[Federal Register Volume 70, Number 126 (Friday, July 1, 2005)]
[Notices]
[Pages 38134-38141]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-13149]


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FEDERAL COMMUNICATIONS COMMISSION

[CC Docket No. 98-67 and CG Docket No. 03-123; FCC 05-135]


Telecommunications Relay Services and Speech-to-Speech Services 
for Individuals With Hearing and Speech Disabilities

AGENCY: Federal Communications Commission.

ACTION: Notice; approval of new rates.

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SUMMARY: In this document, the Commission adopted the Interstate 
Telecommunications Relay Services (TRS) compensation rates for July 1, 
2005 through June 30, 2006 Interstate TRS Fund year. The Commission 
adopted separate compensation rates for traditional TRS and Internet 
Protocol (IP) Relay. Also in the document, the Commission adopted per-
minute compensation rates as follows for this fund year: For Speech-to-
Speech Service (STS), $1.579; for traditional TRS, $1.440; for IP 
Relay, $1.278 for Video Relay Service (VRS), $6,644.

DATES: The per-minute compensation rates adopted by the Commission for 
STS and VRS will become effective June 30, 2005. The per-minute 
compensation rates adopted by the Commission for traditional TRS and IP 
relay will become effective July 1, 2005.

ADDRESSES: Federal Communications Commission, 445 12th Street, SW., 
Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Thomas Chandler, Consumer & 
Governmental Affairs Bureau, Disability Rights Office at (202) 418-1475 
(voice), (202) 418-0597 (TTY), or e-mail at [email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order, 
FCC 05-135, adopted June 28, 2005, and released June 28, 2005 in CC 
Docket 98-67 and CG Docket 03-123. On April 25, 2005, the National 
Exchange Carrier Association, Inc. (NECA) filed its annual Interstate 
Telecommunications Relay Services Fund Payment Formula and Fund Size 
Estimate for the period of July 1, 2005 through June 30, 2006. On April 
28, 2005, the Commission released a Public Notice requesting comment on 
NECA's filing. See National Exchange Carrier Association, Inc. (NECA) 
Submit the Payment Formula and Fund Size Estimate for Interstate 
Telecommunications Relay Services (TRS) Fund for July 2005 through June 
2006, Public Notice, CC Docket No. 98-67, DA 05-1175, published at 70 
FR 24790, May 11, 2005. This Order does not contain new or modified 
information collections requirements subject to the Paperwork Reduction 
Act of 1995 (PRA), Public Law 104-13. In addition, it 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). The full text of the Order and copies of any subsequently 
filed documents in this matter will be available for public inspection 
and copying during regular business hours at the FCC Reference 
Information Center, Portals II, 445 12th Street, SW., CY-A257, 
Washington, DC 20554. The Order and copies of subsequently filed 
documents in this matter may also be purchased from the Commission's 
duplicating contract, BCPI, Inc., Portals II, 445 12th Street, SW., 
Room CY-B402, Washington, DC 20554. Customers may contact BCPI, at 
their Web site http://www.bcpiweb.com or call 1-800-378-3160. To 
request materials in accessible formats for people with disabilities 
(Braille, large print, electronic files, audio format), send an e-mail 
to [email protected] or call the Consumer & Governmental Affairs Bureau at 
(202) 418-0530 (voice), (202) 418-0432 (TTY). The Order can also be 
downloaded in Word or Portable Document Format (PDF) at http://www.fcc.gov/cgb/dro.

Synopsis

    Each year, the Interstate TRS Fund Administrator, currently the 
National Exchange Carrier Association, Inc. (NECA), collects and 
reviews projected cost and minutes of use data submitted by TRS 
providers to determine the annual TRS compensation rates for the 
various forms of TRS. On April 25, 2005, NECA filed its annual 
Interstate Telecommunications Relay Services Fund Payment Formula and 
Fund Size Estimate for the period of July 1, 2005 through June 6, 2006. 
(NECA, Interstate Telecommunications Relay Services Fund Payment 
Formula and Fund Size Estimate, CC Docket No. 98-67, filed April 25, 
2005 (2005 NECA Filing)). As NECA explains in its filing, it performs a 
detailed analysis of the providers' data to determine, among other 
things, whether all of the costs submitted may be properly included in 
the rate

[[Page 38135]]

calculations. NECA notes that in determining rates for 2005-2006 Fund 
year it disallowed costs in only two instances, and in each case the 
provider accepted NECA's decision. NECA proposes the following TRS 
provider compensation rates: $1.312 per-minute for interstate 
traditional TRS and interstate and intrastate IP Relay, $1.579 per-
minute for interstate STS, and $5.924 per-minute for interstate and 
intrastate VRS. Based on these figures, NECA proposes a total 
interstate TRS Fund (Fund) size requirement and carrier contribution 
factor for the July 1, 2005 through June 30, 2006, Fund year of 
$413,737,460 and 0.00528, respectively.

