Prison Phone Justice

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November 19, 2008

Electronic Ex Parte Filing
Honorable Kevin J. Martin
Chairman
Federal Communications Commission
445 12th Street, S.W.
Washington, D.C. 20554
Re: Petitioners’ Alternative Rulemaking Proposal
CC Docket No. 96-128
Dear Chairman Martin:
Petitioners Martha Wright, et al. (“Petitioners”), respond to the cost study filed
by several inmate calling service providers (“Cost Study”), as well as ex parte letters
filed by Securus Technologies, Inc. (“Securus”), Pay Tel Communications, Inc. (“Pay
Tel”), and Embarq, further elaborating on their prior filings.1 The most striking aspect
of these filings is that the Cost Study largely supports the benchmark rates requested by
1

Don J. Wood, Inmate Calling Service Interstate Call Cost Study, CC Docket No. 96-128 (Aug.
15, 2008) (“Cost Study”); letter from Stephanie A. Joyce, Counsel for Securus Technologies,
Inc., to Hon. Kevin J. Martin, Chairman, FCC, CC Docket No. 96-128 (July 7, 2008) (“Securus
July 7 Letter”); Letter from Marcus W. Trathen, Counsel to Pay Tel Communications, Inc., to
Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-128 (Oct. 17, 2008) (“Pay Tel Oct.
Letter”); letter from Marcus W. Trathen, Counsel to Pay Tel Communications, Inc., to Marlene
H. Dortch, Secretary, FCC, CC Docket No. 96-128 (Sept. 9, 2008) (“Pay Tel Arbitrage Letter”);
letter from Marcus W. Trathen, Counsel to Pay Tel Communications, Inc., to Marlene H.
Dortch, Secretary, FCC, CC Docket No. 96-128 (July 31, 2008) (“Pay Tel July Letter”).
Petitioners will cite to the letter from Jeffrey S. Lanning, Director - Federal Regulatory Affairs,
Embarq, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-128 (July 15, 2008)
(referring to meeting with Scott Bergmann), as representative of all five Embarq letters in the
relevant time period (“Embarq July 2008 Filing”).

Hon. Kevin J. Martin
November 19, 2008
Page Two
Petitioners. The Cost Study thus supersedes and rebuts, in large part, the other recent
service provider filings, which, for the most part, raise issues previously addressed at
length in Petitioners’ previous filings in support of their Alternative Rulemaking
Proposal (“Proposal”)2 and recently summarized in Petitioners’ June 2008 Letter.3
Although The Service Providers’ Cost Study Inflates Inmate Calling Costs,
It Largely Supports Petitioners’ Requested Benchmark Rates.
According to the Cost Study, in providing interstate inmate debit calls in
“marginal locations,” the service providers incur a fixed cost of $1.56 per call and a
transmission cost of $0.06 per minute.4 For a 15-minute call, these costs are equivalent
to slightly over $0.16 per minute, well under Petitioners’ requested benchmark of $0.20
per minute for inmate interstate debit calls. For a 12-minute call, the equivalent cost is
$0.19 per minute, still under the requested benchmark. The Cost Study shows interstate
inmate collect calling costs of $2.49 per call and $0.07 per minute.5 For a 15-minute
call, the equivalent cost is under $0.24 per minute, less than the requested benchmark
rate of $0.25 per minute. These results illustrate why the service providers have been so
reluctant to reveal their costs and why the service providers had no coherent response to
Petitioners’ comparable rate analysis.
These results are even more startling when the service providers’ inappropriate
sampling technique is examined. The Cost Study states that its analysis is based on
interstate inmate toll calls from 25 “marginal” correctional locations, following the
“marginal location analysis” used in the Methodology Order.6 In order to limit the
2

Petitioners’ Alternative Rulemaking Proposal, Implementation of the Pay Telephone
Reclassification and Compensation Provisions of the Telecommunications Act of 1996, CC Dkt.
No. 96-128 (Mar. 1, 2007) (“Proposal”); FCC Public Notice, Comment Sought on Alternative
Rulemaking Proposal Regarding Issues Related to Inmate Calling Services, 22 FCC Rcd 4229
(WCB 2007).
3

Letter from Frank W. Krogh, Counsel to Petitioners, to Marlene H. Dortch, Secretary, FCC,
CC Docket No. 96-128 (June 27, 2008) (“Petitioners’ June 2008 Letter”).
4

Cost Study at 4.

5

Id.

6

Id. at 4, 7-8 (citing Implementation of the Pay Telephone Reclassification and Compensation
Provisions of the Telecommunications Act of 1996, 14 FCC Rcd 2545, 2552 & n.20, 2571
(1999) (“Methodology Order”), aff’d sub nom. American Public Communications Council v.
FCC, 215 F.3d 51 (D.C. Cir. 2000)).

