Rule2023-22936
Video Relay Service Compensation Formula
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 19, 2023
Effective
December 18, 2023
Issuing agencies
Federal Communications Commission
Abstract
In this document, to ensure that the providers of Telecommunications Relay Services (TRS) are compensated for the provision of Video Relay Service (VRS), the Federal Communications Commission (Commission) adopts a formula to compensate such providers from the Interstate TRS Fund (TRS Fund) for the provision of service for the next five-year compensation period.
Full Text
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[Federal Register Volume 88, Number 201 (Thursday, October 19, 2023)]
[Rules and Regulations]
[Pages 71994-72007]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-22936]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 64
[CG Docket Nos. 03-123, 10-51; FCC 23-78; FR ID 177808]
Video Relay Service Compensation Formula
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this document, to ensure that the providers of
Telecommunications Relay Services (TRS) are compensated for the
provision of Video Relay Service (VRS), the Federal Communications
Commission (Commission) adopts a formula to compensate such providers
from the Interstate TRS Fund (TRS Fund) for the provision of service
for the next five-year compensation period.
DATES: This rule has been classified as a major rule subject to
Congressional review. The effective date is December 18, 2023.
FOR FURTHER INFORMATION CONTACT: Michael Scott, Consumer and
Governmental Affairs Bureau, 202-418-1264, <a href="/cdn-cgi/l/email-protection#5e13373d363f3b32700d3d312a2a1e383d3d70393128"><span class="__cf_email__" data-cfemail="400d29232821252c6e13232f3434002623236e272f36">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order, in CG Docket Nos. 03-123 and 10-51; FCC 23-78, adopted on
September 22, 2023, released on September 28, 2023. The Commission
previously sought comment on these issues in a Notice of Proposed
Rulemaking, published at 86 FR 29969, June 4, 2021, with a correction
published at 86 FR 31668, July 15, 2021. The full text of this document
can be accessed electronically via the FCC's Electronic Document
Management System (EDOCS) website at <a href="https://docs.fcc.gov/public/attachments/FCC-23-78A1.pdf">https://docs.fcc.gov/public/attachments/FCC-23-78A1.pdf</a> or via the FCC's Electronic Comment Filing
System (ECFS) website at <a href="http://www.fcc.gov/ecfs">www.fcc.gov/ecfs</a>. To request materials in
accessible formats for people with disabilities (Braille, large print,
electronic files, audio format), send an email to <a href="/cdn-cgi/l/email-protection#a2c4c1c1979296e2c4c1c18cc5cdd4"><span class="__cf_email__" data-cfemail="91f7f2f2a4a1a5d1f7f2f2bff6fee7">[email protected]</span></a>, or
call the Consumer and Governmental Affairs Bureau at (202) 418-0530
(voice).
Synopsis
1. Section 225 of the Communications Act of 1934, as amended (the
Act), requires the Commission to ensure the availability of
Telecommunications Relay Services (TRS) to persons who are deaf, hard
of hearing, or deafblind or have speech disabilities, ``to the extent
possible and in the most efficient manner.'' 47 U.S.C. 225(b)(1). TRS
are defined as ``telephone transmission services'' enabling such
persons to communicate by wire or radio ``in a manner that is
functionally equivalent to the ability of a hearing individual who does
not have a speech disability to communicate using voice communication
services.'' 47 U.S.C. 225(a)(2). VRS, a relay service that allows
people with hearing or speech disabilities who use sign language to
communicate with voice telephone users through video equipment, is
supported entirely by the TRS Fund. VRS providers are compensated for
the reasonable costs of providing VRS in accordance with payment
formulas approved by the Commission. In a number of decisions over the
past 20 years, the Commission has addressed whether certain cost
categories are reasonable costs eligible for recovery from the TRS
Fund. Reasonable costs are generally defined as those costs that
providers must incur to provide relay service in accordance with
mandatory minimum TRS standards.
2. In 2007, to ensure that VRS users could choose from a range of
service offerings, despite significant disparities in VRS providers'
market shares and per-minute costs, the Commission introduced a tiered
compensation structure for VRS. Under this approach, a VRS provider's
monthly compensation payment is calculated based on the application of
different per-minute amounts to each of three specified ``tiers'' of
minutes of service. The highest per-minute amount applies to an initial
tier of minutes up to a defined maximum number, a lower amount applies
to the next tier, again up to a second defined maximum number of
minutes, and a still lower amount applies to any minutes of service in
excess of the second maximum. Under the tiered approach, providers that
handle a relatively small amount of minutes and therefore have
relatively higher per-minute costs will receive compensation on a
monthly basis that likely more accurately correlates to their
[[Page 71995]]
actual costs--and the same is true of providers that have more minutes
and lower per-minute costs.
The 2021 Notice of Proposed Rulemaking
3. In May 2021, the Commission released the Notice of Proposed
Rulemaking, seeking comment on the adoption of a new VRS compensation
plan. The Commission proposed to maintain a tiered compensation
structure. The Commission also found no reason to depart from the
Commission's longstanding policy objectives of bringing TRS Fund
payments into closer alignment with allowable costs and preserving and
promoting quality-of-service competition among multiple providers. In
addition, the Commission sought comment on how cost and demand
estimates should be adjusted, if at all, to account for post-COVID
costs and demand, and whether projected costs were reliable enough to
serve as a reasonable basis to set rates for a new multi-year rate
cycle. The Commission also sought comment on whether to rely on
historical costs only, in anticipation that VRS costs and demand may
decrease to pre-pandemic levels once the pandemic subsides. Further,
the Commission asked what labor cost adjustments, if any, should be
applied. The Commission also sought comment on whether and how to
modify the current compensation structure, whether to revisit any prior
Commission determinations on allowable costs, what rate levels should
be set, how to structure the compensation period, and whether to
provide for rate adjustments during that period.
The Need for a Revised Compensation Plan
4. In setting VRS compensation formulas, the Commission first
determines the relevant costs of providing service. Relying on cost and
demand data reported by VRS providers to the TRS Fund administrator,
the Commission estimates each provider's average per-minute cost to
provide VRS (the provider's total allowable expenses divided by its
total minutes), and also calculates a weighted-average per-minute cost
for the industry as a whole (all providers' total allowable expenses
divided by their total minutes). The Commission then adds an allowed
operating margin. In the Notice of Proposed Rulemaking, the Commission
sought comment on whether to revisit any of its prior determinations
regarding allowable costs.
Changes in Allowable Cost Criteria
5. Research and Development (R&D). The Commission revises its
allowable cost criteria to allow TRS Fund support for the reasonable
cost of research and development to enhance the functional equivalency
of VRS. No commenter opposes this change. The Commission agrees with
commenters who assert that the current criterion is unnecessarily
restrictive. First, in 2013, when it authorized TRS Fund support of
Commission-directed (non-provider) research to improve the efficiency,
availability, and functional equivalence of TRS, the Commission
recognized that TRS Fund resources can appropriately be used to support
research into service improvements that may exceed the existing minimum
TRS standards. Authorizing providers (as well as Commission-directed
entities) to conduct such research is consistent with the Commission's
policy of promoting service improvement by encouraging VRS providers to
compete with one another based on service quality--a form of
competition that logically may lead a provider to develop innovative
features not already required by the Commission's rules. The Commission
finds that expenses incurred by VRS providers to develop such
improvements are appropriately included as part of the ``reasonable
cost'' of service supported by the TRS Fund.
6. Second, changed circumstances support removal of the current
limitation. Recent changes in how people communicate are posing new
technology challenges for VRS providers. To promote the integration of
VRS with video conferencing, even though it is not currently required
by the Commission's rules, VRS providers need to conduct research and
development on methods of achieving such integration. Further, the risk
of wasting TRS Fund resources on unproductive research appears less
likely today, because the Commission no longer resets compensation each
year based on annual cost reporting, as it did in 2004 when the current
limitation on allowable research and development costs was established.
With compensation plans now being set for multi-year periods, providers
that reduce costs during a compensation period are able to retain the
resulting profit. Consequently, providers are less likely to spend
money on wasteful or unnecessary research.
7. Therefore, the Commission concludes that the development of
service improvements is deserving of TRS Fund support, even if such
improvements exceed what is necessary for compliance with the
Commission's minimum TRS standards. The Commission stresses that, as
with all provider-reported expenses, expenses for research and
development to improve VRS are allowable only if reasonable. In
addition, expenses incurred to develop proprietary user devices or
software (or any non-TRS product or service) are not recoverable from
the TRS Fund.
8. Number Acquisition and 911 Calling. The Commission revises its
allowable-cost criteria to permit TRS Fund support for the reasonable
cost of assigning and porting North American Numbering Plan telephone
numbers for TRS users. Last year, the Commission similarly revised its
allowable-cost criteria for IP Relay to permit recovery of number
assignment costs by IP Relay providers. The Commission agrees that
precluding recovery of such costs is no longer justified. Based on the
current record, the Commission concludes that voice service providers
and VRS providers are not similarly situated regarding the ability to
recover such costs from users. As a threshold matter, since 2008 it has
become clear that a VRS provider's cost of obtaining the numbers it
assigns to its registered users actually is attributable to the use of
relay service to facilitate a call. If relay service were not provided,
these numbers would not be needed by VRS users. Further, the current
record indicates that, as a practical matter, these costs are never
passed on to VRS users, but rather are absorbed by VRS providers. While
voice service providers have a billing relationship with their
customers, VRS providers typically do not, and there would be little
point in creating such a relationship for the sole purpose of passing
through what likely would be a de minimis monthly charge.
