Canadians have world’s longest mobile phone contracts

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 –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 government’s “help” to sort it out.

The choice is clear, but be careful: act soon, or the Future may well not be Friendly.

21 comments

  1. Riscario Insider | @riscario

    Aug 26 2010

    Canada’s #1 in the world … but in the wrong category.

    The lengthy phone contracts are indeed frustrating. With the continual innovations in handsets, keeping a phone for three years makes you increasingly out-of-date.

    It’s too bad that Wind etc use spectrum that the new devices don’t support.

    There’s an interesting post by Mitch Joel about business practices entitled Don’t Be Evil, http://www.twistimage.com/blog/archives/dont-be-evil/

  2. Richard Cooper

    Aug 27 2010

    It’s a cash grab ploy; cell companies know that people want the newest toys, so 36 month contracts are big money makers for them.

    Broken cell contracts with penalties enrolled for settlement with us often range in the $1,000 – $2,000 range.

  3. second opinion mike

    Aug 27 2010

    In Canada, we allow the competitive drive to be curtailed by a group of incompetent beaurocrats at the CRTC. Nothing they touch will ever be efficient, well run, or have any consumer focus.

    We give up our rights to political appointees who are anti free enterprise and who make decisions based upon their aristocratic view of themselves as making the big decisions to help the little people who cannot make substantial decisions like:

    - Where to buy a phone and how much to pay.

    - What long distance fees should be.

    - What cable or satellite to watch and how much to pay for the privilege.

    In short, the problem goes away when incompetent political appointees are fired and real competition is allowed!

    In the meantime, Bell, Rogers and Telus can laugh at consumers and provide the lowest service for the highest price.

  4. talltad

    Aug 27 2010

    Hey Ellen, interesting blog. I think there’s a few key things that your missing.

    The land mass of Canada makes the Canadian Wireless networks – which are some of the best in the world – one of the most, if not the most, expensive networks to maintain and operate in the world.

    The handset subsidies are consumer driven, in North America the consumer tends to not want to pay full price for a handset and demands a deep discount. Therefore the Carrier Drives the Demand for handsets. Take the European model or Asian model where the Manufacturer drives the market. People pay almost full price for top handsets and the carriers run much leaner contracts(1y or 2y max). Hence your UK contract length comparison.

    Canadian Costs are high, simply because the cost to operate a network and the subsidization of the handsets. Operating a network with a maximum potential client base of 35 million users is pale in comparison to that of the US operators which have a potential client base of 350 million. Therefore their revenue generated per user can be much much lower than that of Canadian Network operators.

    just my thoughts, I think your blog is a little misleading.

  5. Kris

    Aug 28 2010

    I don’t think that Ellen’s blog is “misleading” so much as it is consumer-focused. The carriers have well-funded marketing departments that publicize their offerings for them. They like to talk about what they do for their customers, but let’s not kid ourselves- they are corporations. They are in business to make as much money as possible for their shareholders.

    Let’s not pretend that extending cell coverage in Canada is not a profitable venture. It wouldn’t be done if it were not profitable. It may not be as profitable as it is in countries with even greater population densities, but I think that the carriers seem to be getting by.

    Since I can’t afford my own marketing or legal department, I’m thrilled to have Ellen on the consumer’s side, and I hope she will continue to provide a consumer’s perspective on the goods and services available in Canada. Just like the corporations want to get the maximum profit possible, I want to get the maximum value possible for the dollars I spend in the marketplace.

    One other thing about our friendly neighbourhood carriers- I think that they are indeed finding creative ways to bump the profit margin up in Canada. I question the price that we pay for handsets through our carriers. While I can buy an unlocked Blackberry Curve for $279.99 from newegg.ca, my carrier quotes an unsubsidized price of about $499 (this information is only available in their stores, the figures are not available on their website). If the UK carriers are offering phones at fair market value, rather than the inflated prices I’m seeing in Canada, I’d much rather buy the phone outright than be locked into a plan. While I could be wrong (and I hope I am), it seems like the Canadian carriers are also inflating cell phone prices to encourage customers to choose to have their phone subsidized and therefore lock themselves into a plan.

  6. talltad

    Aug 28 2010

    Kris,

    Let’s breakdown the Handset Cost that your talking about.

