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FCC Releases Order (FCC 13-113) Regulating Prison Payphone Costs and Commissions

FCC cuts prison LD payhone rates FCC Releases Order (FCC 13 113) Regulating Prison Payphone Costs and CommissionsThe FCC has released its order (FCC 13-113) detailing the rules associated with the regulating of prison payphone interstate calling rates. This is the culmination of FCC Proposed Rule Making 12-375 (The Wright Petition – follow the link for to see the new proposed rates) in which the Federal Communications Commission proposed to lower rates charged to prison inmates for long distance telephone calls by considering changes to its regulations governing rates for interstate inter-exchange inmate calling services (ICS), after studying the issue for nine years.

The ruling effectively guts the per minute LD rates and one-time per call fees companies such as Global Tel*Link and Securus Technologies can charge imates and their families as well as the commissions paid to Federal, State and County prisons.

The FCC claims that commissions are “not recoverable through interstate ICS rates because the record makes clear that they are not a direct cost of providing interstate ICS.”

It also sets the ground work for a similar action on intrastate rates. Relevant excerpts from the ruling relating to one time fees and to the payment of commissions to jails and prisons by the prison payphone providers are below. Securus has previously stated that it will go to court to stop the implementation of these rules.

As the prison payphone companies and prisons grapple with the challenge of recovering the revenues associated with this order, we suggest they consider meshDETECT Secure Prison Cell Phone Solutions™ as a potential new service offering that also reduces the demand for contraband cell phones while reducing recidivism.

Commissions

The Commission has previously held that site commissions are-for purposes of considering ICS rates under section 276—an apportionment of profit, not a cost of providing ICS.In the 2012 ICS NPRM, the Commission sought comment on its prior conclusion that site commission payments, or “location rents are not a cost of payphones, but should be treated as profit.” Site commission payments are not costs that are reasonably and directly related to the provision of ICS because they are payments made to correctional facilities or departments of corrections for a wide range of purposes, most or all of which have no reasonable and direct relation to the provision of ICS. After carefully considering the record, we reaffirm the Commission’s previous holding and conclude that site commission payments are not part of the cost of providing ICS and therefore not compensable in interstate ICS rates.

In this Order we find that site commissions are not recoverable through interstate ICS rates because the record makes clear that they are not a direct cost of providing interstate ICS. If commissions or other payments from ICS providers to correctional facilities reflect costs of providing ICS, providers have several avenues available to them.

Although it is clear that site commissions are a revenue stream to the correctional facility, we cannot foreclose the possibility that some portion of payments from ICS providers to some correctional facilities may, in certain circumstances, reimburse correctional facilities for their costs of providing ICS. As a result, we provide several avenues for exploring this issue further. First, we set the interim safe harbors and interim rate caps at conservative levels above costs in our record. Second, any ICS provider seeking a waiver of the rate cap or seeking to justify costs between the safe harbor and the interim rate cap may provide specific details about payments to correctional facilities that it contends are compensable for costs meeting our cost standards through interstate ICS rates as articulated in this Order. Third, as part of the mandatory data collection we initiate below, we will seek further information on payments to correctional facilities and whether they cover any costs of service. Finally, in our accompanying Further Notice, we seek comment on whether we should categorically find that payments to correctional facilities are not compensable costs, or whether there are certain compensable costs that those payments can legitimately address. In his Dissent, Commissioner Pai notes that this Order recognizes that excluding sitecommissions from cost data used to develop our safe harbor benchmark and rate cap may be an “underinclusive approach given that correctional institutions themselves often incur costs to provide ICS and those costs may need to be included in any costs-of-service estimates.” While it is correct that the rates and cost studies that the Commission used as a basis for the safe harbor benchmarks and the interim rate caps do not includesite commission payments, the Commission did not exclude them. Rather, the rates used to establish the safe-harbor benchmarks are rates for service in states that have prohibited site commission payments. Also, the ICS provider cost studies that we use as a basis for the interim rate caps adopted in the Order were prepared by the ICS providers to show costs of service excluding site commission payments. Furthermore, we do not remove costs or adjust inputs from the data used to establish the interim rate caps. For example, both cost studies used to establish the interim rate caps use an 11.25% rate of return to determine the cost of capital. We do not opine on whether this input is appropriate in this context. Instead, we accepted the figures in the cost study, as asserted, without considering whether they represent accurate levels of costs that are reasonably and directly related to provision of interstate ICS and, therefore, are appropriately recoverable thought interstate ICS rates. Consequently, it is likely that these cost figures are overstated, but we accept that possibility as part of our decision to set conservative interim rate cap levels.

