Submission to CRTC consultation 2018-422: Mandatory code for Internet services

December 20, 2018

On this page:

  1. Introduction
  2. Summary
  3. Recommendations
  4. Forthcoming Recommendations
  5. Conclusion and Summary of Recommendations
  6. Appendix A: Recommended Language

I. Introduction

  1. Pursuant to section 125 of the Competition Act, the Interim Commissioner of Competition wishes to intervene in this proceeding, and is pleased to submit these comments of the Competition Bureau ("Bureau") in response to Telecom Notice of Consultation CRTC 2018-422 ("Notice of Consultation"), published by the Canadian Radio-television and Telecommunications Commission ("CRTC") on November 9, 2018.Footnote 1
  2. This submission was prepared pursuant to the Bureau's role as an advocate for the benefits of competition. In this role, the Bureau advocates that regulators and policy makers regulate only where necessary and that they rely on market forces as much as possible to achieve the benefits of competition. Where market forces are insufficient to achieve certain policy objectives, the Bureau provides advice to regulators on how to implement policies that achieve their objectives in a minimally intrusive way.
  3. In addition to this advocacy role, the Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace by administering and enforcing the Competition Act and related statutes, throughout the Canadian economy.

II. Summary

  1. The CRTC is seeking comments on its proposal to establish a mandatory code of conduct ("Code") to address consumer contracts and related issues – including a perceived lack of contract clarity, bill shock, and barriers to switching service providers – for retail fixed internet services.
  2. The Bureau supports the establishment of the Code and makes five recommendations to address impediments to competition in internet services.
  3. The Bureau's recommendations seek to:
    • minimize the effects of switching costs which tend to reduce customer mobility;
    • encourage the provision of sufficient information to enable informed consumer choice; and,
    • reduce regulatory burden, where appropriate.
  4. These recommendations create a framework for increased competition in internet services, which will benefit Canadians through lower prices, higher quality service, and greater innovation.
  5. To that end, the Bureau makes the following recommendations:
    • Customers should receive quotes that are clear, simple and standardized;
    • The Code should be competitively neutral, without being unduly burdensome;
    • Advertised prices should include all mandatory fees;
    • Services represented as "Unlimited" should actually be unlimited; and,
    • The Code should be reviewed regularly, and in concurrence with other codes.

