[Federal Register Volume 71, Number 158 (Wednesday, August 16, 2006)]
[Rules and Regulations]
[Pages 47145-47150]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-13490]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 64

[CG Docket No. 03-123; FCC 06-88]


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

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission denies the applications for 
review and affirms the per-minute compensation rate for Video Relay 
Service (VRS) adopted by the Consumer and Governmental Affairs Bureau 
for the 2004-2005 fund year. Three parties filed applications for 
review challenging the per minute compensation rate for VRS, a form of 
telecommunications relay service (TRS).

DATES: Effective August 16, 2006.

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

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

SUPPLEMENTARY INFORMATION: This document does not contain new or 
modified information collection requirements subject to the PRA of 
1995, 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 106-198, see 44 U.S.C. 
3506(c)(4). This is a summary of the Commission's document FCC 06-88, 
Telecommunications Relay Services and Speech-to-Speech Services for 
Individuals with Hearing and Speech Disabilities, Memorandum Opinion 
and Order, CG Docket No. 03-123, adopted June 20, 2006, released July 
12, 2006 denying the applications for review filed by Communication 
Services for the Deaf, Inc. (CSD) on July 26, 2004, the National Video 
Relay Service Coalition (NVRSC) on July 20, 2004, and Hands On Video 
Relay Services, Inc. (Hands On) on July 20, 2004. The applications for 
review challenge the per-minute compensation rate for Video Relay 
Service adopted in the Telecommunications Relay Services and Speech-to-
Speech Services for Individuals with Hearing and Speech Disabilities, 
Order, (2004 Bureau TRS Rate Order), CC Docket No. 98-67, DA 04-1999, 
19 FCC Rcd 12224, released June 30, 2004. This order was later modified 
in the Telecommunications Relay Services and Speech-to-Speech Services 
for Individuals with Hearing and Speech Disabilities, Order, (Modified 
2004 Bureau TRS Rate Order), CC Docket No. 98-67, DA 04-4063, 19 FCC 
Rcd 24981, released December 30, 2004.
    The full text of document FCC 06-88 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., Room CY-A257, 
Washington, DC 20554. Document FCC 06-88 and copies of subsequently 
filed documents in this matter may also be purchased from the 
Commission's duplicating contractor at Portals II, 445 12th Street, 
SW., Room CY-B402, Washington, DC 20554. Customers may contact the 
Commission's duplicating contractor 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 and Governmental Affairs Bureau at (202) 418-0530 
(voice), (202) 418-0432 (TTY). Document FCC 06-88 can also be 
downloaded in Word or Portable Document Format (PDF) at: http://www.fcc.gov/cgb/dro.

Synopsis

Background

TRS Cost Recovery Framework
    TRS. Title IV of the Americans with Disabilities Act of 1990 (ADA) 
requires common carriers offering ``telephone voice transmission 
services'' to also provide TRS throughout the area in which they offer 
service so that persons with hearing and speech disabilities will have 
access to the telephone system. 47 U.S.C. 225(c). The statute also 
mandates that eligible TRS providers be compensated for their costs

[[Page 47146]]

