A Comparison of Approaches to Deflating Telecoms Services Output

The telecommunications services industry has experienced very large technological progress in the past decades, as measured by technological output metrics. However, the industry’s economic output statistics do not appear to reflect this. Between 2010 and 2015, for example, data usage in the UK expanded by around 900% but real Gross Value Added (GVA) for the industry fell by 4%. While the direction of growth in Telecoms GVA is not the same for all countries, there nonetheless appears to be a wider disconnect between the technological performance and economic measurement of the industry in the UK. This paper argues this can be primarily resolved through strengthening the deflators that are applied to nominal output to produce real GVA. This paper contrasts two methodologically distinct options to estimate the potential bias in the current deflator, informed by both an economic and engineering perspective. Our findings indicate that the current deflator is upward biased and that telecommunications services prices could have fallen between 35% and 90% between 2010 and 2015, considerably more than the current deflator, suggesting the need for continued research in this area.