9. In this regard, there is an important difference between
traditional text-telephone (TTY) based TRS and internet-based TRS. To
place a call using a TTY, a consumer must subscribe to traditional
telephone service, for which a telephone number is automatically issued
to the subscriber (and for which the number acquisition cost is bundled
into the service rate). To place a call using VRS, a consumer must
subscribe to broadband internet access service, for which no telephone
number is automatically provided (unless the consumer also subscribes
to Voice over internet Protocol (VoIP) service--which a VRS user would
have no reason to do).
10. As for costs associated with acquisition and use of toll-free
numbers, the record does not indicate that any VRS provider still
issues toll-free
[[Page 71996]]
numbers to registered VRS users. Therefore, the Commission does not
find it necessary to revisit that question.
11. Similarly, the record does not indicate that any VRS provider
is currently assessed a fee under a state or local E911 funding
mechanism. Such fees are typically assessed on providers of telephone
service. As a general matter, the TRS Fund supports the reasonable cost
of ensuring that E911 calls placed by VRS users are handled in a
functionally equivalent manner. FCC rules impose numerous E911-related
requirements on VRS providers, including that they provide automatic
location information for mobile VRS calls to 911 if technically
feasible. The Commission clarifies that the TRS Fund supports
reasonable expenses incurred by VRS providers to improve their ability
to quickly connect a VRS user's 911 call to the Public Service
Answering Point (PSAP) nearest the user's location and to automatically
provide specific location data to such PSAP. Such costs are directly
related to routing TRS calls to an appropriate PSAP and facilitating
emergency call handling. Thus, such costs are allowable under the
criteria adopted by the Commission in 2008.
12. Outreach. TRS outreach has a dual educational focus: making the
general public aware of the availability and use of relay services,
e.g., to prevent the uninformed rejection of TRS calls by a called
party; and providing ``non-branded'' information about relay services
to potential users--i.e., members of the public who are deaf or hard of
hearing--to make them aware of the availability and benefits of TRS.
Before 2013, the TRS Fund compensated TRS providers for outreach
activities. However, the Commission grew concerned about the
effectiveness of provider outreach. In 2013, the Commission directed
the establishment of a pilot program to provide coordinated nationwide
outreach for VRS and IP Relay through contractors or other third
parties. The Commission also disallowed TRS Fund support for outreach
conducted by VRS and IP Relay providers. Last year, the Commission
revised its allowable-cost criteria for IP Relay to permit recovery of
outreach costs by IP Relay providers.
13. The Commission concludes that VRS providers' reasonable
outreach expenses should be recoverable from the TRS Fund. First, the
pilot National Outreach Program expired in 2017 and has not been
reauthorized. Although the Commission continues to be skeptical about
the extent to which provider-conducted outreach can be effective in
educating the general public, in the absence of a national outreach
program, the TRS Fund should support outreach by VRS providers who
choose to engage in it. However, outreach expenses of this kind are
allowable only to the extent that the communication focuses on
educating the public about the availability and use of VRS.
Expenditures on advertisements about other matters do not constitute
allowable outreach expenses.
14. Second, it appears that little is accomplished by continuing to
prohibit TRS Fund support of provider outreach to potential VRS users.
As the Commission has previously observed, outreach to potential TRS
users (unlike outreach to the general public) is not always easy to
distinguish from branded marketing, and branded marketing is an
allowable TRS expense. Since the Commission's 2013 determination to
cease TRS Fund support for outreach by VRS providers, the amounts
reported by VRS providers as outreach have decreased, while the amounts
reported as allowable marketing expenses have increased. To the extent
that VRS providers are motivated to communicate with potential users,
whether through branded marketing or otherwise, such efforts can be
effective in introducing the service to new users, including subgroups
that may lack awareness of the availability of a service or how it can
meet their needs.
15. In allowing outreach, the Commission does not reopen the door
to wasteful spending. As explained earlier in connection with research
and development, with compensation plans being set for multi-year
periods, providers that reduce costs during a compensation period are
able to retain the resulting profit. Consequently, providers are less
likely to spend wastefully on unproductive outreach activity--
especially as the resources involved are more likely to lead to
increased compensation revenue if used for branded marketing.
16. User Access Software. The Commission revises its allowable-cost
criteria to allow TRS Fund support for the reasonable cost of providing
downloadable software applications that are needed to enable users to
access VRS from off-the-shelf user devices. The Commission agrees that
the TRS Fund should support reasonable costs incurred by VRS providers
in developing, maintaining, and providing the software necessary to
allow VRS users' non-proprietary equipment to route calls and connect
to VRS. The Commission allows TRS Fund recovery of VRS providers'
reasonable costs directly related to the provision of software that can
be downloaded and self-installed by VRS users onto off-the-shelf user
devices such as mobile phones, desktop computers, and laptops running
on widely available operating systems. Such costs must be incurred by
any provider to enable users to connect to its service platform;
therefore, they are attributable to the provision of VRS. Further,
recovery of the cost of software needed to connect such user devices to
VRS is consistent with the Commission's policy to promote the
availability of off-the-shelf IP-enabled devices for VRS use and
decrease consumers' dependence on VRS equipment specifically designed
for connection to a particular VRS provider.
17. However, the Commission declines to also allow recovery of
costs incurred in developing, maintaining, or providing software for
user devices that are distributed by one VRS provider and cannot be
directly connected to other VRS providers' services. While the
Commission agrees that users need a software interface to access VRS,
they do not need proprietary devices that can be connected to and used
with only one provider's service, nor do they need software designed
for such devices. Although the Commission has not prohibited providers
from distributing such devices and software to consumers requesting
them, it is not necessary to support proprietary devices and software
with TRS Fund resources. Sorenson Communications, LLC (Sorenson),
asserts that the proprietary devices it distributes offer higher video
resolutions and more screen space than off-the-shelf platforms, but
provides no details supporting this claim. Even if true, Sorenson fails
to show that such alleged advantages necessitate the availability of
TRS Fund payments for such features or the software supporting them.
Sorenson acknowledges that many of its customers (as well as 100% of
the customers of other providers that do not distribute proprietary
devices) use VRS software running on an off-the-shelf device, either
alone or in addition to using a proprietary Sorenson device. Therefore,
whatever perceived advantages proprietary devices may have, as a
practical matter they provide a useful but not essential means of
accessing VRS.
18. Further, allowing recovery of such software costs would not
advance the Commission's policy to enable users to access VRS from off-
the-shelf IP-enabled devices and to avoid dependence on VRS equipment
specifically designed for a particular provider's network. By limiting
TRS Fund support to user software that allows VRS access from off-the-
shelf equipment that can be connected to any VRS provider, the
[[Page 71997]]
Commission promotes the availability of multiple service options for
consumers.
19. The Commission recognizes that it may often be difficult for a
VRS provider to differentiate precisely between the portions of certain
expenses that are attributable to, e.g., the development of software
applications for connecting proprietary and non-proprietary equipment
to the provider's platform. In cases where such expenses cannot be
directly assigned, the provider should adopt a reasonable allocation
method and specify the method used in its cost reports, so that it can
be evaluated by the TRS Fund administrator and the Commission.
20. Field Staff Issues. Because the costs of installing,
maintaining, and training customers to use provider-distributed devices
are not recoverable through TRS Fund compensation, providers must not
report the costs of field staff visits for such purposes as allowable
expenses. Costs incurred to install and maintain software for a VRS
provider's proprietary user devices are also non-allowable. Therefore,
field staff costs related to installation, maintenance, and training of
customers to use such software also must be excluded. However, the
Commission clarifies that the reasonable cost of service-related work
performed by field staff during a visit to a new or current user is an
allowable cost of providing VRS. Reasonable costs incurred for service-
related field staff visits for the purpose of, e.g., assisting
customers with registration, use of VRS on a non-proprietary device, or
completing a port are allowable.
21. The above clarifications also apply to the reporting of field
staff costs incurred by IP CTS providers. However, any change in the
allowability of field staff costs related to installation and provision
of IP CTS equipment is beyond the scope of this proceeding.
Estimating Costs
22. Need for adjustment of provider cost projections. For the past
13 years, the Commission has established the cost basis for provider
compensation by averaging VRS providers' reported historical expenses
for the prior calendar year with their projected expenses for the
current calendar year. The Commission has found this method to be a
useful way to counteract providers' tendency to overestimate future
costs. However, for a number of reasons specific to this proceeding,
the Commission's averaging approach requires modification to achieve
reasonably accurate estimates of provider costs for the purpose of
establishing VRS compensation for the new compensation period.
23. First, due to a recent increase in the general inflation rate,
which does not appear to be offset by comparable efficiency
improvements, the average of VRS providers' historical 2022 and
projected 2023 expenses is likely to understate the costs that will be
incurred by VRS providers in many expense categories in the new
compensation period. There is likely to be significant inflation during
the 12-month lag between this 2022-23 reporting period and the 2023-24
Fund Year, which is the first year of the new compensation period.
