The American video relay service (VRS) industry is set to earn three companies a combined $600 million in revenue for the current fund year. On Sept. 28, the United States Federal Communications Commission (FCC) released a bombshell Report and Order, creating dramatic change for companies in this space. Let’s explore what those changes are and who stands to benefit. 

Introduction to the VRS industry

In the United States, Deaf and hard-of-hearing Americans enjoy broad rights to access telecommunications through Title IV of the Americans with Disabilities Act of 1990. In this section, telecommunication companies are required to make their services accessible to people with hearing loss. This requirement has evolved into a unique system where telecom providers charge individual phone subscribers a monthly fee, contributing to a common Telecommunication Relay Service (TRS) Fund. This fund provides several services for interstate calling, including VRS.  

The purpose of VRS is to allow Deaf people who use American Sign Language (ASL) to place phone calls to hearing people who speak English or Spanish. A Deaf person uses a webcam or videophone to connect to an ASL interpreter, who then places the call to a hearing person and interprets (usually simultaneously), or vice versa. The service operates around the clock, every day, and users are not limited in any way whom they may call or what they may talk about.

The FCC sets rules on the operation of the service and certifies companies to be approved providers. Once a company is certified, they market directly to Deaf individuals to select them as their carrier. Any calls between qualified individuals are then billed to the FCC every month. The rate of reimbursement is set by the FCC based on their regular review of provider costs across the industry. So, while the payment scheme suggests a B2G business with a single-payer (the FCC), the actual daily operation of the business is niche B2C, targeting individual Deaf people throughout the US.  

Certified providers

The VRS industry has seen the exit of dozens of providers in the past two decades. The most recent departure happened this summer, with Global VRS discontinuing their service, leaving just three active providers. 

Sorenson Communications, based in Salt Lake City, Utah, is by far the largest provider. Between their VRS service, captioned telephone (another type of FCC-paid TRS service), and their B2B interpreting business, Moody’s reported a combined revenue of $837 million for the last twelve months ending in September 2021. Majority ownership and control of Sorenson was acquired by Ariel Alternative Investments, LLC, a Chicago-based, black-owned private equity firm. Under its ownership, Sorenson may qualify for Minority Business Enterprise (MBE) certification by the National Minority Supplier Development Council. Sorenson distinguishes itself as the only provider that creates in-house proprietary videophone hardware, which it distributes to its users for free. Sorenson has expanded its operations to the UK by purchasing Sign Video. 

ZP Better Together, based in Austin, Texas, is a mid-sized provider in the industry. ZP’s roots are in CSDVRS, a nonprofit company established to serve this market in 2000. Eventually, CSDVRS was sold to private equity, rebranded as ZVRS, and then acquired Purple Communications to become ZP Better Together. Today, ZP is owned by Kinderhook Industries, a New York-based private equity firm. 

Convo Communications, also based in Austin, Texas, is a privately-held, Deaf-owned VRS company. Convo is the smallest of the providers and focuses on app-based access to VRS instead of hardware videophones. Convo is also a provider of SRV Canada VRS and has operations in the UK, South Africa, and Australia. 

Reimbursement changes

The rates for VRS have had a turbulent journey over the years, peaking in 2002 at a whopping $17.04 per minute reimbursement ($1,022/hour!), diverting into tiers based on minutes provided by the company, and finally hitting a floor in 2019 at $2.63 per minute for the largest companies. 

The introduction of tiers in 2008 and beyond was an attempt by the FCC to encourage competition and reduce the barrier to entry for new providers. From the start, Sorenson filed consistent protests to this scheme, especially as the distance between the upper and lower tiers grew. The FCC now has reversed course and collapsed the upper tiers, leaving an emergent category for companies producing less than 500k minutes per month and then two tiers for other providers (0-1M mins/month and 1M+ mins/month). A company producing 2M minutes per month, for example, would earn the first million minutes at the tier one rate and the second million at tier two, effectively experiencing a blended rate between the two. The elimination of tier 3 and the increase in the reimbursement rate for 2.5M minutes/month and up to $3.92 per minute mean a large windfall for the largest provider. 

