As the CRTC continues its process to develop a Code of Conduct for the Wireless industry, yesterday it released a draft Code working document, once again inviting the public to comment on it.
There is a section that caught my eye because of an inconsistency.
In Section D3, under the heading of “Contract cancellation, expiration, and renewal”, there is a complex paragraph that describes an option under consideration for the calculation of early termination fees (Option 2 of D3.3). I have inserted two additional line breaks to make the section easier to read:
Early termination fees may apply to fixed-term and monthly wireless services as follows.
{line break inserted}Fixed-Term Service: If the consumer received an economic incentive and cancels the fixed-term service before the end of the commitment period, the cancellation fee may not exceed the sum of (1) the price of the services provided up to the effective cancellation date, and (2) any remaining economic incentive balance. The service provider automatically reduces the economic incentive balance by an equal amount each month over the commitment period. This reduction equals the value of the economic incentive for that fixed-term service divided by the number of months in the commitment period, and the cancellation fee can therefore be calculated using the following formula: (Economic Incentive) x (Number of Contract Months Remaining/Total Months in the Contract).
{line break inserted} If the consumer did not receive an economic incentive and cancels their fixed-term service before the end of the commitment period, the cancellation fee will be the sum of (1) the price of the services provided up to the effective cancellation date, and (2) the lesser of $50 or 10% of the monthly rate for unexpired months of the commitment period.
I understand the payback of the economic incentive portion. In effect, the CRTC is setting up the free phone offer or the discount on a phone as a kind of zero interest payment plan over the life of the contract. If you leave the carrier early, then you have to pay the remaining balance on the device.
If you didn’t get a phone or other upfront incentive, then you have to buy-out the remaining term of the service commitment, by paying $50 or a 10% of the service fees times the number of months remaining.
But notice: there is no service penalty for customers who got an upfront incentive. They pay off the phone if they leave early, but they don’t have to pay an additional $50 or 10% of the remaining balance on the service portion.
Why would you ever pay full price for a phone again? In fact, why would you ever buy a phone from anyone other than a phone carrier that offers a discount?
Was it the intent of the CRTC to end the sale of devices without subsidy, or did the CRTC fail to repeat the service portion of the early termination fee?
While some people may superficially view this as a consumer benefit, it is worth considering the alternative. View the device subsidy as a separate transaction from the service contract. Do you want the device “financed” by the carrier – no problem; or, shop around for the device – maybe the electronics stores will also offer financing or low enough prices to make the purchase from them more compelling. Then negotiate your services deal. Maybe you pay $5-10 a month less if you agree to a longer term contract and you separate the device discount from that discussion.
Would such a scenario lead to lower services prices for people who don’t get a new phone from the service provider with each contract?
The current reading of the termination fees could lead to unintended consequences that harms the sale of devices from independent electronics stores. These independent retailers help discipline the price of replacement phones, for those of us who drop them in the lake or leave them in the seat-back of planes.
Indeed, there could be a negative impact on the “no-contract” offers from alternate carriers that do not offer device subsidies. Will this ultimately lead to an increase in the price of devices?
Or was this just a typo?