internet Protocol Captioned Telephone Service Compensation
| Published date | 14 October 2020 |
| Citation | 85 FR 64971 |
| Record Number | 2020-22530 |
| Section | Rules and Regulations |
| Court | Federal Communications Commission |
Federal Register, Volume 85 Issue 199 (Wednesday, October 14, 2020)
[Federal Register Volume 85, Number 199 (Wednesday, October 14, 2020)]
[Rules and Regulations]
[Pages 64971-64978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22530]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 64
[CG Docket Nos. 03-123, 13-24, 10-51; FCC 20-132; FRS 17133]
internet Protocol Captioned Telephone Service Compensation
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this document, the Federal Communications Commission (FCC
or Commission) adopts a compensation methodology and determines a per-
minute compensation rate for providers of internet Protocol Captioned
Telephone Service (IP CTS) supported by the Telecommunications Relay
Services (TRS) Fund.
DATES: Effective Date: This compensation methodology and per-minute
rate of compensation applicable to IP CTS providers is effective
December 1, 2020.
FOR FURTHER INFORMATION CONTACT: Michael Scott, Consumer and
Governmental Affairs Bureau, at (202) 418-1264, or email
[email protected].
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order and Order on Reconsideration, document FCC 20-132, adopted on
September 30, 2020, released on October 2, 2020, in CG Docket Nos. 13-
24 and 03-123. The Commission previously sought comment on the issue
addressed in the Report and Order in a Further Notice of Proposed
Rulemaking (2018 Further Notice), published at 83 FR 33899, July 18,
2018. The full text of this document will be available for public
inspection and copying at https://docs.fcc.gov/public/attachments/FCC-20-132A1.pdf and via the Commission's Electronic Comment Filing System
(ECFS). To request materials in accessible formats for people with
disabilities (Braille, large print, electronic files, audio format),
send an email to [email protected], or call the Consumer and Governmental
Affairs Bureau at (202) 418-0530.
Congressional Review Act
The Commission sent a copy of document FCC 20-132 to Congress and
the Government Accountability Office pursuant to the Congressional
Review Act, 5 U.S.C. 801(a)(1)(A).
Final Paperwork Reduction Act of 1995 Analysis
Document FCC 20-132 does not contain proposed information
collection requirements subject to the Paperwork Reduction Act of 1995,
Public Law 104-13. In addition, therefore, it does not contain any
proposed 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).
Synopsis
1. Under section 225 of the Communications Act of 1934, as amended,
47 U.S.C. 225, the Commission must ensure that telecommunications telay
services (TRS) are ``functionally equivalent'' to voice service and are
made available to eligible users to the extent possible and in the most
efficient manner. One form of TRS, internet Protocol Captioned
Telephone Service (IP CTS), delivers captions for ongoing telephone
conversations to individuals with hearing loss, so that they can use
the captions and their residual hearing to understand what the other
party is saying. Like other forms of TRS, IP CTS is paid for by
telecommunications and voice over internet Protocol (VoIP) service
providers' contributions to the Commission-administered TRS Fund.
2. In its June 2018 Report and Order (2018 Order), document 18-79,
83 FR 30082, June 27, 2018, the Commission determined that TRS Fund
payments to the companies providing IP CTS were greatly in excess of
actual costs and that the gap between TRS Fund payments and provider
costs was becoming wider. The Commission terminated use of the
Multistate Average Rate Structure (MARS) methodology, which set the TRS
Fund IP CTS per minute compensation rate based on non-internet
captioned telephone service provided through state TRS programs. The
Commission also set interim compensation rates for IP CTS providers for
the 2018-19 and 2019-20 TRS Fund Years, pending adoption of a
replacement compensation methodology. In the 2018 Further Notice, the
Commission sought comment on establishing a new TRS Fund compensation
methodology for IP CTS and setting provider compensation for the period
after June 30, 2020. On May 29, 2020, after the onset of the COVID-19
pandemic, the Consumer and Governmental Affairs Bureau (Bureau) granted
a sua sponte waiver of the June 30, 2020, expiration of the 2019-20 TRS
Fund Year $1.58 per minute rate, extending its application through
September 30, 2020.
3. In document FCC 20-132, the Commission sets IP CTS compensation
through June 30, 2022, completing the adjustment of IP CTS compensation
to the level of current reasonable costs. Continuing the approximately
10% annual rate reductions initiated in 2018, the Commission reduces
the rate from $1.58 to $1.42 per minute for the remainder of the 2020-
21 Fund Year and reaches the average cost plus operating margin, $1.30
per minute, in the 2021-22 Fund Year.
4. The Commission applies these compensation rates on a
technologically neutral basis to all forms of IP CTS and all IP CTS
providers. The Commission concludes that a tiered rate structure is
unsuited to the current IP CTS environment, and the Commission defers
consideration of whether and how to set a separate compensation rate
for fully automatic IP CTS. The Commission also defers consideration of
alternatives to cost-based compensation rates, such as a reverse-
auction approach, until it becomes clearer how the introduction of
fully automatic captioning methods will affect provider cost
structures. For similar reasons, the Commission defers consideration of
whether to apply price-cap-like adjustments to the compensation rate
(other than for reimbursement of exogenous costs).
5. Average Cost Methodology. The Commission has broad discretion in
choosing compensation methodologies and setting compensation rates
within the parameters established by section 225 of the Communications
Act. To determine a cost-based level of IP CTS compensation for the
next rate period, the Commission employs the same methodology used in
2018 to set interim IP CTS rates--setting a rate based on the weighted
average of all providers' projected and historical costs, as reported
for the current and immediately preceding calendar years, respectively.