III. Recommendations

a. Quotes should be clear, simple and standardized

i. Impediments to competitive forces

  1. Certain impediments continue to diminish the effect of competitive forces in the internet services industry.
  2. First, certain industry practices have tended to impose costs on consumers who wish to avail themselves of competitive alternatives. These are called switching costs.
  3. Switching costs deprive consumers, businesses and the Canadian economy of the benefits of competition. Switching costs have been shown to harm competition,Footnote 2 for example, by making it harder to win new customers and therefore more difficult for new entrants to compete. In addition, switching costs reduce the incentive for established service providers to discount their prices and innovate as customers' incentives to switch are diminished.
  4. In the context of internet services, switching costs include both monetary costs, such as cancellation fees, and non-monetary costs, such as the time and mental burden involved with searching for a new provider and comparing what are often complex service offerings.
  5. Second, consumers are not always provided with sufficient information, or information that is explained in an adequately clear manner, to make informed purchase decisions.Footnote 3 This can further exacerbate the time and mental costs associated with switching services.
  6. For example, as part of their Consumer Switching Behavior Research Report, Ireland's Competition and Consumer Protection Commission found that 25% of consumers who had not switched their broadband internet service provider identified a perception that "switching [involved] more hassle than the benefit" as the biggest barrier to switching.Footnote 4
  7. The pressure on service providers to offer better prices or innovate is a function of consumer mobility. The number of customers who are willing or able to switch service providers has to be large enough to make a competitive strategy of lowering prices and innovating profitable. Switching costs soften competition by diminishing that pool of contestable customers.
  8. The CRTC attempts to address these impediments in the Internet Code Working Document ("Working Document"); however the Bureau recommends that additional measures be put in place to further minimize their effect.
Consumers need to be able to compare competing service offers to simplify decision making
  1. Purchasing telecommunications services, such as internet services, can be a complex task – requiring consumers to compare hardware, software, network and pricing structures simultaneously.Footnote 5 Further, learning through repeat purchases is limited as new technology and offerings are released frequently.Footnote 6 Such complexity may increase consumers' uncertainty when comparing products and prices, and is further complicated when different services are bundled together.Footnote 7
  2. Due to the complexity associated with telecommunications purchases, valuable insights can be derived from behavioural economic theory on consumer behaviour and biases.Footnote 8 In behavioural economics, behavioural evidence is used to demonstrate that observed decision-making can deviate from "optimal" or rational decision-making because humans simplify complex decisions using mental short cuts that result in behavioural biases.
  3. Studies comparing individual usage of telecommunication services with available pricing plans have concluded that many consumers are on suboptimal pricing plans due to specific behavioural biases.Footnote 9
  4. In particular, two well documented behavioural phenomena may be applicable: the Status-quo Bias and the Competence Hypothesis.
  5. The Status-quo Bias holds that individuals are reluctant to exchange something they already have for something they do not. Unless the gain of deviation is sufficiently attractive, with little uncertainty, individuals tend to favor the status quo.Footnote 10
  6. The Competence Hypothesis predicts that if consumers do not feel competent to assess product value, they may be disinclined to take the risk of making a mistake.Footnote 11 This is consistent with evidence on reluctance to make choices as these choices become increasingly complex.Footnote 12 Decision-making may be perceived to be so complex that some consumers may simply refrain from decision-making altogether or, if they do make a decision, it may be the 'wrong' or suboptimal choice.Footnote 13
  7. Consistent with the principles of the Status-quo Bias and the Competence Hypothesis, studies examining consumer intentions for switching telecommunications services have found that consumers need to perceive relatively large gains to be willing to switch from their existing provider.Footnote 14
  8. The Bureau recommends that the CRTC mandate a clear, simple, standardized quote that would be provided to a customer after an offer is discussed with a service provider or its third party representative to allow the customer to compare offers from competing service providers more easily. This would promote switching and stimulate competition by eliminating some of the cognitive costs faced by consumers. Additional detail specifying the content and format of the standardized quote will be provided in the subsequent section (section III (a) (ii)).
Key contract terms should be further simplified to ensure they are read and understood by consumers and service providers 
  1. The Bureau's experience is consistent with the Commission for Complaints for Telecom-television Services' ("CCTS") finding that there continues to be a mismatch between what a customer expects when they subscribe to a service, and their actual experience with the service.Footnote 15 The Bureau often receives complaints about discrepancies in expectations and reality with respect to billing charges, service delivery or usage.
  2. The CRTC mandates that service providers provide a Critical Information Summary ("CIS") in both The Wireless Code and Television Service Provider Code. The CIS clarifies elements of telecommunications contracts that are a persistent source of confusion and dispute and seeks to ensure consumers have the information required to make informed choices.Footnote 16 The CRTC has proposed to include a CIS in the Working Document.Footnote 17
  3. While the CIS has simplified contract terms, studies show that very few individuals actually read or understand contracts, license agreements, terms of service, privacy policies and other agreements.Footnote 18
  4. In the 2017 review of the Wireless Code, the CRTC noted that despite some recent progress in addressing the issue of contract clarity, CCTS reports show that misleading or unclear contract terms continue to be the most prevalent complaint received by the CCTS for wireless services.Footnote 19 In their 2017-18 Annual Report the CCTS reported that almost 18% of all wireless service complaints related to non-disclosure issues, and that the number of non-disclosure complaints has increased by 104% since 2016-17.Footnote 20
  5. To ensure contract terms are well understood by both parties to a transaction, a more accessible method for communicating the key terms of reference is needed to decrease the instances of disputes in relation to misleading or unclear contract terms.