Traditional TRS and IP Relay

    As in prior years, NECA determined that the same compensation rate 
would apply to providers of both traditional TRS and IP Relay services. 
(When the Commission recognized IP Relay as a form of TRS, it directed 
that IP Relay providers would be compensated at the same rate as 
traditional TRS. See Provision of Improved Telecommunications Relay 
Services and Speech-to-Speech Services for Individuals with Hearing and 
Speech Disabilities, Declaratory Ruling and Second Further Notice of 
Proposed Rulemaking, CC Docket No. 98-67, published at 67 FR 39863, 
June 11, 2002 and 67 FR 39929, June 11, 2002), 17 FCC Red 7779 at page 
7786, paragraph 22 (April 22, 2002)). This rate is determined by 
dividing the providers' total projected costs of proving these services 
by the providers' total projected minutes of use. For traditional TRS, 
only the costs of providing interstate service are considered. Based on 
the data provided, NECA's calculations resulted in a proposed 
compensation rate of $1.312 per-minute. (This figure was arrived at by 
dividing the 2005-2006 annualized average projected costs of 
$298,971,355 by the annualized average projected minutes of 
213,112,677, and applying the 1.4% rate of return to an allowance for 
working capital to the resulting cost per minute). There were no cost 
disallowances with respect to these services. This rate reflects a 
slight decrease from the 2004-2005 rate of $1.398.
    NECA notes that the Interstate TRS Fund Advisory Council (Council), 
at its April 19, 2005, meeting, expressed concern that combining the 
traditional TRS interstate and IP Relay reimbursement rate penalized 
traditional TRS providers by under-compensating these providers. NECA 
notes that if the rates were calculated separately, the traditional TRS 
rate would be $1.40 (up $0.128) and the IP Relay rate would be $1.278 
(down $0.034). NECA also notes that although in the early stages of IP 
Relay, providers indicated that the costs of providing traditional TRS 
and IP Relay were virtually the same, ``the cost data no longer 
supports that early conclusion.'' As a result, NECA offers the 
Council's recommendation to consider separate reimbursement rates for 
traditional TRS and IP Relay.
    For purposes of determining the Fund size requirement and carrier 
contribution rate, NECA projected demand for traditional TRS based on 
prior actual usage. (NECA explains that although in calculating the 
compensation rates it uses the providers' own projections of minutes of 
use, in calculating the Fund size it uses actual growth rates to 
estimate minutes of use that will be paid by the Fund. NECA states 
that, in this case, it calculated a growth rate from the four-month 
period of October 2004 through January 2005, and applied this growth 
rate to the actual minutes of March 2005 to determine projected minutes 
for the twelve-month period of the July 2005 to June 2006 Fund year). 
Using a growth rate derived from prior usage (an increase of 22,183 
minutes per month), NECA forecasts 26.5 million minutes of use for the 
period of July 2005 through June 2006 for traditional TRS. NECA used 
the same methodology to determine a growth rate for IP Relay to 
estimate minutes of use for the July 2005 through June 2006 Fund year. 
Using this growth rate (an increase of 210,364 minutes per month), NECA 
forecasts 99.5 million minutes of use for the period of July 2005 
through June 2006 for IP Relay. Taken together, NECA therefore 
forecasts that there will be 126 million minutes of combined use for 
traditional TRS and IP Relay during the 2005-2006 Fund year. By 
multiplying the proposed compensation rate ($1.312) by NECA's projected 
minutes of use, NECA projects that the Interstate TRS Fund will need 
$165.3 million to compensate TRS providers for providing these 
services. (The $165.3 million, added to the funding requirements for 
the projected use of STS and VRS, as noted below, plus certain 
administrative costs, determines the total projected Interstate TRS 
Fund size estimate). NECA notes that if separate rates were adopted for 
traditional TRS and IP Relay, the total TRS Fund requirement would 
increase less than 12 thousand dollars, and the contribution factor of 
0.00528 would remain the same.

Speech-to-Speech (STS)

    The compensation rate for providers of interstate STS is determined 
the same way, using the providers' total projected interstate costs of 
providing this service and the providers' total projected minutes of 
use. As NECA explains, however, although most of the providers 
reflected an average cost between approximately $1.30 and $2.70 per-
minute, one STS provider reported costs of more than $12 per-minute, 
which NECA characterized as ``significantly different from the norm and 
about seven times the average of the other five providers.'' As a 
result ``[a]fter several discussions with the provider to determine why 
their STS costs were so high,'' NECA excluded the provider's data from 
the rate development. NECA notes that after informing the provider of 
its intent to exclude the data, the provider accepted NECA's decision. 
Based on the data submitted (and considered), NECA calculations 
resulted in a proposed compensation rate for STS OF $1.579 per-minute. 
(This figure was calculated by dividing the 2005-2006 annualized 
average projected costs of $309,680 by the providers' 2005-2006 
projected minutes of 198,860, and applying the 1.4% rate of return for 
an allowance for working capital to the resulting average cost per 
minute). This rate represents a slight decrease from the 2004-2005 rate 
of $1.596.
    For purposes of determining the Fund size requirement and carrier 
contribution rate, NECA projected demand based on a growth rate derived 
from the same methodology used for traditional TRS and IP Relay, 
October 2004 through January 2005. Using the average growth rate for 
this period of 283 minutes, NECA forecasts 187 thousand minutes of use 
for the period of July 2005 through June 2006 for STS. By multiplying 
the proposed compensation rate ($1.579) by NECA's projected minutes of 
use, NECA projects that the Interstate TRS Fund will need $295,409 to 
compensate TRS providers for providing STS.

Video Relay Service (VRS)

    The compensation rate for providers of VRS is also determined based 
on the total projected costs of providing this service and the total 
projected minutes of use. NECA, however, did exclude certain costs of 
one provider. As NECA explains, one VRS provider included the expenses 
for keeping on staff Certified Deaf Interpreters, i.e., ``deaf 
interpreters who would help hearing interpreters on unusual or 
difficult calls.'' NECA notes that no other VRS provider had such a 
position, and that

