United States Court of Appeals, District of Columbia Circuit
May 7, 2018
Petitions for Review of an Order of the Federal
B. Verrilli Jr. argued the cause for petitioner Sorenson
Communications, LLC. With him on the briefs were Michael B.
DeSanctis, Ginger D. Anders, Sarah G. Boyce, and Rachel G.
Anthony C. Kaye argued the cause for petitioner Video Relay
Services Consumer Association. With him on the briefs was
Daniel J. Tobin.
Grey Pash Jr., Counsel, Federal Communications Commission,
argued the cause for respondents. With him on the brief were
Robert B. Nicholson and Robert J. Wiggers, Attorneys, U.S.
Department of Justice, Thomas M. Johnson, Jr., General
Counsel, Federal Communications Commission, David M. Gossett,
Deputy General Counsel, and Jacob M. Lewis, Associate General
Counsel. Richard K. Welch, Deputy Associate General Counsel,
Federal Communications Commission, entered an appearance.
Jeffrey T. Rosen, pro hac vice, argued the cause for amici
curiae Convo Communications, LLC, et al. With him on the
brief was George L. Lyon Jr.
Before: Griffith, Millett, and Pillard, Circuit Judges.
Griffith, Circuit Judge.
Relay Service (VRS) enables people with hearing or speech
impairments to communicate with people who use standard
telephones. The VRS user communicates in sign language with
an interpreter through a video connection, and the
interpreter speaks with the hearing person using a standard
phone. VRS is provided by several private companies who are
reimbursed through rates set by the Federal Communications
Commission (FCC). Two parties bring different challenges to
the rates set by the FCC in 2017: Sorenson Communications,
LLC ("Sorenson"), the largest VRS provider, and the
Video Relay Services Consumer Association (VRSCA), an
unincorporated information forum for VRS users. We dismiss
VRSCA's petition for lack of standing and deny
Sorenson's petition on the merits.
Americans with Disabilities Act directs the FCC to ensure
that telecommunications services are available and accessible
to people with hearing or speech impairments. See
Pub. L. No. 101-336, tit. IV, § 401, 104 Stat. 327, 366
(1990) (codified as amended at 47 U.S.C. § 225). These
services are broadly known as telecommunications relay
services (TRS), which enable a person who is "deaf, hard
of hearing, deaf-blind, or who has a speech disability to
engage in communication by wire or radio . . . in a
manner that is functionally equivalent to the ability of
a hearing individual who does not have a speech disability to
communicate using voice communication services by wire or
radio." 47 U.S.C. § 225(a)(3) (emphasis added). The
FCC must also ensure that TRS is "available, to the
extent possible and in the most efficient
manner," to people with hearing and speech
disabilities. Id. § 225(b)(1) (emphasis added).
The dispute in this case ultimately turns on whether the
FCC's compensation rates for TRS comply with §
225's mandate to provide functionally equivalent
communication services in the most efficient manner.
are several types of TRS, but only one is relevant here. VRS
"allows people with hearing or speech disabilities who
use sign language to communicate with voice telephone users
through video equipment." 47 C.F.R. §
64.601(a)(43). VRS video equipment functions somewhat like
Skype or Apple's FaceTime by providing a visual
connection between the caller and an American Sign Language
(ASL) interpreter who is employed by the VRS provider. The
interpreter then makes a standard voice call to the hearing
recipient and translates between the two, signing with the
caller and speaking with the recipient. See generally
Sorenson Commc'ns, Inc. v. FCC ("Sorenson
I"), 659 F.3d 1035, 1039 (10th Cir. 2011);
Sorenson Commc'ns, Inc. v. FCC
("Sorenson II"), 765 F.3d 37, 40 (D.C.