of doing so. 47 U.S.C. 225(d)(3). As the Commission has explained, 
however, the cost recovery framework--and the annual determination of 
the TRS compensation rates--``is not akin to a ratemaking process that 
determines the charges a regulated entity may charge its customers,'' 
but rather is intended to ``cover the reasonable costs incurred in 
providing the TRS services mandated by Congress and the Commission's 
regulations.'' 2004 TRS Report and Order, 19 FCC Rcd 12543, paragraph 
179; published at 69 FR 53346, September 1, 2004; see generally 47 CFR 
64.604(c)(5)(iii)(E) of the Commission's rules (providers shall be 
compensated for the ``reasonable costs'' of providing TRS).
    VRS. In 2000, the Commission recognized VRS as a form of TRS 
eligible for compensation from the Interstate TRS Fund. See 
Telecommunications Relay Services and Speech-to-Speech Services for 
Individuals with Hearing and Speech Disabilities, CC Docket No. 98-67, 
Report and Order and Further Notice of Proposed Rulemaking, 15 FCC Rcd 
5140, 5152-5154, paragraphs 21-27 (March 6, 2000) (Improved TRS Order 
and FNPRM) (recognizing VRS as a form of TRS), published at 65 FR 
38432, June 21, 2000 and 65 FR 38490, June 21, 2000; 47 CFR 64.601(17). 
Presently, all VRS calls are compensated from the Interstate TRS Fund. 
See Improved TRS Order and FNPRM, 15 FCC Rcd 5154, paragraphs 26-27. As 
most frequently used, VRS allows a deaf person whose native language is 
American Sign Language (ASL) to communicate in ASL with the 
communications assistant (CA), a qualified interpreter, through a video 
link; the CA, in turn, places an outbound telephone call to a hearing 
person. During the call, the CA communicates in ASL with the deaf 
person and by voice with the hearing person. VRS calls reflect a degree 
of ``functional equivalency'' unimaginable in a solely text-based TRS 
world. As the following figures for approximate monthly minutes of use 
of VRS demonstrate, usage continues to rise: May 2003--189,422; July 
2004--900,000; December 2005--3.1 million.
    Cost Recovery. Section 225 of the Communications Act, provides that 
the costs of providing interstate TRS ``shall be recovered from all 
subscribers for every interstate service.'' 47 U.S.C. 225(d)(3)(B). 
This mandate requires both collecting contributions to establish a fund 
(the Interstate TRS Fund) from which TRS providers can be compensated, 
and paying money from the Fund to eligible providers for their 
provision of eligible TRS services. See generally 47 CFR 
64.604(c)(5)(iii)(A) and (E) of the Commission's rules. These duties 
are performed by the Interstate TRS Fund administrator, selected by, 
and under the direction of, the Commission. See 47 CFR 
64.604(c)(5)(iii) of the Commission's rules. The current Interstate TRS 
Fund administrator is the National Exchange Carrier Association (NECA).
    The TRS fund administrator makes payments to eligible providers 
based on per-minute compensation rates for traditional TRS, IP Relay, 
Speech-to-Speech (STS), and VRS. The compensation rates are set on an 
annual basis through a two-stage process. First, the TRS fund 
administrator requests and collects projected cost and demand (i.e., 
minutes of use) data from the providers. See 47 CFR 
64.604(c)(5)(iii)(C) of the Commission's rules. The fund administrator 
then uses this data to propose compensation rates to the Commission for 
the particular fund year. The proposed rates are intended to compensate 
the providers for their ``reasonable'' costs of providing TRS. Second, 
the Commission reviews the proposed rates and, in adopting compensation 
rates for the ensuing fund year, may approve or modify the proposed 
rates. See generally Telecommunications Relay Services and the 
