[Federal Register Volume 82, Number 161 (Tuesday, August 22, 2017)]
[Rules and Regulations]
[Pages 39673-39683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17225]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 64

[CG Docket Nos. 10-51 and 03-123; FCC 17-86]


Structure and Practices of the Video Relay Services Program

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission adopts a four-year rate plan 
to compensate video relay service (VRS) providers, amends its rules to 
permit-server based routing for VRS and point-to-point calls, 
authorizes the continued use of money from the Telecommunications Relay 
Service (TRS) Fund for Commission-supervised research and development, 
eliminates rules providing for a neutral video communications service 
platform, and reinstates the effectiveness of the rule incorporating 
the VRS Interoperability Profile technical standard.

DATES: Effective September 21, 2017. The compliance date for 47 CFR 
64.621(b)(1) is December 20, 2017. The incorporation by reference of 
certain publication listed in the rules was approved by the Director of 
the Federal Register as of May 30, 2017.

FOR FURTHER INFORMATION CONTACT: Bob Aldrich, Consumer and Governmental 
Affairs Bureau at: (202) 418-0996, email [email protected], or 
Eliot Greenwald, Consumer and Governmental Affairs Bureau at: (202) 
418-2235, email [email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order and Order, FCC 17-86, adopted and released on July 6, 2017, 
in CG Docket Nos. 10-51 and 03-123. The full text of this document will 
be available for public inspection and copying via the Commission's 
Electronic Comment Filing System (ECFS), and during regular business 
hours at the FCC Reference Information Center, Portals II, 445 12th 
Street SW., Room CY-A257, Washington, DC 20554. 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 
(voice), (844) 432-2272 (videophone), or (202) 418-0432 (TTY).

Congressional Review Act

    The Commission sent a copy of document FCC 17-86 to Congress and 
the Government Accountability Office pursuant to the Congressional 
Review Act, see 5 U.S.C. 801(a)(1)(A).

Final Paperwork Reduction Act of 1995 Analysis

    Document FCC 17-86 does not contain any new or modified information 
collection requirements subject to the Paperwork Reduction Act of 1995, 
Pub. L. 104-13. In addition, therefore, 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, Pub. L. 107-198, see 44 U.S.C. 3506(c)(4).

Synopsis

VRS Compensation--Allowable Cost Categories

    1. In the Further Notice of Proposed Rulemaking (FNPRM), FCC 17-26, 
published at 82 FR 17613, April 12, 2017, the Commission stated its 
intention not to reopen questions concerning the categories of expenses 
that should be considered allowable costs for VRS compensation. Various 
parties commenting in this proceeding nonetheless urge that the 
Commission re-open the matter of allowing costs associated with 
customer premise equipment (CPE), numbering, outreach, and research and 
development (R&D). In addition, Sorenson Communications, LLC (Sorenson) 
raises new concerns about allowing compensation for imputed 
intellectual property. These issues are beyond the scope of the 
rulemaking. The Commission has previously considered and disallowed 
compensation for each of these categories, except intellectual 
property, which is addressed below.
    2. No reason to reopen previously settled disallowance issues. No 
party provides a compelling reason to reopen the above issues in this 
proceeding, especially in the absence of Administrative Procedure Act 
(APA) notice. The Commission does not agree that circumstances have 
changed dramatically and sees no material difference from prior 
proceedings where these issues were addressed.
    3. Even if the issues were not already settled and there was APA 
notice regarding them, the Commission would not be persuaded by 
arguments to expand allowable costs. Equalizing all VRS-related costs 
to a voice telephone user's costs is not part of the Commission's 
mandate under section 225 of the Act. Congressional intent to equalize 
either network access rates or equipment costs for TRS and voice 
service users is not evident in the text of this narrowly drawn 
provision, its surrounding context, or its legislative history. In 
1990, the year of section 225's enactment, all TRS calls took place 
between individuals who used TTYs and voice users. But the high costs 
of TTY service rates and equipment were matters of public awareness and 
were being addressed through state and federal action outside the relay 
requirements of section 225 of the Act. Regarding service costs, the 
plain text of this section demonstrates that it solely was intended to 
prevent relay users from incurring the added costs of routing TRS calls 
through remote relay centers that lie outside the geographical 
locations of the parties to a relay call, and nothing more. Congress 
had knowledge about, and ample opportunity to direct the Commission to 
equalize telephone service costs for TTY users at the time of section 
225's enactment, yet it specifically chose not to do so. Accordingly, 
the discrepancy between the higher service costs for a broadband 
connection needed to achieve access to VRS and the costs of

[[Page 39674]]

telephone service incurred by voice users was not a matter intended to 
be addressed by section 225 of the Act.
    4. Similarly, at the time of section 225's enactment, it was quite 
evident that the cost of end user equipment needed to complete TRS 
calls would be significantly greater than the equipment costs incurred 
by voice telephone users. The average cost for a TTY was $600-$1000, a 
prohibitive amount for many individuals with low incomes. Again, 
however, there is simply no indication in section 225 of the Act or its 
legislative history of an intent by Congress to require the Commission 
to use the TRS Fund or any other mechanism to equalize such equipment 
costs. Rather, states developed local programs to distribute TTYs and 
other specialized customer premises equipment to low income and other 
eligible individuals with disabilities.
    5. Further, disallowance of end user equipment costs from 
compensable expenses does not discourage the development of improved 
technology. Rather, compensation to providers for the provision of free 
equipment runs counter to promoting the use of new mobile and other 
technologies that are available for use with VRS. The Commission has 
undertaken extensive efforts to expand the availability of 
interoperable off-the-shelf Internet Protocol (IP) enabled devices for 
VRS use, so that individuals who use these services can reduce their 
dependence on VRS equipment specifically designed for a particular 
provider's network. Providers increasingly run their own software on 
off-the-shelf mobile devices, tablets, desktop personal computers, and 
laptops, reducing the need for specialized, stand-alone VRS equipment. 
Because the Commission's rules require that all providers support a 
common standard for relay user equipment (in addition to their own 
proprietary standards), the Commission has made it possible for the 
software developed according to such standard to work on all provider 
networks, thus making it more attractive for third parties to develop 
VRS software. These actions demonstrate a concerted effort by the 
Commission to further section 225's mandate to encourage the use of new 
and innovative technology.
    6. By not authorizing recovery of the costs of VRS CPE, the 
Commission avoids offering preferential subsidies to certain VRS 
providers (i.e., those who rely on the free provision of expensive, 
dedicated videophones and other equipment to attract and retain VRS 
consumers for their branded services) to the exclusion of others, as 
well as avoids encouraging providers to engage in free CPE giveaways as 
incentives to use their services. The Commission believes that if VRS 
providers are to compete for customers, it is preferable for such 
competition to take place with respect to the quality of their 
services--which was the intended purpose of section 225 of the Act--not 
the equipment they can afford to distribute. The Commission finds no 
basis for departing from Commission precedent, and therefore again 
declines to allow use of TRS funds to support VRS providers' equipment 
costs.
    7. Intellectual Property. The Commission concludes that a provider 
that develops its own intellectual property is not entitled to have the 
imputed value of that property included in allowable costs. First, the 
Commission has not previously allowed compensation for the imputed 
value of TRS providers' property, whether tangible or intangible, and 
the Commission sees no reason to do so under a methodology that is 
based on compensating providers for their actual expenses. Any attempt 
to value intellectual property would necessarily be speculative and 
highly inexact, especially in the absence of evidence based on arm's 
length marketplace transactions involving such property. Second, as 
noted above, to the extent that a provider engages in R&D to develop 
VRS technologies whose purpose is to meet the Commission's mandatory 
minimum standards, it is already permitted to recover those expenses 
from the TRS Fund. To also compensate a provider for the imputed value 
of such technology would be duplicative at best. Third, the Commission 
finds unconvincing the suggestion of an analogy between costs incurred 
by a TRS provider to license technology from third parties and the 
imputation of a licensing fee to be ``paid'' by a TRS provider to 
itself. The Commission's cost-of-service methodology appropriately 
assesses the cost of VRS based on provider's actual expenses, not 
hypothetical expenses that a provider might have incurred had it chosen 
to purchase technology from third parties. When a VRS provider chooses 
to develop its own VRS technologies rather than license them from 
others, it is reasonable to assume that the provider decided that such 
self-provisioning would enable it to provide service more effectively 
and at lower cost. It is likewise reasonable and appropriate for the 
Commission to assess a provider's costs based on its actual 
expenditures rather than hypothetical, more costly expenditures that it 
might have made but chose not to.
    8. In effect, the argument for recovery of the imputed value of a 
TRS provider's intellectual property appears to be a way of arguing 
that VRS providers should be able to gain additional profit for what 
they have invested in R&D. Although the Commission allows providers to 
recover their reasonable expenses of providing TRS, in prior decisions 
it has disallowed claims for ``profit'' in excess of a reasonable 
allowance for the cost of raising capital. Although in the section 
following the Commission modifies the method of estimating capital 
costs by adopting an ``operating margin'' approach that will allow 
providers greater opportunity to recover such costs, the Commission 
does not thereby authorize providers to recover additional ``markup'' 
or profit that goes beyond such reasonable allowance.