Cir. 2014). Ultimately, there are three interacting
components: VRS access technologies, such as a videophone;
the video communication "platform" that routes
calls; and the relay service provided by ASL-fluent
communications assistants. Order, Structure & Practices
of the Video Relay Serv. Program, 28 FCC Rcd. 8618, 8621
(2013) ("2013 Order").
the majority of VRS is provided by several private companies,
all of which are involved in this case as either petitioner
or amicus curiae. Sorenson is the dominant VRS provider,
holding approximately 80% of the market since at least 2013.
The four other VRS providers, two of which recently merged,
share the remaining 20% of the market and are amici in this
market is not a traditional competitive market. Under §
225, VRS users do not pay any additional costs for VRS beyond
what they would pay for standard telephone services.
See 47 U.S.C. § 225(d)(1)(D). Instead of
charging users for the additional cost of VRS, providers are
compensated through the FCC's Interstate TRS Fund
("TRS Fund"), which is supported by fees levied on
telecommunications services. See id. §
225(d)(3)(B); 47 C.F.R. § 64.604(c)(5)(iii)(A). The FCC
sets a per-minute rate to reimburse VRS providers for their
"reasonable costs" and then makes direct payments
to the providers from the TRS Fund based on their total
number of minutes. 47 C.F.R. § 64.604(c)(5)(iii)(E).
Under the current rate structure, Sorenson is also the
lowest-cost provider of VRS, meaning that the average VRS
call with Sorenson is cheaper for the TRS Fund than the
average call with other providers.
receive compensation, VRS providers must comply with certain
operational and customer-service requirements, called
"mandatory minimum standards." Id. §
64.604. These requirements are wide-ranging, for instance
specifying the technical types of calls that providers must
handle; establishing the process for addressing customer
complaints; and requiring ASL interpreters to have
"familiarity with hearing and speech disability
cultures, languages, and etiquette." Id. The
FCC promotes compliance with these standards through various
techniques, including competition among VRS providers.
2007, the FCC set a single per-minute compensation rate based
on all VRS providers' projections of their costs for the
upcoming year. See Telecomms. Relay Servs. &
Speech-to-Speech Servs. for Individuals with Hearing &
Speech Disabilities, 22 FCC Rcd. 20, 140, 20, 144-45 (2007)
("2007 Order"). That approach proved problematic,
however, so the FCC established a three-tiered rate structure
in 2007. Id. at 20, 163, 20, 168. This structure
compensated VRS providers based on the total number of
monthly minutes they projected they would provide. As a
provider's volume increased, the per- minute rate
decreased to account for the provider's lower marginal
costs as it benefited from economies of scale. Id.
at 20, 163, 20, 168. Thus smaller providers largely received
Tier I compensation, which compensates at the highest rate;
more established providers mostly received compensation under
Tiers I and II; and dominant providers (today, only Sorenson)
received compensation under all three tiers, earning
relatively less for the minutes provided in Tier III.
2010, the FCC established an interim three-tiered rate
structure for one year. See Order, Telecomms. Relay
Servs. and Speech-to-Speech Servs. for Individuals with
Hearing and Speech Disabilities, 25 FCC Rcd. 8689 (2010)
("2010 Interim Rate Order"). The rates were
designed as a placeholder until the FCC completed a review of
the VRS program, which was experiencing several challenges.
Id. at 8693. In particular, the FCC determined that
VRS providers were being "significantly
overcompensated," id. at 8698, because their
"projections consistently overstate[d] their
costs," id. at 8694-95. To address this
problem, the FCC based the interim rates on a blend of
providers' actual historical costs and the TRS Fund
administrator's analysis of providers' projected
sought judicial review of the 2010 Interim Rate Order in the
Tenth Circuit, and that court affirmed the FCC's order in
its entirety. Sorenson I, 659 F.3d 1035. The court
rejected Sorenson's various challenges to the VRS rates,
the FCC's ratemaking methodology, and the three-tiered
rate structure. Id. at 1050. As relevant here, the
court also upheld the FCC's decision to exclude the cost
of providing VRS video equipment from providers'
compensable expenses. Id. at 1045.
same day that the FCC adopted the 2010 Interim Rate Order,
the agency also issued a notice that it would "take a
fresh look" at VRS rates because of its concern that the
VRS program was "fraught with inefficiencies (at best)
and opportunities for fraud and abuse (at worst)."
