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Canadians Face Triple Lock on Apple iPhone

Amid rumours that Apple is scaling back on its delivery of the iPhone to Rogers, my weekly technology law column (Toronto Star version, homepage version) focuses on the Canadian debut this week of the Apple iPhone. The arrival of a Canadian iPhone is expected to generate long lines at Rogers Wireless stores, though the pre-launch publicity has not been particularly smooth for the company.  Its announcement of iPhone service pricing set off a wave of online protest, as consumers noted the absence of an unlimited data plan, higher prices, and longer contractual commitments.  The Rogers offer is not particularly surprising.  Canada ranks toward the very bottom among developed countries for cellphone penetration as the lack of competition leaves Canadians with some of the highest prices for wireless services in the world.  Indeed, Rogers has a monopoly on the iPhone since it is the only Canadian carrier currently capable of carrying the device.

Most of the public criticism has focused on the uncompetitive data rates that render it difficult to maximize the iPhone’s potential.  Yet the bigger story is how the Canadian version of the device features a triple lock that is the result of onerous contracts, technological locks, and a legislative proposal from Industry Minister Jim Prentice that simultaneously locks consumers in, while locking the competition out.
The effect of locking out the competition is particularly striking since recent Canadian policy has emphasized the need to provide consumers with greater mobility and choice.  The government has introduced wireless number portability that theoretically allows consumers to switch providers but retain their phone number.  It has also conducted a successful spectrum auction that may yield future competitors.  In spite of those efforts, the Rogers release of the iPhone is the poster child for how these policy initiatives have failed.

The first lock on the iPhone is the contractual lock-in that comes from a mandatory three-year contract.  This is the longest mandatory contract for the iPhone in the world and it comes with huge penalties for consumers that seek early termination.  While the contract guarantees Rogers a steady three-year revenue stream, it also means that for most consumers the actual cost of the iPhone is at least ten times the $199 sticker price. This contractual lock is a direct result of the absence of competition and government inaction.  In the United States, AT&T (the exclusive iPhone carrier in that country) has announced plans to offer the option of purchasing an iPhone at a higher price with no long-term contract attached.  South Africa has gone even further, recently enacting regulations that limit cellphone contracts to a maximum of two years.

The second lock is a technological lock that restricts the device to the Rogers network (and Rogers approved roaming partners).  This provides Rogers with another guaranteed revenue stream for consumers who wish to use their device in other countries and effectively locks consumers out of wireless number portability should a GSM competitor enter the Canadian market.  While Canadian law remains silent on this issue, other countries, including France and South Africa, have mandated that carriers offer consumers the option of an unlocked device.

The third lock involves a legal lock against unlocking cellphones.  Ironically, while other countries use laws to unlock consumers, Prentice has proposed locking them in.  Bill C-61, tabled just prior to the summer recess, would make it a violation for Canadians to unlock their cellphones and bans the distribution of software programs that could be used to do so.  The United States has recognized the need to specifically exempt cellphones from locking provisions, yet months after claiming to prioritize consumers interests, Prentice's bill is silent on the issue.

26 Comments

  1. Joe Clark says:

    Misleading
    You know perfectly well that your article is misleading. The third “lock” doesn’t exist yet and probably never will.

  2. A bit off topic.
    This will sound a bit off topic, but when the cons finally get out of our government, will the group that replaces them be able to kill this bill even if it passes..I’m not to knowledgeable on how the current gov party can kill(if they can) a bill that was passed before they got in. as for this topic, I’ve said it once I will say it again this bill c-61 just reeks of corporate greed and influence, in fact at the end of the year I would like to see if Mr. Prentice had got any form of a steady “donation” from the corporations that are pushing for this bill. Stupid government individuals…can’t live without them..can’t kill ‘em.(-sarcasm)

  3. Anonymous says:

    Rumour : Apple is sanctioning Rogers for
    liked here: [ link ]

    while this is unconfirmed, i have had a conversation with a a rogers dealer claiming they have 190 Iphones for all of Alberta for launch.

    oh and “Joe Clark”, the third lock is proposed, and the articles title i s “Canadians face triple lock…” I don’t see what you feel is misleading?

  4. Anonymous says:

    George
    Excellent article and very true. So, if I have an unlocked iPhone as I do right now, I am breaking the law? What a joke.

  5. re: Unlocking/GSM
    For me half the appeal of my account with Rogers/Fido is that I’m not locked into their crap, hobbled hardware.

    Let’s not forget another famous Rogers misstep:

    [ link ]

  6. re: A bit off topic.
    “This will sound a bit off topic, but when the cons finally get out of our government, will the group that replaces them be able to kill this bill even if it passes..”

    The Liberals already tried to get this bill done long before the Conservatives took over. They will run that much faster than the Cons to have it passed. And the NDP? They’re a joke.

  7. Dave Johnshon says:

    When did we lose all rights?
    When did we, as consumers, start renting products instead of owning them? I’m serious here….