Capital Cost Recovery/Operating Margin

    9. Replacing return on investment with operating margin. In light 
of VRS providers' concerns about the adequacy of the 11.25% allowed 
return on plant investment for capital cost recovery in an industry 
with very little plant investment, the Commission adopts its proposal 
in the FNPRM to replace the current rate-of-return approach to capital 
cost recovery with an operating margin approach, allowing recovery of a 
specified percentage of allowable expenses.
    10. Setting an allowed operating margin. There is wide variation 
among average operating margins of different industry sectors, as well 
as between operating margins for particular companies and time periods. 
Sorenson provides a list of adjusted EBITDA margins for 20 ``leading 
publicly traded information technology consulting companies,'' which 
Sorenson states is based on data reported by Bloomberg on U.S.-listed 
public companies with a market cap of at least $1 billion and with 100% 
of their revenue derived from ``IT Services.'' Sorenson notes that the 
unweighted average margin for the companies on this list is 15.9%.
    11. The Commission concludes that consideration of operating 
margins earned in analogous industries may be a reasonable approach to 
setting an allowed operating margin for VRS providers. However, 
information technology (IT) consulting companies are not sufficiently 
analogous to VRS providers for their operating margins to serve as a 
reasonable proxy. Unlike IT consulting companies, the bulk of VRS costs 
are labor costs, primarily salaries and benefits for interpreters, who 
need

[[Page 39675]]

not be highly skilled in technology. The Census Bureau's survey of 
public companies' financial data for North American Industry 
Classification System (NAICS) Code 541, defined as ``Professional, 
Scientific, and Technical Services,'' but excluding legal, shows that 
average quarterly pre-tax operating margins for this industry sector 
between 2013 and 2016 ranged from 1.8% (in 1Q2016) to 7.9% (in 2Q2013), 
averaging 4.6% in the 2013-16 period as a whole and 3.2% in 2016. For 
NAICS 5419, a subsector that includes translation and interpretation 
services but excludes various less analogous industry segments such as 
accounting, architectural and engineering, and computer systems design 
services, the average operating margin for the public firms included in 
the Census Bureau's survey ranged from 3.9% to 12.2% for the 2013-16 
period and averaged 7.4% in the 2013-16 period as a whole and 7.6% in 
2016. Government contractors are another category that may reasonably 
be viewed as analogous to VRS providers in that they are paid by the 
government for providing services mandated by law or otherwise closely 
supervised by a government entity. In five surveys of government 
contractors by Grant Thornton, conducted between 2009 and 2015, the 
majority of respondents consistently reported profit rates before 
interest and taxes between 1% and 10%, with the median profit rate in 
the neighborhood of 6%.
    12. Selecting an operating margin from among this wealth of data 
regarding arguably analogous industry sectors is not subject to precise 
determination. The Commission notes that for 2016 (or 2015, in the case 
of government contractors, as that was the most recent year surveyed), 
none of the industry sector surveys described above, other than the one 
cited by Sorenson, had average operating margins greater than 7.6%, and 
that even the high technology firms cited by Sorenson have a median 
operating margin of only 12.35%. Based on the current record, and in 
light of the Commission's statutory mandate to ensure that VRS is made 
available ``to the extent possible, and in the most efficient manner,'' 
the Commission concludes that the range of 7.6% to 12.35% represents 
the ``zone of reasonableness'' of an allowable operating margin for VRS 
providers.

Compensation Rate Structure

    13. Over the last four years, the Commission has observed the 
results of its 2013 structural reform and rate initiatives, including 
the effects on provider incentives, to the extent those can be 
discerned. The 2013 plan provided for reducing the rate gap between 
highest- and lowest-priced tiers, with the ultimate expectation that 
the tiered rate structure eventually would be replaced by a unitary 
compensation rate for all minutes, which would be set either directly 
or by proxy based on competitive bidding. This expectation was, in 
turn, based on the assumption that structural reforms, such as 
effective interoperability and portability standards and the 
establishment of a neutral routing platform would generate a ``more 
competition-friendly environment'' for small providers. There was also 
an expectation that, pending the completion of such structural reforms, 
the temporary continuation of a tiered rate structure would both 
encourage improvements in efficiency and ensure that smaller providers 
``have a reasonable opportunity to compete effectively during the 
transition and to achieve or maintain the necessary scale to compete 
effectively after structural reforms are implemented.'' Structure and 
Practices of the Video Relay Service Program; Telecommunications Relay 
Services and Speech-to-Speech Services for Individuals With Hearing and 
Speech Disabilities, Report and Order, FCC 13-82, published at 78 FR 
40581, July 5, 2013 (2013 VRS Reform Order).
    14. The record confirms that most of these underlying expectations 
and assumptions have not been borne out by experience. First, a number 
of the Commission's expectations regarding the pace and content of 
structural reforms have proven to be overly optimistic. Improved 
interoperability standards were not incorporated into the Commission's 
rules until this year, and some aspects of equipment portability, which 
was expected to improve the competitiveness of the VRS market by 
facilitating consumers' use of inexpensive, off-the-shelf devices, have 
yet to secure consensus from the VRS industry. Further, the neutral 
video communications platform, which the 2013 VRS Reform Order 
envisioned as a key element in enabling small providers to compete 
effectively, proved to be impracticable. These developments disprove 
the Commission's original assumption that structural reforms would be 
far enough advanced to enable the elimination of tiered rates and the 
introduction of a market-based methodology upon the expiration of the 
2013 compensation plan.
    15. Second, provider cost reports overall do not show the major 
improvements in smaller providers' efficiency that the Commission 
assumed were possible. With the ``glide path'' reductions in VRS 
compensation rates, providers have been under pressure to improve 
efficiency, and the record indicates that certain providers have taken 
significant measures to do so. The weighted average of historical per-
minute costs reported by VRS providers has declined from 2013 to 2016; 
however, the decline has been relatively modest, compared to the period 
from 2009 to 2012, when average per-minute costs declined by more than 
$1.00 per minute. Thus, while it appears that providers have achieved 
some efficiency improvements, other factors, such as the lack of full 
interoperability, may have limited their success. As a result, the 
Commission's expectation that smaller VRS providers would be able to 
make substantial improvements in efficiency within the past four-year 
period was not fulfilled.
    16. Third, updated VRS demand data confirm that the VRS market 
structure is largely unchanged since 2013, when ``Sorenson provide[d] 
about 80% of the VRS minutes logged every month, and its two principal 
competitors each provide[d] another five to ten percent.'' Since then, 
the two cited competitors of Sorenson have merged, but it is too early 
to predict how that merger will affect the viability of competition in 
the VRS market (other than reducing the total number of competitors 
from five to four). What is clear, however, is that competitors have 
not made significant inroads into Sorenson's market share, and no VRS 
provider has been able to grow significantly so as to achieve ``the 
necessary scale to compete effectively.''
    17. As a consequence of these developments, there remain vast 
differences in the per-minute costs of VRS providers, which roughly 
track the vastly different market shares of each current provider. As 
long as such lopsided cost structures persist, it seems highly unlikely 
that any of the non-dominant VRS providers can compete successfully to 
gain market share vis-[agrave]-vis the largest, least-cost provider.
    18. In the face of these unfulfilled expectations and assumptions, 
the Commission must choose from a number of alternative courses to 
take. One possible course would be to seek to maximize efficiency by 
transitioning to a single rate set at the level of the allowable costs 
of the lowest-cost provider, or alternatively, at the level of the 
average allowable costs for the VRS industry. This approach would 
reduce the cost burden on the TRS Fund, at least in the short term, 
but, given the current disparate cost structures in the VRS market, 
also would be likely to eliminate all VRS competition. The Commission 
has consistently sought to