Americans with Disabilities Act of 1990, CC Docket No. 90-571, Third 
Report and Order, 8 FCC Rcd 5300, 5305, paragraph 30 (July 20, 1993); 
published at 58 FR 39671, July 26, 1993 (the TRS rate calculated by the 
administrator ``shall be subject to Commission approval'').
    The fund administrator may ``examine, verify, and audit data 
received from TRS providers as necessary to assure the accuracy and 
integrity of fund payments.'' 47 CFR 64.604(c)(5)(iii)(c) of the 
Commission's rules. The fund administrator therefore has the 
responsibility, in the first instance, to ensure the accuracy and 
reasonableness of the cost and demand data submitted by the providers 
so that its proposed rates will be based on permissible costs 
consistent with the TRS regulations and prior Commission orders.
    Once the fund administrator reviews the submitted projected costs 
and minutes of use, it calculates per-minute compensation rates based 
on data submitted (or modified, as necessary). As NECA has explained, 
NECA calculates a national average cost per minute of use. It does so 
by totaling projected costs and minutes of use for all providers for a 
two year period, and then dividing each sum (costs and minutes) by two. 
Then the average costs are divided by the average minutes to determine 
the average cost per minute. See NECA, Interstate Telecommunications 
Relay Services Fund Payment Formula and Fund Size Estimate, filed April 
25, 2005, at 9 and Appendix 1E. The fund administrator then files these 
proposed rates with the Commission, and they are placed on public 
notice. See, e.g., National Exchange Carrier Association (NECA) Submits 
the Payment Formula and Fund Size Estimate for Interstate 
Telecommunications Relay Services (TRS) Fund for July 2005 Through June 
2006, CC Docket No. 98-67, Public Notice, DA 05-1175 (April 28, 2005); 
published at 70 FR 24790, May 11, 2005 (2005 TRS Rate Notice). The 
Commission reviews the fund administrator's proposed rates, the basis 
for those rates, and any comments received, and by June 30 issues an 
order adopting the TRS compensation rates for the following July 1 to 
June 30 fund year.
    If either the fund administrator or the Commission disallows any of 
a provider's submitted costs, the provider has the opportunity to 
contest the disallowances before they are finalized. Because of 
confidentiality issues, this is generally done either in a telephone 
conversation or in an individual meeting with each provider. The 
precise process by which the providers' challenges to cost 
disallowances have been handled has varied, depending in part on 
whether the fund administrator or the Bureau has made the disallowance. 
The providers may further challenge the adopted rates, including any 
cost disallowances, by seeking review of the rate order, as was done in 
this proceeding. A rate order may also be challenged by filing a 
petition for reconsideration, as was done with respect to the 2003 
Bureau TRS Order. Telecommunications Relay Services and Speech-to-
Speech Services for Individuals with Hearing and Speech Disabilities, 
Order, CC Docket No. 98-67; DA 03-2111, 18 FCC Rcd 12823 (June 30, 
2003) (2003 Bureau TRS Order). Those petitions were resolved in the 
2004 TRS Report and Order, 19 FCC Rcd at 12537-12552, paragraphs 163-
200. Since 1993, the Commission has released orders at least annually 
setting forth the per-minute compensation rates for the various forms 
of TRS. The Commission released the first rate order on September 29, 
1993. See Telecommunications Relay Services, and the Americans with 
Disabilities Act of 1990, Second Order on Reconsideration and Fourth 
Report and Order, CC Docket No. 90-571; published

