Statistic Austria Alexandra Beisteiner Ottawa Group October 2007

1. Evaluation of the behavior of different methods for price measurement in the telecommunication market Statistic Austria Alexandra Beisteiner Ottawa Group October 2007

2. Overview • Aim of the study • Fixed network • Mobile network • Preliminary conclusions • 30 slides

3. Aim of the study • Evaluation of different methods for telecommunication services • Identification of advantages and disadvantages of methods • Evaluation of results – Do the different methods yield to the same result?

4. CENEX HICP • Center of Excellence for HICP Sampling and Quality Adjustment • Germany is leading, six countries are contributing • Output: HICP Handbook; Reports for some areas

5. Bundled services • In urban areas • Primary use is television The telecommunication market • Former monopolist has big shares • Call by call providers and pre-selection fixednetwork cableTV internet mobilenetwork • Mobile and fixed network • Upcoming of high speed internet • Market diversity • independent of location • competition intensive • Contract and prepaid cards

6. The fixed network • Former monopolist provides wires to households – only small competition in this field • Call by call/ pre-selection providers for connection fees • ISDN rates are low and decrease -> mobile internet increases as alternative • Allover decrease of turnover of ~1% per quarter

7. Methods used • Traditional Approach • Unit Values • Representativity Approach • User Profiles with rational choice

8. Traditional Approach • Data are from the monthly CPI survey • Shops and packages are selected in the base period • Tariff prices are weighted with base period turnover weights • Packages are equal weighted

9. Results 1 – Traditional approach

10. Easy to apply once established Only price data are needed in monthly survey In a strict traditional approach packages are equal weighted – no further data are needed Difficult when accounting rules are changing (may lead to zero cells) No weights for providers No weights for packages Impact of small packages and providers is overestimated Traditional ApproachAdvantages Disadvantages

11. Unit Values • Data stem from a quarterly survey which is done by the regulatory body • Providers are obliged to report data • Starting with Q4/2004, but some problems occure regarding the understanding of definitions

12. Results 2 – Unit Values

13. Unit Values - Drawbacks • Definition of elements differs between providers and within time – explains part of volatility • Differences in consumption patterns for unit values which comprise a diverse segment –> e.g. mobile unit value and foreign country unit value • Can lead to wrong results when consumption pattern changes over time

14. Comparison of unit value with price data

15. Easy to apply Less data have to be collected UVs incorporate discounts UVs may be volatile when definition of element is too broad Providers must report detailed data - reluctance Difficulties when definition changes Unit ValuesAdvantages Disadvantages

16. Comparison – UVs and traditional approach

17. Price data with representativity selection and weighting • Packages and Providers are selected by turnover – old and new packages • Prices for Packages are collected monthly • Weights of Packages and Providers may vary quarterly • Consumption pattern is fixed to base period (one consumer profile)

18. Comparison – UVs and traditional

19. Follows the packages that are currently in use Much data is needed at deep detail Providers have to cooperate Representativity approachAdvantages Disadvantages

20. Consumer Profiles • Assumption of rational choice – cheapest package within provider is taken • For the time being one consumer profile is taken equivalent to the one of the representativity approach • Done with CPI data, will be repeated with data from the chamber of employees (only tariff prices of new packages)

21. Comparison – all four methods

22. Only price data are needed in monthly collection easy to apply once established Is like a copy of a monthly bill – similar to re-pricing of bills Detailed data is needed to establish different consumer profiles Weighting of profiles Assumption of rational choice Weighting of packages Consumer ProfileAdvantages Disadvantages

23. The mobile network • Highly competitive market • More packages than on the fixed network market • Providers are sensitive when additional data is asked • study repeated for the mobile market

24. Consumer Profiles • Data are from a monthly survey of the chamber of employees which summarize all available packages for the mobile, the fixed and the internet market • Here free minutes and special discounts have to be taken into account (less importance on the fixed market)

25. Representativity approach • Current CPI data are used • Not only new packages are taken into account • Packages are weighted by their share – data are delivered by the providers • Old packages stay as long in the sample as they have a significant share • New packages are taken into account not when they appear on the market but when they gain share

26. Unit value • Data from regulatory body are used • No distinction between business and private market available • Definitions of unit values are very broad

27. Results – Comparison mobile market

28. Results – Comparison fixed market

29. Preliminary Conclusions • Price development of different methods with different data show the same direction but to a different degree • Unit values, as used here, are not recommended as they show volatile behavior that can be explained by differences in consumption pattern

30. Outlook • CPs for fixed market will be elaborated (ongoing study of individual data – results will hopefully be available before the end of the CENEX) • Traditional approach for mobile market • Internet data are in preparation • Data for mobile phones were collected – Quality adjustment in the presence of discount shemes

31. Thank you for listening!