The Industry Analysis Division’s
`
`Reference BookReference Book
`
`of
`Rates
`Price Indices
`and
`Household Expenditures
`for Telephone Service
`
`March 1997
`
`Tracy Waldon
`James Lande
`
`Industry Analysis Division
`Common Carrier Bureau
`Federal Communications Commission
`Washington, DC 20554
`
`This report is available for reference in the Common Carrier Bureau Public Reference Room, 2000 M Street,
`N.W., 5 Floor. Copies may be purchased by calling International Transcription Service, Inc. at (202) 857-
`th
`8300. The report can also be downloaded from the FCC-State Link computer bulletin board at (202) 418-
`0241 or through the FCC-State Link on the Internet, accessible from the Common Carrier Bureau's Home
`Page at http://www.fcc.gov/ccb/ on the World Wide Web.
`
`

`

`TABLE OF CONTENTS
`
`Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
`
`Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
`
`Section 1. Price Index Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
`
`Section 2. Residential Rates for Local Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
`
`Section 3. Business Rates for Local Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
`
`Section 4. Lifeline Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
`
`Section 5. Rural Telephone Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
`
`Section 6. Expenditures for Telephone Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
`A. Consumer Expenditures for Telephone Service . . . . . . . . . . . . . . . . . . . . . 37
`B. Business Expenditures for Telephone Service . . . . . . . . . . . . . . . . . . . . . . 55
`
`Section 7. Long Term Trends in Local Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
`
`Section 8. Long Term Trends in Toll Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
`
`Appendix 1: BLS Price Indices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
`
`Appendix 2: Residential Telephone Rates by City, October 1995 . . . . . . . . . . . . . . 109
`
`Appendix 3: Business Telephone Rates by City, October 1995 . . . . . . . . . . . . . . . . 111
`
`Appendix 4: Local Telephone Rates, 1983 - 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 113
`
`Appendix 5: Local Service Rate Averages by Company . . . . . . . . . . . . . . . . . . . . . 122
`
`Appendix 6: Long Term Measures of the Cost of Telephone Service . . . . . . . . . . . 130
`
`Appendix 7: Technical Notes on Telephone Service Price Indices . . . . . . . . . . . . . 138
`A. Introduction to CPI Price Indices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
`B. The CPI Telephone Service Samples . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
`C. Other Features of CPI Telephone Indices . . . . . . . . . . . . . . . . . . . . . . . . 141
`D. The CPI Revision Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
`E. Introduction to Producer Price Indices . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
`F. The Discontinued PPI Telephone Service Indices
`. . . . . . . . . . . . . . . . . 147
`G. The Current PPI Telephone Service Indices . . . . . . . . . . . . . . . . . . . . . . 151
`
`Appendix 8: Communications Data from the Input-Output Accounts of the U.S. . . . 152
`
`Appendix 9: Comparison of the Basic Schedule Rates of AT&T,
`MCI, and Sprint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
`
`i
`
`

