# Rates for Interstate Inmate Calling Services; Second Further Notice of Proposed Rulemaking

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2014-26922

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** November 21, 2014
- **Citation:** 79 FR 69682

## Text

FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 64
[WCB: WC Docket No. 12-375; FCC 14-158]
Rates for Interstate Inmate Calling Services; Second Further Notice of Proposed Rulemaking

AGENCY:

Federal Communications Commission.

ACTION:

Proposed rule.

SUMMARY:

In this document, the Commission seeks comment on additional measures it could take to ensure that interstate and intrastate inmate calling services are provided consistent with the statute and the public interest and the Commission's authority to implement these measures. The Commission believes that additional action on inmate calling service will help maintain familial contacts stressed by confinement while still ensuring the critical security needs of correction facilities of various sizes.

DATES:

Comments are due on or before January 5, 2015. Reply comments are due on or before January 20, 2015.

ADDRESSES:

You may submit comments, identified by WC Docket 12-375, by any of the following methods:

Federal Communications Commission's Web site:
http://fjallfoss.fcc.gov/ecfs2/.
Follow the instructions for submitting comments.

People With Disabilities: Contact the FCC to request reasonable accommodations (accessible format documents, sign language interpreters, CART, etc.) by email:
FCC504@fcc.gov
or phone: 202-418-0530 or TTY: 202-418-0432.

For detailed instructions for submitting comments and additional information on the rulemaking process, see the
SUPPLEMENTARY INFORMATION
section of this document.

FOR FURTHER INFORMATION CONTACT:

Lynne Engledow, Pricing Policy Division, Wireline Competition Bureau, 202-418-1520 or
Lynne.Engledow@fcc.gov.

SUPPLEMENTARY INFORMATION:

Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419, interested parties may file comments and reply comments on or before the dates indicated on the first page of this document. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS).
See Electronic Filing of Documents in Rulemaking Proceedings,
63 FR 24121 (1998).

Electronic Filers: Comments may be filed electronically using the Internet by accessing the ECFS:
http://fjallfoss.fcc.gov/ecfs2/.

Paper Filers: Parties who choose to file by paper must file an original and one copy of each filing. If more than one docket or rulemaking number appears in the caption of this proceeding, filers must submit two additional copies for each additional docket or rulemaking number.

Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission.

All hand-delivered or messenger-delivered paper filings for the Commission's Secretary must be delivered to FCC Headquarters at 445 12th St. SW., Room TW-A325, Washington, DC 20554. The filing hours are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes and boxes must be disposed of
before
entering the building.

Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.

U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th Street SW., Washington, DC 20554.

People With Disabilities:
To request materials in accessible formats for people with disabilities (braille, large print, electronic files, audio format), send an email to
fcc504@fcc.gov
or call the Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (tty).

This is a summary of the Commission's Second Further Notice of Proposed Rulemaking released on October 23, 2014. This document does not contain information collection(s) subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In addition, therefore, it does not contain any new or modified “information collection burden for small business concerns with fewer than 25 employees,” pursuant to the Small Business Paperwork Relief Act of 2002. A full text of this document is available at the following Internet address:
http://www.fcc.gov/document/fcc-continues-push-rein-high-cost-inmate-calling-0.
The complete text may be purchased from Best Copy and Printing, Inc., 445 12th Street SW., Room CY-B402, Washington, DC 20554. Public and agency comments are due January 5, 2015.

I. Introduction

1. In 2013, nearly ten years after Martha Wright, a grandmother from Washington, DC, petitioned the Federal Communications Commission (Commission or FCC) for relief from exorbitant long-distance calling rates from correctional facilities, the Commission took long overdue steps to provide relief to the millions of Americans paying unjust and unreasonable interstate inmate phone rates. These exorbitantly high rates discouraged phone calls and, at times, made it nearly impossible for inmates to maintain contact with their families, friends and communities, to society's detriment.

2. Reforming inmate calling service (ICS) benefits society by making it easier for inmates to stay connected to their families and friends. An April 2014 report from the Department of Justice found that, of the 400,000 prisoners released over a five-year period, two-thirds were rearrested within three years, and three-quarters were rearrested within five years. As a nation, we need to take all actions possible to reduce these recidivism rates. Studies have shown that family contact during incarceration is associated with lower recidivism rates. Lower recidivism means fewer crimes, decreases the need for additional correctional facilities, and reduces the overall costs to society. Reform also helps families and the estimated 2.7 million children of incarcerated parents in our nation, an especially vulnerable part of our society. In addition to coping with the anxiety associated with a parent who is not present on a daily basis, these young people are often suffering severe economic and personal hardships and are often doing poorly in school, all of which are exacerbated by the inability to maintain contact with their incarcerated parent due to unaffordable inmate calling rates.

3. While the Commission prefers to promote competition to ensure rates are just and reasonable, it remains clear that in the inmate calling service market, as currently structured, competition is failing to do so. Evidence in the record indicates that, as of 2013, interstate ICS rates with comparable security features and protections varied from as low as $0.046 per minute to as high as $0.89 per minute, plus a per call charge as high as $3.95. Even worse, rates are as high as $2.26 per minute for a call placed by a deaf or hard of hearing prisoner. Excessive rates are primarily caused by the widespread use of site

commission payments—fees paid by ICS providers to correctional facilities or departments of corrections to win the exclusive right to provide inmate calling service at a facility. These site commission payments, which have recently been as high as 96% of gross revenues, inflate rates and fees, as ICS providers must increase rates in order to pay the site commissions. This forces inmates and their friends and families, who use ICS and are forced to absorb the site commissions in the rates they pay, to subsidize everything from inmate welfare programs, to salaries and benefits of correctional facilities, states' general revenue funds, and personnel training. The ICS market has been characterized by some as subject to “reverse competition,” forcing providers to compete not on price or service quality but on the size of site commission payments—a dynamic that drives rates ever higher to cover greater and greater site commission payments.

4. The 2013
Inmate Calling Report and Order and FNPRM
tackled these issues for the first time and took important initial steps for reform. The Order adopted a cost-based approach with interim interstate rate caps and a Mandatory Data Collection to allow the Commission to evaluate ICS costs, including ancillary charge costs, in order to develop reforms such as permanent rate caps and to address the use of ancillary charges not reasonably related to the cost of providing service. With regard to site commission payments, the Order reaffirmed the Commission's previous holding that site commission payments are an apportionment of profit. The Order also determined that site commission payments and other provider expenditures not reasonably related to the provision of interstate ICS are not recoverable through ICS rates.

