When tracking any market, one has to be clear about what constitutes “the market.” If one wanted to track home broadband prices, for example, the inclusion of a huge amount of non-related services would skew the data.
The U.S. Bureau of Labor Statistics, for example, includes “landline, telephone and TV services bundled with residential internet service; mobile internet access” in the definition.
The BLS uses the same approach for “cable TV service.” The big problem, in the U.S. market, is that most consumers buy their services (home broadband, subscription video, fixed network and mobile voice) as a bundle. By some estimates, in the U.S. market, 60 percent to 75 percent of internet access plans are bought in a bundle.
The same is true for European Union markets, where over a third of all consumer services--both fixed and mobile--are bought in a bundle.
In some markets more than 90 percent of services are purchased as part of a bundle.
So one has to make assumptions about how to apportion the “cost” of each bundle element. It is not clear that the BLS has a procedure for doing so, and if it does have a methodology, it does not publish the assumptions.
What BLS does say is that “when selecting samples in either the residential telephone services, internet services, or cable and satellite televisions services categories, if a bundled service is selected, it is assumed the customer’s primary intent is purchasing the service defined by the CPI category,” says BLS.
For example, phone service must be included in the service bundle along with either internet or television services when selecting the sample in the residential telephone services category, says BLS.
To be sure, in principle, it should not matter what the stated rates are. Only the cost differential matters. The issue is that if bundle elements change at different rates, or in different directions (up or down), the bundle price changes only partially reflect price changes for the “lead” service.
In other words, if home broadband prices decline, but video and voice charges climb, there is some distortion. Prices could have risen or dropped based on implied price movements for the other components of the bundle.
That is particularly the case when video prices are part of a home internet bundle.
The point is that when large percentages of consumers buy services in a bundle, BLS attributes all of the bundle cost to one service selected by survey respondents. The time series data, in principle, should then not be affected, as the only metric tracked is degree of change for the bundle.
In practice, it might matter which of the bundle components are selected, as price change rates vary for each major bundle element. Video prices increase the most, followed by voice service. Home broadband prices decline.
In other words, if a survey respondent chooses “home broadband” as the anchor bundle service, then the cost of TV and voice, when applicable, are said to be part of “home broadband” cost. In principle, home broadband costs then are inflated.
The reverse is true when “video” is selected as the anchor service. Then the lower price of home broadband understates video price changes.
Separately, the BLS now uses a hedonic method to account for changes in product quality. In other words, BLS accounts for qualitative changes to existing products (computers, home broadband, for example) where performance changes dramatically for a class of product, over time.
As always, when measuring price changes, the details and methodology do matter.
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