We also disagree with ICS providers’ assertion that the Commission must defer to states on any decisions about site commission payments, their amount, and how such revenues are spent. We do not conclude that ICS providers and correctional facilities cannot have arrangements that include site commissions. We conclude only that, under the Act, such commission payments are not costs that can be recovered through interstate ICS rates. Our statutory obligations relate to the rates charged to end users— the inmates and the parties whom they call. We say nothing in this Order about how correctional facilities spend their funds or from where they derive. We state only that site commission payments as a category are not a compensable component of interstate ICS rates. We note that we would similarly treat “in-kind” payment requirements that replace site commission payments in ICS contracts.

Per Call Fees

We are concerned about the evidence regarding current per-call rates and associated practices. In particular, we are concerned that a rate structure with a per-call charge can impact the cost of calls of short duration, potentially rendering such charges unjust, unreasonable and unfair. We have particular concerns when calls are dropped without regard to whether there is a potential security or technical issue, and a per-call charge is imposed on the initial call and each successive call. As a result, we conclude that unreasonably high per-call charges and/or unnecessarily dropped calls that incur multiple per-call charges are not just and reasonable

Our interim rate structure will help address concerns raised about unreasonable per-call charges while we consider further reforms in the Further Notice. As described above, we adopt interim safe harbor rate levels and interim rate caps to ensure the overall cost of a 15-minute call is just, reasonable, and fair. ICS providers have the flexibility to satisfy the safe harbor either through a certification that the per-minute rate is at or below the safe harbor, or by demonstrating that the cost of a 15-minute call (including any per-connection charges) is at or below the safe harbor per-minute rate times 15.Thus, where an ICS provider elects to take advantage of the interim safe harbor rate levels described above, we allow the provider flexibility to determine whether its rate structure should include per-call charges. Specifically, we allow ICS providers to calculate whether their rates are at or below the interim safe harbor levels or the interim rate caps by calculating their compliance on the basis of a 15-minute call. Because our interim safe harbors constrain the cost of a 15-minute conversation to a level we find to be just, reasonable, and fair, we find it is appropriate to afford ICS providers such flexibility

Although we are unable to find ancillary charges per se unreasonable based on the record,
we have sufficient information and authority to reach several conclusions regarding ancillary charges. First, as stated earlier, interstate ICS rates must be cost-based, and to be compensable costs must be reasonably and directly related to provision of ICS. Ancillary service charges are no exception; they also fall within this standard and the Commission has the jurisdiction and authority to regulate them. Section 201(b) of the Act requires that “all charges, practices, classifications, and regulations for and in connection with” communications services be just and reasonable. Section 276 of the Act defines “payphone service” to encompass “the provision of inmate telephone service in correctional institutions, and any ancillary services,” and requires that providers be “fairly compensated.” The services associated with these ancillary charges are “in connection with” the inmate payphone services for purposes of section 201(b) and “ancillary” for purposes of section 276. As such, they fall within the standards we articulate above for determining which costs are compensable through interstate ICS rates. Therefore, even if a provider’s interstate ICS rates are otherwise in compliance with the requirements of this Order, the provider may still be found in violation of the Act and our rules if its ancillary service charges are not cost-based.

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Economics Of The Prison Payphone Call

Prisoners Phone Calls 300x199 Economics Of The Prison Payphone CallThe first round of comments are in for the FCC Proposed Rule Making 12-375 (The Wright Petition), and advocates from both sides of the issue have submitted letters and comments on the price of interstate calls from prison.

