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 cellular telephone services reflects monthly consumer expenditures for local cellular services received from telephone companies. The CPI sample of telephone companies that are priced was selected using geographical data supplied by Federal Communications Commission.

All telephone companies that supply cellular telephone services are eligible for pricing. Telephone companies that participate are priced on a monthly basis. The entry level item definition includes charges for domestic personal consumer phone services where the telephone instrument is portable and it sends/receives signals for calls by wireless transmission. Services for business calls, telephone equipment rental, portable radios and pagers are not eligible for pricing. Services for residential local telephone calling, long distance calling, and coin-operated pay phones are covered elsewhere in the CPI sample. Purchases of telephone instruments are also covered elsewhere in the CPI sample (with the exception of cellular phones that are included in some priced cellular packages).

Most of the initiation and repricing of cellular telephone services are handled by CPI staff in Washington, DC. Washington obtains most data either directly from the cellular providers or from their Internet home pages. The Producer Price Index (PPI) is also establishing a cellular telephone index, so initiation and repricing data for some cellular providers are shared between the PPI and CPI.

Selection of characteristics to be priced

Each selected cellular provider is contacted by the CPI Washington office. Whether each provider participates in the CPI, and how each company participates is determined by agreements established with appropriate respondents at each organization.

Data supplied by some cellular providers to the CPI (as well as the data shared by the PPI) are types of average revenue figures from the company's internal computer system. Some cellular companies feel average revenue is a good pricing measure since it encompasses many different customers, and a wide array of cellular calling characteristics. These data may be supplied as average revenue per minute, per customer, per bill, or per account. Generally the figures are supplied separately for each sampling area, local calling area, state, or region. After the data for each quote has been initiated, respondents are asked to supply subsequent average revenue figures on a regular basis for repricing.

Most of the data supplied by cellular providers to the CPI price characteristics of cellular calling plans offered by the companies. For initiation, the respondent is asked to either supply data for the most popular consumer cellular plan in each area, or data for a number of popular consumer cellular plans in each area that Washington office can narrow to one plan per quote using probability sampling techniques. Characteristics captured for the selected cellular plans may include service charges, free calling minutes, charges per calling minute, plan options, activation, and sometimes cellular phone instruments. Since most plans involve contracts, the respondents are also asked to supply contract requirements as well. The following is an example of characteristic information that could be identified:

• Service priced — cellular plan
• Plan name — Cellular 100
• Type of service — regular
• Included in plan — limited free peak/off-peak minutes
• Number of free minutes included —100 (peak or off-peak)
• Options included in plan — call waiting, call forwarding
• Phone instrument — not included in plan; $50 extra
• Activation — not included in plan; $25 extra
• Cost per extra peak calling minute — $.30
• Cost per extra off-peak calling minute — $.20
• Contract — required for minimum of one year
• Promotional — free weekends until end of year

For quote repricing, the respondents are asked to supply data for the selected plans on a regular basis, including plan changes or promotional offerings, if any exist. The CPI attempts to price the same plans in each collection period. If there are changes in the priced characteristics, the CPI attempts to identify what specific aspects have changed. When the selected plans lose significant market share, the respondents are asked to substitute to new comparable cellular plans.

Issues associated with cellular telephone service

(1) For cellular services, in many cases it is possible to quantify changes in quality so that these quality changes may be factored out of the service's price movements. Many cellular providers substitute newer plans that have either a different amount of free calling minutes or free options while holding the cost constant, or the same package is offered for a different amount of money. Adjustment factors have been developed to adjust for many of the quality or quantity differences between these plans.

However, some price changes for substitute cellular plans may not be accompanied by adequate information that may be used for quality adjustment. 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 cellular telephone index.

Some quality improvements may not qualify to be factored out of the item's price movements. Some 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.

(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