TR Daily Court Upholds FCC’s Tiered Rate Structure for VRS
Tuesday, July 24, 2018

Court Upholds FCC’s Tiered Rate Structure for VRS

The U.S. Court of Appeals for the District of Columbia today rejected challenges to the FCC’s 2017 order retaining a tiered rate structure for reimbursing providers of video relay service (VRS), although it warned that if the Commission fails to consider “all possible solutions” to the problem of subsidizing the inefficiencies of higher-cost providers, it could be viewed as arbitrary “at some point.”

Sorenson, the largest VRS provider, which had challenged the FCC order adopted in CG dockets 10-51 and 03-123, had objected to the tiered rate structure, which compensated smaller VRS providers that generate fewer overall VRS minutes at higher per-minute rates than Sorenson. It argued that the rate structure is incompatible with the provision in section 225 of the Communications Act that calls for efficiency in the FCC’s disability access efforts. It also argued that the FCC had tried to justify the tiered rate structure by essentially redefining the “functional equivalence” in the statutory provisions on disability access to include the idea of maintaining competition.

The FCC had argued that in addition to supporting functional equivalence by helping ensure that VRS users have the same access to competition that voice telephony users enjoy, the tiered rate structure also is more efficient in the long run because it helps keep the VRS market from becoming a monopoly.

In an opinion for the unanimous three-judge panel in “Sorenson Communications LLC v. FCC” (case 17-1198), Circuit Judge Thomas B. Griffith wrote that because section 225 does not define “efficiency,” the court applied its ordinary meaning.

“This definition, however, does not ‘unambiguously foreclose’ the FCC’s interpretation. The ordinary meaning of ‘efficiency’ does not indicate whether the FCC’s mandate to avoid waste must focus exclusively on achieving the lowest cost for a given set of services in the short term or whether, instead, the agency may also consider projected longer-term costs and the effects of its compensation choices on the quality of services users receive. Maximizing cost savings today could diminish the market’s efficiency — cost relative to service quality — tomorrow, and nothing in the ordinary meaning of the word prohibits the FCC from considering those downstream implications. Nor does the word dictate how the agency may promote the long-term health of the VRS market, whether it be through preserving multiple market participants or using a tiered-rate structure to do so. Because the efficiency mandate does not unambiguously foreclose the FCC from considering the VRS market’s long-term efficiency, nor dictate how the agency may pursue that end, the FCC’s interpretation passes the first step” of the “Chevron” test for deciding whether an agency is due deference in its interpretation of its authorizing statutes.

“At Chevron’s second step, we ask whether the FCC’s interpretation is reasonable. … We conclude that it is. Indeed, it would be hard to argue otherwise. How could it be unreasonable for the FCC to interpret its efficiency mandate to include consideration of the VRS market’s long-term efficiency? Not even Sorenson argues that. Instead, Sorenson claims that the FCC’s chosen technique for promoting long-term efficiency — preserving multiple market participants — is an unreasonable method of pursuing efficiency. Embedded within this argument, Sorenson also challenges as unreasonable the FCC’s method for preserving multiple market participants: a tiered-rate structure. We find these challenges unpersuasive, and we defer to the FCC’s ‘reasoned explanation for why it chose [its] interpretation,’” Judge Griffith continued.

“Sorenson also attacks the 2017 Order with several arguments that it styles as arbitrary-and-capricious challenges under the APA. Sorenson claims the agency’s retention of the tiered-rate structure was arbitrary and capricious because (1) the FCC reversed without explanation its prior position that the tiered-rate system was inefficient; (2) there is no record evidence that smaller providers will become efficient in the future; (3) the design of the tiers will entrench the inefficiencies of smaller providers and harm Sorenson; and (4) the agency permitted two VRS providers that merged to be compensated as separate entities under the tiers,” the judge wrote.

He said, “Arbitrary-and-capricious review is generally deferential, but it is ‘particularly deferential’ in cases such as this, which ‘implicate competing policy choices, technical expertise, and predictive market judgments.’ Ad Hoc Telecomm. Users Comm. v. FCC, 572 F.3d 903, 908 (D.C. Cir. 2009) (citations omitted). When reviewing an agency’s predictive judgment under these circumstances, we ‘require only that the agency acknowledge factual uncertainties and identify the considerations it found persuasive.’”

The court found that the FCC met this requirement.

Judge Griffith concluded, “The tiered-rate structure in the 2017 Order ‘represents the agency’s expert assessment, and we examine “not whether the FCC’s economic conclusions are correct or are the ones that we would reach on our own, but only whether they are reasonable.”’ … We conclude that they are. Though the FCC acted reasonably in this case, we note that the agency has an ongoing, independent obligation to satisfy its statutory mandate. Given the agency’s longstanding concern with the subsidization of high-cost providers, a failure to consider all possible solutions to this problem could well become arbitrary at some point.”

The court rejected a separate petition for review from the Video Relay Services Consumer Association on the grounds that it lacked standing and is not a genuine member association. At oral argument, the attorney for VRSCA acknowledged that Sorenson provides “substantial” funding for the organization and that VRSCA’s executive director also provides funding, but could not respond to the judges’ queries as to whether any other parties contribute funding (TR Daily, May 7).

“Even in light of its supplemental briefing after oral argument, VRSCA appears to lack many of the ‘indicia of a traditional membership’ association, such as a membership that finances the association’s activities or plays a role in selecting its leadership. … Its reply brief and post-argument submission instead invoke as “members” the passive subscribers to its e-mail list and individuals who ‘follow’ the group’s Facebook page,” Judge Griffith wrote.

“And we now are told that Sorenson ‘provides 100% of VRSCA’s financial support,’ … which casts further doubt on VRSCA’s status as a constitutionally viable representative of the interests of its ‘members,’” he added.

Judge Griffith was joined in the decision by Circuit Judges Patricia A. Millett and Cornelia T.L. Pillard. —Lynn Stanton, [email protected]


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