by Chuck Sharman

A review of the Federal Communications Commission (FCC) report and adopted order on rates for interstate inmate calling services (ICS), released May 24, 2021.

When this rule takes effect—90days after its release—ICS interstate call rates will be capped at 12 cents per minute for prisons and 14 cents per minute for larger jails, defined as those with an average daily population (ADP) of 1,000 or more. For smaller jails, the cap remains where it was set in 2013 at 21 cents per minute. All of which ensures that prison phone providers like Securus and Global Tel*Link (GTL) will continue making obscene profits off the backs of prisoners and their families.

The new caps are determined by a different formula than that used to set previous caps, which the U.S. Court of Appeals for D.C. vacated in a pair of 2017 rulings against the FCC in favor of two large ICS providers: Global Tel*Link v. FCC, 866 F.3d 397 (D.C. Cir. 2017) and Securus v. FCC, 2017 US App. Lexis 26360 (DC Cir. 2017). The formula that those cases successfully challenged estimated provider costs using an industry-wide average, which the court said was likely to mean that providers couldn’t make money on every call—a key provision of Section 276 of the Telecommunications Act of 1934.

The new formula adds one standard deviation to that industry-wide mean in order to establish both high and low boundaries for a “zone of reasonableness,” within which the new rate caps are set. The FCC has also established a waiver process to allow providers to seek an exemption from the caps for any site where its actual costs do not allow it to offer service profitably. In this way, the FCC believes it has addressed the concerns of the D.C. Circuit court.

In addition, the new rules mean there is no longer a separate cap for collect calls. The FCC reasons—based on evidenced presented by ICS providers—that the number of collect calls is small these days and the cost difference for providing them (as opposed to other types of calls) is negligible. For several decades now the prison telecom industry has forced prisoners and their families to prepay for the cost of calls which has largely eliminated the use of collect calls.

There is also now a $6.95 cap per transaction on third-party fees passed on by a provider in its bill. This covers the cost of loading a prisoner’s pre-paid calling account with a Western Union transaction, which is why the provision was also supported by the Prison Policy Initiative.

For a related item, single-call services, the FCC is reinstating a rule tossed out with its earlier rate caps by the D.C. Circuit court. Since the court did not address the issue, the former rule is again in force, allowing a provider to pass along these charges in its billing without markup.

Despite provisions of Section 276 limiting the FCC’s authority to interstate and international communications, the interstate caps also now apply to intrastate calls unless providers can reasonably segregate the cost of providing intrastate calls from that of interstate calls in their accounting systems. Based on the evidence that providers gave the FCC—which asked for it after the D.C. Circuit court stayed the FCC’s earlier attempt to extend interstate caps to intrastate calls—this sort of cost segregation does not seem feasible. It is worth noting that outside the prison phone industry, telecom providers do not distinguish between local, interstate or intrastate calls and simply provide flat rate monthly billing for all phone calls. Only in the prison context is there a distinction being made.

Instead, what the FCC discovered was that intrastate rates exceed interstate rates in 45 states. In 33 of those states, the rate was at least twice as high. In 27 states, the “first-minute” charge for an intrastate call was over 25 times higher than that of an interstate call.

In addition to rate caps and transaction fee pass-throughs, providers are also allowed to recover the portion of any kickback payments they are obligated by law to pay the site (prison or jail). Tennessee law, for example, mandates that providers add a ten percent charge to each call and remit that amount to the prison or jail. This is a huge victory for the telecom companies because it legitimizes the practice of giving kickbacks to prison and jail officials in exchange for monopoly contracts and it specifically allows the companies to pass on the cost of those kickbacks to prisoners and their families.

Other “site commission” payments, however, the FCC considers a division of “local monopoly profit.” The charges passed on to consumers for these are now limited to the actual costs that the operation imposes on the prison or jail—for things like security—subject to a two cents-per-minute cap that is added on top of the 12 or 14-cent rate cap. It is worth noting that after years of proceedings no prison or jail has been able to articulate what, exactly, its costs of “security” are in the phone context.

The FCC made this distinction in an attempt to tease out what portion of these fees are intended to reimburse the facility for its actual costs and what portion may be designed to win a monopoly-service contract. The former are recoverable, but the latter are not, no matter that the practice is widespread. As the order makes clear, when it comes to site commission payments, “just because everyone’s doing it” doesn’t make the cost recoverable. Yet this order does little to stop the practice and the lack of consumer choice and competition is what fuels and drives the kickbacks to begin with.

If consumers could choose their phone service providers and telecoms had to compete for business from the people actually paying the bills, this would be moot. HRDC has made this point to the FCC repeatedly over the years, to no avail.

Moreover, the FCC is especially leery of allowing providers to recover site commission payments offered to secure a contract when those payments may already be covered in other fees. In other words, these payments should not be manipulated to retain current levels of profitability at rates the FCC’s evidence indicates are “excessive and unjust.”

Before issuing its rule, the FCC sought evidence from providers on their costs. What they received was evidently insufficient for their purpose. Providers, perhaps leery of providing regulators with proprietary information, used widely varying methods to calculate direct and indirect costs. For example, GTL—the largest ICS provider with a 50 percent market share—submitted direct costs composed entirely of bad debt. Given that both GTL and Securus are owned by privately held hedge funds, this should come as no surprise.

