Canada’s telecom regulator is investigating recent moves by wireless carriers to offer interest-free financing options on smartphones.
The Canadian Radio-television and Telecommunications Commission sent a letter to wireless companies Tuesday, setting a two-week timeline for answers to a range of questions on the new pricing trend.
The inquiry comes one week after Rogers Communications Inc. said it would allow customers to get pricey new smartphones for a $0 down payment and pay the devices off over a period of three years, rather than two.
Rogers says the financing plan is separate from the cost of wireless service, but if customers decide to leave the carrier and sign up for service with a competitor, they must immediately pay off the remaining balance on the financing contract.
This option appears to test the limits of the wireless code, a mandatory code of conduct the CRTC introduced in 2013. Under those rules, cellphone carriers that offer an upfront subsidy on a device must recover that cost in equal payments over 24 months and cannot charge a cancellation fee after that, effectively capping contract lengths at two years. The CRTC said it wanted to give customers more freedom to shop around for better deals.
“Commission staff is aware of a recent practice whereby some wireless service providers are now offering device financing plans to customers separate from the provision of wireless services,” the CRTC said in the letter, adding it is “seeking information to better understand these device-financing plans and how they are offered to customers.”
The letter included about two dozen detailed questions. Asked about potential next steps, CRTC spokeswoman Patricia Valladao said the commission would review the responses and added that “the issue is still before the commission.”
Telus Corp. also introduced $0-down smartphone financing options this month, but limited the device repayment plans to two years. At the time, Jim Senko, president of Telus’s Mobility Solutions, said the company did not believe a three-year financing term would comply with the wireless code.
In an e-mail Wednesday, Telus spokeswoman Sacha Gudmundsson referenced Mr. Senko’s comments and said a longer-term financing option "is attractive for a certain segment of customers and will help make it more affordable ... to get the latest smartphones, which continue to increase in price, at a much lower monthly cost when spread out over a longer term.”
For its part, Rogers says it believes the longer financing option is within the rules of the code because of the separation between device payments and the cost of wireless service. Once customers have paid for their smartphones in full, those payments will automatically come off their monthly bill.
That is not the case with existing plans – common at Rogers and at other carriers – where customers receive an upfront subsidy on a handset and are charged a monthly price that blends charges for wireless service with payments toward the balance of the device cost. For many such plans, carriers continue to charge customers the same amount even after they have paid off the entire cost of the smartphone, a practice that has been the source of numerous complaints.
“We’re confident our new device financing options are compliant with the code," Rogers spokeswoman Sarah Schmidt said. "Customers who choose device financing are on month-to-month service agreements with us. We’re doing what’s right for our customers and this is about offering them more choice and affordability.”
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