June 3, 2013 / 7:24 PM / 6 years ago

New rule lets Canadians cancel wireless contracts after two years

OTTAWA (Reuters) - Canadians will be able to cancel their cellphone contracts after two years without penalty, instead of the three years that is the industry standard now, under a mandatory wireless code announced by the country’s telecom watchdog on Monday.

Critics have long held that Canada’s three providers that have almost the entire market, BCE Inc, Rogers Communications Inc and Telus Corp, impose customer contracts that are too stringent.

The rules from the Canadian Radio-television and Telecommunications Commission (CRTC) seemed likely to improve the ability of the small players to lure customers away, though Rogers said consumers may end up having to pay more up front if they buy phones below the retail cost, under a contract.

“I wonder if they made a mistake getting rid of the three-year contract. There was a lot of evidence at the hearings that this might mean that people make bigger upfront payments because they get smaller subsidies. The CRTC doesn’t seem to think that will happen, but time will tell,” said Ken Engelhart, head of regulatory affairs at Rogers.

“The Competition Bureau gets mad at me when I make price signals to reporters, but logic would dictate that when you have a smaller period to amortize that subsidy, you’re not going to have such a big subsidy.”

One of the small challengers to the Big Three wireless providers, Wind Mobile, said the rules would help them compete.

“They’re better for competition and for consumers, and therefore as the competitors it’s incidentally better for us,” said Simon Lockie, chief regulatory officer at Wind Mobile, which launched its mobile service in 2009.

“All we’ve asked for is a level playing field, and this goes a long way to establishing that.”

The new code also contains features designed to prevent consumers from being surprised with nightmare bills for hundreds or thousands of dollars in additional charges - what Lockie referred to as “explosive, unexpected data bills.”

It requires providers to cap roaming charges once they reach C$100 ($97) within a single monthly billing cycle, and additional data charges at C$50, unless the customer consents to pay additional charges.

What the telecoms companies would do is inform the customers that they are about to hit their limit, at which time their service would be suspended unless express consent is given to go over.

“Canadians may finally now be freed of the worst of cellphone bill shock,” said John Lawford, executive director of Public Interest Advocacy Centre, which appeared before the CRTC. He welcomed the fact that customers would more easily be able to switch companies.

Technology consulting company SeaBoard Group said the CRTC had clearly responded to Canadians.

“The bill shock protection (data usage and roaming) and the length of cell-phone contracts are areas where consumer complaints have been loud and strident,” said SeaBoard analyst Iain Grant.

The code, which will take effect on December 2 and which was drawn up after thousands of submissions from Canadians, also will give customers the right to unlock their devices, though at rates specified by the company.

For customers with subsidized devices - ones sold below cost but tied to a contract - the company must let them unlock their devices within 90 days of the start of the contract. An unlocked phone is able to use any service provider at home or abroad by swapping in SIM cards, used to identify the subscriber. A customer with a two-year contract would still have to pay any minimum monthly fees stipulated, but would be free to use the cellphone on any network once it is unlocked.

For those who paid for their devices up front, the unlocking would be upon request.

And customers will be able to cancel their contracts without penalty except what is necessary to recoup the cost of any phone that was provided. Contracts in the U.S. are typically for two years.

Though Canadians pay some of the highest wireless fees in the world, in the companies’ defense is the fact that they provide coverage in the second largest country in the world, with a relatively sparse population.

At a telecoms conference in Toronto on Monday, Rogers said it was happy to see a single code. “Canadians should have across the country one code that defines the standards they can expect,” said Rob Bruce, president of communications at Rogers.

A CRTC spokesman said that if provincial and federal regulations have differences, the one that is most advantageous to the consumer would apply.

Shares of BCE, Rogers and Telus shares were down.

Additional reporting by Alastair Sharp in Toronto; Editing by Carol Bishopric

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