`

`LIST OF TABLES
`
`Table 1-A: Consumer Price Indices (1980 - 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
`Table 1-B: Producer Price Indices (1980 - 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
`Table 1-C: Selected Producer Price Indices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
`Table 2: National Averages for Local Residential Rates . . . . . . . . . . . . . . . . . . . . . . 17
`Table 3A: National Averages for Local Single-line Business Rates . . . . . . . . . . . . . . 22
`Table 3B: Nationwide Averages for a Local Key System Business Line . . . . . . . . . . 23
`Table 3C: Nationwide Averages for a Local PBX Business Trunk . . . . . . . . . . . . . . . 24
`Table 4: Comparison of Generally Available Rates to Subsidized Rates . . . . . . . . . . 27
`Table 5: Exchange Size and Rates in Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
`Table 6: Average Rates for RUS Borrowers by State . . . . . . . . . . . . . . . . . . . . . . . . . 33
`Table 7: Revenue per Subscriber for RUS Borrowers . . . . . . . . . . . . . . . . . . . . . . . . 34
`Table 8A: Annual Expenditures for Telephone Service by Selected Groups . . . . . . . 39
`Table 8B: Annual Expenditures for Telephone Service by Race and Income . . . . . . 40
`Table 8C: Annual Expenditures for Telephone Service by Age . . . . . . . . . . . . . . . . . 41
`Table 9A: Monthly Expenditures for Telephone Service
`by Households with Telephone Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
`Table 9B: Monthly Expenditures for Telephone Service
`by Households with Telephone Service by Race and Income . . . . . . . . . . . . . . . . . . 43
`Table 9C: Monthly Expenditures for Telephone Service
`by Households with Telephone Service by Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
`Table 10: Methods for Estimating Household Expenditures on
`Telephone Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
`Table 11A: Consumer Expenditure Data by City, Northeast Census Region . . . . . . . 51
`Table 11B: Consumer Expenditure Data by City, South Census Region . . . . . . . . . . 52
`Table 11C: Consumer Expenditure Data by City, Midwest Census Region . . . . . . . . 53
`Table 11D: Consumer Expenditure Data by City, West Census Region . . . . . . . . . . 54
`Table 12: National Averages for Local Telephone Rates . . . . . . . . . . . . . . . . . . . . . . 58
`Table 13: AT&T Interstate Residential Tariff Rates for 10-minute Calls . . . . . . . . . . . 62
`Table A1-1: Consumer Price Indices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
`Table A1-2: Discontinued Producer Price Indices . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
`Table A1-3: Revised Producer Price Indices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
`Table A5-1: Selected Data by Local Exchange Telephone Company - 1993 . . . . . . 127
`Table A5-2: Selected Data by Local Exchange Telephone Company - 1994 . . . . . . 128
`Table A5-3: Selected Data by Local Exchange Telephone Company - 1995 . . . . . . 129
`Table A8-1: Use of Communications Services by Sector of the Economy - 1987 . . 152
`Table A8-2: Use of Products and Services by the
`Communications Industry - 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
`Table A8-3: Detailed Use of Communications Services
`by Sector of the Economy - 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
`
`ii
`
`