Another big win for the companies was the FCC’s decision to set the five-year rate, ending June 30, 2028. In the past, the rate changed as frequently as yearly and sometimes was not communicated until the afternoon of June 30 to be effective in mere hours. The long-term rate allows VRS companies to make long-term planning decisions, potentially improve their debt ratings, and attract more equity capital.  

The large rate increases can be attributed to inflation (especially in interpreter wages) and the FCC expanding what costs it considers justified in running a VRS business. 

Nearly all industries have experienced inflationary pressures and margin compression in the last two years. However, the industry’s calculations on interpreter wage increases are quite astounding. The FCC reported that VRS company calculations show an estimated 65% increase in interpreter wage costs since 2021. This would mean that an interpreter earning $40 per hour in 2021 would earn $66 per hour today. 

Historically, the FCC has not allowed engineering costs to be part of its reimbursement scheme because it wanted to discourage proprietary systems development. These hardware and software systems were seen as barriers to entry for new providers. However, due to the growing demand for VRS embedded in third-party video conferencing platforms such as Zoom and Microsoft Teams, the FCC has ruled that “reasonable costs” are now allowed to make these platforms accessible through the TRS fund.

Industry trajectory

VRS and other forms of TRS were among a subset of industries bolstered by COVID-19 shutdowns. The FCC noted that “after the outbreak of the COVID-19 pandemic, there had been a sharp, unanticipated increase in demand for VRS.” This change makes sense given how many people were not working and stuck in their homes; calling family and friends was a good diversion. 

However, since the ease of stay-at-home orders and the rebounding of labor demand, VRS has continued a negative growth trajectory. This tracks with the overall decrease in phone usage in today’s culture partly due to texting and replacing some phone calls with mobile apps and websites. Just think: Would you rather call your pharmacy to refill your prescription or push a few buttons on their app?

Due to these trends, the volume projected by the FCC will be down by 9% this year. However, with the increases in reimbursement rate, the VRS portion of the TRS fund will expand by 19% to $626 million. The FCC has targeted the rates to provide an operating profit for companies within their declared “zone of reasonableness” between 7.75% and 12.35%, or between $48-77 million spread across all providers. 

Seeking comments

The FCC has asked the general public to comment on a few matters it is considering. There are two that are especially impactful for the most vulnerable VRS users. 

First, the FCC has determined that it wants to compensate providers for using Deaf interpreters in VRS. Deaf interpreters are individuals who are Deaf and usually work in a team with a hearing interpreter. In the VRS setting, they are sometimes used as specialists to interpret for Deaf people who are not fluent ASL users (either because of language deprivation or because they are foreign-born) or have intellectual disabilities. VRS companies today do not frequently use Deaf interpreters because they cannot bill for two interpreters in one call. Should this change, it would not only provide a needed service to vulnerable Deaf populations, but it would provide a solid career trajectory for Deaf interpreters throughout the country.

Second, the FCC is considering whether or not they should pay for a “double relay” so that a Deaf-Blind person can call a Deaf person with two different types of relay connected together. Currently, there is no mechanism for them to use the phone to talk to each other. The Deaf-Blind community is quite small, and the economic impact would be incredibly small in comparison to the positive impact on the community.  If you are a US citizen, provide your comments using proceeding number 10-51 in the first field of the form.

Conclusion

The United States continues to provide a robust and accessible solution, making telephone calls accessible to Deaf and Deaf-Blind people. This service has been nothing short of transformative for the lives of many Deaf Americans, opening up career opportunities and lines of communication to hearing families. This impactful service has become a half-billion-dollar industry spread among three companies. The recent order from the regulators at the FCC gives a huge lift to companies’ ability to innovate, finance their operations, and, yes, return substantial profit to their owners.