Consumer Price Index

How the Consumer Price Index Measures Price Change for Telephone Services

The Consumer Price Index (CPI) category telephone services is part of the education and communications major group. It has two components: land-line telephone services and wireless telephone services. The CPI publishes monthly U.S.-level indexes for telephone services and both of its components.

Weights for Land-line telephone services and Wireless telephone services

The table below contains the U.S.-level CPI-U relative importance (share of the total expenditure weight) of selected CPI components, as of December 2011:

Item

Relative Importance

All Items 100.00
Education and communications 6.797
Telephone services 2.429
Land-line telephone services 0.945
Wireless telephone services 1.484

The current weight of each CPI component is based on the average annual out-of-pocket household expenditure for that component during 2009–2010 for all urban consumers for the CPI-U (as reported in the Consumer Expenditure Survey, a separate BLS program, which is the data source for the CPI market basket of expenditures).

Item samples for Land-line telephone services and Wireless telephone services For each CPI component in each of the 87 CPI pricing areas, BLS selects a probability-based CPI sample of retail establishments (outlets) and items purchased. BLS data collectors obtain the prices of the sample items at sample outlets in each of the CPI pricing areas. The CPI outlet-item sample rotates over a 4-year cycle; the outlets and the items priced in one-eighth of the CPI basic components are replaced every six months.

The first step toward obtaining a sample for a CPI item-area component is selecting a sample of outlets where consumers living in the area buy products in the item category. A Point of Purchase Survey (POPS) provides the land-line telephone services and wireless telephone services sampling frames (their universes or an appropriate subset of them). The Census Bureau, under contract with BLS, conducts the POPS before rotation in a CPI pricing area. Census Bureau interviewers contact a sample of households in the area and gather the names and addresses of outlets where consumers purchased items in those categories, along with the amounts spent. BLS selects the outlet sample for each category in each pricing area using probabilities proportional to the reported expenditures for the outlets.

For each of the two telephone services categories, the POPS provides a list of telephone companies and other outlets that sell their items to consumers in the CPI pricing area. Most, but not all, outlets in these two categories are traditional telephone companies (called carriers). Other outlets are retail stores selling calling cards and cable television companies and Internet service providers selling bundles of services that include telephone service.

Bundled services are becoming a more common method for consumers to purchase the telephone services, Internet access and cable television service components of the CPI. Telephone companies, Internet service providers, and cable television companies are all selling each others’ traditional products. Telephone service, Internet service, and television service can be bundled into one package eligible for selection in each of three different CPI categories. When selected, the basic service required for pricing is the default for the category. For example, if a bundled service is selected under the telephone service category, it is assumed the customer’s primary requirement is phone service. Phone service must be priced, plus either (or both) of the other services may be included. This allows the CPI all items index to capture price change for the bundled services, but it can mean that the price changes for these categories reflect price changes of items that are also eligible in other communication or recreation categories.

Item Selection CPI data collectors contact each newly selected outlet and initiate it into the CPI sample for the category-index area. After explaining the CPI and obtaining the cooperation of an appropriate respondent, the data collectors select a sample of items in the category that the company sells. Every 4 years, when the category rotates and the newly selected outlets are initiated into the CPI’s samples, a new set of items is selected to represent the category. For Telephone services, the preferred way to select items is to obtain from the carrier measure-of-size data that mirrors what customers actually purchase in a given location. This approach enables the data collectors to use a probability sampling technique to gradually narrow the item category and obtain a set of one or a few unique items. The sampling technique gives each item an outlet sells in the category a chance for selection in proportion to its dollar sales in the outlet. These selected items represent all eligible items the outlet sells. In addition, because the way the outlets were chosen means they represent all eligible outlets selling the eligible items, the CPI sample represents the large universe of items in the category.

Some carriers are unwilling to reveal internal data on revenue for their various plans, despite explicit BLS data confidentiality policies and federal laws designed to protect sensitive data. When the carrier is unable or unwilling to provide revenue information, the data collector asks the carrier for a sample of “dummy” bills that reflect what customers pay for services. If the carrier is unwilling even to provide dummy bills, the data collector seeks the carrier’s permission to select among residential plans the company offers publicly (usually on their website).

Once a specific service is selected, its detailed characteristics are recorded so that the same item can be priced over time, and, if the carrier discontinues that item, the most similar replacement for it can be substituted. If the carrier provided sample bills, characteristics from the bills are used to define the specific service to be priced; to preserve confidentiality, personal information, such as customer name, is never used as an item characteristic.

Many of the selected items are referred to as “calling plans”; for these items, the data collector records characteristics and any contract requirements. For calling plans in the wireless telephone services category, the carrier is asked for each geographic area where the carrier was selected to supply data either for the most popular consumer wireless plan or for a number of popular consumer wireless plans, which the data collector can then narrow down to one plan per quote using probability sampling techniques.

Price series for Land-line telephone services and Wireless telephone services For the telephone services components of the CPI, data collectors return every month to each sampled outlet or their Internet site (or both), to obtain the current prices of the selected items, including any changes or promotional offerings. The data collector also identifies any priced characteristics of the selected items that have changed. When the price of an item changes, the data collector tries to determine a reason for the change. If the data collector is unable to obtain a reason for an item’s price change and its characteristics remain unchanged, the CPI reflects the price change without any adjustments. When the selected item in the sample is no longer available for sale, the data collector, guided by a CPI checklist describing all of the important product characteristics for the item category, finds a replacement item, generally the one that is most similar to the discontinued item. A CPI analyst, who is a trained economist, evaluates every item replacement to determine the following:

Types of items priced

Category definition for land-line telephone services: Charges for all types of local and long- distance residential service, including dial tone service charge, line maintenance charge, access charge, 911 charges, directory assistance charge, touch-tone service charge, and other special features and mandatory charges and installation. Also eligible are prepaid long-distance calling cards, as well as bundled services that combine land-line telephone services with Internet and/or cable television. Applicable taxes can be included, if available. Exclusions are purchase or leasing or rental of telephone equipment, cellular telephones and cellular service, intercoms, data phones, credit cards, and so forth.

Category definition for Wireless telephone services: Personal wireless (also known as cellular) phone service where the telephone instrument is portable and sends and receives signals for calls through the airwaves. Services priced are primarily specific plans offered by cellular companies. This also includes prepaid plans. All service charges, applicable per-plan charges or per-minute call charges, and other charges normally included in a cellular plan are eligible for pricing. Internet access is also eligible. Some carriers may choose to supply data from their computer systems, such as average revenue per minute, which is eligible. Exclusions are pagers, portable radios, pay phone charges and residential landline telephone service. Other phone services, such as long-distance, phone service activation and instrument purchase or rental are excluded unless they are automatically included with a plan. Any service plan in which the customer purchases a phone and the calling service is included for whoever purchased the phone is excluded. These customers are not users who are registered with the phone company.

Any plans that are centered on business usage are not eligible. Examples would be Blackberry plans, plans offered under business options offered by the carriers, Internet-based plans, and photography-based plans.

To facilitate item selection of land-line services, seven subcategories, or clusters, have been set up, as shown below:

Many consumers are currently shifting to comprehensive plans; as a result, as the sample rotates, more observations are falling into clusters 06 and 07, and clusters 01 through 04 are becoming obsolete.

The following fictitious examples reflect the service characteristic information that data collectors identify and record:

Land-line telephone services

Reported price = $49.95

Wireless telephone services