`

`LIST OF FIGURES AND MAPS
`
`Figure 1: CPI All Items vs. CPI Telephone Services . . . . . . . . . . . . . . . . . . . . . . . . . . 5
`Figure 2: CPI All Items vs. CPI & PPI Local Service . . . . . . . . . . . . . . . . . . . . . . . . . . 9
`Figure 3: CPI All Items vs. CPI & PPI Interstate Toll Service . . . . . . . . . . . . . . . . . . . . 9
`Figure 4: CPI All Items vs. CPI & PPI Intrastate Toll Service . . . . . . . . . . . . . . . . . . . 10
`Figure 5: CPI All Items vs. CPI Telephone Services excluding Federal Excise Taxes 11
`Figure 6: Estimated Federal Excise Tax Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
`Figure 7: AT&T Rate Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
`Figure 8: CPI All Items vs. All Telephone CPIs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
`Figure 9: PPI Finished Goods vs. Telephone Service PPIs . . . . . . . . . . . . . . . . . . . . 14
`Figure 10: CPI Telephone Services vs. AT&T-PPI Composite Index . . . . . . . . . . . . . 15
`Map 1: Average Residential Rates of RUS Borrowers by State . . . . . . . . . . . . . . . . . 32
`Map 2: Average Business Rates of RUS Borrowers by State . . . . . . . . . . . . . . . . . . 32
`Figure 11: Average Monthly Local Service Revenue per Line for all RUS Borrowers 35
`Figure 12: Median Monthly Local Service Revenue per Line
`for Small RUS Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
`Figure 13: Average Revenue per Line for all RUS Borrowers . . . . . . . . . . . . . . . . . . 36
`Figure 14: Changes in Consumer Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
`Figure 15: Changes in Consumer Expenditures for Toll and Discretionary Services . 48
`Figure 16: Share of Telephone Expenditures in Consumers’ Budgets . . . . . . . . . . . . 50
`Figure 17: Consumer Expenditures as a % of Industry Operating Revenue . . . . . . . 50
`Figure 18: Composition of Residential Rates from the Urban Rates Survey . . . . . . . 57
`Figure 19: Measures of Local Residential Charges . . . . . . . . . . . . . . . . . . . . . . . . . . 59
`Figure 20: Measures of Local Business Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
`Figure 21: Average Charge for Basic Residential Service . . . . . . . . . . . . . . . . . . . . . 60
`Figure 22: Average Charge for Basic Residential Service without
`Subscriber Line Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
`Figure 23: AT&T Basic Residential Rate for a 10-minute Daytime Call . . . . . . . . . . . 61
`Figure 24: AT&T Basic Residential Rate for a 10-minute Daytime Call
`in Current Dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
`Figure 25: AT&T Average Residential Nighttime Discount . . . . . . . . . . . . . . . . . . . . . 63
`Figure 26: First Minute Premium in AT&T Basic Residential Rates . . . . . . . . . . . . . . 65
`Figure 27: Measures of Interstate Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
`Figure 28: Producer Price Indices for Toll Services . . . . . . . . . . . . . . . . . . . . . . . . . . 66
`Figure 29: Postal and Telephone Service Price Levels . . . . . . . . . . . . . . . . . . . . . . . 67
`Figure 30: Comparison of Historic Telephone and Postage Rates . . . . . . . . . . . . . . 67
`Figure 31: Residential Rates for 10-Minute Short Distance Calls . . . . . . . . . . . . . . . 68
`Figure 32: Residential Rates for 10-Minute Medium Distance Calls . . . . . . . . . . . . . 68
`Figure 33: Residential Rates for 10-Minute Long Distance Calls . . . . . . . . . . . . . . . . 69
`Figure 34: Basic Access Revenue plus Subscriber Line Charges per Access Line . 126
`Figure 35: Basic Network Revenue per Access Line . . . . . . . . . . . . . . . . . . . . . . . . 126
`Figure 36: CPI and PPI for Local Residential Service . . . . . . . . . . . . . . . . . . . . . . . 142
`Figure 37: CPI and PPI for Interstate Toll Service . . . . . . . . . . . . . . . . . . . . . . . . . . 143
`
`iii
`
`

`

`Executive Summary
`
`! Rates for Local Service
`" The average rate paid by residential customers for unlimited local touch-tone
`calling rose to $19.98 in 1995. This represents an increase of less than 1% over
`the average rate in 1994. Charges for connection of a residential phone line fell by
`0.5% in 1995.
`" Lifeline service, a program subsidizing monthly phone charges for low-income
`households, was available in 73% of the cities sampled. In 1995, the average
`monthly benefit to participants was $9.06. Link-up, which subsidizes charges for
`the connection of a phone line, was available in 96% of the cities sampled. The
`average benefit for the connection of phone service was $26.66.
`" The average rate paid by business customers for a single phone line rose from
`$41.64 in 1994 to $41.77 in 1995. Charges for connection of a single business
`phone line fell by 3% to $72.32 in 1995. Charges for multi-line service and
`connection exhibited similar patterns.
`
`! Rates for Toll Service
`" AT&T, MCI, and Sprint raised basic schedule interstate toll rates for residential
`customers twice in 1996. The Consumer Price Index for interstate toll calls rose by
`3.7% in 1996, while the index for intrastate toll calls rose by 6.1%.
`" Interexchange carriers continue to offer discount and promotional programs to
`residential customers. For a consumer spending $10-$15 per month, the savings
`over the course of a year can amount to $25-$40. High-volume callers can see
`substantial savings in their long-distance bills as a result of these discounts.
`" Since 1995, Sprint has offered a calling plan with rates that are dependent only on
`the time-of-day the call is placed. In 1996, AT&T and MCI introduced similar flat-
`rate domestic calling plans to the residential market. The rates on these calling
`plans, in addition to being distance-independent, do not vary by time-of-day. Low-
`volume callers may see substantial savings by switching to a flat-rate calling plan.
`" Resellers, aggregators, and dial-around carriers continue to offer competitive rates
`to consumers willing to shop around.
`
`! Consumer Expenditures for Telephone Service
`" Monthly expenditures on telephone service in those households with telephone
`service rose by 5% to $61 in 1994. Telephone service continues to comprise about
`2% of household expenditures.
`" Urban households continue to spend more on telephone service than do rural
`households.
`" Black households spend more on telephone service than do non-black households.
`" Monthly expenditures on telephone service are highest in the western region of the
`U.S.
`
`iv
`
`