Some cash-strapped states and facilities collect commissions from prison phone contracts. Texas, for instance, uses some of the money collected for a crime victims’ fund.

Nationwide, states collect more than $150 million a year from prison phone commissions, according to a Prison Legal News survey. These commissions effectively raise call rates, but they also provide funding that states or prisons crave.

“Correctional agencies need those revenues either to lessen the financial burden that prison operations put on state and county budgets, or to implement programs that benefit inmates,” Stephanie A. Joyce, an attorney representing Dallas-based Securus Technologies, advised the FCC in October.

Of particular interest amongst the many briefs, letters and comments was a study of Securus Technologies’ prison payphone costs, commissions and prices across small, medium and large jails as well as state department of corrections (DOC) facilities. The following are some of the highlights from that report:

The costs incurred by Securus for the provision of ICS services to a typical institution in each facility group are summarized in Table 2. The ICS cost figures reflect the average costs incurred by Securus to provide ICS service. The costs include site commissions, bad debt, billing and collection, telecom facilities and services, validation, field technicians, and customer services:

Table 2 ICS costs per minute Economics Of The Prison Payphone Call

The costs faced by Securus in providing ICS services can also be assessed on a per-call basis. As shown in Table 3, Securus incurred total ICS costs of $2.53 per call in serving the average High 10 facility. For Medium 10 facilities, the company incurred costs of $5.48 per call. For Low 10 institutions, on average, Securus faced ICS costs per call of $11.54 per call. Finally, for DOC facilities, the company’s average ICS cost per call came to $1.51:

table 3 ICS costs per call Economics Of The Prison Payphone Call

In Table 5, the average site commissions reported in Table 4 are divided by the total average costs required to provide ICS services for the facilities in each facility group. The ICS cost figures were previously reported in Table 2:

Table 5 Average site comm against costs Economics Of The Prison Payphone Call

In Table 6, the average site commissions from Table 4 are divided by the average ICS revenue generated by inmate facilities in each of the four facility groups. The resulting percentages demonstrate the magnitude of site commissions as a function of the average calling revenue earned by Securus in each facility group:

Table 6 Average site comm against revenue Economics Of The Prison Payphone Call

The total number of interstate calls from all Securus facilities nationwide in 2012 was 9,122,432 calls. For the same year, the company processed 106,082,679 interstate minutes. Based on these two figures, the average length of an interstate call from a Securus facility in 2012 was 11.63 minutes.

Table 10 reports the calculated price per call that would apply for an interstate call of average duration that was generated by an average facility in one of the four facility groups. Note that the average call lengths assumed in Table 10 closely track the calculated average call lengths for the four facility groups:

Table 10 interstate call prices Economics Of The Prison Payphone Call

Although it is never explicitly summarized in the report, here is the bottom line: (Using Table 10 to calculate the price per minute and subtracting costs per minute from Table 2)

  • High 10 = $1.09 price per minute vs. $0.17 cost per minute = $0.92 profit/minute
  • Medium 10 = $1.08 price per minute vs. $0.50 cost per minute = $0.58 profit/minute
  • Low 10 = $1.09 price per minute vs. $1.71 cost per minute = ($0.62) profit/minute
  • State DOC = $0.46 price per minute vs. $0.10 cost per minute = $0.36 profit/minute

Note: This profit analysis does not take into account intrastate and local calls, which are the majority of prison phone calls.

————————————————————————————————————————-

Methodology for the Securus data: Divide the non-DOC facilities into three groups. Each group contains ten facilities for which Securus provided ICS services in 2012. The three groups included the ten highest volume non-DOC customers (“High 10”), the ten medium volume non-DOC customers (“Medium 10”) and the 10 lowest non-DOC volume customers (“Low 10”) (collectively, the “10-10-10”methodology). For each customer, the volume used to determine membership in each group was based on total minutes.

In addition to these three groups, a fourth group was created consisting of all DOC facilities that Securus served in 2012, of which there are eight (8).