Second, VRS providers may incur expenses in newly allowable cost
categories, which are not reflected in their current reporting of
allowable costs. Third, the record indicates that, due to a shortage of
qualified American Sign Language (ASL) interpreters and the challenges
posed by new modes of communication, VRS providers need to
substantially increase communications assistant (CA) wages and
technology spending to continue providing high-quality, functionally
equivalent service.
24. Finally, recent inflation and other factors appear to have
caused an unusual amount of uncertainty and variation in VRS providers'
estimates of future costs. In projecting costs for 2023 and 2024,
different providers appear to have made very different assumptions
about future input costs, as well as the extent to which compensation
levels will increase sufficiently to justify additional spending. As a
result, estimating each provider's cost of providing VRS based on an
average of that provider's historical and projected expenses is likely
to cause discrepancies.
25. Providers suggest different approaches for addressing these
concerns. ZP Better Together, LLC (ZP) argues that the Commission
should abandon any attempt to estimate current provider costs. Instead,
ZP recommends applying an inflation adjustment (as well as certain
adjustments meant to reflect newly allowable costs) to the compensation
rates set in 2017. The Commission rejects this approach, which
incorrectly assumes that providers' 2016-17 costs (on which the rates
set in 2017 were based) remain relevant for purposes of setting
compensation for 2023-24 and beyond. There is no logical or record
basis for this assumption, which underlies a number of the assertions
in ZP's recent ex partes--e.g., that any rate card should give ZP and
Convo Communications, LLC, a share of the new revenues at least equal
to its market share. Due to the changes that have taken place since
2017, ``old'' provider revenues resulting from the current rates are
disproportionately allocated in relation to provider cost. Therefore,
there is no logical necessity for ``new'' revenues to be proportionate
to providers' market shares. There is no conceivable basis in section
225 of the Act or economics for such a proposal, divorced from costs
and operating margins. The relative per-minute costs of VRS providers
are now very different than they were seven years ago. Further, ZP's
argument that the tiered rate structure and rates of 2017 reflect
immutable truths about economies of scale at different volumes of
minutes is based on a flawed study.
26. Sorenson, on the other hand, suggests that the Commission
modify past practice by using historical 2022 cost, rather than an
average of historical and projected cost, as a baseline for estimating
future VRS cost, and apply uniform factors to adjust each provider's
2022 costs for inflation and to make the targeted, above-inflation
adjustments needed in certain areas. The Commission believes this
approach has merit. Historical costs are more reliably accurate, and
each provider's historical cost can be adjusted by a uniform factor to
address inflation or other likely cost changes affecting all providers,
so as not to unduly distort, or give any provider an undue advantage
in, the resulting rates. While ZP has raised concerns about some
aspects of Sorenson's reported 2022 costs, Sorenson has provided
reasonable explanations for its 2022 cost increases.
27. To address this unusual confluence of rate-setting issues, the
Commission adjusts the costs reported in 2022 to: take account of cost
changes due to inflation during the 18-month time lag between calendar
year 2022 (the cost reporting period) and Fund Year 2023-24 (the first
year of the new compensation period); add amounts sufficient to cover
necessary increases in technology spending and CA wages and benefits;
include estimates of provider expenditures in newly allowable cost
categories; and address new costs incurred by Sorenson to provide
video-text service. Finally, the Commission adds an appropriate
operating margin. The Commission does not anticipate that the
modifications made to address these issues will need to be repeated in
subsequent compensation proceedings. The current confluence of
pandemic-related effects, a sudden change in the inflation rate,
shortage of skilled labor, and provider uncertainty regarding future
costs is unlikely to recur, or if it does, is
[[Page 71998]]
unlikely to coincide with the end of a compensation period.
28. Adjusting Historical Cost for Inflation. To ensure that
compensation is sufficient to cover likely inflation-related cost
increases between calendar year 2022 and Fund Year 2023-24, the
Commission increases its estimate of each provider's expenses in most
categories by 7.23%, which is the change from fourth quarter 2021 to
second quarter 2023 in the Bureau of Labor Statistics (BLS) index of
seasonally adjusted total compensation for private industry workers in
professional, scientific, and technical services.
29. Estimating CA Cost. Several commenters report that VRS labor
costs are likely to continue increasing by substantially more than the
18-month inflation adjustment described above, due to a continuing
shortage of CAs. All providers increased CA wages in 2022, and Sorenson
and ZP both projected further wage increases, leading to higher CA cost
in 2023 and 2024. While the Commission agrees that a further increase
in CA wages is needed, providers' projections in that regard vary
widely. As discussed above, these disparate projections appear to be
based on different assumptions about future inflation and future
compensation levels. To address the need for CA wages to increase
substantially more than inflation, while avoiding the distorting
effects caused by disparate provider projections, the Commission
estimates costs in this category by assuming that all providers' CA
wages and benefits will increase by a constant percentage over
historical levels.
30. For this category only, the Commission uses Fund Year 2020-21
as the baseline for estimating increased CA cost. This is because, CA
wages were relatively stable through the end of 2021, and the wage
increases provided in 2022 differed substantially among the providers.
Given the wide disparity among the providers' projections of future
wage increases, the Commission must resort to rough estimates. The
Commission believes Sorenson's projection, which is at the high end, is
closer to being accurate than those of ZP and Convo. However, the
Commission is not convinced that CA wages will or should increase to
the full extent of Sorenson's estimate.
31. Sorenson's projection is largely based on its claims that
community interpreters' compensation averages $80-$100 per hour, and
that CA wages must be raised closer to that level to ensure that
qualified interpreters are willing to work as VRS CAs. However, the
Commission questions the extent to which Sorenson's estimate of $80-
$100 per hour for community interpreter compensation is applicable
nationwide. Information from other sources appears inconsistent with
Sorenson's claim. Also, many of the rates cited by Sorenson do not
include travel time. If an interpreter can handle VRS calls at home, as
many increasingly do, two hours of VRS work at $50 per hour would earn
the interpreter $100, while a one-hour community interpreting
engagement, paying $90 per hour of interpreting and requiring an
additional hour of travel to and from the interpreter's home, would
earn the interpreter only $90. Where travel time is compensated, hourly
compensation may be substantially lower.
32. Further, while the Commission recognizes the inherent
difficulty of VRS work, working as a CA also has certain advantages
that may make it attractive to interpreters despite lower hourly
compensation. First, in general, community interpreting work is only
available when a meeting has been scheduled that requires an
interpreter. VRS, by contrast, is operating 24/7, and there must always
be interpreters ready to handle any call that happens to be made. Thus,
it is often possible for interpreters to arrange for VRS work during
periods when community interpreting work is unavailable. Second,
community interpreting necessitates travel, while many VRS CAs handle
calls from their homes. As a result, VRS work not only is more
convenient for interpreters, but also can be performed by interpreters
who live in areas where community interpreting work is relatively
scarce or whose personal circumstances make it difficult to work away
from home.
33. Finally, as noted above, VRS providers have frequently over-
projected the amount by which costs are likely to increase. Taking all
these factors into account, the Commission finds it reasonable to
assume that the CA costs of VRS providers will rise by a percentage of
the increase projected by Sorenson. Under this approach, each
provider's CA cost is estimated to be 65% higher than its CA cost in
2020-21. The Commission notes that this estimate gives substantial
weight to Sorenson's projection, as 65% is substantially more than a
simple average of the CA cost increases projected by the three
providers.
34. The Commission recognizes that this estimate is necessarily a
matter of judgment. While the Commission is setting compensation for a
five-year period, the Commission reserves the right to make adjustments
in the formulas, based on a strong showing that such adjustments are
needed. Thus, if CA wages are increased consistently with the above
estimate, and VRS providers then conclude that further increases are
needed, they may present relevant evidence for the Commission's
consideration. On the other hand, to the extent that CA wages are not
increased consistently with the above estimate, the Commission may also
consider and make appropriate adjustments in light of such evidence.
35. Estimating Engineering and R&D Cost. The Commission finds that
engineering and R&D expenses are likely to increase by a percentage
higher than inflation, as all providers work to address the unusually
demanding technology upgrades needed to meet service challenges in the
next compensation period. Engineering and R&D are closely related
aspects of technology spending: successful research and development
leads to service innovations, the deployment of which increases
engineering costs, and increased engineering staff and resources can
also be used to expand research and development. Important changes in
how people communicate--such as the rapid growth of video
conferencing--are posing new technology challenges for VRS providers.
For example, VRS providers must dedicate additional research,
development, and engineering resources to collaboration with video
platform providers, so that VRS CAs can have an integrated, audio-
visual presence in video conferences. In addition, with the Commission
taking steps to modernize the E911 system, the Commission anticipates
the deployment of new technology to automatically provide the
dispatchable location of any mobile VRS user calling 911. VRS providers
may expend additional resources to help find and implement a one-number
solution that ends the ``siloing'' of VRS, seamlessly merging the use
of relay with mainstream voice, video, and texting services.
36. The Commission must ensure that the TRS Fund supports
sufficient spending on technology to address the challenges described
above, so that VRS users have functionally equivalent access to video
conferencing and emergency communication. As directed by the Act, the
Commission must implement TRS in a way that both encourages the use of
existing technology and does not deter the development of improved
technology. Further, support for emergency communications is a
fundamental part of the Commission's TRS mandate. The amounts that VRS
providers will need to spend to address these specific
[[Page 71999]]
challenges are not easy to quantify. Perhaps because providers have
more leeway to defer spending on new technology, current projections
for technology spending are subject to wide variation among the
providers. Sorenson projects substantially increased spending on R&D
and engineering in 2023 and 2024, while ZP and Convo project declines.
