Wireless Number Portability Just a First Step

My weekly Law Bytes column (Toronto Star version, homepage version) focuses on wireless number portability, which makes its much-anticipated debut on Wednesday, allowing Canadian consumers to change their cellphone provider without surrendering their current phone number.  I note that while wireless number portability removes one lock that the providers have over Canadian consumers, the reality is that there are many more. 

First, many consumers are bound by long service contracts – three year contracts are common in the industry – that require full payment for the entire remaining term in the event of cancellation.  Changing providers does not alter this contractual obligation, leaving many consumers facing prohibitively expensive switching costs. Second, consumers may also find that their phone will only work with their current carrier, therefore necessitating the purchase of a new phone.  Most Canadian phones are "locked" to a particular provider and cannot be easily transferred.  Third, consumers committed to changing providers are likely to be frustrated by the lack of competition in the Canadian marketplace.  A study released last week noted that Canadians pay significantly higher wireless fees, particularly for high-end users, as compared to consumers in the United States.   Emboldened by limited competition, providers have not hesitated to pad their prices by adding the deceptive "system access fee." Contrary to popular belief, the fee, which adds nearly $100 per year to every wireless phone bill (MTS Mobility in Manitoba just increased its system access fee to $107.40 per year), is not a government-mandated charge but rather a slick method of camouflaging higher prices.

In light of these other concerns, Industry Minister Maxime Bernier should view wireless number portability as just the first step toward facilitating a more competitive and consumer-friendly wireless market.  Possible future moves include reserving spectrum for a new entrant in the forthcoming spectrum auction, eliminating the deceptive system access fee to encourage greater movement in pricing, and considering ways to free the equipment side of the market in light of the lack of transparency involving restrictions on phone-locking and the crippling of features that compete with the providers' own services.  The introduction of wireless number portability is a welcome, albeit long overdue development.  Given the remaining marketplace locks and limitations, however, more is needed to ensure that the option to switch providers is more than just illusory for most Canadians.


  1. two minds
    I am consistently of two minds about the long service contracts and phone locking.

    On the one hand, I fully agree that from the consumers’ perspective these things suck, and from an economic perspective they discourage competition. In fact, I am curious why (if?) there has been any private legal actions against these things. For example, against exorbitant cancellation fees as “liquidated damages” which are not a “genuine pre-estimate of the loss”, and against “system access fee” and phone feature-crippling as deceptive trade practices under the various provincial consumer protection acts. So, I do believe that removal of these things would further unlock the phone market and would likely result in cheaper rates for consumers.

    On the other hand, phone locking and long contracts are also what consumers pay for getting the handsets for a fraction of they actually cost to the provider. If Rogers sells you a $500 Razr for $99, how do you think it will recoup the cost? One can think of the early cancellation fee as simply paying the full price for the phone taht was purchased.

    Many comparisons have been made between wireless industry in Canada and the US and Europe where it appears that phone *usage* is much cheaper outside of Canada. However, those comparisons generally don’t include comparisons of handset prices. Anectodally, I know that in Eastern European countries customers pay full price for their phones and, by either correlation or causation, have no contracts and enjoy cheaper rates.

    Thus, we have to consider that getting rid of long term contracts and phone locking will in fact result in raising handset prices to, or near, their actual cost. The implications of this I believe are important to consider from two perspectives:

    In the first place, it is arguable that it will reduce the pace of introduction of new services in Canada, at least those that require new technologies and thus upgrades to the phones. The higher the cost of a new device, the lower the likelihood that users will upgrade it, or alternatively the more attractive the new feature would have to be. Given the geographical size of Canada and the small population density, this will put us even further technologically behind US and Europe.

    In the second place, the increase in handset costs will arguably price the service out of reach of more people than a more expensive monthly plan. There is a world of difference between a start-up fee of $500 vs. $100 and a monthly fee of $40 vs. $30. The former is much more prohibitive.

    Is this good or bad? I am not sure, but I believe that this is something that must be included in the discussion.

  2. Mike Schacter says:

    wireless industry
    Having worked in the cellular industry on and off for several years (read: summer job), I have noticed many of the same problems with very few justifications.

    First off, system access fees should be banned immediately. The use of them leads to deceptive pricing practices – nobody pays $20 for a $20 plan.
    At least in Quebec, they appear to be contrary to the Consumer Protection Act because the amount of the system access fee is not specifically mentioned in the contract. I can’t figure out how this hasn’t been attacked yet – especially in a class action suit.

    Cancellation fees, although abusive, are generally not unreasonable as long as they don’t exceed the discount that was given on the phone.

