Cellphone customers have bargaining power thanks to CRTC contract rule

If your cellphone provider has been calling you unexpectedly with offers of a better deal or a free phone upgrade, it's not a fluke. Canada's big three carriers – Bell, Rogers and Telus – are preparing for an unprecedented wave of customer free-agency as a new regulation kicks in on June 3.

And that wave could mean some good deals for people who are willing to bargain with their carrier.

While three-year deals are still technically allowed by the CRTC, the rule will effectively kill such contracts because they forbid carriers from charging early cancellation fees after 24 months.

As a result, anyone who signed a three-year contract before June 3, 2013, will be able to walk away from it next week without having to pay any penalty.

Customers who signed three-year contracts between June 3 and Dec. 2, 2013, may still be subject to a cancellation fee, but it will be calculated according to the Canadian Radio-television and Telecommunications Commission's Wireless Code formula and not the terms of their contract.

"It (the cancellation fee) will likely be significantly smaller than it would otherwise have been," CRTC spokesperson Patricia Valladao said.

Double-cohort

Along with the normal wave of two-year contracts ending in June, the CRTC rule means wireless providers are now facing a so-called "double cohort" – an additional group of customers who would otherwise have a third year left on their agreement. And that's making the carriers nervous.

A Scotia Capital report in January estimated the number of Canadians still on three-year contracts at the end of 2014 to be between 2.2 million and 4 million.

Phone companies have been contacting customers and offering deals in exchange for signing new two-year wireless agreements as a result.

"We have planned for this and have been actively working with customers, offering various promotions and packages," said Rogers spokesperson Michelle Kelly.

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All three carriers have also been advertising service discounts through their respective "flanker" brands – Virgin, Fido and Koodo – to customers who own or have paid off their phones. The "limited time" deals are typically offering popular 1 gigabyte, 2 GB and 3 GB plans for $10 off the regular price. 

Market watchers expect the deals to continue for the next few months, and say that now is a good time for consumers to shop around for bargains, and possibly switch to alternative regional providers such as Wind, Videotron or Eastlink that offer discounts.

"People can also go month to month and try Wind if it's popping up in your area, or maybe some of the other companies if they're lucky enough to be in an area where they [offer service]," said John Lawford, executive director of the Public Interest Advocacy Centre.

"It's usually better to be proactive about it than to wait for them to come to you," he adds

The double cohort means consumers have more bargaining power than usual, a fact that many still don't appreciate or act on.

"People still haven't got used to the fact that they have the power now, so they're not exercising their right to walk," Lawford added. "People don't know it's easier now. They still think if they switch, something bad will happen."

The CRTC's Wireless Code, which introduced several pro-consumer measures such as caps on roaming fees and handset-unlocking requirements, took effect in 2013.

The CRTC says consumers should familiarize themselves with the Code, which is available online in a simplified form.

The Code lays out the formula for contract cancellation fees and outlines how carriers must unlock phones if a customer leaves so that they can work on other providers' networks. A customer who is looking to switch providers, for example, may need to get their phone unlocked by their existing carrier before doing so, which could be subject to a fee.

"The fact that the Wireless Code now applies to [customers'] contracts… reduces barriers to switching," Valladao said.

"If a consumer thinks that their service provider is not following the Wireless Code, they can seek help from the Commissioner for Complaints for Telecommunications Services."

Opportunity for the carriers

The carriers had challenged the regulator's right to apply the 24-month contract cancellation rule retroactively to existing agreements. The Federal Court of Appeal last week ruled that the CRTC was within its jurisdiction in doing so, clearing the way for the double cohort of expiring phone contracts on June 3.

Bell, Rogers and Telus have said they do not plan to take the challenge to the Supreme Court and are instead looking to keep or lure customers with better deals.

"It's a clear competitive opportunity for all carriers and Bell's ready for it with the major investments we've made in networks, mobile services and distribution," said Bell spokeswoman Jacqueline Michelis.

"With just half our mobile customers now on 4G LTE, it's also a chance to upgrade many of them to the latest network technology as contracts expire."

Telus says it is well positioned to poach customers from rival carriers because of improvements in customer service. The company has fared well in recent reports from the CCTS and J.D. Power.

"Telus tends to do well when a lot of Canadians are looking for a new carrier, like the back-to-school period and Christmas. We expect we will do well at this time as well," said spokesperson Luiza Staniec.

While cellphone customers have extra bargaining power now, it may not last. Financial analysts expect the wave of deals could hurt the companies' profitability in the coming months, which is making consumer advocates wary that carriers  could resume price hikes once the threat of the double cohort subsides.

"They'll raise rates when they can. They'll raise rates if people don't switch," Lawford said.