For the reasons stated above, the Commission believes all VRS providers
will need to increase spending substantially in these areas to ensure
that they remain competitive in the evolving communications landscape.
Despite their projections of a decline in spending on engineering and
R&D, ZP and Convo agree that such increases are needed. Given the
uncertainties inherent in predicting future spending on technology, the
Commission recognizes that any estimate it makes may be subject to
error. However, the Commission prefers to err on the side of over-
predicting the amount of spending that will be necessary to ensure that
VRS technology provides functionally equivalent service to consumers.
While Sorenson projects a substantial increase in technology spending,
that projection was made before the Commission issued its Report and
Order and Proposed Rule on Access to Video Conferencing, which pose
additional technology challenges to VRS providers. 88 FR 50053, August
1, 2023; 88 FR 52088, August 7, 2023. The Commission estimates that, in
the first year of the new compensation period, each provider will need
to increase spending on engineering and R&D by approximately 75% over
the levels reported for 2022. Therefore, the Commission further adjusts
each provider's estimated costs in these areas by adding 75% of the
provider's reported 2022 level. As with CA costs, the Commission notes
that it reserves the right to make adjustments in the compensation
formulas, either upward based on a strong showing that additional
technology expenditures are necessary, or downward, based on evidence
that the increased technology expenditures described above have not
been made.
37. Estimated Expenses in Newly Allowable Cost Categories. The
Commission also adjusts estimated VRS costs to include certain expenses
that were previously non-allowable and are now allowable. Newly
allowable R&D costs are included in the estimates discussed above.
However, R&D costs for user devices and proprietary user software
remain non-allowable. Previously non-allowable expenses for numbering
activities in 2022 are identified by each VRS provider in its annual
cost report and are included in the Commission's cost estimates. Costs
for customer support provided by field staff remain non-allowable to
the extent that they are attributable to installation, maintenance, or
customer assistance with provider-distributed devices or software for
proprietary devices. The record indicates that Sorenson currently
attributes service-related field staff costs to the Operations Support
cost category. Thus, service-related field staff costs are already
included in reported allowable costs.
38. Outreach. During the next compensation period, VRS provider
expenditures on outreach may increase somewhat, building on the
Commission's and other Federal initiatives to expand broadband access,
and the expected increase in VRS availability to incarcerated persons.
However, the Commission finds that such expenditures are unlikely to
average $0.09 per minute, as ZP estimates. As a general matter, the
Commission believes VRS providers are less likely to spend substantial
sums on ``unbranded'' outreach than ``branded'' marketing, as unbranded
communications are less likely to result in the registration of users
generating additional compensation for that provider. No significant
amount of outreach expenses have been reported by providers after 2020.
Given the virtual absence of provider outreach at present and the
relatively weak economic incentives for providers to engage in
unbranded outreach rather than branded marketing, the Commission
estimates that providers' outreach spending is unlikely to exceed one-
quarter of their marketing expenses, on average.
39. Further, the Commission finds no justification for the view
that providers will spend on outreach at a uniform per-minute rate. It
seems more likely that outreach spending will represent a relatively
uniform percentage of each provider's total expenses. Industry-wide,
VRS providers' marketing costs (adjusted for recent inflation) average
$0.13 per minute, or 3.1% of total expenses. If outreach expenses
average one-quarter of the industry-wide average marketing cost, then
each provider will devote approximately 0.8% of its total expenses to
outreach. The Commission therefore adjusts each provider's estimated
VRS cost by an amount equal to 0.8% of its total expenses.
40. Estimated Costs of Video-Text Service. With the decision of ASL
Services Holding, LLC, dba GlobalVRS (GlobalVRS) to terminate its
involvement with VRS, another VRS provider, Sorenson, has undertaken
efforts to prepare to offer Video-Text Service for ASL users who are
deafblind. Sorenson anticipates that it will incur a substantial amount
of relatively fixed costs, which are unlikely to vary substantially
with the number of minutes of service provided. Sorenson estimates
these costs to include an initial capital expenditure and annually
recurring costs for field support, maintenance, testing, software
development, etc. The Commission finds that this cost estimate is
reasonable, and increases Sorenson's adjusted annual expenses by this
amount. Other VRS providers are not precluded from offering this type
of service. However, in response to GlobalVRS's impending exit, only
Sorenson has represented that it is actively preparing to provide this
service. Therefore, the Commission adjusts Sorenson's costs to reflect
these estimated expenditures. Sorenson's estimated variable cost of
providing this service is not included in this adjustment. As discussed
below, the Commission adopts a separate compensation formula to allow
recovery of such costs through an additive payment for each minute of
Video-Text Service.
41. Operating Margin. The Commission finds no reason to modify the
range of reasonable VRS operating margins, currently defined as between
7.6% and 12.35%. The record does not support Sorenson's argument that
the allowed operating margin is insufficient to encourage capital
investment in VRS.
42. The Commission declines to adjust the operating margin to 22%
to reflect average operating margins for competitive telecommunications
firms or to 17.8% to reflect average operating margin for companies in
the communications and information technologies sectors, as urged by
Sorenson. The current range of reasonable operating margins for VRS is
based on an average of the margins earned in analogous industries,
including government contracting and the professional service sector
that includes translation and interpretation services, as well as the
information technology sector.
43. Sorenson does not provide a convincing explanation of its view
that average margins for the competitive telecommunications firms, or
for a mix of firms in the communications and information technologies
sector would provide a more appropriate benchmark. As a preliminary
matter, the Commission notes that Sorenson's initial filing was based
on a study that included telecommunications carriers.
[[Page 72000]]
The operating margin approach was adopted in 2017 because the
Commission recognized that VRS providers are unlike the
telecommunications industry, in that VRS is not a capital intensive
business. Any proposed benchmark that includes the operating margins of
telecommunications carriers is clearly inappropriate.
44. While the most recent analysis submitted by Sorenson does
purport to filter out capital-intensive companies from the sample of
information and communications technology firms, the use of a benchmark
based on the high technology sector remains flawed, for several
reasons. First, while VRS certainly makes use of advanced technology,
the bulk of VRS costs are labor costs, primarily salaries and benefits
for interpreters, who need not be highly skilled in technology. This
will remain the case despite the technology challenges that require VRS
companies to increase spending on research and development and
engineering. The economic profile of a VRS provider is quite different
from the high technology companies analyzed in the study on which
Sorenson relies.
45. Second, that analysis looks at a sample of companies with net
profit of up to 100%. The Commission is not persuaded that these high-
profit companies are comparable to TRS providers. Third, there are a
number of important differences between the risks typically faced by IT
companies and the risks involved in VRS. For example, while IT
companies may be subject to unexpected, dramatic changes in demand for
their products, demand for VRS has been remarkably stable over time.
Further, while the prices that IT companies can expect to receive for
their products are subject to variation based on, e.g., changing demand
and the pricing decisions of competitors, VRS providers can rely on
government-established prices that are predetermined for a period of
several years.
46. In short, neither Sorenson nor the study on which Sorenson
relies persuasively explain why their operating margin analysis,
relying on surveys of industry sectors that are markedly dissimilar to
the VRS industry, should be deemed preferable to the Commission's 2017
determination of reasonable operating margins, based on data from a
diverse set of industries analogous to VRS.
47. In addition, according to recent census figures, typical
margins for companies in a number of professional service sectors,
including the interpretation services sector, are substantially lower
than the numbers cited by Sorenson and are relatively similar to or
below the levels of operating margin relied upon in setting the range
of reasonableness. The Census Bureau's survey of public companies'
financial data for this sector, defined as ``Professional, Scientific,
and Technical Services,'' but excluding legal, shows that average
quarterly pre-tax operating margins between 2019 and 2022 ranged from -
3.06% (in 1Q2020) to 3.58% (in 3Q2020), averaging 0.09% in the 2019-22
period as a whole and -1.78% in 2022 (the most recent year). The
subsector that includes translation and interpretation services (but
excludes various less analogous industry segments such as accounting,
architectural and engineering, and computer systems design services)
saw an average operating margin for the public firms included in the
Census Bureau's survey ranging from 0.62% (in 1Q2020) to 11.56% (in
2Q2019) for the 2019-22 period and averaging 6.67% in the 2019-22
period as a whole and 6.11% in 2022. Sorenson's analysis does not
address the relevant census data.
48. While the operating margins for public companies defined as
``Professional, Scientific, and Technical Services,'' but excluding
legal, have fluctuated over time (and currently are lower than when the
Commission adopted the reasonableness range of 7.6%-12.35%), the
Commission does not believe it would be beneficial to revise the
reasonable range of operating margins that has guided the Commission's
TRS compensation methodology over the past decade. It is also
beneficial to retain consistency in the reasonable operating margin
range that participants in the TRS program should expect, absent a
clearer indication that operating margins for companies providing
comparable services have significantly changed. The record does not
establish such a significant change to operating margins when
considering the complete scope of industries comparable to VRS.
Therefore, the Commission retains the current reasonableness range for
the VRS operating margin.
