FCC Sets New Rates for IP CTS Compensation and Proposes New Minimum Service Standards

Kelley Drye & Warren LLP
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At its September 30 Open Meeting, the FCC took new steps to address costs and service quality related to its IP Captioned Telephone Services (IP CTS) program in a Report and Order, Order on Reconsideration, and Further Notice of Proposed Rulemaking. IP CTS, a form of telecommunications relay service (TRS), allows individuals who have difficulty hearing but are speech-capable to use a telephone with an IP-enabled device to communicate over the Internet by simultaneously listening to and reading real-time captions of what th other party is saying.

The item adopted by the Commission builds on its earlier efforts to promote sustainability of the TRS fund, address potential waste, fraud, and abuse in the IP CTS program, and improve IP CTS service quality for users. These efforts began in a June 2018 order where the FCC adopted a new methodology to set compensation rates for IP CTS services based on a calculation of the costs to provide the services and new measures to limit incidents of unnecessary IP CTS use. At the same time, the Commission adopted a Notice of Inquiry (NOI) seeking comment on potential new standards for the provision of those services. The FCC’s reforms continued in a November 2019 order, where the Commission expanded the TRS Fund contribution base for IP CTS to include intrastate, in addition to interstate, end-user revenues. Following that, in February 2019, the FCC created new rules requiring IP CTS providers to submit user registration information to the existing video relay service (VRS) Database to limit program access to only those determined to be eligible to use IP CTS. The instant Report & Order extends the compensation methodology adopted in June 2018 and the FNPRM proposes new standards to measure and test the quality of captioning based of the NOI responses and input from the Disability Advisory Committee.

Report & Order Setting IP CTS Compensation Rates

In the June 2018 order, the Commission took action to address IP CTS costs after finding that IP CTS had grown to represent nearly 80 percent of the costs covered by the TRS fund, presenting challenges for the viability of the fund, which has also been experiencing a shrinking contribution base. The Commission concluded that the difference between the amount of compensation paid out to IP CTS providers and the average reasonable costs of providing service had ballooned with the growth in demand for the service, resulting in industry profits of 50 percent over provider expenses. To reign in these costs, the June 2018 order eliminated the existing contribution calculation methodology and established interim compensation rates, with reductions of 10 percent each year for funding years 2018-2019 and 2019-2020, to get closer to what the FCC determined are the actual average costs to provide the service. The Commission determined average provider costs – similar to how it determines costs for other internet-based relay services – by using the weighted average of all providers’ projected and historical costs, as reported for the current and immediately preceding calendar years, respectively, plus a reasonable operating margin. The FCC released an FNPRM alongside the June 2018 order seeking input on potential replacement methodologies that would better determine compensation amounts after the interim rates expired on June 30, 2020. On May 29, 2020, the Commission extended the current rate through September 30, 2020, to give itself time to determine whether the COVID-19 pandemic had a significant effect on IP CTS costs and demand for rate setting purposes.

The FCC ultimately decided to retain the weighted average cost methodology, rather than adopting any of the alternatives proposed by the Commission and commenters, because, according to the Report & Order, it has developed a reasonably reliable and consistent approach to determining the reasonable costs for TRS using the methodology, no party identified a more reliable alternative that would produce more accurate results, the average cost methodology provides incentives for TRS providers to increase their efficiency to capture profits, and maintaining the methodology provides stability while IP CTS using automatic speech recognition (ASR) technology is being further deployed. However, the Commission left open the possibility that it would revisit alternative compensation methodologies, such as a separate compensation rate for fully automatic IP CTS, a reverse-auction approach, and price-cap adjustments, when it becomes clearer how fully automatic captioning methods will affect provider costs.

Using the existing methodology, the Commission set new compensation rates through the end of the 2021-22 Funding Year by extending the “glide path” created in the 2018 Order to complete the process of bringing expenditures in line with the average reasonable costs of providing IP CTS service as determined by the Commission. Rather than doing a flash cut from the current $1.58 per minute rate to the reasonable cost rate of $1.30, the Commission reduced the rate to $1.42 beginning on December 1, 2020, followed by a reduction to $1.30 beginning July 1, 2021 through June 30, 2022. The FCC predicts these new rates will save roughly $200 million for the TRS Fund over the term. It opted to retain a two-year cycle, rather than extending the rate out to a longer time frame, because it anticipates that the further deployment of ASR technology is likely to change industry cost structures significantly, requiring the Commission to revisit compensation rates sooner to avoid recreating a major gap between TRS Fund expenditures and actual IP CTS costs.

Consistent with the FCC’s plans to continue reducing compensation rates, the Order on Reconsideration denied a request by Sprint to overturn the interim compensation rates set in 2018, which the Commission said has already saved the TRS Fund more than $350 million.

FNPRM on Quality of Service Standards and Testing

The FNPRM proposes to amend the minimum TRS standards applicable to IP CTS and CTS to provide quantifiable, measurable standards and rules on how to test the quality of telephone captioning services. Specifically:

  • Caption Delay – The FNPRM proposes to adopt a minimum standard for caption delay by defining “caption delay” as “the difference in time (in seconds) between when a word can be heard in the audio and when that word appears in the stream of captions on the caption user’s primary display” and seeking comment on the average number of seconds that should be considered the maximum acceptable delay for any form of captioning.
  • Accuracy – The FCC’s existing rules require that calls be transcribed “verbatim” and that typing, grammar, and spelling be “competent.” The FNPRM proposes to amend its rules to combine accuracy with completeness in a single metric – “Word Error Rate” – which is the number of words that are incorrectly inserted, omitted, or substituted compared to the total number of words in a captioned voice communication. It seeks comment on the maximum Word Error Rate that should be permitted.

The FNPRM proposes a set a requirements to test whether providers are meeting the standards, seeks comments on the consequences for failure to meet the standards, and asks whether testing should be conducted by the Commission or an external entity selected and supervised by providers. The Commission decided not to make proposals on a number of ideas raised in the NOI, saying responses to those ideas were mixed.

The Commission has not signaled that other significant IP CTS reforms should be expected before it revisits compensation rates for Funding Year 2022-23.  We will continue to monitor the Commission’s IP CTS proceeding. 

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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