Hon. Kevin J. Martin
November 19, 2008
Page Three
sample of correctional facilities used in the Cost Study to “marginal locations,” the
service providers attempted to use only locations “‘where the payphone operator is able
to just recoup its costs, including a normal rate of return on the asset, but is unable to
make payments to the location owner.’”7 Not surprisingly, the service providers had
difficulty coming up with such “marginal” correctional facilities, given the tremendous
profit available in almost all correctional settings. They accordingly settled for some
locations where the service provider pays a “relatively small” commission to the
correctional authority as well as some where there is no commission.8 Because most
inmate calling service contracts involve the payment of a significant commission, the
service providers’ “marginal location” sample thus is unrealistically skewed in favor of
higher cost facilities.
The service providers distorted the results even further by removing the locations
where no commission is paid but the contract is sufficiently profitable for the service
provider to pay a commission. 9 The service providers thus cherry-picked unusually
unprofitable, low volume/high-cost facilities for their study. It is surprising that they
were able to find 25 facilities where no commission or a relatively small commission is
paid. No doubt dismayed by the low average cost data derived from this relatively highcost sample, the service providers warped the results again by adding three locations
where the service providers do not recoup their costs and performed another analysis
with the additional locations. This additional tweaking of the sample was supposedly
based on the Implementation Order,10 which modified the Methodology Order by
enlarging the definition of “marginal” to include payphones that do not pay
commissions and that may not recoup all of their costs.11 Even after loading the sample
with three atypical money-losing operations, the Cost Study shows interstate inmate
debit calling fixed cost of $2.09 per call and a transmission cost of $0.06 per minute,12
still under the requested benchmark of $0.20 per minute for a 15-minute call.

7

Cost Study at 7 (quoting Methodology Order, 14 FCC Rcd at 2552 n.20).

8

Cost Study at 8.

9

Id.

10

Request to Update Default Compensation Rate for Dial-Around Calls from Payphones, 19
FCC Rcd 15636 (2004) (“Implementation Order”) (cited in the Cost Study at 8-9).
11

Implementation Order, 19 FCC Rcd at 15652.

12

Cost Study at 5.

Hon. Kevin J. Martin
November 19, 2008
Page Four
The inappropriateness of applying a “marginal location” approach to a high
revenue niche such as inmate payphones is evident from the rationale of the
Methodology Order and Implementation Order. As the Commission explained, basing
payphone compensation on
the marginal payphone location satisfies Congress’s directive that we
ensure the widespread deployment of payphones. As opposed to a
calculation based on the average payphone location, use of a marginal
payphone location should promote the continued existence of the vast
majority of payphones.13
Five years later, in the Implementation Order, the Commission expanded the
sample of “marginal” payphones “to take account of . . . the sharp and continuing
decline in payphone call volumes,” a decline that “suggests that maintaining the current
compensation rate will not preserve even the current deployment level.”14 The
Commission found that modifying its compensation methodology to include within the
definition of “marginal” payphones those payphones that currently do not pay
commissions and may not currently recoup all of their costs would “increase[] the
likelihood that the compensation rate will either preserve the current level of payphone
deployment or at least slow the decline in the deployment level.”15
That rationale is entirely inapplicable to the correctional setting, in which inmate
payphone use is as robust and call volumes as high as correctional officials will allow.
Unlike the declining deployment of payphones available to the general public, inmate
payphones are guaranteed heavy use by the ultimate captive market. As the
Commission found in the Inmate Payphone Order, its payphone compensation
methodology was established in the Methodology Order “‘to ensure that the current
number of payphones is maintained.’”16
That policy has little or no application in the prison context because,
considering that [inmate service] providers offer commissions, prison
13

Methodology Order, 14 FCC Rcd at 2571.

14

Implementation Order, 19 FCC Rcd at 15652 (emphasis in original).

15

Id.

16

Implementation of the Pay Telephone Reclassification and Compensation Provisions of the
Telecommunications Act of 1996, Order on Remand and Notice of Proposed Rulemaking, 17
FCC Rcd 3248, 3256 (2002) (“Inmate Payphone Order”).

Hon. Kevin J. Martin
November 19, 2008
Page Five
payphones are already profitable. Any increase in inmate calling
services’ revenue . . . will only encourage higher location commissions.
Further, the correctional facility and its communications policy, not the
market, often determine the number of prison phones.17
Thus, the service providers based their cost study on a sampling methodology
that the Commission has found is entirely inapplicable to the prison payphone context.
Accordingly, there is no reason to avoid “a calculation based on the average payphone
location” in the prison context, as there was in the case of public payphones serving the
general public.18 In order to determine actual inmate calling costs, it is therefore
necessary to examine a representative sample of all prison payphones. By artificially
limiting their study to the few prison payphone locations that could be considered
“marginal,” rather than a representative sample of all prison payphone locations, the
service providers derived inmate calling costs that were atypically high.
Given the skewed sampling methodology used by the service providers, it is
remarkable that their Cost Study did not derive much higher costs than it did. In
searching out the few marginal correctional locations and going so far as to remove
locations where the service providers could have paid commissions, but did not do so, it
must be presumed that the service providers excluded all typical locations, where
substantial commissions are paid. The unrepresentative sample of correctional locations
used for the Cost Study thus precludes the use of its results for any purpose other than to
provide further confirmation that the Petitioners’ requested benchmark rates must be
considered a high ceiling over reasonably cost-based interstate inmate service rates.
Not only is the Cost Study invalidated as a floor under reasonable rates by the
skewed sampling methodology, but the estimated usage rates of $0.06 per minute for
debit calling and $0.07 per minute for collect calling are also grossly inflated.19 The
usage costs are limited to the “incremental costs associated with the termination of
interstate toll calls.”20 Petitioners’ expert, Douglas A. Dawson, has previously
demonstrated that interstate toll call termination costs are approximately $0.0125 per

17

Id.(emphasis added).

18

Methodology Order, 14 FCC Rcd at 2571.

19

See Cost Study at 4-5.

20

Id. at 11.