49. Sorenson's argument that the operating margin should be
reassessed to take account of a previously proposed increase in Federal
corporate income tax applicable to the top tax bracket, from 21% to
28%, appears to be moot, as the proposed tax rate increase was not
adopted. The Commission also notes that the current range of reasonable
operating margins was established in 2017, based on estimates of
average pre-tax operating margins for companies comparable to VRS
providers. During the 2013-16 period from which the sample was drawn,
corporate income tax for the top bracket was 35%--substantially higher
than the current 21% and even higher than the 28% rate projected by
Sorenson. Therefore, the corporate income tax burden that Sorenson
claims is unfairly depressing its returns has actually decreased, not
increased, since the reasonable range of margins was established by the
Commission.
Compensation Structure and Formulas
50. The Commission adopts the tentative conclusion of the Notice of
Proposed Rulemaking that the purposes of section 225 of the Act are
best served by structuring VRS compensation to support multi-provider
competition based on quality of service. The record supports the
Commission's prior findings that, by offering VRS users a choice among
multiple providers, the Commission can efficiently and effectively
ensure that functionally equivalent VRS is available to all eligible
users. The availability of multiple service offerings encourages VRS
providers to compete for customers by exceeding minimum service quality
standards. In addition, a multi-provider environment encourages diverse
service offerings, including specialized services and features needed
by sub-groups within the sign language-using population.
51. Therefore, the Commission has consistently sought to structure
VRS compensation so as to maintain competitive choices for consumers
while minimizing waste of TRS Fund resources. There is no simple recipe
for achieving these objectives. However, the Commission has flexibility
to adjust its approach as necessary to address changed circumstances.
Compensation for Large Providers
52. The record of this proceeding shows that circumstances have
changed materially since 2017, when the current compensation plan was
adopted. See Structure and Practices of the Video Relay Services
Program, 82 FR 39673, August 22, 2017 (2017 VRS Compensation Order).
Specifically, the cost structures of the largest VRS providers have
come closer to parity. As a result, modifications are needed to avoid
overcompensating one or both of these providers. To equitably allocate
TRS Fund resources and ensure the availability of functionally
equivalent VRS in the most efficient manner, the Commission modifies
the current tier structure by eliminating the third tier.
53. The essential purpose of rate tiering is ``to compensate VRS
providers
[[Page 72001]]
in a manner that best reflects the financial situation'' of providers
with disparate cost structures. In the Notice of Proposed Rulemaking,
the Commission proposed to maintain a tiered structure but sought
comment on various possible modifications of that structure. The record
now confirms that such modifications are needed. Since 2017, the cost
gap between the two largest VRS providers, while still substantial, has
progressively diminished. The reasons for the substantial decline in
ZP's per-minute costs may not be easy to pinpoint, but they are likely
a combination of ZP having successfully grown its call volume, allowing
it to operate on a much larger scale, and having apparently completed
the consolidation of the 2017 merger of its predecessor entities,
enabling ZP to more fully realize the expected scale economies from
that merger. As modified above to take account of inflation, newly
allowable costs, and the Commission's expectation of increased CA
wages, engineering and R&D, and certain other costs, the similarity in
the estimated costs of the two providers persists.
54. These cost changes raise significant concerns about the
continuing validity of the justification for tiering that the
Commission relied on in 2017. While one provider continues to handle
the majority of VRS minutes, its share of minutes has dwindled, and it
appears to have lost its unique cost advantage. Since 2017, the second
largest provider has increased its minutes and its market share, and
its per-minute costs are now somewhat closer to those of the largest
provider. Thus, the two largest providers now have somewhat similar
per-minute costs, and yet there continues to be a substantial disparity
in their shares of VRS minutes.
55. These changed circumstances warrant a reconsideration of the
compensation structure. One alternative suggested in the record would
involve compensating the two largest providers at a single rate. A
single-rate plan (e.g., based on the weighted average of the providers'
costs) would be simple to administer. Arguably, a single-rate plan
could distribute resources efficiently and equitably, ensuring that
both providers earn reasonable operating margins above allowable
expenses. And it would avoid the growth-incentive issues that can arise
under a tiered structure, due to the reduction in compensation for
additional minutes of service when a provider's minutes increase beyond
a tier's upper boundary.
56. However, at this time the Commission concludes it would be
premature to adopt a single-rate compensation plan. First, the record
continues to be highly contested--and inconclusive--regarding the
conditions under which tiering is or is not necessary. For example, the
record contains widely varying estimates regarding the volume of
minutes that a provider must achieve for economies of scale to be
exhausted. Citing studies presented in previous proceedings, Sorenson
continues to argue that relevant economies of scale are essentially
exhausted at the level of 250,000 monthly minutes. The Commission has
previously found Sorenson's evidence unconvincing, and Sorenson
provides no new information that warrants revisiting this view. At the
other extreme, ZP argues that relevant economies of scale continue to
be significant until at least 5 million monthly minutes. That argument
too is less than persuasive, given the limitations of the model used by
ZP's expert. An assessment of ZP's model by Commission staff shows that
a reliable estimate of industry cost functions through regression
analysis is not possible on the basis of the data points provided by
ZP's expert.
57. Second, setting TRS Fund compensation, like ratemaking in
general, is far from an exact science. While the historical gap between
the per-minute costs of the two largest providers has lessened over the
last few years, it is only in the last year that their reported costs
are actually similar. The Commission cannot rule out the possibility
that the similarity is unique to this historical moment and may not be
repeated in future years. If the apparent narrowing of the cost
differential were to be reversed during the compensation period,
applying a single rate to both providers could endanger the
availability of competitive choices for VRS users. In analogous
situations in prior proceedings, the Commission has adopted a similarly
conservative approach when weighing the imponderables involved in VRS
compensation methodology.
58. For these reasons, the Commission chooses to preserve a tiered
compensation structure for the next period, while modifying it to
reduce unnecessary inefficiency or inequity in the allocation of TRS
Fund resources. Specifically, the Commission merges the current Tier II
(applicable to monthly minutes between 1,000,001 and 2,500,000) and
Tier III (applicable to monthly minutes in excess of 2,500,000). As a
result, the new plan for VRS providers with more than 1 million monthly
minutes will have two tiers:
<bullet> Tier I--applicable to a provider's 1st 1 million monthly
minutes; and
<bullet> Tier II--applicable to a provider's monthly minutes in
excess of 1 million.
Merging the current Tiers II and III allows the Commission to set a
rate for the merged tier that is low enough to ensure that, in
conjunction with the Tier I rate, providers are not over-compensated,
i.e., do not earn an operating margin above the reasonable range, but
still provides an incentive to continue providing additional minutes of
service.
59. Compensation Rates. Within this structure, as in 2017, the
Commission seeks to set the rates for these tiers to limit the
likelihood that any provider's total compensation will be insufficient
to provide a reasonable margin over its allowable expenses. The
Commission also seeks to avoid overcompensating any provider, i.e., by
allowing a provider to earn an operating margin above its total
expenses that is outside the reasonable range. The Commission achieves
this by setting per-minute compensation amounts of $6.27 for Tier I
minutes and $3.92 for Tier II minutes. Together, these rates will
enable providers subject to the tiered formula to recover their
allowable expenses and earn an operating margin within the zone of
reasonableness. In addition, because the Tier II rate is not
substantially lower than the average per-minute expenses of any
provider subject to that rate, setting the rate at this level is
unlikely to deter a provider from increasing its VRS minutes.
60. The Commission does not agree with ZP's contention that the
Commission should not seek to limit the operating margins of VRS
providers. VRS is entirely funded by contributions from
telecommunications and VoIP service providers, which are generally
passed on to communications rate payers. The Commission has a statutory
obligation to ensure that these funds are used efficiently. As with the
Universal Service Fund, moreover, the Commission is the steward of the
TRS Fund and is obligated to protect it from waste, fraud, and abuse.
To the extent that a VRS provider's operating margin exceeds the
reasonable range, the additional revenues paid from the TRS Fund (and
the additional contributions exacted from telecommunications providers
to cover them) are wasted. Further, to the extent that ZP's per-minute
cost exceeds Sorenson's, manipulating rates to provide a higher
operating margin for a higher-cost provider would be inconsistent with
economic principles, as in competitive
[[Page 72002]]
markets, less-efficient providers are not rewarded for having higher
costs.
61. Moreover, the limits the Commission sets to prevent
overcompensation do not conflict with the Commission's policy in the
2017 VRS Compensation Order. In that rulemaking, as in every recent TRS
compensation proceeding, the Commission made clear that avoiding
overcompensation of VRS providers is a necessary objective to ensure
that TRS is provided in the most efficient manner. For example, a key
benefit of the tier structure, cited in that decision, is that it
allows the Commission to set rates that permit each provider an
opportunity to recover its reasonable costs of providing VRS, without
overcompensating those providers who have lower actual costs because,
for example, they have reached a more efficient scale of operations.
Further, the Commission stressed that the range of reasonable operating
margins set in that decision was a range of ``allowable'' operating
margins, cautioning that ``[the Commission does] not thereby authorize
providers to recover additional `markup' or profit that goes beyond
such reasonable allowance.'' Indeed, there would have been little point
in setting an upper limit on the reasonable range of operating margins,
had the Commission intended to permit providers free rein to earn
profits above that limit.
