http://www.thestar.com/Business/article/258049
Canadians okay to sue over cell access fee
Controversial practice has
generated billions from customer charges
Chris Sorensen
Tyler Hamilton
Business Reporters
A class-action lawsuit accusing Canada's big cellphone companies of gouging customers with an unfair "system access'' fee has been certified by a Saskatchewan court, refocusing the spotlight on long-standing and controversial practice that has generated billions for the industry.
The suit, which targets an estimated $12 billion (plus interest) in customer charges collected over the years, is described as the country's largest-ever class action, since every cellphone user in Canada ? roughly half the population ? is potentially affected.
"It's gigantic in terms of people, and that makes it gigantic in terms of dollars," said Tony Merchant, the lawyer who initiated the suit in 2004. But experts note a class-action certification does not mean the case is deemed to have merit.
At issue is whether Canada's cellphone providers have misled monthly subscribers by implying that so-called "system access" or "licensing" fees are somehow required by federal regulators. Rogers Wireless and Telus Mobility each charge their subscribers access fees of $6.95 a month, while Bell Mobility recently raised its access fees by $2 to $8.95 a month.
An investigation by the Toronto Star three years ago revealed that, at the time, the industry was to collect about $800 million annually from the controversial fees.
The amount is likely now in the neighbourhood of $1.3 billion to $1.5 billion, according to Merchant, who said the Star story was what sparked the suit.
The investigation also revealed that many customer service agents employed by the various cellphone companies were incorrectly telling subscribers the fee was a mandatory government charge collected on behalf of the Canadian Radio-television and Telecommunications Commission.
Such a charge, while it was required two decades ago when the cellphone industry was just getting started, no longer exists. The fee, however, is still being collected.
Merchant said it morphed over time and has now become a valuable marketing tool, allowing the cellphone companies to advertise product prices for much lower than what customers actually see on their bills.
The carriers developed a "dependency on this charge early on," said Merchant. "But you can't say to a person who comes in to buy a radio that it will be $100, and then take an extra $10 when they open their wallet on the pretense that it's something special and separate."
The suit claims the cellphone companies are guilty of "unjust enrichment" ? meaning they received money to which they had no legal entitlement.
The carriers defend the continued existence of the system access fee, arguing the money goes toward paying for their licenses and purchasing wireless spectrum, as well as maintaining and upgrading of their expensive wireless networks.
Marc Choma, a spokesperson for the Canadian Wireless Telecommunications Association, said each carrier has its own definition of what the fee is used for.
But critics say such expenses are simply the costs of doing business and should be reflected in the carriers' monthly rates.
"It's a front-end marketing play to advertise the lowest possible price and get you in the door," said Carmi Levy, senior vice-president of strategic consulting at AR Communications Inc.
"It's a very calculated process of confusing the customer to get them to pony-up an additional amount of money, both upfront and on a monthly basis."
Levy speculated that one of the reasons the wireless industry manages to get away with the tactic is because there is relatively little competition between the three big carriers. "Because there are no alternatives, consumers have just gotten used to grinning and bearing it."
Faced with complaints, Industry Canada put in place new rules three years ago that prohibited the wireless companies from calling the fees a government charge, even though a small portion of it goes toward paying for spectrum licenses.
The suit names Bell Mobility Inc., Telus Corp., Rogers Wireless Inc. and their various subsidiaries, as well as several other smaller, regional players. Spokespeople for Bell and Telus said yesterday the case has no merit. Rogers said it would appeal the certification.
Merchant said he expects an appeal, a process that could take about six months.
"One of the exciting results, assuming we succeed on appeal, is that we get to access the documents of all these companies. Having been told by numerous people within the industry that they were told this was a tax, we expect there will be a gold mine of information there."
It would be a dramatic reversal from last summer, when the Saskatchewan court denied the certification on grounds that the case did not have a suitable plaintiff or litigation plan. The cellphone companies hailed that ruling as a major victory, but Justice Frank Gerein left the door open for Merchant to renew his application ? which he did, successfully.
About 7,500 people are registered for the class action. Merchant said he is surprised investors and analysts in the sector are not following the issue more closely, given the "huge" financial consequences.
Michael Geist, an Internet and technology law professor from the University of Ottawa, said there's a good chance the cellphone carriers will consider settling the matter instead of letting it go to trial, considering the magnitude of the financial damages at stake.
"The cost of engaging in long-term litigation is very expensive as well, so once you reach the class stage, it certainly increases the likelihood of some kind of settlement," said Geist, who calls the system access fee "one of these eternal frustrations" for Canadians.
Michael Janigan, executive director and general counsel for the Public Interest Advocacy Centre in Ottawa, said it is time to take a closer look at the problem.
"If it takes a class action to curb these kinds of practices, so be it," he said. "You can find parallels in other industries where fees are creeping up that have no particular merit, aside from padding the sellers' pocket."
The Competition Bureau has looked into the issue, but according to a recent filing by Rogers it has been dismissed. A spokesperson for the bureau would not comment.