[[Page 39676]]

encourage and preserve the availability of a competitive choice for VRS 
users, because it ensures a range of service offerings analogous to 
that afforded voice service users and because it provides a competitive 
incentive to improve VRS offerings. Further, the continuing presence of 
such competitive offerings is likely to encourage the lowest-cost 
provider to maintain higher standards of service quality than if it 
faced no competition. Thus, if the Commission was to allow VRS 
competition to be extinguished, for the sake of increasing the 
efficiency of VRS, the Commission would risk depriving users of 
functionally equivalent VRS. Because the Commission believes that, in 
the current circumstances, the benefits of such a rate reduction, 
through increased efficiency, are not worth the risks to functional 
equivalence associated with eliminating competitive choice, the 
Commission did not propose this course as an alternative, and no party 
advocates it.
    19. A second alternative would be to transition to a single rate 
set at the cost level of some higher-cost provider--most likely the 
next-lowest-cost provider. Due to the current imbalance among VRS 
providers' cost structures, however, this method would be likely to 
result in greatly increased TRS Fund expenditures, because the most 
efficient provider--with the overwhelming bulk of minutes--would be 
compensated at a rate far in excess of its actual costs. Such 
inefficient use of TRS Fund resources is not permitted by section 225 
of the Act if there is a more efficient method of ensuring the 
availability of functionally equivalent service. In addition, by 
generating an extremely uneven set of operating margins--huge windfall 
profits for one provider and minimally sufficient margins or actual 
operating losses for the others, taking this approach seems likely to 
doom any prospect of the VRS market evolving to a more competitive 
structure. Indeed, adopting this approach, as a practical matter, would 
inevitably eliminate two of the four existing VRS competitors. A single 
rate could not be set high enough to allow a third provider to remain 
in the market without raising TRS Fund expenditures and allowing the 
windfall profits for lower-cost providers to achieve astronomical 
levels.
    20. For these reasons, the Commission concludes that the 
alternative proposed in the FNPRM--maintaining a tiered rate structure 
for the next four years--is the best available alternative at present. 
Compared with any practicable single-rate approach, as further 
explained below, a tiered rate approach is most likely to ensure that 
functionally equivalent VRS remains available and is provided in the 
most efficient manner with respect to TRS Fund resources.
    21. First, the application of tiered rates rather than a single 
rate will help ensure that there continue to be competitive options for 
VRS users, an objective that takes on special importance at this time, 
in light of the recent attrition in the VRS market. Although there were 
six independently owned providers at the time of the 2013 VRS Reform 
Order, this number has since been reduced to four. The presence of 
multiple competitors, even if less efficient than the lowest-cost 
provider, may enhance functional equivalence by ensuring that VRS users 
have a choice among diverse service offerings. Further attrition, which 
would be inevitable if the Commission sets a single rate at any 
realistic level, would further limit the ability of consumers to select 
providers based on service quality and features, and would make the 
continuing availability of any competitive choice less certain, eroding 
the Commission's ability to ensure the availability of functionally 
equivalent service. In these circumstances, to the extent that a tiered 
rate structure is more effective than a single rate in preventing 
further erosion of the competitiveness of the VRS environment, it may 
be justifiable on that ground alone, even if overall efficiency would 
be somewhat reduced.
    22. Moreover, the record indicates that, at this time, a tiered 
rate structure is more likely than a single-rate structure to improve 
the efficiency with which the TRS Fund supports VRS. Given the major 
disparities in service provider size and cost structure, tiered rates 
enable the Commission to reduce waste of TRS Fund resources by limiting 
compensation that is excessive in relation to a provider's actual 
costs. Thus, the Commission is not persuaded that a tiered rate 
structure, by allowing payment of a higher effective compensation rate 
to less efficient VRS providers, necessarily contravenes the mandate 
that VRS be available in the most efficient manner. While the mandate 
is for the Commission to ensure the availability of VRS in the most 
efficient manner, the Commission must measure such efficiency by 
comparing the overall expenditures from the TRS Fund the Commission has 
established for that purpose, with the overall results achieved by such 
expenditures in terms of TRS availability and functional equivalence. A 
single rate structure fails this test of efficiency because it would 
cost the TRS Fund more in overall compensation than the tiered rate 
structure the Commission adopts.
    23. Further, the Commission must consider the value users get for 
the compensation paid to providers, and may take into consideration the 
extent to which the participation of less efficient providers produces 
other benefits in the way of improved services for consumers. In this 
regard, on numerous occasions, the Commission has made clear that there 
are benefits in supporting less efficient providers that meet the needs 
of niche populations, including people who are deaf-blind or speak 
Spanish, enabling the entrance of new companies that can introduce 
technological innovations into the VRS program, and ensuring that 
consumers with hearing and speech disabilities can select among 
multiple VRS providers--just as voice telephone users do. While the 
Commission is obligated to ensure the efficiency of the VRS program, it 
cannot sacrifice functional equivalency in doing so. Moreover, it is 
the Commission's statutory obligation not to merely seek a short-term 
savings in an accounting sense; rather the Commission must consider the 
consequences of its actions in the long run. By supporting the 
continued participation of multiple providers, a tiered rate structure 
can help to prevent the VRS marketplace from devolving into a monopoly 
environment, thereby providing the Commission with much needed 
flexibility to consider other approaches that may improve efficiency. 
For example, one option the Commission may want to consider in the 
future is a reverse auction, in which multiple providers bid for 
offering service at the most efficient levels; but such an approach 
would not be feasible if all providers except one have been driven out 
of the market. A tiered rate structure allows the Commission to set 
rates that permit each provider an opportunity to recover its 
reasonable costs of providing VRS, without overcompensating those 
providers who have lower actual costs because, for example, they have 
reached a more efficient scale of operations.
    24. The Commission also does not agree that tiered rate structures 
necessarily detract from providers' incentives to grow and increase 
their efficiency. As to growth incentives, while there could 
theoretically be a risk that a provider would ``put the brakes on'' its 
growth as it approached a tier boundary, a review of each providers' 
compensable minutes over the last few years does not suggest that 
providers' growth rates have been affected as their minutes approach a 
tier boundary. Moreover, to the extent there is such a

