Cellphone class-action suit gets green light
A Saskatchewan court has certified a class-action lawsuit against Canada's cellphone companies for their "system access fee,"whichcouldignite a struggle over billions of dollars consumers have paid to wireless providers for the monthly charge.
The suit, lodged by Regina lawyer Tony Merchant, alleges that Canadians have been misled by the carriers into thinking the access fee — typically between $6.95 and $8.95 a month — was a tax by the government or the Canadian Radio-television and Telecommunications Commission, when in fact it was simply extra revenue for cellphone companies.
The suit has been filed on behalf of the more than 14 million monthly cellphone subscribers, or nearly half the country's population, and seeks the return of an estimated $12 billion plus interest in charges. After interest, that would result in nearly $20 billion, or about $600 to $700 per customer, Merchant said.
The fee did indeed start out as a government levy for using the airwaves that cellphones run on, which consumers paid directly to Industry Canada. In 1986, the government department transferred collection of the fee to cellphone providers, who were to incorporate thelevyinto their monthly charges. But the carriers instead opted to keep them separate.
No other cellphone providers in the world charge a separate system access fee, and Canadiancarriers have used them as marketing tools, making their monthlyfees appear lower than they actually are, Merchant said.
"That's how they got into this crack cocaine [habit] of money coming in that didn't cost anything. They originally had a right to collect it because it was a special and separate tax, but when that ended, they just continued with the pretense of collection," he said. "It's like saying our fee is $30, but we have to charge an extra $10 because we have to pay income tax. That's no justification."
Keeping the fee separate has also allowed Canadian carriers to fare better in international price comparisons, he said.
Marc Choma, spokesman for the Canadian Wireless Telecommunications Association, a lobby group supported by the carriers, said each company has its own reasons for charging the fee. The carriers collectively pay about $150 million a year to the government in licence fees for using the country's airwaves, he said.
A spokesman for Bell Canada Inc., the nation's second-largest wireless operator,said the lawsuit had no merit but would not comment further. Rogers Communications Inc. and Telus Corp., respectively the largest and third-largest carriers, did not respond to a request for comment.
The carriers have in the past said the access fee is collected in part to pay their licence fees on airwaves and to finance the expansion and maintenance of their networks.
Financial markets did not take the threat to the three major carriers, among Canada's largest companies, seriously on Wednesday. Shares of Bell and Telusrose slightly on the Toronto Stock Exchange, while Rogers shares fell abouttwo per cent. Other smaller players are also named in the lawsuit, including SaskTel, MTS Allstream and Aliant.
Analysts said Saskatchewan's certification of the lawsuit did not necessarily add any merit to the case. Media reports also noted that Rogers, if not all three carriers, planned to appeal the decision.
"The issue has been around for nearly 10 years," said RBC Capital Markets analyst Jonathan Allen. "Being certified as a class-action is just an administrative change, it doesn't mean there's any change in the actual merits of the case."
Merchant disagreed and said certification means the judge felt there was enough merit to the lawsuit for it to go ahead. Court hearings for certification are under way in just about every province, and the Saskatchewan ruling should be carried over into the rest of Canada, he said.
"Generally, other provinces pay what is known as 'good faith and credit' to a decision in one court. It's not a big task to move into those other provinces."
The next step, outside of appeals, will see the carriers turn over billing documents to be examined for evidence of misleading business practices, Merchant said.
- Lawyer Tony Merchant is based in Regina, not in Montreal as originally reported.Sep 20, 2007 10:10 AM ET