Continued use of this cost-based methodology in the near term will
advance the efficiency mandate of section 225 and permit service
quality improvements in functionally equivalent service to users
without unduly burdening providers.
6. First, through more than 25 years of experience using an
average-cost methodology to set TRS compensation, the Commission has
developed a consistent approach to determining the reasonable costs for
TRS, which can be applied without imposing undue administrative burdens
on either providers or the Commission. Although any ratemaking method
is subject to
[[Page 64972]]
imprecision, provider cost data, which is subject to audit, has been
reasonably reliable and consistent. Further, at this time the record
does not indicate a reliable alternative that the Commission is
confident would produce more accurate results. And, as discussed in
more detail below, the Commission's determinations regarding
allowability of costs are solidly reasoned and have been upheld on
judicial review.
7. Second, average-cost-based compensation, especially when applied
for more than one year, provides substantial incentives and
opportunities for individual TRS providers to increase their efficiency
and capture the resulting profits. Such incentives and opportunities
are especially strong in the current circumstances. According to the
TRS Fund administrator's analysis of average costs over the last six
years, IP CTS costs have continuously declined--as one would expect in
an industry characterized by significant technological innovation,
steady accumulation of management experience and expertise, and
progress in realizing economies of scale. And the declining cost trend
is likely to continue or accelerate with the introduction of fully
automatic IP CTS as an option for consumers.
8. Third, maintaining the same compensation methodology employed
two years ago provides a measure of transitional stability at a time of
technological change. The Commission does not yet have sufficient
experience with fully automatic IP CTS to be able to take account of
this potentially game-changing technology in the design of a new
compensation methodology. Further, given the likelihood that
established approaches to the provision of IP CTS may be replaced over
time with less costly technology, it is possible that some providers,
facing uncertainty about the scale and stability of future demand for
their services, could exit before comparable services that maximize the
advantages of newer technology are readily available to all segments of
the telephone captioning market. By providing a relatively predictable
path, the Commission can enable legacy services to remain available
until the advantages of the newer technology are more fully realized.
9. With the introduction of fully automatic IP CTS using advanced
automatic speech recognition (ASR), IP CTS cost structures may change
substantially by the end of the next rate period. As more providers
begin to offer this alternative, and data becomes available on the
actual costs of providing fully automatic IP CTS, the Commission will
be able to make future compensation decisions that address the impact
of this new technology, including the selection of a new methodology if
such is warranted.
10. Allowable cost categories. The Commission applies to IP CTS,
with only one exception, the same allowable-cost rules used to
determine TRS Fund support of other forms of internet-based TRS. For
well over a decade, the Commission has consistently defined allowable
TRS costs as a provider's reasonable costs directly attributable to the
provision of TRS. In document FCC 20-132, the Commission adheres to
well-settled rulings on the allowability of specific categories of TRS
costs, including, e.g., disallowance of costs attributable to allocated
overhead and the provision and maintenance of end-user devices. The
record provides no support for treating IP CTS differently from other
forms of TRS with respect to these cost categories.
11. Marketing Expenses. Although the use of TRS Fund resources to
support marketing of IP CTS may raise legitimate concerns, at this time
the Commission will continue to allow recovery of IP CTS marketing
expenses (which are also recoverable for other forms of TRS). The
nature and extent of the marketing conducted by IP CTS providers, as
well as the associated costs, may change significantly as more
providers offer fully automatic IP CTS. The Commission directs the
Bureau, in consultation with the Office of Managing Director (OMD), to
prepare and submit a request to the Fund administrator to conduct an
analysis and report to Bureau on the trend of TRS Fund expenditures in
support of IP CTS marketing, the specific activities for which they are
used, and the impact of such activities on registration for and usage
of IP CTS, to enable the Commission to revisit the allowability of such
costs, if appropriate, at a later time.
12. Outreach Expenses. Similarly, as responsible stewardship
requires continued monitoring of TRS Fund expenditures for provider-led
outreach, the Commission directs the Bureau, in consultation with OMD,
to prepare and submit a request to the Fund administrator to analyze
and report to the Bureau on the trend, activities, and impact of
provider-led IP CTS outreach. However, the Commission does not prohibit
or cap TRS Fund recovery of IP CTS outreach costs at this time.
Provider outreach for IP CTS likely serves a reasonable purpose, by
educating potential IP CTS users and their families about the nature of
the service. Further, this differs from general outreach intended to
raise public awareness about how TRS works and why members of the
public should accept TRS calls, which the Commission in 2013 found was
better conducted by a national TRS Fund contractor than by individual
providers (and for which video relay service (VRS) and internet
Protocol Relay Service (IP Relay) providers are no longer compensated
by the TRS Fund). The Commission recognizes that such outreach to
potential users is not always easy to distinguish from branded
marketing and, as a result, may raise some of the same issues as
marketing costs, regarding the appropriateness of supporting such
activities with TRS Fund resources. Accordingly, as noted above, the
Commission will continue to monitor the trend of IP CTS outreach as
well as marketing costs, to enable the Commission to revisit their
allowability, if appropriate, at a later time.