    The length of contracts (generally 3 years now) has also gotten to the point of being abusive. This item may be more difficult to change because from my observations, about 75% of customers outright refuse to pay anything for their cellular phone. The industry has (cleverly) trained customers into expecting a free phone – in this case, we only have ourselves to blame. On the other side of things, the providers are clearly acting in bad faith when they offer certain plans only with a contract term.

    As far as Canadians paying more than other countries for service – I say this is to be expected. Our country has one of the lowest population densities (even when we take into account the 85% of us that live close to the U.S. border) and someone has to pay for the wireless towers in the territories.

    Bottom line here is that M. Bernier must act if we are to remain technologically competitive.

  3. The lawsuit(s) against “system access fee” may be on their way. A brief search on eCarswell turned up a class action certification application reported at Frey v. BCE Inc., 2006 SKQB 328, [2006] 12 W.W.R. 545, 282 Sask. R. 1, 32 C.P.C. (6th) 223, accessible at [ link ]. The certification was refused on technical grounds, but leave was granted to amend the application.

    From the introduction:

    [4] As of July 1, 1985, the Department of Communications (now Industry Canada) required each mobile cellular subscriber to be licensed and to pay a fee for that license. Some of the defendants collected the fee from the subscriber and remitted it to the Department of Communications. Others did not and the subscriber was required to remit the fee directly to the Department. In 1987 this changed.

    [5] On April 1 of that year, the individual licensing requirement and the attendant fees were eliminated. In its place the Department sold radio channel licenses, also known as spectrum licenses, to the defendants as providers of wireless services. At about that time a certain charge appeared on the invoices sent to subscribers. The charge was described in different ways, including “license administration fees”, “system administration fees”, “system license administration fees” and “system access fees”. The description “system access fees” was the most common and it is the one I will use throughout intending it to include all others. That situation has continued to the present time. Therein lies the complaint of the plaintiffs.

    [6] They argue that when the individual licensing fees were abolished, the defendants continued to collect that fee under the guise of the “system access fees”. It is argued that they were not authorized to do so and they must account to the plaintiffs for the money received. The claim extends back some seventeen years (para. 110 of the statement of claim).

    [7] The defendants disagree. They say the “system access fees” are legitimate and constitute a charge to defray various operating costs of which only a portion is the cost of the spectrum license fee which they must now pay. It is argued that they are entitled to recover those costs and the suggestion to the contrary is without merit.

    On the basis of the particular statement of claim before it, the court found, at para 46 that:

    [46] I have concluded that it is plain and obvious that the pleadings do not disclose a cause of action for breach of contract, misrepresentation in any form, breach of fiduciary duty, conspiracy or a cause of action based on a statutory entitlement. However, I also conclude that the pleadings do disclose a cause of action for unjust enrichment. Accordingly, the plaintiffs have demonstrated compliance with the first statutory requirement that there be a reasonable cause of action.

    It should be noted that the rejection of all causes of action other than unjust enrichment reflected defects in the pleadings only, and not the actual strength of the plaintiffs’ case.

    Ultimately, the application was rejected because the court concluded that the representative plaintiffs lacked the expertise to conduct the action and there was no litigation plan before it.

    This decision shows that there are proceedings underway to bring the “system action fee” to the scrutiny of the courts, but that clearly legislative action is also required.

    A further note is that many existing customers may not be able to take part of the proceedings if their contract contains an exclusive arbitration clause. This is something that has been noted by the providers as well. Rogers’ most recent contractual agreement, which they tried to push on their existing customers, greatly strengthened the binding arbitration clause. Moreover, in another motion under the same Frey v. BCE Inc. case (2006 SKQB 331, found at [ link ]), that a motion to stay the action (once it has been certified) can be brought on the basis of an exclusive arbitration clause.

    In short, stay tuned 🙂

  4. Affordability of Wireless Sets
    Once we are freed of locking and a GSM universal standard services are available there will be vast market for used cell phones with dirt cheap prices. Moreover less attractive phone models will be available at very low prices. So buying a wireless set will not be any problem for a poor person. In India you can buy a brand new Nokia phone(low end model) for $40. If you want to have a wireless phone service, buying set will not be a problem at all. It is Canadian’s mind set of getting new recent model with paying full price that leads them to contracts for 3 years. Moreover, lack of compition have been pushing Canadians into long term contracts because there were not any options to be considered.
    In nutshell, locking is another machenism by which companies force their customers to stay, and this is out of customer control and it shall be stopped immediately.