5. Although the rate caps adopted in the Order were interim in nature pending results of the Mandatory Data Collection, the reforms have already had a significant impact on contact between inmates and their families. Evidence indicates that as interstate rates have declined, there has been a corresponding increase in call volumes. For example, one provider indicates that, as a result of the Commissions' reforms, its interstate ICS rates declined 39 percent and interstate call volumes increased 20 to 30 percent. Praeses reports that it tracked interstate ICS call volume for its clients and that in comparing a four-month period prior to the
Inmate Calling Report and Order and FNPRM
with another period one year later, post-adoption, “call volume increased nearly seventy percent.” But interstate rates are only part of the ICS market. Although the Order set a framework for states to follow, few have done so. Many intrastate rates remain high, with some having even increased following the Order. There are indications that ancillary fees have also increased in number, price, or both, leading to further expense for ICS consumers in a manner that is often unrelated to the cost of providing ICS. These developments underscore the critical need for the Commission to move expeditiously to adopt comprehensive, permanent reforms.

6. The Commission was unable to adopt comprehensive reform in the
Inmate Calling Report and Order and FNPRM
due to the limited data in the record and administrative notice limited only to interstate ICS. Because we seek comment on a comprehensive solution—rather than just reforming interstate rates—we seek comment on moving to a market-based approach to encourage competition in order to reduce rates to just and reasonable levels and to ensure fair but not excessive ICS compensation. This approach was not feasible when the Commission previously addressed interstate rates because new intrastate rates and fees could circumvent such efforts. We therefore initiate this Second Further Notice of Proposed Rulemaking (Second Further Notice) to develop a record to adopt comprehensive, permanent ICS reforms as expeditiously as possible. In this item, we seek comment on adopting a simplified, market-based approach focused on aligning the interests of ICS providers and facilities to deliver high quality ICS with advanced security features at the lowest prices for end users. We seek comment on whether such an approach will significantly limit competitive distortions in the ICS marketplace. We seek comment on the Commission's legal authority regarding site commissions and ask whether such payments should be prohibited. We seek comment on whether facilities incur costs in the provision of ICS and, if so, how facilities should recover these costs, as well as appropriate transition periods to enable facilities time to adjust. We seek comment on proposals in the record to establish permanent rate caps for all intrastate and interstate calls, limit ancillary charges, and adopt other measures to ensure that ICS rates are just, reasonable, fair, and accessible to all Americans. We believe that this market-based approach is only possible through a comprehensive reform effort dealing with all of the major portions of the ICS market, unlike when the Commission addressed only interstate ICS in the
Inmate Calling Report and Order and FNPRM.
We seek comment on alternative ways to promote competition in the ICS market. We seek comment on whether eliminating site commissions and capping rates and fees, on both interstate and intrastate ICS, better aligns the interests of both ICS providers and correctional institutions with the interests of consumers, allowing market forces to drive rates to competitive levels.

II. Background

7. In 2003, Mrs. Wright and her fellow petitioners (Wright Petitioners or Petitioners), who included current and former inmates at Corrections Corporations of America-run confinement facilities, filed a petition with the Commission seeking to initiate a rulemaking to address high long-distance ICS rates. The petition sought to prohibit exclusive ICS contracts and collect-call-only restrictions in correctional facilities. In 2007, the same petitioners filed an alternative rulemaking petition, asking the Commission to address high ICS rates by requiring a debit-calling option in correctional facilities, prohibiting per-call charges, and establishing rate caps for interstate, interexchange ICS. The Commission sought and received comment on both petitions.

8. In December 2012, the Commission adopted a notice of proposed rulemaking seeking comment on, among other things, the proposals in the Wright petitions. The
2012 ICS NPRM
sought comment on the two petitions and proposed ways to “balance the goal of ensuring reasonable ICS rates for end users with the security concerns and expense inherent to ICS within the statutory guidelines of sections 201(b) and 276 of the Act.” The
2012 ICS NPRM
sought comment on other issues affecting the ICS market, including possible rate caps for interstate ICS; ancillary charges; data in the record; collect, debit, and prepaid ICS calling options; site commissions; issues regarding disability access; and the Commission's statutory authority to regulate ICS.

9. On August 9, 2013, the Commission adopted the
Inmate Calling Report and Order and FNPRM,
finding that interstate ICS rates were not just and reasonable as required by section 201 of the Act, and did not ensure fair, and not excessive, compensation for ICS providers as required by section 276 of the Act. In response, the Commission adopted reforms to ensure interstate rates were just, reasonable, and fair as required by Sections 201 and 276 and

focused on reforming interstate site commission payments, rates, and ancillary charges. The Commission concluded that, in the absence of competitive pressures, the default of cost-based regulation should apply to the ICS market. As discussed in the
Order,
this approach is consistent with Commission practice that “typically focuses on the costs of providing the underlying service when ensuring that rates for service are just and reasonable under section 201(b).” In addition, the Commission noted that “the cost of providing payphone service generally has been a key point of reference when [it] evaluates rules implementing the fair compensation requirements of section 276(b)(1)(A).”

10. The Commission reaffirmed previous findings that site commission payments were not costs but “profit.” As a result, the Commission determined that site commission payments “were not part of the cost of providing ICS and therefore not compensable in interstate ICS rates” The Commission's previous request for “updated data from all interested parties and the public, but especially from ICS providers . . . to aid . . . in developing a clearer understanding of the ICS market,” went largely unheeded. Therefore, the Commission analyzed the limited data submitted by ICS providers, in addition to publicly-available data, to establish interim per-minute interstate ICS safe harbor caps of $0.12 and $0.14 and hard rate caps of $0.21 for debit and prepaid calls and $0.25 for collect calls to ensure that all rates were reduced, and provided guidance about the waiver process for ICS providers that could show good cause. The Commission also required that ancillary charges be cost based. Finally, the Commission chose not to address intrastate ICS, noting instead that it had “structured [its reforms] in a manner to encourage . . . states to undertake reform.” It noted, however, that in the absence of state reform of intrastate ICS, unreasonably high rates would likely continue, which would require the Commission to “take action to reform unfair intrastate ICS rates.”

11. The changes to interstate rates adopted by the Commission were significant but interim. To enable the Commission to adopt permanent ICS reform, the Commission adopted a Mandatory Data Collection for ICS providers to report costs and an Annual Reporting and Certification Requirement of ICS rates. In the
FNPRM
the Commission sought specific comment on multiple aspects of permanent ICS reform regardless of jurisdiction or call type.

12. Prior to the effective date of the
Order,
the DC Circuit stayed three rules adopted by the Commission pending resolution of the appeal, including the rule requiring rates to be based on costs, the rule adopting an interim safe harbor, and the rule requiring ICS providers to file annual reports and certifications. The court allowed other aspects of the
Order
to take effect, including the interim interstate rate caps.

