Sorenson Says Proposed VRS Rates Could Lead to Bankruptcy
The largest video relay service provider said it could go bankrupt if VRS rates proposed by the National Exchange Carrier Association are adopted by the FCC, which is seeking comment on them. Sorenson Communications would have to lay off employees and keep customers waiting if the rates are adopted by the commission, Chief Marketing Officer Paul Kershisnik said. Large providers like the company now are paid under Tier 3, offering the lowest compensation rate at about $6.30 per minute. For the July 2010 to June 2011 fund year, NECA proposed new rates of $5.77 for Tier 1, $6.03 for Tier 2 and $3.89 for Tier 3.
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With the lower rate, “you can’t afford to have that many interpreters on staff,” Kershisnik said. Sorenson would go from answering calls in 10 seconds or less to longer than two minutes, he said. “If our customers are kept waiting, they'll dial around to competitors and put the burden on their call centers.” Consumer & Governmental Affairs Bureau Chief Joel Gurin declined comment.
The FCC has been inundated with comments on (VRS) rates in recent weeks, expressing concern the industry will suffer a decline in service if the rates proposed by NECA are adopted. Sorenson has inspired about 3,000 letters to be sent from its employees, many highlighting that the new rates would lead to bankruptcy for the company. The company also educated more than 100,000 of its customers on how to file similar letters to the FCC, said Mike Maddix, government and regulatory affairs director. Sorenson hired Regina Keeney, a regulatory attorney who formerly headed the FCC’s Common Carrier, Wireless and International bureaus. Previously, the company was represented by current Wireless Bureau Chief Ruth Milkman.
Some providers say Sorenson’s rally against the new rates is an attempt at ensuring it can pay back a hefty debt to investors. Sorenson last year issued $735 million in secured bonds to “mainly refinance existing debt,” Kershisnik said. “Our sponsors have put in a lot of money and this was an opportunity to give them a return on investment.”
The industry will not succumb to bankruptcy, said some VRS attorneys. “We hate the scare tactics,” said Jeff Rosen, Snap VRS attorney. “I'm not worried about VRS.” Although the new rates won’t be a sustainable level of compensation, Rosen is confident that the FCC won’t “effect a drastic change in the interim rate” and adopt NECA’s proposal, he said. “It never occurred to me that VRS will go into bankruptcy,” he said. “It’s their responsibility if VRS providers made bad business decisions."
Kershisnik said no one will be able to operate at $3.89 under Tier 3. Other providers like Purple Communications and Convo Relay say the proposed rates aren’t sufficient, but the industry won’t end up broke. Basing compensation on a single measure of weighted average costs “can distort true costs and does not take into account critical economies of scale of the single dominant provider compared to smaller providers,” Purple said. “We believe the FCC has sufficient information to come up with an appropriate number to ensure it carries out the intents of the Americans With Disabilities Act,” said Kelby Brick, Purple attorney.
Sorenson uses a portion of compensation funds to give customers free video phones and for research and development for the phones, expenses that some say aren’t allowable through the VRS fund. NECA lists items like administrative expenses, depreciation expenses and marketing expenses that are allowable through the compensation program. Although FCC rules don’t specifically allow for reimbursement of items like products and staff training, the VRS rates have not been cost-based for some time, said Joe Douglas, NECA vice president of government relations. “Providers choose how to apply the funding they receive."
"It seems as though the FCC isn’t allowing their costs to include video phones in the relay services rate,” said Alfred Sonnenstrahl, former executive director of Telecommunications for the Deaf and Hard of Hearing. “I believe the FCC proposed rate is stressing what’s only within the walls of a VRS calling center. It doesn’t include Sorenson’s expenditure of R&D on video phones."
"If certain providers feel they'll go bankrupt it makes a lot of sense to share their data with the commission and the public,” Purple’s Brick said. “It’s difficult for people to make claims without being transparent in the first place.” Since the comment period closed in May, Sorenson began distributing information relating to their costs of providing relay services, including an audit by Pricewaterhouse, Sorenson’s Maddix said.
The FCC should clear up uncertainty surrounding product compensation, said Ed Bosson, Convo Relay vice president. “Product and service should be separate. Video phones should be sold.” There should also be a procedure “to resolve the white label companies that are sprouting all over,” and “tighten the criteria for entering the VRS industry,” he said. Rosen said that the rates should support expenses beyond the minimum items necessary to run a VRS operation. “NECA’s proposals don’t include all the charges necessary to conduct business,” he said. “We provide video phones, which is critical. You can’t access services without video phones.”