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Canadians Face Triple Lock on Apple iPhone

By Michael Geist

Amid rumours that Apple is scaling back on its delivery of the iPhone to Rogers, my weekly technology law column (Toronto Star version, homepage version) focuses on the Canadian debut this week of the Apple iPhone. The arrival of a Canadian iPhone is expected to generate long lines at Rogers Wireless stores, though the pre-launch publicity has not been particularly smooth for the company.  Its announcement of iPhone service pricing set off a wave of online protest, as consumers noted the absence of an unlimited data plan, higher prices, and longer contractual commitments.  The Rogers offer is not particularly surprising.  Canada ranks toward the very bottom among developed countries for cellphone penetration as the lack of competition leaves Canadians with some of the highest prices for wireless services in the world.  Indeed, Rogers has a monopoly on the iPhone since it is the only Canadian carrier currently capable of carrying the device.

Most of the public criticism has focused on the uncompetitive data rates that render it difficult to maximize the iPhone’s potential.  Yet the bigger story is how the Canadian version of the device features a triple lock that is the result of onerous contracts, technological locks, and a legislative proposal from Industry Minister Jim Prentice that simultaneously locks consumers in, while locking the competition out.

The effect of locking out the competition is particularly striking since recent Canadian policy has emphasized the need to provide consumers with greater mobility and choice.  The government has introduced wireless number portability that theoretically allows consumers to switch providers but retain their phone number.  It has also conducted a successful spectrum auction that may yield future competitors.  In spite of those efforts, the Rogers release of the iPhone is the poster child for how these policy initiatives have failed.

The first lock on the iPhone is the contractual lock-in that comes from a mandatory three-year contract.  This is the longest mandatory contract for the iPhone in the world and it comes with huge penalties for consumers that seek early termination.  While the contract guarantees Rogers a steady three-year revenue stream, it also means that for most consumers the actual cost of the iPhone is at least ten times the $199 sticker price. This contractual lock is a direct result of the absence of competition and government inaction.  In the United States, AT&T (the exclusive iPhone carrier in that country) has announced plans to offer the option of purchasing an iPhone at a higher price with no long-term contract attached.  South Africa has gone even further, recently enacting regulations that limit cellphone contracts to a maximum of two years.

The second lock is a technological lock that restricts the device to the Rogers network (and Rogers approved roaming partners).  This provides Rogers with another guaranteed revenue stream for consumers who wish to use their device in other countries and effectively locks consumers out of wireless number portability should a GSM competitor enter the Canadian market.  While Canadian law remains silent on this issue, other countries, including France and South Africa, have mandated that carriers offer consumers the option of an unlocked device.

The third lock involves a legal lock against unlocking cellphones.  Ironically, while other countries use laws to unlock consumers, Prentice has proposed locking them in.  Bill C-61, tabled just prior to the summer recess, would make it a violation for Canadians to unlock their cellphones and bans the distribution of software programs that could be used to do so.  The United States has recognized the need to specifically exempt cellphones from locking provisions, yet months after claiming to prioritize consumers interests, Prentice's bill is silent on the issue.

Full post as published by Michael Geist on July 07, 2008 (boomark / email).