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A man uses his cellphone in downtown Toronto September 3, 2013.

Fernando Morales/The Globe and Mail

The federal telecom regulator will ban wireless carriers from extending cancellation fees beyond two years for consumers who use so-called tab contracts to upgrade their smartphones before their term ends.

The code's main provision allows consumers to cancel cellphone contracts after two years without penalty – a move that will effectively spell the death of new three-year contracts. Although the code was unveiled in June, there was lingering confusion about how cancellation fees should be calculated in the case of tabs, which is a type of contract used to sell discounted smartphones. The new rules come into effect on Dec. 2.

Generally, a tab contract allows consumers to purchase a smartphone for a cheaper price, the subsidy for which is put on that person's tab. A certain percentage of their wireless bill is then applied to the outstanding amount each month until it is eliminated. This kind of contract varies from carrier to carrier.

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In its decision Thursday, the Canadian Radio-television and Telecommunications Commission said carriers would not be allowed to roll over cancellation fees from one smartphone to another if a customer opts for an early device upgrade on a tab plan. That means consumers will be required to fully pay off their existing tab – which is the remaining subsidy balance for their current cellphone – before upgrading their device.

It is unknown how many of Canada's 27.9 million wireless subscribers use tab plans as only some carriers offer them, including Telus Corp.'s Koodo brand, Wind Mobile and Eastlink. They are marketed as being more consumer-friendly than traditional cellphone contracts because they generally come with less onerous terms.

"The wireless code requires that service providers clearly indicate whether a device upgrade could extend the term of the customer's contract. Allowing customers to upgrade their device without clearly concluding their current contract and device relationship could reduce the certainty that this requirement was meant to provide," the CRTC said.

"At all times, customers must be aware that an upgrade represents a completely new contract with new obligations, rather than a continuation or extension of their original agreement."

In a separate decision on Thursday, the CRTC gave regional carrier Saskatchewan Telecommunications Holding Corp. an extended deadline to provide its wireless customers with caps on charges for data roaming and overage.

The wireless code will require carriers to limit national and international data roaming fees at $100 per monthly bill, while placing a $50 ceiling on overage charges unless consumers opt to pay more.

SaskTel, as the provincially-owned telco is more commonly known, was given until June 30, 2014, to upgrade its billing system and implement the change. The carrier, however, must comply with all other code provisions starting this December. SaskTel had roughly 612,000 mobile subscribers at the end of 2012.

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Carriers, meanwhile, continue to challenge another aspect of the wireless code. In early October, a group of carriers, including BCE Inc., Rogers Communications Inc., Telus, SaskTel and Manitoba Telecom Services Inc. were given clearance from the Federal Court of Appeal to contest a provision that would enable some customers to cancel three-year contracts ahead of term.

Specifically, carriers are challenging measures that give the code "retrospective application" to wireless contracts signed before it takes effect.

The CRTC wants the code to apply to all contracts no later than June 3, 2015. Carriers argue that some three-year contracts signed before Dec. 2 would normally terminate after June 3, 2015. Their main worry is recouping smartphone subsidies on those contracts.

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