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Choices are clear in CRTC’s wireless code

29 Jan

phonesThe Canadian Radio-television and Telecommunications Commission has released the draft of its long-awaited Wireless Code of Conduct, along with an invitation for public comments on it (the deadline is Feb. 15). In a nutshell: there’s some good in the document, but otherwise there’s nothing earth-shattering or unexpected. Which makes it something of a letdown.

The regulator should be given credit for making the proposed code relatively short and easy to understand. And the way the draft is laid out makes it simple to see what rules consumers are pulling for, and which are favoured by carriers. From the consumer’s standpoint, wherever the CRTC presents a number of possibilities to set a rule, the correct answer is almost always Option 1.

For example, Option 1 under the “unlocking phones” provision would require a service provider to unlock a device after 30 days of service, no questions asked. Option 2, however, introduces questions of whether the customer is getting a subsidy for the device… yadda yadda… before determining whether the carrier has to unlock it. Like I said, Option 1 is the consumer-friendly choice – and with this whole code supposedly being enacted to protect the consumer, the choice is obvious.

A few other good Option 1’s: the code will come into force within six months of its publication, rather than through a phased-in approach; it’ll apply to all cellphone contracts rather than just new ones; consumers have the right to cancel a contract at will if the carrier changes its terms, rather than depending on a bunch of ifs, ands or buts; and an outright ban on automatic contract renewal, versus some nonsense about how a contract can be renewed automatically depending on its length.

There is, however, one Option 2 that is actually good. Under “additional information specific to pre-paid services,” Option 2 would prohibit expiry dates on prepaid credit. That’s definitely a welcome move.

Perhaps the worst Option 2 deals with early termination charges. Option 1 lays out a rather simple and specific system: “The early termination fee cannot be more than the ‘Amount applied toward subsidy each month’ as set out in the contract summary multiplied by the number of full months remaining on the contract. If this amount is fully paid before the consumer cancels the service, no early termination fee will apply.”

Option 2, on the other hand, gets into a complicated calculation using “economic incentives” provided by carriers multiplied by months in a contract, divided by 48 (and possibly again multiplied by the circumference of the Sun). It’s confusing to say the least and looks plenty ripe for abuse. Exactly what is an “economic incentive?” Does a coupon for Burger King when signing up count? This is one option that should be stricken from the code and never spoken of again.

There are a few other bright spots. The CRTC spells out that its code will presumably exist alongside any other federal or provincial laws and regulations, which will actually supersede it if they are more beneficial to the consumer. This clause will do much to counter fears that carriers are trying to overwrite existing provincial laws that are more pro-consumer.

The regulator is also giving administration of the code to the Commissioner for Complaints for Telecommunications Services, which will have the ability to award compensation to consumers of up to $5,000. I’m not sure if the complaints agency has that legal power, but it’s a nice gesture to start with.

One other bonus put forward by the code is the ability for consumers to cap or limit bills and features. This is important because sometimes big charges can be racked up without the consumer having any say over it; they may forget to turn roaming off while in another country, for example, or their friends may decide it’s funny to send them text messages while they’re overseas and thus jack up their bill. Hey, it happens, because we all have at least one douchey friend.

There are also some areas of concern. Many consumers will be upset by the lack of an outright ban on three-year contracts, but realistically, such a rule would be somewhat arbitrary and perhaps even backfire – four-year contracts, anyone?

The CRTC has smartly tried to eliminate those long contracts indirectly by requiring carriers to disclose to customers the costs of their device and the subsidies they’re getting for it. Theoretically, if the customer sees how much of a discount they’re getting on their phone on a monthly basis, they’ll know how long it should take to pay off, which should ultimately discourage inflated contract lengths or at least free up subscribers to cancel earlier.

But in practice it won’t, because there’s no mechanism to prevent carriers from inflating their profit margins on phones and therefore exaggerating the subsidies that customers are getting. In other words, there’s nothing to stop a carrier from saying that the phone it paid $200 for is actually $800 to the consumer, so naturally a three-year contract is necessary and desirable. The CRTC’s code needs to be clearer and stricter on the numbers carriers are actually allowed to give customers.

The regulator is also making an effort to force all-in pricing, where “any advertisement that is incorporated by reference into a contract will include the total amount the consumer must pay for the services on a monthly recurring basis.” That explicitly spells out that such advertisements indicate whether sales tax and any “government-mandated fees” are included, but it implicitly excludes bogus charges like regulatory recovery fees, system access fees and any other completely made-up additions. The wording of this clause should be amended to include all such charges.

