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Steps Required to Reduce Switching Barriers and Enhance Consumer Choice in Canadian Communications Services Market

New PIAC Report: Consumer Choice in telecommunications and broadcasting

OTTAWA – Canadians do not switch communications providers despite their dissatisfaction with pricing and service, says a new research report released by the Public Interest Advocacy Centre (PIAC). The report finds significant barriers to switching in the Canadian retail communications services market, with limited regulatory action taken so far to promote consumer participation in these markets. The retail communications services markets studied include: home Internet access services, home (wired) telephone, mobile phone (including telephone and data services), and paid television services (broadcast distribution, excluding “over-the-top” services).

”Consumers are reluctant to try out competitive communications services, despite feeling they can and should,” said John Lawford, Executive Director and General Counsel at PIAC. “There are clearly behavioural barriers as well as market barriers to exercising choice in these markets,” he added.

The report finds two set of factors limiting consumer choice in the Canadian retail communications services market:

  • First, there are considerable contractual switching costs – the most important being lengthy contracts with early termination fees for some services; charges for required equipment; and pricing structures such as “bundled” packages of several telecommunications and broadcasting services that inhibit choice of any particular service in isolation.
  • Second, human behavioural cognitive biases inhibit consumers’ decision-making in complex communications markets. These “heuristics and biases” inhibit them from disturbing their status quo by switching, or cause them to make poor choices if they do switch. These behavioral factors exist independently of the structural factors, but can interact with and indeed amplify the effect of contractual switching costs. Further, the communications companies appear to be well-aware of these consumer “behavioural economics” biases and to design their offerings with these in mind, to increase profit, but to the detriment of consumer welfare.

The report notes that the Canadian Radio-television and Telecommunications Commission (CRTC) has, over the past decade, tentatively addressed some switching costs barriers for some services (notably wireless telecommunications services) in regulatory codes of conduct. However, the report finds that regulatory and political action promoting choice and switching in all four communications services has been limited and uncoordinated.

The report therefore makes the following recommendations for enhancing consumer choice in the communication services market:

  • The CRTC should place an eventual ban on multi-year contract lock-ins for all communications services to enable customers would to be eventually on month-to-month contracts.
  • Communications service providers eventually not be permitted to link the sale of service plans to the provision of devices in contracts (3 year phase-out of device linking).
  • The CRTC should establish technical standards for enabling devices such as set-top boxes and related equipment so they are interoperable on all providers’ networks. This could also help in the long run to create a vibrant third-party market for the sale of such equipment and possibly lower service prices.
  • The CRTC should ensure that consumers have easy and widespread access to an online rate comparison and calculating mechanism, providing up-to-date information on the features and costs of all communication services in Canada, including bundles that can be easily understood. These services should be accredited by the CRTC to fairly function and produce reliable results.

To view the full report in English, click link.

To view the full report in French, click link.

The Public Interest Advocacy Centre has received funding from Innovation, Science and Economic Development Canada’s Contributions Program for Non-profit Consumer and Voluntary Organizations. The views expressed in this report are not necessarily those of Innovation, Science and Economic Development Canada or of the Government of Canada.

For more information please contact:

John Lawford
Executive Director and General Counsel
Public Interest Advocacy Centre (PIAC)
Tel: 613-562-4002 x 25
jlawford@piac.ca

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