Long distance telephone services, a component of the
telephone services index, is included in the
education and communication group of the Consumer Price
Index (CPI). Both the telephone services index and the
long distance telephone services index are published
monthly at the U.S. level. The education and communication
index is published in all publication areas on each
area's publication cycle.
The telephone services index includes the three
components shown below with the relative importance of
each index. These data are for the U.S. city average of the
CPI for all Urban Consumers (CPI-U) as of December 2007.
Item |
Relative Importance |
Telephone services, local charges |
0.789 |
Long distance telephone services |
.506 |
Cellular telephone services |
1.047 |
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: August 19, 2009