13. Since the adoption of the
Order,
the Commission has continued to monitor the effect of its reforms on the ICS industry and pursue additional reform, including holding a workshop entitled “Further Reform of Inmate Calling Services” on July 9, 2014. The workshop evaluated options for additional ICS reforms, discussed the effects of the
Order,
the role ancillary charges play in the ICS market, the provision of ICS at different types of facilities, and communications technologies beyond traditional payphone calling being deployed in correctional facilities.

14. On June 11, 2014, the Commission received approval for its Mandatory Data Collection from the Office of Management and Budget, and, after publication in the
Federal Register
, announced in a Public Notice that data responses were due on July 12, 2014, a date which was subsequently extended until August 18, 2014. In response, the Commission received significant cost and operational data, including ancillary charge cost data, from the following ICS providers: ATN, CenturyLink, Combined Public Communications, Correct Solutions, Custom Teleconnect, Encartele, GTL, Lattice, ICSolutions, NCIC, Pay Tel Communications, Protocall, Securus, and Telmate. Collectively, these providers represent the vast majority, well over 85 percent, of the ICS market. In this Second Further Notice, we seek comment on these data, including some reporting and cost allocation inconsistencies among the providers. We seek comment on these issues and generally on the data received as we propose to move forward and adopt permanent interstate and intrastate ICS reform.

15.
Proposals for Reform in the Record.
Since the
Order,
we have received several proposals in the record urging comprehensive ICS reform. On September 15, 2014, GTL, Securus, and Telmate, who claim to be “the primary providers of inmate calling services . . . in the United States and representing 85% of the industry revenue in 2013,” jointly filed a proposal to comprehensively reform all aspects of ICS. First, the Joint Provider Reform Proposal urges the adoption of rate caps of $0.20 per minute for debit and prepaid interstate and intrastate ICS, and $0.24 per minute for all interstate and intrastate collect ICS, effective 90 days after adoption of a final order. The Joint Provider Reform Proposal supports “reductions in site commission payments” but does not specify exactly what such reductions would entail. The Proposal suggests the prohibition of “in-kind payments, exchanges, technology allowances, administrative, fees,” or anything “not directly related to, or integrated with, the provision of ICS.” These three ICS providers contend that the Commission does not have authority over “ancillary fees for transactions other than the provision of ICS” but propose to eliminate some ancillary fees, limit allowable ancillary fees to those specified in the document, and cap other ancillary fees. Finally, these three ICS providers “commit to continue to comply with their existing obligations” under the Americans with Disabilities Act and other statutes for inmates with disabilities, and suggest that the Commission require officers of ICS providers to certify compliance with all adopted rules under penalty of perjury. GTL, a signatory of the Proposal, later characterized the Proposal as “part of a new framework that is designed to respond to market forces” and noted that “[t]he proposed rates and fees are caps, which can vary by contract based on the correctional facility needs and the bidding process.”

16. In addition to the Joint Provider Reform Proposal, several individual ICS providers also submitted proposals for reform. CenturyLink asserts that it could “support a unified cap approximately at the current interstate cap levels,” which would apply “for both interstate and intrastate calls, with an additional allowance for collect calling.” CenturyLink supports a prohibition on “all or all but a very narrow class of ancillary fees.” CenturyLink also asserts that the Commission should “allow reasonable commissions or administrative fees,” exempt from regulation high-cost facilities such as secure mental health facilities, and grandfather existing contracts. Pay Tel also submitted a proposal for reform, which it characterizes as a “comprehensive solution to ICS reform that attempts to be fair to all affected parties, including inmates and their families, facilities, and vendors.” Pay Tel's Proposal suggests “postalized” per-minute rate caps, at a rate to be determined, for both intrastate and interstate calls, separated between

prisons and jails, with no per-call charges allowed. Specific ancillary fees would be allowed, with some “premium calling options” for jails, and all other ancillary fees prohibited. Pay Tel proposes that all facilities would be required to comply with existing obligations and laws regarding people with disabilities.

17. The Wright Petitioners, along with several public interest groups, urge the Commission to adopt a $0.07 per minute rate cap for all interstate debit, prepaid, and collect calls, with no per-minute rate, and no other ancillary fees or taxes allowed. Prisoners' Legal Service of MA (PLS) contends that the interim safe harbors and caps that the Commission implemented in the
Order
are conservative and “exceed cost data that any party submitted in the record.” PLS opposes extending the interim safe harbor rates and caps, and instead proposes that the Commission adopt a flat all-distance rate of $0.07 per minute, regardless of the size of the facility or the call volume generated from the facility. To justify this rate, PLS points to the fact that ICS providers are charging as low as $0.04 and $0.05 per minute absent commissions in some states.

18. A few states have undertaken ICS reform since the Commission's
Order.
The Alabama Public Service Commission (Alabama PSC) recently adopted comprehensive ICS reforms that include intrastate rate caps as well as restrictions on the number and rates of ancillary charges it authorized. The Minnesota Department of Corrections initiated a pilot program in a limited number of correctional facilities in which a flat rate of $0.07 per minute is charged for all local and long-distance debit calls, bringing the cost of a 15-minute call to $1.05, plus applicable tax. New Jersey recently lowered ICS rates to $0.15 a minute for all interstate and intrastate calls from state prison facilities. We applaud these efforts and seek comment below on what more the Commission and states can do to enact comprehensive ICS reform.

III. Discussion

19. In this Second Further Notice, we take the following steps to reform and modernize interstate and intrastate ICS regulations while ensuring adequate security measures for correctional facilities. First, we seek comment on eliminating all site commission payments on both interstate and intrastate ICS to fulfill the Commission's statutory obligations to promote competition and ensure just and reasonable rates and fair compensation. We also seek comment on whether facilities incur costs in the provision of ICS and, if so, how facilities should recover these costs, as well as appropriate transition periods for reform to allow correctional facilities time to adjust. We seek comment on adopting intrastate and interstate rate caps. We seek comment on reforming ancillary fees including adopting ancillary fee rate caps, and prohibiting certain ancillary charges. We also seek comment on alternative ways to promote competition in the ICS market. We seek comment on whether we should periodically review the ongoing impact of ICS rate reforms. Finally, we seek further comment on issues related to enforcement, disability access, advanced communications in the correctional setting, and the cost/benefit analysis of all of the proposals herein.

A. Payments to Correctional Facilities

20. The record, including data from the 2014 ICS Workshop and the Mandatory Data Collection, makes clear that the
Order'
s interim rate caps have significantly lowered the expense of interstate ICS calls to end users. On the positive side, the interim interstate rate caps have resulted in increased call volumes, evidence that unreasonable rates were discouraging communications and that reasonable rates foster communications between inmates and their families and friends. Yet failures in the ICS market continue. Interstate reform in some cases has been met by increased intrastate ICS rates and has not discouraged other practices that also increase the costs of ICS to consumers, such as excessive ancillary charges and an increase in the use of single call services. The pressure to pay site commissions that exceed the direct and reasonable costs incurred by the correctional facility in connection with the provision of ICS continues to disrupt and even invert the competitive dynamics of the industry. These and other market failures demonstrate that the interstate-only reforms adopted in the
Order,
while an important first step, did not completely address the problems in the ICS marketplace. This highlights the need for more-comprehensive reform of the ICS industry to address both interstate and intrastate ICS.