[[Page 39677]]

risk of generating perverse incentives, the Commission believes it can 
be effectively addressed by ensuring that tier boundaries are wide 
enough to cover a provider's likely growth during the life of the rate 
plan. As to efficiency incentives, because rates are being set for a 
period of several years, providers will have an incentive to reduce 
unnecessary costs so they can increase profits and minimize losses.
    25. Further, the tiers set under this structure are not provider-
specific. Rather, each tier is equally applicable to any provider's 
minutes that fall within that tier. Accordingly, under the tier 
structure the Commission adopts, the provider with both relatively 
large and relatively small volumes of minutes are each compensated at 
the higher (Tier I) rate for their first 1 million minutes, at a lower 
(Tier II) rate for additional minutes between 1,000,000 and 2,500,000, 
and at the lowest (Tier III) rate for any minutes over 2,500,000.
    26. The Commission also declines to adopt at this time a plan for 
transitioning from tiered rates to a single rate structure. The 
anticipated developments that the Commission thought would eliminate 
any need for tiered rates have not materialized. Not only have 
structural reforms been delayed and reduced in scope, but expected 
gains in individual provider efficiency have not occurred, the largest 
VRS provider's current market share remains approximately the same, and 
there continue to be wide disparities among providers' cost structures. 
Thus, the Commission's experience to date does not provide sufficient 
confidence that transitioning to a single rate structure would be 
consistent with preserving the benefits of competition and ensuring the 
availability of VRS in the most efficient manner. With additional time, 
this situation may change. The full implementation of competition-
promoting interoperability and portability standards, as well as the 
introduction of some new reforms in other areas, may offer greater 
opportunities for providers to compete more effectively with one 
another. Additionally, the Commission is currently gathering comment on 
service quality metrics, which, when defined, measured, and published, 
will enhance VRS competition by enabling consumers to make more 
informed decisions in their selection of their VRS providers. At a 
later time, the Commission can revisit the compensation rate structure 
issue as appropriate in light of such developments.

Alternative Approaches

    27. The Commission concludes that alternative approaches to setting 
VRS rates proposed in the FNPRM, including reliance on price caps, 
market-price benchmarks, a reverse auction, and direct provision of VRS 
by common carriers, should not be adopted at this time.
    28. Price caps. It is premature, at best, to commit to a price cap 
approach that involves setting an initial, single rate based on, for 
example, the costs of a ``reasonably efficient provider.'' Setting a 
single rate at any level that permits more than one provider to remain 
in the market would provide windfall profits to the lowest-cost 
provider, and the wasteful costs that such windfall profits would 
impose on the TRS Fund would be extremely high given the disparate cost 
structures of the current providers. Such costs will be imposed 
regardless of whether the single rate is set under a traditional cost-
of-service methodology or as the ``initializing'' rate to kick off a 
price cap plan. Further, the Commission does not perceive any way in 
which price caps could significantly ameliorate the competition and 
inefficiency disadvantages the Commission has identified above that 
lead it to reject a single-rate approach. The multi-year, tiered 
transition plan being adopted will provide many of the same benefits as 
a price cap, such as predictability in rates and incentives to become 
more efficient. In addition, given that the weighted average of 
provider's historical costs has declined measurably over the last four 
years, the Commission does not believe that the use of such indices is 
necessary at this time to ensure that VRS providers can continue to 
recover their reasonable allowable costs, including a reasonable 
operating margin, over the next four years. Towards the end of the 
2017-21 rate plan, there will be another opportunity to examine whether 
a price cap approach should be adopted in conjunction with whatever 
rate structure approach is selected for the next plan to maintain 
efficiency incentives going forward.
    29. Reverse auction. Sorenson advocates the use of a reverse 
auction to set VRS rates, citing as models the auctions authorized by 
the Federal Energy Regulatory Commission (FERC) to set rates for 
supplying electricity, as well as those conducted by this Commission to 
allocate support for Mobility Funds and to select recipients of support 
under the Rural Broadband Experiments. However, the auction proposed by 
Sorenson differs significantly from these examples. The FERC and 
Commission auctions involved bidding for both price and quantity of the 
service to be supplied, while Sorenson's VRS proposal would require 
providers to bid a price that is not tied to a specific quantity. 
Additionally, the Commission auctions sought selection of a single 
provider for each service area, rather than multiple providers as in 
the VRS market. If a provider has no guarantee of serving a fixed 
number of minutes, each provider's bid will likely be based on current 
costs associated with the current number of minutes they provide at the 
time of bidding. Thus, while Sorenson argues that a reverse auction 
would promote competition, encourage greater efficiencies, and provide 
stability, it seems equally or more likely to have the opposite 
effect--producing a VRS rate that is either 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. The 
reverse auction proposal thus suffers from the same defects as other 
single-rate proposals--it forces a choice between setting a single rate 
so low as to preclude effective competition and setting it so high as 
to provide wasteful, windfall profits to the lowest-cost provider. In 
light of the absence of analogous models for successful implementation, 
and the other issues discussed above, the Commission declines to pursue 
a reverse auction approach at this time. The Commission does not rule 
out exploring this type of approach in the future, however, should new 
developments warrant revisiting it.
    30. Direct provision or procurement of VRS by common carriers. The 
Commission also finds little benefit at this time in the alternative of 
terminating TRS Fund support for VRS and, instead, requiring common 
carriers to provide VRS directly or through contracts with TRS 
providers. Sorenson offers no supporting evidence for its claim that 
common carriers and other voice service providers could provide VRS 
more efficiently on a direct basis than indirectly, through their 
contributions to the TRS Fund. Further, no carrier has commented 
favorably on this proposal, while a carrier trade association, 
USTelecom, affirmatively opposes it. Accordingly, at the present time, 
the Commission has no basis to conclude that direct provision of VRS 
would advance the mandate to provide VRS in the most efficient manner 
or reduce the burden on TRS Fund contributors. Further, the Commission 
agrees with the non-dominant providers that competition and consumer 
choice

[[Page 39678]]

might not survive a transition to a direct-provision or direct-
procurement approach. It may well be that common carriers would simply 
choose to work with the dominant, low-cost provider, rather than 
attempt to maintain provider choice for consumers.
    31. Market-based pricing generally. While in 2013 the Commission 
indicated a strong interest in exploring a market-based approach, it 
did not commit to adopting any market-based approach, much less one 
that could prove less effective than cost-based alternatives for 
meeting the objectives of section 225 of the Act. Moreover, the market-
based schemes proposed in 2013, which assumed there would be a 
transition to a single market-based rate, no longer appear to be as 
viable today as they did to the Commission at that time. Those 
proposals relied on the expected availability of pricing benchmarks 
that would in turn result from the establishment of a neutral video 
communications service platform. This platform has not been built, and 
based on the unsuccessful initial request for proposals for the 
platform and the general lack of interest in it shown by most existing 
providers, the Commission has decided not to move forward with its 
original plan to build this platform. Similarly, support is also 
lacking for the other market-oriented idea proposed by the Commission 
in 2013: an auction of calls to certain telephone numbers receiving a 
high volume of VRS calls.