`

`INTRODUCTION
`
`This report presents information compiled by the Bureau of Labor Statistics (BLS),
`the Bureau of Economic Analysis (BEA), the Rural Utilities Service (RUS), the Bureau of
`the Census, and the FCC's Common Carrier Bureau Industry Analysis Division. The report
`contains historical data, background material and descriptions of methodology. It is
`intended to assist in the analysis and interpretation of telephone price and expenditure
`trends.
`
`Section 1 describes the BLS telephone price index series, and shows year-to-year
`index changes to the present. Telephone prices rose rapidly in the early 1980s, following
`a major rise in inflation in the overall economy. In 1984, the FCC implemented access
`charge policies which shifted the recovery of some costs from interstate toll rates to
`subscriber line charges. The indices show interstate rates falling after 1984, and local
`rates rising. These trends are shown in Table 1 and Figures 1 through 4. Section 1 also
`presents a long term comparison of telephone rates and overall inflation.
`
`Section 2 describes the local rate survey conducted by the Industry Analysis
`Division and presents rate averages for the local services used by ordinary residential
`customers. Table 2 presents detailed estimates of charges to residential customers. As
`of October 1995, residential customers paid an average of $13.62 for a single party access
`line. This amount was higher than the revised average for October 1994 of $13.28, and
`$1.06 higher than the average from October 1986. Including subscriber line charges,
`touch-tone service, and taxes, the average monthly bill was $19.98. The section also
`discusses information on extended area charges, connection charges, and inside wiring
`maintenance plans.
`
`Section 3 describes the survey of local business rates conducted by the Industry
`Analysis Division. Table 3 presents rates charged to three types of business customers --
`a single line business, a small business with a key system, and a larger business with a
`PBX system. Business customers pay significantly higher local rates than do residential
`customers. In October 1995, single line business customers paid an average of $41.77
`for local service, including touch-tone service, subscriber line charges, and taxes. PBX
`trunks cost an average of $53.22. These averages include 200 calls per line per month
`in areas where business customers are required to take measured or message rate
`service. Section 3 also presents information on measured service rates, inside wiring
`charges for single line business customers, and connection charges.
`
`Section 4 presents data on lifeline and Link-Up rates. Table 4 compares averages
`for generally available rates with averages for subsidized rates. On average, customers
`who qualify for lifeline service save about $9 per month. Customers who qualify for
`connection assistance have their connection charges reduced by more than $26. Out of
`95 sample cities, carriers in 70 cities had lifeline programs, and in 90 cities had Link-Up
`programs.
`
`1
`
`