[[Page 38136]]

after discussions with the provider the provider accepted NECA's 
decision not to include such costs in the rate development. Based on 
the data submitted (as modified), NECA's calculations resulted in a 
proposed compensation rate of $5.924 per minute. (This figure was 
calculated by dividing the 2005-2006 annualized average projected costs 
of $321,049,465 by providers' 2005-2006 annualized average projected 
minutes of 54,948,999, and applying the 1.4% rate of return for an 
allowance for working capital to the resulting average cost per 
minute). This rate represents a 22% decrease from the 2004-2005 rate of 
$7.596.
    NECA states that the proposed average rate of $5.924 ``appears to 
be driven by the cost and demand characteristics of a single 
provider.'' (NECA states the ``[t]he average produced by the 
traditional rate development methodology using all providers' cost are 
above the average.'') NECA notes that if the VRS rate was calculated by 
excluding the cost and demand data of the low cost provider, the 
proposed compensation rate would be $7.061 (an increase of $1.137 per-
minute). (An increase of $1.137 per minute to the VRS rate would 
increase the required Fund size by over $40 million ($1.137 multiplied 
by the projected minutes of use of 35.5 million)). NECA advises the 
Commission to ``explore alternatives to the traditional rate 
calculation'' for VRS because of several open issues relating to the 
provision of VRS, including ``interoperability'' and speed of answer. 
(``Interoperability'' refers to whether a consumer can use TRS 
equipment with any of the providers' relay service and not be limited 
to using only one provider (e.g., the provider that gave the consumer 
the equipment). See Petition for Declaratory Ruling Filed by the 
California Coalition of Agencies Serving the Deaf and Hard of Hearing 
(CCASDHH) Concerning Video Relay Service (VRS) Interoperability, Public 
Notice, CC Docket No. 98-67, CG Docket No. 03-123, DA 05-509 (March 1, 
2005), published at 70 FR 12884, March 16, 2005). The Commission has 
presently waived the speed of answer rule for VRS. The waiver expires 
on January 1, 2006. See 2004TRS Report & Order, published at 69 FR 
53346, September 1, 2004, 19 FCC Rcd pages 12522-12524, 12568-12569, 
paragraphs 119-123 (speed of answer waiver), and paragraph 246 (raising 
issue of appropriate VRS speed of answer in Further Notice of Proposed 
Rulemaking (FNPRM). NECA also notes that the Interstate TRS Fund 
Advisory Council, at its April 19, 2005, meeting, expressed concern 
that decreasing the VRS rate from $7.596 to the proposed rate of $5.924 
would under-compensate many VRS providers, threatening their continued 
provision of the service. The Council recommended that the Commission 
leave open the opportunity to re-examine the VRS rate when decisions on 
VRS speed of answer and interoperability are reached.
    For purposes of determining the Fund size requirement and carrier 
contribution rate, NECA again projected demand based on a growth rate 
derived from the same four-month period of October 2004 through January 
2005. Using the average growth rate for this period of 120,845 minutes, 
NECA forecasts 35.5 million minutes of use for the period of July 2005 
through June 2006, for VRS. By multiplying the proposed compensation 
rate ($5.924) by NECA's projected minutes of use, NECA projects that 
the Interstate TRS Fund will need $210.5 million to compensate TRS 
providers for providing VRS.

Interstate TRS Fund Size and Carrier Contribution Rate

    Once NECA has calculated its proposed compensation rates for 
traditional TRS and IP Relay, STS, and VRS, NECA calculates the 
proposed Interstate TRS Fund size and the carrier contribution factor. 
(Under the Commission's rules, ``[e]very carrier providing interstate 
telecommunications services shall contribute to the TRS Fund on the 
basis of interstate end-user telecommunications revenues.'' 47 CFR 
64.604(c)(5)(iii)(A)). The total annual Fund requirement is determined 
by adding together the projected payments to TRS providers for the 
various forms of TRS, plus certain administrative expenses. The 
contribution factor is based on the ratio between total expected TRS 
Fund expenses and interstate end-user telecommunications revenues.
    Making these calculations, NECA determined that the total Fund size 
requirement--i.e., the amount that would be necessary to compensate 
providers for providing all eligible TRS services for the period of 
July 2005 through June 2006--would be $413,337,460, This amount 
includes the actual costs of providing TRS, NECA's administrative 
costs, and a 10 percent safety margin, less interest income on retained 
funds. NECA then divided that number by the total 2004 common carrier 
end user revenues ($78.2 billion) to arrive at a contribution factor of 
0.00528. NECA submits all of its data to the Commission, which then 
approves or modifies NECA's proposed per-minute compensation rates, 
carrier contribution factor, and Fund size. (See 47 CFR 
64.604(c)(5)(iii)(E), (H)). As we have noted, NECA states that if the 
Commission adopts separate compensation rates for traditional TRS and 
IP Relay, the effect on the total Fund size requirement would be 
negligible and the carrier contribution factor of 0.00528 would be the 
same.

Commenters

    On April 28, 2005, the Commission released a Public Notice 
requesting comment on NECA's filing. (National Exchange Carrier 
Association (NECA) Submits the Payment Formula and Fund Size Estimate 
for Interstate Telecommunications Relay Services (TRS) Fund for July 
1005 through June 2006, Public Notice, CC Docket No. 98-67, DA 05-1175 
(April 28, 2005), published at 70 FR 24790, May 11, 2005, (2005 TRS 
Rate PN). Ten comments and six reply comments were filed. (Comments 
were filed by Hands On Video Relay Services, Inc. (Hands On) (May 12, 
2005); MIC, Inc. (MCI) (May 13, 2005); Nordia, Inc. (Nordia) (May 13, 
2005); Sprint Corporation (Sprint) (May 13, 2005); Teleco Group, Inc. 
(Teleco Group) (May 13, 2005); Telecommunications for the Deaf, Inc. 
and Deaf and Hard of Hearing Consumer Advocacy Network (TDI/DHHCAN) 
(May 13, 2005); Ultratec, Inc. (Ultratec) May 13, 2005); Communication 
Services for the Deaf, Inc. (CSD) (May 13, 2005); AT&T Corp. (AT&T) 
(May 13, 2005); and Hamilton Relay, Inc. (Hamilton) (May 13, 2005). 
Reply comments were filed by Hands On (May 25, 2005); MCI (May 25, 
2005); CSD (May 25, 2005); Sorenson Communications, Inc. (Sorenson) 
(May 25, 2005); Verizon (May 25, 2005); and NECA (May 25, 2005). In 
general, comments are directed at the proposed VRS rate (see generally 
Hands On Comments, CSD Comments, TDI/DHHCAN Comments, Hands On Reply 
Comments, CSD Reply Comments, (proposed VRS rate is unfairly low); see 
also Sorenson Reply Comments) whether IP Relay and traditional TRS 
should be compensated at different rates (Compare MCI Comments, Nordia 
Comments, Hamilton Comments, and MCI Reply Comments (rates for IP Relay 
and traditional TRS should remain the same), with Sprint Comments, 
Ultratec Comments, and CSD Reply Comments (Commission should adopt 
separate rates)), and the size of the Interstate TRS Fund and how it is 
funded. (See generally Telco Group Comments (addressing payments into 
fund based on international revenues); AT&T Comments (asserting that 
projected size of Fund is too large and