Tier Structure and Rate Levels

    32. Emergent rate. The Commission adopts its proposal to add an 
emergent rate to the tiered rate structure, applicable solely to 
providers that have no more than 500,000 total monthly minutes as of 
July 1, 2017. The Commission concludes that a separate rate structure 
for such providers is appropriate for a limited period to take into 
account the generally much higher cost of service for very small 
providers, encourage new entry into the program, and give such 
providers and new entrants appropriate incentives to grow. Rather than 
view an emergent rate as a subsidy for providers that have been unable 
to attract users, the Commission believes that this approach recognizes 
the still unbalanced structure of the VRS industry, as well as the 
incompleteness of VRS reforms intended to enhance competition. In light 
of the apparently fragile current state of VRS competition and the per-
minute cost differentials, the Commission concludes it would be unwise 
at this time to subject two of the current four competitors to the 
dramatic rate reductions that would be necessary to fit them under the 
same tiered rate structure as the other two, much larger providers. 
Further, smaller providers may offer service features that are designed 
for niche VRS market segments or that may not be available through 
other providers and that are helpful in meeting the specific needs of 
particular VRS consumers. By providing an emergent rate, the Commission 
can increase the likelihood that, in the near term, even if no new 
entrants arrive, consumers can continue to select a service provider 
from four competitors instead of two.
    33. In order to maintain incentives for growth and avoid subjecting 
emergent providers to a sudden drop in the rate applicable to all their 
minutes when they reach the 500,000-minute ceiling, providers who are 
initially subject to the emergent rate and who then generate monthly 
minutes exceeding 500,000 shall continue to be compensated at the 
otherwise applicable emergent rate (rather than the Tier I rate) for 
their first 500,000 monthly minutes, until the end of the four-year 
rate plan, i.e., until June 30, 2021. Such providers shall be 
compensated at the otherwise applicable Tier I rate for monthly minutes 
between 500,000 and 1 million.
    34. For emergent providers, the Commission adopts a $5.29 per 
minute rate for each year of the four-year plan. To the extent that 
these providers have demonstrated the ability to show consistent, 
substantial growth over the past years, provider cost projections 
indicate that this rate will afford such providers a reasonable 
opportunity to meet their expenses and earn some profit. The Commission 
expects that this opportunity should be enhanced with the 
implementation of provider interoperability and other competition-
promoting measures, such as the development and publication of service 
quality metrics.
    35. However, the Commission does not intend that this rate 
structure continue to apply to any currently operating providers after 
the end of the four-year rate plan adopted in document FCC 17-86. 
During the next four years, the provision of a special rate for 
emergent providers may not impose major costs on Fund contributors, but 
the likely benefits to consumers will also remain very limited unless 
these emergent companies manage to use this four-year window of 
opportunity to expand their market share. Therefore, after four years, 
the Commission intends that all existing providers, regardless of size, 
will be subject to the same rate structure (whether tiered or unitary) 
under the compensation scheme that then takes effect.
    36. Tiers I-III. The Commission also adopts the proposed tier 
structure, in which a provider's monthly minutes up to 1,000,000 will 
be included in Tier I, monthly minutes between 1,000,001 and 2,500,000 
in Tier II, and all monthly minutes above 2,500,000 in Tier III, with 
the highest rate applicable to Tier I minutes and the lowest rate 
applicable to Tier III minutes. Based on real-world evidence, which 
consistently shows the existence of substantial disparities among the 
per-minute costs incurred by VRS providers, which are broadly in-line 
with the similarly wide disparities in their volumes of minutes, the 
Commission concludes that there are likely to be substantial economies 
of scale in administrative costs, marketing, and other areas.
    37. Further, the existence of persistent cost differences between 
the largest and lowest-cost VRS provider and its smaller competitors is 
undisputed. To maintain a competitive environment for the near term, 
the Commission's most realistic option is to set compensation rates 
that allow the few remaining VRS competitors an additional period of 
time to offer a competitive alternative to the lowest-cost provider, 
while reforms continue to be implemented. In this context, the 
Commission's primary concern is not to identify the exact extent of 
scale economies but to ensure that tiers reflect the disparate sizes 
and cost structures of current competitors. Further, as the Commission 
also recognized in 2013, significant potential harm to competition 
could result if the rate tier boundaries are too low and prevent 
smaller competitors from remaining in the market, while if the 
Commission sets the boundaries too high the only consequence will be 
that smaller, less efficient competitors may remain in the market 
longer than would otherwise be the case, resulting in somewhat higher 
expenditures from the Fund. With the intervening attrition in the 
number of VRS competitors, the Commission's preference is even greater 
today for striking a balance that emphasizes preserving competition.
    38. The Commission expands the Tier I boundary to 1,000,000 
minutes, in order to ensure that the ``emergent'' providers, as well as 
any new entrants, as they grow large enough to leave the ``emergent'' 
category, will be subject to a rate that reflects their size and likely 
cost structure and that is appropriately higher than the marginal rate 
applicable to larger and more efficient providers. Tier I, which also 
applies to the first 1,000,000 minutes of each larger provider, allows 
the Commission to set a rate that is high enough to ensure that each 
provider is able to cover its

[[Page 39679]]

relatively fixed, less variable costs. The Commission expands the Tier 
II boundary, as well, to 2,500,000 minutes, for similar reasons. 
Expanding the Tier II boundaries, which applies to the minutes of all 
providers in excess of the 1,000,000-minutes threshold and up to the 
2,500,000-minutes ceiling, enables the Commission to set a rate that is 
appropriately lower than the Tier I rate, but higher than the rate for 
Tier III, which will currently apply only to the largest provider, 
whose per-minute costs are far lower than any other provider's. The 
Tier II rate can thus be set low enough to ensure that providers with 
more than 1,000,000 minutes are not compensated far in excess of their 
allowable costs, but high enough to ensure that such providers have an 
incentive to continue providing additional minutes of service. By 
increasing the upper boundary of this tier, as well as Tier I, the 
Commission also limits any risk of eroding a provider's incentive to 
continue growing as its monthly minutes approach a tier boundary. The 
lower Tier III rate, in turn, will appropriately be the marginal rate 
for the largest, lowest-cost provider.
    39. Application of rate tiers to commonly owned providers. 
Regarding the recent merger of two VRS providers, Purple 
Communications, Inc. (Purple), and CSDVRS, LLC d/b/a ZVRS (ZVRS), there 
is disagreement among the commenters as to whether the compensation 
rate tiers should apply to these now-affiliated companies separately or 
on a consolidated basis, prior to their full consolidation. The VRS 
compensation system should be designed, as far as possible, to avoid 
creating undesirable incentives to exploit the tier structure by 
creating multiple subsidiaries for the provision of VRS. However, the 
consent decree that authorized the merger between ZVRS and Purple 
specifically includes language providing that the two entities will 
continue to operate and submit requests for compensation payments as 
separate VRS providers, and will be treated as separate entities for 
compliance purposes, for up to 36 months after the effective date 
(i.e., until February 15, 2020), after which they will consolidate the 
operations of the two VRS providers. As applied here, that 
determination means that the two companies will be treated as separate 
entities for purposes of the tiered rate structure until February 14, 
2020, or until such time that these companies consolidate their 
operations. After February 14, 2020, or from the date of consolidation 
if it takes place earlier, these companies will be treated as a single 
provider for purposes of the tiered rate compensation structure. To 
ensure compliance with this outcome, the Commission directs ZVRS to 
provide the Commission with 60 days notice prior to such consolidation.
    40. Rate period and adjustments. As with the prior rate plan, the 
new rate plan will be four years in duration. A four-year period is 
long enough to offer a substantial degree of rate stability, thereby 
(1) giving providers certainty regarding the future applicable rate; 
(2) providing a significant incentive for providers to become more 
efficient without incurring a penalty; and (3) mitigating any risk of 
creating the ``rolling average'' problem previously identified by the 
Commission regarding TRS, in which the use of rates based on averaged 
provider costs, if recalculated every year, could leave some providers 
without adequate compensation, even if they are reasonably efficient. 
On the other hand, a four-year period is short enough to allow an 
opportunity for the Commission to reset the rates in response to 
substantial cost changes or other significant developments that may 
occur over time. Given the lack of support for continuing six-month 
adjustments, the Commission adopts the administratively simpler 
approach of having rate adjustments occur annually over the next four-
year rate period.
    41. Rate Levels. In setting rate levels, the Commission seeks to 
limit the likelihood that any provider's total compensation will be 
insufficient to provide a reasonable margin over its allowable 
expenses, and to limit the extent of any overcompensation of a provider 
in relation to its allowable expenses and reasonable operating margin. 
Further, the Commission seeks to avoid any risk of setting a rate for 
any tier that is either below the marginal cost of a provider subject 
to that tier or excessively above such marginal cost.
    42. Tier I Rate Level. For this tier, the FNPRM sought comment on a 
range of possible rates--from $4.06 to $4.82 for the first year and 
from $3.74 to $4.82 for the fourth year. The current rate level of 
$4.06 per minute (in conjunction with the $3.49 rate currently 
applicable to a provider's minutes in excess of 1 million)--is too low 
to permit all providers to meet their allowable expenses and earn a 
reasonable operating margin. Instead, the Commission adopts the rate of 
$4.82 per minute recommended by the non-dominant providers, which will 
apply to all four years of the rate period. A Tier I rate at this level 
will allow all providers subject to it to recover their allowable 
expenses and earn an operating margin within the zone of 
reasonableness. This Tier I rate level also provides an appropriate 
incentive for emergent providers to grow their businesses beyond 
500,000 minutes.
    43. Tier II. The Commission adopts a Tier II rate of $3.97 per 
minute for all four years of the rate period. For this tier, the FNPRM 
sought comment on a range of possible rates--from $3.49 to $4.35 for 
the first year and from $3.08 to $4.35 for the fourth year. The $3.97 
rate the Commission adopts is roughly in the middle of the range of 
Tier II options for the first year. The $4.35 per minute rate advocated 
by the non-dominant providers is higher than is necessary to allow 
providers to recover their allowable costs and earn a reasonable 
operating margin. On the other hand, the current rate level of $3.49, 
combined with the current Tier I level, is too low to permit all 
providers to earn a reasonable operating margin. Based on the data 
reported by providers, applying the $3.97 rate for all four years of 
the rate period, in conjunction with other applicable rates, will allow 
all providers subject to this rate to recover their allowable expenses 
and earn an operating margin within the zone of reasonableness the 
Commission has adopted. At $3.97, this rate is also above the allowable 
expenses per minute of any provider subject to the Tier II rate, thus 
minimizing the risk of deterring such a provider from increasing its 
VRS minutes. At the same time, the Tier II rate is at a level that, in 
conjunction with other applicable rates, limits any overcompensation of 
providers subject to it.
    44. Tier III. For this tier, the FNPRM sought comment on a range of 
possible rates--from $2.83 to $3.49 for the first year and from $2.63 
to $3.49 for the fourth year. The Commission concludes that the rate 
level for Tier III should be $3.21 in the first year and $2.63 per 
minute in the final year. The $2.63 rate is higher than the average 
allowable expenses per minute for the current provider subject to this 
tier, and, in conjunction with other applicable rates, will allow 
providers that fall into this tier to earn an operating margin over 
allowable expenses that is within the zone of reasonableness the 
Commission has adopted. However, because this rate is a substantial 
reduction from the current Tier III rate, a gradual transition to reach 
this rate level is appropriate. Accordingly, the Commission adopts a 
rate of $3.21 per minute for Fund Year 2017-18, the first year of the 
rate plan period. This continues the ongoing adjustment of the Tier III 
rate, under the previous rate plan, under which it dropped by $.38 per 
minute per year, as