1. Restrictions on Payments to Correctional Facilities

21. In this section, we seek comment on prohibiting site commissions as a category, including all payments, whether in-kind payments, exchanges, allowances, or other fees. The record is clear that site commissions are the primary reason ICS rates are unjust and unreasonable and ICS compensation is unfair, and that such payments have continued to increase since our
Order.
Moreover, where states have eliminated site commissions, rates have fallen dramatically. We therefore predict that prohibiting such payments will enable the market to perform properly and encourage selection of ICS providers based on price, technology and services rather than on the highest site commission payment. Although we seek comment on prohibiting site commissions as a category, we seek comment on whether correctional institutions incur any costs in the provision of ICS and, if so, how to enable the facilities to recover such costs. We also seek comment on how best to proceed if a state has already prohibited site commission payments.

22. As part of its reform of unreasonable and unjust interstate ICS rates in the
Inmate Calling Report and Order and FNPRM,
the Commission addressed site commissions and concluded that they were an apportionment of profits between service providers and correctional facilities and were not, in and of themselves, a cost of ICS. The payment of site commissions distorts the ICS marketplace by creating “reverse competition” in which the financial interests of the entity making the buying decision (the correctional institution) are aligned with the seller (the ICS provider) and not the consumer (the incarcerated person or a member of his or her family).

23. This “reverse competition” is reflected in data in the record. Aggregated data from the Mandatory Data Collection from 14 ICS providers show that over $460 million in site commission payments were paid to facilities in 2013. This means that ICS users and their families, friends and lawyers spent over $460 million to pay for programs ranging from inmate welfare to roads to correctional facilities' staff salaries to the state or county's general budget. These are pass-through payments from the provider to the facility, absent which, rates would be lower. Moreover, the magnitude of payments is significantly higher than previous estimates in the record. For example, using publicly available data in 2012, the Human Rights Defense Center (HRDC) estimated ICS providers paid over $123 million in site commissions to correctional facilities. To put the number in context, however, the record and data from the Mandatory Data Collection suggest that these payments represented just 0.3 percent of prison facilities total budgets in 2012. Similarly, one ICS provider estimated

that site commission payments represented 0.4 percent of total prison/jail operating budgets in 2013. What appears to be of limited relative importance to the combined budgets of correctional facilities has potentially life-altering impacts on prisoners and their families.

24. Despite their limited overall budget impact, site commission payments are the chief criterion many correctional institutions use to select the ICS provider for their facilities and are thus the main cause of the dysfunction of the ICS marketplace. The demand for site commission payments generates pressure on ICS providers to raise rates and assess additional ancillary charges, which are typically not subject to site commissions. The existing contract proposal process (RFP, or request for proposal) often focuses the competition between bidding ICS providers on who can pay higher site commissions to correctional institutions instead of creating incentives for ICS providers to provide the lowest rates to consumers.

25. The Alabama PSC articulated an alternative perspective on the cause of increased site commissions, stating that “the proliferation of excessive ancillary fees, not call rates, is the most significant contributor toward escalating site commission offerings.” It further asserted that “to effectively constrain excessive site commissions, it is essential to first address the excessive revenue sources [from ancillary fees].” In this Second Further Notice we seek comment on proposals to address both site commissions and ancillary fees. We also seek comment on the Alabama PSC's perspective on the cause of increases in site commissions.

26. At the time the Commission adopted the
Inmate Calling Report and Order and FNPRM,
the highest commission amount in the record was 88 percent. Since the
Order,
despite the Commission's decision to not permit site commission payments to be included in interstate rates, the record indicates that site commissions have continued to increase, with recent contracts including site commission payments as high as 96 percent of gross revenues. Moreover, there is evidence that site commission payments on intrastate ICS revenue, which were not addressed by the
Order,
have increased. Absent further action, we are concerned that the market will continue to fail to promote competition and ensure rates are just, reasonable and ensure fair compensation consistent with the dictates of the Communications Act. Indeed, several commenters urge the Commission to adopt an approach that “will lead to lower, market-based rates.” Securus has suggested that if the Commission does anything short of completely banning site commission payments, it will allow gaming.

27. We seek comment on prohibiting all site commission payments for interstate and intrastate ICS to enable market-based dynamics to ensure just and reasonable ICS rates and fair ICS compensation. Eliminating the competition-distorting role site commissions play in the marketplace should enable correctional institutions to prioritize lower rates and higher service quality as decisional criteria in their RFPs, thereby giving ICS providers an incentive to offer the lowest end-user rates. Indeed, when states such as Missouri, New York and New Mexico eliminated site commission payments, ICS rates decreased significantly. We therefore seek comment on such an approach and on whether it will foster a competitive market that will ensure just and reasonable rates and fair compensation for ICS while minimizing regulatory burdens on ICS providers and the Commission. We also seek comment below on whether the Commission should undertake periodic review to verify this.

28. We seek comment on a two-year transition away from site commissions to avoid flash cuts and permit correctional institutions time to adjust. In addition, we seek comment on whether correctional facilities incur costs for provisioning ICS. We request data that demonstrate the costs that facilities bear that are directly related to the provision of ICS. We seek comment on the magnitude of these costs and how to enable facilities to recover such demonstrated costs in a manner that does not disrupt a market-based approach to lowering rates for end users of ICS.

2. Legal Authority

29. We seek comment on the Commission's legal authority to restrict the payment of site commissions in the ICS context pursuant to sections 276 and 201(b) of the Act. We begin with a review of the authority accorded the Commission under section 276. In relevant part, section 276(b)(1) states:

In order to promote competition among payphone service providers and promote the widespread deployment of payphone services to the benefit of the general public, within 9 months after the date of enactment of the Telecommunications Act of 1996, the Commission shall take all actions necessary (including any reconsideration) to prescribe regulations that—

(A) establish a per call compensation plan to ensure that all payphone service providers are fairly compensated for each and every completed intrastate and interstate call using their payphone. . . .

