Telecom Notice of Consultation CRTC 2012-557 (Wireless Consumer Protection Code)

Wireless Consumer Protection Code (TNC CRTC 2012-557)

CIPPIC participated in Telecom Notice of Consultation CRTC 2012-557, a proceeding which seeks to establish a set of rights for customers of wireless services across Canada. The proceeding was launched after the CRTC decided, in Telecom Decision CRTC 2012-556, that wireless customers were in need of greater protections at the national level. CIPPIC's submission, filed on behalf of OpenMedia.ca, focused on the need to address many shortcomings in the Canadian wireless landscape and the need to facilitate competition. On January 18, 2013, the CRTC issued a Working Document which sets out draft elements for the proposed Code (TNC CRTC 2012-557-3), as part of the proceeding. An additional online consultation on the working document was launched to illicit public comments from Canadians on the contents of this Code.

Better Tools to Compare Services from Different Providers

Specifically, the Code should simplify Canadians' attempts to understand what they are getting into when signing up for a wireless service. This includes the adoption of cooling off periods, so that Canadians have the ability to return what are often expensive devices before committing to them. It also includes the establishment of standardized terminology and a 'personalized information summary' setting out key elements of the service being offered, so that Canadians are better able to navigate the confusing and often not self-evident set of offerings from different wireless providers. This type of standardization will not only help customers understand the nature of the services and obligations they are taking on, but will also help them compare services at time of purchase.

Better Tools to Manage Complex Usage Charges

An effective Code will also empower Canadians by giving them the tools they need to better navigate increasingly complex and too-often costly usage of their wireless services. Usage of these services is frequently billed on a per-unit basis, and it is not always evident how much cost a customer is incurring until the bill arrives at the end of the month, leading to inevitable and recurring incidents of bill shock. Horror stories of Canadians who have gone on vacation, made a few short calls, and returned to astronomical bills are becoming frequent. Billing changes exacerbate matters -- for example incoming text messages were once free, but now can rack up hundreds of dollars a month in fees. Data usage complicates matters further, as even background activities such as automated software updates or GPS can generate heavy monthly costs. The Code should therefore include the obligation to provide effective usage management tools, such as real-time notifications as usage limits are exceeded, and hard cut-off notifications when excessive usage amounts are reached, to prevent customers from incurring excessive and unwanted costs.

Reduce Impediments to Switch Providers

Perhaps most importantly, CIPPIC called on the CRTC to address what appears to be a primary source of frustration for many Canadians -- the fact that they are locked in to service providers for excessive periods of time. The Code should therefore restrict termination penalties and hardware lock-ins. Using a combination of technical lock-in mechanisms and excessive penalties for breaking contracts, providers prevent customers from switching outside 3 year contractual cycles. This effectively insulates them from actually having to compete to keep their customer base by improving customer service or by addressing a myriad of customer concerns. At the same time, these lock-in mechanisms prevent effective competition by concealing monthly service fees. Worse, many incumbents will waive cancellation fees before the end of a 3 year cycle -- as long as the customer signs on for another three years. This makes the lock-in effectively perpetual, preventing new entrants from accessing this locked-in customer base. Moreover, the 3 year lock-in mechanism favours incumbents, who are able to prevent their existing historical customer base from reaching the small number of new market entrants, who started operations in late 2009/2010 after the AWS spectrum auction -- barely three years ago.

To customers, handset subsidy-based three year lock-ins appear a fantastic deal, but this is only because the true costs of such a deal are obscured in higher monthly and usage fees and a general lack of competition. It denies them access to a rapidly evolving marketplace and locks them into devices that are often not even supported for three years. Also, as our international pricing comparison demonstrates [paras. 18-20], the third year of lock-in that is a unique feature of the Canadian wireless market does not provide any additional savings for Canadians. Indeed, when one considers the value of a 'free' handset in conjunction with the very high monthly service offerings Canadian customers must endure for three years at a time, it turns out that Canada's OECD counterparts offer the same phones and services for less, and do so without three year lock-ins.

For example, with O₂, a U.K.-based incumbent, customers can purchase an iPhone 5 directly from Apple for full retail value, sign up for independent 1 year commitments, and still pay significantly less over the course of three years ($51.35/month CDN or $55.97/month PPP adjusted, including the price of the handset) than they would with a subsidized iPhone from Bell ($87/month) or Rogers ($85/month). If one wanted a subsidized iPhone from EE, another U.K. incumbent, one would have to pay less up front and, over the course of your two year commitment, pay less overall (comparing the total amount of $ going to the company over two years, including monthly fees, termination fees and money paid for the handset). Adding a third year to the analysis does nothing to shrink the gap between soaring Canadian prices and other jurisdictions:

SOURCE: International Pricing Comparisson, CIPPIC, Final Reply Comments, Appendix A

Of all surveyed OECD countries (Canada, U.K., U.S., Australia, France, Italy and Finland), only the United States featured equally high prices, with all other countries offering not only lower rates, but also more choices in terms of contract arrangements. Perhaps somewhat shockingly, U.K. customers pay less money to O₂ ($1,946.04 CAD) for three years of service plus a phone than Canadians would have to pay Bell or Rogers for the same phone and only two years of same service ($2,321.28 & $2,272.99, respectively), and pay less up front for the associated handset that comes with the plan! Even in the United States, which offered roughly the same pricing as Canada, these prices were achieved without a 3 year lock-in, which Canadian wireless providers have argued is necessary to offer the prices we see in Canada. Perhaps a 3 year lock-in is necessary, as these excessive prices would surely not be possible without the serious dampening effect on competition that results when customers are locked out of the market for 3 years at a time.