[[Page 38137]]

related issues); Hands On Reply Comments; CSD Reply Comments; Verizon 
Reply Comments; and NECA Reply Comments). We address the comments 
below.

Discussion

    We have reviewed the 2005 NECA Filing, as well as the underlying 
cost data and the comments that were filed. Based on this review, we 
approve NECA's proposed compensation rates of $1.579 per-minute for 
STS. We conclude, however, that the compensation rates for traditional 
TRS and IP Relay should reflect the cost and demand data unique to 
those services, and that, therefore, it is no longer appropriate to 
compensate these services at a single rate that reflects the combined 
projected costs and minutes of use. Accordingly, as reflected in NECA's 
filing, we adopt a compensation rate of $1.440 per-minute for 
traditional TRS, and a compensation rate of $1.278 per-minute for IP 
Relay. With respect to VRS, we reject NECA's proposed rate and, as 
explained below, we adopt a rate of $6.644 per-minute, reflecting the 
median rate of the rates of the seven providers that submitted VRS cost 
and demand data. Accordingly, we adopt a total Fund size of 
$441,493,869 and a carrier contribution factor of 0.00564. (The 
compensation rates for STS and VRS, and the fund size and carrier 
contribution factor, shall be effective upon the release of this Order. 
The compensation rates for traditional TRS and IP Relay shall be 
effective upon publication of this Order in the Federal Register. Until 
such time, providers of traditional TRS and IP Relay shall be 
compensated at the 2004-2205 rate of $1.398).

Compensation Rate for Speech-to-Speech (STS)

    We conclude that STS shall be compensated at $1.579 per-minute for 
interstate STS for the 2005-2006 Fund year, as recommended by NECA. As 
we have noted above, this rate was determined by dividing the 
providers' total projected interstate costs of $309,680 by the 
providers' total projected interstate minutes of 198,860. We have 
reviewed NECA's proposed rate and its analysis of the relevant 
underlying data. We find that NECA's calculations with respect to this 
service are reasonable. Accordingly, the Interstate TRS Fund will pay 
$1.579 per-minute for eligible interstate STS for the period of July 
2005 through June 2006.

Compensation Rate for Traditional TRS and IP Policy

Separate Rates for Traditional TRS and IP Relay

    Given the cost disparity between traditional TRS and IP Relay, (See 
2005 NECA filing, page 13, note 21 (reflecting a 11% disparity between 
the average cost of providing traditional TRS and IP Relay)), we 
conclude that these services should be compensated at separate rates 
based on the cost and demand projections specific to each service. We 
do not believe that it is fair or reasonable to use a combined rate 
($1.312) that over-compensates IP Relay providers (by $.034 per-minute) 
and under-compensates traditional TRS providers (by $0.128 per-minute).
    Consistent with prior Commission rulings, NECA proposes a 
compensation rate of $1.312 applicable to both traditional TRS and IP 
Relay. The Public Notice seeking comment on NECA's filing also 
specifically sought comment on whether the Commission should adopt 
separate compensation rates for traditional TRS and IP Relay. (The 
issue of whether separate compensation rates should be adopted for 
traditional TRS and IP Relay was raised in the FNPRM in the 2004 TRS 
Report & Order. 2004 TRS Report and Order, published at 69 FR 53382, 
September 1, 2004, 19 FCC Rcd pages 12564-12565, paragraph 233. In the 
FNPRM, the Commission noted that although the Interstate TRS Fund 
administrator requests and analyzes separate data for the costs of 
providing IP Relay and traditional TRS, the services are compensated at 
the same per-minute rate. The Commission also recognized that ``the 
cost of providing IP Relay may be less than the cost of providing 
traditional TRS,'' and therefore ``providers of IP Relay may be over-
compensated, and providers of traditional TRS may be under-
compensated.'' The Commission therefore sought comment on whether to 
adopt separate compensation rates for IP Relay and traditional TRS. 
Four parties filed comments in response to this issue. All commenters 
asserted that the cost differences for providing these services are not 
significant, and therefore that they should continue to be compensated 
at the same rate). Three parties support a single compensation rate for 
both services; three parties support separate compensation rates.
    MCI, Nordia, and Hamilton assert that the Commission should 
continue to use the same compensation rate for traditional TRS and IP 
Relay. MCI and Hamilton assert that the costs of providing these 
services are generally similar. MCI suggests that to the extent the 
costs of providing traditional TRS may be higher, it is likely because 
of inefficiencies, and the Commission should not reward inefficient 
providers. Nordia asserts that the Commission should not adopt separate 
rates without giving prior notice.
    Sprint, Ultratec and CSD urge the Commission to adopt separate 
compensation rates for these services. They maintain that compensating 
these services at the same rate is no longer warranted. (Although in 
its comments to the 2004 TRS Report & Order's FNPRM Sprint stated that 
the two services should be compensated at the same rate, in its 
subsequent comments in response to the Public Notice Sprint asserts 
that ``given the cost differentials in providing traditional TRS and 
[IP Relay] service, a merged rate can no longer be justified.'') Sprint 
notes that the average costs per-minute of traditional TRS is 
significantly more than for IP Relay, and asserts that this is because 
many mandatory minimum standards are waived for IP Relay and IP Relay 
providers avoid access charges. Sprint argues that unless the rates are 
separate, IP Relay providers ``will continue to receive a windfall'' 
while traditional TRS providers ``will continue to lose money on every 
traditional TRS minute carried.'' Ultratec similarly asserts the 
combined rate fails to compensate traditional TRS providers for their 
reasonable costs, and that separate rates should be adopted that 
reflect the average actual costs associated with each of these 
services. CSD also asserts that so long as the costs for providing each 
of these services differ, ``it makes little more sense to use a single 
rate for their reimbursement.''
    We concluded that traditional TRS and IP Relay should be 
compensated at separate rates based on the cost and demand projections 
specific to these services. NECA's filing indicates that IP Relay costs 
are approximately 11 percent less than traditional TRS. As NECA 
indicates, for the 2005-2006 Fund year, the average cost per-minute for 
IP Relay is $0.162 less than the average cost per-minute of traditional 
TRS. We do not believe that it is fair or reasonable to use a combined 
rate ($1.312) that overcompensates IP Relay providers (by $0.034 per-
minute) and under-compensates traditional TRS providers (by $0.128 per-
minute). We also agree with CSD that the dispositive consideration is 
not whether adopting separate rates would reduce the size of the 
Interstate TRS Fund, but rather whether a particular rate compensates 
providers for the reasonable costs of providing the service. As an 
immediate matter, NECA indicates that the