30. As discussed herein, the Commission has previously concluded that site commission payments are a significant cause of ever increasing rates. This fact was recently underscored by the Joint Provider Reform Proposal, which stated that the rate caps they propose “are feasible for the parties only if implemented in conjunction with corresponding reductions in site commission payments.” We seek comment on the assertion that absent reform, achieving the statutory mandate of just and reasonable ICS rates and fair ICS compensation would be difficult, if not impossible, to achieve. At the same time, we are mindful that ICS providers should receive “fair” but not excessive compensation, and seek comment on implementation and transition below to ensure that this occurs. We therefore seek comment on whether the payment of site commissions would be an appropriate object of regulation under this statutory provision. Would a prohibition on site commission payments ensure “fair compensation” as that term is used in section 276? While the Commission has previously found the phrase “fairly compensated” to be ambiguous, and acknowledged that a range of compensation rates could be considered fair, it has treated the concept of fairness as encompassing both the compensation received by ICS providers and the cost of the call paid by the end user. As the record continues to show that the payment of site commissions causes ICS rates to be set at excessive levels, could the Commission under section 276 find that site commissions result in unfair compensation and therefore should be prohibited or otherwise restricted?

31. We seek comment on our prediction that a prohibition on the payment of site commissions would foster a more competitive marketplace for the provision of ICS. If site commissions hinder and distort competition among ICS providers, hinder the widespread deployment of payphone services, or both, would that support the Commission's exercise of section 276 authority “to prescribe regulations” to ensure that ICS providers are “fairly compensated”? If so, would the statutory duty to ensure fair compensation encompass an outright ban on the payment of site commissions by ICS providers? We note, for example, that if a correctional institution were to self-provision ICS and seek to charge rates that include an amount that would be deemed a site

commission as part of its profits, above and beyond a normal return, such conduct could be directly addressed by Commission regulation of ICS rates to limit rates to a level that ensures fair compensation, but no more. Does this approach support the view that Commission regulation directly targeting site commissions likewise can be justified to the extent providers ensure that ICS rates provide no more than fair compensation?

32. If, as the record currently shows, the payment of site commissions leads to ICS rates that are set at unreasonably high, even exorbitant, levels, then, as has occurred in states that have eliminated site commissions, we predict that a prohibition on making these payments would lead to significantly lower ICS rates. We seek comment on the reasonableness of this presumption and whether there are criteria other than site commissions that might discourage correctional institutions from prioritizing lower rates and better service quality in their RFPs. If the elimination of site commissions does lead to lower rates, we seek comment on whether lower ICS rates would lead to greater ICS usage. How should we interpret the word “deployment” in this context? For instance, is “deployment” limited to installation of new physical infrastructure that would enable the provision of ICS, or can “deployment” reasonably be construed to include new incentives or opportunities for end users to access existing payphone services? Similarly, can “payphone service”—which section 276 defines to include “any ancillary services”—reasonably be construed to include new features that might be offered to accommodate greater demand? We seek comment on this analysis.

33. We seek comment on any other relevant language in section 276 that may bear upon our authority to prohibit site commissions. For instance, what is the relevance of section 276(b)(1)(A)'s requirement that regulations adopted by the Commission ensure that payphone service providers are compensated “per call” and for “each and every completed intrastate and interstate call”? More generally, are there alternative interpretations or theories for implementing section 276 that counsel for or against particular approaches to addressing site commission payments?

34. We seek comment on the proposal that site commission payments undermine the achievement of section 276's goals in the ICS context, even though the Commission previously has permitted location rents in the context of public payphones. For example, as to public payphones, the Commission found that “[p]ayphones in many locations are likely to face a sufficient level of competition from payphones at nearby locations to ensure that prices are at the competitive level,” and thus “[a]s a result, we believe that payphones at such locations are unlikely to need additional scrutiny.” The Commission recognized, by contrast, that there could be “locations where . . . no `off premises' payphone serves as an adequate substitute for an `on premises' payphone.” As the Commission observed:

In such locations, the location provider can contract exclusively with one PSP [payphone service provider] to establish that PSP as the monopoly provider of payphone service. Absent any regulation, this could allow the PSP to charge supra-competitive prices. The location provider would share in the resulting “location rents” through commissions paid by the PSPs. To the extent that market forces cannot ensure competitive prices at such locations, continued regulation may be necessary.

35. We seek comment on whether market conditions for ICS differ sufficiently from those the Commission previously found in the case of public payphones as to warrant different treatment under section 276. Are ICS providers inherently “monopoly providers of payphone service” and therefore able “to charge supra-competitive prices?” Do inmates have access to competing alternatives? One way to mitigate this problem would be to require correctional institutions to enter into service contracts with multiple ICS providers instead of awarding a monopoly to a single provider, as the Wright Petitioners initially suggested. However, the record suggests that requiring multiple providers at correctional institutions, and thereby enabling competition, could present significant practical challenges and potentially could increase costs and therefore drive up rates. Further, it is unclear whether allowing multiple providers at correctional institutions would substantially lower ICS costs to consumers if facilities were still able to receive site commission payments. We seek comment on these views, and whether action on site commissions thus can be reconciled with Commission precedent under section 276 for public payphones, or if action to prohibit or restrict site commissions for ICS locations would require the Commission to change course in any respect.

36. We also seek comment on any other sources of Commission authority to regulate site commissions. For example, section 201(b) of the Act requires all charges and practices “for and in connection with” an interstate common carrier service to be “just and reasonable.” We seek comment on whether section 201(b), independent of any authority under section 276, gives us jurisdiction to prohibit the payment of site commissions for interstate ICS. Is the payment of site commissions a “practice” under section 201(b)? Conversely, could it be viewed as a “rate,” or component of a “rate,” under section 201(b)? Under either alternative, is the payment of site commissions “for and in connection with” interstate ICS? To what extent would a prohibition of site commissions under section 201(b) differ from a prohibition under section 276? Are there circumstances under which section 201(b) would support the regulation of site commissions in connection with intrastate, as well as interstate, ICS? For example, would declining to prohibit or restrict site commissions in connection with intrastate ICS undermine the Commission's ability to ensure lawful interstate ICS rates? Do other statutory provisions inform how the Commission can or should approach the issue of site commissions in the ICS context? The possible reforms that we seek comment on would apply to site commissions on both interstate and intrastate ICS traffic. In what ways would the Commission's legal basis for its actions differ based on the jurisdiction of the traffic under particular legal theories? In addition to regulating ICS providers' payment of site commissions, does section 276 or other Commission authority enable us to regulate the conduct of correctional institutions or other third parties if they seek to induce ICS providers to make such payments? If so, what is that authority?

3. Possible Reforms to Site Commissions

37. We seek comment on prohibiting site commission payments for all ICS as part of comprehensive reform and whether transitioning away from site commission payments is essential to achieving the statutory requirements of just and reasonable ICS rates and fair ICS compensation. We seek comment on a definition of site commission payments that are subject to any prohibition or restriction to include “payments in money or services from ICS providers to correctional facilities or associated government agencies, regardless of the terminology the parties to the agreement use to describe them.” We seek comment on interpreting this language to include any products or any other thing of value such as, for example, so-called “contract administration” fees. This is consistent with the approach in the
Order
where

the Commission noted that it would treat in-kind payments as site commissions.

