, and Quebecor Media Inc., which operates as Videotron Ltd., as well as from the Commission for Complaints for Telecommunications Services (CCTS). —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Danika Grenier at dgrenier@thewirereport.ca

Limits on wireless contract length would be costly, unpopular, Bell says

News | 02/15/2013 12:50 am EST

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