`

`Section 5 provides data on rural telephone service. Table 5 summarizes rate levels
`in Wisconsin, which had relatively comprehensive historical data covering many small rural
`carriers. The Wisconsin data show the relationship between rural rates and urban rates
`in the state. In addition the Wisconsin data show that rural rate increases have been
`similar to changes in rates nationally, and that the number of very small exchanges has
`been shrinking. Table 7 presents Rural Utilities Service data on average revenue per rural
`subscriber. These data, along with Figure 11 and Figure 12, show that rural rate changes
`have been comparable to nationwide changes. Figure 13 illustrates the great increases
`in toll service expenditures by rural subscribers. Rate levels for RUS borrowers in 1994
`are also examined. The data show that rural local service rates appear to be about $2.50
`below those of urban areas.
`
`Section 6 describes data on expenditures for telephone service. The Bureau of
`Labor Statistics' Consumer Expenditure Survey supplies the most detailed information on
`telephone expenditures by households. Table 8 shows total telephone expenditure levels
`for all households, and for many demographic breakdowns, such as urban customers
`versus rural customers. In 1994, the average household spent $690 for telephone service,
`representing about 2.2% of all household expenditures. Households with incomes in the
`top 20% spent over twice as much for telephone service as households in the bottom 20%.
`Low income households, however, devoted twice as much of their overall expenditures to
`telephone service.
`
`Table 9 presents estimates of monthly telephone expenditures for households with
`telephone service. By removing the cost of basic local service, the table provides an
`estimate of household expenditures for toll and other services. Each of the demographic
`groups shown in the table have significant toll expenditures. Figure 15 tracks expenditure
`increases by several demographic groups, and suggests that toll usage has grown rapidly
`for many segments of society.
`
`
`Household expenditure data are also available from the Bureau of Economic
`Analysis and the Census of Communications Firms. Figure 16 shows telephone
`consumption expenditures as a percentage of personal consumption expenditures (PCE).
`The percentage rose steadily from the end of World War II until 1975. Rates for basic
`local service rose most rapidly between 1975 and 1985. The percentage of PCE for
`telephone service actually fell during that period, because inflation in the overall economy
`overshadowed increases in telephone rates.
`
`Table 11 shows household expenditure data for 26 cities. These data are used to
`show that much of the difference in telephone expenditures is due to differences in
`average household incomes. Differences in local rate levels explain relatively little of the
`city-to-city differences in household telephone expenditures.
`
`Section 7 reviews changes in local rates. Table 12 presents selected rate averages
`for 1983 to the present. Figure 18 shows how the components of the residential charge
`have changed over time. The base rate has remained about the same since 1985.
`
`2
`
`

`

`Increases since 1985 primarily have resulted from subscriber line charges and increased
`taxes. Figures 19 through 22 show that changes in the survey rate averages are fairly
`consistent with changes in published telephone service price indices. This suggests that
`the 95 city averages are reliable indicators of local rate changes over time. Section 7 also
`presents AT&T estimates of residential rate averages for 1940 through 1983. Since 1970,
`the cost of local residential service has risen less than the overall rate of inflation.
`
`Section 8 reviews long term changes in toll rates. It is based on the basic schedule
`of charges paid by residential customers and excludes business services such as 800
`calling, private networking, and special access. Table 13 shows selected AT&T interstate
`toll rates from 1927 to the present. Figure 23 shows the charge for ten-minute day-time
`short haul, middle distance, and coast-to-coast calls. In 1930, a coast-to-coast call cost
`more than 100 times as much as a short distance interstate call. Today, the charges are
`nearly equal. Figure 24 presents the same rates as Figure 23, expressed in today's
`dollars. This graph shows how the real cost of medium distance and long haul calls have
`continuously fallen since 1935. The cost of the shortest haul calls have varied, but are not
`significantly higher than they were in 1935 after adjusting for inflation. Because many
`customers participate in calling plans, and therefore do not pay the basic schedule rates,
`we briefly examine some of the trends in discount calling plans.
`
`This publication also contains several appendices. Appendix 1 contains selected
`monthly CPI and PPI index levels from 1972 to the present. Appendix 2 contains selected
`residential rate information for the 95 sample cities as of October 1995. The data include
`the monthly charge for unlimited service, the connection charge and comparable
`subsidized rates. The appendix also shows touch-tone and inside wiring maintenance
`plan charges. Appendix 3 contains business rate information for the same 95 cities. The
`data include the monthly line charges for local business service for single line, key system,
`and PBX customers. Appendix 4 shows monthly charges and connections charges for
`residential service by city for 1983 through 1995.
`
`Appendix 5 compares local rate averages by company with revenue data from the
`Statistics of Communications Common Carriers. Table A5-1 shows monthly local and toll
`service revenues per access line. Figure 34 shows that the 95 city averages are fairly
`consistent with the revenue per access line data.
`
`Appendix 6 contains long term series of rate levels, price indices, and consumer
`expenditures for telephone service. Appendix 7 contains technical notes on the telephone
`service price indices produced by the Bureau of Labor Statistics. Appendix 7 also
`highlights differences between the CPI and PPI indices.
`
`Appendix 8 contains data on expenditures for communications services by sector
`of the economy. Based on the 1987 benchmark Census of Manufacturers, businesses
`spent less than one cent for communications service for each dollar of final revenue. This
`appendix also shows telephone industry purchases from other sectors of the economy.
`
`3
`
`

