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Telecommunication Indices in the Japanese CPI

Telecommunication Indices in the Japanese CPI. Makoto Shimizu Director, Economic Statistics Division, Statistical Survey Department, Statistics Bureau, Japan. Outline. 1. Telecommunications Expenditure in Japan 2. Methodology Used to Compile Indices of Telecommunications Charges

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Telecommunication Indices in the Japanese CPI

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  1. Telecommunication Indices in the Japanese CPI Makoto Shimizu Director, Economic Statistics Division, Statistical Survey Department, Statistics Bureau, Japan

  2. Outline 1. Telecommunications Expenditure in Japan 2. Methodology Used to Compile Indices of Telecommunications Charges 3. Recent Movement of Indices for Telecommunications 4. Influence of the 2005 Revision on Indices 5. Conclusions

  3. 1. Telecommunications Expenditure in Japan • As of the end of FY 2006, Japan has 97 million mobile phone subscribers and 34 million fixed phone residential subscribers, while 88 million people, 68.5% of the population, used the internet in 2006. • Most household expenditure for telecommunications is composed of fixed phone charges, mobile phone charges and internet connection charges. • Combined they make up approximately four percent of total consumption expenditure, and have increased every year. • Telecommunications charges per message unit are decreasing, but total telecommunications charges paid per households are increasing. • Expenditure on fixed phones is decreasing, while that on mobile phones is increasing rapidly. • Mobile phone charges include those for various services such as internet connection, e-mail, photos and video, direct marketing and file downloads as well as calls. • Some of these charges are collected together as bundled services. • Those for internet connection charges for fixed lines also include various services.

  4. Expenditure for Telecommunications by Household

  5. A Characteristic of the Price System in the Mobile Phone Market in Japan • A characteristic of the price system in the mobile phone market in Japan is cheap prices for devices and expensive charges for monthly services. • This can be attributed to a practice among service providers and device suppliers by which providers pay about 40 thousand yen per device for “sales promotion” to sellers who discount devices to consumers, and compensate for these discounts as charges collected from consumers for services. • Thus, expenditure on devices had been almost zero and was not large enough to be adopted as an item for the CPI until the 2005 base. • This practice by sales promotion has, however, declined somewhat, and in the 2005 base expenses for devices have increased to a sufficient level to be counted as a CPI item while charges for services fell. • This bundling practice will disappear completely and prices for devices will be higher, charges for services lower.

  6. 2. Methodology Used to Compile Indices of Telecommunications Charges • Most of the other item indices are compiled every month from the prices of the Retail Price Survey. • For telecommunications charges, for which it is difficult to determine representative specifications for price comparison, the item indices are computed by using model formulae using the prices and number of customers or characteristics of plans supplied by providers. • Internet connection charges are in principle those for personal computers while those for mobile phones are included in the indices for mobile phone charges, and those for fixed phone charges in the indices for fixed phone charges.

  7. Scope of Services for Telecommunications by Device in the Japanese CPI O Services are included in the CPI P Services are partly included in the CPI

  8. Mobile Phone Charges The quoted model usage cases are (a) 20 minutes of calltime plus 4,100 packets of data exchange, (b) 200 minutes of calltime plus 11,300 packets, and (c) 660 minutes of calltime plus 23,400 packets. In this formula, is the representative charges for the above three model usage cases, is the number of subscribers, is the month, is the plan, is the provider (among three major providers), is the category of plan (2G or 3G).

  9. Fixed Phone Charges The index of fixed phone charges is calculated with subscriber numbers as weights and charges separately for NTT (Nippon Telegraph and Telephone) lines and other lines. The charges are composed of subscriber line charges and call charges. The call charge is calculated using the following formula. In this formula, is total call duration, is possible call duration per message, is charge per unit, is the month, 0 is the base year, is the charge plan, is the provider, is the distance zone, and is the time zone. is the average call charges in a month on the base year, which is estimated based on the Family Income Expenditure Survey.

  10. IP Phone Charges • Recently, phone charges for IP (Internet Protocol) subscribers have risen as a share of fixed phone charges, being less than 10% in 2004, but exceeding 20% in 2007. • Thus, from January 2008, IP phone charges will be included in the index of fixed phone charges through a procedure reflecting public comments. • The line specification is assumed to be a 0ABJ-IP line. • The IP phone index will be compiled separately and consolidated using the number of subscribers as weights with the index for fixed phone charges, because IP phones are in principle connected to the internet, and charges are the same regardless of distance or duration if calling to a fixed phone or another IP phone, unlike the regular system of fixed phone charges. • The index of IP phone will be compiled as charges to fixed phones by calculating with the formulae shown above for fixed phones, because IP phones are used mainly for calling to fixed phones.

  11. Internet Connection Charges • Internet connection charges include fees for basic services through internet as well as fees for connection to internet. • The index of internet connection charges is calculated with the share of subscribers as weights and charges by provider for lines with a high volume of users, that is, analog lines, ISDN lines, ADSL lines and fiber optic cables. • Share of use by type of line is calculated using data from the Survey of Household Economy.

  12. 3. Recent Movement of Indices for Telecommunications 2005=100

  13. 4. Influence of the 2005 Revision on Indices • In the rebasing of the CPI from the 2000 base to the 2005 base, the change of the mobile phone charges in 2006 of the 2005 base over the previous year was about 0.11 percentage points lower than the 2000 base. • This decline of the CPI change can be attributed mainly to (a) the pattern of the discount of the mobile phone rates newly introduced by a service provider and (b) the change of mobile phone uses in the households from 2000 to 2005. • As for (a), in November 2005, one of the providers introduced a new charging plan giving higher discount rates for a larger volume usage. • As for (b), the use of mobile phones increased rapidly from 2000 to 2005, and the percentage of the households having high-volume use of mobile phones significantly increased from 2000 to 2005. • With the combination of (a) and (b), a larger decline of mobile phone charges for the high-volume users were more strongly related in the 2005 base than in the 2000 base.

  14. Difference of Model Usage Cases of the Mobile Phone Charges between the Bases • The model usage cases were determined to reflect the three categories of households as an equal size grouped on the basis of volume of use of mobile phones: lower use, medium use, and higher use. • In the 2000 base CPI, the model usage cases used for index calculation were 10 minutes, 80 minutes and 340 minutes of calling time on the 2000 base. • In the 2005 base CPI, the model usage cases were changed to 20 minutes calltime plus 4,100 packets, 200 minutes calltime plus 11,300 packets and 660 minutes calltime plus 23,400 packets in a month. • For each category, a medium usage pattern was selected as the model usage case. • The data of household expenditure distribution by the mobile phone expenditure was taken from the Family Income and Expenditure Survey by a special tabulation.

  15. Distribution of Household Expenditure and Discount Rate for Mobile Phones

  16. 5. Conclusions • It is beneficial that user profiles accumulated by the companies be supplied to the Statistics Bureau in strict confidence exclusively for the use of index compilation. • It is necessary to provide users with various sorts of information containing details of the model formulae that may help predict the gap in the next revision in order to minimize the “surprise” to the market. • From the view to reduce the “surprise”, it is better to revise model usage cases more frequently because volume of use in households is rapidly increasing. • If a new-style product or service proliferates and its sales reach a sufficient level to count as an item, they should be included in the CPI. • It is beneficial for experts of the CPI to exchange information internationally.

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