CRTC to Implement Wireless Industry Code of Conduct

Blog, Disruption, Roland Renner

The CRTC is holding a proceeding to establish a Code of Conduct for the Wireless Industry (meaning cell phones).   This is unusual for the telecom industry although it has been used by the CRTC on the broadcasting side.  The Broadcasting Code for Advertising to Children is one example.   It isn’t traditional tariff regulation, it isn’t relying more on market forces, it is a kind of guided self-regulation, likely with penalties for violations.

Consumer anger has led three provinces to legislate provincial codes on mobile phone contracts.  The big cell phone companies through the Canadian Wireless Telecommunications Association (CWTA) proposed the Code of Conduct to avoid more legislation at the provincial level and having to deal with different rules in every province.  It took years to get the provinces out of telecommunications regulation and have a national market with the same rules and yet now, they are coming back into it through this path.

How did we get ourselves to this point?  Terrence Corcoran takes the consumers groups to task as leftist anti-market economic illiterates here.

He claims that the figures show that the market is competitive, consumers have no right to complain if they don’t read their contracts and that the CRTC and the provincial governments should get out of the way of business and let them compete.   Up to a point, I agree with this view, generally favouring free market competition as the best result for consumers.

If Corcoran’s portrayal  is the whole story, however, then where does all this consumer anger come from, enough to make three provinces legislate and the industry association propose a regulatory compromise?

Until recently, Canadians faced very high prices and bizarre pricing plans, terms and conditions, seemingly designed to ensure that they often crept over usage thresholds that made their bills shoot up.  Many people who have had to buy mobile phone service as an individual retail consumer and tried to shop for the best price/service combination have the same story to tell.  They faced a baffling array of plans that make it very difficult to compare among suppliers.  They faced retail and call centre staffs that were poorly trained, often getting contradictory information from the web site, the call centre and the local outlet.  Even the companies themselves couldn’t keep their plans straight at the retail level.  Of course those who are handed a phone by their corporate or government administration staff may have been entirely insulated from this experience.

Corcoran is correct that competition has improved this situation substantially over the past few years.  Prices have come down and service has improved.   With the licensing of Wind and Mobilicity, the big three sharpened their pencils.  My bill is about half of what it used to be and my usage is both higher and covers a wider range of services.

This competition is still, however, very fragile.  The new entrants still have a tiny share of the market even though they have simple plans and attractive pricing.  One of the main reasons for this has been the three year contract.  A huge part of the market is locked into a contract and cannot get out of it without paying a penalty until their three year anniversary arrives.   Once again I agree with Corcoran that consumers have no reason to complain about the three year plan.  They are paying for their smartphone over three years and would otherwise have to pay that up front.

It is also true, however, that the three year plan is the biggest barrier to competition in this market.  All markets are defined by a set of laws, rules and regulations.  Many other countries, no less market oriented than we are, do not have the three year contract.  Many of them have very competitive mobile phone markets.  There is a more competitive market for new phones in the retail market and flourishing markets in used and refurbished phones.

Getting rid of the three year plan will improve the competitive market substantially and have a bigger impact.  Iain Grant, a telecom commentator that also generally favours market competition agrees.

This is a better solution than a Code of Conduct, but a Code of Conduct we shall have.  To a large extent the big three have brought this upon themselves through their behaviour when they had more dominant market power, generating lasting consumer resentment with the political strength to motivate government to change the structure of this market.  Participants in the CRTC proceeding who favour  more competition must be vigilant to ensure that the Code of Conduct “has teeth” and does not simply serve to entrench by semi-regulation the market share that the big three currently enjoy.