[[Page 39680]]

the initial rate of $3.21 is $.38 below the approximate average ($3.59) 
of the $3.68 and $3.49 Tier III rates applicable during the 2016-17 
Fund Year. The Tier III rate will be reduced by another $0.38 in Fund 
Year 2018-19, to a rate of $2.83 per minute. For the final two years, 
the Tier III rate will be $2.63 per minute.
    45. Although Sorenson asserts that a proper analysis of VRS costs 
indicates the Tier III rate should be higher, the Commission does not 
rely on Sorenson's analysis for several reasons. First, projections for 
the second year out (in this case, 2018), which are included in 
Sorenson's analysis, historically have had a poor record of accuracy. 
Second, Sorenson's cost calculation includes costs that are not 
allowable, as well as a 15.9% operating margin, which is outside the 
zone of reasonableness the Commission has adopted.
    46. Aggregate effect of the rate levels adopted. The approach 
adopted here effectively balances the Commission's overarching goal of 
maintaining competition and consumer choice with its obligation to 
administer the Fund in an efficient manner. When aggregated, if the 
tiered compensation rates currently in effect were to be extended for 
four more years, assuming the present growth of this service, 
compensation payments from the TRS Fund to VRS providers would be 
expected to total (over these four years) approximately $1,887,000,000. 
This figure would swell to approximately $1,925,000,000, were the 
Commission to adopt the single-rate approach proposed by Sorenson at 
the lowest rate that Sorenson deems acceptable--$3.73 per minute. This 
would not only result in an increase of about $38 million over 
extending the current rates, but also would stifle competition in the 
VRS market by likely eliminating all but one provider. By contrast, 
under the tiered rate plan adopted today, the Commission expects that 
the total cost to the TRS Fund will be approximately $1,835,000,000, 
which will produce a cost savings of approximately $52 million compared 
to current rates and preserve the competitive VRS environment that 
consumers now enjoy.

Other Compensation Matters

    47. Audits for providers receiving the emergent rate. The existing, 
more generally applicable rules regarding audits are sufficient to 
address any accuracy issues regarding emergent providers' costs. 
Therefore, the Commission declines to adopt a separate, mandatory audit 
requirement for providers receiving the emergent rate. However, the 
Commission reminds all current and potential VRS providers that their 
costs may be subject to audit at any time to assure the accuracy and 
integrity of TRS Fund compensation rates and payments.
    48. Exogenous costs. In general, the 2007 model for exogenous cost 
recovery is procedurally sufficient for addressing provider requests 
for compensation for exogenous costs. Substantively, given that the 
tiered rates set in document FCC 17-86 are intended to reduce VRS 
compensation rates in the direction of cost-based levels that have yet 
to be reached, the Commission adopts the following conditions to ensure 
that exogenous cost recovery does not result in increasing the 
disparity between Fund expenditures and actual provider costs. 
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 service 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 current allowable-expenses-plus-operating margin to 
exceed its VRS revenues.
    49. Effective date. VRS compensation rates historically have been 
set prospectively and are normally not adjusted retrospectively unless 
an error has been made. In establishing the rates applicable to the 
current period, the Commission acted appropriately based on the record, 
and the Commission is not aware of any compelling reason to reconsider 
those ratemaking decisions. Further, while the Commission found it 
necessary in 2016 to retrospectively apply an emergency rate freeze 
with respect to the smallest VRS providers, the Commission does not 
find that a comparable emergency exists now necessitating further 
adjustment of rates for the same period for which they were already 
adjusted once on an emergency basis. Accordingly, the Commission 
declines to give the new rates retrospective effect back to January 1, 
2017; rather, the rates the Commission adopts are effective as of July 
1, 2017.
    50. The Commission finds good cause to make the rule changes 
adopting a new four-year rate plan in document FCC 17-86 effective as 
of July 1, 2017. The current rate plan was scheduled to expire on June 
30, 2017. Providers have been aware of this pending expiration since 
2013, and have further been aware of the Commission's proposal to 
establish a new rate plan going forward. To avoid unnecessary 
disruption to VRS providers' operations and to ensure the ability of 
consumers to continue to place and receive VRS calls, the Consumer and 
Governmental Affairs Bureau (Bureau) recently acted to waive the June 
30, 2017 expiration of the existing rates and directed Rolka Loube to 
continue compensating VRS providers at the prevailing rates, pending 
further action by the Commission.
    51. As the Commission now takes action to establish a new four-year 
rate regime, the Commission directs Rolka Loube to compensate VRS 
providers at the applicable rates adopted herein for all compensable 
minutes of use incurred beginning July 1, 2017, except that, to ensure 
that the release of document FCC 17-86 after July 1 does not adversely 
affect any VRS provider, the Commission will not apply the reduction in 
Tier III rates to any compensable minutes of use incurred between July 
1 and the release date of document FCC 17-86. To implement this 
provision (given that minutes of use are compensated on a monthly 
basis), the Commission directs Rolka Loube to compensate any provider 
with Tier III minutes in July 2017 at a rate of $3.49 per minute for 
the first X Tier III minutes, where X equals the number of compensable 
minutes of use incurred between July 1 and the release of document FCC 
17-86. So if a VRS provider has no Tier III minutes in July 2017, this 
provision will not affect it; if a provider has X or fewer Tier III 
minutes, then all such minutes will be compensated at the higher $3.49 
rate; and if a provider has more than X Tier III minutes, then it will 
receive $3.49 per minute for the first X Tier III minutes and $3.21 for 
all remaining Tier III minutes. The Commission also directs the Bureau 
to provide actual notice to known VRS providers by sending them a copy 
of document FCC 17-86.
    52. Historical Cost vs. Projected Costs. For purposes of document 
FCC 17-86, a review of the past relationships between projected and 
actual costs indicates that the most reliable reference points for cost 
calculations when rates are set are the actual costs reported for the 
previous calendar year and the projected costs for the current calendar 
year. The least reliable reference point is the projected costs for the 
year after the current year. Accordingly, as a reference point for cost 
calculations for purposes of document FCC 17-86, the Commission uses 
the weighted average of each provider's actual costs and demand for 
2016 and projected costs and demand for 2017.

