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Quality adjustment in practice Quality adjustment in practice – the use of consumer profiles– the use of consumer profiles

1. The market

2. User needs

3. Definitions and requirements

4. Examples

5. Advantages

Telecommunication (services)

• rapid technological progress,

• rapid changes caused by a highly competitive market

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Inde

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Romania

Turkey

France

Lithuania

Norway

Price Index for telecom...

• trade-off between– User needs and – Index producer needs - maximum flexibility

• The main purposes of a price index for telecommunication service

– Timeliness of the subindex – Need for indicators reflecting the impact of competition– Appropriateness of the deflators for national accounts

Consumer profiles

• Comparison over time and between countries

• Used by many countries for the mobile market

• From the HICP manual – Consumer profiles:

“An approach for tariff prices where typical ‘representative’ consumers are constructed with respect to their individual consumption and this type of consumption is traced.”

Minimum requirements

• The representative items must be described in sufficient detail to capture price determining factors

• A sufficient number of varied specifications for each representative item must be used

• The specifications should be updated frequently

• If a certain specification disappears, efforts should be made to find suitable comparable specifications or they should be made comparable either by quality or by quantity adjustment or redistribution

Fixed consumer profile approach

• The profile is fixed above the provider of services– Consumer type with fixed weights– Estimates on different use

Statistical information? Or judgmental/purposive approach

Numerical example from Statistics Norway on mobile telephone tariffs

Example – Telecom - Norway

Period         1       2    

Provider A   B Total A   B total

Item Profiles     1 2 4   1 3 4  

  Low Medium High                

Basic fee       199 399 299   199 599 329  

Calls (Min) 30 300 1500 0,49 0,39 0,49   0,49 0,39 0,39  

SMS (No) 30 300 1000 0,39 0,29 0,39   0,39 0 0,39  

MMS (No) 5 25 50 2 1 2   2 1 2  

Internet (Gb) 1 10 30 2,5 0,75 2   2,5 0 2  

Profile sum low     237,9 425,2 337,4   237,9 615,7 364,4  

Profile sum medium 538 635,5 633   538 741 633  

Profile sum high     1499 1346,5 1584   1499 1234 1464  

Example – Telecom - Norway

Profile sum low     237,9 425,2 337,4 Total 237,9 615,7 364,4 total

Profile sum medium 538 635,5 633   538 741 633  

Profile sum high     1499 1346,5 1584   1499 1234 1464  

      Minimum selection              

Provider       A   B   A   B  

Low       237,9   337,4   237,9   364,4  

Medium   538   633   538   633  

High       1346,5   1584   1234   1464  

Example – Telecom - Norway

      Minimum selection              

Provider       A   B   A   B  

Low       237,9   337,4   237,9   364,4  

Medium   538   633   538   633  

High       1346,5   1584   1234   1464  

      Index values              

  Weights     A   B Total A   B Total

Low 25 %     100,0   100,0 100,0 100,0   108,0 104,0

Medium 50 %     100,0   100,0 100,0 100,0   100,0 100,0

High 25 %     100,0   100,0 100,0 91,6   92,4 92,0

Provider weights 50 %   50 % 100       99,0

Critical Issues

• Assumption of an economic behavior of the consumers– A consumer with a certain user profile will select the cheapest profile

within a provider – Consumers can be forced into a certain tariff package for a certain

time span– Enough information?

• Sampling frame for the selection of tariff packages

Advantages

• It is flexible enough to react on current developments in a changing market

• The identification of appropriate package from each supplier and for each user profile is easier, subjective elements are eliminated

• It takes account of substitution between tariff packages within provider

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Questions or comments?Questions or comments?