Wireless carriers could be forced to 'unlock' phones

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Large wireless service providers in Canada should be forced to "unlock" subscribers' cellphones if requested, says a bill being tabled by the NDP on Thursday, which could dent carriers' profits and lead to subscribers moving more easily between cellphone companies.

If passed, the proposed "Cell Phone Freedom Act" would require wireless companies, such as Rogers Communications Inc. or Telus Corp. , to tell customers that a phone is restricted to their own networks, and then remove the lock either when handsets are bought at full-cost without a contract or when a customers' contract expires.

In an interview, NDP MP Bruce Hyer, who is bringing the bill forward, said empowering consumers to move more easily between companies would force wireless providers to compete more aggressively on price and services to lure consumers, benefiting consumers and making the industry more competitive.

"Network locks will become even more important as new competitors offer services consumers might want to try," Mr. Hyer said. "Consumer choice, in the near term, is not always wanted by companies that have an oligopoly."

Currently, Canada's big wireless companies put locks on cellphones that prevent users from taking the phone to other carriers. This is due to a combination of factors: The carrier kicks in a subsidy to reduce the cost of handsets in exchange for a contract, works with handset makers to optimize a phone's compatibility with a network, and profits when people roam internationally and are unable to pop a foreign provider's SIM card into their handsets.

Mr. Hyer says this nurtures an uncompetitive wireless sector by giving a provider unfair control over the subscriber even after contracts expire, since many Canadians may not know phones can be unlocked and brought to other companies.

It is possible to get a cellphone unlocked by paying a small wireless technology store, but the process can be expensive and is relatively easy for carriers, though doing so may deny them revenue.

The NDP's move comes at a difficult time for Canada's Big Three telecom providers, who sink billions of capital into building out wireless and wired networks across the country but are frequently on the receiving end of consumer anger. While profitable, they are getting bruised by public policy.

Several high profile government decisions out of Ottawa have struck at the big providers in recent years, from the decision to set aside wireless licenses for new competitors in 2008 to the government's eventual approval of Globalive Wireless Management Corp. in late 2009. The telecom regulator had ruled the Egyptian-financed company violated ownership restrictions in the regulated sector. The established players lobbied hard to convince the government that the regulator was right, but lost out when cabinet overturned the regulator's decision.

Meanwhile, in Quebec, a new law is soon coming into effect that reduces the "termination fees" providers charge those who want to break their contract. Since contracts are used to ensure a pay-off from subsidized handsets, providers like Rogers have simply said they will raise the price of handsets in the province.

And on Wednesday, a senate committee suggested to the telecom regulator that it work with the wireless industry to eliminate what's known as "bill shock" by introducing an alert that tips users off when they're close to reaching their monthly limit.

Recently, one analyst said wireless providers were the "new banks" in terms of becoming a focal point for consumer frustration and political backlash.

The NDP bill is being tabled too close to the summer recess for any debate to occur before Parliament resumes in the fall. It is unclear what kind of support the bill will receive from either the Liberals or the Conservatives, who had not been approached about it before hand.

Mr. Hyer does not know how the other parties in the House will greet his bill, though he said the Conservatives have favoured moves to inject competition into the wireless sector in the past. "This is consistent with their ideology," he said.

The Conservatives, who set aside wireless licenses for new companies to stimulate competition, may be unwilling to take another swipe at Canada's largest telecom companies. But Liberal industry critic Marc Garneau has in the past supported political moves to induce more competition in a market where roughly 95 per of the wireless market is currently held by Rogers, Bell and Telus.

These companies, however, say they are engaged in furious competition with each other, experience huge swings in subscriber additions each quarter, and face declining legacy businesses even as they are lambasted for having the advantage of being former monopolies.

It is almost certain that, if implemented, the bill would result in increased subscriber "churn" between wireless carriers - the amount of people who leave a company each fiscal quarter.

John Lawford, counsel with the advocacy group Public Interest Advocacy Centre, said that as smart phones become more advanced and expensive, consumers will increasingly keep them beyond the two- or three-year contracts common in Canada.

"The trend in consumer protection is to let people use their devices in a more open manner, and that's good for competition and good for consumers," Mr. Lawford said. "It may not be as good for really fat profit margins at the few companies that we have, but I think it's the direction that we're moving in."