Securus is requesting approval from the FCC to transfer control of Preferred Communications of Texas, LLC from Embarq to Securus.

Preferred’s sole asset is the contract to provide services to the Texas Department of Criminal Justice (TDCJ) for which Securus is the subcontractor.

Embarq formed Preferred last year to hold the TDCJ Contract when it sold the rest of its incarcerated calling services (ICS) to Inmate Calling Solutions, LLC (d/b/a ICSolutions).

With the transfer of Preferred, Embarq will completely exit the ICS market.

According to Securus’s filing, this transaction is substantially similar to transactions approved last year in which Embarq sold its ICS business, except for the TDCJ Contract, to ICSolutions and Legacy sold ICS contracts, assets and customers to Global Tel*Link as part of Legacy’s withdrawal from the ICS business.

The TDCJ Contract

The current TDCJ Contract was entered into with Embarq on September 1, 2018. Pursuant to Texas law, ICS contracts must extend for a period of at least seven years and include two-year optional renewal terms. The initial term of the TDCJ Contract thus expires in August 2025 and it reserves for the TDCJ the right to exercise three optional two-year renewal terms.

At the time of the signing, the TDCJ Contract included 110 facilities of various sizes, including four facilities that were either mothballed or showed zero population, and included an estimated 155,239 incarcerated persons, of which an estimated 134,064 were eligible to make use of the services. Currently, the TDCJ facilities have a total ADP of approximately 120,000. The rate for all ICS calls under the contract is $0.06 per minute.

The TDCJ Contract requires TDCJ’s consent for the proposed transaction and the eventual assignment of the contract from Preferred to Securus. According to Securus, the TDCJ has given its consent.

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Consolidation within the prison payphone communications industry, also known as inmate communications services (ICS), continues with Global Tel*Link (GTL) asking the FCC for approval to buy (some? all?) of the assets of Legacy/Edovo.

GTL is the largest provider of ICS in the US. Legacy Inmate Communications is a wholly owned subsidiary of Jail Education Solutions, Inc. d/b/a Edovo (“Edovo”).

From the FCC filling, “On July 2, 2020, GTL, Legacy, and Edovo entered into a Master Transaction Agreement (“Agreement”) pursuant to which GTL will purchase certain assets and customers of Legacy, including certain customer accounts and receivables, certain customer agreements and contracts, certain vendor agreements and contracts, and certain equipment (the “Transaction”).”

Pursuant to the Transaction, Legacy will assign the following correctional facility contracts to GTL:

(1) Cook County, Illinois;

(2) Fresno County, California;

(3) Maine Department of Corrections;

(4) Bay County, Florida;

(5) Sonoma County, California;

(6) Kane County, Illinois;

(7) City of Santa Ana, California;

(8) Jackson County, Oregon;

(9) Mendocino County, California;

(10) Carroll County, Maryland;

(11) Yolo County, California;

(12) Dunn County, Wisconsin;

(13) Santa Clara County, California.

As a result of the Transaction, GTL will provide ICS to the Correctional Facility Customers pursuant to the terms of the above-referenced contracts, which are primarily county jail contracts.

Interestingly, the filing states, “Further, the proposed Transaction will not adversely affect competition because, after consummation of the Transaction, the total share of the interstate interexchange market of GTL will be less than ten percent (10%), and there are many other interexchange and international carriers operating on a nationwide basis, including other ICS providers. The Transaction will not provide Applicants with any competitive advantage as the result of concentration of fiber assets and will not harm consumers or negatively impact the market for facilities-based service. The proposed Transaction will not have a negative impact on the public interest, services to customers, or competition.”

With GTL and Securus Technologies controlling 80% if the total ICS market, we are not sure how this does not, in fact, continue the trend of adversely affecting competition in the ICS industry though the elimination of smaller competing vendors.

What this latest proposed acquisition shows is that the ICS industry is a duopoly and the current competition has neither the scale nor scope to compete. This market structure hinders true competition and thereby the economic and innovation benefits a robust marketplace would bring to inmates and their families.

The following image from a recent Prison Policy Initiative article highlights how these two firms have been allowed to capture this industry through acquisition.

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