As a result, the FCC attempted to determine which costs were truly indirect and allocated those between facilities based on “minutes of use.” Several providers pushed back against this methodology because their contracts are not specific to one site, covering several facilities instead. But the FCC spanked them for demanding a different calculation when their own calculation methodologies had been so poorly designed.

With the new rule, international calls are also capped for the first time, at the same rates as interstate calls plus an amount equal to the provider’s actual cost to terminate the call overseas. This rule adopts a proposal from one of the larger ICS providers, Securus Technologies. It also rejects—for lack of supporting evidence—a five-cent-per-minute cap on international call add-ons proposed by the Human Rights Defense Center,

In formulating these new caps, the FCC seeks to balance the right of providers to operate profitably against the right of consumers—prisoners and their contacts—to enjoy protection from exorbitant prices enabled by a monopoly operation.

During the comment phase, several providers pushed back against the idea that they enjoyed a monopoly in the facilities where they operate, arguing that they must compete against other providers for the facility’s contract. The FCC rejected this argument, noting that a successful bid could simply mean higher site commission payments to the prison or jail without lowering prices paid by prisoners and their contacts. In other words, it’s a competition for a monopoly privilege, not a competition that mimics an open market for consumers.

In fact, the FCC noted that 34 percent of prisoners’ families go into debt just to stay in touch. This especially troubled commissioners in light of proven links between affordable calling, better mental health for prisoners and lower rates of recidivism after their release.

At the same time, the FCC noted that providers said their services cost 22 percent more to operate in jails than in prisons, with the cost rising higher as jail size gets smaller. Moreover, there is a greater deviation from the mean in smaller jails. For these reasons, the FCC isn’t ready to use its new formula to estimate “zones of reasonableness” for ICS in smaller jails.

That said, the FCC is skeptical that some facility costs claimed by the National Sheriff’s Association (NSA) aren’t already included in providers’ cost estimates. The NSA generated a long discussion of whether the new caps represent unconstitutional governmental “takings” of private profits. The FCC resolutely believes they do not.

Instead the FCC is convinced by the evidence that lower call prices will increase call volume while at the same time saving prisoners and their loved ones $1.3 million annually over the next decade. This “welfare gain” has a present value of $9 million, more than enough to offset the estimated $6 million in costs that providers will incur to adapt to the new caps.

On top of that, there is another $23 million in societal benefits to be reaped over the next decade in reduced crime and lower foster child care costs, all from keeping prisoners connected to loved ones and mentally healthy, so that they don’t become recidivists.

That’s a total benefit of $32 million. But those calculations did not go unchallenged. GTL, for example, objected to the $6 million cost estimate to adapt to the new rules. However, it failed to provide data supporting its objection, so the FCC dismissed it.

All providers had a 120-day opportunity to address deficiencies found in their evidence, with the Wireline Competition Bureau and the Office of Economics and Analysis deputized to collect that data, as well as additional data sought for cost differences between large and small jails.

Of particular concern to the FCC is whether facility costs claimed to be recovered via site commission payments are in fact inflated for unrelated factors. For example, some facilities reported needing many more hours than others to securely provide ICS, raising the concern that some of the resulting costs may already be accounted for elsewhere and thus unjustly used to inflate recoverable site commission payments. Or they are simply lying and making things up as they go in order to keep the flow of unregulated cash flowing into their pockets from the telecom industry.

The FCC is also seeking comment to improve ICS for disabled prisoners with TRS (telecommunication relay services).

The new rules cap a long 18-year bureaucratic struggle originally sparked in 2003 when a prisoner’s grandmother, Martha Wright complained that she was being subjected to “excessive” prisoner call rates and filed a lawsuit in federal court in the District of Colombia challenging the rates. The court held it lacked jurisdiction to consider the matter and sent it over to the FCC where for over 18 years it has languished with sporadic action by the FCC. After filing an “urgency” amendment to their petition four years later, another half-decade passed before the FCC issued its first notice seeking comment on rate caps in 2012, leading to its order the following year capping ICS rates at 21 cents per minute for interstate debit and credit-card calls and 25 cents per minute for those placed collect. The FCC did not begin to take action on prison phone issues until the Human Rights Defense Center founded the Prison Phone Justice campaign and organized prisoners and their families and other advocacy organizations around these issues.

That 2013 order was followed in 2014 with a second notice seeking comment on new rate caps and limits to other fees, which led to new 2015 per-minute call rate caps: 11 cents for prisons, 14 cents for jails with ADP of 1,000 or more, 16 cents for jails whose ADP was 350 to 999, and 22 cents for jails with an ADP less than 350. HRDC has long advocated for costs of no more than 5 cents per minute for prison and jail phone calls and no additional fees or costs. Today, as a result of decades of advocacy, many prisons are charging less than that amount and as noted in this issue of PLN, Connecticut has become the first state to provide free phone calls to prisoners. Jails in San Francisco, San Diego and New York City have done so already.

These caps were raised by up to two cents per minute in 2016 for recoverable site commission payments. But the entire rule was tossed in 2017 by the D.C. Circuit court, leaving the 2013 caps in place until this new rule was issued. 

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