Friday, July 11, 2008

Why Canadians Are Getting Fleeced By Cell Phone Companies

Bookmark and Share
The recent public outcries surround the pricing for the plans that Rogers charges for the use of the iPhone, and Bell and Telus announcing plans to charge for incoming text message have brought to light how much more Canadians pay for cell phone service than cell phone users in other countries. What has to be on the minds of many Canadians is how we got into this mess with a few companies charging high rates and fees on top of fees?

In the early days given Canada's large land area in compairson to the low population density meant that building the early cellular networks were very expensive. There were very low numbers of subscribers in the first few years which meant paying thousands of dollars for a bag phone which was required because the nearest cell tower may be as many as twenty kilometres away. Airtime minutes cost dollars instead of the pennies they are today. As the number of subscribers grew cellular infrastructure was built and phones got smaller and more convenient to use which meant costs could come down which it did but didn't come down as much as in other countries.

Everybody who has a contract with their cell phone pays a monthly system access fee of $6.95 ($8.95 for Bell subscribers) per month. Originally the system access fee was paid to the federal government but that ended in 1987, so what was originally a government tax grab became a profit grab for the cell phone industry. Another 'fee' which is a profit grab is the 911 fee just about every telephone (both wireline and cellular) subscriber pays, 911 is actually funded through municipal taxes not telco fees.

The Telcos and Rogers have consistantly agrued before the CRTC is that Canada is a small market for cell service, which in the first decade of cellular service in Canada may have been true. That is probably why only two companies (ClearNet and Fido )were allowed to enter the market in the mid 1990's when Digital cell service came to Canada. Clearnet was bought out by Telus in 2000 and Fido was bought by Rogers in 2004. Both had to pay millions to buy their CRTC licences through the auction process. The costs of buying licences through the auction process and building cellular infrastructure left both Fido and Clearnet with billions of dollars of debt which made them easy take over targets. Any new company entring the market now is already at a disadvantage because of license auctions.

There is very little doubt that the cell phone companies are gouging consumers, but don't forget that the feds have their dirty little hands in the pie too.

No comments:

Blog Archive