Consumers confused about smartphone subsidies, Bell says

Consumers are wrong in thinking they've "paid off the subsidy" on their new iPhone or BlackBerry at the end of a three-year contract, Bell says.

Phone-purchase subsidy is actually a loan, consumer group says

Bell charges $139.95 for the BlackBerry Z10 with a 3-year contract and $649.95 without a term contract. (Andrew Winning/Reuters)

Consumers are wrong in thinking they've "paid off the subsidy" on their new iPhone or BlackBerry at the end of a three-year contract, Bell says.

That’s why the monthly service fee stays the same instead of dropping when their contract is up, the company’s executives told Canada’s telecommunications regulator Thursday.

"The discount on a device in return for a term contract is not a loan, it’s not a repayment schedule, there are no fixed fees associated with paying it back — our pricing is our pricing," said Wade Oosterman, president of Bell Mobility, at a hearing in Gatineau, Que., on a proposed wireless code of conduct that would set national rules for wireless contracts and fees.

CRTC commissioner Candice Molnar asked Bell Thursday about a proposal made the previous day by the Consumers’ Association of Canada, which claimed that the "subsidy" that consumers get on a smartphone when they sign a three-year contract is not a real subsidy, but simply a form of financing on handsets that would otherwise cost hundreds of dollars when purchased new at a store.

The group argued that the monthly cost of repayment on the handset should therefore be billed separately from the monthly service fees.

Jonathan Daniels, vice-president of regulatory law at Bell, said that was the wrong way to look at the discount.

"We’re not a financial institution, we’re not in the business of financing devices for people," he said.

From Bell’s perspective, the subsidy really is a discount on the retail price of a smartphone. He added, "We’re using the device subsidy as an economic inducement for people to make the commitment [for a three-year term]."

If wireless service providers were forced to separate the billing for the subsidy on the device from the service, they would likely stop offering discounts on new mobile devices, Daniels suggested.

"You’d end up with a situation where companies would stop subsidizing phones to the detriment of people having those handsets — the latest greatest handsets — in their hands, not just on Bell Mobility network, but on all networks across Canada."

Molnar said Bell’s perspective on the subsidies doesn’t align with what consumers believe.

"The device is not being perceived as gift for their business," she said. "Consumers view it as being that they’re paying off the cost of that subsidy over the course of that contract."

She added that Bell contributes to that perception by:

  • Offering a 10 per cent discount on monthly service fees to people who bring their own devices.
  • Charging an early termination fee, if a customer leaves part-way through their three-year contract, that requires a customer to pay back a portion of the discount on the device proportional to the number of months left in their contract.

Ruby Barber, Bell’s assistant general counsel for consumer markets, said the early termination fee calculation was what mandated by the Quebec government in its wireless consumer protection law because it perceived that to be fair, but the calculation could have been done a different way.

Banning 3-year contracts 'anti-consumer'

Molnar also questioned Bell about the possibility of doing away with three-year contracts — something that many consumers have complained stops them from being able to switch carriers. During, consultations on the wireless code, the public has overwhelmingly asked for two-year contracts to be made available, Molnar said.

Oosterman said Bell stopped offering shorter contracts, because three-year contracts are far more popular, and the shorter contracts were too costly to maintain in Bell’s billing system.

Daniels said the three year contracts allow Canadians to afford new smartphones and banning it "is actually anti-consumer."

He added that he believes the anger over three-year contracts would subside if consumers don’t have to pay such high termination fees and could get their phones unlocked, as the code proposes, allowing them to leave their contracts early.

"Frankly, you’re solving the real problem without doing the harm."

The hearings began on Monday and will continue until Friday. The public can submit comments to an online consultation until Friday afternoon.