[[Page 47147]]

at 58 FR 53663, October 18, 1993. Subsequent rate orders have been 
released at the bureau level, with the exception of the 2005 TRS Rate 
Order. See 2004 Bureau TRS Order, 19 FCC Rcd 12231, paragraph 17, note 
56 (listing rate orders); 2005 TRS Rate Order.
Applications for Review
    On June 30, 2004, the Bureau released the 2004 Bureau TRS Order, 
which adopted NECA's proposed TRS per-minute compensation rates for 
traditional TRS and IP Relay, STS, and VRS, for the 2004-2005 fund 
year. 2004 Bureau TRS Order, 19 FCC Rcd 12224. These rates, however, 
were subject to revision based on review of: ``(1) any supplemental 
cost data relating to capital investment, and (2) any adjustments to 
cost disallowances challenged by a provider in response to this 
Order.'' 2004 Bureau TRS Order, 19 FCC Rcd 12225, paragraph 2. The 
rates were $1.349 per-minute for interstate traditional TRS and 
interstate and intrastate IP Relay, $1.440 per-minute for interstate 
STS, and $7.293 per-minute for interstate and intrastate VRS. In 
calculating these rates, NECA disallowed certain costs submitted by 
some of the providers for each of the TRS services. See 2004 Bureau TRS 
Order, 19 FCC Rcd 12232-12234, paragraphs 18-19 (traditional TRS and IP 
Relay), 22 (STS), and 25 (VRS). These rates were modified on December 
30, 2004, by the Modified 2004 Bureau TRS Rate Order. The Bureau also 
approved NECA's proposed Interstate TRS fund size and carrier 
contribution factor. 2004 Bureau TRS Order, 19 FCC Rcd 12224-12225, 
paragraphs 1-2. NECA proposed a total fund size requirement of 
$289,352,701, and a carrier contribution factor of 0.00356.
    In response to the 2004 Bureau TRS Order, some, but not all, of the 
providers elected to submit capital investment data and/or to challenge 
the cost disallowances specific to their filings. These providers 
include Hands On, Sprint, and Hamilton. The Bureau reviewed the data 
submitted, and made appropriate adjustments to the TRS rates. The 
Bureau also reviewed every cost disallowance that was challenged by a 
provider, and added back some costs for some providers for the various 
TRS services. The Bureau offered to meet with any provider that desired 
to review and challenge its cost disallowances, and held several such 
meetings. Because of provider confidentiality issues, the Commission 
can only summarize the cost disallowances and the restoration of 
certain costs. Five providers had costs disallowed. Two of these 
providers elected not to challenge NECA's proposed disallowances; in 
those cases, the disallowed costs were almost entirely profit and tax 
allowances, which do not constitute reasonable costs. See 2004 TRS 
Report and Order, 19 FCC Rcd 12542-12545, paragraphs 177-182 
(``reasonable costs'' do not include a profit or mark-up on expenses). 
With respect to the remaining three providers, one provider had 
approximately 18% of its submitted costs initially disallowed by NECA, 
and approximately 30% of those costs restored; another provider had 
approximately 9% of its submitted costs initially disallowed, and 
approximately 92% of those costs restored; and one provider had 
approximately 3% of its submitted costs initially disallowed, and 
approximately 78% of those costs restored. As a result of these two 
adjustments, the Bureau recalculated the compensation rate for each of 
the TRS services. The Bureau announced that the VRS compensation rate 
would be $7.596 per minute (an increase of $0.303 over NECA's proposed 
rate). See Modified 2004 Bureau TRS Order (effective for the July 1, 
2004, to June 30, 2005, fund year). The other final TRS compensation 
rates were: for eligible traditional TRS and IP Relay, $1.398 per 
minute (an increase of $0.049); for eligible STS, $1.596 per minute (an 
increase of $0.156).
    Three parties challenged the 2004 Bureau TRS Order and the 
determination of the VRS compensation rate. CSD's and NVRSC's filings 
were accompanied by petitions for emergency stay of the 2004 Bureau TRS 
Order. Those petitions sought to have the VRS per-minute compensation 
rate of $8.854, which was adopted as the final VRS rate for the 
September 1, 2003 to June 30, 2004 funding period, apply to the 2004-
2005 fund year, and not the rate of $7.293 adopted in the 2004 Bureau 
TRS Order, until such time as the Commission resolves the applications 
for review and the ``quality issues'' raised in the 2004 TRS Report and 
Order's Further Notice of Proposed Rulemaking (FNPRM). The Commission 
addresses the petitions for stay below, and denies them as moot.
    Hands On makes three arguments related to the process by which NECA 
determined the proposed TRS rates, arguing that: (1) The 2003 Bureau 
TRS Order ``was not a sufficient guide'' for NECA's evaluation of a 
provider's submitted cost data; Hands On Application at 17-18; (2) NECA 
lacked authority to review and disallow submitted cost data; Hands On 
Application at 22-23; and (3) providers did not have the opportunity to 
contest disallowances; Hands On Application at 23-26. Hands On makes 
the related argument that even if the 2003 Bureau TRS Order provided 
sufficient guidance for the determination of the TRS compensation 
rates, NECA did not follow that guidance. CSD asserts that the Bureau 
improperly excluded certain costs in setting the 2004-2005 VRS. CSD 
Application at 2-13. Finally, CSD and the NVRSC argue that the 
determination of the rate is at odds with the mandate that the 
Commission encourage new technology. CSD Application at 13-15; NVRSC 
Application at 7-11; see 47 U.S.C. 225(d)(2).
    Hamilton's application for review challenges the 2004 Bureau TRS 
Order to the extent it ``abandoned the `cost-plus' reimbursement rate 
methodology for traditional TRS.'' Hamilton Application at 1. Hamilton 
notes, however, that this issue is ``inextricably interwoven'' with 
issues presented in the 2004 TRS Report and Order (on which the 2004 
Bureau TRS Order relied), and that it filed the application for review 
``to ensure that the 2004 Bureau TRS Order does not become a final 
order'' before the Commission addresses Hamilton's petition for 
reconsideration of the 2004 TRS Report and Order. Hamilton Application 
at 1-2. Therefore, Hamilton's real challenge is to the Commission's 
2004 TRS Report and Order, not to the 2004 Bureau TRS Order. In these 
circumstances, the Commission denies Hamilton's application for review 
because it does not assert that the Bureau erred in adopting the 2004 
Bureau TRS Order. The Commission will address the pending petitions for 
reconsideration of the 2004 TRS Report and Order in a separate order.