Hon. Kevin J. Martin
November 19, 2008
Page Six
minute, one-fourth or less of the service providers’ figures. 21 The Commission can
certainly verify current long distance call termination costs.
Substituting a generous $0.02 per minute estimate for usage costs in the Cost
Study yields a blended per-minute cost under $0.18 per minute for a 20-minute collect
call, using the fixed cost estimate of $3.19 for the higher cost 28-location sample in the
Cost Study.22 That is lower than Petitioners’ requested benchmark rate of $0.20 per
minute for debit calls, which, as the Cost Study asserts, are cheaper than collect calls.
Substituting a $0.02 usage cost also yields a blended per-minute cost under $0.195 per
minute for a 12-minute debit call using the debit fixed cost estimate of $2.09 for the 28location sample.23 Thus, even assuming the most artificially inflated fixed cost estimate,
using the most atypically small correctional facilities the service providers could find,
substituting a realistic usage element brings the service providers’ cost estimate below
the requested benchmark rates for a 12 or 20 minute call. One can only surmise that the
use of a representative sample of facilities and a realistic usage estimate would have
resulted in cost estimates far below Petitioners’ requested benchmarks for any length of
call, confirming the generosity of the benchmarks.
The Cost Study Rebuts The Service Providers’ Cost Arguments.
The service providers’ Cost Study rebuts or moots most of the service providers’
arguments in their recent ex parte filings. For example, Securus attempts to demonstrate
that the supposedly unique circumstances of its inmate calling service contract with the
Florida Department of Corrections cannot be replicated in most inmate calling service
contracts and that the favorable rates established in that contract thus cannot serve as a
basis for a comparable rates analysis for interstate inmate calling services generally. 24
As the Cost Study demonstrates, however, even if no large state prison systems are
considered, an unrepresentative sample of small, relatively high-cost correctional
facilities yields estimated costs similar to Petitioners’ requested benchmarks. Even if
21

Declaration of Douglas A. Dawson in Support of Petitioners’ Alternative Proposal ¶ 26 (Feb.
16, 2007) (“Dawson Alternative Declaration”), attached as Appendix B to the Proposal.
22

Thus, assuming a usage cost of $0.02 x 20 = $0.40 for a 20-minute call, adding the collect
fixed cost of $3.19 on page 5 of the Cost Study yields a total cost of $3.59, or slightly under
$0.18 per minute.
23

A usage cost of $0.02 x 12 = $0.24 for a 12-minute call. Adding the debit fixed cost of $2.09
on page 5 yields a total cost of $2.33, or slightly under $0.195 per minute.
24

Securus July 7 Letter at 1-2.

Hon. Kevin J. Martin
November 19, 2008
Page Seven
Securus were correct about not being able to replicate the efficiencies of its Florida
contract, it still would not be able to successfully challenge the requested benchmarks.25
Moreover, Securus and other inmate calling service providers clearly do
experience similar efficiencies in other states as well. Aside from the Florida contract,
Petitioners have pointed to several other state inmate calling service contracts, including
Securus contracts, with similarly reasonable interstate collect and debit rates.26 Securus
has not tried to explain why all of those contracts, like the Florida contract, are also
uniquely unrepresentative of all other state prison system inmate calling contracts.
Three correctional associations insist that the requested benchmark rates will not
cover the service providers’ costs of providing security functions.27 That Securus and
other service providers are able to offer interstate inmate services, including state-ofthe-art security functions, at so many prison systems at such reasonable rates, however,
disproves the correctional associations’ arguments. The service providers’ Cost Study
also includes all security costs, and it still yielded results roughly similar to the
requested benchmarks.
Securus argues that the high call volumes experienced in Florida correctional
facilities are not representative of the entire nation, especially in the case of county jails,

25

Securus does not describe the “innovative network architecture” deployed for Florida
correctional facilities in sufficient detail to accept its glib assertion that the same architecture
cannot be used efficiently elsewhere. Id. at 2. It is more likely that the efficiencies reside in
Securus facilities and functions that are common to all of its services. See discussion of
centralized functions performed by inmate calling service providers in Reply Declaration of
Douglas A. Dawson in Support of Petitioners’ Alternative Rulemaking Proposal ¶¶ 21-23 (June
20, 2007) (“Dawson Reply Declaration”), appended as Attachment A to Petitioners’ Reply
Comments, Implementation of the Pay Telephone Reclassification and Compensation
Provisions of the Telecommunications Act of 1996, CC Dkt. No. 96-128 (June 20, 2007)
(“Petitioners’ Reply Comments”).
26

See Petitioners’ June 2008 Letter at 4-7 (summarizing comparable interstate inmate calling
rates).
27

Letter from Chuck Lange, Executive Director, Arkansas Sheriffs’ Ass’n, to Marlene H.
Dortch, Secretary, FCC, at 1, CC Docket No. 96-128 (Aug. 18, 2008) (“ASA Letter”); letter
from James A. Gondles, Jr., Executive Director, American Correctional Ass’n, to Marlene H.
Dortch, Secretary, FCC, CC Docket No. 96-128 (July 31, 2008) (“ACA Letter”); letter from Hal
Turner, Executive Director, Louisiana Sheriffs’ Ass’n, to Marlene H. Dortch, Secretary, FCC,
CC Docket No. 96-128 (July 7, 2008) (“LSA Letter”).