13. Subcontractor Expenses. The Commission defers action on the
alternatives proposed in the 2018 Further Notice for enabling the
Commission to ascertain the reasonableness of providers' payments to
subcontractors. The Commission sought comment on whether to require a
subcontractor whose fees exceed a certain percentage of a provider's
expenses to file its own cost report breaking down the fees into
appropriate cost categories, and alternatively whether to require any
subcontractor offering what amounts to a ``turnkey'' relay service to
apply for certification as an IP CTS provider on its own account. At
this time, the record is limited on these issues and thus insufficient
to support adopting either of these remedies. The Commission notes,
however, that the amended rule requiring IP CTS providers to report
and, if necessary, break down their contract payments under the TRS
Fund administrator's substantive cost categories--i.e., not as
undifferentiated ``subcontractor payments'' reported as part of the
``Other'' category--became effective February 4, 2019. The Commission
reminds providers of their obligations under this amended rule.
14. R&D Costs and Licensing Fees. To the extent that a TRS provider
incurs costs to develop or acquire intellectual property that is needed
to provide TRS in accordance with the Commission's minimum standards,
the Commission has long permitted the inclusion of such expenses in the
costs subject to TRS Fund recovery. Thus, a provider's reasonable
research and development (R&D) costs may be recovered from the TRS
Fund, but only to the extent of the actual expenses incurred, and only
if
[[Page 64973]]
such expenditures are necessary to develop technology that enables the
provider to offer service meeting the Commission's minimum TRS
standards. Subject to the same limitations, reasonable licensing fees
paid to a supplier of externally developed technology are allowable.
The Commission recognizes that potentially excessive costs could be
imposed on TRS Fund contributors if a single company possessed a
monopoly of essential intellectual property rights and was also
permitted to ``hold all others hostage to its fee demands.'' However,
neither of these conditions appears to be present at this time.
Further, the current record does not provide a basis for the Commission
to find that any of the amounts currently paid by TRS providers to an
unaffiliated entity for technology licensing are in excess of a
reasonable amount. However, the Commission will continue to monitor
such expenses and may revisit the question of intellectual property
payments to unaffiliated entities at a later time.
15. The Commission is unpersuaded by CaptionCall's elaboration of
its 2018 argument that license fees representing the imputed value of
the intellectual property developed by CaptionCall should be
recoverable from the TRS Fund. The Commission's cost-of-service
methodologies, whether applied to TRS or to tariffed common carrier
services, have been designed to allow service providers to recover
reasonable costs incurred to provide service, but a TRS provider is not
entitled to treat as a cost the imputed value of technology it
develops. Such value-based recovery is inconsistent with the entire
history of cost-of-service regulation as conducted by the Commission,
and the Commission finds no reason to depart from precedent in order to
permit such value-based recovery in this case. The value of such
investments may be recovered as profit, to the extent permitted by the
allowed operating margin, but treating such value as a cost is simply
inconsistent with cost-based compensation.
16. Similarly straightforward application of longstanding
Commission rules to the record in this proceeding precludes TRS Fund
recovery of the ``license fees'' that CaptionCall allegedly has paid to
an affiliate, Sorenson IP Holdings, LLC, for technology now owned by
the affiliate. Of fundamental importance is the fact that, according to
CaptionCall, the technology at issue was developed by CaptionCall
itself over a period of years, and ownership of the technology was
transferred to the affiliate in 2017 for reasons of ``security,
monetization, efficiency, and tax.'' Because the ``license fee''
represented as paid to this affiliate is in essence a payment by
CaptionCall for the use of its own technology--rather than for use of
technology developed by the affiliate or anyone else--the Commission
must conclude that the transaction created by CaptionCall's accountants
is not a genuine transfer of anything of value. Accordingly, such a
``license fee payment,'' regardless of the amount, cannot be allowed as
a compensable cost. Further, even if the Commission was to consider the
``license fee'' as part of a genuine transaction between affiliates,
application of the Commission's affiliate transaction rule would not
result in any allowable ``license fee'' in these circumstances. Under
the affiliate transaction rule, adopted to prevent inappropriate
accounting practices and limit the potential for self-dealing by
carriers under rate regulation, a payment by CaptionCall to its
affiliate for licensing CaptionCall's technology back to itself must be
booked at the lower of fair market value and the affiliate's net book
cost, unless the affiliate sells at least 25% of the asset to third
parties. To determine the affiliate's net book cost, the Commission
would need to know the amount, if any, that the affiliate originally
paid CaptionCall for transferring ownership of CaptionCall's technology
to the affiliate. CaptionCall seems to acknowledge, however, that no
such payment was made, or even booked for accounting reasons.
17. The Commission's application of longstanding cost-recovery
rules and policies treats similarly situated providers alike, and
avoids creating artificial incentives for the purchase of technology
from external sources over the internal development of technology.
Subject to the overall limitation that technology must be directed at
the provision of service that meets minimum TRS standards, providers
that purchase technology externally are entitled to recover their
reasonable costs of purchasing such technology, and providers that
develop TRS technology internally are entitled to recover their
reasonable R&D costs incurred in developing such technology. Allowing
additional, value-based recovery by a provider choosing internal
development would result in double recovery of the same investment.
Moreover, while encouraging the development of IP CTS technology by
multiple sources may well advance the goals of section 225, the
compensation methodology the Commission adopts does exactly that. A
provider that can reduce its costs by developing technology internally
(or by purchasing technology externally, if that turns out to be a more
efficient choice) is not penalized but rewarded, by incurring lower
costs while collecting compensation at the same rate as its rivals.