[[Page 38138]]

adoption of the separate rates for traditional TRS and IP Relay would 
have no material effect on the size of the fund. However, because the 
growth of IP Relay will likely outpace the growth of traditional TRS, 
over the long-term adopting separate rates will likely lead to a 
decrease in the size of the Fund. We therefore adopt separate rates for 
traditional TRS and IP Relay, and instruct NECA to calculate and 
propose separate rates for these services in the future. (In its 
comments, Hamilton urges the Commission to reject a ``rate of return'' 
cost recovery methodology for traditional TRS and IP Relay and instead 
adopt its ``MARS'' plan, which it proposed in its petition for 
reconsideration (filed October 1, 2004) of the 2004 TRS Report & Order. 
Under the MARS plan, the interstate TRS rate would be calculated based 
on an average of the intrastate TRS rates paid by the states. Hamilton 
requests that the Commission seek comment on the MARS plan when it 
adopts the 2005-2006 TRS rates. MCI also states that the Commission 
should adopt the MARS plan. AT&T also urges the Commission to consider 
adopting this plan. We will raise the issue of adopting the MARS plan 
in a future notice of proposed rulemaking.

Compensation Rate for Traditional TRS

    We conclude that traditional TRS shall be compensated at $1.440 
per-minute. This is consistent with NECA's calculation based on the 
providers' projected cost and demand specific to traditional TRS. This 
rate is determined by dividing the providers' total projected 
interstate costs for traditional TRS of $68,084,670 by the providers' 
total projected interstate minutes of traditional TRS of 47,948,559, 
and applying the 1.4% rate of return for an allowance for working 
capital to the resulting average cost per minute. We have reviewed 
NECA's rate and its analysis of the relevant underlying data particular 
to traditional TRS. We find that NECA's calculations with respect to 
this service are reasonable. Therefore, we adopt a compensation rate 
for eligible traditional TRS calls of $1.440 per-minute for the period 
of July 2005 through June 2006. (The compensation rate for traditional 
TRS shall be effective upon publication of this Order in the Federal 
Register. Until such time, providers of traditional TRS shall be 
compensated at the 2004-2005 rate of $1.398).

Compensation Rate for IP Relay

    We conclude that IP Relay shall be compensated at $1.278 per-
minute. This is consistent with NECA's calculation based on the 
providers' projected cost and demand specific to IP Relay. This rate is 
determined by dividing the providers' total projected costs for IP 
Relay of $230,866,685 by the provider's total projected minutes of IP 
Relay of 183,164,118, and applying the 1.4% rate of return for an 
allowance for working capital to the resulting average cost per minute. 
We have reviewed NECA's proposed rate and its analysis of the relevant 
underlying data particular to IP Relay. We find that NECA's 
calculations with respect to this service are reasonable. Therefore, we 
adopt a compensation rate for eligible traditional IP Relay calls of 
$1.278 per-minute for the period of July 2005 through June 2006. (The 
compensation rate for IP Relay shall be effective upon publication of 
this Order in the Federal Register. Until such time, providers of IP 
Relay shall be compensated at the 2004-2005 rate of $1.398).

Compensation Rate for Video Relay Service (VRS)