After review of the data provided for the 10-10-10 groups, it was decided to adjust the data as follows: First, a minimum contract revenue of $1,000 was adopted for the Low 10 group. This adjustment removed facilities with extremely low revenue totals that likely reflected measurement periods of less than one year. Second, outlier facilities in the original High 10 group were replaced by alternative facilities. The three outlier facilities reported volume and/or ICS revenue data that for known reasons are not representative of the High 10 Group.

Source

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Predatory Prison Phone Rates

predatory prison phone pricing 300x225 Predatory Prison Phone Rates A bipartisan group of prison reformers is calling on the Federal Communications Commission to stop phone companies from charging inmates what they call unreasonable and predatory rates to make phone calls.

The letter is signed by conservative leaders such as Gary Bauer and David Keene, as well as civil rights groups such as The Leadership Conference on Civil and Human Rights, the NAACP, the National Council of La Raza, and the National Organization for Women.

As the letter states, “Healthy relationships with their families and other members of the community are the most important factor in prisoners’ successful return to their neighborhood. Maintaining the bonds of a family and support network is a very effective way to reduce recidivism among inmates, which is an important national goal…Yet, predatory phone rates discourage regular telephone contact with stable family members and others in the community.

Prisoners’ friends and families often provide the only opportunity incarcerated individuals will have to re-connect with a job and a support network that can prevent them from returning to prison. We need more people connecting to those in prison, not fewer. Sound public policy dictates that we should not disincentivize the very behavior that will help us keep families together and in turn reduce future crime.”

Why such astronomical fees? Phone companies often pay commissions to the state after they’ve won an exclusive contract to provide phone service at a state’s prisons. (All but eight states allow these exclusive contracts.) The phone companies then pass on the cost of paying the state to inmates and their families, who have to shell out as much as $17 for a 15-minute call, the group says. That can add up to $250 a month to call home for an hour each week—a cost that the often-poor families of inmates can hardly afford.

But the money also drives revenue to the country’s cash-strapped, crowded prison systems. In 2011, these phone company commissions generated $152 million in revenue for state prisons alone. In the federal system, which charges lower rates, the millions raised from commissions helps fund recreational and job-related activities for inmates, according to a Government Accountability Office report. (Source)

One strategy is to reduce the commissions, and therefore the cost of the telephone service, and offset this lost revenue by offering the new meshDETECT secure prison cell phone service. Many prisoners and their families would be willing to pay a premium to have the convenience and privacy a cell phone would provide their conversations. This will increase total revenues, reduce the contraband value of smuggled cell phones and offer more opportunities for prisoners to stay in touch with family and friends.

Here is the full text of the letter:

May 18, 2012

CAP INTERSTATE PRISON PHONE RATES

Chairman Julius Genachowski

Federal Communications Commission

445 12th Street, SW

Washington, DC 20554

RE: Docket No. 96-128, Petitioner Martha Wright et al., Alternative Rulemaking Proposal

Dear Chairman Genachowski:

We write to you as organizations and individuals that represent a wide variety of views on many issues, but that stand united on the need to reduce the exorbitant rates for telephone calls from prisons. Unreasonably high prison phone rates unjustly punish the families of people who are incarcerated, and contribute to rising recidivism rates by deterring regular telephone contact with family members and loved ones. Our diverse groups strongly believe that action on a petition that has been pending before the Federal Communications Commission since 2003 represents a critical opportunity for the Commission to exert its leadership in this area. Accordingly, we urge you to act quickly to address this problem by capping the charges that can be imposed for interstate prison phone calls.

As you are aware from the record that has been compiled at the FCC, the costs of telephone calls from incarcerated people are often extraordinarily high—well beyond what most people in our country pay for telephone service. It is cheaper to call Singapore at 12 cents a minute from a cell phone than it would be to speak to someone in prison in this country. A typical interstate collect call from a prison has a $3.95 connection fee (regardless of the length of the call), while rates per minute can be as high as almost 90 cents per minute. This can result in charges of $10-17 for a 15-minute collect call or $250 per month for a weekly one-hour call. Prisoners do not bear these costs; rather it is the family members and loved ones outside of prison who pay these extremely high rates.