Discussion

The Process of Setting the 2004-2005 VRS Compensation Rate Was Proper
    The Commission finds that the procedural arguments raised by Hands 
On are without merit. NECA properly looked to the prior 2003 Bureau TRS 
Order for guidance in analyzing the submitted costs because that order 
was the most recent pronouncement on the relevant issues. At the time 
NECA filed its proposed 2004-2005 TRS compensation rates with the 
Commission, the 2003 Bureau TRS Order was the only Commission or Bureau 
level order that specifically addressed cost disallowances. The 2003 
Bureau TRS Order reflected the general principle that the providers' 
submitted costs must relate to the ``reasonable'' costs of providing 
TRS, and that the

[[Page 47148]]

Commission has the duty to ensure that costs underlying the 
compensation rates are appropriate under this standard. 2003 Bureau TRS 
Order, 18 FCC Rcd 12834-12836, paragraphs 32-37. The 2003 Bureau TRS 
Order noted categories of submitted costs where the Bureau found that 
certain costs were not reasonable. 2003 Bureau TRS Order, 18 FCC Rcd 
12835, paragraph 34 (profit calculations, taxes, and labor costs are 
unreasonable). That order made clear that because of confidentiality 
concerns, the cost disallowances would be addressed individually with 
the providers. 2003 Bureau TRS Order, 18 FCC Rcd 12835, paragraph 33 
and note 91. Hands On contends that the 2003 Bureau TRS Order did not 
sufficiently detail permissible costs, and as a result, NECA's cost 
adjustments were an unreliable basis for the Bureau's evaluation of its 
proposed rates. Hands On Application at 18-21. Hands On asserts, for 
example, that NECA did not sufficiently explain in its May 3, 2004, 
filing why it made the cost adjustments that it did, and did not tie 
those adjustments to the 2003 Bureau TRS Order. Hands On Application at 
19. As the Commission has noted, however, NECA's proposed rates are 
reviewed by the Bureau, which makes an independent determination of the 
appropriate TRS compensation rates. See paragraphs 5-8. Hands On 
acknowledges that the regulations specifically permit the fund 
administrator to examine, verify, and audit data it receives from the 
providers, but asserts that the regulations do not permit the fund 
administrator ``to exclude categories of costs or to substitute its 
judgment for the good faith judgment of the providers.'' Hands On 
Application at 23. The Commission disagrees. It is the fund 
administrator's role to request and collect the providers' cost and 
demand data, to review that data for compliance with the Commission's 
rules, and to propose compensation rates to the Commission based on 
that data. See 2004 Bureau TRS Order, 19 FCC Rcd 12239, paragraph 40 
(rejecting the notion that NECA cannot make adjustments to cost data in 
proposing rates to the Commission). In so doing, the fund administrator 
need not defer to the judgment of the providers concerning what are 
allowable costs; indeed, such an arrangement would be an abdication of 
the administrator's role in overseeing the integrity of the fund.
    Hands On further states that even if NECA has the authority to 
review and disallow submitted cost data, it must give the providers an 
opportunity to contest the disallowances. The Commission agrees. 
Indeed, NECA did discuss possible cost adjustments with the providers, 
including Hands On, before it submitted its proposed rates to the 
Commission. See 2004 Bureau TRS Order, 19 FCC Rcd 12229, paragraph 13 
and note 43 (also citing NECA filing). NECA also provided the 
Commission with the details of its cost disallowances for each 
provider. See Hands On Supplement to Application for Review at 1-2 
(noting meetings between the Bureau and Hands On addressing its cost 
disallowances); see also Ex parte letter from George L. Lyon, Jr., 
Counsel for Hands On, CC Docket No, 98-67 (filed October 25, 2004). In 
addition, the Bureau gave each provider, including Hands On, an 
opportunity to review and contest disallowances specific to it. Hands 
On further complains that NECA's report proposing the compensation 
