The Canadian wireless industry is starting to adjust to a new regulatory reality.
Telus Corp. announced on Monday a new “Clear and Simple” pricing plan based on two-year, rather than three-year contracts. The plan allows customers to pick a device and data plans, and share it among multiple users with different devices. The company claims the new pricing system is easier to understand, and is introducing a similar scheme for small-business customers.
The new plan comes after the Canadian Radio-television and Telecommunications Commission announced in June a new code of conduct for wireless carriers, which will take effect in December of this year. Among the code’s provisions is one that effectively allows consumers to opt out of contracts without penalty after two years. The rule essentially brings the age of three-year contracts in Canada to an end.
Carriers have largely agreed to many of the CRTC’s new rules, albeit grudgingly. Earlier this month, a group of carriers that includes Bell, Telus and Rogers Communications Inc. filed a legal challenge related to one aspect of the CRTC code. Specifically, the new rules limiting three-year contracts are supposed to apply to all wireless contracts by June 3, 2015. However the carriers argue that some contracts signed before the prohibition of three-year plans will last beyond that date, and the new guidelines should not be allowed to override them.
Brent Johnston, vice-president of mobility solutions at Telus, was emphatic that the new plan introduced this week by Telus was not prompted by the new CRTC code, saying the company was already working on the new contract terms before the decision was announced in June.
“This change today is a reflection of how Telus believes it can differentiate in the market by really being clear and simple,” he said. “I think it’s a tremendous opportunity for Telus that we are already acting on.”
However, some analysts were not entirely convinced that the new Telus pricing plans were not a response to the new CRTC guidelines.
“I think it is definitely related,” said Ronald Gruia, principal telecom analyst for Frost & Sullivan. “Maybe not exclusively, but I think Telus could see the writing on the wall, so they decided to take the lead and start offering two-year contracts.” Mr. Gruia said the market is likely to experience even more change if the entry of American carrier Verizon Communications Inc. into the Canadian market becomes a reality.
In general, the two-year contracts are not guaranteed to save customers money compared with the three-year equivalents – and may end up costing some customers money in the short-run. Many carriers subsidize the up-front cost of high-end smartphones by locking customers into three-year contracts and making up the difference over the lifetime of the contract. The CRTC guideline effectively abolishing three-year terms is intended to protect consumers from such contracts, which can come with substantial break fees. But with two-year contracts, carriers are likely to raise the up-front price of the smartphones.
“Imagine that, instead of three-year contracts, the longest was a one-month contract,” said Ken Engelhart, senior vice-president of regulatory affairs at Rogers. “If you’re buying a new iPhone on a one-month contract, how much of a subsidy do you think your provider is going to give you?”