Hon. Kevin J. Martin
November 19, 2008
Page Eight
which account for 80 percent of its client base.28 Securus also asserts that many local
and county jails experience significant interstate inmate calling traffic and argues that
the state prison systems on which Petitioners’ comparable rates analysis is based
therefore are not representative of the facilities from which most interstate inmate calls
are placed.29
Jail jurisdictions with an average daily jail population of 1,000 or more inmates,
however, accounted for over 50 percent of the U.S. jail population at midyear 2007.30
Securus does not reveal whether the county facilities generating significant interstate
calling traffic are among these larger -- and presumably lower cost -- systems.
Similarly, Pay Tel does not reveal the range of jail facility sizes that it serves in arguing
that the Proposal would be detrimental to providers primarily serving jail facilities.31
Securus’ data thus is perfectly consistent with Petitioners’ conclusion, based on
consistent service provider data from different time periods, that the overwhelming bulk
of interstate inmate calls are made from state prisons and other large confinement
systems. 32 In any event, the service providers’ own Cost Study shows that even
atypically low volume, high-cost correctional facilities exhibit cost characteristics
consistent with Petitioners’ requested benchmarks.33
28

Securus July 7 Letter at 2.

29

Id. at 8. Securus’ anecdotal assertions do not undermine Petitioners’ characterization of the
overall balance of inmate calling in different types of facilities. There may well be many local
and county facilities originating a higher proportion of inmate calls that are interstate than is
typical for such facilities, but, given the thousands of local and county facilities in the United
States, that says nothing about the proportion of inmate calls from all local and county facilities
that is interstate or how that proportion compares with the proportion of inmate calls from state
prisons that is interstate. See Bureau of Justice Statistics, U.S. Dept. of Justice, Sourcebook of
Criminal Justice Statistics 2003 at 91, Table 1.98, available at
http://www.albany.edu/sourcebook/pdf/t198.pdf (last visited July 28, 2008) (3376 jails in the
U.S. in 1999).
30

Bureau of Justice Statistics, U.S. Dept. of Justice, Jail Inmates at Midyear 2007 (June 2008),
available at http://www.ojp.usdoj.gov/bjs/abstract/jim07.htm (last visited July 28, 2008).
31

See Pay Tel July Letter.

32

Petitioners’ Reply Comments at 15-16 & n.48 (Pay Tel Communications, Inc. 2005 data);
Petitioners’ June 2008 Letter at 10 (service provider trade association 2000 data).
33

Based on its unproven assumptions that a significant proportion of inmate calling from small
local facilities is interstate and that interstate service from those facilities will be provided at a
loss under the requested benchmark rates, Securus argues that intrastate calls from those
(Footnote Continued)

Hon. Kevin J. Martin
November 19, 2008
Page Nine
Securus also complains that Petitioners advocate inappropriate cross-subsidies
from larger correctional facilities to smaller ones, citing an Access Charge Reform
Order, a Universal Service Order and a Payphone Order. 34 In all of these cases,
however, the Commission addressed subsidies of one type of service by another, not by
larger to smaller customers of the same service.35 Securus claims that it is not
requesting ad hoc individualized pricing depending on the size of the served facility, but
that is the end result of its cross-subsidy arguments.36 Securus thus has not rebutted
Petitioners’ point that rates are developed to cover the average cost of serving large and
small customers.37 Again, the Cost Study moots Securus’ arguments because it shows
that even small, high-cost facilities exhibit cost characteristics consistent with the
requested benchmark rates.

facilities will be required to recoup the cost of interstate calls. Securus July 7 Letter at 8. In
fact, the subsidies appear to be flowing in the opposite direction, according to statements and
data provided by the service providers, including one of Securus’ predecessor firms, Evercom
Systems. See Petitioners’ June 2008 Letter at 10. Moreover, Securus’ backwards subsidy flow
theory implicitly assumes a service provider serving only small facilities and that the size of the
facility is the sole determinant of cost. In reality, a typical service provider serves many
facilities of different sizes and types, and service providers enjoy economies of scale that reduce
costs for all facilities, independently of the sizes of the served facilities. Petitioners’ Reply
Comments at 16-17; Dawson Reply Declaration ¶¶ 21-23.
34

Securus July 7 Letter at 9 (citing Access Charge Reform, 12 FCC Rcd 15982 (1997), aff’d
Southwestern Bell Tel. Co. v. FCC, 153 F.3d 523 (8th Cir. 1998) (“Access Charge Reform
Order”); Federal-State Board on Universal Service, 12 FCC Rcd 8776 (1997), aff’d Alenco
Communs., Inc. v. FCC, 201 F.3d 608 (5th Cir. 2000) (“Universal Service Order”); and
Implementation of the Pay Telephone Reclassification and Compensation Provisions of the
Telecommunications Act of 1996, 14 FCC Rcd 2545 (1999), aff’d American Pub. Communs.
Council v. FCC, 215 F.3d 51 (2000) (“Payphone Order”)).
35

See Access Charge Reform Order, 12 FCC Rcd at 15985-90, 15994-96 (carriers using
interstate access services to subsidize local retail services); Universal Service Order, 12 FCC
Rcd at 8786 (removing implicit support for universal service from interstate access charges);
Payphone Order, 14 FCC Rcd at 2570 (customers making coin calls should not have to
subsidize dial-around calls).
36

Securus July 7 Letter at 4.

37

Petitioners’ June 2008 Letter at 3.