    Why is it that Rogers can sell a device, and basically hand me a list of things I am allowed and not allowed to do with it? The restriction to which roaming providers I can use is OUTRAGEOUS! If I walk into best buy to buy a new TV, best buy doesn’t run out and tell me I owe them 10 fees and I can never upgrade my firmware or I can never use it outside of Toronto etc…

    It’s so insane. These companies get more and more of a stranglehold on us as consumers, and they just keep testing the waters to see how much more restrictive they can be over their previous offering without having a mass walk out.

    The only way we’ll get some change in this country is if consumers start to stand up for themselves. Boycott the iPhone, and maybe we’ll see some better plans…

  8. Anonymous says:

    [ link ]

    Rogers told us something big was coming on July 11.
    Something bigger is coming every month for the next three years.
    Get the facts on the Rogers iPhone.
    Know the true cost before you buy.

    Rogers is the only cell carrier in the world that requires a 3-year contract for the iPhone.

    They do not offer an unlimited data option, opening the door to large over-limit fees.

    Rogers levies an extra charge for Call Display.

    For more facts about Rogers voice and data plans, please review these links:

    Cost comparison: high-end plans

    Cost comparison: low-end plans

    Debunking the page-view myth

    A look at over-limit fees (coming soon)
    Do you think the Rogers plans provide poor value for money?
    Do you think Rogers can do better?
    Send Rogers a message.
    Do not buy the iPhone.
    On July 11, let’s be able to hear a pin drop in Rogers & Fido stores.

  9. iPhone
    I’ll be buying my iPhone overseas where they have NOT locked the device to a particular vendor’s Network. Then I’ll switch SIM cards and use the device in Canada without roaming charges. I don’t believe that Rogers can lock out iPhones from other countries. in the meantime: NEVER buy a device with a CONTRACT. And Prentice will NEVER be able to control consumers from buying overseas where Cell Phones are all UNLOCKED!

    PS anyone else remember the PR and Business fiasco that Rogers perpetrated on BC Cable subscribers… Negative Billing . The public reaction forced them out of Western Canada. Now we need to Force them out of ALL of Canada.

  10. theirPhone
    There is another article quoting on how many units each store will get from ars Technica:
    [ link ]

  11. Careful…
    They can’t prevent iPhones from other countries from being used, but they CAN prevent those that haven’t bought iPhones from Rogers/Fido from using their iPhone plans (ie. the normal plans have even higher data fees).

  12. Say No to iPhone
    Do not buy this phone from Rogers. Period. That is the only way you, as a consumer, are going to change the market. Also don\’t forget to vote for the candidate that advocates fair copyright and consumer practices, because changes in law really only come at the political level.

  13. There are other options like the totally open and unlocked smart phone offering from openmoko.com

  14. another mike says:

    be careful
    The iPhone launch seems to be very anti-competitive and oriented to take advantage of the uninformed. At face value rate plans sound good and better than ever offered previously by Rogers. The reality is (and I know this business) do consumers really know what a megabyte/gigabyte is and how quickly it can be consumed? This is going to cost people big $$$.

    I explained the situation to my kids and told them to stay clear of the iPhone until there’s a reality check in Rogers’ Senior Management.

    I won’t even spend time discussing the short comings and disappointment of Prentice et al…

  15. R. Bassett Jr. says:

    Joe Clark’s comment
    Joe Clark wrote,

    “You know perfectly well that your article is misleading. The third “lock” doesn’t exist yet and probably never will.”

    Actually, yes that lock does exist and AT&T has in the past reported that they lost millions of dollars in subcriptions when people in the USA broke the digital locks on the US iPhone to subscribe to a different provider. Look it up on the interweb, the issue was extremely well reported.

    What you posted was completely ignorant.

    Dr. Geist is 100% correct. Bill C61 does not have a provision that exempts cell phones from the digital lock breaking restrictions. Therefore, damned near ever cell phone CURRENTLY BEING SOLD IN CANADA will be locked into what ever network provider the phone was set up on, unless a person BREAKS THE LAW by unlocking it. Currently, people just unlock the phone without worrying about breaking the law.

    Joe, that’s why people pay a third party $15 to $100 to “unlock” their phones – they are breaking the digital lock (sometimes physical/hardware, as was the case with the first iPhone unlocking), so they can connect to a different provider. You really made yourself look foolish by what you posted above; the iPhone does have a “digital lock” everywhere else in the world, apart from some places in the EU, where phones are forced to be lock-free for competative reasons. Currently, that lock on the iPhone is simply broken by those who purchase the phone. In fact, many Canadians already HAVE an unlocked US iPhone…

    Please, do a little research next time.

  16. Steven G says:

    I was going to get one, but not being able to use the device any way I like really turned me off… in the end here in Canada its nearly a $3000 device, without a fast unlimited data plan, locked down and utterly useless

  17. Steven G says:

    @Mike – No, folks dont have any idea really what MB/GB means, I was watching some Canadian Television the other day and a lady referred to megabyte and the letters ‘M,B’, I think it was CTV NewsNet, reporting on the iPhone, WTF!