38. The Joint Provider Reform Proposal supports the elimination of site commissions and proposes a similar definition of impermissible site commission payments to include a comprehensive range of “in-kind payments, exchanges, technology allowances, administrative fees, or the like.” It proposes that “the Commission define as impermissible: Any payment, service, or product offered to, or solicited by an agency (or its agent) that is not directly related to, or integrated with, the provision of communications service in a correctional facility.” We seek comment on these definitions and on any other ways to define ICS provider payments to correctional institutions that would be subject to any regulation discussed herein. We also seek comment on whether we should prohibit gifts or charitable contributions from ICS providers to correctional facilities to ensure they are not used to undermine a potential site commission prohibition. In an analogous context, the Commission included in its E-rate program rules a prohibition on gifts by service providers to schools or libraries to ensure that such gifts do not “circumvent competitive bidding and other E-rate program rules.” Additionally, we seek comment on whether any certification required of ICS providers should include a certification of compliance with any prohibition on site commissions and gifts the Commission may impose.

39.
Costs Incurred by Correctional Facilities.
Although we seek comment on eliminating site commissions as a category, the Commission acknowledged in the
Order
that some portion of payments to correctional facilities “may, in certain circumstances, reimburse correctional facilities for . . . costs,” such as security costs, that the Commission would likely consider reasonably and directly related to the provision of ICS. Consistent with the
Order,
we seek comment on whether correctional institutions incur any costs in the provision of ICS and, if so, how to quantify them and how the facilities should recover such costs. We seek comment on the idea that any recovery by facilities for costs reasonably and directly related to making ICS available be built into any per-minute ICS rate caps set by the Commission.

40. We seek comment on any filings in the record attempting to demonstrate “legitimate costs incurred by correctional facilities . . . related to the provision of inmate calling services.” The Joint Provider Reform Proposal states that “[t]he parties recognize . . . that correctional facilities may incur administrative and security costs to provide inmates with access to ICS,” referencing them as “admin-support payments.” Yet, the participating providers “have not reached agreement as to what amount or what percentage (if any) should be required, or how such admin-support payments can accurately be measured.” Some parties suggest that costs to facilities may include monitoring calls, submitting trouble tickets on equipment, handling billing disputes that inmates may have with the provider, and infrastructure and security costs. Praeses asserts that “correctional facilities incur real costs to enable inmate calling” and lists a number of functions they assert are related to such costs. However, other parties question whether the facilities incur any additional costs for the provision of ICS. Also, Securus notes that correctional facilities benefit significantly from having ICS in terms of reduced recidivism, solving and preventing crimes and inmate control and satisfaction suggesting that any costs are far outweighed by the benefits. Should the Commission be concerned that prohibiting or restricting site commission payments or prohibiting rates that include recovery of site commissions will lead correctional facilities to stop allowing inmates access to ICS altogether, or else to restrict inmates' access to ICS? We seek comment on whether correctional institutions in states that have prohibited site commissions bear any costs and, if so, whether such costs are recovered through ICS rates or are recovered through the general budget of the correctional institution.

41. We note that because the Mandatory Data Collection applied to ICS providers, not correctional institutions, the costs submitted by the providers do not include any costs that may be incurred by facilities. We seek comment on the actual costs, if any, incurred by correctional facilities in providing ICS, the amounts associated with these costs, and the appropriate vehicle for enabling facilities to recover such costs. Is an allocation of a guard's time for walking a prisoner to an ICS facility necessary and appropriate to include in ICS costs? Do facilities monitor calls for security purposes or is such monitoring done by ICS providers? If facilities monitor calls, should such costs be considered a cost recoverable through ICS rates? The Allegany County, NY Sheriff asserted that his facility “does experience real costs in administering these services,” but did not quantify or otherwise provide a context for understanding the relative magnitude of these costs as compared to the county's correctional budget.

42. The record is mixed on whether, and if so, how much facilities spend on ICS. For example, GTL provides research that suggests significant variations in how facilities apportion costs. For example, one department of correction that GTL serves allocates 42 full time employees to the provision of security for ICS, whereas a second, similarly sized, department of correction allocates only 0.5 full time employees to the provision of security for ICS. GTL estimates prisons' ICS-related costs at $0.005 per minute of use and jails' costs at $0.016 per minute of use, or 3.4 percent of total ICS revenue at prisons and 7.6 percent in jails. In contrast, CenturyLink asserts that to “monitor just ten percent of the calls placed by inmates at either a prison or a jail would cost the facility 5.28 cents per minute applied to all calls placed by inmates at the facility.” We seek comment on these estimated costs, particularly on why they vary so significantly, and the underlying assumptions, i.e., staffing costs and time commitments. For example, CenturyLink provides a list of “administrative and security functions” that correctional facilities commonly perform,” such as “responding to other law enforcement requests for records/recordings,” validating attorney or other privileged numbers, “blocking/unblocking numbers blocked for security issues,” and “administration of debit purchase.” We seek comment on this list of functions and whether, in commenters' experiences, it accurately represents costs that correctional facilities incur in the provision of ICS. Other comments contend that ICS facilities do not incur costs in the provision of ICS. For example, is it appropriate for any portion of a salary of a full-time guard to be considered a cost of ICS?

43. To the extent the record indicates that facilities incur costs related to the provision of ICS, we seek comment on allowing cost recovery through a per-minute rate cap included in any rate cap adopted by the Commission, or some other approach. The per-minute approach presumes that facilities' costs vary with usage. We seek comment on the variable or fixed nature of correctional institutions' costs. GTL estimates prisons' ICS-related costs at $0.005 per minute of use and jails' costs at $0.016 per minute of use. We seek comment on whether a per-minute amount between $0.005 and $0.016 or at

some other per minute amount would ensure that correctional facilities recover their costs. Would allowing cost recovery based on a per-minute amount give correctional facilities an incentive to increase ICS usage? What would be the policy advantages or disadvantages of such an approach? Would correctional facilities be likely to select ICS providers with lower rates and fees, so as to increase usage and, depending on the elasticity of demand, thereby increase cost recovery to the facilities? We seek comment on whether any such cap should be reevaluated and adjusted as minutes of use (MOU) change.

