In January we looked at the proposed changes to the rules that govern wireless service providers in Canada. Those changes have now been implemented and Canadian wireless providers are no longer allowed to offer 3 year contracts, 2 years is the maximum. In a surprise to no one with any understanding of how a business works, all the major providers have announced that their rate plans are increasing in price and that phones will now have lower subsidies and will therefore be more expensive. Thank you CRTC. Thank you for making cell phone service in Canada more expensive. Two possibilities exist. Either the people at the CRTC are completely incompetent or they are malicious. Let’s explore the first possibility as I would like to think that the government is not just straight up trying to cause harm to consumers.
As mentioned in a number of posts, I have no love for my service provider. Interacting with them is one of the most frustrating things I can do on a regular basis because it seems like they are actually trying to anger customers with every policy implementation. Any time they make a change to my account it is done incorrectly and a second phone call is required to fix it. However, I have been with them for over 10 years because I know that it is absolutely not any better at the other providers. I know this because I worked for one of their competitors, in the call centre, taking calls about people’s bills.
With the 3 year contracts a customer had some power to negotiate a deal every three years. So that tiny window every three years is the one time that Rogers, Bell, whoever you are using, cares to listen to you. That power is now diminished. Now you can sign up for a maximum of two years which means less guaranteed income for them and less power for you when you are negotiating a deal.
Back to how the CRTC thinks the world works. Cell phone companies are now going to lock people into 2 year contracts. Each of these new contracts is 1 less year of guaranteed income. When the Rogers’ accountant is balancing the books he now has one less year put into the net present value of a new contract. Less NPV, less posted profits.
Take a customer that stays with the company for 10 years. Here is an extremely high quality infographic to show the hardware upgrade cycle.
The phones represents when the company will offer a hardware subsidy to the customer. I will allow you to draw your own conclusions on how this might affect a company’s profits.
With less guaranteed revenue and more frequent payouts of hardware subsidies the cell phone companies raised their prices. If you hear someone say they are surprised by this then that someone either lives in a fantasy land of benevolent corporations or they run Canada’s federal telecommunications regulator.