62. In 2017, while the Commission sought to reduce
overcompensation, it stopped short of reducing compensation all the way
down to cost. In that decision, the Commission sought to address a
specific concern raised regarding tier structures: that they could
limit providers' incentives to grow and increase their efficiency,
especially if a provider's monthly minutes were about to cross the
numerical threshold for the next tier. This theoretical risk often can
be addressed by ensuring that tier boundaries are wide enough to cover
a provider's likely growth during the life of the rate plan. However,
it appears that the Commission was uncertain whether the tier
boundaries it set actually would be wide enough to completely erase
this risk. Therefore, it also sought to set the rate for the next tier
high enough to ensure that, if a provider did grow large enough that it
came close to a tier boundary, it would not be deterred from crossing
that boundary. Under today's circumstances, by contrast, the Commission
can set the tier boundaries wide enough to avoid this risk. By merging
the existing Tiers II and III into a single tier, the Commission
completely removes any tier boundary that could affect the growth
incentives of the two largest providers. And by increasing the highest
tier rate from $2.63 to $3.92, the Commission eliminates any realistic
possibility of deterring any provider subject to that tier from serving
additional minutes.
63. Alternative Tiering Proposals. The Commission declines to adopt
the alternative tiering proposals proposed by ZP and Sorenson in this
proceeding. None of the alternatives would ensure that all providers
subject to tiered rates earn operating margins within the reasonable
range. The initial ZP and Sorenson proposals--to expand Tier II without
changing the current per-minute amounts for any tier--were made before
the filing of the 2023 cost reports showing a substantial increase, as
well as convergence, in these providers' costs. The proponents of these
proposals no longer advocate their adoption.
64. As for the June 2023 proposals of ZP and Sorenson, they would
do nothing to address the problems with the current tier structure,
discussed above. In addition, both these proposals would result in
excessive operating margins for one or both providers--even with
providers' reported costs adjusted upward. Sorenson's September 2023
proposal also would result in excessive operating margins for both
Sorenson and ZP.
Compensation for Small Providers
65. For VRS providers--including new entrants--that handle 1
million monthly minutes or less, the Commission maintains a separate
compensation formula. When the Commission established such a separate
formula (the ``emergent provider'' formula, then applicable to VRS
providers with up to 500,000 monthly minutes) in 2017, it was intended
as a temporary measure, to allow the small providers operating at that
time a reasonable window of opportunity to grow. The two providers
compensated under that formula during this most recent compensation
period did not experience a substantial growth in traffic volume, and
they incurred per-minute costs substantially higher than those of the
two larger providers. Nevertheless, as the Commission recognized in
2017, the availability of additional, reliable service options from
smaller VRS providers can effectively reinforce service quality
incentives.
66. Further, maintaining a separate compensation formula for
smaller providers encourages new entry into the VRS program by
potentially innovative firms. Some small providers may advance the
availability of TRS by focusing on specialized offerings to niche
populations not served by larger providers. Rather than applying a
single compensation formula to all providers, regardless of size and
cost structure--with the likely result of driving out the remaining
small provider, deterring new entry, and leaving only two VRS providers
from which VRS users could choose--the Commission preserves a separate
VRS formula for the next period. The Commission concludes that this
approach is the most efficient way to maintain the availability of
functionally equivalent VRS, including specialized services that may be
needed by niche populations.
67. To avoid reducing any small provider's incentive to grow their
business, the Commission also raises the upper limit for application of
the small-provider formula from 500,000 to 1 million monthly minutes.
The Commission is concerned that if it maintained the 500,000-minutes
limit, a small provider growing its minutes above that limit may not
have an opportunity to recover its allowable costs and earn a
reasonable operating margin. Based on the record (which indicates that
the current small provider has not grown substantially since 2017), it
seems unlikely that any small provider or new entrant will approach the
expanded limit of 1 million monthly minutes during the next
compensation period. However, to address that possibility, the
Commission provides that, during the next compensation period, if a
provider handled 1 million or fewer monthly minutes in June 2023 (or in
the first year of operation for a new entrant), and if such provider
subsequently exceeds 1 million monthly minutes, the small-provider
formula shall continue to apply to the provider's first 1 million
monthly minutes, and the large-provider formula shall apply to all
monthly minutes after the first million. This is comparable to the plan
adopted by the Commission in 2017 to address analogous circumstances
under the emergent-provider formula.
68. Compensation Amount. As in previous compensation proceedings,
when the Commission sets compensation formulas for small VRS providers,
there is no single ``right answer'' to the question; rather, the matter
is inherently a question of administrative line-drawing. For VRS
providers providing 1 million monthly minutes or fewer, the Commission
adopts a compensation formula of $7.77 per minute, applicable to all
minutes of such providers. This formula is based on the adjusted per-
minute expenses of the remaining VRS provider handling 1 million
monthly minutes or fewer, and
[[Page 72003]]
is designed to allow VRS providers with 1 million monthly minutes or
fewer a reasonable opportunity to earn an operating margin within the
range of reasonableness. In setting this per-minute formula, the
Commission seeks to ensure that VRS providers that have demonstrated
some ability to grow have an opportunity to recover their expenses and
earn a reasonable operating margin. This formula also provides an
opportunity for very small providers and new entrants to recover their
reasonable fixed or start-up expenses. However, the Commission does not
guarantee cost recovery for every such provider, regardless of their
per-minute costs.
Additional Compensation for Video-Text Service
69. The Commission prescribes additional per-minute compensation
for the provision of a specialized form of VRS to ASL users who are
deafblind, applicable to any VRS provider that chooses to offer it.
Such additional compensation will be paid, in addition to the otherwise
applicable per-minute amount, for each compensable minute of this
specialized form of VRS.
70. The Commission refers to this specialized form of VRS as Video-
Text Service. In a typical VRS call, a deaf or hard-of-hearing person
communicates in ASL to a CA, who then voices the message to the hearing
party. The CA then signs the hearing party's voice response to the ASL
user. Some ASL users who are deafblind, however, are able to sign to a
CA but unable to see the signs from the CA well enough to understand
them. For such users, there is a special variant of VRS, in which a CA
converts the other party's side of the conversation to text (instead of
ASL video), which the deafblind party can read using a refreshable
braille display. A CA assigned to a Video-Text Service call must not
only be fluent in ASL, but must also be a swift, accurate, and reliable
typist.
71. Up to the present, only GlobalVRS has offered this specialized
form of VRS. With GlobalVRS's announced exit from the VRS industry,
Sorenson states it intends to provide Video-Text Service to users.
Sorenson's cost estimates indicate that, while most of the costs
involved in offering this service do not vary significantly with the
number of minutes served, there are some variable costs due to the
higher salaries Sorenson expects to pay for those CAs equipped with the
additional skills described above.
72. Given the Commission's statutory responsibility to ensure the
availability of TRS to persons who are deafblind and the additional
costs involved in providing this Video-Text Service, the Commission
concludes that additional per-minute compensation should be authorized
for the provision of this service by any VRS provider choosing to offer
it. As an interim measure, pending the availability of more precise
cost data, the Commission estimates the variable cost of this service
based on the estimate submitted by Sorenson plus an operating margin to
incentivize the provision of this specialized service, resulting in an
additive of $0.19 per minute. This amount shall be paid to a VRS
provider for each compensable conversation minute of Video-Text
Service, in addition to the per-minute amount otherwise payable to the
provider under the applicable compensation formula for an ordinary VRS
call. Sorenson's non-variable costs for this service will be recovered
through the base compensation rate, as they are relatively unaffected
by the number of minutes of Video-Text Service provided.
73. Alternative Compensation Proposal. In its comments, GlobalVRS
proposes a ``Specialized Access Small Business'' (SASB) designation as
an alternative compensation approach. To qualify for this compensation,
providers would have to serve 5% or less of total program minutes and
provide specialized language and modality. Each SASB-designated
provider would be subject to an individualized payment formula, reset
annually to compensate for that provider's reported allowable costs.
74. The Commission rejects this proposal for several reasons.
First, it excludes larger VRS providers from receiving additional
compensation for the provision of specialized services. The Commission
has stated that offering VRS users a choice among multiple providers
can most effectively carry out the Commission's statutory mandate to
ensure that functionally equivalent VRS is available to all eligible
individuals to the extent possible and in the most efficient manner. By
adopting a formula that encourages only small providers to offer a
specialized service, the Commission may prevent the service from being
offered by a provider with greater access to the necessary resources
and inputs, which may enable it to provide the service more effectively
and at lower cost. Second, the method by which a provider would be
compensated under GlobalVRS's proposal is more administratively
burdensome (as it requires annual recalculation of the formula based on
annual review of the provider's individual costs), and unlike the
multi-year compensation plans generally preferred by the Commission
provides no incentive for cost savings.
75. Registration Process. A VRS provider may provide Video-Text
Service to any registered VRS user who states that they need to use the
service. Registered VRS users need not have their identities re-
verified by the Database administrator before using Video-Text Service.
To enable the TRS User Registration Database administrator to review
and pay compensation requests for this service, the Commission directs
the administrator to design and execute a field in the User
Registration Database to allow a VRS provider to register a new or
existing user as a registered user of Video-Text Service. Once the
field is implemented, VRS providers shall update User Registration
Database registrations to identify existing users of this service and
additional users when they begin using this service. The Commission
directs the Consumer and Governmental Affairs Bureau to release a
public notice announcing when the Database is ready to accept such
updates and setting a 60-day deadline for such updates of existing VRS
users. Once a user is registered in the Database, the TRS Fund
administrator may presume that call detail records associated with that
user are for Video-Text Service, but the administrator may review and
verify payment claims in accordance with the Commission's rules.