18. Operating Margin. Because IP CTS remains at present a labor-
intensive industry in which communications assistants (CAs) play a
major role, the Commission adopts its proposal that the compensation
rate for IP CTS, like the rates for VRS and IP Relay, include an
allowed operating margin, in lieu of the return on plant investment
previously allowed. By allowing providers a reasonable margin over
expenses, which is not tied to the relatively low capital investment in
physical plant that is needed for the provision of IP CTS, this will
help ensure sufficient investment in the provision of this service. The
Commission finds it reasonable to set a percentage operating margin
within the same ``zone of reasonableness'' that applies to VRS
providers. In the 2017 VRS Compensation Order, after reviewing
operating margins for companies in various analogous service sectors,
the Commission found a zone of reasonableness for VRS between 7.6% and
12.35%. Given the similarities between VRS and IP CTS, including that
the bulk of costs for both are attributable to labor rather than
capital, the Commission concludes that this zone of reasonableness is
also appropriate at this time for setting IP CTS rates.
19. For purposes of establishing a cost-based IP CTS rate for the
next rate period, the Commission sets the operating margin at 10%--the
approximate midpoint of the zone of reasonableness. The Commission
concludes that assigning an operating margin at the midpoint of the
zone is warranted and is ample to ensure providers a reasonable profit,
for three reasons. First, there are material differences between IP CTS
and IP Relay--to which the Bureau assigned an allowed operating margin
at the high end of the same zone of reasonableness. Unlike IP Relay,
which has not recently experienced significant growth, IP CTS demand
has grown at a substantial rate for many years, suggesting that the
risks associated with investing in this service may be lower overall
than for IP Relay. Second, in extending the ``glide path'' for bringing
IP CTS compensation to the level of costs, the Commission is
necessarily extending the opportunity, which has been available to
providers for several years, to collect profits in excess of whatever
margin is allowed. Third, the introduction of fully automatic IP CTS
with advanced ASR
[[Page 64974]]
technology, either as a complete substitute or a complement for CA-
assisted IP CTS, is providing an unusually large opportunity for
providers to reduce their costs and thereby increase further their
opportunities for profit at relatively lower risk. These considerations
could justify setting an operating margin for IP CTS in the lower
portion of the zone of reasonableness. At this time, however, the
Commission conservatively concludes that an operating margin of 10%, in
the middle of the zone of reasonableness, is appropriate for IP CTS,
while recognizing that the Commission may choose to revisit the issue
of operating margin at the end of the two-year rate period that the
Commission adopts in this Report and Order.
20. Averaging of Historical and Projected Costs. The Commission
continues the practice of averaging historical and projected costs to
arrive at a cost-based rate. Although projected costs can more
accurately reflect current conditions, provider cost projections often
have proved unreliable, and the current record provides no evidence to
indicate that exclusive reliance on such projections would produce
better results in the future. Further, in the current circumstances,
with continuously declining IP CTS costs, setting compensation rates
based on the average of the costs incurred in the previous year and
those projected for the current year allows even providers who have
higher than average costs a reasonable opportunity to recover their
current allowable expenses plus an operating margin.
21. Calculation of a Cost-Based Rate. Based on the above
determinations, calculation of a cost-based rate is straightforward.
The weighted average of provider per-minute expenses for 2019
(historical) is $1.1350, and for 2020 (projected) is $1.2375. Adding a
10% operating margin to each of these numbers produces a per-minute
cost-plus-operating-margin of $1.2485 for 2019 and $1.3612 for 2020.
The average of these two numbers is $1.3048, which the Commission
rounds down to $1.30.
22. COVID-19 Costs. After the outbreak of the coronavirus (COVID-
19) pandemic, IP CTS providers experienced an unanticipated increase in
IP CTS traffic levels and incurred additional costs in order to enable
numerous communications assistants to work at home rather than at call
centers. To provide an opportunity to determine the impact of these
developments on per-minute provider costs before the Commission set a
new IP CTS compensation rate, the Bureau extended the expiration date
of the current compensation rate and directed the TRS Fund
administrator to request additional cost and demand data for January to
June 2020 from CA-assisted IP CTS providers and file an update to the
IP CTS data contained in the 2020 TRS Rate Report. Based on the
information submitted by the four active providers who provided the
additional data requested for all periods, the TRS Fund administrator
reports that increased expenditures during the pandemic have been
offset by increased call volumes, resulting in no net increase in per-
minute costs for the reporting providers, as a group or even
individually. Therefore, the Commission concludes that no adjustment is
warranted to the weighted average cost data on which the Commission
relies to set compensation rates for the next two years. For the same
reasons, the Commission declines to freeze the current rate for an
additional period, beyond November 30, 2020. In the absence of any
concrete evidence of a net cost increase, the Commission declines to
defer long-needed rate corrections based on abstract concerns about the
unpredictable nature of the pandemic.
23. Compensation period. The Commission adopts a two-year
compensation cycle for IP CTS (which includes the five-month extension
of the current $1.58 rate past its original expiration date). The
Commission's balancing of the factors relevant to the duration of the
compensation period is different than in 2017, when the Commission set
a four-year rate period for VRS. In this instance, the Commission
concludes that, due to the introduction of ASR-based technology,
industry cost structures are likely to change substantially in the near
term, necessitating that the Commission revisit the IP CTS compensation
rate at an earlier stage in order to avoid recreating another major gap
between TRS Fund expenditures and actual IP CTS costs. Accordingly, the
Commission limits the rate period to two years. As the Commission found
in setting interim IP CTS compensation rates for the previous two
years, setting compensation for a two-year period provides some measure
of rate certainty for providers and mitigates the risk of rewarding
inefficiency, discouraging innovation, and incentivizing providers to
incur unnecessary costs, all of which would be proportionally greater
were the Commission to engage in annual cost-of-service rate setting.