  18. re: careful…
    @Dunro. My source informs me: Buy overseas unlocked. Buy a local SIM card, using a pay & talk plan on Fido or Rogers… You then use free wi-fi for web services, and for phone calls you pay as you go. You may not have all the features of a registered iPhone user on THEIR plan but you have freedom from THEIR huge unexpected Data Charges. And my source says that we’ll probably be able to get more features down the road…. NO CONTRACTS. UNLOCKED! is the Mantra.

  19. Dr Geist
    We Canadians owe Michael Geist a great big THANK-YOU for his tireless efforts in providing information and analysis on the state of Canadian copyright laws and how they are undermining our rights as consumers and citizens. Thank-you!

    PS Bill C-61 is backward looking and anti-consumer. And furthermore the minister is stone-walling hoping that they can get this bill passed by staying under the radar. Very Anti-Democratic.

  20. C-555
    On this note, Canadians in general pay far too much for our wireless communications, because of the monopoly that is ruling the field. Have a look at bill C-555 and sign the petition if you think it will help us. [ link ]

  21. wifi
    That’s why we need to push for country-wide open public wi-fi to free ourselves from cellphone providers. I do almost all my data usage on open wifi links on my unlocked Nokia E51.

  22. Joe Clark says:

    Misleading, not false
    I said “misleading,” not “false.”

  23. Joe Clark says:

    Unlocker! And proud!
    Oh, and R. Bassett Jr., I own and operate an unlocked shoephone.

  24. A Telco Security Dweeb says:

    The intersection of Bill C-61, security
    It should be noted that the recent move by Bell and Telus to force consumers to pay for incoming text messages, regardless of the origin or desirability of these messages, is an open invitation to abuse of the text messaging system by spammers and other cyber-criminals, at the expense of the innocent consumer (the victim) with the cellphone endpoint.

    Keep in mind that as traditional voice systems become merged with VOIP (Voice over IP) systems, all it would take is the compromise of a few strategic telco VOIP distribution points by Internet-based cyber-criminals, to inflict literally millions of dollars worth of unfair text charges to Canadian cell phone users, under the proposed Bell and Telus policies.

    In this respect, Bell and Telus are in a fundamental conflict of interest, because if they profit on a per-message basis for text messages of this sort, they have a built-in disincentive to secure their VOIP infrastructure. Is this what the Conservative government WANTS — to discourage the security of telco networks?

    The Conservative government’s recently introduced “copyright” bill, C-61, would make an already weak competitive situation in Canada as regards cellphones, far worse, because C-61′s draconian “anti-circumvention” measures would basically criminalize the use of a cellphone in any manner that either the manufacturer or phone company chose to prohibit, even if these prohibitions are for purely anti-competitive purposes such as preventing number portability.

    For example, what if a cell phone manufacturer / telco locks down a cell phone so that no third-party applications can be added to it, but then, in so doing, prevents the user from adding an application that automatically rejects incoming text messages from unknown phone numbers, or which acts like a conventional anti-virus application would on a regular PC? It seems that under Bill C-61, such a set of circumstances is easily conceivable, yet the anti-consumer, anti-security implications of it are obvious.

    Sincerely,

    A Telco Security Dweeb

  25. cost
    I believe the carriers feel justified in locking the phones because you rarely pay for the real price of the phone. Most phones, including the iphone are heavily subsidized. I got my phone for free when I signed up to a phone contract. Now that I know more about how the contracts work, and what the prices are, I don’t ever plan on getting a locked and subsidized phone again. I’d much rather own an unlocked phone that I’m free to use anywhere and how I please. I’ll also go the prepaid route, because I have no interest in being locked into a phone contract with outrageous termination fees. The cellphone world is as bad, if not worse, than the bank industry for nickel and dime practices. The new iphone on AT&T is being advertised as cheaper, but it’s actually more expensive by the end of the phone contract. The initial price is cheaper and that’s all the average consumer sees. Hopefully as Canadians get more experienced with cellphone plans, we’ll eventually hit a wall where Canadians reject the practices of these carriers and force change. It will be hard because our options are limited, but I know I’ll be making a big change when my contract is up. I’m also carefully watching the developments with Bell and Telus reportedly switching to GSM, and the wireless spectrum auction.

  26. Patrick Garrity says:

    Joe Clark is using weasel words. Must be the real Joe Clark we all know and loved to see out of office. Meanwhile, I am sucked into buying a Fido Iphone by a clerk who claims Rogers owns Fido and so the phone can be used on the Rogers network, only to find a year later my Iphone can’t be used on the Rogers network because it is “locked” to the Fido plans. Fido charged me $400 to get out of crappy Fido services only to still be trapped and unable to use my paid for phone anywhere else. Then, the clerk says to go on the internet and unlock it!!! What a piece of crap. We need to fire Prentiss and put Fido and Rogers into court.