`

`Appendix 9 documents the basic rate schedules for interstate toll calls charged by
`AT&T, MCI, and Sprint since 1980.
`
`This report contains current BLS and BEA data. In some cases published data are
`slightly different from previously published figures. Similarly, the local rate averages for
`prior periods reflect some revisions. The statistical data presented in this report
`summarize information collected by the FCC's Industry Analysis Division. The data
`contained in this report can be obtained from the FCC - State Link computer bulletin board
`at (202) 418-0241 or through the FCC-State Link on the Internet, accessible from the
`Common Carrier Bureau’s Home Page at http://www.fcc.gov/ccb/. Copies of the report
`may be purchased by calling International Transcription Services (ITS) at (202) 857-3800.
`
`4
`
`

`

`1. PRICE INDEX DATA
`
` The U.S. Department of Labor's Bureau of Labor Statistics (BLS) calculates telephone
`service price indices as part of two major programs. Its Consumer Price Index (CPI)
`program publishes indices based on the amount of money that residential customers in
`urban areas pay for telephone service. The Producer Price Index (PPI) program publishes
`indices based on the amount of money that companies receive for providing telephone
`service. Unlike the CPI, the PPI indices cover business as well as residential telephone
`service. Appendix 1 contains monthly values for the telephone service indices. The CPI
`and PPI telephone price indices are described in greater detail in Appendix 7.
`
`Figure 1
`
`inflation during the last eight years.
`
`Table 1 shows recent annual
`percent changes for the indices
`shown in Appendix 1. The CPI for
`all items, which reflects overall
`inflation
`for
`consumers, and
`selected telephone service price
`indices are shown in the first three
`figures. Figure 1 compares the CPI
`for all items with the CPI for all
`telephone services. Changes in
`telephone service prices have
`traditionally
`lagged changes
`in
`overall inflation. This accounts for
`the
`relatively steady
`level of
`telephone prices in the late 1970s
`and the relatively high increases
`from 1980 to 1985. On the whole,
`telephone prices have increased by
`less
`than
`the overall
`level of
`
`The PPI values contained herein are from the 1972 to 1995 indices. BLS revised
`the PPI telephone methodology and samples in July 1995. The BLS began publishing a
`new series of telephone indices which are structured and calculated differently than the
`1972 - 1995 series.
`
`5
`
`

`

`TABLE 1-A
`CONSUMER PRICE INDICES (1980 - 1996)
`% Change December of Previous Year Through December of the Year Shown
`
`All Goods
`& Services
`
`Telephone
`Services
`
`Local
`Services
`
`Interstate
`Toll Service
`
`12.5%
`8.9%
`3.8%
`3.8%
`3.9%
`3.8%
`1.1%
`4.4%
`4.4%
`4.6%
`6.1%
`3.1%
`2.9%
`2.7%
`2.7%
`2.5%
`3.6%
`
`4.6%
`11.7%
`7.2%
`3.6%
`9.2%
`4.7%
`2.7%
`-1.3%
`1.3%
`-0.3%
`-0.4%
`3.5%
`-0.3%
`1.8%
`0.7%
`1.2%
`2.1%
`
`7.0%
`12.6%
`10.8%
`3.1%
`17.2%
`8.9%
`7.1%
`3.3%
`4.5%
`0.6%
`1.0%
`5.1%
`0.5%
`1.0%
`-0.3%
`2.6%
`0.9%
`
`3.4%
`14.6%
`2.6%
`1.5%
`-4.3%
`-3.7%
`-9.4%
`-12.4%
`-4.2%
`-1.3%
`-3.7%
`1.3%
`-1.3%
`6.5%
`5.4%
`0.1%
`3.7%
`
`1980
`1981
`1982
`1983
`1984
`1985
`1986
`1987
`1988
`1989
`1990
`1991
`1992
`1993
`1994
`1995
`1996
`
`Intrastate
`Toll
`Service
`-0.6%
`6.2%
`4.2%
`7.4%
`3.6%
`0.6%
`0.3%
`-3.0%
`-4.2%
`-2.6%
`-2.2%
`-1.5%
`-2.4%
`0.2%
`-1.0%
`-3.8%
`6.1%
`
`6
`
`

