The calculation and application of composite telecommunications service price indexes

Abstract

An accurate understanding of telecommunications price behavior is critical to nearly all regulatory and economic analyses of telecommunications policy. Regulators need telecommunications price indexes to assess the relative affordability, utility, and availability of telecommunications services in order to promote economic development, fairness, and other social goals. Economists use price indexes to measure industry-specific and economy-wide production, consumption, technological change, growth, productivity, and competitiveness. To date, however, no complete investigation of national-level aggregate telecommunications prices has been undertaken, nor has any state-specific telecommunications price index been created. This is in spite of burgeoning interest in alternative regulatory mechanisms and the high stakes of regulatory action. As part of a recent comprehensive investigation of the economic implications of telecommunications infrastructure modernization, conducted for the Pennsylvania Public Utilities Commission, the authors have compiled state-level, service-specific telecommunications price indexes and have created national-level composites in order to compare Pennsylvania and U.S. price trends. We find significant differences between national average and Pennsylvania telecommunications price indexes, which describe important variations in the ways telecommunications services have affected state-wide economic development.