The price of lock-in: early termination fees versus monthly fees in telecom bundles

Abstract

Abstract

We study how early-termination fees (ETFs) and recurring prices in fixed-mobile bundles shape switching, competition, and consumer welfare in a mature broadband market. Using a discrete-choice experiment with 1,009 current bundle subscribers in Korea and a mixed multinomial logit in which all continuous attributes enter in logarithmic form (log-linear specification), we identify policy-relevant trade-offs between contractual and technical attributes. We report two welfare metrics: currency-denominated willingness-to-pay for discrete upgrades and an elasticity-based marginal rate of substitution (MRS) that translates a 1% change in an attribute into the percentage change in the net monthly fee required to keep utility constant. The estimated MRS of ETF price implies that a 1% increase in the ETF must be offset by about a 0.091% reduction in the net monthly fee to preserve choice probabilities. A zero-ETF counterfactual, motivated by a temporary fee-waiver episode, raises the average switching probability from 58.5 to 79.1%, a gain of 20.6% points. Taken together, our results show that recurring fees and contractual lock-in mechanisms, more than marginal technical upgrades, drive welfare and competitive outcomes in high-penetration bundle markets. The findings inform ETF cap design and transparency rules for price components in retail communications markets.