Two-year contracts the latest wireless strawman

02 Dec

straw-manIt’s Dec. 2, which means the CRTC’s new wireless code is officially in effect. As of today, consumers will enjoy several new protections, including caps on roaming fees and a ban on cancellation charges after two years of a contract, which is the regulator’s de facto prohibition on three-year agreements.

Carriers have been busy implementing the new requirements for some time now, but some of them just couldn’t resist throwing out some parting shots in the process. About a month ago, both Bell and Rogers suggested that the required shift from three-year to two-year contracts was slowing smartphone growth, with the insinuation being that regulatory interference was somehow hurting Canadians’ supposedly insatiable hunger for the devices.

A number of industry observers evidently swallowed the line. As the lead of a Globe and Mail story proclaimed:

The introduction of new two-year cellphone contracts slowed subscriber growth for some of Canada’s biggest carriers during the back-to-school season, a sign that consumers are spurning those higher-priced plans even before they become the industry standard in December.

Ordinarily, such a statement would be attributed to the companies since it’s their position, but evidently the support of a market analyst or two is enough to make it fact. Scotiabank Capital analyst Jeff Fan provides the required back-up: “I would call it one of many ‘unintended consequences’ resulting from regulatory moves over the past summer,” he says in the above story. Fan also repeated the claims during our panel at the International Institute of Communications conference a few weeks ago.

Slowing smartphone growth actually has little to do with shorter contracts and is instead part of a trend sweeping the developed world. Just about every manufacturer has been reporting slowing sales, from Android heavyweights Samsung and HTC to market laggards Nokia and BlackBerry. Even Apple was forced to quickly cut the price on the iPhone 5C, while Samsung is lowering its own internal projections for 2014.

The reason for the slowdown is simple: the market is maturing, meaning that most people who want a smartphone already have one. They’re also pretty happy with their device, which means they’re not looking to spend a bundle to get a new one. This ties in to what I wrote about Google’s Nexus 5 the other day; the inevitability of a maturing market is that the devices are going to get cheaper by necessity.

Analyst Greg McDonald paints a more accurate picture in that same Globe story, yet evidently not correct enough to make the lead:

“An important additional dynamic is that you have a somewhat mature smartphone market with little in the way of wow factor in new phones, so industry demand is also declining… As for the policy question – the government and consumer groups are counting on a decrease in smartphone prices so that contracts naturally disappear (the price increases are a function of the lower subsidy amortization period). They are right, this will happen and it will put downward pressure on prices as the margin pressure of subsidy lifts.”

The exclamation point on the situation is the fact that we’re not hearing the same regulatory scapegoat-ism from Telus, which had a pretty good quarter in wireless. Not coincidentally, the company also fared comparatively well in the latest report from the Commissioner for Complaints for Telecommunications Services, which routinely deals with angry customers.

Could it be that better customer service leads to strong results that are resistant to an otherwise widespread trend? Nah, that’s crazy talk. Surely it’s evil regulation that is slowing smartphone sales, both in Canada and in the rest of the developed world.


Posted by on December 2, 2013 in bell, rogers, telus


5 responses to “Two-year contracts the latest wireless strawman

  1. Ben Klass

    December 2, 2013 at 12:35 am

    The new advertising tactics deployed this summer are interesting: carriers are now offering “discounts” for BYOD. Like Black Friday deals, the “discounted” price is actually the base rate being charged for service, with the “normal” rates reflecting the hidden cost of smartphone subsidies.

    The complex and opaque relationship between handset manufacturers and network providers (with which you’re quite familiar) is a major stumbling block on the path to a properly functioning market. Decouple the handset from the service, and you’re on your way to a situation in which consumers can effectively exercise market choice.

    Glad you’re pulling on this thread, Peter. Its importance can’t really be understated, but it certainly does get glossed over all to often elsewhere.

    • Ben Klass

      December 2, 2013 at 12:36 am

      And by understated I of course mean overstated. 🙂

  2. Ry

    December 2, 2013 at 6:54 am

    The other reason the back to school season flopped was the due to no carrier really offered a back to school sale. At that time, all carriers imposed 2 years at the start of August, which in turn, they increased the rate plans and in some cases the phone itself (ie: s4 jumped to 725). They didn’t bother to try to have a sale within 30 days.

    Ask Ben said, I’m looking forward to the day I can buy my device directly from the manufacturer or from a non-carrier retailer. With Nexus 5 being more successful every year, and Blackberry testing the direct sell in USA, looks like this will soon be a reality

  3. Adam

    December 3, 2013 at 8:53 am

    My device cost went through the roof on a 2 year vs. 3 year contract. I didn’t upgrade. Know others in same boat. Can see that impacting sales…not a real stretch.

  4. andrewcichocki

    December 4, 2013 at 4:58 pm

    Furthermore, the implication behind “2 year contracts = less smartphone sales” is that customers seeing a more accurate price of the phone they’re buying discouraged sales. In other words: less people bought phones they otherwise would’ve considered too expensive, and that’s bad.

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