ii. Recommendation

  1. The Bureau recommends the development and implementation of a clear, simple and standardized quote that would be provided to a customer after an offer is discussed with a service provider or its third party representative. The standardized quote would be included at the beginning of the CIS, summarizing the key components of the contract in simplified terms. The CIS would provide further information about the quote, including a breakdown of total monthly charges.
  2. The recommended format of the standardized quote is based on the results of a scientific lab experiment performed by the Danish Competition and Consumer Authority ("DCCA") that was aimed at improving the effectiveness of terms and conditions.
  3. The DCCA's study, titled Improving the Effectiveness of Terms and Conditions, found that when terms and conditions are presented in an up-front and simplified format, consumers:
    • Notice terms and conditions more and use them more actively in their decision making;
    • Perform better on subsequent tests asking them to identify specific terms and conditions;
    • Need less time to navigate and compare terms and conditions; and,
    • Experience less frustration while searching for specific terms and conditions.Footnote 21
  4. Based on their findings, the DCCA concluded that terms and conditions need to be simple, easy to locate and easy to compare across competitors. The Bureau proposes a standardized quote designed in accordance with the principles of the DCCA's findings.
  5. A standardized quote makes products and services more easily comparable, which can encourage service providers to compete more vigorously.Footnote 22
Factors that should be included in a quote
  1. The standardized quote should aim to simplify the aspects of comparisons that are most important to the customer.Footnote 23 Based on the nature of the complaints received by the Bureau and the CCTS,Footnote 24 the following factors are recommended for the CRTC's consideration to be included in a standardized quote:
    • Initial monthly "all-in" price, including all mandatory costs (i.e. modem rental fees, etc.);
    • Duration of initial monthly "all-in" price;
    • Monthly "all-in" price, after the promotion expires;
    • Any one-time costs;
    • Monthly usage allowance;
    • Average performance that can be expected at peak times;
    • Cancellation fees; and,
    • An indicator to signify if there are any additional promotional offers or other special terms included in the quote (this information would be detailed in the CIS).
  2. All service providers should follow the same standardized quote format. Figure 1 illustrates the recommended format for the standardized quote.

    See long description

    Figure 1. Standardized Quote

    The above image is a visual representation of what service providers should strive to follow as a standardized format. As part of the visual example, the Critical Information Summary is on the left pointing towards the Standardized Quote on the right. Contained in the Standardized Quote is the recommended format that should be followed which contains the following items:

    1. one-time costs—with the example price of $20,
    2. all-in monthly price—with the example price of $60,
    3. duration of price/promotion—with the example duration of 1 year,
    4. all-in price after promotion expires—with the example price of $80,
    5. average bandwidth speeds—with the example of 30 Mbps,
    6. monthly usage allowance—with the example of unlimited bandwidth,
    7. cancellation fees—in which none are listed, and
    8. special terms—in which none are also listed.
  3. Any additional information that is required to be disclosed as part of the CIS should follow the standardized quote. Terms and conditions stipulated in any disclaimer, including the fair use policy, should not contradict, fundamentally limit or alter the information provided in the CIS or standardized quote. Furthermore, no contract should come into effect until the consumer has read and approved the CIS and standardized quote.  
  4. The Bureau recognizes that service providers may wish to provide customer inducements beyond what is listed in the standardized quote. Innovative service offerings should be encouraged and nothing should preclude a service provider from providing additional customer inducements. Therefore, the Bureau has included an indicator to signify if there are additional promotional offers included in the quote beyond what is listed in the standardized quote. Those terms can then be described in the CIS. This avoids limiting the ability of service providers to innovate while still ensuring certain key terms are well understood and standardized across service providers to allow for comparability.
  5. The Bureau recommends regular review and testing of the standardized quote to maintain a service provider's ability to offer innovative services and ensure that the factors represented in the quote continue to reflect what is most important to consumers.  Testing could be accomplished through, for example, public opinion research.Footnote 25
  6. As part of this proceeding, the CRTC has requested that interested persons provide alternative wording for the Working Document, with supporting rationale, where they consider that changes, additions or removals are necessary. The Bureau provides suggested alternative wording in relation to the standardized quote in Appendix A.

b. The Code should be competitively neutral, without being unduly burdensome

  1. The CRTC is of the preliminary view that limiting the initial application of the Code to large facilities-based service providers would strike an appropriate balance between addressing consumer concerns and not placing a heavy regulatory burden on smaller service providers.Footnote 26
  2. The CRTC cited that 73% of complaints received by the CCTS in 2016-17 related to five large facilities-based service providers: Bell Canada, Rogers Communications Canada Inc., TELUS Communications Inc., Videotron Ltd., and Xplornet Communications Inc.Footnote 27
  3. Regulations should be competitively neutral, meaning regulations should not be designed or implemented in a manner that favours or protects certain industry participants over others in the absence of legitimate policy goals. In addition, regulators and policy makers should regulate only where necessary, and ensure that resulting regulations are not unduly burdensome or restrictive.
  4. To balance these goals, the Bureau recommends that the CRTC take an evidence-based approach when determining applicability of the Code.
  5. More specifically, when performing its assessment, the CRTC should consider the share of complaints for each service provider in relation to that service provider's subscriber share in the market. The CRTC should also request evidence that demonstrates whether the magnitude of the regulatory costs posed by the Code is undue.
  6. Should the CRTC find that certain service providers generate a disproportionately large number of complaints relative to their market share, it may be justified to limit the regulatory burden to those service providers.
  7. To best reduce switching costs, the Code should apply to the greatest share of the industry possible. However, if, following an evidence-based assessment, the CRTC decides that the Code should only apply to large facilities-based service providers, the Bureau recommends that regular reviews of the Code re-examine whether application of the Code should be expanded beyond large facilities-based service providers.