rates to the Commission does not detail individual cost disallowances. 
Hands On Supplement to Application for Review at 23-26; see also Hands 
On Supplement to Application for Review at 2 (asserting that all 
elements of rate determination, including all of the providers' cost 
disallowances, must be on the public record). The Bureau reviewed Hands 
On's cost disallowances with Hands On in great detail in meetings and 
over the telephone, and as a result, the Bureau restored nearly one-
third of the costs initially disallowed. Hands On's challenges to those 
disallowed costs not restored are addressed below. See paragraph 17. 
Because of confidentiality issues, all cost disallowances are not 
shared with all providers. See generally 2004 Bureau TRS Order, 19 FCC 
Rcd 12239, paragraph 39 (noting that NECA cannot detail all cost 
disallowances because of confidentiality issues); see 47 CFR 
64.604(c)(5)(iii)(I) of the Commission's rules (requiring the fund 
administrator to keep the providers' data confidential).
    In sum, neither Hands On, nor any other provider, has been denied a 
meaningful opportunity to challenge any cost disallowances specific to 
it under the procedures outlined above and followed by the fund 
administrator and the Bureau in adopting the 2004-2005 TRS compensation 
rates. NVRSC makes the related argument that the Bureau erred by 
adopting NECA's proposed VRS compensation rate when the Bureau also 
noted it might subsequently modify the rate based on submissions of 
capital investment data and challenges to specific cost disallowances. 
NVRSC Application at 9. The Modified 2004 Bureau TRS Order, however, 
applied the modified VRS rate to the entire 2004-2005 fund year, thus 
ensuring that the compensation rates properly reflected all reasonable 
costs of providing the services. Further, the adoption of the modified 
rate makes NVRSC's argument moot.
The 2004-2005 VRS Rate Properly Excluded Quality of Service Factors
    The Commission rejects claims that the Bureau did not properly 
consider the effect of the VRS rate on the quality of service, and 
should have allowed costs related to waived requirements. See generally 
CSD Application at 3-8; NVRSC Application at 13-15; Hands On 
Application at 4-16. TRS compensation rates are designed to compensate 
providers for the reasonable costs of providing service in compliance 
with non-waived mandatory minimum standards.
    Arguments regarding quality of service generally concern the effect 
of the rate on the ability of providers to offer VRS 24 hours a day, 
seven days a week (24/7), and to promptly answer calls. The Commission 
raised these quality of service issues in the 2004 TRS Report and 
Order's FNPRM, and did not adopt speed of answer and 24/7 service 
requirements for VRS until July 14, 2005. VRS Speed of Answer Order at 
paragraph 1 (the requirements are effective January 1, 2006). The 
Bureau does not have the discretion to include costs in its 
calculations that relate to matters that the Commission has raised only 
in a pending FNPRM, or that the Commission has indicated are not 
appropriate for reimbursement. Such costs include, for example, 
engineering, research and development, or other costs relating to 
enhancements that go beyond the required standards applicable to the 
particular service. 2004 TRS Report and Order, 19 FCC Rcd 12547-12548, 
12551, paragraphs 189-190, 197. The Commission agrees with the Bureau 
that ``providers are not entitled to unlimited financing from the 
Interstate TRS Fund to enable them to further develop a service that is 
not even required.'' 2004 Bureau TRS Order, 19 FCC Rcd 12236, paragraph 
31, note 84. This statement was taken from the Commission's 2004 TRS 
Report and Order. Therefore, CSD's argument is directed not at the 2004 
Bureau TRS Order, but rather the 2004 TRS Report and Order. The 
Commission finds, therefore, that because the Commission had only 
proposed speed of answer and 24/7 service requirements for VRS at the 
time the Bureau adopted the 2004-2005 rate, the Bureau correctly 
excluded costs of meeting such requirements from the 2004-2005 rate 
calculations. Such costs