Other Matters--Server-Based Routing

    53. Under the TRS numbering rules, calls that involve multiple VRS

[[Page 39681]]

providers are routed based on the information provided in the TRS 
Numbering Directory. Section 64.613(a) of the Commission's rules 
currently requires that the Uniform Resource Identifier (URI) for a VRS 
user's telephone number contain the IP address of the user's device. 
However, the VRS Provider Interoperability Profile technical standard 
provides for the routing of inter-provider VRS and point-to-point video 
calls to a server of the terminating VRS provider rather than directly 
to a specific device. The technical standard thus specifies the use of 
call routing information that contains provider domain names, rather 
than user-specific IP addresses. To permit the implementation of the 
VRS Provider Interoperability Profile, which has been incorporated by 
reference into the Commission's rules, it is necessary to amend the TRS 
Numbering Directory rule. This change will foster the implementation of 
interoperability, thereby enhancing functional equivalence. In 
addition, allowing routing based on domain names will promote TRS 
regulation that ``encourage[s] . . . the use of existing technology and 
do[es] not discourage or impair the development of improved 
technology,'' as required by 47 U.S.C. 225(c)(2), and will improve the 
efficiency, reliability, and security of VRS and point-to-point video 
communications, thus advancing these important Commission objectives as 
well. The Commission also finds that server-based routing will not 
impair the Commission's ability to prevent waste, fraud, and abuse in 
the VRS program.

Other Matters--Research and Development

    54. The Commission adopts its proposal in the FNPRM to direct the 
TRS Fund administrator, as part of annual ratemaking proceedings, to 
include in the proposed TRS Fund administrative budget an appropriate 
amount for Commission-directed research and development R&D. These 
funds will enable the Commission to ensure that TRS evolves with 
improvements in technology. Because the TRS Fund administrator 
previously submitted its recommended budget for the 2017-18 Fund Year 
without recommending a specific amount for R&D, the Commission also 
allocates $6.1 million from the TRS Fund to be used for R&D projects to 
be overseen by the Commission in the 2017-18 TRS Fund Year.

Other Matters--Repeal of the Neutral Video Communications Service 
Platform

    55. The Commission adopts its proposal to delete the rule 
provisions relating to the neutral video communications service 
platform (Neutral VRS Platform). Although the Commission requested bids 
to build the Neutral VRS Platform, no acceptable bids were received, 
and the Commission canceled that procurement. Because no party has made 
any showing that the Commission should request new bids for the Neutral 
VRS Platform or otherwise expressed any interest in utilizing it, the 
Commission (i) removes Sec. Sec.  64.601(a)(20) and (45), 64.611(h), 
and 64.617 and (ii) modifies Sec. Sec.  64.604(b)(2)(iii), (b)(4)(iv), 
and (c)(5)(iii)(N)(1)(iii) and 64.606(a)(4) of the Commission's rules 
to eliminate references to the Neutral VRS Platform and VRS 
communications assistant (CA) service providers (the entities that 
would have made use of the platform).

Other Matters--Technical Correction to the VRS Speed-of-Answer Rule

    56. In the 2013 VRS Reform Order, the Commission modified Sec.  
64.604(b)(2)(iii) of the Commission's rules, the speed-of-answer rule, 
changing it from (a) a requirement to answer 80% of all VRS calls 
within 120 seconds, measured on a monthly basis, to (b) a requirement 
to answer 85% of all VRS calls (i) within 60 seconds, measured on a 
daily basis, by January 1, 2014, and (ii) within 30 seconds, measured 
on a daily basis, by July 1, 2014. The United States Court of Appeals 
for the District of Columbia Circuit (D.C. Circuit) vacated this aspect 
of the 2013 VRS Reform Order. The court ruled that, pending further 
action by the Commission, its decision ``will have the effect of 
reinstating the requirement that 80% of VRS calls be answered within 
120 seconds, measured on a monthly basis.'' The Commission therefore 
amends Sec.  64.604(b)(2)(iii) of its rules to comply with the mandate 
of the D.C. Circuit and provide for a speed-of-answer requirement to 
answer 80% of all VRS calls within 120 seconds, measured on a monthly 
basis.

Order

    57. In the Order (2017 VRS Improvements Order), FCC 17-26, 
published at 82 FR 28566, June 23, 2017, the Commission set aside the 
effectiveness of the VRS Provider Interoperability Profile technical 
standard until the Commission resolved the apparent conflict between 
the VRS Provider Interoperability Profile technical standard, under 
which VRS providers employ server-based routing, and the existing 
Commission rule, under which they must route calls based on the IP 
address of the user's device. Now that the Commission, in document FCC 
17-86, has amended 47 CFR 64.613(a)(2) to permit server-based routing, 
the Commission reestablishes the effectiveness of the rule amendment 
incorporating the VRS Provider Interoperability Profile, adopted in the 
Report and Order (2017 VRS Interoperability Order), DA 17-76, published 
at 82 FR 19322, April 27, 2017.

Final Regulatory Flexibility Analysis

    58. As required by the Regulatory Flexibility Act of 1980 (RFA), as 
amended, the Commission incorporated an Initial Regulatory Flexibility 
Analysis (IRFA) into the FNPRM. The Commission sought written public 
comment on its proposals in the FNPRM, including comment on the IRFA. 
No comments were received on the IRFA. This Final Regulatory 
Flexibility Analysis (FRFA) conforms to the RFA.

Need for, and Objectives of, the Proposed Rules

    59. Document FCC 17-86 addresses server-based routing of VRS calls, 
and funding for Commission-directed R&D.
    60. First, by amending TRS rules to permit server-based routing, 
document FCC 17-86 expands the ways that VRS calls can be routed. Under 
a new interoperability standard, calls may be routed to a server of the 
terminating VRS provider that serves multiple VRS users and devices, 
rather than directly to a specific device. This new routing method uses 
the providers' domain names, rather than user-specific IP addresses, as 
is currently required.
    61. Second, the Commission directs the TRS Fund administrator, as 
part of future annual ratemaking proceedings, to include for Commission 
approval proposed funding for Commission-directed R&D. Such funding is 
necessary to continue to meet the Commission's charge of furthering the 
goals of functional equivalence and efficient availability of TRS.

