August 26 2010 by Ellen Roseman
A new report by the SeaBoard Group, called Death Grip, says Canada’s wireless phone companies bind customers to overly long contracts. As a result, the penalties we’re paying are “downright draconian.”
The cost to cancel your iPhone 4 contract after six months is $256 with AT&T in the United States. Compare that to Canada’s big three — $500 with Rogers, $600 with Bell and $680 with Telus.
In Canada, the most popular contract length is 36 months. This is twice the length of a typical British postpaid contract (18 months) and one-third longer tha a typical U.S. wireless service contract (24 months). The longer the contract is to begin with, the larger the penalty for breaking it will be.
Quebec has passed a new law that says the penalty for breaking a contract can’t exceed the value of the subsidy given on a new phone — and must go down every year.
SeaBoard says the new entrants (Wind, Public Mobile and Mobilicity) can’t compete because the spectrum they’re using isn’t yet supported by the hottest of the smartphones.
You cannot get an iPhone that works on the AWS spectrum â€“at least, not today. So, if you are in the market for a smartphone in Canada and elect to get a subsidized phone rather than pay Apple the full $779 (32GB), your only option is a three-year contract from Bell, Rogers or Telus.
And, given that it is your only option, well, one can appreciate that the incumbents are loath to break ranks and give up the three-year handcuffs. So, without the smartest of smartphones driving competition, inertia prevails.
This 32-page report is written in techie talk, so if you find it a slog, just go to the chart on page 17. It shows the iPhone 4 cost over the lifetime of a contract in Canada is $3,689, compared to $2,396 in the U.S. and $1,598 in the U.K.
Shrink the contract terms and make the subsidies more transparent, SeaBoard advises wireless carriers. Otherwise, consumer anger will invite more regulation.
Carry on, though, with the contractual death grips in place at present and you will simply be inviting the governmentâ€™s “help” to sort it out.
The choice is clear, but be careful: act soon, or the Future may well not be Friendly.