76. At this time, the Commission does not establish additional
identification requirements for Video-Text Service users. The
Commission notes that the conversation process in Video-Text Service is
slower than an ordinary VRS conversation--and a less satisfactory
process for those VRS users who can see and understand video-
transmitted signs. Therefore, the Commission believes VRS users that do
not need to receive a return communication in text will be unlikely to
use this service. Further, the Commission believes the additive rate
for Video-Text Service is not so high as to significantly increase
incentives for fraud and abuse, especially as the number of minutes of
use of this service is very small.
77. Pending the implementation of this update, to allow Video-Text
Service calls to be identified in call detail records submitted for
payment, the Commission directs the TRS Fund administrator to accept
from any VRS provider offering Video-Text Service a list of telephone
numbers and IP addresses assigned to users who have requested Video-
Text Service. VRS providers seeking compensation for Video-Text Service
shall submit such
[[Page 72004]]
lists in accordance with instructions provided by the TRS Fund
administrator. VRS providers shall provide additional information
regarding such users and their Video-Text Service calls to the TRS Fund
administrator, upon request, as necessary for the administrator to
perform its data collection, auditing, payment claim verification, and
TRS Fund payment distribution functions.
Other Specialized Services
78. Except in the case of Video-Text Service, the record is
insufficient for the Commission to make a determination as to whether,
and under what circumstances, a specialized service should be supported
by additional compensation.
Effect of New Compensation Formulas
79. Looking to just the effect on the TRS Fund, in the first year
of the new period the compensation plan adopted herein would result in
an estimated $143 million increase in costs compared to maintaining the
current compensation formulas. Based on available data, it will result
in an industry average operating margin within the range of
reasonableness and provide an opportunity for providers to recover
their costs plus earn a reasonable operating margin.
Compensation Period and Adjustments
80. The Commission concludes that the compensation period should be
five years, ending June 30, 2028. This period is long enough to give
providers certainty regarding the applicable compensation formulas,
provide incentives for providers to become more efficient without
incurring a penalty, and mitigate any risk of creating the ``rolling
average'' problem previously identified by the Commission regarding
TRS. On the other hand, the period is short enough to allow timely
reassessment of the compensation formulas in response to substantial
cost changes and other significant developments.
81. The Commission finds commenters' proposal for a compensation
period of 6-8 years incompatible with the need to periodically reassess
compensation formulas in response to changes in provider cost
structures, possible technological innovations, or other developments.
Historically, the Commission has not set TRS Fund compensation periods
longer than four years. Further, the VRS providers neither detail nor
support their claims that increasing the compensation period to 6-8
years will affect providers' stability, opportunities to obtain loans
or attract long-term investment. The Commission is unpersuaded that any
potential benefits of a longer period outweigh the benefits from
reassessing compensation formulas on a five-year schedule.
82. Adjustments for exogenous costs. Under the current methodology,
an upward adjustment for well-documented exogenous costs is available
for costs that belong to a category of costs that the Commission has
deemed allowable, result from new TRS requirements or other causes
beyond the provider's control, are new costs that were not factored
into the applicable compensation formula, and if unrecovered, would
cause a provider's current costs (allowable expenses plus operating
margin) to exceed its revenues. The Commission maintains this approach
to exogenous cost recovery and codifies these criteria in its rules.
Any exogenous cost claims should be submitted to the TRS Fund
administrator with the provider's annual cost report, so that the
administrator can review such claims and make appropriate
recommendations. The Commission delegates authority to the Consumer and
Governmental Affairs Bureau to make determinations regarding timely
submitted exogenous cost claims.
83. Adjustments for future cost changes. In the Notice of Proposed
Rulemaking, the Commission sought comment on whether per-minute
compensation amounts should be adjusted during the compensation period
to reflect inflation and productivity. The Commission agrees with
several commenters that there should be annual adjustments for cost
changes. In the past, the trend of VRS costs has been generally
downward. However, in light of recent developments, including increases
in general inflation indices and reports of increased wages for VRS
CAs, the Commission finds it reasonable to adopt an adjustment factor
to ensure that the rates continue to fairly compensate providers if
relevant costs continue to increase.
84. As a reference point for determining such annual adjustments,
the Employment Cost Index appears best suited for tracking relevant
cost changes. Specifically, the seasonally adjusted index of total
compensation for private industry workers in professional, scientific,
and technical services, which covers translation and interpreting
services (including sign language services), can serve as a reasonable
proxy for the annual change in VRS costs. As interpreters, CAs fall
squarely in this labor cost category, and labor and related costs for
CAs, non-CA professionals, and administrative personnel make up the
bulk of VRS costs.
85. This index is better suited than the Producer Price Index or
the Gross Domestic Product Chain-type Price Index (GDP-CPI). Both these
indices reflect changes in the national economy as a whole, based on a
broad array of data from various product and service sectors. While
these indices may be useful inflation measures for the economy as a
whole, reflecting the ups and downs of so many disparate industries may
not ensure that annual adjustments are reasonable. A more reliable
approach is one that tracks changes in a related industry sector.
Commenters agree that labor is the primary expense incurred by VRS
providers and the most likely to increase over time, and the Commission
finds that labor costs are likely to be a key determinant of the
quality of VRS as currently provided. While there is no index that
focuses solely on the cost of VRS, the index the Commission adopts here
measures employment cost for a sector that includes translation and
interpreting services, and thus includes employee costs for VRS as well
as other highly comparable services. Adopting such an index is more
likely to provide a stable inflation adjustment that reflects cost
changes providers are likely to incur, while excluding changes that are
specific to unrelated sectors of the national economy.
86. As for productivity gains, the record provides no clear
indication of the extent to which, if at all, recent VRS cost increases
have been offset by productivity gains. Absent more specific data, the
Commission finds it reasonable to presume no change to productivity
over the rate period.
87. The Commission delegates authority to the Consumer and
Governmental Affairs Bureau to approve annual inflation adjustments of
each compensation formula, beginning with Fund Year 2024-25. The
Commission directs the TRS Fund administrator to specify in its annual
TRS Fund report, beginning with the report due May 1, 2024, the index
values for each quarter of the previous calendar year and the last
quarter of the year before that. The Commission also directs the TRS
Fund administrator to propose adjustments for each per-minute amount by
a percentage equal to the percentage change in the index between the
first and fifth quarters specified in the report. Those adjusted
compensation levels also should be used to calculate the recommended
funding requirement for
[[Page 72005]]
VRS and the relevant contribution factor.
Accountability Concerns
88. In adopting VRS compensation formulas for the next five years,
the Commission relies on estimates of future provider costs that, in
total, exceed the most recent historical level by approximately $121.5
million, or 27%. In 2023-24, as a result, VRS compensation will be
$142.5 million, or 29.5%, higher than it would be under the current
formulas. This increase in compensation--which will require higher TRS
Fund contributions from telecommunications and VoIP service providers--
is premised on the Commission's belief that maintaining and improving
VRS service quality requires a major increase in CA wages and
technology spending by VRS providers. As stewards of the TRS Fund, the
Commission needs to be able to assess the extent to which the increased
TRS Fund support the Commission authorizes is achieving the intended
results.
89. This requires the collection, review, and auditing of relevant
cost data by the TRS Fund administrator. Therefore, the Commission
delegates authority to the Consumer and Governmental Affairs Bureau, in
coordination with the Office of the Managing Director, to work with the
TRS Fund administrator to update the Interstate TRS Fund Annual
Provider Data Request to align with the actions taken in this
proceeding. The Commission directs these entities to focus special
effort on ensuring the collection of accurate data quantifying CA wages
and benefits, based on uniform definitions and methods of calculating
key elements such as hourly CA compensation, and expenditures on
improved technology. The Commission expects that annual provider cost
reports shall include detailed descriptions of ongoing, planned,
recently completed, and canceled engineering and R&D projects, the
purpose and intended outcome of each project, and the current or
projected timeline for each project.
90. By annually collecting such specific information, the
administrator will enable the Commission to review whether the
increased compensation authorized herein is having the intended results
of enabling service improvements that enhance functional equivalence,
and to make appropriate changes in compensation at the end of--or if
necessary, during--the five-year compensation period. In addition, such
information will help the Commission ensure that R&D supported by the
TRS Fund is being used for TRS improvements, rather than projects of
little or no benefit to TRS users. The inclusion of this additional
information and data will also ensure the Commission may address the
timing of cost changes and concerns of attempted regulatory arbitrage.
True-Up
91. True-Up of Compensation. The Commission directs the TRS Fund
administrator to perform a true-up, after the effective date of
document FCC 23-78, of the VRS compensation payments made pursuant to
waivers granted by the Commission to extend the expiration date of the
previously adopted compensation formulas until the effective date of
the new compensation formulas. The revised compensation formulas
adopted in document FCC 23-78 are based on estimates of the costs VRS
providers will incur in the 2023-24 Fund Year. Overall, these revised
formulas substantially increase provider compensation to reflect recent
increases in reported costs, as well as the Commission's expectation of
further increases in certain areas. To allow providers a reasonable
opportunity to recover such increased costs, the Commission concludes
that they should be compensated under the revised formulas for all
services provided during the 2023-24 TRS Fund Year. The Commission
finds that the benefits of ensuring full compensation for this Fund
Year outweigh the minor administrative burden involved in such a true-
up process. Accordingly, after document FCC 23-78 becomes effective,
the Commission directs the TRS Fund administrator to make a
supplemental payment to each VRS provider for all compensable minutes
of service provided after June 30, 2023, for which compensation was
paid under the extended formulas. Such supplemental payment shall
consist of the difference between the compensation that would be
applicable under document FCC 23-78 and the compensation actually paid
to the provider.