    We conclude that VRS shall be compensated at $6.644 per-minute. 
NECA indicates that its proposed rate of $5.924 per-minute appears to 
be driven by the costs and demand data of one provider, and that if the 
data from this provider was excluded the rate would be $7.061. NECA 
also notes that the Council expressed concern over the proposed rate 
and the effect one provider had on the rate, and that there are several 
open issues with respect to VRS service that might affect the rate. 
(These issues are speed of answer and interoperability). Accordingly, 
NECA suggests that the Commission may wish to explore alternatives to 
the traditional rate calculation for VRS. No commenter filed comments 
in support of NECA's proposed rate.
    In response to NECA's filing, several commenters urge the 
Commission to reject the proposed VRS rate of $5.924 and adopt a higher 
alternative rate that is more representative of the majority of the 
providers' costs in providing this service. Hands On, and TDI/DHHCAN 
assert that the proposed rate is skewed artificially low because there 
is currently no speed of answer or interoperability requirement, 
results in higher costs to those providers that do provide a faster 
speed of answer and interoperable service. TDI/DHHCAN also asserts that 
NECA's proposed compensation rate may result in a reduction of the 
availability of the service, which would be contrary to the functional 
equivalency requirements of the ADA. Hands On and CSD further assert 
that the proposed rate would adversely affect service quality. CSD also 
asserts that the proposed rate will reduce competition because the non-
dominant providers will be forced to reduce the quality of their 
service and therefore will be even less able to compete with the 
dominant provider.
    Hands On proposes several alternative ways to calculate the VRS 
rate. These alternatives include: a weighted average that excludes the 
dominant provider, which results in a rate of $7.061 (this is the 
alternative rate proposed in NECA filing); the median cost rate of all 
of the providers that submitted data, which results in a rate of 
$6.644; a weighted average that excludes the data of the high cost and 
low cost providers, which results in a rate of approximately $7.00; and 
a non-weighted average that includes all providers, which results in a 
rate of $7.325. In Hand On's view, the ``most appropriate methodology 
is to use the weighted average method, but with the elimination of the 
low and high cost providers' estimates.'' CSD also proposes alternative 
VRS rate calculations that exclude the dominant provider's data, use a 
non-weighted average of all providers' data, or tie the VRS 
compensation rate to service levels. CSD suggests that one of these 
alternatives could be implemented on an interim basis until the 
Commission adopts service level standards (e.g., speed of answer). TDI/
DHHCAN proposes that the Commission adopt the rate of $7.061 that 
derived by excluding the data of the largest provider. Hands On asserts 
that ``[a]ny of these alternatives rate calculations would be 
appropriate for the Commission to adopt on an interim basis pending 
action on outstanding [issues], including * * * answer speed and 
interoperability.'' Hands On also suggests that the Commission could 
adopt VRS rates that vary depending on the provider's speed of answer. 
Hands On asserts that such an approach would ensure that providers that 
lower costs (presumably because they employ fewer VRS CAs and therefore 
and have longer speed of answer times) will not be overcompensated. 
Sorenson, in its reply comments, asserts that adoption of Hands On's 
proposed plan would be premature until the Commission establishes a 
speed of answer requirement for VRS. Because the speed of answer 
requirement for VRS is presently waived, and the issue of a speed of 
answer requirement for VRS is pending before the Commission, we decline 
to adopt this proposal at this time.
    We conclude that under the present circumstances, given the lack of 
certain standards for VRS, NECA's proposed VRS compensation rate of 
$5.924 would

[[Page 38139]]

not be a fair and reasonable compensation rate for VRS providers. 
Therefore, we do not adopt that rate, but instead adopt a rate of 
$6.644 per-minute for the 2005-2006 Fund year. This rate reflects the 
median rate of the individual rates of the seven VRS providers that 
submitted cost and demand data.
    We conclude that the median rate is the most appropriate rate for 
2005-2006 Fund year. This rate is closest to a majority of the 
providers' proposed rates and is a better indicator of reasonable costs 
in this unique situation, where there are several pending issues under 
consideration impacting providers' costs. As we have noted, the 
Commission's rules mandate that providers be compensated for the 
``reasonable'' costs of providing service. (See 47 CFR 
64.604(c)(5)(iii)(E)). The record reflects that the ``reasonableness'' 
of costs will vary depending on the level of service provided. Because 
of open quality of service issues such as speed of answer and 
interoperability, the record reflects that the providers may not be 
offering consumers the same level of service. In these circumstances, 
where NECA's proposed rate was calculated at a time when certain key 
VRS rules are in flux, and where services are being provided at various 
levels of service quality, we believe that an alternative compensation 
rate is appropriate. We are concerned that both the overall quality and 
availability of the service may suffer under NECA's proposed rate.
    In these circumstances, we reject NECA's proposed rate. On the 
present record, we find that a compensation rate based on the weighted 
average of the providers' costs would not fairly reflect the reasonable 
costs of providing service. As NECA and commenters have noted, NECA's 
proposed rate is below the rate of all providers except the one 
dominant, low cost provider. (To determine a per-minute compensation 
rate that reflects reasonable costs, the Commission has used providers' 
projected costs and minutes of use data to determine a weighted 
average. As a result, the rate does not correlate with any provider's 
actual costs--it simply represents one estimate of what a reasonable 
compensation should be to fairly compensate all providers. The rate 
will, necessarily, result in some providers being over-compensation and 
some providers being under-compensated. In the past, the relative level 
of compensation as it affects each of the providers has not been an 
issue, likely because market share was more evenly divided and 
providers' level of service was similar). Therefore, under NECA's 
proposed rate, all of the providers except the one dominant, low-cost 
provider will lose money on every minute of call carried. We also note 
that all commenters on this issue assert that NECA's proposed rate is 
too low and unfair, and that the Interstate TRS Fund Advisory Council 
has expressed similar concerns. Finally, we recognize that the 
Commission has not yet settled on a cost recovery methodology for VRS, 
and that this issue remains open. We conclude that the median rate of 
$6.644 per-minute represents a just and reasonable rate for 
compensating providers of VRS. That rate is closest to a majority of 
the providers' proposed rates, and will result (by definition) in the 
same number of providers having costs above the rate as below the rate. 
That rate is also supported by at least one commenter. We therefore 
adopt a VRS compensation rate of $6.644 per-minute for the period of 
July 2005 through June 2006. (Because of the open ``quality of 
service'' issues regarding VRS, including speed of answer, 
interoperability, and whether the service should be required to be 
offered 24 hours a day, 7 days a week, the Commission may revisit the 
VRS compensation rate for the 2005-2006 Fund year, if new rules are 
adopted in these areas that would affect the cost of providing service. 
Moreover, we emphasize that the Commission's conclusion with respect to 
the VRS rate in this Order is based on the unique circumstances of the 
present record.

