Wednesday 13 February 2013

In support of three year contracts

Once again I feel alone in the world, unable to relate to others. What I think makes perfect sense is an evil practice that must be abolished to everybody else.

This time I'm talking about cell phone contracts. First, let me tell you how I shop for a cell phone. I walk into a store and I say: "what is the best phone you can give me for free?" If I agree to sign a 3 year contract I can get a better phone than if I sign a 1 or 2 year contract, so I lock in for 3 years and walk out with a pretty decent phone. I use that phone for 5 years or so, then I do it over again.

I'm not one of those people who suffers debilitating embarrassment and anxiety if my technology is more than 6 months old. I have been using my decent - and FREE - LG Android phone for a year and a half now. I am half way through my contract, and I have no real desire to upgrade the phone or bolt to a different carrier.

Of course, the phone is not really free. I pay for it each month. Part of my monthly contract fee goes towards covering the cost of the hardware that I'm using. If I lock in to a 3 year contract then my service provider can count on 36 months of fees and can therefore give me my hardware for less, or no, money. At the same time, if I break my contract I should pay a fine because I haven't finished paying for my phone.

Perhaps the contract termination fees are too high. Maybe more clarity is needed in cell phone contracts. Maybe service providers should provide unlocked phones and scale back obscene roaming charges and keep records of cell phone serial numbers to stop thefts and black market sales of iPhones.

I am not ruling out that there may be room for improved regulation in the cell phone industry, but to remove three year contracts is to remove choice. You would think that consumer groups would be advocates for more choice, but not in this industry.
Representatives of three consumer groups urged the national telecom regulator (CRTC) to do away with three-year terms in favour of capping contracts at two years.
"Consumers are sick of termination penalties designed to keep them locked into long-term contracts," said John Lawford of the Public Interest Advocacy Centre.
I have a bit of advice for consumers who don't like 3 year contracts: DON'T FUCKING SIGN A THREE YEAR CONTRACT!

"Oh, but the phones are soo expensive with a 2 year contract" whine the pale skinny-legged consumers without looking up from their phones because they're busy tweeting what stupid badge they unlocked on Fourfuckingsquare. Well you know what? The phones are expensive because you haven't shown enough of a commitment to the service provider to warrant a heavily subsidized phone.

That's simple market arithmetic. You get a cheaper phone with a longer contract, which happens to be perfect for people like me. But the cheap phones are dependent on people honouring their contracts.

"Honouring their contracts? Whaaaa?" said the skinny-legged consumer as she was uploading a 6 second Vine video of her cat yawning. Yes, contracts. Ask your Dad. He'll tell you.

The norm in some countries is that consumers pay full price for their phone -- say $600 or so -- and switch plans and providers at will. For some people this would be better. We are actually lucky in Canada in a way, because we have the option of getting a subsidized phone with longer term contracts. I stress "option" because nobody is forcing anybody to sign up for three years.

Our contract fees may still be high, but part of that is due to the high cost of covering our low-density but second largest country in the world with infrastructure. And we may still have less choice than we should have, but ultimately a lot of the problems that plague our industry could be solved with more competition instead of more regulation. This includes opening up our market to more foreign-owned service providers like Wind Mobile.

What we should not do is regulate an industry to cater to a specific class of consumer that signs long term contracts without knowing what those contracts are all about


Anonymous said...

I understand your points but two years should be the maximum length for a cellphone contract allowed by Canadian law.

This may be one of the decisions where ther CRTC actually gets it right.

If this means the end to free phones then so be it. Now if only we can get reasonable data plan pricing.

cherenkov said...

But why should two years be the maximum length? You haven't explained that.

unclebob said...

I asked Wind some time ago about their plans for Winnipeg and we were not in the cards at the time. I went back and asked again today but no answer yet. There is no doubt they are giving others a run for their money. I personally found Telus a bit more honourable than Fido or Rogers both on contracts and on fake roaming. No provider would be working with three year contracts if the public was not so willing to sign them.

