Telecoms Deflators: A Story of Volume and Revenue Weights

Abstract

Fast-changing technology products present inherent measurement challenges in relation to ensuring that deflators adequately adjust for quality change to allow a like-for-like comparison of volumes of output. Telecommunications services present significant challenges in this area not just because of rapid changes in prices and volumes, but also because the different services provided (text, voice, data) are displaying increasing substitutability. This paper builds on previous work by the authors to provide improved alternatives for telecoms services deflators, calculated for the UK, focussing on treatment of access charges and also whether using revenue-weights or volume weights for fixed components of contract bundles delivers more reasonable results. Our new options deliver declines in the deflator series of between 64% and 85% between 2010 and 2017. These are far faster declines than the deflator calculated by the existing method but considerably reduce the range of price declines calculated in earlier work. Overall, we recommend using our volume weighted deflator options, as these seem to better reflect how consumers evaluate the utility of different telecoms services components.