Telecommunication equipment and services in the consumers price index

Introduction

The range and quality of telecommunication services and equipment have evolved rapidly, as have the types and levels of consumption by households. Price change is often associated with changes in the levels, quality or range of services consumed, making this part of the Consumers Price Index (CPI) basket difficult to measure.

This note provides a summary of the sources and methods used to compile the telecommunication equipment and services indexes within the CPI.

Table 1 gives information on the structure of the communication group. For indexes which are publicly available, the expenditure weight is given.

Table 1
Consumers Price Index Communication Group
Expenditure weight
June 2006 quarter

(1) Includes cellphones and telephones.
(2) Includes home telephone line rentals, toll and call charges, and line connection charges; cellphone services and Internet charges.

Note: Expenditure weights and the corresponding indexes are only available at or above the class level of the CPI structure.

Statistics New Zealand is now working on a project to improve the relevance and quality of the CPI telecommunication indexes.

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Cellphones

The cellphones index measures price changes of cellphone handsets. The current sample comprises main cellphone service providers. Outlets such as appliance stores and department stores are not surveyed.

Collection is undertaken monthly from the websites of cellphone service providers. Each month, information about all handset models available on the websites is collected. A ‘matched sample’ approach is used to calculate an overall price movement. This involves comparing the prices of handsets available in both the current and previous periods.

Discounts are commonly offered to consumers who sign up to service contracts at the time of purchasing handsets. The CPI price indicator tracks handset-only prices.

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Telephones

The telephones index measures the cost of telephones (purchase of equipment only). The current specification is for cordless telephones. Prices are gathered quarterly by price collectors from appliance stores and department stores in 15 pricing centres throughout the country. Information about the telephones (such as brand, model and functions) is also collected for quality assurance purposes. Retail transaction data obtained from Australia-based company GfK, which undertakes a New Zealand collection, was used to inform the mix of brands selected in the sample.

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Home telephone line rentals

The home telephone line rentals index measures changes in the price of telephone line rentals and associated services (such as voice mail, call waiting and caller display). The sample consists of the main providers of residential home telephone services.

Prices are collected from the Internet and, where required, via postal questionnaires. The postal survey collects residential customer numbers for various plans and associated features that are used for weighting purposes. Information about regions where line rental prices differ from the rest of the country is also collected.

The home telephone line rentals index has more than one-third of the weight for telecommunication services.

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Home telephone toll and call charges

The home telephone toll call charges index measures price movements for national and international toll calls by households. Prices are collected quarterly, mainly from the websites of home line providers.

A number of representative national and international call locations and call lengths are included in the sample, which takes into account peak and off-peak rates. Information about special offers is also collected, including commencement and end dates. This allows prices to be ‘day-weighted’ so the effect of these offers can be reflected in the quarterly index. Although special offers are incorporated where possible, the measurement of their impact (those involving unlimited calls for a capped amount during a specified period) is severly limited by a lack of detailed information on usage patterns.

Home line to cellphone call charges were added to the CPI basket in the September 2006 quarter.

The current sample of respondents is limited to the main providers. Toll call services offered by Internet service providers and specialist toll companies are not yet included in the price indicator. This will be considered as part of the current redevelopment.

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Home line connection and modification charges

This index measures the cost of connecting a home telephone line. Prices for telephone connection fees are collected quarterly. Two types of connection fees are priced:

• full – when connecting for the first time
• partial – when relocating from one dwelling to another.

Customer numbers for each type of connection are also collected to allow each type of connection to be reweighted annually.

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Cellphone services

The cellphone services index measures changes in the price of making calls. It does not include handset prices.

Price collection is made through the Internet on a monthly basis. Cellphone call plans are selected based on a simple residential user profile. Those designed for business use are excluded. The monthly access fee (for postpaid plans), and peak and off-peak call charges for each chosen plan are collected from the websites of service providers. Prices are combined using a simple residential user profile, customer numbers which are available to the public, and basic historical information obtained from service providers.

There are a number of significant weaknesses with the current index, because Statistics NZ does not have access to reliable and timely information not available to the public. To improve the indicators, information is needed on:

• usage patterns (or aggregate revenue and quantity information for each type of service)
• customer numbers (of existing plans, plans closed to new customers but still available to existing customers, and new plans as they become available).

Price changes in text messaging, picture messaging and video calling are generally not reflected in the index.

It should also be noted that smaller providers (operators who do not have their own mobile phone network) are not covered in the current sample.

Cellphone services will be a major focus of the current redevelopment.

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Internet charges

The Internet charges index measures changes in the price of dial-up Internet access. A consumer profile approach is used for price collection. These usage profiles specify the number of hours online, the amount of information downloaded, and the day and time of useage. Price collection is carried out monthly, using the Internet as the main data source for a sample of Internet service providers. For each usage profile, the dial-up plan providing the lowest monthly charge is used.

Although expenditure by households on broadband Internet services is included in the CPI expenditure weights, the current index only measures changes in dial-up plans. This is a weakness, given increased broadband useage in recent years, and this aspect will be addressed as part of the current redevelopment.

The current sample is of large nationwide providers; regional operators are not surveyed.

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Bundling

Bundling is now common in the telecommunication industry. Because a wide range of products and services are being offered as packages, statistical offices have difficultly incorporating the impact of these in the index.

All of the services discussed above are potentially affected by bundling, which cut across other areas of the CPI such as subscriber television. Statistics NZ has incorporated packages into the index only to a limited extent.

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