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Cellphone users cross Bay street in Toronto's financial district.Gloria Nieto/The Globe and Mail

Canada's biggest cellular carriers have lost a legal challenge over a looming deadline that is expected to spark an increased period of competition for wireless customers.

The Federal Court of Appeal has dismissed a challenge the carriers launched over the final implementation date of the national wireless code introduced by the Canadian Radio-television and Telecommunications Commission (CRTC).

The code came into force in December, 2013, and said wireless providers 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 did not initially apply to existing contracts, although three-year terms had been the norm in Canada for years. But as of this June 3, the code will apply to all agreements, meaning anyone still on a three-year contract (who has been on that contract for at least two years) will be able to walk away without paying off the balance of the device subsidy they owe and no additional cancellation fee.

In addition to the routine expiry of two-year contracts at that time, the impact on those three-year contracts will create millions of extra customers who are free to shop around for a new device and plan, creating what the industry has dubbed the so-called double cohort.

Shortly after the CRTC first announced the code in 2013, a group of carriers – including the Big Three Rogers Communications Inc., BCE Inc. and Telus Corp., as well as regional players Manitoba Telecom Services Inc. and SaskTel – launched a court challenge over the final implementation date, claiming it amounted to the CRTC retroactively regulating existing contract terms.

(BCE owns 15 per cent of The Globe and Mail.) The case took almost two years to wind its way through the courts. The Federal Court of Appeal heard the appeal in November and on Tuesday – more than six months later – it dismissed the carriers' challenge and ordered them to pay unspecified legal costs.

Justice Denis Pelletier, writing for the unanimous three-member panel, found the code did apply retroactively to contractual rights already entered into before the code came into effect.

However, he found the CRTC's decision to interpret its governing legislation in such a way that gave it the right to make the code retroactively effective was reasonable.

"It is reasonable to have all customers on the same footing as soon as possible," Justice Pelletier wrote.

He also noted that it was important to consider the code as a whole and that it also related to the final implementation of other customer protection measures such as plain language in contracts and the provision of critical information.

Despite the pending legal appeal, Canadian carriers have already been bracing for the June 3 deadline, ramping up efforts to convince their existing customers to stay by offering perks such as discounts on new devices and waiving the remaining subsidy balances owing.

Internet and consumer activist group worked with lawyers from the Canadian Internet Policy and Public Interest Clinic (CIPPIC) to oppose the carriers' challenge and called the decision Tuesday a "major win."

"This is a great win for Canadians, and sets a strong precedent for the CRTC's ability to stand up for great choice and affordability in Canada's telecom market," OpenMedia campaigns manager Josh Tabish said in a statement.

BCE spokesman Mark Langton said "the ruling is clear and we'll comply."

Representatives from Rogers and Telus were not immediately available for comment Tuesday evening and it is not known whether they will seek further leave to appeal to the Supreme Court of Canada.

Clarification: This article has been updated to clarify that after June 3, customers on three-year contracts will need to have completed at least two years of their contracts before they can walk away without paying off the balance of the device subsidy they owe and incur no additional cancellation fee.

Follow Christine Dobby on Twitter: @christinedobbyOpens in a new window

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