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 long distance telephone services reflects monthly consumer expenditures for toll services received from telephone companies. The CPI sample of 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.

Long distance services is divided into two subcategories, or clusters, for pricing purposes. The first cluster is interstate telephone services, which prices toll calls where the origin and destination are in different states. The second cluster is intrastate telephone services, which prices toll calls where the origin and destination are in the same state. Each long distance service quote will price either interstate toll calls, or intrastate toll calls, but not both. Index data from the combined interstate telephone services and intrastate telephone services clusters are published monthly at the U.S. level.

All telephone companies that supply long distance 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 domestic residential calls where there is a specific toll per call, or per group of calls. Services for business calls, telephone equipment rental, portable radios and pagers are not eligible for pricing. Services for local telephone calling, coin-operated pay phones, and cellular phones are covered elsewhere in the CPI sample. Purchases of telephone instruments are also covered elsewhere in the CPI sample.

Initiation and repricing of toll services from telephone companies are accomplished using one of two procedures. Some companies choose to supply data from their head offices directly to the CPI in Washington, DC. Most of these organizations have centralized their product pricing and can supply pricing data for any location in the United States from one office. All other long distance service quotes are initiated and repriced by CPI field staff.

Selection of characteristics to be priced

When telephone companies choose to supply data directly to the CPI Washington Office, they generally choose to provide some type of average revenue figures from their company's internal computer system. Many telephone companies feel average revenue is a good pricing measure since it encompasses many different customers, and a wide array of toll 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, or state. Probability sampling techniques are applied to measure of size data that is obtained from one or more of these companies in order to determine if interstate toll calling or intrastate toll calling will be priced for each quote. Currently a majority of the long distance quotes priced for the CPI reflect average revenue figures.

When initiation and repricing are done by CPI field staff, they first use probability sampling techniques to determine if interstate toll calling or intrastate toll calling will be priced for each quote. 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. One method would be to have the phone company supply sample or `dummy' bills which actually reflect what customers are paying for toll services. Another method would be for the phone company to supply measure of size data reflecting what toll 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 toll call characteristics from the bills to establish the long distance quotes. After consultation with the priced telephone company, each quote may price as much as all of the calls on the bills, or as little as one call from each of the bills. 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, the telephone company usually only opts to price one representative toll call for each quote. Probability sampling techniques are used to determine specific characteristics for the customer being priced, such as duration of call, destination city, day and time of call, service charge usage, and discount plan usage. 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 (Interstate toll)

• Call distance — 250 miles
• Duration of call — 10 minutes
• Origination city and exchange — Baltimore, MD/410
• Destination city and exchange — Pittsburgh, PA/412
• Day of call — Monday
• Time of call — 10:00 AM
• Rate period for call — Day
• Service charge — Calling card; customer dialed
• Call discounts — Member of one-rate plan
• Surcharges/credits — None
• Taxes — Federal, state, local, municipal

Issues associated with long distance telephone service

(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 long distance reception) 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 long distance telephone service, 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 long distance 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.

(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