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 and has two components: wireless telephone services and landline telephone services. The CPI publishes monthly U.S.-level indexes for telephone services and both of its components.

Definition for Wireless Telephone Services

Personal wireless (also known as cellular) phone service where the telephone is portable and sends and receives signals for calls through the airwaves. Services priced are primarily specific plans offered by cellular companies and 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. Exclusions are pagers, pay phone charges, and residential landline telephone service. Other phone services, such as long-distance and phone service activation are excluded unless they are automatically included with a plan at no extra charge. Monthly fees charged by the carrier for the cost of a device are not eligible. Any plans for use by businesses are not eligible.

Definition for Landline Telephone Services

Charges for all types of local and long-distance residential services are eligible for collection, including charges for dial tone services, line maintenance and access, 911 services, directory assistance, touch-tone service, and other special features and mandatory charges and installation. Also eligible are prepaid long-distance calling cards and bundled services that combine landline telephone services with internet and/or cable television. Applicable taxes are included if available. Purchases, leasing, or rental of telephone equipment, cellular telephones and cellular service, and intercoms are excluded.

Relative Importance

The relative importance of an item category is its percent of the CPI market basket based on data from BLS Consumer Expenditure Survey as of December of the most recent year.

Item

Relative Importance, December 2016

Telephone services 2.465
   Wireless telephone services 1.738
   Landline telephone services 0.727

Another way to look at this is that wireless telephone services accounts for approximately 70 percent of the weight for the telephone services category.

Sample Selection

In order to determine where to collect information on specific categories, including the two telephone services categories, a Telephone Point of Purchase Survey (TPOPS) is conducted by the U.S. Census Bureau. The TPOPS is used to collect data about where consumers purchase goods and services and how much they are spending. The data from the TPOPS are then used to select the retail establishments in which BLS monitors the prices of telephone services. Most outlets in the two telephone services categories are traditional telephone companies (called carriers). Other outlets are cable television companies and internet service providers that sell bundles of services that include telephone service; a few stores selling calling cards are also included.

Bundled services are now a common method for consumers to purchase telephone services, internet access, and cable television. Telephone companies, internet service providers, and cable television companies all sell these products, which can be bundled into one package eligible for selection in each of three different CPI categories. When selecting sample in the telephone services category, if a bundled service is selected, it is assumed the customerís primary intent is purchasing phone services. Therefore, phone service must be included in the service bundle along with either internet or cable services. Once an outlet is selected based on the TPOPS, a specific service is selected for use in the CPI. Detailed characteristics are recorded so that the same item can be priced over time and, if the carrier discontinues that item, the most similar substitute can be identified.

Price Change and Quality Adjustment

For the telephone services components, the CPI returns every month to each sampled outlet or their website (or both) to obtain the current prices of the selected items, including any changes or promotional offerings. Any characteristics of the selected items that have changed are also identified and reviewed. When the price of an item changes, BLS tries to determine a reason for the change; however, if the characteristics remain unchanged, the CPI usually reflects the price change without any adjustments.

If the originally selected item in the sample is no longer available for sale, a replacement item is selected, generally the one that is most similar to the discontinued item. A CPI analyst evaluates every item replacement to determine the following:

Price Change

If the replacement is essentially the same as the predecessor item, the CPI can treat any price difference between the replacement item and its predecessor as pure price change. If the characteristics of the item changed and the reported change is one that provides little value to the consumer, the CPI will show the unadjusted price change. For example, changing to fiber optic cable for local phone calls makes carrier operations more efficient, but customers might see little change in their purchased service.

Quality Adjustment

If the replacement is different from its predecessor and the value of the difference in quality can be accurately estimated, a quality adjustment can be made to the previous itemís price to include the estimated value of the difference in quality. For example, CPI analysts have estimated the value of additional monthly wireless high-speed data. So if a carrier adds data to a wireless service plan, the CPI adds the value of additional data to the price of the predecessor item. Similarly, should the carrier reduce the amount of data included in the priced wireless service plan, the value of the extra data would be subtracted from the predecessorís price.

Imputed Price

If the replacement is different and the value of the difference cannot be estimated, the CPI uses an imputed price for the item in place of the collected price. An imputed price is the price of the predecessor item adjusted by the average change in price of other similar items.

Additional information

Additional information may be obtained from the Consumer Price Index Information Office by email or calling 202-691-7000. Information on the CPI's overall methodology can be found in the BLS Handbook of Methods.

 

Last Modified Date: August 10, 2017