Canada's wireless carriers are quietly ramping up efforts to hang on to customers in the face of a June deadline that will spark a period of increased shopping around with millions of subscribers free from their contracts at once.
That's when customers will be able to walk away – with no cancellation fee – from three-year agreements entered into before a national wireless code essentially capped contract lengths at two years.
In the code, the Canadian Radio-television and Telecommunications Commission (CRTC) said carriers must spread out the cost of recouping any up-front subsidies they offer customers on smartphones or other devices over no more than two years.
The code came into force in December, 2013, but it did not initially apply to existing three-year contracts, which for years were the norm in Canada.
The final implementation of the code, however, will take effect as of June 3, resulting in the so-called double cohort: In addition to the routine expiry of contracts, all remaining three-year agreements will also be terminated at that time, creating millions of extra free agents.
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.
The industry has been bracing for this period of heightened competition for months. Now, with just over two months to the deadline, analysts say carriers are ramping up their efforts, courting their remaining three-year customers by offering enticements to persuade them to stay.
In a report Monday, Barclays Capital's Phillip Huang highlighted Rogers Communications Inc. "actively reaching out to its high-value postpaid subscribers still on three-year contracts to migrate them to new two-year contracts by offering deeper discounts on smartphones."
Rogers spokeswoman Patricia Trott confirmed Tuesday the company has been taking steps to "mitigate the effect of the double cohort," and noted Rogers has been preparing for it since introducing two-year contracts in August, 2013.
"As part of our volume to value shift we've proactively focused on migrating customers whose contracts are expiring onto our higher [revenue] Share Everything plans," she added, referencing the company's recent change in strategy aimed at attracting higher-paying customers while accepting some subscriber losses.
In some cases, Ms. Trott said, Rogers has waived the remaining subsidy balances owing on contracts to retain high-value customers and move them to the company's new plans.
Rogers has the most to lose, say analysts, because it has the biggest customer base and a higher rate of customer turnover than BCE Inc. and Telus Corp., which leads the industry with the lowest rate of "churn." (BCE owns 15 per cent of The Globe and Mail.)
But Mr. Fan said in an e-mail he expects all of the incumbent carriers will be actively trying to upgrade high-value customers before June in an attempt to "smooth out the impact" of the deadline.
"None of the carriers have actually advertised on their websites or anything, but there's a lot of anecdotal evidence," Greg MacDonald, head of research at Macquarie Capital Markets Canada, said of increased retention efforts aimed at higher-spending customers, particularly by Rogers. "I think if you're a plus-$70 [a month] customer, you stand a good chance of getting a free upgrade on a new phone."
Analysts say increased retention spending by the incumbents will likely lead to lower profit margins during the period. Mr. MacDonald also predicted Wind Mobile, the fourth player in Ontario, British Columbia and Alberta, could take advantage of the increased customer mobility and specifically take aim at customers in the $50- or $60-a-month range.
When the code was first announced in 2013, a group of carriers, including Rogers, BCE, Telus, MTS Inc. and SaskTel, launched a court challenge over the final implementation date, claiming it amounted to the CRTC retroactively regulating existing contract terms. The Federal Court of Appeal granted leave to appeal and heard arguments during a hearing on Nov. 12.
A lawyer for the companies wrote to the court in early February seeking an update on the timing of a decision. In response, the court administrator said a decision would be rendered within the court's regular time frame, which is within six months of the hearing, suggesting a ruling should come by May 12.