Notice of Inquiry, 25 FCC Rcd. 8597, 8598, 8606 (2010). In
2011, the FCC issued an additional notice that discussed
possible options for improving the VRS program and solicited
comments and proposals from the public and VRS industry.
See Further Notice of Proposed Rulemaking, 26 FCC
Rcd. 17, 367 (2011) ("2011 FNPRM"). In particular,
the FCC sought comments on whether the agency should replace
the tiered-rate structure with a single rate. See
id. at 17, 418.
2013, the FCC issued an order that adopted a number of
structural reforms for the VRS market. See 2013
Order, 28 FCC Rcd. 8618. These reforms were designed to
remove barriers to effective competition among VRS market
participants. One structural reform sought to improve VRS
"interoperability." Interoperability ensures that
VRS users can make calls with other VRS users regardless of
their respective VRS providers. See id. at 8639.
Another structural reform sought to improve "equipment
portability," which refers to a VRS user's ability
to switch between default VRS providers without changing
their videophones. See id. The agency further
adopted a rule to establish a neutral video communications
platform ("Neutral VRS Platform"), which would
provide technical video capabilities for companies who might
want to provide only ASL translation services instead of an
entire VRS operation. See id. at 8656-63.
2013 Order also updated the tiered-rate structure with new
rates. The FCC designed the new tiers in light of its finding
that Sorenson's average cost per minute still fell below
the average per-minute cost of its smaller competitors.
See id. at 8700. The calls were cheaper on average
because, for one thing, Sorenson was able to spread its
overhead costs over many more minutes of service. Due to this
cost difference, the agency stated that it hoped to
transition the VRS market away from the tiered-rate structure
and toward a single, low rate in the future. Id. at
8698-706. The FCC expected that its new structural reforms
would make such a transition possible without
"unnecessarily constricting the service choices
available to VRS consumers" by driving smaller providers
out of the market. Id. at 8699; see also
id. at 9698 ("We also believe that our structural
reforms, once implemented, will eliminate any residual need
for tiered rates.").
advance the transition to a single rate, the agency planned
to narrow the gap between rate tiers over the course of four
years. Id. at 8699. By using this "glide
path," the agency hoped to eliminate the inefficiencies
of the tiers while still protecting the long-term
competitiveness and efficiency of the market. See
id. at 8704. Even though immediately adopting a single,
low rate might have brought some immediate savings to the TRS
Fund, the FCC found that it was "worth tolerating some
degree of additional inefficiency in the short term, in order
to maximize the opportunity for successful participation of
multiple efficient providers in the future, in the more
competition-friendly environment that [it] expect[ed] to
result from [its] structural reforms." Id. at
8699. And finally, the 2013 Order rejected once again
Sorenson's request to include video equipment as an
allowable cost in determining VRS rates. Id. at
petitioned our court to review the 2013 Order. We largely
upheld the order, remanding only one issue that is not
relevant today. See Sorenson II, 765 F.3d at 52. We
first found that several of Sorenson's challenges
essentially repeated arguments it had already made before the
Tenth Circuit in Sorenson I and were thus barred by
issue preclusion. These included its claim that the FCC was
required to adopt rates that reimbursed VRS providers for
equipment costs. See id. at 45. We otherwise
concluded that the tiered-rate structure, the applicable
rules, and the rates themselves were consistent with §
225 and were not arbitrary and capricious. See id.
at 45-52. Despite Sorenson's protests that the FCC had
already determined the tiered-rate structure to be
inefficient, we concluded that "the decision to retain
the tiers while transitioning to a competitive bidding scheme
[was] not ...