24. Glide Path. Under the MARS methodology, the IP CTS compensation
rate had reached a level that exceeded average per-minute provider
expenses by some $0.72, or almost 60%. To decrease this gap, and the
resulting waste of the TRS Fund, while providing an opportunity for
less efficient providers to improve their efficiency and continue
serving their customers, the Commission reduced the compensation rate
by 10% in two successive years, bringing it to the current level of
$1.58 per minute. However, this rate is still $.28 higher than current
average cost of $1.30 per minute.
25. Therefore, the Commission will extend for somewhat less than a
year the ``glide path'' initiated by the 2018 order, reducing the
compensation rate by 10% in the current year and deferring to 2021-22
the further reduction necessary to reach the average-cost-based $1.30
rate. A modest extension of the ``glide path'' will afford higher-cost
providers an additional opportunity to adopt more efficient
technologies and business methods before their compensation is reduced
all the way to the average-cost level. The Commission recognizes that
extending the glide path in this manner allows IP CTS providers as a
group to continue earning operating margins in excess of the zone of
reasonableness for the remainder of the current Fund Year. However, the
alternative--a flash-cut $0.28 reduction of the rate--could place
significant immediate financial pressure on those providers whose
operating costs are higher than average, possibly causing them to exit
the IP CTS market, with the potential for at least temporary disruption
of service to customers. While the Commission does not seek to
encourage inefficient competitors to remain in the market, in a period
of rapidly declining costs, the Commission also seeks to permit
experienced providers of this service a fair opportunity to adjust
their operations so as to successfully provide this service in the most
efficient manner. In addition, allowing higher-cost providers an
additional period to adjust to reduced compensation will help ensure
that IP CTS users continue to have a choice among multiple
competitors--and such quality-of-service competition in turn helps
maintain all providers' incentives to continue offering functionally
equivalent service. Given that there is no single correct answer in
designing a glide path, and that the exercise of administrative
judgment is required, the Commission concludes that continuing the 10%
reductions strikes a reasonable balance between the need to eliminate
waste and ensure the efficient expenditure of TRS funds, on the one
hand, and the benefits of continuity of
[[Page 64975]]
service and competition, on the other. Accordingly, the Commission sets
the compensation rate for the remainder of the 2020-21 Fund Year at
$1.42, approximately 10% lower than $1.58.
26. The Commission declines to subject providers to a ``true-up,''
i.e., the Commission declines to decrease further the compensation rate
for the remainder of year in order to offset the five-month deferral of
the new rate and ensure that their overall compensation for the Fund
Year averages $1.42. Instead, to avoid the administrative burdens and
potential disruption associated with a true-up, the Commission allows
providers to retain the benefit of the five-month extension of the
$1.58, thereby mitigating further any potential adverse impact from the
Commission's necessary progression to a more efficient, cost-based
compensation rate.
27. In summary, to complete the glide path to the current cost-
based rate, beginning with minutes of service provided on or after
December 1, 2020, the current $1.58 rate will be reduced by
approximately 10%, to $1.42, and effective July 1, 2021, that rate will
be reduced to $1.30.
28. Price cap approach. The Commission concludes that it would not
be beneficial to make price-cap-like adjustments to the above rates
based on inflation and productivity factors. While the Commission is
confident that there will be major productivity improvements in IP CTS
over the next two years, causing actual IP CTS costs to continue to
decline as they have for the last seven years (even without adjusting
for inflation)--and which would thereby lead to downward price-cap
adjustments were the Commission to require such adjustments--a formal
price-cap-like approach would be premature until the Commission is
better able to assess the impact of ASR technology on IP CTS costs
Accordingly, the Commission defers consideration of the appropriateness
of a price-cap methodology for IP CTS.
29. Exogenous costs. During this rate period, the Commission adopts
the same exogenous-cost policy that is already in place for VRS. IP CTS
providers may seek compensation for well-documented exogenous 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 rates, and (4) if unrecovered, would cause
a provider's individual allowable-expenses-plus-operating-margin for
the current year to exceed its IP CTS revenues. Allowing recovery of
exogenous costs subject to these conditions will ensure that providers
are able to receive compensation for unforeseeable cost increases,
without increasing the disparity between Fund expenditures and
individual provider costs.
30. Effective Date. The Commission finds good cause to set December
1, 2020, as the effective date for the $1.42 per-minute compensation
rate. The current rate was originally scheduled to expire June 30,
2020. Providers have been aware of this pending expiration and
Commission proposals to adopt a new compensation methodology since
2018. In partial response to provider requests, to avoid unnecessary
disruption to IP CTS providers' operations, and to ensure the ability
of consumers to continue to place and receive IP CTS calls pending an
assessment of the impact of the COVID-19 pandemic on provider costs,
the Bureau waived the June 30, 2020 expiration of the existing
compensation rate and directed Rolka Loube to continue compensating IP
CTS providers at that rate until September 30, 2020. Relatively quick
implementation of the new compensation rate is necessary to
expeditiously promote the goals of the statute as laid out in the
order, including ensuring the availability of IP CTS in the most
efficient manner without imposing burdensome costs on TRS Fund
contributors. To ensure that there is no lapse in payment of
compensation to providers, the Commission extends the Bureau's waiver
of the June 30, 2020 expiration of the existing compensation rate and
direct Rolka Loube to continue compensating IP CTS providers at the
current $1.58 rate for two additional months, through November 30,
2020. The Commission also directs the Bureau to provide actual notice
to known IP CTS providers by sending them a copy of this Order, which
may be accomplished electronically.
