• The Office for National Statistics new methods marks change for the past 20 years’ price decline, but promise more accurate inflation and GDP readings.
  • Change backs telcos’ claims that they are meeting demands of ‘more for less’ in tougher circumstances than assumed.

ONS data errors reshape UK telecoms landscape

ONS data errors reshape UK telecoms landscape

Source: Isaac Smith / Unsplash

The UK’s Office for National Statistics (ONS) will revise the way it measures the UK economy after finding errors in its calculations of the telecoms’ industry output. The errors stretch over the last two decades and could have significant ramifications for records of the UK’s growth rate, productivity, and inflation over the past 20 years.

The ONS will publish “experimental estimates” alongside the Blue Book 2020 (the UK economic accounts — BB20) in late‑October this year. The move forms part of a wider transformation project to fully implement double deflation in the UK National Accounts, which threw up divergence between BB19 estimates and theoretical double‑deflated estimates. In order to rectify any divergence, the telecoms industry will see changes to the way its economic output is measured. The changes are set to be implemented for the telecoms industry in BB21, due for publication in autumn next year.

The upshot

Consumer demand for better quality telecoms services at a cheaper price has been a familiar tune for BT and other UK providers, and the new ONS data offers them a level of a vindication. Highlighting the demands of consumers, and taking into account the drastic improvements in quality, reach, and uptake of new technologies, the double‑deflated statistics suggest telcos are managing to provide more product for less.

Of particular importance is the potential impact on the regulatory and political positioning of the telecoms industry. Evidencing its value and its ability to adapt to increased competition and consumer demands, the changes could provide a platform for regulation that better enables further growth in the sector as well as showcasing the burgeoning demand for consumer connectivity.

The low down

The ONS identified two main issues with the data it has been collecting and the forecasts it has made for the telecoms industry:

  • An under‑representation of internet services within the current deflator.
  • Poor handling of access charges for telecoms services.

As such, after three years of work and collaborations with industry representatives and academics, the ONS has detailed an alternative method for deflating services output in the telecoms industry, which aims to fix the issues: measuring with double‑deflated gross value-added estimates. With the new deflator it is possible to map a much stronger price decline over the past two decades, apparently better reflecting technological and economic changes in the sector.

“The improved telecommunication services deflator better accounts for the technological changes that occurred in this industry over the past two decades such as increasing coverage and broadband speeds that have resulted from infrastructure investment and implementation of superfast fibre optic broadband as well as new generations of mobile cellular broadband.”

— ONS.

The ONS GDP measurement update will affect all industries, with telecoms highlighted as one with the most substantial changes. Clothing and footwear and financial services are also impacted.

Not all change is good

While the new deflator will allow for a better reading of telecoms output, the ONS was quick to add that “it is impossible to know what the exact impact will be”. It is likely, the ONS said, that the introduction of this more accurate system will have both pros and cons. It will:

  • Increase the volume measures of gross domestic product.
  • Increase the volume of output of the telecoms sector.
  • Change how other industries consumer telecoms services, “partially offsetting” benefits to the telecoms industry.

Current and improved telecommunication services deflator, 1997 to 2016.

Current and improved telecommunication services deflator, 1997 to 2016.

Source: Office for National Statistics

Theoretical estimates published by the ONS on 6 July 2020 show that the change could change the telecoms landscape considerably. Looking at the period between 1997 and 2016, current methods show a price decline of just over half. Using the improved services deflator, the price decline plummets 95% (see above).