"Carceral Conglomerate" Makes Millions From Incarcerated, Their Friends and Families

Friday, 13 February 2015 10:46By Brian Dolinar and James Kilgore

Miguel Saucedo grew up in the Latino neighborhood of Little Village in Chicago. Now almost 30, Miguel recalls taking a five-hour drive as an 8-year-old to visit his older brother who was incarcerated downstate at Menard Correctional Center.

His family would load into a rented van for a daylong trip through long stretches of cornfields and arrive at a high-security fortress in the town of Chester, which bills itself as the "Home of Popeye the Sailor Man." Miguel recalls those journeys as a traumatic experience, at times the family being pulled over by local police and harassed along the way.

Over the years, the expense and inconvenience of the visits have often meant the family has relied on the phone to communicate with his brother. Miguel guesses his family has spent an average of about $100 a month in prison phone charges over the two decades his brother has been locked up. In an interview with Truthout, Miguel did a quick calculation of the total for these bills, "Can we just round it out and say it's $20,000?"

Currently, this money goes to Securus Technologies, which has an exclusive phone contract with the Illinois Department of Corrections (IDOC). Miguel identified Securus as "just another key player in this system of the prison industrial complex."

Based outside of Dallas, Texas, Securus is a leading force in a billion-dollar prison phone industry. The company has amassed a fortune by charging families like the Saucedos about $4 for a 15-minute phone call (plus additional fees). But it doesn't stop there. Securus has become a new corporate species: a carceral conglomerate.

Quickly swallowing up smaller companies and buying out its competitors, Securus owns an entire supply chain of existing and emerging prison technologies. The company stands at the cutting edge of video visitation, electronic monitoring and prison surveillance systems, constantly finding new products and markets across the landscape of mass incarceration. In turn, the company's profitability has made it a target for high-finance corporations specializing in takeovers.

The Roots of a Carceral Conglomerate

Securus' origins go back to the mid-1980s, when President Ronald Reagan was launching the "war on drugs." In 1986, a Colorado-based company called "Tele-Matic" was formed after the Federal Communications Commission (FCC) broke up AT&T's monopoly of the communications industry. Although it began by manufacturing pay phones (back at a time when there were public pay phones), the company quickly turned to the booming prison population. It created a system called "Strike Three!" which monitored prison phone calls.

In 1995, the company changed its name to T-Netix, rapidly winning contracts for many large prisons. In 1999, it bought out their main competitor, the Dallas-based Gateway Technologies, for $35.2 million, making T-Netix the biggest "inmate calling services" provider at the time.

Recognizing the future profitability of mass incarceration, H.I.G. Capital, a global investment firm headquartered in Miami, Florida, purchased T-Netix in 2004 for $70 million. That year, H.I.G also purchased Evercom, T-Netix's main competitor, which operated 2,000 correctional facilities in 45 states. H.I.G. merged the two and formed today's Securus. The Securus CEO at the time, Dick Falcone, said the merger was serving a "growing customer base." The dual purchase was a "solid investment" according to H.I.G.'s Lewis Schoenwetter, and would be "an engine of growth for the future."

While these are tough times for some, Securus's stock has proven virtually recession-proof. In 2011, the investment firm Castle Harlan added Securus to its portfolio for an estimated $440 million. In 2013, Securus was bought by another big investment company, Abry Partners, which paid a reported $640 million for the company, a 45 percent increase in value over just two years.

According to Securus' president, Richard A. Smith, the company saw record highs in 2013, with $24 million in net wins (profits) on revenue of several $700 million, an annual growth rate of 7.1 percent. Securus currently provides services for more than 2,600 private, local, county and state correctional facilities in the United States and Canada. One million incarcerated people rely on them for phone calls.

Securus Monopoly in Illinois

Securus' operations in the state of Illinois provide an excellent example of how the company uses its monopoly to leverage profitable phone contracts. Phone contracts are won by companies offering large "site commissions" or "kickbacks" to cash-strapped state and county governments. A percentage of income collected from phone calls goes back to the authorities for the exclusive right to extract money from a captive population. According to the FCC these kickbacks amounted to around $460 million in 2012.

The kickback has been crucial to Securus gaining its foothold in Illinois. The previous contract holder, Consolidated Communications, a small firm based in Charleston, Illinois, provided a commission rate of 56 percent. Using the millions of dollars in their coffers, Securus significantly overbid (contrary to the market logic of underbidding) their competition by offering a commission of 87.1 percent, at the time, the highest in the country. As it turned out, this was actually a violation of state codes and was lowered to the current rate of 76 percent by Illinois regulators.

This means that three out of four dollars paid for a phone call by Miguel Saucedo's family actually go back to the state of Illinois. In 2012, $12 million in kickbacks was awarded to the state's Department of Corrections, the IDOC, thanks to the high commission rate offered by Securus. When questioned by Truthout, the IDOC was unable to provide any accounting for this $12 million, other than to say it went back into the general fund.

However, Securus' carceral presence in Illinois is not limited to prisons. It has contracts with nearly 80 percent of county jails, as well. This includes the lucrative contract with Cook County, home to Chicago and the site of one of the nation's largest jails.

