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In an apparent challenge to the limits of the federal telecom regulator’s rules, Rogers Communications Inc. plans to let customers pay off the increasingly expensive cost of smartphones over a period of three years rather than two.

Toronto-based Rogers will announce the details Wednesday of $0-down financing offers for any smartphone – including the newest flagship devices from Apple and Samsung – and says it will allow customers to spread the repayment out over either two or three years, giving them the option to pay in full and leave at any time.

Already popular in the United States, device-financing plans are new to Canada and analysts expect they could shake up the pricing dynamics of the industry by enticing consumers to buy higher-priced phones and reducing the cost of device subsidies covered by cellphone companies themselves.

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But financing plans longer than two years have not yet been evaluated by the Canadian Radio-television and Telecommunications Commission. According to the wireless code, which the CRTC introduced in 2013, cellphone carriers that offer an up-front 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.

Since then, smartphone prices have steadily climbed – now approaching $2,000 for larger models – and customers tend to keep devices for longer than two years, creating demand for longer-term financing options that cost less on a monthly basis, according to Canada’s largest carrier.

In limiting plans to two years, the CRTC intended to allow consumers to shop around for competitive offers and switch carriers more easily. With three-year financing terms, however, customers would face the financial burden of repaying the balance of the device cost even if they switch carriers after two years.

The new device-financing option is part of a package of pricing changes Rogers announced last month, including a move to offer larger data plans for less. National rivals Telus Corp. and BCE Inc. quickly followed with similar data offers and Telus moved last week to be the first of the Big Three carriers to offer $0-down, interest-free financing for any device. (Rogers announced plans to do so in June, but is officially launching them on Wednesday)

In an interview last week with the telecom trade publication Cartt.ca, Telus president of mobility solutions Jim Senko said his company also wanted to offer customers the option to pay for the device over longer than two years, but said that the CRTC rules do not allow it.

Brent Johnston, president of wireless service at Rogers, says he believes that separating the device-financing payments from the cost of wireless service keeps it within the rules. “We’ve read [the code] carefully. It’s our opinion that it’s compliant," he said in an interview.

“Clearly it’s the right thing from a customer perspective. It offers more affordable choice and that’s the primary consideration here.”

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Mr. Johnston drew a distinction between the existing “subsidy” model, in which carriers pay part of the device cost up front and charge a higher monthly rate for service, and the new “installment” plan options.

He said with installment pricing, once customers have paid off the cost of the device, their monthly charges automatically drop down to just the price of wireless service. That is not the case with most existing subsidy plans in Canada, for which carriers continue to charge customers the higher, blended price of subsidy and service, even after the device has been paid off and the term of their contract is up.

“On a subsidy agreement, the repayment of the phone is embedded in the monthly service fee. One of the criticisms of subsidy models is that they are not transparent. It’s hard for the consumer to understand what they’re paying for service and what portion of their monthly bill is paying off the value of the device,” Mr. Johnston said.

He acknowledged that the practice of continuing to charge a higher rate even once the device subsidy is paid off has drawn numerous customer complaints.

“I would agree this is an opportunity to make things more clear, simple and fair for customers," he said, although Rogers confirmed it will continue to offer devices under the existing subsidy model.

Asked about whether separating the cost of financing the device from the monthly charge for wireless service would allow for spreading the repayments out over longer than two years, a CRTC spokeswoman did not answer directly but referred to the terms of the wireless code.

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“To empower customers, early cancellation fees are limited to a maximum period of 24 months,” Patricia Valladao said. “A customer can cancel their contract after two years with no cancellation fees – even if they have agreed to a longer term.”

Bay Street analysts have said the $0-down financing option could actually save Canadian carriers money, based on estimates that the companies pay about $400 to $500 on average for devices under the subsidy model and expectations that they will only pay about $100 under the new installment model. Some analysts also expect that carriers may be able to absorb the high up-front cost of devices by packaging the financing contracts into bonds or other securities.

Mr. Johnston would not comment on either of those issues, saying Rogers is in a quiet period with respect to its financials ahead of July 23, when it will report its second-quarter earnings results.

New financing options vs. traditional subsidy model

Example of monthly costs for regular retail price of an iPhone Xs 64GB (no term price of $1,410) with Rogers Infinite 10 plan, which includes 10GB of max. speed data

CostsDevice financing (24 mos.)Device financing (36 mos.)Device subsidy (Edge 40 plan)
Upfront Cost of Device$0 $0 $450
Monthly Service Fee$75$75$115
Monthly Cost of Device$58.75$39.16$0
Total Monthly Bill$133.75$114.16$115.00
Total Expenditure$3,210$4,109.76$3,210

Source: Rogers

Note: Pricing as of July 10

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