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A man looks at his phone while standing near artwork of a woman wearing a protective face mask, on the side of a building in Vancouver, on May 31, 2020.

DARRYL DYCK/The Canadian Press

Canada’s telecom regulator says device-financing plans that spread the cost of a smartphone over three years and force customers to pay any outstanding amounts before switching carriers violate the wireless code, which was designed to allow consumers to change providers every two years without penalties.

Canadian wireless providers offer monthly instalment plans that allow consumers to buy smartphones that can cost more than $2,000.

The Canadian Radio-television and Telecommunications Commission (CRTC) said requiring outgoing customers to pay the remaining balance on their financing plans immediately amounts to an early cancellation fee, because it would deter many people from changing service providers. The wireless code, which the regulator introduced in 2013, doesn’t allow carriers to charge cancellation fees after 24 months, effectively capping contract lengths at two years.

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Consumer advocates applauded the decision, which was the culmination of a review that lasted one-and-a-half years, saying it will prevent cellphone carriers from locking customers in for longer periods.

“This will allow consumers to shop around freely for the best deal, with their phone, every two years,” John Lawford, executive director of the Public Interest Advocacy Centre, said in an e-mail.

But Telus Corp. said three-year financing plans would have given customers the option to reduce their monthly payments by stretching out the costs of the increasingly expensive devices. “We are hopeful that the CRTC will reconsider its position at the next wireless code review,” the company said in a statement. That review is planned for 2022.

Wireless carriers – including BCE Inc.’s Bell Mobility, Rogers Communications Inc. , Telus and Iristel Inc. – began offering device-financing plans in the summer of 2019. The plans allow customers to buy smartphones, including the newest flagship devices from Apple and Samsung, for $0 down.

Previously, the companies would provide upfront subsidies on new phones to entice customers, and then build the cost of the device into the price of a two-year wireless service contract. The system was costly for carriers, which had to shell out for the subsidies, and confusing for consumers, who complained to the regulator that their bills didn’t decrease after the two-year period.

The industry has been shifting away from the subsidy model and towards device-financing plans, following a trend in the United States. In 2019, Rogers and Telus began offering financing plans with 36-month repayment terms – a practice that the CRTC asked them to halt while it reviewed whether it violates the wireless code.

The CRTC said it is giving wireless providers one month to update their contracts and sales and training materials in light of Thursday’s decision. Although carriers are not currently offering three-year financing plans, some may have been hoping to re-introduce them, and therefore may have references to them in some of their materials, the commission said.

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The CRTC opted not to penalize the companies for their past actions due to the complexity of the issue, and is instead focused on making sure future plans comply with the wireless code.

“We want to ensure that device financing plans are not being used to keep customers with their current provider at the end of their service contract,” CRTC chair and chief executive officer Ian Scott said in a statement.

The CRTC is also asking the federal telecom and television ombudsman, the Commission for Complaints for Telecom-television Services, to track complaints related to device-financing plans in its annual and midyear reports.

Laura Tribe, executive director of OpenMedia, an organization advocating for widespread inexpensive internet access, said the case demonstrates the length to which Canada’s largest cellphone companies will go “in their attempts to lock customers in with long-term commitments instead of enticing them to stay with more competitive pricing and finance options.”

Rogers said it is reviewing the decision. “We are always looking at ways to offer flexible, affordable options for our customers to purchase new devices, and we are disappointed in this decision,” spokesperson Andrew Garas said in an e-mail.

Bell also said it is reviewing the decision, but noted that it has never offered device-financing plans that went beyond 24 months.

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