[[Page 47149]]

may be included in subsequent cost submissions, and the resulting rate 
will reflect reasonable costs incurred to comply with these new 
requirements. CSD makes the related assertion that the VRS rate was 
based on the incorrect assumption that the ``lower'' VRS rate adopted 
for the previous fund year (2003-2004) did not affect the quality of 
VRS service. CSD Application at 8-10; see also NVRSC Application at 15. 
The order itself makes clear, however, that the VRS rate was adopted 
based solely on the projected cost (and demand) data submitted by the 
providers, as modified based on certain disallowances. 2004 Bureau TRS 
Order, 19 FCC Rcd 12242, paragraph 50.
    Section 225 of the Communications Act provides that the Commission 
shall ensure that its TRS regulations encourage the use of existing 
technology and not discourage or impair the development of new 
technology. CSD Application at 13-14. NVRSC asserts the VRS rate is too 
low to allow providers to enhance the quality of the service through 
the development of new and improved technology. NVRSC Application at 8-
10; see generally 47 U.S.C. 225(d)(2). Petitioners argue that, pursuant 
to section 225 of the Communications Act, providers should be 
compensated from the Interstate TRS Fund for research and development 
directed at complying with technical and operational standards that 
have been waived. CSD Application at 13-15; NVRSC Application at 19-20. 
The Commission rejects this argument. As a general matter, the 
Commission believes that the principle recognized in the 2004 TRS 
Report and Order--that compensable costs must be directed to providing 
the service in compliance with applicable non-waived mandatory minimum 
standards 2004 TRS Report and Order, 19 FCC Rcd 12547-12548, paragraphs 
189-190--is consistent with the mandate that the Commission not impair 
the development of new technology. Providers are free to develop new 
TRS features and services to enhance the provision of TRS, and may gain 
a competitive advantage in doing so. But absent more specific direction 
from the Commission resulting from the annual waiver reports or 
information otherwise brought to the Commission's attention, providers 
may not be compensated from the Interstate TRS Fund for research and 
development to meet waived mandatory minimum standards. Moreover, the 
very existence of VRS--and the Commission's adoption of other new forms 
of TRS such as Captioned Telephone service See, e.g., See 
Telecommunications Relay Services and Speech-to-Speech Services for 
Individuals with Hearing and Speech Disabilities, Order, CC Docket No. 
98-67, CG Docket No. 03-123, FCC 05-141; published at 70 FR 54294, 
September 14, 2005 (finding that two-line Captioned Telephone service 
is a type of TRS eligible for compensation from the Interstate TRS 
Fund)--reflect the Commission's faithful adherence to encouraging new 
technologies to meet this statutory mandate.
The Cost Disallowances Related to Installation Were Proper
    The Commission rejects Hands On's assertion that that the 
Interstate TRS Fund should pay for its installation of video cameras 
and VRS software at its customers' premises (which includes on-site 
training) to ensure ``connectivity.'' Hands On Application at 35. Hands 
On's application for review challenges other cost disallowances. See 
Hands On Application at 26-37. Subsequent to the filing of Hands On's 
application for review, however, the Bureau reviewed with Hands On its 
cost disallowances, and ultimately restored approximately 30% of the 
initially disallowed costs. As a result, subsequent to the release of 
the Modified 2004 Bureau TRS Order, Hands On withdrew its objections 
concerning cost disallowances in the areas of accounting staff, 
corporate overhead, operations, software licensing, and general and 
administrative personnel. Hands On Supplement to Application for Review 
at 2-3. Hands On's supplemental filing, however, does not address its 
initial challenges to cost disallowances for engineering personnel. See 
Hands On Application at 30-31. After meetings between the Bureau and 
Hands On, Hands On agreed that some of the excluded engineering 
personnel could be removed, and the Bureau ultimately restored costs 
for some other engineering personnel previously excluded. Therefore, 
issues regarding disallowances for engineering personnel have been 
resolved. Installation expenses are not ``reasonable costs'' of 
providing TRS, and are not permitted for any provider. The Commission 
has consistently stated that compensable expenses must be the 
providers' expenses in making the service available and not the 
customer's costs of receiving the service. See, e.g., 2004 TRS Report 
and Order, 19 FCC Rcd 12543-12544, paragraphs 179, 181. Compensable 
expenses, therefore, do not include expenses for customer premises 
equipment--whether for the equipment itself, equipment distribution, or 
installation of the equipment or any necessary software.
Allowance for Working Capital
    The Commission rejects Hands On's contention that the Bureau should 
have adopted a higher allowance for working capital. This factor, which 
was set at 1.4 percent, compensates the providers for the time they are 
out of pocket their expenses before they are compensated by NECA. Hands 
On Application at 20-21; see 2004 Bureau TRS Order, 19 FCC Rcd 12230, 
paragraph 16 and note 53 (setting forth in detail the derivation of the 
1.4 percent figure for an allowance for working capital). Hands On 
asserts that the 1.4 percent figure does not adequately cover the time 
period for which providers are out of pocket their expenses because it 
is based on a 30 day period rather than a 45 day period. Hands On 
Application at 20-21. Hands On maintains that, although the providers 
are reimbursed on a monthly basis one month after service is provided, 
they incur costs at the beginning of each month, but do not receive 
compensation for that month until the end of the following month. Hands 
On Application at 20.
    Hands On's argument confuses when a provider incurs an expense with 
when the provider pays the expense. The purpose of the working capital 
allowance is to reimburse the providers for the time they are actually 
out of pocket money they have paid for services rendered. Even granting 
Hands On's assumption that most of the providers' costs are labor 
costs, and that ``most providers pay their employees semi-monthly,'' 
the Commission believes that the 30 day period reasonably compensates 
the providers for the time they are actually out of pocket. Hands On 
Application at 21. Assuming, for example, that employees are paid on 
the 15th and 30th of the month, the average payment date would be the 
22nd. The Commission also assumes that labor is paid at least a week in 
arrears, i.e., that payment is not concurrent with period of 
performance. For example, the payment on the 15th of the month would be 
for labor from the 22nd of the prior month to the 8th of the month, and 
the payment on the 30th of the month would be for labor from the 8th to 
the 22nd of the month. Under these circumstances, the average out-of-
pocket date for labor incurred in a particular month, which would be 
paid by NECA at the end of the following month, would be the 30th of 
the month. Further, the Commission assumes that other types of expenses 
are generally paid approximately 30 days after the provider is billed. 
Accordingly,