Campaign for Prison Phone Justice

Since the days when 8-year-old Miguel Saucedo was traveling to Menard, activists and family members of those incarcerated have been pressing for regulation of the practices of Securus and other phone service providers. Most recently, the Campaign for Prison Phone Justice, led by the Media Action Grassroots Network (MAGNet), Working Narratives and Prison Legal News Fund, have been advocating before the Federal Communications Commission, urging them to regulate carceral phone rates.

A number of other groups such as the Prison Policy Initiative and Helping Education to Advance the Rights of the Deaf (HEARD) have joined the effort. In February of 2014, the campaign scored its first major victory, when the FCC agreed to put a cap on interstate calls at $.25 a minute for collect calls, and $.21 a minute for debit and prepaid calls.

The campaign also includes state-based organizing in several locales including California, Illinois, Minnesota, New Jersey, Texas and Washington. More recently, the campaign has pressured the FCC to regulate intrastate calls, which the commission is currently considering. This could mean lowering the cost of some 85 percent of all phone calls made from inside prisons and jails.

Securus CEO Richard Smith, whose annual salary package comes to over $1 million, responded to this process by claiming that regulation of rates could present a security issue that could lead to "the deaths of inmates, witnesses, friends/family members of victims, and of officers that protect us." In defending Securus’s business practice he maintained, "What we've built for the corrections industry is very secure, and it helps solve tens of thousands of crimes a year, and it helps save thousands of lives a year."

In Smith’s assessment, apparently the operation of a secure prison phone system ranks with the work of law enforcement and EMTs in terms of contributing to public safety. By supposedly preventing the spread of criminal conspiracies from inside prisons to the streets, Smith implied, carceral telecommunications, like first responders, were seemingly above reproach. "It's almost like throwing firemen and policemen under the bus,” he said, in reply to criticism of his company as profiteers.

Secure-Us

While Securus is feeling the heat in its phone business, it is moving into new sectors to secure profits. The most lucrative investment appears to be video visiting, a new technological frontier where the company already has a foothold. Video visits from home can be of much benefit to families, especially for those whose loved ones are incarcerated in remote locations, where so many prisons lie. However, as with phones, Securus' main focus is not providing access, but devising means to make more money.

According to a report compiled by the Prison Policy Initiative, Securus not only stands at the cutting edge of this market, but is also implementing the most draconian contractual terms. Key to this has been its insistence that county jails that implement video visiting must eliminate options for face-to-face visits. The report notes that Securus is the only firm pushing such a policy. Plus, Securus has by far the highest rates for video visiting, reaching as high as $1.50 a minute in some instances. The company's practice of banning face-to-face visits became the target of a national mobilization in Dallas, Texas, last year. The efforts by prison phone justice activistsprompted a local court to reject Securus's request to eliminate in-person visits.

Electronic Monitoring

Securus has also gained a foothold in another carceral technology that lies outside the realm of regulation: electronic monitoring. In the last year and a half, Securus has acquired two firms that specialize in providing the GPS-linked ankle bracelets used for monitoring. In 2013, they bought up Satellite Tracking of People (STOP), which bills itself as the largest monitoring provider in the United States. Then, in 2014, it bought out the General Security Services Corporation (GSSC), which, in addition to providing monitors, offers a range of other technology.

At present, the electronic monitoring sector pulls down an estimated annual revenue of $300 million. However, with increasing pressure to cut back on corrections costs, the use of ankle bracelets may escalate. This can provide a lucrative revenue stream, especially since in most instances the people wearing the bracelets have to pay a daily user fee ranging from $5 to $40.

Other Technologies

Securus's investment web doesn't stop there. Its oftware engineers are also creeping into surveillance work with the launch of THREADS, an analytical tool that,  according to the company website, "examines billions of records to provide focused leads by detecting patterns, anomalies, linkages and correlations both inside and outside of prison walls." A particular area of specialization is detecting cellphones inside prisons and analyzing the calls made to "reveal more connections."

Their most recent platform is "ConnectUs," which Richard Smith claims will "provide those incarcerated with a multitude of services never seen before in corrections." ConnectUs promises to "completely manage an inmate's experience" by overseeing not only phone calls and video visits, but "inmate forms grievances, videos, commissary ordering, third-party website access, job applications, education programs and any number of services."

In the face of growing public criticism, and improved technologies, companies like Securus search for new ways to remain competitive while marketing themselves as providers of a quality service that keeps the public safe. Yet, with the involvement of global financial houses in the prison industrial complex, the pressure mounts to produce value for shareholders. Ultimately, this systematically incentivizes mass incarceration.

While we often hear about the activities of private prison providers like Corrections Corporation of America (CCA) and the GEO Group, corporate interests are immersed in every aspect of criminal justice. As Paul Wright, founder and editor of Prison Legal News, told Truthout, "Securus and their government business partners have perfected the science of monetizing human contact and ruthlessly exploiting people's love and desire for family communication to further engorge the coffers of their hedge-fund owners." Until carceral conglomerates like Securus are reigned in, poor families will continue to pay, not only with the absence of their loved ones, but to sustain the bottom lines for the benefit of investors and CEOs like Richard Smith.