Summary of Significant Issues Raised by Public Comments in Response to 
the IRFA

    62. No comments were filed in response to the IRFA.

Small Entities Impacted

    63. The server-based routing rule amendment adopted in document FCC 
17-86 will affect obligations of VRS Providers. These services can be

[[Page 39682]]

included within the broad economic category of All Other 
Telecommunications. Five providers currently receive compensation from 
the TRS Fund for providing VRS: ASL Services Holdings, LLC; CSDVRS, 
LLC; Convo Communications, LLC; Purple Communications, Inc.; and 
Sorenson Communications, Inc. The R&D funding will have no impact on 
VRS providers.

Description of Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    64. Server-based call routing involves the use of domain names, and 
VRS providers using this method will need to keep records of such 
domain names. The domain names will then be processed as call routing 
information, just as other call routing information is processed 
currently. The funding for R&D will have no reporting, recordkeeping, 
or other compliance requirements.

Steps Taken To Minimize Significant Impact on Small Entities, and 
Significant Alternatives Considered

    65. Server-based call routing using domain names will be available 
to all VRS providers, will not be burdensome, and will advance 
interoperability. Greater interoperability will foster competition, 
thereby benefitting the smaller providers. To the extent there are 
differences in operating costs resulting from economies of scale, those 
costs are reflected in the different compensation rate structures 
applicable to large and small VRS providers.
    66. The funding for R&D does not have any compliance or reporting 
requirements impacting small entities. Indeed, small entities are not 
covered by the rule.
    67. No commenters raised other alternatives that would lessen the 
impact of any of these requirements on small entities vis-[agrave]-vis 
larger entities.

Federal Rules Which Duplicate, Overlap, or Conflict With, the 
Commission's Proposals

    68. None.

Ordering Clauses

    69. Pursuant to sections 1, 2, and 225 of the Communications Act of 
1934, as amended, 47 U.S.C. 151, 152, and 225, document FCC 17-86 is 
adopted, and part 64 of Title 47 is amended.
    70. Pursuant to section 553(d)(3) of the Administrative Procedure 
Act, 5 U.S.C. 553(d)(3), and Sec. Sec.  1.4(b)(1) and 1.427(b) of the 
Commission's rules, 47 CFR 1.4(b)(1), 1.427(b), the VRS compensation 
rates became effective on July 1, 2017.
    71. A copy of document FCC 17-86 shall be sent by overnight mail, 
first class mail and certified mail, return receipt requested, to all 
known VRS providers.
    72. The Commission's Consumer and Governmental Affairs Bureau, 
Reference Information Center, shall send a copy of document FCC 17-86, 
including the Final Regulatory Flexibility Analysis, to the Chief 
Counsel for Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 64

    Incorporation by reference, Individuals with disabilities, 
Telecommunications relay services, Video relay services.

Federal Communications Commission.

Marlene H. Dortch,
Secretary.

Final Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 64 as follows:

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

0
1. The authority citation for part 64 continues to read as follows:

    Authority:  47 U.S.C. 154, 225, 254(k), 403(b)(2)(B), (c), 715, 
Pub. L. 104-104, 110 Stat. 56. Interpret or apply 47 U.S.C. 201, 
218, 222, 225, 226, 227, 228, 254(k), 616, 620, and the Middle Class 
Tax Relief and Job Creation Act of 2012, Pub. L. 112-96, unless 
otherwise noted.


0
2. Amend Sec.  64.601 by:
0
a. Revising paragraph (a)(12);
0
b. Removing paragraph (a)(20);
0
c. Redesignating paragraphs (a)(14) through (19) as paragraphs (a)(15) 
through (20) and adding new paragraph (a)(14);
0
d. Revising paragraph (a)(26);
0
e. Removing paragraphs (a)(45) through (49);
0
f. Redesignating paragraphs (a)(27) through (44) as paragraphs (a)(30) 
through (47) and adding new paragraphs (a)(27) through (29); and
0
g. Revising newly redesignated paragraph (a)(30).
    The additions and revisions read as follows:


Sec.  64.601  Definitions and provisions of general applicability.

    (a) * * *
    (12) Default provider change order. A request by an iTRS user to an 
iTRS provider to change the user's default provider.
* * * * *
    (14) Hearing point-to-point video user. A hearing individual who 
has been assigned a ten-digit NANP number that is entered in the TRS 
Numbering Directory to access point-to-point service.
* * * * *
    (26) Point-to-point video call. A call placed via a point-to-point 
video service.
    (27) Point-to-point video service. A service that enables a user to 
place and receive non-relay video calls without the assistance of a CA.
    (28) Qualified interpreter. An interpreter who is able to interpret 
effectively, accurately, and impartially, both receptively and 
expressively, using any necessary specialized vocabulary.
    (29) Real-Time Text (RTT). The term real-time text shall have the 
meaning set forth in Sec.  67.1 of this chapter.
    (30) Registered Internet-based TRS user. An individual that has 
registered with a VRS or IP Relay provider as described in Sec.  
64.611.
* * * * *

0
3. Amend Sec.  64.604 by revising paragraphs (b)(2)(iii), (b)(4)(iv), 
and (c)(5)(iii)(N)(1)(iii) to read as follows:


Sec.  64.604   Mandatory minimum standards.

* * * * *
    (b) * * *
    (2) * * *
    (iii) Speed of answer requirements for VRS providers. VRS providers 
must answer 80% of all VRS calls within 120 seconds, measured on a 
monthly basis. VRS providers must meet the speed of answer requirements 
for VRS providers as measured from the time a VRS call reaches 
facilities operated by the VRS provider to the time when the call is 
answered by a CA--i.e., not when the call is put on hold, placed in a 
queue, or connected to an IVR system. Abandoned calls shall be included 
in the VRS speed of answer calculation.
* * * * *
    (4) * * *
    (iv) A VRS provider leasing or licensing an automatic call 
distribution (ACD) platform must have a written lease or license 
agreement. Such lease or license agreement may not include any revenue 
sharing agreement or compensation based upon minutes of use. In 
addition, if any such lease is between two eligible VRS providers, the 
lessee or licensee must locate the ACD platform on its own premises and 
must utilize its own employees to manage the ACD platform.
* * * * *
    (c) * * *
    (5) * * *
    (iii) * * *
    (N) * * *
    (1) * * *

[[Page 39683]]

    (iii) An eligible VRS provider may not contract with or otherwise 
authorize any third party to provide interpretation services or call 
center functions (including call distribution, call routing, call 
setup, mapping, call features, billing, and registration) on its 
behalf, unless that authorized third party also is an eligible 
provider.
* * * * *


Sec.  64.606   [Amended]

0
4. Amend Sec.  64.606 by removing paragraph (a)(4).


Sec.  64.611   [Amended]

0
5. Amend Sec.  64.611 by removing paragraph (h).


0
6. Amend Sec.  64.613 by revising paragraph (a)(2) to read as follows:


Sec.  64.613  Numbering directory for Internet-based TRS users.

    (a) * * *
    (2) For each record associated with a VRS user's geographically 
appropriate NANP telephone number, the URI shall contain a server 
domain name or the IP address of the user's device. For each record 
associated with an IP Relay user's geographically appropriate NANP 
telephone number, the URI shall contain the user's user name and domain 
name that can be subsequently resolved to reach the user.
* * * * *


Sec.  64.617   [Removed]

0
7. Remove Sec.  64.617.


0
8. Amend Sec.  64.621 by revising paragraph (b)(1) to read as follows:


Sec.  64.621   Interoperability and portability.

* * * * *
    (b) * * *
    (1) Beginning no later than December 20, 2017, VRS providers shall 
ensure that their provision of VRS and video communications, including 
their access technology, meets the requirements of the VRS Provider 
Interoperability Profile.
* * * * *
[FR Doc. 2017-17225 Filed 8-21-17; 8:45 am]
 BILLING CODE 6712-01-P