c. Advertised prices should include all mandatory fees

  1. In the Working Document, section A2 on prices states:
    1. A service provider must ensure that the prices set out in the contract are clear and must indicate whether these prices include taxes.Footnote 28
  2. When a service provider advertises a price to consumers, additional mandatory costs should be clearly disclosed, rather than placed in fine print disclaimers.
  3. The Bureau has taken the view in a number of enforcement matters that drip pricing can be false or misleading to consumers.Footnote 29  Drip pricing involves a company advertising prices that are unavailable because of the subsequent imposition of non-optional fees. Studies have shown that this pricing strategy can be harmful for the consumer by significantly limiting their ability to make well informed decisions.Footnote 30 For example, one study found that drip pricing reduced consumer welfare by 22% by allowing firms to charge higher prices to consumers than they otherwise could.Footnote 31
  4. As a result, the price advertised by a service provider should represent the "all‑in" price for the service, including all mandatory fees (e.g., modem rental fee). Simply including a fine print disclaimer should not permit service providers to advertise prices that are not available.Footnote 32
  5. Accordingly, the Bureau recommends that the existing language on prices in the Working Document be replaced with the following:
    1. A service provider must ensure that the price advertised for a service and set out in the contract is clear and represents the "all-in" price, including all mandatory fees.Footnote 33

d. "Unlimited" should mean unlimited

  1. In the Working Document, section A3 on unlimited services states:
    1. A service provider must not charge a customer any overage charge for services purchased on an unlimited basis.
    2. A service provider must not limit the use of a service purchased on an unlimited basis unless these limits are clearly explained in the fair use policy.Footnote 34
  2. A claim that a service plan is "unlimited" could be considered misleading if, in fact, the plan is limited in some material way.
  3. For example, in 2016 the Bureau found that Comwave Networks Inc. ("Comwave") misrepresented its internet and home phone services as "unlimited", when in fact there were monthly caps on usage. Comwave made representations on its internet services such as "Unlimited", "No Caps on Downloads", and "Limit free".Footnote 35
  4. The Bureau concluded that the representations created the general impression that there were no caps on downloads and usage, when in fact disclaimers contained in the terms and conditions effectively limited internet usage by significantly slowing download speeds when consumers reached a certain amount of data per month.
  5. It is important to note that, while qualifying information was included in fine print disclaimers, and employees had instructions to provide some of this information when customers called, the Bureau concluded that these measures were insufficient to alter the general impression created by the compelling, central statements that the services were "unlimited".Footnote 36
  6. In Disclaimers Demystified, an article published in the Deceptive Marketing Practices Digest, the Bureau explains that the potential to mislead consumers increases significantly when a disclaimer is used to restrict, contradict or somehow negate the message to which it relates. If the main body of the advertisement creates a false or misleading general impression in itself, before any reference is made to a disclaimer, then fine print may not do much to alter the general impression in a way that ensures that consumers will not be misled.Footnote 37
  7. Therefore, the Bureau recommends that the existing language on unlimited services in the Working Document be replaced with the following:
    1. A service provider must not make representations that create the general impression that a service is unlimited, where the service is in fact limited in a material manner – such limitations include capping or throttling a service, or charging overage fees.

e. The Code should be reviewed regularly, and in concurrence with other codes

  1. The Bureau agrees with the CRTC's preliminary view that the Code should be reviewed regularly to ensure that it continues to be effective in responding to consumer concerns.
  2. As part of a regular review of the Code, the Bureau recommends that a review of the other existing telecommunications codes (i.e. Wireless Code, Television Code) should occur concurrently to ensure consistency across codes. To address the interaction between codes in the case of service bundling, the CRTC may also wish to consider amalgamating codes into a single code that applies to all telecommunication services. A single code could help to reduce regulatory challenges for service providers and clarify what falls within the scope of the code.
  3. A single code could also allow for a standardized quote to be adopted in relation to bundling. Bundling adds significant complexity for consumers due to the combination of product characteristics and dimensions that can be incorporated into a bundled set of services.Footnote 38 Amalgamating codes or reviewing the CRTC's codes together would allow for the design of standardized quotes that are applicable to each service individually, as well as to bundled services. This would provide greater benefits to consumers as bundles are both highly complex and high value purchases.