The View from Seven said...

Just had a look at the comparative "1 min. of Prepaid Mobile Tariff Local (No Discounts or Plans)" rates on, a crowd-sourced comparative cost of living site. Canada is definitely up toward the higher end of the list, though Australia, Japan, Brazil, New Zealand and Greece are the highest. Not sure what the deal is with Greece, but it's interesting that the top four are either vast (Australia, Brazil) or mountainous (New Zealand, Japan).

Either would require more infrastructure per user: to provide satisfactory remote-area coverage in vast countries, and to provide fill-in service in valleys. (Unlike low frequencies, which flood across the landscape like water, the high frequencies used by mobiles are more like light, shooting right over the top of valleys and leaving shadows behind any obstacle they can't penetrate.)

Government competition policy also counts, and I agree that the government should try encouraging more competition -- such as by reducing or removing foreign ownership limits -- and only consider further regulation if that fails. Especially since mobile networks require huge capital investments, and foreign ownership restrictions limit access to the capital needed to improve and expand those networks.

Plus, the typical Canadian won't care whether the provider is predominantly Canadian or foreign, as long as the service is reliable and offered at a reasonable price.

Anonymous said...

Government should never have sold bandwidth.

Build the backbone and rent out the service to whichever provider wanted to enter the marketplace. This would allow the best competitive landscape.

As it stands right now, consumers are stuck and don't get the advantage of a competitive landscape.

Anonymous said...

I didn't think Wind was foreign owned

cherenkov said...

Bob: Wind should come here eventually. They want to establish in the large markets first.

VF7: Great comment. Thanks for the insight. Agree .. consumers do not care who owns the company as long as the service is good.

Anon2: I'm not convinced that the structure of the industry is as efficient as it should be either. Cell service might be considered a "natural monopoly" because of the high infrastructure costs. Duplicated infrastructure that we have is not efficient and adds to the overall cost. Might be better to have one governent-owned network of towers and lease out to private service providers who take care of the rest.

Anon3: wind is owned by an Egyptian, but the minority Canadian equity partners ostensibly have control of the company, which is how they got around the ownership rules ... with a lot of fuss. For more:

unclebob said...

reply is in

Hello Bob,

Thank you for contacting WIND. I'm not 100% sure either and there are so many rumours. What I can say is that it is coming this year, but the exact date is not known. Also there are two Wind towers up in Winnipeg being tested right now, which can be seen on coverage mapper

Hopefully we get you as a customer sooner than later.

Anonymous said...

Fido is now offering coast to coast calling. I suppose there will no longer be roaming charges, or long distance in Canada. I have yet to check out the offering but I am hopeful its not between just FIDO clients, like MIKE used to offer.

I am not sure why the government allowed long distance charges on the same network or for that matter roaming charges when all carriers had agreements to share their resources between themselves. Suffice to say, the consumer has been royally screwed.

As for infrastructure, its alot cheaper to install and maintain towers and arrays than plowing copper and optics into the ground.

cherenkov said...

Bob: good info. Next blog post: wind mobile coming to Winnipeg!

Anon: I don't know that its the government's job to outlaw long distance charges.

Anonymous said...

Same network ergo no long distance issues. Besides, as fido and verizon seem to be showing , there is no reason for the charges. Then again, skype has proven that for years.

One Man Committee said...

I'm with you on this one, cherenkov. I've had the same Telus Super Talk 15 plan for 8 years, and each time my contract is up I re-up for 2 or 3 years with a free phone. Most recently it was a year ago for an iPhone - not bad for a monthly bill that runs me about $28 (higher if I travel that month). I would hate to relinquish that buying power.

That being said, the industry could probably be pushed to provide more disclosure in the manner that payday lenders now have to. While in cellphone shops, I've noticed some consumers (typically younger ones) willing to sign whatever paper is put in front of them to get a free [insert cellphone flavour of the month here]. Better disclosure won't stop all of them from signing, but at least it might give some of them pause.

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