Hon. Kevin J. Martin
November 19, 2008
Page Ten

Arguments About Arbitrage Misstate The Facts.
The correctional associations argue that the imposition of the requested interstate
benchmarks will induce inmates’ families and other people receiving intrastate calls
from prisoners to obtain prepaid wireless telephones or Voice over Internet Protocol
(“VoIP”) services with out-of-state numbers in order to have such calls rated as
interstate.38 Pay Tel echoes these arguments, focusing on inmate collect calling rates.39
As Petitioners have explained previously, however, the opposite arbitrage is occurring
now. Relatively low local inmate rates have driven out-of-state customers to use cell
phones and VoIP phones with numbers that are local to the prison facilities from which
they receive calls.40 Moreover, Pay Tel previously argued that, even if the requested
relief is granted, its average local inmate rates will still be 33 percent below the reduced
interstate inmate rates, leaving the direction of current arbitrage incentives unchanged.41
State Policies Cannot Override the Command of the Communications Act.
Citing the Florida contract, Securus repeats the service providers’ refrain that the
market is working and that state policies should govern interstate inmate
telecommunications rates.42 Embarq also repeats its argument that Petitioners are
asking the Commission to “resolve a state political question, namely, at what rate should
state correctional facilities permit inmates to make telephone calls.”43 As Petitioners
have explained repeatedly, however, the “question” of “what rate should” apply to
interstate inmate telephone calls is governed entirely by the “just and reasonable” rate
mandate of Section 201(b) of the Communications Act and cannot be overridden by
state policies or even statutes, such as the Texas law cited by Embarq.44 The
38

ACA Letter; LSA Letter; letter from Gwyn Smith-Ingley, Executive Director, American Jail
Ass’n, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-128, at 2 (Aug. 15, 2008)
(“AJA Letter”).
39

See Pay Tel Arbitrage Letter.

40

Letter from Deborah M. Golden, Counsel to Petitioners, to Marlene H. Dortch, Secretary,
FCC, CC Docket No. 96-128, at 3 (Oct. 10, 2007) (“Golden Letter”).
41

Id.

42

Securus July 7 Letter at 1-2.

43

Embarq July 2008 Filing at 1.

44

Id. at 2. See Petitioners’ Reply Comments at 33-36 (states may not nullify federal statutes).

Hon. Kevin J. Martin
November 19, 2008
Page Eleven
Commission correctly found in the Inmate Payphone Order that the inmate calling
service market has not worked to bring about lower rates,45 and Section 201(b) has no
exception for prison inmates. As the Maine Public Utilities Commission pointed out in
a similar context, inmate service providers offer service “not simply to those
incarcerated in [correctional] facilities but [also] to any member of the public who wants
to communicate with them by telephone.”46 State correctional authorities do not
regulate the public’s use of interstate collect calling services.
Commission Payments Constitute Profit, Not A Cost Of Service.
Embarq also repeats the service providers’ argument that Petitioners are
challenging the commission payments demanded by correctional authorities, rather than
interstate inmate rates themselves. 47 Petitioners have repeatedly explained, however,
that service providers would be free to agree to any level of commission payments, as
long as their interstate inmate rates did not exceed the benchmarks. The benchmark
rates might not allow for the payment of large commissions, but that result does not
constitute the regulation of state correctional authorities, any more than “‘the
Environmental Protection Agency regulates the automobile industry when it requires
states and localities to comply with national ambient air quality standards.’”48
Securus continues to misread this Commission’s position on the commissions
paid by inmate service providers to prison administrators and correctional authorities,
insisting that they do not constitute a profit.49 Securus argues that the Commission did
not actually decide in the Inmate Payphone Order that these site commissions should be
treated as profit, stating that this issue was put out for comment in the Notice of
Proposed Rulemaking included in that order. Securus further argues that it would be
45

Inmate Payphone Order, 17 FCC Rcd at 3253.

46

Barbara Pierce, et al. Request for Commission Investigation into Unjust, Unreasonable,
Discriminatory Rates for Telephone Services Provided by the Maine Department of Corrections
and Verizon, Order at 26, Docket No. 2007-467 (Me. PUC, Aug. 1, 2008).
47

Embarq July 2008 Filing at 1.

48

Cable & Wireless P.L.C. v. FCC, 166 F.3d 1224, 1230 (D.C. Cir. 1999) (“no canon of
administrative law requires us to view the regulatory scope of agency actions in terms of their
practical or even foreseeable effects”) (quoted in Petitioners’ June 2008 Letter at 12). See also
Petitioners’ Reply Comments at 36-39.
49

Securus July 7 Letter at 2-4.

Hon. Kevin J. Martin
November 19, 2008
Page Twelve
improper for the Commission to conclude that inmate facility site commissions, which
are “unavoidable and fixed,” should be treated as “location rents.”50 In fact, the Inmate
Payphone Order rejected the cost data submitted by the Inmate Calling Service
Providers Coalition (“ICSPC”) underlying one of their requests that was partly based on
the assumption that “commissions are properly treated as profit.”51 Securus studiously
overlooks the Commission’s holding on this point, which states:
[W]e find the cost data deficient because ICSPC treats the
commissions paid to the inmate facilities as costs rather than profits. As
noted earlier, these commissions are location rents that are negotiable by
contract with the facility owners and represent an apportionment of
profits between the facility owners and the providers of the inmate
payphone service. When the commissions are properly treated as profit,
rather than as fixed costs, the result is that ICSPC claims a $0.73 profit
for each call that costs roughly $1.00 to provide. . . .52
Contrary to Securus’ characterization, the Notice of Proposed Rulemaking portion of the
Inmate Payphone Order did not seek further comment on this holding or on its
conclusion that inmate facility site commissions are anything other than “location
rents,” i.e., profit.53
The quoted holding also rebuts Embarq’s argument that commissions should be
treated as a cost, rather than a division of profit. Embarq insists that commissions
constitute a cost because they cover correctional facility costs incurred in making it
possible for inmates to have telephone service.54 The correctional associations similarly
suggest that imposition of the requested benchmark rates would deprive prison
administrators of compensation for costs they incur in making payphones available to
inmates or somehow force them to reduce inmates’ access to telephone services.55 The
50

Id. at 4.

