GATINEAU – "The Commission is of the preliminary view that certain device financing plans may create a new barrier for customers to take advantage of competitive offers in the market.
“In particular, customers, who may benefit in the immediate term from lower monthly costs related to their devices, appear to be asked to accept terms and conditions that may require them to stay with their current WSP after the end of their wireless service plan commitment period or be charged for the remainder of the cost of the device,” reads the notice from the CRTC when it opened a show cause proceeding into the three-year device financing plans launched by carriers this summer.
The official intervention period ended on October 15 and the reply phase to those interventions ended Tuesday, October 29th. Unsurprisingly, it seems positions remain unchanged. Bell, The Coalition for Cheaper Wireless Service (CCWS), Québecor, Rogers, SaskTel and Shaw filed replies.
Bell, Telus and Rogers criticized the Competition Bureau’s analysis and reiterated their views the DFPs (some call them EIPs, or equipment installment plans) are not a violation of the CRTC’s Wireless Code and went further by suggesting the Code be amended to allow longer service contracts to match DFPs citing the awkwardness of having a two-year service plan to a three-year DFP, forcing the consumer to pay a third of the value of the device if it wants to switch providers.
Such a change to the Code has been suggested by carriers in the CRTC’s main wireless market review proceeding.
“The Competition Bureau however, takes the position that the Commission should exercise caution in concluding that the introduction of longer device financing contracts will necessarily increase consumer affordability because such a view would emphasize solely the consumer benefits associated with lower monthly device payments while ignoring the benefits to WSPs associated with decreasing device subsidies,” reads the Bell reply.
The Bureau’s position “appears to be based upon a faulty and incomplete understanding of device financing arrangements. First, any consideration of device affordability in this proceeding must also take into account that the introduction of device financing arrangements into the Canadian marketplace has allowed for significantly lower upfront device costs for consumers that might otherwise have been a barrier to purchase in the past,” it went on.
Rogers adds: “The Bureau and Shaw attempt to belittle the positive impact of longer-term device financing arrangements on affordability by reference to the fact that monthly financing costs are a function of both the device cost and the financing term. But the unequivocal fact is that if device prices increase—as they have—longer term financing plans mitigate the impact of the increase on consumers. WSPs are price takers with respect to wireless devices; it is device manufacturers that set these prices.” (Rogers’ emphasis)
(Ed note: Shaw belittled away on Friday during its Q4 conference call with analysts, too, as we reported.)
Québecor reiterated that DFPs are patently identical to subsidy schemes anyway and therefore should be covered by the Code. However, they also would like a change to the Wireless Code to allow longer recovery periods for devices which are getting ever-more expensive.
Of course, Quebecor could not resist accusing Bell, Rogers and Telus of contradicting themselves about whether 36-month plans increase the costs to consumers to switch providers by comparing their interventions to their responses to the RFIs.
Shaw provided the Commission with quotes from Telus and Rogers earning calls which the company says show the incumbents real reasons for wanting longer device financing windows. “As Telus announced to shareholders on its July earnings call… ‘we’re only days and weeks into these new plans, but our device cost promo has now dropped below $100, and that’s an interesting and exceptional result when you think that we were running hot on COA and COR costs [cost of acquisition and cost of retention] that are in excess of $500’,” repeats the Shaw reply.
“Similarly, as noted by Rogers on its July earnings call: ‘We currently spend over $2 billion each year on handsets, including significant subsidies that only benefit customers wanting new handsets. With reduced subsidies going forward, combined with eventual securitization of those financing receivables, this plan is expected to expand margins, be accretive to Adjusted EBITDA and drive stronger cash flow going forward’,” Shaw’s reply went on.
CCWS reminded the wording of the CRTC regulatory policy establishing the Wireless Code, back in 2013 says: “The Commission considers that consumers should be able to switch WSPs, upgrade devices, and take advantage of competitive offers at least every two years, in order to contribute to a more dynamic wireless marketplace and to enable consumers to take advantage of technological advances.
“In this regard, the Commission notes Bell Canada et al.’s submission that a portion of its customers’ devices are at least two years old. However, the record of the proceeding indicates that while such devices may continue to be functional, they are less likely to be supported by their manufacturers, covered by a warranty, or technologically comparable to contemporary mobile devices, given the rapid pace of technological advancement,” says the group’s reply.
CCWS then warns “well-informed consumers may understand some of the risks associated with $0 down-payment, 0% interest, 36-month financing plans. However, some vulnerable Canadians (for example, teenagers purchasing their first phones, students, low-income Canadians, seniors on fixed incomes) may not, and they may inadvertently find themselves committed to a relationship with their WSP that they cannot realistically or financially escape.”
Although, in a show cause proceeding like this the burden of proof would be on Bell Canada, Iristel, Rogers and Telus to prove they did not violate the Wireless Code but in this instance the CRTC will ensure that its decision is airtight, as it is likely a decision against the carriers would be appealed.
