A Comparison of Deflators for Telecommunications Services Output
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Abstract
The telecommunications services industry has experienced significant technological progress, yet the industry’s output statistics do not reflect this. Between 2010 and 2017 data usage in the UK expanded by nearly 2,300%, yet real Gross Value Added for the industry fell by 8% between 2010 and 2016, while the industry experienced one of the slowest rates of recorded productivity growth. The apparent disconnect between rapid technological improvements and the measured economic performance of the industry can largely be explained by further developing the deflators applied to nominal output. We contrast two methodologically distinct options: the first option being a strengthening of the existing Services Producer Price Index for Telecommunication Services, with the second option measuring price changes through the average price per data unit of various telecommunication services. The key distinction between these options can be considered as contrasting a revenue weighted index with one that can be seen as a volume weighted index, once a common quantity measure is established. Using these methods, we conclude that telecommunications services prices fell by between 37% and 96% from 2010 to 2017, considerably more than the current deflator. The real output of the sector will therefore have been considerably higher than indicated by current statistics.