Final Regulatory Flexibility Analysis
92. As required by the Regulatory Flexibility Act of 1980, as
amended, the Commission incorporated an Initial Regulatory Flexibility
Analysis (IRFA) into the Notice of Proposed Rulemaking. The Commission
sought written public comment on the proposals in the Notice of
Proposed Rulemaking, including comment on the IRFA. No comments were
received in response to the IRFA.
93. Need for, and Objectives of, the Report and Order. In document
FCC 23-78, pursuant to 47 U.S.C. 225, the Commission adopts a five-year
compensation plan for VRS. To provide the appropriate compensation for
the provision of, and continued availability of VRS, the Commission
adopts a compensation plan that addressed increasing costs due to
inflation and the effect of the COVID-19 pandemic. It also updates the
inputs for reasonable cost criteria to improve the ability of VRS
providers to provide and receive compensation for VRS that is
functionally equivalent. The Commission also adopts a compensation
formula for the provision of VRS to individuals who are deafblind, as a
specialized service to help ensure the continued availability of this
service to the extent possible for the individuals who use this
service. Finally, to address changes in the cost structures of various
VRS providers, the Commission transitions from a three-tiered rate
structure to a two-tiered rate structure for larger VRS providers
providing more than one million monthly minutes, while maintaining a
separate compensation rate for providers providing one million or fewer
monthly minutes.
94. Description and Estimate of the Number of Small Entities to
Which the Rules Will Apply. The policies adopted in document FCC 23-78
will affect obligations of VRS providers. These services can be
included within the broad economic category of All Other
Telecommunications.
95. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements for Small Entities. The provider compensation
plan will not create significant reporting, recordkeeping, or other
compliance requirements for small entities. VRS providers that seek
compensation for the provisioning of a specialized form of VRS to
deafblind individuals must identify any users of that specialized
service in the TRS User Registration Database. This minor database
modification will be implemented through a new field in the TRS User
Registration Database that will allow small and other VRS providers to
identify users of that service. The Commission anticipates this
modification to be of minimal impact to small and other VRS providers,
as it is the addition of a single new field to a database VRS users are
already using and will allow them to be fully compensated for providing
VRS to deafblind users.
96. Steps Taken to Minimize the Significant Economic Impact on
Small Entities, and Significant Alternatives Considered. The adopted
compensation
[[Page 72006]]
structure and formulas will apply only to entities who are, or may
become, certified by the Commission to offer VRS in accordance with its
rules. The Commission adopted these multi-year compensation formulas to
compensate providers for their reasonable cost of providing service, to
reduce the burden on TRS Fund contributors and their subscribers, and
to ensure that TRS is made available to the greatest extent possible
and in the most efficient manner. The Commission adopted separate
compensation structures for large and small providers to allow small
entities the opportunity to recover their costs in providing VRS, which
the record suggests are higher than for large providers who have
achieved some level of economies of scale. This action by the
Commission should minimize the economic impact for small entities who
provide VRS.
97. The Commission considered various proposals for compensation
methodologies and compensation structure and formulas from small and
other entities, and the adopted rules reflect its best efforts to
minimize significant economic impact on small entities. The Commission
adjusted the allowable cost categories that it considers in determining
the appropriate compensation formulas for the provisioning of VRS to
allow small and other providers to recover costs and benefit
economically from the increased compensation they will receive.
Ordering Clauses
98. Pursuant to sections 1, 2, and 225 of the Communications Act of
1934, as amended, 47 U.S.C. 151, 152, 225, document FCC 23-78 is
adopted and the Commission's rules are hereby amended as set forth.
Congressional Review Act
99. The Commission sent a copy of document FCC 23-78 to Congress
and the Government Accountability Office pursuant to 5 U.S.C.
801(a)(1)(A).
Final Paperwork Reduction Act of 1995 Analysis
100. Document FCC 23-78 does not contain new or modified
information collection requirements subject to the Paperwork Reduction
Act of 1995, Public Law 104-13. Therefore, it also does not contain any
new or modified information collection burden for small business
concerns with fewer than 25 employees, pursuant to the Small Business
Paperwork Relief Act of 2002, Public Law 107-198. See 44 U.S.C.
3506(c)(4).
List of Subjects in 47 CFR Part 64
Individuals with disabilities, Telecommunications, Telephones.
Federal Communications Commission.
Marlene Dortch,
Secretary, Office of the Secretary.
Final Rules
For the reasons discussed in the preamble, the Federal
Communications Commission amends 47 CFR part 64 as follows:
PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS
0
1. The authority citation for part 64 continues to read as follows:
Authority: 47 U.S.C. 151, 152, 154, 201, 202, 217, 218, 220,
222, 225, 226, 227, 227b, 228, 251(a), 251(e), 254(k), 255, 262,
276, 403(b)(2)(B), (c), 616, 617, 620, 1401-1473, unless otherwise
noted; Pub. L. 115-141, Div. P, sec. 503, 132 Stat. 348, 1091.
0
2. The authority citation for subpart F continues to read as follows:
Authority: 47 U.S.C. 151-154; 225, 255, 303(r), 616, and 620.
0
3. Amend Sec. 64.601 by redesignating paragraphs (a)(52) through (55)
as paragraphs (a)(53) through (56) and adding new paragraph (a)(52) to
read as follows:
Sec. 64.601 Definitions and provisions of general applicability.
(a) * * *
(52) Video-text service. A specialized form of VRS that allows
people who are deafblind who use sign language and text to communicate
through a video link. The video link allows the communications
assistant to view and interpret a party's sign language communication
and the text functionality allows the communications assistant to send
text to peripheral devices employed in connection with equipment,
including software, to translate, enhance, or otherwise transform
advanced communications services into a form accessible to people who
are deafblind. The communications assistant relays the conversation
using sign language, voice, and text between the participants of the
call.
* * * * *
0
4. Add Sec. 64.643 to subpart F to read as follows:
Sec. 64.643 Compensation for Video Relay Service.
For the period from July 1, 2023, through June 30, 2028, TRS Fund
compensation for the provision of Video Relay Service (VRS) shall be as
described in this section.
(a) First year. For Fund Year 2023-24, TRS Fund compensation shall
be paid in accordance with the following formulas.
(1) The Compensation Amount for VRS providers handling one million
conversation minutes or less in a month shall be $7.77 per minute.
(2) The Compensation Amount for VRS providers handling more than
one million conversation minutes in a month shall be:
(i) $6.27 per minute for the first 1,000,000 conversation minutes
each month;
(ii) $3.92 per minute for monthly conversation minutes in excess of
1,000,000.
(3) For Video-Text Service, as defined in this subpart, in addition
to the applicable Compensation Amount under paragraph (a)(1) or (2) of
this section, an additional Compensation Amount of $0.19 per minute
shall be paid for each conversation minute.
(b) Succeeding years. For each succeeding Fund Year through June
30, 2028, each per-minute Compensation Amount described in paragraph
(a) of this section shall be redetermined in accordance with the
following equation:
A<INF>FY</INF> = A<INF>FY-1</INF> * (1+IF<INF>FY</INF>)
Where:
A<INF>FY</INF> is the Compensation Amount for the new Fund Year,
A<INF>FY-1</INF> is the Compensation Amount for the previous Fund
Year,
IF<INF>FY</INF> is the Inflation Adjustment Factor for the new Fund
Year.
(c) Inflation Adjustment Factor. The Inflation Adjustment Factor
for a Fund Year (IF<INF>FY</INF>), to be determined annually on or
before June 30, is equal to the difference between the Initial Value
and the Final Value, as defined herein, divided by the Initial Value.
The Initial Value and Final Value, respectively, are the values of the
Employment Cost Index compiled by the Bureau of Labor Statistics, U.S.
Department of Labor, for total compensation for private industry
workers in professional, scientific, and technical services, for the
following periods:
(1) Final Value--The fourth quarter of the Calendar Year ending 6
months before the beginning of the Fund Year; and
(2) Initial Value--The fourth quarter of the preceding Calendar
Year.
(d) Exogenous cost adjustments. In addition to L<INF>FY</INF>, a
VRS provider shall be paid a per-minute exogenous cost adjustment if
claims for exogenous cost recovery are submitted by the provider and
approved by the Commission on or before June 30. Such exogenous cost
adjustment shall equal the amount of
[[Page 72007]]
such approved claims divided by the provider's projected minutes for
the Fund Year. An exogenous cost adjustment shall be paid if a VRS
provider incurs well-documented costs that:
(1) Belong to a category of costs that the Commission has deemed
allowable;
(2) Result from new TRS requirements or other causes beyond the
provider's control;
(3) Are new costs that were not factored into the applicable
compensation formula; and
(4) If unrecovered, would cause a provider's current allowable-
expenses-plus-operating margin to exceed its revenues.
[FR Doc. 2023-22936 Filed 10-18-23; 8:45 am]
BILLING CODE 6712-01-P
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