44. We seek comment on using a per-minute approach over one that would set such payments at a capped percentage of ICS revenues. This approach would promote simplicity and deter possible improper incentives tied to a percentage of revenues approach, as occurs today. If, however, we used a percentage-based approach, we seek comment on the appropriate level of any recovery percentage. GTL estimates prisons' ICS-related costs at 3.4 percent of total ICS revenue and jails' costs at 7.6 percent. We seek comment on whether a percent of gross revenues between 3.4 percent and 7.6 percent or some other percent amount would ensure correctional facilities recover their costs. Would basing cost recovery on a percentage of ICS revenues encourage gaming and provide no or less incentive to facilities to lower ICS rates? For example, would basing cost recovery amounts on a percentage of revenues give ICS providers incentives to maintain rates at the highest allowable level in order to maximize site commission revenues? Will correctional facilities structure their RFPs so as to require such an outcome? We seek comment below on a transition period to achieve any cost recovery level. Praeses suggests that the Commission should consider developing “a safe harbor payment level in addition to a payment cap—in much the same way that the Commission regulated interstate ICS rates in the ICS Report and
Order
in light of the varying ICS costs borne by ICS providers with respect to the different types of correctional facilities served.” We seek comment on these and any other alternative regulations that could govern the relationship between any restriction on site commissions and ICS rate regulations.

45. To ensure our reforms produce just and reasonable rates and fair compensation, we seek comment on whether state statutes or regulations that require any site commission payment, as we sought comment on defining here, are inconsistent with the possible regulation herein and would therefore be preempted, pursuant to section 276(c) as discussed below. What criteria should the Commission use to determine which state actions are consistent? For example, should state actions to eliminate or restrict site commissions be considered consistent with any reforms that the Commission adopts? Should such an approach also preempt state statutes that only mandate how site commissions are to be used, but not require them in the first instance? Or would such statutes simply be rendered moot to the extent that correctional institutions elect not to seek, or ICS providers elect not to pay, site commissions in those states?

46. We also seek comment on possible state roles to address the issues discussed above. Are there circumstances where states might be better positioned to engage in oversight? Would states be limited to oversight in the context of intrastate ICS or could they also play some role in the context of interstate ICS? If so, what might that role be? Finally, we seek comment on setting interstate and intrastate ICS rates at levels that do not include the recovery of site commission payments instead of prohibiting site commission payments directly. If the Commission determines that it does not have authority over site commission payments, does such an approach still allow for just and reasonable ICS rates as well as fair compensation? Would such an approach help satisfy the goals, provided in section 276 of the Act, of promoting competition and widespread deployment of payphone services?

B. Interstate and Intrastate ICS Rate Reform

47. A goal of ICS reform is to move to a market-based solution to reduce rates. While we continue to see the benefits of a the approach adopted in the
Order
last year, now that we are seeking comment on comprehensively reforming all aspects of ICS (including intrastate rates and site commissions) this allows the Commission to ask about a more market-based approach to promoting competition and just and reasonable rates and to ensure fair compensation. Given the high rates, excessive compensation and market failure we see today, we seek comment on adopting permanent rate caps to ensure that ICS rates are just and reasonable. These rate caps will serve as a backstop to the market-based solution described above. We seek comment on how to set those rate caps. Specifically, we seek comment below on the data submitted by ICS providers pursuant to the Mandatory Data Collection. We also seek comment on the proposals for rate reform filed in the record. In addition, we seek comment on prohibiting per-connection or per-call charges. Should any such expenses be collected through a per-minute rate? We seek comment on the best ways to address flat-rate charges for ICS.

48. We seek comment on adopting permanent rate caps for interstate and intrastate debit/prepaid and collect ICS calls. In the
Order,
the Commission adopted a requirement that rates be cost-based. At that time, because reform was limited to interstate rates, market forces alone would not bring all rates down to just and reasonable levels because intrastate rates, ancillary charges and site commission payments on intrastate rates would still thwart market forces. While we continue to see the benefits of a cost-based approach as adopted in the
Order
last year, the Commission prefers to allow market forces to ensure that rates are just and reasonable. Now that we seek comment on comprehensively reforming all aspects of ICS, including intrastate rates, will the elimination of site commissions facilitate the market moving to just and reasonable rates? We also seek comment on adopting permanent rate caps to ensure that ICS rates are just and reasonable and ICS compensation is fair, particularly while we transition away from site commissions. We ask about the advantages and disadvantages of this approach as compared to setting safe harbors or simply requiring cost-based rates. We seek comment above on a possible cost recovery amount for correctional facilities and seek comment on including an amount for correctional facility cost recovery in any rate caps ultimately adopted by the Commission.

49.
Data Analysis.
We seek comment on the data filed by the 14 ICS providers in response to the Mandatory Data Collection. The data filed by ICS providers include cost, site commission and ancillary services data, which are informative and useful, and we take this opportunity to remind all ICS providers of the filing requirement. These data include the cost of the full spectrum of safety and security features, including verification, monitoring and other advanced security capabilities that ensure that correctional facilities have the security necessary for the provision of ICS. We generally seek comment on the data and invite parties to analyze the data and submit any analysis consistent with the terms of the
Protective Order.
We also invite parties to submit concerns or alternative proposals for the Commission to consider as it evaluates further reforms. Throughout this section

we use 2012 and 2013 actual data filed by the responding ICS providers.

50. While the data are useful to the Commission's evaluation of further ICS reforms, we seek comment on some apparent inconsistencies and anomalies. For example, differing cost allocations by providers were particularly notable and could affect the consistency and reliability of the data as reported. The Wright Petitioners noted several anomalies based on their analysis of the data, including the fact that “[t]he average cost per minute of use is substantially less than the interim Interstate ICS hard rate caps adopted in August 2013; [t]he ICS providers inconsistently allocated their costs among the four cost categories (Telecom, Equipment, Security, Other); [t]he ICS providers used different methodologies to allocate costs to facilities and payment methods.” We seek comment on these apparent inconsistencies and how the data may be analyzed to make an allowance for such variances.

51. A large proportion of costs reported by ICS providers are common costs, which is consistent with the fact that ICS providers typically use centralized calling platforms to process calls from the different facilities they serve. The Commission's Mandatory Data Collection did not dictate a particular methodology for allocating common costs—and, indeed, doing so could have greatly increased the administrative burden of providing the data. As a result, the providers took varied and often inconsistent approaches to allocating common costs among types of facilities and types of services. Given the preponderance of common costs in ICS providers' data submissions, analysis of the data is particularly sensitive to such varied and inconsistent common cost allocation methodologies.

52. We note that, as a whole, ICS providers allocated common costs among types of facilities and types of services differently as compared to the volumes of traffic those facilities and services experienced. Specifically, ICS providers that served both jails and prisons generally allocated a higher proportion of their common costs to jails than would otherwise be warranted given the minutes of use from those jails. Although the exact allocation varied by provider, on average about two thirds of common costs were allocated to jails, whereas only about half the reported total traffic volume originated from jails. The data evidence similar discrepancies between the allocation of common costs to types of service and the volume of traffic for those services. For example, ICS providers as a whole allocated about 16 percent of their common costs to collect calls, whereas collect calls represented only about eight percent of total traffic. It is not readily apparent why common costs (as opposed to direct costs) would not follow usage more closely. And the results of the data from these allocations show costs for jails that are higher than proposals for comprehensive reform that the providers themselves submitted, which raises concerns about the accuracy of their methodology and whether alternative allocation methods would more accurately represent costs.