31. ASR-only IP CTS compensation. During this two-year compensation
period, the Commission adopts a single compensation rate applicable to
all forms of IP CTS, including fully automatic IP CTS. Although the
2018 Further Notice requested comment on whether and how to establish a
separate compensation rate, at this time the Commission does not have
sufficient experience with fully automatic IP CTS to accurately
estimate the relevant costs. Without sufficient cost information,
setting a new separate rate for ASR-only would be arbitrary and
inconsistent with the Commission's current, technology-neutral approach
of granting all providers the same compensation rate derived from
average weighted costs. Moreover, setting a lower compensation rate for
fully automatic IP CTS in the absence of sufficient cost information
regarding this form of the service would run the risk of creating a
disincentive for providers to adopt this highly promising technology.
32. Further, based on current information, it may not be necessary
or appropriate to have a separate compensation rate for fully automatic
IP CTS in order to advance the objectives of section 225. Recent
testing of the fully automatic captioning engines proposed by
applicants for IP CTS certification indicates that fully automatic IP
CTS can deliver captions far more quickly than IP CTS provided with
communications assistants, and with comparable or greater accuracy,
suggesting that fully automatic IP CTS has become a reasonably close
economic substitute for traditional CA-assisted service. By setting a
single rate for IP CTS for the next rate period, the Commission
recognizes fully automatic IP CTS as providing the same type of TRS as
CA-assisted IP CTS and ensures that all providers have sufficient
incentive to try out various approaches to integrating fully automatic
captioning into their service offerings. Maintaining a single rate is
also administratively efficient for compensating providers that offer a
hybrid service that sometimes provides fully automatic IP CTS and
sometimes employs communications assistants in the delivery of
captions. For example, providers will be able to receive compensation
for calls that involve switching between the two captioning methods,
pending implementation of more fine-grained reporting of such calls.
33. Tiered and emergent-provider rate structures. The Commission
declines to adopt a tiered rate or emergent-provider rate structure for
IP CTS compensation at this time. In setting TRS Fund compensation, the
Commission's traditional approach is to establish a single, generally
applicable compensation rate based on average provider costs. This
approach greatly simplifies the rate-setting process and creates an
incentive for providers to increase their efficiency. In setting
compensation for VRS, the Commission has deviated from this principle
due to a number of specific circumstances that the Commission found
were threatening the viability of competition among VRS providers,
including long-term dominance of the VRS market by a single provider,
major and growing disparities in [individual] providers' per-minute
costs, and a history of
[[Page 64976]]
chronic interoperability problems and related structural issues, all of
which have been found to hinder smaller VRS providers' ability to
compete effectively with the largest provider. The Commission is not
persuaded that similar or equally compelling factors are present in the
IP CTS market to an extent that would justify introducing the
complexities and potential inefficiencies of a tiered rate structure or
an emergent provider rate. While there may be some economies of scale
in IP CTS, the Commission finds little evidence that such economies of
scale are preventing the emergence of efficient competitors.
34. First, the market share of the largest provider in IP CTS is
not comparable to that of the largest provider in the VRS market.
35. Second, the record shows relatively low correlation between
each IP CTS provider's compensable minutes and per-minute costs, at
best suggesting that some providers have not realized efficiencies in
their business models that would enable them to realize inherent
economies of scale. Indeed, the record suggests that, unlike in the VRS
context, this may be a case where the higher costs for some IP CTS
providers are attributable to business decisions concerning use of
contractors as turnkey service providers, prior investments in
technology and business processes, and differences in business models,
rather than issues of scale.
36. Third, IP CTS's continuous record of rapid growth suggests that
there are substantially greater opportunities than in the VRS context
for a provider to reach efficient scale within a relatively short
period of time. This is especially the case in light of the new
opportunities for small providers and new entrants to use advanced ASR
technology to offer fully automatic IP CTS at greatly reduced operating
cost.
37. Fourth, unlike VRS, IP CTS is not dependent on interoperability
and does not have other network effects that make it difficult for new
entities to enter or obtain eligible IP CTS users as customers.
38. Reverse auction. The Commission defers consideration of whether
a reverse auction would be an efficient and effective method of setting
IP CTS compensation. The Commission recognizes that a properly
structured reverse auction could be an effective mechanism to ensure
that compensation reflects market forces. The record to date, however,
does not enable us to determine whether an auction mechanism can
effectively support the provision of IP CTS by multiple competitors. As
the Commission found with VRS, holding an auction to establish a
compensation rate for the provision of service by multiple competitors
runs the risk of producing a rate well above the average cost of
providing service, or so low as to keep currently higher cost providers
from continuing or new entrants from joining the market.
39. It may be that a carefully developed reverse auction could
resolve some of these concerns or could be modified to do so. However,
the development and implementation of a reverse auction would take
substantial time, money, and effort, with no assurance that the
benefits would exceed the costs. Implementation of such an auction in
the current environment also raises questions for which informed
answers are not yet available. Specifically, the type of auction
proposed by CaptionCall would accommodate only a limited number of
post-auction competitors, and thus would require the Commission to
weigh carefully the costs and benefits of imposing such limits on IP
CTS competition and consumer choice. For example, what is the minimum
number of post-auction IP CTS competitors that would be necessary to
maintain adequate service quality and innovation incentives consistent
with the functional equivalence, efficiency, availability, and other
goals of section 225?