Canadians okay to sue over cell access fee
Controversial practice has
generated billions from customer charges
Chris Sorensen
Tyler Hamilton
Business Reporters
A class-action lawsuit accusing Canada's big cellphone companies of gouging customers with an unfair "system access'' fee has been certified by a Saskatchewan court, refocusing the spotlight on long-standing and controversial practice that has generated billions for the industry.
The suit, which targets an estimated $12 billion (plus interest) in customer charges collected over the years, is described as the country's largest-ever class action, since every cellphone user in Canada ? roughly half the population ? is potentially affected.
"It's gigantic in terms of people, and that makes it gigantic in terms of dollars," said Tony Merchant, the lawyer who initiated the suit in 2004. But experts note a class-action certification does not mean the case is deemed to have merit.
At issue is whether Canada's cellphone providers have misled monthly subscribers by implying that so-called "system access" or "licensing" fees are somehow required by federal regulators. Rogers Wireless and Telus Mobility each charge their subscribers access fees of $6.95 a month, while Bell Mobility recently raised its access fees by $2 to $8.95 a month.
An investigation by the Toronto Star three years ago revealed that, at the time, the industry was to collect about $800 million annually from the controversial fees.
The amount is likely now in the neighbourhood of $1.3 billion to $1.5 billion, according to Merchant, who said the Star story was what sparked the suit.
The investigation also revealed that many customer service agents employed by the various cellphone companies were incorrectly telling subscribers the fee was a mandatory government charge collected on behalf of the Canadian Radio-television and Telecommunications Commission.
Such a charge, while it was required two decades ago when the cellphone industry was just getting started, no longer exists. The fee, however, is still being collected.
Merchant said it morphed over time and has now become a valuable marketing tool, allowing the cellphone companies to advertise product prices for much lower than what customers actually see on their bills.
The carriers developed a "dependency on this charge early on," said Merchant. "But you can't say to a person who comes in to buy a radio that it will be $100, and then take an extra $10 when they open their wallet on the pretense that it's something special and separate."
The suit claims the cellphone companies are guilty of "unjust enrichment" ? meaning they received money to which they had no legal entitlement.
The carriers defend the continued existence of the system access fee, arguing the money goes toward paying for their licenses and purchasing wireless spectrum, as well as maintaining and upgrading of their expensive wireless networks.
Marc Choma, a spokesperson for the Canadian Wireless Telecommunications Association, said each carrier has its own definition of what the fee is used for.
But critics say such expenses are simply the costs of doing business and should be reflected in the carriers' monthly rates.
"It's a front-end marketing play to advertise the lowest possible price and get you in the door," said Carmi Levy, senior vice-president of strategic consulting at AR Communications Inc.
"It's a very calculated process of confusing the customer to get them to pony-up an additional amount of money, both upfront and on a monthly basis."
Levy speculated that one of the reasons the wireless industry manages to get away with the tactic is because there is relatively little competition between the three big carriers. "Because there are no alternatives, consumers have just gotten used to grinning and bearing it."
Faced with complaints, Industry Canada put in place new rules three years ago that prohibited the wireless companies from calling the fees a government charge, even though a small portion of it goes toward paying for spectrum licenses.
The suit names Bell Mobility Inc., Telus Corp., Rogers Wireless Inc. and their various subsidiaries, as well as several other smaller, regional players. Spokespeople for Bell and Telus said yesterday the case has no merit. Rogers said it would appeal the certification.
Merchant said he expects an appeal, a process that could take about six months.
"One of the exciting results, assuming we succeed on appeal, is that we get to access the documents of all these companies. Having been told by numerous people within the industry that they were told this was a tax, we expect there will be a gold mine of information there."
It would be a dramatic reversal from last summer, when the Saskatchewan court denied the certification on grounds that the case did not have a suitable plaintiff or litigation plan. The cellphone companies hailed that ruling as a major victory, but Justice Frank Gerein left the door open for Merchant to renew his application ? which he did, successfully.
About 7,500 people are registered for the class action. Merchant said he is surprised investors and analysts in the sector are not following the issue more closely, given the "huge" financial consequences.
Michael Geist, an Internet and technology law professor from the University of Ottawa, said there's a good chance the cellphone carriers will consider settling the matter instead of letting it go to trial, considering the magnitude of the financial damages at stake.
"The cost of engaging in long-term litigation is very expensive as well, so once you reach the class stage, it certainly increases the likelihood of some kind of settlement," said Geist, who calls the system access fee "one of these eternal frustrations" for Canadians.
Michael Janigan, executive director and general counsel for the Public Interest Advocacy Centre in Ottawa, said it is time to take a closer look at the problem.
"If it takes a class action to curb these kinds of practices, so be it," he said. "You can find parallels in other industries where fees are creeping up that have no particular merit, aside from padding the sellers' pocket."
The Competition Bureau has looked into the issue, but according to a recent filing by Rogers it has been dismissed. A spokesperson for the bureau would not comment.
Facebook
Twitter