    Curve 8520 – New Egg Price – $259.99 – T-Mobile Branded handset.

    Carrier Price

    T-Mobile – $279.99
    Bell – $399.95
    Rogers – $349.95
    Telus -$349.95
    Verizon – $359.99

    The Canadian Carriers are all around the same, minus Bell running with a $399 price tag. Canadian Carriers are simply handcuffed by their limited purchasing power. However it seems at the end of the day it’s not too bad or Verizon is Selling at a larger Profit.

    T-Mobile has 150+ Million subscribers world wide and I would assume has a significant agreement in place with Blackberry to purchase at a much lower price therefore able to sell the handset cheaper on their website and then leverage their partnership with NewEgg to ensure lean inventory management practices.

    From what I see I believe your wrong about the assessment that CDN providers are jacking the price up to inflate profits. Reality is that MFG’s like Apple run with 60% Gross Profit Margins on handsets and Consumers turn to the Wireless Carriers and blame them for these high costs…I don’t know RIM’s profit margins, but I can’t see them being far behind Apples.

    To your initial point Kris, this blog is a little Misleading simply because it is not informing the consumer properly and slanting in a direction that is adding fuel to the fire rather than really trying to help people understand their costs and options.

    If this has come across a little rude, I’m Sorry, I’m simply trying to be informative.

  7. Jason Wong

    Aug 28 2010

    Talltad, you’re full of tall tales.

    You claim that Canadian wireless networks are some of the best in the world – not true. An an example, RIM has gone on the record multiple times saying that Canadian wireless carriers are holding back progress.

    The number of Canadians owning cell phones is much less than in other OECD countries. Sensible Canadians are more likely to look at the ridiculous cellular fees and keep their landlines.

    You claim that Canada’s land mass makes networks more expensive to operate.

    While it is true that Canada is a large country with a low population, that isn’t an explanation.

    The vast majority of Canada’s land mass has no cellular service whatsoever, because almost nobody lives there.

    Canada’s cell phone networks are located where most Canadians live, and this is a very very small part of the country. The vast majority of Canadians live within 200 km of the US border.

    Rogers once had an ad campaign claiming that their network covers 92% of Canadians, which is very different from claiming that their network covers 92% of Canada.

    Here’s an example – Rogers’ coverage in Saskatchewan:

    http://images.comparecellular.com/coveragemaps/19/large.jpg

    They cover Saskatoon, Regina, and a few highways. That’s it.

    Ultimately, the reason Canada’s cell phone carriers charge so much is that they can. It is an industry protected from foreign competition, and the Chretien government made a big mistake when they allowed Telus to buy Clearnet, and Rogers to buy Fido. Not surprisingly, prices increased shortly after due to less competition.

    Sadly, Canadian telecom policy for decades has been that it is better for Canadians to be fleeced by Canadian companies instead of charged a fair price by a foreign company.

  8. Kris

    Aug 28 2010

    Talltad, my carrier is none of the above. Until you can inform yourself about the prices advertised by Tbaytel (a company run out of Thunder Bay, Ontario), don’t pretend to tell me how much a handset costs. I’m sorry if that comes across as rude, but I’m simply trying to be informative.

  9. Rob

    Aug 28 2010

    Talltad, you forget about the fact that most plans require a one year contract or higher (many require 3 year contracts – especially on Rogers), even if you don’t buy any hardware.

    Oh, and if you change your plan, your contract is now extended for 3 years from the date of the change.

    Why do they do this? Because they can. Nowhere else in the world is this done.

  10. talltad

    Aug 29 2010

    I knew it would come across the wrong way..not trying to start a war of words but theres some interesting comments here

    Networks-HSPA+ is readily available with almost all the major carriers with some even moving to HSPA+ Dual Cell in just a couple months. In terms of technology Telus & Bell have a very advanced Network Nationwide. Rogers has it in the urban cores. I’m not sure what Rim was referring to but in regards to Network technology Canada is in the upper echelons and aggressively moving towards LTE(4G)

    Canada Coverage/Population – Jason, your bang on about the service not provided in a vast majority of Canada as a whole. The statements regarding Population % are accurate, however and you still have to take into consideration the expansiveness of covering those 93%. It’s still a massive amount of land that service is available.