`

`TABLE 1-B
`PRODUCER PRICE INDICES (1980 - 1994)
`% Change December of Previous Year Through December of the Year Shown
`
`Local
`Services
`
`5.5%
`13.5%
`7.5%
`1.5%
`13.8%
`9.2%
`5.9%
`1.2%
`3.2%
`1.3%
`0.9%
`1.3%
`-0.2%
`1.0%
`0.5%
`
`Toll
`Service
`
`Local
`Local
`Residential Business
`Services
`Services
`4.1%
`7.1%
`5.8%
`15.6%
`15.7% 10.8%
`9.0%
`5.8%
`3.8%
`0.2%
`2.2%
`1.6%
`10.4%
`24.1%
`-1.6%
`12.4%
`5.6%
`-0.8%
`8.9%
`2.5%
`-7.0%
`2.6%
`-0.8%
`-7.9%
`4.6%
`0.5%
`-2.3%
`1.9%
`0.6%
`-0.8%
`1.5%
`0.0%
`-1.1%
`2.1%
`0.0%
`-1.8%
`-0.2%
`-0.2%
`1.0%
`0.8%
`2.3%
`0.8%
`0.7%
`-0.2%
`2.3%
`
`1980
`1981
`1982
`1983
`1984
`1985
`1986
`1987
`1988
`1989
`1990
`1991
`1992
`1993
`1994
`
`Intrastate Interstate International
`MTS
`MTS
` MTS
`
`2.3%
`8.0%
`1.7%
`3.9%
`3.8%
`2.1%
`-3.5%
`-3.0%
`-3.8%
`0.5%
`-2.2%
`-2.6%
`1.3%
`-1.1%
`-1.4%
`
`5.5%
`15.9%
`3.9%
`0.0%
`-5.1%
`-3.0%
`-10.1%
`-11.8%
`-2.1%
`-1.7%
`-0.1%
`-1.3%
`1.0%
`3.8%
`6.1%
`
`5.3%
`-13.2%
`10.5%
`0.4%
`-6.4%
`-0.3%
`-2.8%
`-0.4%
`0.0%
`0.0%
`-0.5%
`0.2%
`0.0%
`-17.9%
`0.0%
`
`7
`
`

