Prison Services Company Securus Makes Record Profits in the Face of FCC Regulation

Saturday, 25 July 2015 00:00By Brian Dolinar, Truthout | Report

The Federal Communications Commission (FCC) is expected to release a ruling within the coming months that will affect some 85 percent of all calls from prisons and jails.

If the FCC takes bold action to limit how much the prison phone industry can charge incarcerated people and their families for talking on the phone, the decision could help out thousands of families, many of whom are already living paycheck to paycheck. But it remains to be seen whether the FCC will bow to the pressure of the telecom industry with its large coffers of cash.

The FCC took a historic first step in 2014 to rein in the huge profits the prison phone industry makes from incarcerated people and their families. Its February 2014 decision to cap the cost of interstate calls came after a decade-long campaign involving dozens of organizations across the United States that mobilized thousands to testify about the exorbitant fees they pay to talk to their incarcerated loved ones.

Yet despite government intervention, Securus Technologies, one of two major competitors in this market, continues to see its profits soar. Additionally, Securus announced intentions to buy JPay, a money-transfer system for prisons and jails.

"It's a really smart move for Securus to buy them out," said Miguel Saucedo, whose brother is in the custody of the Illinois Department of Corrections. "They will completely monopolize the business. A real model for the prison industrial complex."

How is it that a company under the close eye of federal regulators is still making millions from mass incarceration?

The FCC's Regulation of the Prison Phone Industry

Some may know the FCC for censoring the "seven dirty words" on television, breaking up media consolidation or recently ruling to protect net neutrality, but it also oversees phone calls from prisons and jails across the United States. Established in 1934 as a part of Franklin D. Roosevelt's New Deal, the FCC is a powerful government agency. The rate caps enacted in 2014 impacted interstate calls, a relatively small number of all calls, mostly from federal facilities. They were set at $0.21 per minute for a prepaid call and $0.25 per minute for collect. Previously, some were paying as much as $17 for a single phone call.

Currently, the prison phone industry earns $1.2 billion annually in estimated revenue. It pays out a total of more than $100 million each year in commissions, or "kickbacks," given back to the state for the right to an exclusive contract. In Illinois, my home state, the state prison system collects $12 million a year, the highest of any state in the country.

Activists say that when the FCC releases its expected second ruling on prison phones in the coming months, it should take bold action to set even lower rates, and eliminate commissions.

Carceral Conglomeration

In leaked documents from a presentation to investors acquired by The Huffington Post, Securus portrays itself as a company clearly in the black. In 2014, they made $114.6 million, up from $87 million the previous year. In an attempt at damage control, Securus disputed The Huffington Post article in a letter to the FCC, claiming they had not made $114.6 million in "profit." An attorney for the company stated this was a measurement in EBITA, business-speak for "earnings before interest, taxes, and amortization," which is, nonetheless, a way to measure a company's profitability. However we slice it, the company experienced an increase of more than 30 percent from the previous year.

These figures were intended to bolster Securus' bid to buy Florida-based JPay. According to one presentation slide, they had signed a "definitive agreement" in April 2015 to acquire JPay for $250 million, with $50 million to come from the Abry Partners, the large investment company that owns Securus. Citing three decades of steady growth, the prison industry was depicted as a "large, recession-resistant and stable market." This was a sound business investment that would lead to "organic growth."

JPay was founded in 2002 by tech entrepreneur Ryan Shapiro who developed an online system for families to transfer money to their loved ones who are incarcerated. Traditionally, these were done via money orders, which, due to understaffed prison mailrooms, can take two to three weeks to be deposited in prison accounts. JPay allows money to be transferred immediately. Today, JPay operates in 33 states and has 1.6 million customers. They are also getting into other services like email, music downloads, video games and online shopping for those on the inside.

In a joint press release, Securus CEO Rick Smith said the purchase of JPay would allow them to dominate the industry. "We now can offer virtually anything that is high tech/software based that correction agencies need to operate a modern prison or jail," he said. JPay's Shapiro was also pleased with the deal, adding, "We are always eager to expand our footprint." Before it can go through, regulators must still approve the agreement.

In a Truthout article I co-wrote with James Kilgore earlier this year, we said Securus represented a new breed, a "carceral conglomerate" that poaches its competitors and operates an entire supply chain of prison services. Securus has already invested heavily in electronic monitoring and video visitation. Little did we know that they had even more ambitious plans to buy out JPay.

I followed up with Miguel Saucedo, from Chicago, Illinois, who we interviewed for our previous article, to ask him his thoughts about this recently announced acquisition. As he told Truthout, he felt he was "constantly sending money." He already pays $100 a month to Securus to talk to his brother in prison. Additionally, he sends about $100 a month through JPay, which takes its cut, $9.95 for any amount under $200. This is money that would also be going to Securus, if the deal goes through.

"I'm outraged," Saucedo said. "One way or another, they're juicing us." Of course, it made perfect business sense. "But they're making money off of poor people," he added.

The Campaign for Prison Phone Justice

Around the country, the campaign for prison phone justice is pressuring the FCC to act. One of the leaders in this movement, Paul Wright of Prison Legal News and the Human Rights Defense Center, said activists are calling on the FCC to enact a flat fee between $0.05 and $0.07 per minute for calls, and to abolish commissions. He cited several states that have eliminated commissions and still offer low rates. New York and New Mexico both offer calls at $0.05 per minute. "The time is long past," Wright wrote in an email to Truthout, "for the FCC to act decisively to end the financial exploitation of prisoners and their families whose only crime is to want to stay in touch."

Another organizer in this campaign, Steven Renderos, sees this issue from a policy side, but also as a family member. He works with the Center for Media Justice and has a cousin locked up in Corcoran State Prison in California. He recalled that when his cousin was "shipped away," they would pay any amount to stay in touch. Yet over time, the calls became too expensive. "Eventually the bills piled up and our ability to afford that regular phone call became less and less," he said.

The prison phone companies contend there is a cost to doing business - monitoring calls for criminal activity - which promotes public safety. Yet much of this process has been automated through the help of digital technology.

Sheriffs' associations argue that commissions provide services for people who are incarcerated. Mike Fore, who has been incarcerated in Nevada, Indiana and Illinois, has never seen the benefits. "They say it goes into an 'inmate activity fund,' but there are never any activities provided," he said.

In its earlier ruling, the FCC admitted that commissions are a "significant driver of increases to rates charged to inmates." If the FCC lowers rates but keeps commissions, prison authorities will continue to pocket the money. If they abolish commissions, but do not come in with rate caps significantly lower than the 2014 ruling, families will not feel the relief.

As the recent leaks reveal, the FCC can pass moderate proposals, and these companies will still make a killing. If the FCC does not step in, it will be families - who are already struggling to make ends meet - that pay.