07/03/2013 12:11 EDT | Updated 09/02/2013 05:12 EDT

Mobile carriers challenge CRTC's wireless conduct code

Canada's big-three wireless carriers have filed a motion with the Federal Court of Appeal to overturn parts of the CRTC's new consumer code for cellphone service in Canada.

BCE Inc., Rogers Communications and Telus led a group of wireless providers asking the Federal Court of Appeal Wednesday to overturn some parts of the CRTC code of conduct. Also involved are MTS, SaskTel and NorthernTel.

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In June, the CRTC announced new measures aimed at helping customers navigate their wireless contracts and costs.

The new code of conduct targets the high cost of using a cellphone or smartphone by capping additional data and roaming charges as well as the length of cellphone contracts, allowing consumers to cancel their wireless contracts after two years with no fees. It also makes it easier to switch to a new provider and makes phone contracts easier to understand.

Earlier this year, the CRTC held a lengthy public consultation process in which it asked consumers to send in their views on cellphone services. Thousands of Canadians did, and such issues as costs and contracts were singled out as the biggest problems.

The CRTC said the new code would take effect on Dec. 2 and that its provisions would apply to all wireless contracts by June 3, 2015.

CRTC 'overstepping' boundaries

In an affidavit included in Wednesday's appeal, John Meldrum, SaskTel's vice-president of regulatory affairs, said the company continues to sell three-year, fixed-term contracts in Saskatchewan, and expects to continue to do so until the wireless code takes effect in December.

Under those three-year contracts, SaskTel customers get a $500 device subsidy. Meldrum said the CRTC is overstepping its bounds by retroactively applying the wireless code to existing contracts.

"Wireless service providers that continue to offer three-year fixed-term contracts with a heavily subsidized device do not know whether customers will be entitled to cancel those contracts after two years without repaying the unpaid portion of their device subsidy," said Meldrum. "This uncertainty has led and will lead to confusion in the marketplace."

Shawn Hall, a spokesperson for Telus in Vancouver, echoed Meldrum's thoughts. "It sets a troublesome precedent if the government can change consumer contracts retroactively. We're seeking clarity to have the code applied to go forward rather than retroactively."

Wireless carriers argue that marketplace uncertainty will only be resolved once the court determines whether the new code will apply as of June 3, 2015, to contracts entered into before December 2, 2013.

Late last night,, a communications watchdog, responded to the motion, saying Canada's three telecom giants were "out of control."

"It is clear time for serious action to rein Big Telecom in and if need be separating out their infrastructure so new entrants can provide services on a level playing field," executive director Steve Anderson said.

"After vigilance by Canadians of all walks of life, policy-makers are finally starting to fix our broken telecom market. The old giant telecom providers had a chance to listen, but instead they’re taking Canadians to court with hopes to delay safeguards until nearly 2017," he added.

A statement from the office of Industry Minister Christian Paradis said the federal government supports measures "that put consumers first and fosters greater competition."

"Greater competition means better prices for Canadian consumers," said the statement "The new wireless code is a step in the right direction."

Subsidies recouped

At the core of the issue is how wireless providers apply subsidies on the devices they sell. When a consumer buys a cellphone today, the carrier typically discounts the upfront cost in exchange for a service contract, which is often three years on the latest devices.

The carrier then recoups the cost of the phone — which can be around $700 at the high end — through the monthly service fee over the term of the agreement.

If a customer wants to get out of the contract before the term ends, he or she usually has to pay a cancellation charge, which can be a combination of the remaining amount owed on the device plus arbitrary penalties.

The new code will require providers to clearly spell out in writing how much of a subsidy is being given, and how much will be deducted from the amount owing for each month of the contract.

Under the new code, subsidies must be divided evenly over a maximum of 24 months, and carriers won't be allowed to charge extra cancellation fees beyond recouping those subsidies.