40. These challenges are compounded by the recent introduction of
fully automated IP CTS, with major consequences for IP CTS cost
structure, the details of which are not yet well understood. The
Commission believes it would be a waste of Commission resources to
undertake a major change in methodology at this time, before the
Commission is in a position to assess the impact of those changes. The
Commission does not yet have sufficient experience with fully automatic
IP CTS to be able to predict accurately the extent to which it will be
adopted by consumers in the near term, to assess the likely effect of
such adoption on average IP CTS costs, and to design an alternative
compensation methodology that can take this potentially game-changing
technology into account. The Commission concludes that there is a need
for further development of data on the costs and performance of fully
automatic IP CTS, before the Commission can make an informed
determination whether, how, and when to adopt a reverse auction
methodology.
41. Proposals to maintain a higher rate. The Commission rejects
proposals by some IP CTS providers to set the IP CTS rate at higher
levels than the average of providers' allowable costs. CaptionCall's
proposed initial rate of $1.75 is based on an incorrect cost analysis
that includes non-allowable licensing costs, as explained above.
CaptionCall's alternative argument, that setting a higher rate is
necessary to ensure all IP CTS providers are able to stay in the market
and continue to make capital investments in innovation and efficiency,
is likewise unpersuasive. Especially with the emergence of fully
automatic technology as a service option, there are reasonable
opportunities for higher-than-average-cost providers to reduce costs by
adopting more efficient captioning technologies and business practices
without reducing the consumers' opportunities to receive functionally
equivalent service. Further, the Commission is charged with ensuring
the availability of a high-quality captioning service, not ensuring
that all existing providers remain in the market.
42. Hamilton's proposal for an initial rate no lower than $1.7630
reflects the IP CTS rate for the 2011-12 TRS Fund year (which Hamilton
asserts was the last year in which neither the Commission nor any party
challenged the MARS rate for IP CTS as unreasonable) and thus
disregards the record evidence of current IP CTS costs. Whatever rate
may have been reasonable almost a decade ago, Rolka Loube's data
analysis shows that average IP CTS provider costs have dropped by some
37% since then. While current provider cost reports may be subject to
imprecision, they are certainly more accurate than a 10-year old
compensation rate based on a proxy that is no longer applicable.
43. IP CTS provider cost transparency. The Commission declines to
require public disclosure of IP CTS providers' costs, as requested by
Consumer Groups and Academic Researchers. Such a step would require a
rule amendment that is beyond the scope of this proceeding.
Order on Reconsideration
44. The Commission denies Sprint's petition to reconsider the
adoption of interim IP CTS rates for Fund years 2018-19 and 2019-20.
Sprint's petition relies on arguments that were previously raised with
and fully addressed by the Commission, and none of its arguments
identifies any material error, omission, or reason warranting
reconsideration.
45. First, in contending that the Commission impermissibly adopted
interim rates based on a stale record, without seeking additional
comment to update the record, Sprint expressly acknowledges that
parties raised this
[[Page 64977]]
concern and that the Commission responded to their arguments. Sprint
also fails to show material error, omission, or reason warranting
reconsideration. Mere disagreement with the Commission's procedural or
substantive decisions is not sufficient, and Sprint does not dispute
that the interim rates were set based on current, publicly available
cost data, on which the parties had an opportunity to comment. Sprint
does not point to any specific flaw, other than its alleged staleness,
in the record on which the Commission based its compensation decision.
Further, the Commission sought and received numerous additional
comments and submissions from interested parties on the compensation
issue in the years following the Commission's 2013 Further Notice of
Proposed Rulemaking, and relied on up-to-date provider cost data in
determining that the MARS methodology was no longer useful and in
setting interim cost-based rates.
46. Sprint's second argument, that the interim rates cause
unwarranted economic harm to IP CTS providers by failing to reflect the
reasonable cost of providing IP CTS, was also previously raised with
and addressed by the Commission. Sprint presents no new evidence of
economic harm, instead repeating arguments that the Commission
considered and rejected in the 2018 Order, regarding the allowability
of various cost categories. The Commission discussed in detail the
factors bearing on the reasonableness of provider costs, including the
allowability of various kinds of expenses and the allowable operating
margin. In addition, the Commission set the interim rates substantially
higher than average cost in order to limit the initial impact of
necessary rate reductions on IP CTS providers. While Sprint may believe
the Commission should have analyzed the cost data differently than it
did, Sprint's contrary opinion is not a material error, omission, or
reason for reconsideration.
47. Sprint's third argument, that the Commission should have
delayed action on rates pending the outcome of the 2018 Notice of
Inquiry on service quality standards, also fails to identify a material
error, omission, or reason warranting reconsideration. Rather, Sprint's
argument rests on pure speculation about the possibility that the 2018
Notice of Inquiry could eventually lead to the imposition of new, more
onerous standards that providers would be unable to meet without
incurring higher costs. In any event, no new service quality standards
became effective--or were even proposed by the Commission--during the
period covered by the interim rates.