While some argued that these high monthly service prices were justified as a necessary to get smartphones into the hands of more Canadians faster, CIPPIC's analysis demonstrated that the other countries in its pricing analysis were able to achieve comparable if not superior smartphone penetration rates without 3 year lock-ins and excessively high monthly rates. Indeed, our analysis suggested that Canada's very high monthly rates are behind its poor showing interms of overall wireless broadband (smartphone & non-smartphone) penetration, where it lags (23rd of 34 OECD countries):

SOURCE: Data sources and full citations set out in Final Reply, Table 3; Generally: CIA, "The World Factbook"; comScore MobiLens 2013 Digital Future Country Reports (UK, U.S., Canada) & "2013 Mobile Future in Focus"; OECD, Broadband Portal

This suggests Canada's high handset/service cannot be justified by smartphone penetration rates. Quite to the contrary, the combination of high service rates and three year lock-ins is likely a strong contributing factor to Canada's low overall wireless broadband penetration.

In response to this problem, CIPPIC called on the CRTC to segregate handset repayment from service charges. This would permit customers to leave their provider for another early. This is a variation on the early termination fee adopted by many provincial statutes, which limits the penalties TSPs can charge customers upon departure to the outstanding cost of the handset. The concern with early termination fees is, however, that they are still quite high even if limited to handset amortization. This turns the early termination fee effectively into a switching cost that competitors will be hard pressed to match, meaning customers will remain effectively locked out of the service market for the duration of the contract. CIPPIC's proposed gloss on this proposal would effectively segragate handset costs from monthly service costs, meaning that, upon termination of service with TSP A, customers will still have to pay off their handsets, but will have the option of doing so on a monthly basis, even while their service is being provided by TSP B. TSPs will still have a strong incentive to subsidize handsets to encourage customers to stay, but customers who are fed up with a given TSP's service or want to switch for any other myriad reasons will be able to do so without incurring high and immediate switching costs. 

CRTC Adopts Many of CIPPIC's Requested Provisions in Final Code

On June 3, 2013, the CRTC released its decision in Telecom Regulatory Policy CRTC 2013-271. The Final Code adopts some measures to alleviate bill shock resulting from excessive charges for data usage by requiring service providers to gain express customer consent before charging them in excess of $50 in data usage charges ($100 for international data roaming). It also takes steps towards limiting the ability of service providers to impose changes onto customers during the course of their contract. The Code also obligates service providers to unlock customer phones -- an important step, which will make it easier for customers to switch providers or use foreign SIM cards when travelling abroad. These are all important steps, which will somewhat address concerns that have plagued customers of Canadian wireless services for years. In addition, the Code limits amortization time-lines to two years, a measure that will effectively end the unique 3 year lock-in period that Canadians uniquely 'enjoy' amongst their OECD counterparts. While CIPPIC sought a complete segregation of device amortization and monthly service rates, the 2 year limit is a step towards increasing competition and ensure customers are not locked out of a dynamic economic and technological market for 3 years at a time. The Code will apply in full to any mobile agreement entered into or amended after December 2, 2013. The 2 year contract term limit, however, applies to all service contracts as of today (June 3, 2013).

Relevant CRTC Documents:

• Telecom Decision CRTC 2012-556, 8661-C12-201204057, October 11, 2012
• Telecom Notice of Consultation CRTC 2012-557, 8665-C12-201212448, October 11, 2012
• Draft Wireless Code Working Document, TNC CRTC 2012-557-3, January 18, 2013
• Telecom Regulatory Policy CRTC 2013-271, June 3, 2013
  • Appendix 1, The Wireless Code

CIPPIC/OpenMedia.ca Submissions:

• Procedural Letter, Telecom Decision CRTC 2012-556, March 16, 2012
• Initial Comments, TNC CRTC 2012-557, December 4, 20102
• Reply Comments, TNC CRTC 2012-557, December 18, 2012
• Oral Comments, TNC CRTC 2012-557, February 12, 2013
• Final Comments, TNC CRTC 2012-557, March 1, 2013
  • Appendix A, Consumer/Public Interest Group Consensus Positions on Wireless Code
  • Appendix B, Annotated Working Document (TNC CRTC 2012-557-3)
  • Appendix C, Screenshots
• Final Reply Comments, TNC CRTC 2012-557, March 15, 2013
  • Appendix A, International Pricing Comparison: Blended Handset/Monthly Service Rates

Other Submissions & Documents:

• Competition Bureau, Submission by the Commissioner of Competition, TNC CRTC 2012-557-3, Wireless Code of Conduct Working Paper, February 6, 2013
• Office of the Privacy Commissioner of Canada, Submission of the Office of the Privacy Commissioner of Canada to the Canadian Radio-television and Telecommunication Commission, December 4, 2012, TNC CRTC 2012-557
• Rogers Communications Partnership, Part I Application to Implement a National WIreless Consumer Protection Code, 2012-0259-8, 8620-R28-201202598, March 8, 2013
• Public Interest Advocacy Centre, Part I Application regarding certain billing practices of the Wireless Service Providers which contravene Section 27(2) of the Telecommunications Act, 2011-1680-7, 8661-P8-201116807, December 22, 2011
• Our Response to the CRTC's Final Code: https://cippic.ca/news/CRTC_Releases_Wireless_Code

Data on High Wireless Costs in Canada

• OECD, Communications Outlook 2013, DSTI/ICCP/CISP(2012)9/CHAP7
• Peter Nowak, "The Future May Be Friendly but the Numbers Aren't", July 23,2013; "Canadian Wireless: When Good Profits Go Bad", July 24, 2013
• Michael Geist, "OECD Report: Canada Still Among Top Ten Most Expensive Countries for Broadband Internet Services", July 16, 2013; "TELUS: Canada Should Be the Most Expensive Wireless Country in the OECD", July 15, 2013