Interstate TRS Fund Size and Carrier Contribution Rate

    We adopt a total Interstate TRS Fund size of $441,493,869 and a 
carrier contribution factor of 0.00564 for the July 2005 through June 
2006 Fund year. (We recognize that adopting a VRS rate of $6.644, 
rather than $5.924, increases the size of the Fund by approximately $28 
million (or nearly 7 percent). Although we remain concerned about the 
rapid growth in the size of the Fund, we are obligated to ensure that 
providers are compensated for their reasonable costs. We also note that 
the rate of $6.644 is significantly less than the previous rate of 
$7.596. Moreover, the size of the Fund is largely driven by the 
steadily increasing demand for IP Relay and VRS, all of which calls are 
currently compensated from the Fund). That figure reflects the funds 
necessary to compensate providers for projected eligible minutes of use 
for the various forms of TRS, a 10 percent safety margin, and NECA's 
administrative costs, less interest income, and is based on the rates 
adopted in this Order.
    AT&T asserts that NECA has overstated the Fund size by inflating 
demand projections. AT&T notes that NECA applied a growth rate based on 
a four-month period (October 2004 through January 2005), and argues 
that projecting demand based on this ``arbitrary'' four-month period 
has inflated the Fund size by $43 million. AT&T asserts that NECA 
should have developed a growth rate based on the prior twelve-month 
period. AT&T also argues that NECA's inclusion of a 10 percent ``safety 
margin'' to cover possible shortfalls is unwarranted, excessive, and 
unnecessary, and that instead, NECA should request additional funding 
if and when there is such a shortfall.
    CSD, Hands On, and NECA filed reply comments in response to AT&T 
assertions. First, NECA explains that it used this four-month period to 
establish a growth rate because of changes in the relay service 
marketplace and anomalies in the minutes of use for certain months in 
the prior twelve-month period. NECA notes, for example, that because of 
the projected increased use of captioned telephone, it believes minutes 
of use of traditional TRS will increase, but that reliance on the 
historic twelve-month period would result in a decrease. NECA further 
notes that there were two months in which the minutes of use for IP 
Relay and VRS were uncharacteristically low, and that therefore use of 
a twelve-month growth period that includes these month's results in a 
growth rate that is significantly below the overall historic growth 
rate. As a result, NECA asserts that its usage projection is ``far more 
reasonable'' than using an historic twelve-month period as AT&T 
proposes. CSD and Hands On agree that NECA's reliance on the four-month 
period to project minutes of use was appropriate because of the 
increased use of new technologies and the need for adequate funding as 
demand for these new services continues to increase. In its comments, 
Hamilton asserts that the significant increase in demand for IP Relay 
and VRS merit an increase in the overall fund size.
    Second, NECA explains that it has used a 10 percent safety margin 
every year since its first filing in 1994, ``to insure smooth, 
efficient operation of the fund and to minimize the need for subsequent 
fund size revisions.'' (We note that NECA has not always referred to 
this margin as a ``safety margin,'' but as, e.g., an ``uncollectable 
allowance''). NECA also notes that unanticipated growth in the minutes 
of use required an additional assessment during the 2003-2004 Fund 
year, that in December

[[Page 38140]]

2004 the Commission increased the compensation rates retroactively to 
the beginning of the Fund year, and that minutes of use continue to 
grow. (In February 2004, the Commission increased the Fund size and 
carrier contribution factor because of the growth of IP Relay and VRS. 
See Telecommunications Relay Services and Speech-to-Speech Services for 
Individuals with Hearing and Speech Disabilities, Order, CC Docket No. 
98-67, DA 04-465 (Feb. 24, 2004)). In these circumstances, NECA 
suggests that a 10 percent safety margin is prudent, and will obviate 
the possibility that NECA will have to bill and collect additional 
funds from over 4,300 contributors.
    Under these circumstances, we find that NECK's use of a four-month 
period to project demand and the inclusion of a 10 percent safety 
margin are reasonable. As NECA explains in its filing and reply 
comments, it used a four-month period to determine the growth rate for 
traditional TRS because that period reflected a steady growth in 
minutes of use, whereas in prior months traditional TRS minutes 
fluctuated up and down from month to month. It also reasonably believes 
that traditional TRS minutes will increase in the 2005-2006 Fund year, 
because of the growth in the use of captioned telephone service. NECA 
also explains that it used this same four-month growth period for STS 
because ``a clear growth rate has not been discernable either annually 
or monthly,'' and for IP Relay and VRS because there is limited 
historical data for those services. In addition, NECA explains that for 
IP Relay, there was steady growth in that period compared to 
fluctuations in prior months. We find NECA's approach to be reasonable, 
particularly in view of the overall steady growth in the use of the two 
Internet-based forms of TRS, IP Relay and VRS. (NECA notes that 
``continued strong growth or Internet and video relay services, and the 
anticipated growth of captioned telephone VCO minutes''.
    We also conclude that NECA's inclusion of the 10 percent safety 
margin is reasonable and appropriate given the continued growth in the 
overall minutes of use and the desire to avoid having to increase the 
Fund size and see additional contributions in the middle of a Fund 
year.

Other Issues

    Commenters raise two other issues relating the funding mechanism 
for TRS. First, AT&T argues that the Commission should eliminate the 
ability of local exchange carriers (LEGs) to recover their Interstate 
TRS Fund contributions through carrier access charges. AT&T notes that 
raised this issue in 2003, but that in the 2003 Bureau TRS Order the 
Bureau stated that the rate order was not the appropriate proceeding in 
which to address this issue. AT&T now asserts that this charge should 
be eliminated ``either in a separate proceeding or as part of the 
Commission's comprehensive reform of intercarrier compensation.'' In 
reply comments, NECA and Verizon assert that AT&T's argument is not 
germane to this proceeding. Verizon also asserts that, in any event, it 
is neither unlawful nor inappropriate to require access customers to 
pay a portion of a LEC's Interstate TRS Fund contribution. We again 
conclude, as the Bureau did in the 2003 Bureau TRS Order, that this 
issue falls outside the scope of this proceeding.
    Second, Telco Group asserts that international revenues should be 
excluded from the revenue base used to calculate payments due the 
Interstate TRS Fund, ``at least for those carriers whose international 
revenues comprise a significant proportion of their total interstate 
and international revenues.'' As it notes, Telco Group filed a petition 
for a declaratory ruling on this issue, on which the Commission sought 
comment by public notice. (See Telco Group, Inc. Files Petition for 
Declaratory Ruling or Waiver to Exclude International Revenues from the 
Revenue Base Used to Calculate Payment to the Interstate TRS Fund, 
Public Notice, CC Docket No. 98-67, DA 04-3352 (Oct. 25, 2004), 
published at 69 FR 64573, November 4, 2004). Accordingly, this issue 
will be addressed by the Commission in that proceeding.

Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980, as amended (RFA), (the RFA, 
see 5 U.S.C. 601 et seq., has been amended by the Contract with America 
Advancement Act of 1996, Public Law Number 103-121, 110 Statue 847 
(1996) (CWAAA). Title II of the CWAAA is the Small Business Regulatory 
Enforcement Act of 1996 (SBREFA00, requires that a regulatory 
flexibility analysis be prepared for rulemaking proceedings, unless the 
agency certifies that ``the rule will not have a significant economic 
impact on a substantial number of small entities.'' (5 U.S.C. 605(b)0. 
The RFA generally defines ``small entity'' as having the same meaning 
as the terms ``small business,'' ``small organization,'' and ``small 
governmental jurisdiction.'' (5 U.S.C. 605(b)) In addition, the term 
``small business'' has the same meaning as the term ``small business 
concern'' under the Small Business Act. (5 U.S.C. 601(3) (incorporating 
by reference the definition of ``small business concern'' in the Small 
Business Act, 15 U.S.C. 632). Pursuant to 5 U.S.C. 601(3), the 
statutory definition of a small business applies ``unless and agency, 
after consultation with the Office of Advocacy of the Small Business 
Administration and after opportunity for public comments, establishes 
one or more definitions of such term which are appropriate to the 
activities of the agency and publishes such definition(s) in the 
Federal Register). A small business concern is one which: (1) Is 
independently owned and operated; (2) is not dominate in its field of 
operation; and (3) satisfies any additional criteria established by the 
Small Business Administration.
    The Commission concludes in this item that the public interest is 
best served by requiring and adopting separate compensation rates for 
traditional TRS and IP Relay based on the cost and demand data 
submitted by providers unique to those services. The Commission 
believes that it would be unfair to continue to use a combined rate to 
compensate providers of traditional TRS and IP Relay when doing so will 
result in IP Relay providers being over-compensated, and traditional 
TRS providers being under-compensated.
    This item affects providers of traditional TRS and IP Relay 
providers, but imposes no regulatory burden upon them. Currently, only 
seven providers are providing traditional TRS and being compensated 
from the Interstate TRS Fund: Ameritech, AT&T, Hamilton, Kansas Relay 
Service Inc., MCI, Nordia, and Sprint. Presently, only six entities are 
providing IP Relay and being compensated from the Interstate TRS Fund: 
AT&T, Hamilton, MCI, Sprint, Nordia, and Sorenson. In addition, this 
item imposes no significant economic impact on small entities. Although 
the six IP Relay providers will receive less compensation as a result 
of the rule adopted in this Order, the seven providers of traditional 
TRS will benefit by receiving more compensation for providing this 
service.
    Therefore, certification is in order since both prongs of the legal 
test--i.e., (a) no significant economic impact; and (b) no impact upon 
a substantial number of small entities--are satisfied. Most of the 
entities affected by the item are not small entities, and there is no 
significant economic impact because the result of the Order is to 
confer as much of an economic benefit as an economic disadvantage. 
Furthermore, there are not a substantial number of small entities 
affected by this Order. Accordingly, the

[[Page 38141]]

Commission certifies that the requirements of this Order will not have 
a significant economic impact on a substantial number of small 
entities.

Ordering Clauses

    Pursuant to the authority contained in Sec. Sec.  1, 2, and 225 of 
the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, and 
225, that this order is hereby adopted.
    NECA shall compensate providers of Speech-to-Speech relay service 
(STS) and Video Relay Service (VRS) for the July 1, 2005 through June 
30, 2006 Fund year at the following rates: STS providers--$1.579 per 
completed interstate conversation minute; and VRS providers--$6.644 per 
completed interstate and intrastate conversation minute.
    NECA shall compensate providers of traditional telecommunications 
relay service (TRS) and IP Relay, effective upon publication of this 
Order in the Federal Register for the July 1, 2005 through June 30, 
2006 Fund year, at the following rates: traditional TRS providers--
$1.440 per completed interstate conversation minute; IP Relay 
providers--$1.278 per completed interstate and intrastate conversation 
minute. (Because TRS payment formulas are to be effective for a one-
year period beginning July 1 under 47 CFR 64.604(c)(5)(iii)(H), we find 
good cause, pursuant to 5 U.S.C.553(d), to make this Order effective on 
less than thirty days notice). Prior to publication of this Order in 
the Federal Register, NECA shall compensate providers of traditional 
TRS and IP Relay at the 2004-2005 Fund year rate.
    The Interstate TRS Fund size shall be $441,493,869 and the carrier 
contribution factor shall be 0.00564, for the July 1, 2005, through 
June 30, 2006, Fund year.
    The Commission will not send a copy of this Order to Congress and 
the Government Accountability Office pursuant to the Congressional 
Review Act of 1996 because this is a rule of particular applicability 
adopting the annual TRS provider compensation rates. (See 5 U.S.C. 
801(a)(I)(A)).

    Federal Communications Commission.
Marlene H. Dortch,
Secretary
[FR Doc. 05-13149 Filed 6-30-05; 8:45 am]
BILLING CODE 6712-01-M