Telecom bundling keeps customers from switching providers

Telecommunications companies commonly bundle services at a discount to entice consumers.

But if bundling attracts new customers, it serves an even greater purpose of retaining them, according to research by Stephanie Lee, an assistant professor of information systems at Foster.

Lee examined the behaviors of 1,000 people served by several competing Korean telecommunications providers. What she found was that bundling two or more services—high-speed internet, wireless phone, landline phone, voice-over-IP, cable television, satellite television and others—at a discounted price makes customers more than 17 percent less likely to switch their Internet service provider than those who did not bundle.

And that’s controlling for demographic characteristics, company preferences, past service providers and status changes.

Lee explains that while bundling certainly saves money on services, it also effectively makes it more inconvenient to switch providers. In the long run, this inconvenience can outweigh the cost-saving benefit of buying into a package of services at “one low price.”

“Consumers should carefully weigh what they gain from the discounts of bundling against the increased costs of switching,” says Lee.

“Does Bundling Decrease the Probability of Switching Telecommunications Service Providers?” is published in the May 2017 Review of Industrial Organization.