The high rates are caused by the system used to procure telephone service at correctional institutions. Prisons request bids from competing telephone companies, requiring each bid to include the payment of a fee or commission to the prison in addition to the provision of telephone service. The costs of the calls are passed on to prisoners’ families in the form of higher telephone rates, while the prison reaps the benefit of the extra fees and commissions. Thus, prisons have every incentive to choose bids that maximize fees and maximize telephone rates—a clear “moral hazard.” While competition would be everyone’s first choice for constraining telephone prices, in this case consumers—prisoners and their families—have no voice in the selection of the carrier. The prison system that does select the carrier actually benefits from the higher rates, leaving the actual consumers as a literally captive market, unable to shop around for lower prices.

Healthy relationships with their families and other members of the community are the most important factor in prisoners’ successful return to their neighborhood. Maintaining the bonds of a family and support network is a very effective way to reduce recidivism among inmates, which is an important national goal. The rate of recidivism is at crisis levels in the U.S.; within three years of being released, 67 percent of ex-prisoners re-offend and 52 percent are re-incarcerated. Americans are paying dearly for this trend. According to the Pew Center on the States, state and federal spending on corrections has grown 400 percent over the past 20 years, from about $12 billion to about $60 billion. Yet, predatory phone rates discourage regular telephone contact with stable family members and others in the community.

Prisoners’ friends and families often provide the only opportunity incarcerated individuals will have to re-connect with a job and a support network that can prevent them from returning to prison. We need more people connecting to those in prison, not fewer. Sound public policy dictates that we should not disincentivize the very behavior that will help us keep families together and in turn reduce future crime.

It does not have to be this way. The U.S. Bureau of Prisons and several states that have rejected these commission payments charge reasonable rates and maintain superior levels of security. A recent study by the Government Accountability Office found that the Bureau of Prisons typically charged less than most state prison systems, yet continued to produce some profit for use by the prison, and also met its security objectives. To illustrate, the Bureau of Prisons charged 6 cents per minute for local calls and 23 cents per minute for long-distance calls, and generated $34 million in profits in 2010.[1]

In sum, the exorbitant rates paid by prisoners’ families increase recidivism, and place an undue and unfair burden upon the innocent. These spiraling costs are not attributable to security needs and cannot be corrected by a marketplace solution. As the only agency with jurisdiction over long distance rates, the Federal Communications Commission is the correct venue to resolve this problem. A firm stance by the Commission, along with recommendations that will help guide the state regulatory bodies with authority over local telephone rates, will provide a strong impetus to improve the situation at every level. Prisoners will be able to be in more frequent contact with their loved ones, and the public will be safer as a result.

For all the above reasons, we urge you to cap interstate prison phone call rates and take up the long-overdue task of protecting a vulnerable population from abusive practices. Thank you for your consideration.

Sincerely,

The Leadership Conference on Civil and Human Rights

ACLU

Rabbi Menachem Katz, The Aleph Institute*

David Keene, American Conservative Union*

Gary Bauer, American Values*

Asian American Justice Center

Chris Cannon, Cannon Industries, Inc.*

Center for Constitutional Rights

Center for Media Justice

Charles Hamilton Houston Institute for Race and Justice

The Constitution Project

Consumers Union

Tom McClusky, FRC Action*

Free Press

Human Rights Defense Center

International CURE

NAACP

Galen Carey, National Association of Evangelicals*

National Council of La Raza

National Hispanic Media Coalition

National Urban League

New America Foundation, Open Technology Initiative

NOW

PolicyLink

Prison Fellowship

Public Knowledge

Rev. Lou Sheldon and Andrea Lafferty, Traditional Values Coalition*

United Church of Christ, OC, Inc.

United Methodist Church, General Board of Church and Society

Washington Lawyers’ Committee for Civil Rights & Urban Affairs

*Institutional affiliation listed for identification purposes only.

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