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.

Thats whythe monthly service fee stays the sameinstead of dropping when their contract is up, the companys executives told Canadas telecommunications regulator Thursday.

"The discount on a device in return for a term contract is not a loan, its not a repayment schedule, there are no fixed fees associated with paying it backour 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 BellThursday 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 financingon handsets that would otherwisecost 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.

"Were not a financial institution, were not in the business of financing devices for people," he said.

From Bells perspective, the subsidy really is a discount on the retail price of a smartphone. He added, "Were 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.

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

Molnar said Bells perspective on the subsidies doesnt align with what consumers believe.

"The device is not being perceived as gift for their business," she said. "Consumers view it as being that theyre 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, Bells 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 contractssomething 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 Bells billing system.

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

Headded thathe believes the anger over three-year contracts would subside if consumers dont 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, youre solving the real problem without doing the harm."

The hearings began on Monday and will continue until Friday. The public cansubmit commentsto an online consultation until Friday afternoon.