51

Inmate Payphone Order, 17 FCC Rcd at 3262.

52

Id. at 3262-63.

53

Id. at 3276; see also id. at 3275-79.

54

Embarq July 2008 Filing at 2.

55

ACA Letter; ASA Letter at 1; LSA Letter; AJA Letter at 2. The Louisiana Sheriffs’
Association (“LSA”) also asserts that requiring a debit or prepaid calling option would not be
feasible for jails and other small facilities. LSA Letter. Given all of the examples in the record
(Footnote Continued)

Hon. Kevin J. Martin
November 19, 2008
Page Thirteen
record in this proceeding, however, demonstrates that commissions are primarily used
for purposes other than to defray prison administrators’ costs incurred in making
telephone services available to inmates.56 Moreover, the bid-driven escalation in
commission rates reflects a classic location monopoly rent extraction mechanism, rather
than a true cost. Indeed, one of the reasons that the Commission denied the service
providers’ requested relief in the Inmate Payphone Order was that
[N]either a surcharge nor preemption of rate ceilings would necessarily
increase an ICS provider’s net revenue. The additional revenue stream
likely would drive up the commissions offered by competing ICS
providers to the confinement facilities, thereby keeping the ICS
providers’ net revenue flat.57
This illustrates the perennial problem of monopolistic rents. . . .
Monopolistic rents can occur whenever an owner has exclusive control of
a resource, like inmate calling facilities.58
If commissions represented a real cost, they would not rise in this manner to
absorb whatever portion of total inmate calling revenue prison administrators demanded.
The correctional associations also argue that a reduction in, or elimination of,
commission payments will result in a reduction in programs that benefit inmates or
increased funding needs. 59 Although funding correctional services “through proper
appropriations channels may result in a greater drain on the government’s finances, the

of inmate debit and prepaid calling offerings that require no time or resources of correctional
staff, however, the source of LSA’s concern is not clear. See Petitioners’ Reply Comments at
27-29.
56

See, e.g., Opposition of Embarq at 3-4, Implementation of the Pay Telephone Reclassification
and Compensation Provisions of the Telecommunications Act of 1996, CC Dkt. No. 96-128
(May 2, 2007) (listing inmate support programs funded by commissions with no mention of
prison administrative costs) (cited in Petitioners’ Reply Comments at 38-39 n.157).
57

Inmate Payphone Order, 17 FCC Rcd at 3260.

58

Id. at 3260 n.74.

59

ACA Letter; ASA Letter at 2; letter from Jack Trotter, Inmate Welfare Services Unit, Glen
Helen Rehabilitation Center, San Bernardino County Sheriff’s Department, to Dana [Schaffer],
CC Docket No. 96-128 (Oct. 7, 2008).

Hon. Kevin J. Martin
November 19, 2008
Page Fourteen
responsibility for such [functions] does in fact rest with the government.”60 There is no
exception to the “just and reasonable” rate requirement in Section 201(b) of the Act for
interstate telecommunications services used to subsidize beneficial programs.
The service providers also have not addressed Petitioners’ argument that,
independently of the Inmate Payphone Order, any service rates that generate
commissions of 30 to 65 percent are unreasonably excessive.61 The tremendous
commissions paid by the service providers rebut Embarq’s claim that service providers
are not receiving “unjust or unreasonable profits from inmate calling.”62
Commercial Payphone Operator Service Rates Available To The General
Public Are Irrelevant To A Comparable Rates Analysis Of Inmate Calling
Rates.
Securus also takes exception to Petitioners’ reliance on the Commission’s
finding that “inmates have none of the alternatives available to non-incarcerated
payphone customers.”63 Securus argues that, as a practical matter, many users of
commercial payphone service do not have alternatives either and that commercial
operator service rates may therefore be used as a point of comparison for inmate rates.64
Particular end users’ economic circumstances, however, cannot be the basis for an
economic analysis of competition. The Commission has acknowledged the theoretical
existence of payphone “locational monopolies,” but “no party has [ever] accepted [the
Commission’s] invitation” “to identify and request this Commission to regulate or
otherwise remedy such locational monopolies.”65 Unless and until the Commission
takes such action, there is no basis to assume that operator service rates charged to the
60

Washington v. Reno, 35 F.3d 1093, 1103 (6th Cir. 1994) (enjoining the use of commissary
funds to finance monitoring of inmate telephone calls).
61

Proposal at 22-23 (citing AT&T Corp. v. Business Telecom, Inc., 16 FCC Rcd 12312, 12332
(2001) (defendant failed to explain how revenues from a “truly reasonable” charge “could
profitably permit” commissions of up to 24 percent of gross revenues), recon. denied, 16 FCC
Rcd 21750 (2001)).
62

Embarq July 2008 Filing at 1.

63

Inmate Payphone Order, 17 FCC Rcd at 3253 (quoted in Petitioners’ June 2008 Letter at 8).

