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If you are still on a three-year cellphone plan, you may be affected in one of two ways. (Darren Calabrese For The Globe and Mail)
If you are still on a three-year cellphone plan, you may be affected in one of two ways. (Darren Calabrese For The Globe and Mail)

What you need to know about the end of three-year cellphone contracts Add to ...

Here’s what you need to know about the end of three-year cellphone contracts for Canada’s wireless industry:

Is there a rule banning three-year contracts in Canada?

Three-year contracts are not illegal, but thanks to the national wireless code the Canadian Radio-television and Telecommunications Commission (CRTC) launched in 2013, they are no longer common.

In order to offer the latest smartphones and other mobile devices as well as provide an incentive to customers to sign a contract, cellphone carriers offer up-front subsidies on the price of handsets and work the cost of recovering that subsidy into the monthly plan.

The wireless code says cellphone companies cannot charge customers on fixed-term contracts early cancellation fees that exceed the value of a device subsidy. Carriers must spread the cost of the subsidy out equally over a period of no more than 24 months.

Then why do three-year contracts still exist?

The CRTC announced the changes in June, 2013, and they came into force on Dec. 2, 2013. The terms of the code applied to new agreements, but existing three-year contracts remained enforceable.

So, what is changing now?

The CRTC set June 3, 2015, as the final date for the wireless code to apply to all contracts, no matter when they were entered into. That means the terms of the code now apply to three-year agreements that customers signed before Dec. 2, 2013.

Some carriers launched a legal challenge saying the CRTC was retroactively interfering with contractual rights, but the Federal Court of Appeal dismissed the case in May. Representatives for the Big Three carriers – Rogers Communications Inc., Telus Corp. and BCE Inc. – all said May 21 they did not plan to appeal the decision further and will comply with the terms of the code. (BCE owns 15 per cent of The Globe and Mail.)

How will this affect me?

If you are on a two-year agreement, your contract will not be affected, but if you still have a three-year cellphone plan, you could be affected in one of two ways.

1. If you signed a three-year agreement before June 3, 2013, you will not have to pay any device subsidy balance remaining on your contract and cannot be charged a fee for cancelling your contract. That is because you have been on the contract for at least two years, the maximum length of time the carriers have to recoup the value of the device subsidy.

2. If you signed a three-year contract after June 3, 2013, but before Dec. 2, 2013, you will soon be able to walk away from your contract without a cancellation fee, but you must wait until at least two years have passed since you signed the agreement. (If you want to cancel before completing two years of your contract, you may have to pay a cancellation fee calculated under the terms of the wireless code -- see section G, which will apply to all contracts as of June 3.)

Cellphone carriers began to phase out three-year contracts shortly after the code was announced, but still offered them for a few months, so you might have signed a three-year agreement in August, 2013, for example. If that is the case, you will be able to cancel on the two-year anniversary date this August without being charged the remaining device subsidy.

Can I use this to my advantage somehow?

On top of the routine expiry of two-year contracts, the June 3 deadline leaves a wave of customers under three-year contracts able to cancel with no penalty, creating what has been called the “double cohort.” In a January report, Scotia Capital Inc. analyst Jeff Fan estimated that between 10 per cent and 18 per cent of the Big Three national carriers’ post-paid subscribers – a total of between 2.2 million and 4 million – were still on three-year terms at the end of 2014.

Customers without a contract have more freedom to switch providers. To prepare for the increased number of free agents this deadline creates, wireless carriers have been taking steps to convince customers to stay, as well as preparing to spend more on customer acquisition during this period.

Globe readers have told us their carriers have been dangling discounts on new smartphones and offered to waive the remaining device subsidy balance on their three-year contracts. However, waiving that balance had become less and less of an enticement, since the terms of the wireless code effectively wipe out any remaining charge.

If your contract is up and you are still happy with the handset you own, you could take advantage of plans that offer “bring your own device” discounts, typically in the range of $20 a month. If you want to switch providers, you could be charged a fee to “unlock” your device and move to a different carrier.

How can I lose?

After the CRTC announced the changes coming with the wireless code, Canada’s carriers began adjusting their plans and pricing. Two-year contracts are now the norm and many of the Big Three’s smartphone plans include features such as unlimited calling in Canada and unlimited texting in addition to data. But those plans have also become more expensive as the carriers said they had to increase the monthly prices to recoup the device subsidy over a shorter period of time.

Some readers have told us the new plans their carriers are offering are significantly more expensive than the monthly rates they paid on their three-year contracts.

Q. What if I have a dispute with my cellphone company over this?

The CRTC put the Commissioner for Complaints for Telecommunications (CCTS) in charge of enforcing the wireless code. If customers have complaints they cannot resolve with their service provider directly, they can contact the CCTS.

Update: This article has been updated to further explain that if you want to cancel before completing two years of your contract, you may have to pay a cancellation fee calculated under the terms of the wireless code -- see section G, which will apply to all contracts as of June 3.

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