02/07/2013 09:30 EST | Updated 04/09/2013 05:12 EDT

Cellphone Contract Crackdown Sought By Competition Bureau

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People use smartphones to photograph the Nicholas K show during the Mercedes-Benz Fashion Week Fall 2013 collections on February 7, 2013 in New York. AFP PHOTO/Stan HONDA (Photo credit should read STAN HONDA/AFP/Getty Images)
Canada's competition watchdog told the broadcast regulator how it would overhaul cellphone contracts, including doing away with hidden fees and misleading claims designed to make it harder to switch carriers and keep prices high.

In a submission to the Canadian Radio-television and Telecommunications Commission, the Competition Bureau laid out changes it would like implemented in the telecom industry.

Canadian consumers have long complained about industry practices, including misleading claims and onerous processes that make it harder to get out of a contract and go elsewhere for cellphone services.

"Discouraging the creation of switching costs that tend to reduce customer mobility, and effectively encouraging the provision of sufficient information to enable informed consumer choice, will allow Canadians to enjoy the beneficial effects of greater competitive forces in wireless markets, including lower prices, higher quality service and greater innovation," the bureau said late Wednesday.

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Public consultations planned

Last week, the CRTC issued a draft document that laid out the changes it is thinking about making to the wireless industry. That document will be the subject of public hearings next week, and the CRTC had asked for suggestions on it. Wednesday's release by the Competition Bureau is a response to that request.

Among the practices the Competition Bureau would like to see disappear are long-term service contracts that compel staying in a bad deal. Not worrying about losing a customer keeps prices high and creates barriers to entry by new competitors, who can't provide a real alternative unless enough people are willing to switch.

"If entrants cannot attract customers due to high switching costs, then these entrants may not be able to become effective competitors," the bureau said in its submission, which came following the CRTC's request for input by interested parties.

The bureau says an easy solution to that problem would be to limit how long contracts can go for. Canadian cellphone contracts regularly stretch for three years, but under European law, they can't be more than two. Most U.S. wireless contracts are also two years, at most, in duration.

The bureau took aim at the process of "locking" cellphones, whereby carriers make devices unable to function on rival networks, further ensuring a customer is less likely to leave.

"The bureau believes that device locking should be prohibited in the marketplace, and that service providers should be required to unlock any previously locked devices free of charge," the submission said.

The CRTC's third suggestion to the bureau is to limit cancellation fees. Under the current system, if a customer switches wireless carriers before their long-term contract expires, the previous carrier often tacks on exorbitant fees. Some entrenched players have been known to charge a $20 fee for every month remaining on the original contract.

'Unlimited' data plans can have limits

On the advertising front, the bureau would like to see a halt to the practice of advertising "unlimited" data plans that in fact have hidden limits. Currently, service providers have the ability to move a customer to a "limited" plan if they exceed certain usage limits.

At the very least, the bureau would like wireless firms to be clearer with customers about what happens if they go over certain usage levels.

The bureau also recommends that the CRTC review the industry every three years, to keep up with the rapid pace of technological change.

The bureau's recommendations are non-binding, for the moment, and the agency will likely sit on the sidelines until it sees the outcome of whatever changes the CRTC ends up implementing.

But it's the strongest statement the competition watchdog has made yet that it doesn't like what it's seeing in Canada's wireless industry.