64

Securus July 7 Letter at 5.

65

Implementation Order, 19 FCC Rcd at 15647.

Hon. Kevin J. Martin
November 19, 2008
Page Fifteen
general public for payphone calls provide an appropriate basis for a comparable rates
analysis for interstate inmate calling rates.
Moreover, Securus has not attempted to rebut Petitioners’ economic analysis
concluding that there is no demonstrable relationship between the cost of commercial
operator services and their rates, precluding their usefulness in a comparable rates
analysis.66 In any event, the service providers’ Cost Study shows that inmate service
costs are far below current payphone operator service rates.
Any Relief In This Proceeding Should Address The Problem Of
Disconnected Inmate Calls.
Securus expresses indignation over Petitioners’ report of disconnected inmate
calls and insists that such occurrences are “truly rare.” Securus presents no data on the
frequency of such problems, however, and its assurances thus cannot be taken seriously.
The Commission has acknowledged the possibility that premature disconnections “have
the unintended, and perhaps unnecessary, effect of increasing the costs incurred by
inmates and their families.”67 Moreover, Pay Tel concedes that Petitioners raise a
“legitimate issue.”68 A recent ex parte filing in this docket reports that a subsidiary of
Global Tel*Link improperly disconnected inmate calls from Dade county jails for seven
years.69 Thus, these problems are ongoing and significant.
Based on its unproven conclusion that premature disconnections of inmate calls
are rare, Securus argues that Petitioners have not made the case for usage-only charges
for interstate calls.70 Securus incorrectly asserts that, except in the case of prepaid calls
from Indiana correctional facilities, “per-call charges are the norm for interstate inmate
calling rates.”71 In fact, Petitioners pointed out four other contracts in which there is
66

See Petitioners’ June 2008 Letter at 8.

67

Inmate Payphone Order, 17 FCC Rcd at 3278.

68

Pay Tel Oct. Letter at 2.

69

Letter from Alex Friedman, Associate Editor, Prison Legal News, to Marlene H. Dortch,
Secretary, FCC, CC Docket No. 96-128, at 2 (Sept. 21, 2008).
70

Securus July 7 Letter at 7-8.

71

Id. at 6. Securus claims to have been mystified by the rate information for one of its own
contracts. It complains that the “rate change” in the case of prepaid calls from Indiana
correctional facilities “was not evident from Petitioners’ Exhibit 13.” Id. at 6-7 n.4. In fact,
(Footnote Continued)

Hon. Kevin J. Martin
November 19, 2008
Page Sixteen
also no per-call charge for inmate debit calling.72 The more typical reliance on usageonly rates for debit and prepaid inmate calling services undercuts Securus’ argument
that payphone fixed costs require inmate per-call charges.
There is also a disturbing pattern in the frequency of premature disconnections.
They are much more common in the case of inmate collect calls, for which there is
typically a per-call charge that can be repeatedly assessed each time a call is reinitiated,
than in the case of inmate debit calls, which are more likely to have no per-call charge.73
In light of this pattern, there should be no per-call charges for any interstate inmate calls,
and, given the less typical use of per-call charges for inmate debit calling today, there is
certainly no justification for per-call charges in the case of interstate inmate debit
calling.
To address the problem of disconnected calls, Petitioners have recommended
that, if the Commission ultimately decides to include a per-call charge option in an
interstate inmate calling benchmark, it should also require that such a per-call charge be
waived automatically -- i.e., without requiring any application for refund or other action
by the consumer -- for any collect call reinitiated by the same prisoner to the same
number within two minutes of the end of the previous call.74 Pay Tel raises an issue as
there was no “rate change.” The absence of a per-call charge was quite “evident” from the last
two pages of the referenced exhibit, which were appended to Petitioners’ June 2008 Letter as
Attachment A. The first page clearly addresses only “Inmate Collect Call[s],” and the second
page, a letter from T-NETIX -- now part of Securus -- clearly states that the “rate for inmate
prepaid is $.25 a minute for all types of inmate prepaid calls,” with no mention of the “call
connect” charge assessed for collect calls. Petitioners’ June 2008 Letter, Att. A.
Securus also seems to believe that the Indiana contract was amended to accommodate
the prepaid rate. Securus July 7 Letter at 9. Contrary to Securus’ confusion as to the
chronology of its Indiana contract, the T-NETIX letter is dated April 9, 2001, four months
before the original contract was executed. Compare Dawson Alternative Declaration, Exh. 13,
at 15 (signature page of original Indiana contract), with id. at Exh. 13, App. 6 and letter from
Arthur E. Heckel, Vice President - Sales, T-NETIX, Inc., to Shelley Harris, Indiana Department
of Administration (April 9, 2001).
72

Petitioners’ June 2008 Letter at 7 n. 35 (Federal Bureau of Prisons, Maryland and Missouri);
Petitioners’ Reply Comments at 9 (GEO Group contract to operate facility for Department of
Homeland Security).
73

Petitioners’ Reply Comments at 23.

74

Id.