    Saskatchewan – No doubt about Saskatchewan, there’s really only about 3% of the countries population. Also, I believe SaskTEL has something to do with the Networks there. Reality is that outside of urban cores and major travel corridors, it’s simply not profitable to provide coverage for the carriers.

    Government – Regulations have changed, with the inclusion of Wind Mobile that allowed a shift in policy towards foreign investment. It’s going to be interesting in the next few years to watch this all play out.

    Kris – TBay Tel – You have me there, I’ve heard some harsh things about them.

    Rob – Rate Plans – Most plans are available on Month to Month, however I’m sure the richer feature plans are contract based. As far as rate plans changes go, I can’t speak from experience but I’ve never had to resign for 3 years or be charged because I modified my rate plan. That’s bad business practice and I would look at exploring your options if that’s the case.

  11. Joe

    Aug 29 2010

    @Rob —– Your cell provider should not be renewing your contract for a simple price plan change. The only time that may happen is if you’re accepting some sort of a retention plan that comes with added perqs or if you’re doing a price plan change in conjuction with a hardware upgrade and the phone is subsidized.

  12. Marie

    Aug 29 2010

    Whatever people think of this column, I still think that a contract with unspecified terms should not be enforceable.

    I wish someone with a good lawyer would get the cell phones companies for that. It does not make sense when companies can change the terms of a contract at will, but the consumer cannot bail out.

    I believe that it is reasonable if all the details of a contract are spelled out prior to signing. If the company want to have regular increases, that is fine — as long as they are explained clearly.

  13. Cynthia

    Aug 30 2010

    Since I am not a crackberry iphone carrying need to have it, need to use, my phone is a pay as you go. I would also like to the see the end to the expiring minutes/dollars that are added to our account.

  14. watchingthewatchmen

    Sep 1 2010

    Like everything else in our consumer based society, purchasing power of the average citizen decreases while profit corporate shareholder demand increases. We can make excuses and extrapolate statistics all we want but until we burst the bubble of corporate mantra used to justify why citizens have to pay for sub-par services they can’t afford; due to surreal profit expectations; nothing will change for ordinary citizens who want to have a decent life without the BS.
    Have the execs and fattened shareholders take a pay cut; because they can live quite comfortably with half of what they make; and give consumers quality for what they pay.

    http://www.talltad.com/wireless-business-solutions.html

  15. talltad

    Sep 6 2010

    @watchingthewatchmen, I definitely work in the industry, but if you look at all my posts there’s no slant to my knowledge.

    I’m admittedly biased to my company in regards to my professional standing. I believe out of all the wireless companies, Telus is an amazing place to work and be a client; I know I try my best on a daily basis to ensure my clients get the best possible experience.

    I didn’t choose to respond with my work hat on, though. I know a lot about the industry as a whole and I often feel that consumers are not informed properly.

    I believe there is a false expectation that is improperly set by our access to American media and it’s simply more expensive up here in every sense of the word. It’s a different industry north of the border with different factors up here.

    I’m a paying customer as well and would love to get everything and pay next to nothing.

    Follow me on twitter – @talltad – ain’t no conspiracy here man.

  16. jim c

    Oct 15 2010

    I read with amusement the comments from the industry booster. He states the blog is misleading because it doesn’t inform the consumer properly and slants the discussion. Thanks for the laugh! Getting lectured by a shill for the industry, as if he is capable of providing a comprehensive or balanced view of the facts. “there’s a few key things your(sic) missing” yourself talltad. You could start with disclosure…oh wait you did admit to working for Telus, it was just after you had been called out. On the topic of missing facts how about an explanation for carriers locking phones to their networks? Is it because of the subsidized prices? Hmmmm. If that were the case then why not unlock the phones when the contracts run out? Why are phones that are paid for in full still locked? The answer is, carriers lock the phones because they can. No legislation prevents them from doing so and their ‘clients experience’ is of little consequence since they have no viable alternative.

  17. libtec

    Feb 3 2012

    These telecoms are fleecing us to death. If this country can cut this cartel, the sooner the better for us.

    I hate to hear everything in Canada has the best wireless network, Canada is the best place to live. I wonder where this talltad lives!

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