Why do we pay so much for cellphones?

Like many Canadians, Mike Hills is reluctant to open his cellphone bill each month because he doesn’t know what to expect.

“I now travel a lot for work, but I didn’t when I committed to a plan awhile back,” explains Hills, a Toronto-based sales rep for a software company. “Because I’m locked in, I sometimes pay up to $400 each month to use my phone, which is ridiculous.”

Hills feels “handcuffed” by his provider because he’s told, when he calls to inquire about his high phone bills, that there’s nothing they can do to reduce his fees.

No wonder Canadians are registering more complaints about cellphone contracts and billing, according to Canada’s Commissioner for Complaints for Telecommunications Services (CCTS). Roughly 52 per cent of them were related to wireless service in July 2010, up from 38 per cent from August of 2009.

A recent report published by Toronto-based UTR Global, a telecom expense and asset management software and services company, confirms Canadians are paying the highest cellphone rates in the world. This finding mirrors another report from Bank of America Merrill Lynch.

The UTR Global report, released on Nov. 1, claims Canada is the most expensive out of 11 countries when both prepaid and postpaid plans were compared. Citing findings from the New America Foundation’s Open Technology Initiative, the minimum monthly postpaid service in Canada — for voice, text and data — was $67.50 (all prices in U.S. currency), compared to, say, $34.05 in Sweden or $12.90 in India, for the same level of service. The U.S. ranked second highest at $59.99.

Canadians often commit to a three-year contract to get the best price on a smartphone, compared to a two-year term south of the border.

UTR Global also says consumers and businesses are unknowingly overpaying millions of dollars every month for “inaccuracies” on their cellphone (and landline) services.

Carmi Levy, an independent technology analyst based in London, Ont., says Canadians have long been “victims of geography and population.”

“Canada has a larger land mass than the U.S., so carriers north of the border must spend roughly the same amount of money — billions of dollars, in most cases — to build out their wireless networks,” says Levy. “Unfortunately, there are approximately 10 Americans to every Canadian, so carriers here spend the roughly the same as their American counterparts, but have far fewer consumers to make up that investment.”

“The unfavourable market-size-versus-coverage equation, coupled with fairly rigid government-imposed rules that dictate who can provide service, where, and under what terms, has also been responsible for the relative lack of competition in this market,” adds Levy.

He says this is starting to change. In the last year, Industry Canada’s wireless spectrum auction has resulted in the arrival of a number of new providers, including Wind Mobile, Mobilicity, Public Mobile and, in Quebec, Videotron. “These new entrants have begun to pressure the incumbent carriers on the low end of the market, and prices are slowly beginning to ease as the competition heats up,” says Levy.

“This process, which is never as fast as Canadians would like, will continue for at least the next three years; that’s when the grace period that prevents larger carriers from snapping up smaller ones expires.”

Marc Saltzman writes about personal technology for Moneyville