IV. Forthcoming Recommendations

  1. The Bureau is currently in the midst of a market study to better understand the competitive dynamics of Canada's broadband internet services industry. Part of this study will involve public opinion research aimed at better understanding consumer attitudes and behaviours that could be relevant to the Code.Footnote 39 The Bureau expects to publish the results of this research in its market study report in June 2019.

V. Conclusion and Summary of Recommendations

  1. The Bureau is pleased to participate in the Internet Code consultation.
  2. The Bureau supports the establishment of the Code, and believes that impediments to competition can be further minimized by way of the following recommendations:
    1. Quotes should be clear, simple and standardized to allow for accountability, ease of understanding and comparability;
    2. In the absence of well-defined evidence based policy goals, the Code should be competitively neutral;
    3. Advertised prices should include all mandatory fees to avoid any surprises;
    4. Qualifying language is not sufficient to remedy consumer confusion, so "unlimited" should mean unlimited; and,
    5. The Code should be reviewed regularly, and in concurrence with other codes to reduce regulatory burden and incongruities and to allow for a standardized quote for bundled services.

VI. Appendix A: Recommended Language

Section A (5) Clarity of Offers - Option 2

A service provider must provide a customer with a written pre-sale Critical Information Summary including a Standardized Quote within 24 hours of making a specific offer to a consumer in person, over the phone, or online. See section C of this Appendix (Critical Information Summary) for more information on what a Standardized Quote and Critical Information Summary must contain and how and when it must be provided.

Section C Critical Information Summary

C. Critical Information Summary

1. General

(i). A service provider must provide a Critical Information Summary including a Standardized Quote to a consumer when it provides an offer of service (i.e. a pre-sale plain-language summary, provided as either a paper document or a permanent electronic document).

This document summarizes the most important elements of the contract for the consumer.

(ii). The Standardized Quote followed by the Critical Information Summary must be provided as the first pages of the written contract. In either case, the information provided in the Critical Information Summary does not replace or fulfill any requirements to provide the same or similar information within the actual written contract.

(iii). A service provider must ensure that the Standardized Quote contains all of the following and is formatted in accordance with the template provided as Appendix [x]:

  1. Initial monthly "all-in" price, including all mandatory costs (i.e. modem rental fees, etc.);
  2. Duration of initial monthly "all-in" price;
  3. Monthly "all-in" price, after the promotion expires;
  4. Any one-time costs;
  5. Monthly usage allowance;
  6. Average performance that can be expected at peak times;
  7. Cancellation fees; and,
  8. An indicator to signify if there are any additional promotional offers or other special terms included in the quote (this information would be detailed in the CIS).

(ivii). A service provider must ensure that the Critical Information Summary contains all of the following:

  1. a complete description of all key contract terms and conditions;
  2. a breakdown of the total monthly charge, including line items for all components of the monthly charge (e.g. rates for optional services selected by the customer) at the time the contract is agreed to and, if applicable, any time what items involve time‑limited discounts or promotions, including when the promotional period will end and the rate following the promotional period;
  3. a breakdown of all one-time charges and additional fees, including any installation or technical service fees;
  4. information about the trial period, including;
    1. descriptions of usage limits, duration, and conditions for the standard trial period; and,
    2. descriptions of usage limits, duration, and conditions for the extended trial period for customers who self-identify as having a disability; and,
  5. a description of any limits imposed on services purchased on an unlimited basis; and,

    information on how to complain about the service provider's Internet services, including how to contact the service provider's customer service department and the CCTS.

(iv). A service provider must ensure that the Critical Information Summary and Standardized Quote:

  1. accurately reflects the content of the written contract; and,
  2. are is clear and concise (does not exceed two pages), uses plain language, and are is in an easily readable font.

(v). A service provider must provide a customer with a copy of the Critical Information Summary and Standardized Quote in an accessible format for persons with disabilities, upon request and at no charge, at any time during the commitment period.