48. Finally, in arguing that the interim rates will preclude IP CTS
providers from offering high-quality service, investing in innovation,
or competing effectively, Sprint again fails to explain what aspect of
these issues the Commission did not fully consider or to otherwise
identify a material error, omission, or reason for reconsideration. The
Commission fully considered the potential impact of reducing the
compensation rate on service quality, investment in innovation, the
ability of providers to obtain funding, and competition, and the
Commission implemented steps to mitigate these potential effects. The
Commission provided a glide path to reduce the rates over a two-year
period and set both interim rates well above the average cost-based
rate, which it calculated with the inclusion of a reasonable operating
margin for providing IP CTS. The Commission also took action to allow
all providers the opportunity to implement ASR-only IP CTS, a far less
costly alternative to CA-assisted IP CTS. Sprint does not present any
new arguments that explain why providers would be unable to offer high
quality service, invest, or compete while receiving a rate well above
the average cost to provide IP CTS. In addition, during the last two
years, the potential adverse consequences alleged by Sprint have not
come to pass. No provider has left the IP CTS market or indicated it is
failing to provide functionally equivalent service; the record does not
indicate a general reduction in service quality; current providers
continue to invest in new technologies, such as ASR; and the Commission
recently certified two new IP CTS providers who use ASR technology,
thereby increasing competition and consumer choice.
Final Regulatory Flexibility Analysis
49. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), the Commission incorporated an Initial Regulatory
Flexibility Analysis (IRFA) into the 2018 Further Notice. The
Commission sought written public comment on the proposals in the 2018
Further Notice, including comment on the IRFA. No comments were
received in response to the IRFA.
A. Need For, and Objectives of, the Rules
50. Document FCC 20-132 adopts TRS Fund compensation rates to
support the provision of IP CTS for the remainder of Fund Year 2020-21
(December 1, 2020, through June 30, 2021) and for Fund Year 2021-22
(July 1, 2021, through June 30, 2022). These rates are applicable to
all forms of IP CTS, including fully automatic IP CTS, and to all
providers that are or may become certified by the Commission to offer
IP CTS in accordance with its rules. The compensation rates are set
using a cost-of-service methodology based on an average of providers'
actual and projected costs and are designed to continue the reduction
of the IP CTS compensation rate by approximately 10% each year, so that
by the second year, compensation is at the level of average cost ($1.30
per minute). Thus, the compensation rate for Fund Year 2020-21 is $1.42
per minute (10% below the current $1.58 rate) and the compensation rate
for Fund Year 2021-22 is $1.30 per minute (8.5% below the first year
$1.42 rate).
51. This approach is needed to continue the reduction of IP CTS
provider compensation along a glide path to where it is more closely
aligned with the actual costs of providing this service, as determined
based on historical and projected cost data reported to the TRS Fund
administrator by IP CTS providers. Maintaining this cost-based approach
ensures that providers are compensated for the average reasonable cost
of providing service, reduces unnecessary burdens on TRS Fund
contributors and indirectly on their subscribers, and increases the
assurance that IP CTS is made available in the most efficient manner.
To permit a further opportunity for less efficient providers to improve
their efficiency and to ensure that functionally equivalent IP CTS
remains available to all eligible consumers, the Commission continues
for a short period the phased reduction of the compensation rate on a
``glide path'' by approximately 10% annually, so that compensation is
reduced to the level of average cost by the second year.
B. Summary of Significant Issues Raised by Public Comments in Response
to the IRFA
52. No comments were filed in response to the IRFA.
C. Response to Comments by the Chief Counsel for Advocacy of the Small
Business Administration
53. The Chief Counsel did not file any comments in response to the
proposed rules in this proceeding.
D. Small Entities Impacted
54. The rules adopted in document FCC 20-132 will affect
obligations of IP CTS providers. These services can be included within
the broad economic
[[Page 64978]]
category of All Other Telecommunications.
E. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements
55. In maintaining cost-based rates, the Commission will continue
to require IP CTS providers to file annual cost and demand data reports
with the TRS Fund administrator. There is no additional burden on IP
CTS providers to file these reports. The Commission does not make any
changes to the cost categories reported by providers. The Commission
has received approval to require the collection of such information
pursuant to the Paperwork Reduction Act of 1995 (PRA).
F. Steps Taken To Minimize Significant Impact on Small Entities, and
Significant Alternatives Considered
56. The rates set by the Commission compensate providers for the
average reasonable cost of providing service, reduce unnecessary
burdens on TRS Fund contributors--and, indirectly, on their
subscribers--and ensure that IP CTS is available to all eligible users
to the extent possible and in the most efficient manner. Adopting a
single, generally applicable compensation rate for each rate period
treats all providers equally while minimizing significant impact on
small entities. Under this technology-neutral approach, small-business
providers of IP CTS are afforded wide flexibility to reduce costs and
increase efficiency during the rate period, e.g., by making greater use
of ASR technology, while continuing to obtain TRS Fund support at the
same rate. In addition, the phased, ``glide path'' reduction of
compensation to the average cost level provides additional flexibility
for small-business providers to make efficiency adjustments over time.
The Commission considered various alternative compensation
methodologies, including an auction and a tiered structure of varying
compensation rates, and finds that, at this time, to reduce the burden
on TRS Fund contributors (which affects rates charged to all telephone
users) and to fairly compensate the IP CTS providers, a cost-based rate
best fulfills the statutory obligation to ensure the availability of
functionally equivalent service in the most efficient manner.
57. The Commission sent a copy of document FCC 20-132, including
the Final Regulatory Flexibility Analysis, to the Chief Counsel for
Advocacy of the Small Business Administration.
Ordering Clauses
58. Pursuant to sections 1, 2, and 225 of the Communications Act of
1934, as amended, 47 U.S.C. 151, 152, 225, document FCC 20-132 is
adopted.
59. The application of the pre-existing $1.58 compensation rate for
IP CTS is extended through November 30, 2020.
60. Sprint's Petition for Reconsideration of the interim rates
adopted in the 2018 Order is denied.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 2020-22530 Filed 10-13-20; 8:45 am]
BILLING CODE 6712-01-P
