The base period weight for each CPI item group is the average annual out-of-pocket expenditures that households had incurred for that item in 2005-06. The weight for Telephone services, local charges reflects monthly consumer expenditures for services received from local telephone companies. The CPI sample of local telephone companies that are priced was selected proportional to expenditures for residents as reported by households residing in the 87 areas sampled by the CPI.

Telephone services, local charges is divided into two subcategories, or clusters, for pricing purposes. Nearly all quotes are found in the main station charges cluster, which prices the general services provided each month by a local telephone company. The smaller cluster, as of summer 1999, will be coin-operated local pay phones, which prices the usage of pay phones for local telephone calls. The previous heading for this category was telephone equipment rental. Each CPI observation for telephone services, local charges will be for either main station charges, or coin-operated local pay phones, but not both.

All telephone companies that supply local telephone service are eligible for pricing. Telephone companies that participate are priced on a monthly basis. The entry level item definition includes charges for all types of local residential service. This includes, but is not limited to, dial tone service charges, line maintenance charges, access charges, 911 charges, directory assistance charges, touch tone service charges, and other special features and mandatory charges for local calling, installation, and coin-operated pay phones. Services for business phones, telephone equipment rental (as of summer 1999), and portable radios and pagers are not eligible for pricing. Services for toll calls and cellular phones are covered elsewhere in the CPI sample. Purchases of telephone instruments are also covered elsewhere in the CPI sample.

Selection of characteristics to be priced

All local telephone service quotes are initiated and repriced by CPI field staff. When CPI field staff seek prices for local telephone service, they first use probability sampling techniques to determine if main station charges or coin-operated local pay phones will be priced. Once this has been completed, the field staff can use different methods for completing each telephone quote. The method employed will depend on what is acceptable to the phone company being priced. For main station charges, one method would be to have the phone company supply sample or `dummy' bills which actually reflect what customers are paying for local services. Another method would be for the phone company to supply measure of size data reflecting what local telephone customers are actually purchasing in a given location. If this is not acceptable, the phone company is queried as to what alternative methods of data selection could be employed.

If the telephone company provides sample bills, the economic assistant will use the local calling characteristics from the bills to establish the customers being priced in the local telephone quotes. For confidentiality reasons the economic assistant will exclude personal information such as customer name, address, and telephone number.

When the telephone company provides measure of size data, probability sampling techniques are used to determine specific characteristics for the customer being priced, such as rate group, jurisdiction, and area code/exchange. Once these data have been selected, the many characteristics associated with the selected customer are identified to ensure that the same bill characteristics are priced each collection period, or if there is a change in the priced characteristics, that change can be identified readily. The following is an example of characteristic information that would be identified:

Cluster 1 (main station charges)

• Number of parties — two lines / one party line each
• Type of service — flat rate
• Limits of local calling area — Washington, D.C.; Montgomery County; Prince George's County; Fairfax County
• Mandatory charges — 911 charge; line access charge; dial tone line charge; municipal charge
• Installation charges — none (existing customer)
• Special features — line maintenance charge; call waiting; call forwarding; conference calling; unlisted number
• Surcharges/credits — handicap services surcharge; billing credit
• Taxes — federal, state, local, municipal

Cluster 2A (coin-operated local pay phones) - Summer 1999

• Type of pay phone — standard
• Type of charges — flat fee for any local call
• Call length — 5 minutes
• Number of minutes covered by flat fee — 5
• Flat fee charge — $.35
• Total charge for call — $.35
• Taxes — Taxes are included in total price

Issues associated with Telephone services, local charges

(1) One of the most difficult problems for the CPI is to accurately quantify changes in the quality of an item and to factor these quality changes out of the item's price movements. If an item's characteristics change, a quality improvement (such as improved local line clarity) or deterioration may have occurred. In addition, because quality change often accompanies price change, when the price of an item changes significantly, BLS field staff will ask the respondent to identify a cause.

For Telephone services, local charges, many price changes from respondents are not accompanied by resulting causes. When no causes accompany telephone company changes, and the characteristics for the identified telephone service items remain unchanged, the price changes are reflected in the local telephone charges index.

Some quality improvements may not qualify to be factored out of the item's price movements. Quality improvements, such as fiber optic cable, may make operations more efficient for the telephone company, while the company's customers may see little change. Other quality improvements, such as extended area service, may only benefit a limited number of people in the customer base.

(2) Another problem encountered pricing telephone companies in the CPI is the issue of proprietary data. Due to the extremely competitive nature of the telephone industry, many telephone companies do not wish to supply various characteristic or pricing data due to proprietary concerns. CPI staff must then negotiate with the affected telephone companies to determine if there are any usable alternative data that may be obtained.

Additional information Additional information on the Consumer Price Index can be found in the BLS Handbook of Methods, chapter 17, "The Consumer Price Index," Bulletin 2490 (1997). This chapter is also available on the BLS Internet site (http://www.bls.gov) under the topic "Publications," or you may call the Information and Analysis Section of the CPI at (202) 691-7000.

Last Modified Date: March 6, 2008