And lastly, going back to Option 1 for unlocking phones, the code will explicitly permit carriers to charge whatever they want to open up devices. What’s up with that? If the customer has paid for (or paid off) their phone, it should be unlocked free of charge, end of story. It’s their property. (A reader points out that Option 2 may in fact be better in this case because it requires carriers to unlock phones they have supplied for free if they were bought without subsidy and are off contract. It is worth noting that neither option makes mention of the carrier’s obligation to unlock phones that it didn’t supply.)

The code hits on about half of the issues I identified back when the process was launched last October, which is not bad given that the other half involve pricing – an area the CRTC clearly doesn’t yet have the stomach to wade into. Long-distance, text messaging, call display and data charges are all problems that will have to wait for another day.

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4 Comments

Posted by on January 29, 2013 in crtc, mobile, telecommunications

 

4 responses to “Choices are clear in CRTC’s wireless code

  1. Dunns Camo

    January 29, 2013 at 10:18 am

    More competition is the solution to high wireless prices, but competition doesn’t happen overnight. New wireless entrants are growing and the government is encouraging that growth (removing foreign ownership restrictions, setting aside spectrum, etc.) It would be completely unnecessary to regulate rates at this point: they’re already coming down on their own, through increased competition. More government regulation isn’t always the answer Peter, sometimes you have to let the market do its thing.

    Your conclusion that “Option 1” is always the more consumer-friendly choice is false. Just a couple examples where Option 2 is more consumer-friendly include Option 2 for Unlocking (free for phones that aren’t on a contract) and Option 2 for when the code comes into force (certain sections will come into force sooner than 6 months).

    You mentioned that you’re not sure if the Commissioner for Complaints for Telecom Services has the ability to award compensation to consumers of up to $5,000. The short answer is that they can and they do. In 2011-2012, they awarded the following compensation directly to consumers:

    =$5,000 to 16 consumers

    See page 37 of their 2011-2012 Annual Report: http://www.ccts-cprst.ca/wp-content/uploads/pdfs/en/2011-2012/CCTS-Annual-Report-2011-2012.pdf

    Lastly, carriers sell their phones both off-contract and on 3-year terms, so they won’t artificially inflate the off-contract prices to create the situation your described. If they did so, they would lose all the customers that want to buy phones off-contract.

     
    • Tom

      January 29, 2013 at 12:05 pm

      Like you I’m hesitant to see actual price regulation, but there is much more that can be done to promote competition and help consumers act as efficient economic agents w/o going that far.

      The further growth of the new entrants will not fix the problem. They are not saints sent to save us, they are just companies looking to make money. The incumbents do what they do, not because they are uniquely evil, but because it is the best way to make money in the current regulatory and legal framework.

      The new entrants act like aggressive upstarts now, but once they have grown (and spent an enormous amount battling the powerful incumbents) they will become more like the incumbents. It is up to us to change the rules of the game so that it no longer favours the sort of anti-consumer and anti-competitive behaviors that have worked so well for the incumbents.

      Regarding your last point… the smartphones that are usually used on monthly plans already have quite inflated prices so they are rarely purchased outright – those that bring their own phone to pay-before plans often do so to avoid the carriers’ inflated prices. But, as Peter has written, the carriers could inflate the prices further – just look at Israel.

       
  2. Tom

    January 29, 2013 at 11:49 am

    Very good analysis of the new draft code – thanks.

    You wrote that “Many consumers will be upset by the lack of an outright ban on three-year contracts, but realistically, such a rule would be somewhat arbitrary and perhaps even backfire..”

    Well, yes, so few were really expecting a ‘ban’ on 3 year contracts, but they were certainly hoping for rules that would make 1 and 2 year contracts (and bringing their own phone) an option for those consumers willing to pay more upfront. What is particularly galling is the optional nature of the 3 year contracts: you can get a new phone and contract after 2 or 2.5 years, if you stay with the same provider. In other words, the extra year isn’t needed for paying off your subsidy – it is just a maneuver to block consumers from considering other providers for a year after their subsidy is paid off.

    Also, I’m sorry there has been no discussion of caller ID. As thing stand, consumers must pay a minimum of $7 per month (on Rogers) to avoid having the carrier block the phone number of incoming callers. I personally haven’t experienced this little scam in any other country – are other readers aware of other countries where they do this?

     
 
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