Hon. Kevin J. Martin
November 19, 2008
Page Seventeen
to possible abuse of such a requirement and suggests that it be qualified by a condition
that the total duration of any such reinitiated call, including both portions of the call, not
extend beyond the permitted length of the original call.75 Petitioners believe that would
be a reasonable limitation on any call reinitiated without a per-call charge.
If the Commission decides to include a per-call charge, the per-call and usage
charges in that case also should be calibrated to generate the same total revenue as the
requested benchmark per-minute rates for an interstate inmate call of average length,
based on reliable call-length data.76 Where the rules in a particular correctional facility
establish a shorter permitted call length, the charges should be readjusted to generate the
same total revenue as the requested benchmark rates for a call of the maximum
permitted duration in that facility.
If The Commission Decides To Require Prepaid Calling As An Option In
Place Of Debit Calling, Safeguards Are Necessary.
In response to service provider arguments that prepaid calling would be more
appropriate in a correctional setting than debit calling, Petitioners described the abuses
that often accompany the provision of prepaid inmate calling services and proposed
safeguards in the event that the Commission required a prepaid calling option instead of
debit calling.77 Pay Tel argues that the requested safeguards are too stringent and insists
that the costs of prepaid calling are significantly higher than debit calling costs.78 Pay
Tel’s recitation of prepaid calling costs, however, appears to exaggerate those costs,
relative to collect calling costs.
As Petitioners have pointed out, inmate prepaid rates typically are significantly
lower than inmate collect rates and are some of the lowest inmate rates in the record.
Moreover, usage-only prepaid rates are becoming more common. 79 That would not be
possible if Pay Tel’s exaggerated prepaid billing cost claims were accurate. Pay Tel
does not have to set up a new billing system for every new prepaid account, anymore
75

Pay Tel Oct. Letter at 3.

76

Securus and Embarq assert that average inmate call length is about 12 minutes. Securus July
7 Letter at 6 (interstate calls); Embarq July 2008 Filing at 3.
77

Petitioners’ Reply Comments at 29-30.

78

Pay Tel Oct. Letter at 3-4.

79

Petitioners’ June 2008 Letter at 4-7 & nn.20, 21, 26, 35.

Hon. Kevin J. Martin
November 19, 2008
Page Eighteen
than it sets up a new billing system for every debit account. The fraud, uncollectibles
and bad debt costs of prepaid calls are far less than those cost categories in the case of
collect calls, simply because, as in the case of debit calls, the revenue is received before
the call is made. Those cost savings far outweigh any increased prepaid billing costs, as
shown by the low prepaid calling rates in the record.
In fact, as Consolidated Communications Public Services, Inc. (“CCPS”) noted,
no per-call charge is necessary with a prepaid option, implicitly conceding that billing
and collection costs are not a significant problem with prepaid accounts.80 The only
additional fees associated with prepaid accounts that could be considered legitimate are
third-party fees assessed in connection with payment processing options chosen by the
customer, such as Western Union fees or other electronic payment services. A
minimum payment amount of $25 or less to set up a prepaid account is also a reasonable
requirement. Otherwise, however, inmate prepaid long distance rates should be no
different from inmate debit long distance rates and should be governed by the same
benchmark ultimately imposed by the Commission.
A One-Year Transition Would Be Sufficient.
Finally, Securus complains again about the one-year transition proposed by
Petitioners to allow for the contract renegotiations necessary to accommodate the
benchmark rates. Securus takes exception to what it characterizes as Petitioners’
“sweeping generalization that inmate telephone service contracts are ‘being
renegotiated’ with lower rates soon after their initial execution.”81 Petitioners did not
say “soon,” but, otherwise, Securus has the statement about right, except that Petitioners
were quoting Public Communications Services, Inc. (“PCS”).82 PCS’s original
statement was:

80

Comments of Consolidated Communications Public Services Regarding the Alternative
Rulemaking Proposal of Martha Wright, et al. at 13-16, Implementation of the Pay Telephone
Reclassification and Compensation Provisions of the Telecommunications Act of 1996, CC
Docket No. 96-128 (May 2, 2007) (“CCPS Comments”) (billing and collection costs vary with
number of calls).
81

Securus Letter at 9.

82

Petitioners’ June 2008 Letter at 12.

Hon. Kevin J. Martin
November 19, 2008
Page Nineteen
With increasing frequency, DOCs are renegotiating terms after
contracts have been awarded and requesting rate reductions in exchange
for lower commissions. 83
Securus’ quarrel is with fellow service provider, PCS. As Petitioners noted, waiver
relief is available to any service provider demonstrating unusually burdensome
circumstances.84
Petitioners accordingly request that their Proposal be granted expeditiously. In
accordance with Section 1.1206(b)(1) of the Commission’s rules, a copy of this
presentation is submitted for inclusion in the record of the above-captioned docket.
Please do not hesitate to contact the undersigned with any questions or concerns about
this letter or the issues discussed.
Very truly yours,
/s/ Frank W. Krogh
Frank W. Krogh
Counsel to Petitioners
cc:

Commissioner Michael J. Copps
Commissioner Jonathan S. Adelstein
Commissioner Robert M. McDowell
Commissioner Deborah Taylor Tate
Amy E. Bender
Scott M. Deutchman
Scott K. Bergmann
Nick Alexander
Greg Orlando
Penny Y. Nance
Dana R. Schaffer
Albert Lewis
John Hunter

83

Comments of Public Communications Services, Inc. at 3, Implementation of the Pay
Telephone Reclassification and Compensation Provisions of the Telecommunications Act of
1996, CC Dkt. No. 96-128 (May 1, 2007).
84

Petitioners’ June 2008 Letter at 12.

Hon. Kevin J. Martin
November 19, 2008
Page Twenty
Pamela Arluk
Lynne Engledow
Darryl Cooper
Douglas Galbi

dc-530606