statistic austria alexandra beisteiner ottawa group october 2007

Evaluation of the behavior of different methods for price measurement in the

telecommunication market

Statistic AustriaAlexandra BeisteinerOttawa Group October 2007

2

Overview

Aim of the study Fixed network Mobile network Preliminary conclusions

30 slides

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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?

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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

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independent of location

competition intensive

Contract and prepaid cards

Mobile and fixed network

Upcoming of high speed internet

Market diversity

Former monopolist has big shares

Call by call providers and pre-selection

fixedfixednetwork network

mobilemobilenetworknetwork

cablecableTVTV

Bundled services

In urban areas

Primary use is television

The telecommunication market

internetinternet

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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

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Methods used

Traditional Approach Unit Values Representativity Approach User Profiles with rational choice

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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

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Results 1 – Traditional approach

Different Methods for Telecommunication price measurementFixed market

93,0

94,0

95,0

96,0

97,0

98,0

99,0

100,0

101,0

2005 Q1 2005 Q2 2005 Q3 2005 Q4 2006 Q1 2006 Q2 2006 Q3 2006 Q4

Index traditional approach baseweighted

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Traditional ApproachAdvantages Disadvantages

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

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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

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Results 2 – Unit Values


93,0

94,0

95,0

96,0

97,0

98,0

99,0

100,0

101,0

102,0

2005 Q1 2005 Q2 2005 Q3 2005 Q4 2006 Q1 2006 Q2 2006 Q3 2006 Q4

UV index base weighted

UV index weighted index bycurrent turnover

UV index weighted average pricesby current turnover

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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

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Comparison of unit value with price data

Mobile Network

90,0

92,0

94,0

96,0

98,0

100,0

102,0

2005 Q1 2005 Q2 2005 Q3 2005 Q4 2006 Q1 2006 Q2 2006 Q3 2006 Q4

Foreign Countries

88,0

90,0

92,0

94,0

96,0

98,0

100,0

102,0

2005Q1

2005Q2

2005Q3

2005Q4

2006Q1

2006Q2

2006Q3

2006Q4

2007Q1

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Unit ValuesAdvantages Disadvantages

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

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Comparison – UVs and traditional approach


93,0

94,0

95,0

96,0

97,0

98,0

99,0

100,0

101,0

102,0

2005 Q1 2005 Q2 2005 Q3 2005 Q4 2006 Q1 2006 Q2 2006 Q3 2006 Q4



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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)

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Comparison – UVs and traditional


93,0

94,0

95,0

96,0

97,0

98,0

99,0

100,0

101,0

102,0

2005 Q1 2005 Q2 2005 Q3 2005 Q4 2006 Q1 2006 Q2 2006 Q3 2006 Q4

representativity approach



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Representativity approachAdvantages Disadvantages

Follows the packages that are currently in use

Much data is needed at deep detail

Providers have to cooperate

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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)

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Comparison – all four methods


93,0

94,0

95,0

96,0

97,0

98,0

99,0

100,0

101,0

102,0

2005 Q1 2005 Q2 2005 Q3 2005 Q4 2006 Q1 2006 Q2 2006 Q3 2006 Q4


UV index weighted average pricesby current turnoverIndex traditional approach baseweightedCPs rational choice

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Consumer ProfileAdvantages Disadvantages

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

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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

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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)

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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

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Unit value

Data from regulatory body are used No distinction between business and private

market available Definitions of unit values are very broad

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Results – Comparison mobile market

Differnet Methods for Telecommunication price measurementMobile Market

50,00

60,00

70,00

80,00

90,00

100,00

110,00

120,00

2005Q1

2005Q2

2005Q3

2005Q4

2006Q1

2006Q2

2006Q3

2006Q4

2007Q1

2007Q2

consumer profile (rational choice withouttaking into account free minutes)

consumer profile (rational choice taking intoaccount free minutes)

UV whole market

Representativity approach contract market

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Results – Comparison fixed market


50,0

60,0

70,0

80,0

90,0

100,0

110,0

120,0

2005 Q1 2005 Q2 2005 Q3 2005 Q4 2006 Q1 2006 Q2 2006 Q3 2006 Q4


UV index weighted average pricesby current turnoverIndex traditional approach baseweightedCPs rational choice

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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

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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

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Thank you for listening!

statistic austria alexandra beisteiner ottawa group october 2007

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