Canadian iPhone buyers face long lock-ins

Softbank Corp., Japan's third-largest cellphone carrier, is the latest to announce it will sell Apple Inc.'s new-and-improved iPhone on a two-year deal, leaving Canadians wondering why they will be saddled with the longest contracts in the world if they buy the trendy device.

The Japanese carrier on Monday announced it will offer the new iPhone with eight gigabytes of memory for $215 US when it goes on sale on July 11, while the 16 GB version will cost $320 US. The company will subsidize the cost of the phone by requiring customers to sign a two-year contract, which typically has early cancellation penalties to make up for the subsidy.

Softbank's two-year deal is similar to one announced a few weeks ago by AT&T Inc., which will sell the new iPhone — which runs on faster third-generation, or 3G, cellphone networks — in the United States for $199 US and $299 US. AT&T's devices will also require customers to sign on for two years.

O2, the iPhone's carrier in Britain, has also announced it will sell the device with an 18-month service plan.

In Australia, which is a smaller market than Canada with only 21 million people, both Vodafone PLC and SingTel Optus Pty Ltd. have said they will give customers the option of buying the iPhone without a contract.

Rogers Communications Inc. announced earlier this month that it will bring the iPhone to Canada on July 11 at the same prices as AT&T, but it will require customers to sign three-year contracts. The company sells a number of phones with the option of one-, two- or three-year contracts, where the shorter the deal is, the more the customer pays for the device up front. The iPhone, however, will be the only device with just the three-year option.

A spokesperson for Rogers declined to comment as to why Canadian customers will have longer contracts than their counterparts in other countries.

"While I won't speak to our contractual agreement, all carriers are different," Elizabeth Hamilton said.

While it is possible another carrier elsewhere in the world could announce it will sell the iPhone under a three-year contract, a longer term than that is unheard of, making Rogers' plans the longest.

'Have to sign your life away'

Potential iPhone buyers have been criticizing the company's contract lengths in online forums since Rogers' announcement nearly two weeks ago.

"I really can’t stand the fact that now you have to sign your life away with a three-year contract to Rogers, when we all know that in a year or less there will be a better 3G iPhone with the above features and everyone will be stuck with this model," one reader posted in the iphoneincanada.ca forum.

"I completely agree with you guys.... Three years on the same phone is just not cool at all," another wrote.

The long contract may be an effort by Rogers to lock up customers before new cellphone carriers launch in Canada in the aftermath of an ongoing government auction of wireless airwaves, currently in its late stages. 

Rogers executives have refused to confirm they have an exclusive deal with Apple to carry the iPhone, meaning new entrants — a crop that potentially includes cable providers Quebecor, Eastlink and Shaw and telecommunications firm Globalive — could also offer the device when they start up, possibly as soon as early next year. They could alternatively offer deals that will allow customers who purchased iPhones from Rogers to run them on their networks.

A three-year contract would prevent Rogers' customers from defecting to new entrants and taking their iPhones with them. Under Rogers' current rules, cancelling a contract early incurs a penalty of $20 per month remaining in the deal, up to a maximum of $400.

An industry analyst suggested the longer contracts in Canada may be the result of a smaller market, which makes it more expensive for carriers to buy devices from manufacturers.

"That's the way the industry goes in Canada," said Amit Kaminer, an analyst for the Seaboard Group telecommunications consultancy. "It might be related to economies of scale and how cheaply the carrier is buying the phone."