`

`TABLE 1-C
`SELECTED PRODUCER PRICE INDICES1
`% Change from December 1995 to December 1996
`
`0.3% Coin Local Service
`0.3% Directory Assistance
`
`0.0%
`
`0.4%
`
`-0.2%
`
`0.5%
`International Residence Switched Toll
`Service
`
`-0.2%
`
`6.1%
`
`-0.1%
`
`-0.8%
`
`1.9%
`
`0.0%
`
`Telephone Communications, except
`Radiotelephone
`Local Service, except Private Lines
`Residence Local Service
`Business Local Service
`Public Switched Toll Service
`
`Residence Switched Toll Service
`Intrastate Residence Switched Toll
`Service
`Interstate Residence Switched Toll
`Service
`Business Switched Toll Service
`Business Switched Access Toll
`Service
`Outbound Business Switched Access
`Toll Service
`Intrastate Business Switched Access
`Toll Service, Outbound
`Interstate Business Switched Access
`Toll Service, Outbound
`International Business Switched
`Access Toll Service, Outbound
`Inbound Business Switched Access
`Toll Service
`Intrastate Business Switched Access
`Toll Service, Inbound
`Interstate Business Switched Access
`Toll Service, Inbound
`International Business Switched
`Access Toll Service, Inbound
`Private Line Service
`Intrastate Private Line Service
`Directory Advertising
`
`-1.2%
`Business Special Access Switched Toll
`Service, except Private Lines
`Outbound Business Special Access
`Switched Toll Service
`Intrastate Business Special Access
`Switched Toll Service, Outbound
`Interstate Business Special Access
`Switched Toll Service, Outbound
`International Business Special Access
`Switched Toll Service, Outbound
`Inbound Business Special Access
`Switched Toll Service
`Intrastate Business Special Access
`Switched Toll Service, Inbound
`Interstate Business Special Access
`Switched Toll Service, Inbound
`International Business Special Access
`Switched Toll Service, Inbound
`0.4%
`1.2% LEC Intrastate Private Line Service
`0.1%
`
`-12.4%
`
`0.9%
`
`-8.2%
`
`-0.7%
`
`-9.9%
`
`1.4%
`0.0%
`
`-17.9%
`
`-3.0%
`
`-4.3%
`
`9.7%
`
`-6.0%
`
`-11.6%
`
`-0.7%
`
`8.9%
`
`0.4%
`
`-0.2%
`
`1.3%
`
` BLS revised the PPI telephone methodology and sample in June 1995.
`
`1
`
`8
`
`

`

`Figure 2
`
`Figure 3
`
`Figure 2 shows the CPI for all
`items, and the CPI and PPI price
`indices
`for
`local
`residential
`telephone service. The largest
`increases after divestiture are due
`to
`the
`federal subscriber
`line
`charges. The series should show
`differences over time, because the
`CPI
`covers
`inside
`wiring
`maintenance
`and
`customer
`premises equipment. In addition,
`the
`samples
`cover
`different
`geographic areas. Appendix 7
`discusses
`the many differences
`between the CPI and PPI telephone
`service price indices.
`
`Figure 3 shows the CPI and
`PPI for interstate message telephone
`service (MTS). Figure 4 shows the
`CPI and PPI intrastate MTS indices.
`As with the graph for local service,
`the impact of federal subscriber line
`charges is apparent in price indices
`for interstate MTS service. The
`imposition of subscriber line charges
`resulted in lower access charges to
`interexchange carriers. This in turn
`led to steep decreases in interstate
`MTS rates between 1984 and 1988.
`
`9
`
`

`

`Figure 4
`
`Figure 3 and Figure 4 show
`the CPI and PPI toll indices moving
`in concert. Until July 1993, many
`business customers continued to
`take service at the same rates
`charged to residential customers.
`Business customers tend to make
`shorter distance calls and tend to
`make a higher percentage of day
`calls.
`
`have
`changes
`Several
`the
`toll
`industry.
`occurred
`in
`Specialized services, such as 800
`service and Megacom, have attracted
`an increasing share of switched
`traffic. The CPI does not cover these
`services, and the discontinued PPI
`sample was based on usage patterns
`from the late 1970s. The revised PPI indices should provide a reasonable indication of
`pricing trends for these specialized services. Another change has been the rapid growth
`of international service. International service represented about 7% of billed long distance
`revenues in 1984, and represents more than 14% today. The CPI sample does not include
`international rates. In contrast to the practice followed for many years, AT&T, MCI and
`Sprint now have different basic MTS rate schedules for business and residential
`customers. Finally, since 1992, AT&T and other carriers have increased basic schedule
`rates at the same time that they have increased discount offerings to many customers.
`These changes mean that the MTS indices, which principally measure changes in
`domestic basic schedule rates, are not as representative of overall rate changes as they
`were before 1992.
`
`The CPI toll indices did not fully reflect the increased use of discount plans in the
`past. Since 1994, BLS has taken steps to more accurately reflect their usage. As a
`consequence, the CPI interstate price index may overstate changes since 1992. For
`example, the CPI interstate toll index shows domestic rates increasing 7.5% between
`December 1992 and May 1995. AT&T's "actual price index" (API) for resident