BCE, Telus, Rogers challenge retroactive wireless code

The CRTC overstepped its authority by retroactively applying its new wireless code of conduct to existing contracts, Canada’s largest three mobile providers said. In a motion for leave to appeal, being filed this week with the Federal Court of Appeal, the companies said they want the court to clarify the potential retroactivity of the regulator's new wireless code as they continue to offer three-year contracts and head into “the industry’s two busiest sales periods” of back-to-school and Christmas shopping. In the court filing, telecom carriers BCE Inc., Rogers Communications Inc. and Telus Corp. said the CRTC does not have jurisdiction to apply elements of the wireless code to contracts that existed before the code was released last month, or before the code comes into effect on Dec. 2. The companies, joined by regional carriers SaskTel and Manitoba Telecom Services Inc. in their application with the court, are requesting an appeal of the code’s retroactive application on an expedited basis. “The CRTC has no authority under the Telecommunications Act to engage in retrospective rule-making,” the court filing said. “The CRTC exceeded its jurisdiction and erred in law by purporting to render the Wireless Code retrospectively applicable to contracts entered into between wireless services providers and their customers before the Wireless Code comes into force,” it said. Released by the CRTC on June 3, the wireless code says consumers who enter new wireless service contracts after Dec. 2 can exit those contracts after two years without being subjected to an early cancellation fee. The code applies to all contracts “no matter when they were entered into” as of June 3, 2015, the commission said in June. The Wire Report reported last month that the decision could cost wireless carriers up to hundreds of millions of dollars if consumers, as of June 3, 2015, can exit three-year contracts without repaying device subsidies remaining on those agreements. Richard Paradis, president of media and consulting firm Groupe CIC in Montreal, said in an interview that incumbent carriers appear intent on signing up customers to new, three-year contracts until the code’s Dec. 2 implementation date. He said the publicly traded incumbent telcos like guaranteed revenues to report to their shareholders and that the back-to-school and pre-holiday shopping periods are increasingly important as smartphone penetration rises. "The three big guys really have to come up with some original ways of approaching existing subscribers and trying to get what’s left of potential subscribers in this country,” the consultant said. “That’s what all of them will be trying to do this fall." Independent telecom consultant Jean-Francois Mezei, whose firm Vaxination Informatique is listed as one of the respondents in the proposed court challenge, said he expects fierce competition to sign customers to three-year contracts this fall, probably around the same time that Apple Inc. launches an expected new iPhone. “Imagine the marketing possibilities: 'Buy your iPhone before December and save $100,'” he said. In the motion for leave to appeal, the carriers said a “majority” of Canada’s wireless consumers are signed on to three-year contracts and have been the recipient of a device subsidy of up to $500 to help cover the upfront costs of a new smartphone, which often carry a retail cost of up to $700. A retroactive application of the code’s rules, they said, would prevent them from recovering a “substantial amount of unpaid device subsidies.” John Meldrum, SaskTel’s president of corporate counsel and regulatory affairs, said in an affidavit, filed with the motion, that SaskTel offers customers a $50 device subsidy if they sign up for a one-year contract, a $100 subsidy for two-year contracts, and a subsidy of up to $500 for a three-year contract. “Under all contracts currently offered where the customer receives a device subsidy, the wireless service provider recovers the device subsidy either through monthly payments made under a fixed-term contract carried through to the end of its term or through early cancellation fees,” Meldrum wrote, adding that wireless carries sometimes waive cancellation fees if a customer signs a new three-year contract. In the application, the providers said they continue to use three-year contracts since the code’s release last month and will continue to do so until the code comes into force on Dec. 2, which includes "the industry’s two busiest sales periods" when students return to school in the fall and around the Christmas shopping season. They said it is important for the court to rule quickly on the regulator's power to apply the code retroactively to remove “uncertainty” about whether contracts issued in these upcoming sales seasons will be covered by the code. “This uncertainty has led and will lead to confusion in the marketplace,” they wrote, adding that the confusion can only be resolved when the court rules whether the CRTC has the jurisdiction to apply the code retroactively. To move to two-year contracts carriers will have to raise either the upfront cost of mobile devices or increase their subscribers’ monthly bills, Mezei said, adding that they do not want to move two-year agreements before their competitors do. He said carriers can change their prices and contract structures "on the fly" when it’s to their advantage and it counters a competitor's offering. Telus spokesman Shawn Hall said it takes time for companies to build new two-year contract options and eliminate the three-year agreements. "That subsidy model will likely change to reflect two-year terms," he said. "We have to rework the offerings and that takes some time. We’re actively doing that work now." The application lists a number of companies, organizations and individuals who appeared at the CRTC’s wireless code hearings as respondents. The list includes new entrant carriers, the Canadian Wireless Telecommunications Association (CWTA) and the federal Competition Bureau, and proposes to give them 15 days to respond. If the court accepts the motion and grants the incumbent providers leave to appeal, they proposed that the appeal process be completed within about two months. CRTC spokesman Guillaume Castonguay said Wednesday the commission cannot comment on the court application. “The commission is in receipt of the motion of notice of appeal. As the matter is now before the courts, it would be inappropriate to comment,” he said. Other companies listed as respondents, contacted by The Wire Report on Wednesday, declined to comment. On the day the code was issued in June, Rogers said it was studying the new rules and it would design new marketing plans for two-year contracts. Industry Minister Christian Paradis said last month that the CRTC's new wireless code was a “bit of fresh air” from a commission that is taking consumer interests into account. —With reporting by Nicholas Kyonka and nkyonka@thewirereport.ca and editing by Simon Doyle at sdoyle@thewirereport.ca --- CORRECTION: An earlier version of this story incorrectly stated the date by which all wireless contracts must be covered under the code as July 3, 2015.

BCE, Telus, Rogers challenge retroactive wireless code

News | July 3, 2013

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