“Death-grip” cellphone contracts and “draconian” fees in Canada are among the most restrictive in the world and force consumers to pay more than double for services, an industry analysis says.

“We have no doubt that local carriers could shorten the duration of contracts and still make a profit, but until now Canada’s incumbent carriers have had no reason to do so,” said Amit Kaminer, author of the analysis for the SeaBoard Group, a Toronto- and Montreal-based telecommunications research and consulting company.

“The inertia of oligopolistic power is one reason – and charging ‘what the market will bear’ is better for shareholders.”

But the fracturing market sends a warning to companies, he said: “Carry on with the contractual death grips and you will simply be inviting the government’s ‘help’ to sort it out.”

Already, he said, “the largest single complaint category” among cellphone customers are the contracts.

Canadians are typically locked into cell contracts for three years, compared with 12 months in Japan and 18-24 months in much of Europe.

That costs an iPhone 4 user more than $2,000 extra in Canada compared with the U.K., Kaminer said.

“The economic value of a contracted iPhone 4 customer in Canada is $3,689. Contrast that figure with the $1,598 value of a customer buying the same phone from a carrier in the U.K. Poor Canadian consumers are paying 2.3 times more for the same device – if they keep the device for the full term.

“Should the consumer abandon the contract early, the ETF could equate to as much as $700.25.”

Why is Canada different?

Lack of competition is a big factor, said Kaminer, even though cracks are appearing in the Canadian cell market in which 95 per cent of the market share is tied up by three companies: Rogers, Telus and Bell.

Several upstart companies – Mobilicity, Public Mobile and Wind Mobile – have launched this year and are competing with the big, established providers.

Ottawa broke open the market to competition as of 2008, and the iPhone arrival was “a game changer,” Kaminer said. First, system access fees vanished. Then new companies started moving in.

“The writing might be on the wall. Our advice to the carrier is: You see the future, you know what irks the government; you know what irks consumers. It’s a buyer’s market now.”

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Kaminer understands the value of contracts. For carriers, it means guaranteed income to support their expensive outlay and telecommunications costs. For consumers, it’s the security of guaranteed, uninterrupted service and the opportunity to upgrade without buying new, expensive phones.

Still, cancellation fees in Canada are “downright draconian” and are way out of whack with the cost of covering the carrier’s outlay for the phones themselves, he said.