[[Page 47150]]

the Commission declines to increase the working capital allowance.
The 2003-2004 VRS Compensation Rate Does Not Apply to the 2004-2005 
Fund Year
    The Commission rejects CSD's and NVRSC's argument that, instead of 
adopting a VRS rate for the 2004-2005 fund year based on the cost and 
demand data submitted by the providers for that fund year, the Bureau 
should have continued to apply the modified VRS rate adopted in the 
2004 TRS Report and Order ($8.854 per minute) applicable to the 
previous fund year (2003-2004), pending resolution of VRS issues raised 
in the 2004 TRS Report and Order's FNPRM. CSD Application at 16-17; 
NVRSC Application at 9-10, 18-20. NVRSC asserts that the Bureau should 
not have followed the 2004 TRS Report and Order in adopting the 2004-
2005 VRS rate, but rather should have continued the VRS rate from the 
2003-2004 fund year. NVRSC Application at 9-10. According to CSD and 
NVRSC, VRS providers should be compensated at the rate of $8.854 per 
minute in 2004-2005, not at the rate of $7.596 ultimately adopted by 
the Bureau for the 2004-2005 fund year. CSD Application at 15-16; NVRSC 
Application at 20.
    This argument is inconsistent with the cost recovery mechanism that 
has been in place for over ten years. As explained above, for each fund 
year the compensation rates are based on the providers' own projected 
cost and demand data for the upcoming two-year period. If there is 
concern that the rates were not calculated correctly, the answer is not 
to apply rates from a previous fund year based on an entirely different 
set of cost and demand projections, but to review the calculation of 
the challenged rates and the data upon which they rely and make any 
resulting adjustments retroactive to the beginning of the fund year. In 
this instance, therefore, no basis to apply the VRS rate from the 2003-
2004 fund year to the 2004-2005 fund year.
The Emergency Petitions for a Stay of the 2004 Bureau TRS Order
    CSD and NVRSC filed a petition for emergency stay, seeking to have 
the 2003-2004 VRS per-minute compensation rate of $8.854 apply to the 
2004-2005 fund year, instead of the rate of $7.293 adopted in the 2004 
Bureau TRS Order for the 2004-2005 fund year, until such time as the 
Commission resolved the pending applications for review. The petitions 
for an emergency stay accompanied the applications for review. Because, 
as set forth above, the Commission has affirmed the 2004 Bureau TRS 
Order (as modified by the Modified 2004 Bureau TRS Order), and have 
rejected the argument that the 2003-2004 VRS rate should apply in the 
2004-2005 fund year, the Commission dismisses the stay requests as 
moot.

Congressional Review Act

    The Commission will not send a copy of the Memorandum Opinion and 
Order pursuant to the Congressional Review Act, see 5 U.S.C. 801 
(a)(1)(1A), because the adopted rules are rules of particular 
applicability.

Ordering Clauses

    Pursuant to the authority contained in sections 1, 2, and 225 of 
the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, and 
225, that the Memorandum Opinion and Order is hereby adopted.
    The applications for review filed by CSD, Hands On, NVRSC, and 
Hamilton are hereby denied, as provided herein.
    The Memorandum Opinion and Order shall become effective August 16, 
2006.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. E6-13490 Filed 8-15-06; 8:45 am]
BILLING CODE 6712-01-P