53. One possible approach to addressing apparent inconsistencies in the providers' common cost allocation methodologies would be to use minutes of use for each provider as an alternative basis on which to allocate providers' common costs. Given the high proportion of common costs reported by the industry and the centralized nature of its networks, using minutes of use to allocate common costs would seem likely to reflect the providers' operational realities. We seek comment on whether employing a usage-based allocation of common costs would more closely reflect cost causation and provide more consistent and reliable data. We further seek comment on how these data should inform the rate cap levels for interstate and intrastate debit/prepaid and collect calls. The following table shows the costs per minute for jails and prisons when using three different methods to allocate common costs: As submitted by ICS providers, as reallocated using total minutes of use, and as reallocated using the providers' cost allocations between jails and prisons prior to reallocating those costs by minutes of use for each type of and facility.

Table One

Facility type

Common costs as
allocated by providers

Average debit/
prepaid cost

Average collect cost

Common costs allocated by MOU
(in cents)

Average debit/
prepaid cost

Average collect cost

Common costs allocated by
facility type
(in cents)

Average debit/
prepaid cost

Average collect cost

Jails
15.8
48.7
14.8
21.9
18.1
26.3

Prisons
10.0
13.7
14.0
17.2
9.9
14.3

All
13.3
28.3
14.5
19.2
N/A
N/A

54. We seek comment on the two reallocation methodologies in Table One, both of which use minutes of use in different ways as a means of reallocating common costs in manner tied more closely to usage. We initially examine and seek comment on the reallocation based on total minutes of use. This method uses the ratio of total industry minutes of use for jails to total minutes of use for all facilities to reallocate all common costs among facility and service types. Minutes of use for jails represent about 53 percent of all minutes of use, resulting in an allocation of about 53 percent of common costs to jails instead of the average of approximately 68 percent allocated to jails in the data as reported by providers. The results of this reallocation methodology are more consistent with provider proposals in the record, both from 2008 and more recently. For purposes of comparison, the 2008 ICS provider proposal reported costs of $0.164 per minute for debit calls and $0.236 per minute for collect calls, whereas the providers' data reported costs of $0.133 per minute for debit and prepaid and $0.283 per minute for collect. Similarly, the Joint Provider Reform Proposal recommends a single per-minute rate cap of $0.20 for debit and prepaid and $0.24 for collect calling. CenturyLink's proposal advocates unified rate caps at the current interstate caps ($0.21 for debit and prepaid and $0.25 for collect). We seek comment on these apparent allocational discrepancies.

55. This alternative methodology would standardize common cost allocations among the five providers that serve a mix of jails and prisons. And the fact that providers that serve only jails have no prison minutes of use would ensure that their common costs would not be allocated to prisons. Does

this method more closely approximate the operational realities of the providers? Is it more effective in replicating cost causation in the industry? Does it have any disparate impacts on providers that only serve jails?

56. We also examine and seek comment on a potential reallocation of providers' common costs based on providers' allocation of common costs to facility types (jails or prisons). This method accepts each individual provider's allocation of common costs between jails and prisons and then allocates those costs among facility and service types based on total minutes of use for each type of facility. This method shifts fewer costs to prisons and results in higher costs for jails than the total minutes of use allocation due to the reliance on the 68 percent average allocation of common costs to jails by providers, as noted above. Is this method more appropriate because providers' initial allocations of common costs are more accurate? Alternatively, is this method's greater reliance on the accuracy of those allocations a potential vulnerability or flaw?

57. The data provided by ICS providers also allocated costs to different subsets of facilities based on size of facility. This allocation resulted in a wider range of per-minute costs with some apparent anomalies, such as per-minute costs for certain facility size groups being well above the range of rate cap proposals submitted by any ICS provider, including those that exclusively serve purportedly higher-cost facilities such as jails. The cost data generated by facility size groups also resulted in some anomalies that raised questions about whether smaller facilities have higher costs than larger ones, and vice versa, as some commenters have asserted in this proceeding. Given confidentiality of the data, we cannot disaggregate all data for jails and prisons by size but we note that while the data indicate that smaller jails are most costly and the largest jails are less costly to serve, the data did not show the same correlation between size and cost for prisons. This raises questions about whether assumptions about facility size determining cost are accurate. Even if size were the appropriate measure, would the administrative burden of using rates tiered by size and type of facility outweigh the benefits of multiple rate tiers? Can rate caps for different types of services and facilities provide sufficient flexibility to ensure fair compensation short of resorting to size-based tiers? Does the Commission need to adopt such a regulatory approach?

58. To the extent that particular facilities are more costly to serve than suggested by the rate cap proposals in the record, can the Commission more effectively ensure fair compensation and reduce administrative costs to providers by addressing such outliers through the use of the waiver process? We note that the Commission already granted a waiver of its interim rate caps to one ICS provider to address unique circumstances. Would using a waiver process be easier to manage than adopting and policing the multiple rate tiers the Commission would otherwise have to adopt?

59. We also seek comment on other alternative methods of analyzing the ICS providers' cost data. For example, would evaluating jail data separately from prison data be useful? We seek comment on any other methods of evaluating the data that commenters may want to propose that may prove useful to the Commission in its analysis of this data to ensure just and reasonable rates and fair, not excessive, compensation.

60.
Previous Data Submissions in the Record.
ICS providers have previously filed data in the record throughout this proceeding. In 2008, seven ICS providers filed a cost study based on proprietary cost data for certain correctional facilities with varying call cost and call volume characteristics. The study indicated that the per-call cost for debit calls was $0.16 per minute and $0.24 per minute for collect calls. In response to the
2012 ICS NPRM,
Securus filed data which showed, as discussed in the
Order,
“an average per-minute cost for interstate calls from all facilities included in the report to be $0.12 per minute with commissions and $0.04 per minute without them.” Pay Tel filed financial and operational data for its ICS operations. The non-confidential cost summary included in the filing reported actual and projected 2012-2015 average total costs for collect and debit per-minute calling of approximately $0.23 and $0.21, respectively (including the cost of an advanced security feature known as continuous voice biometric identification). Although CenturyLink did not file a cost study at that time, it did file summary cost information for its ICS operations. Specifically, CenturyLink reported that its per minute costs to serve state departments of corrections facilities (excluding site commission payments) averaged $0.116 and that its per-minute costs to serve county correctional facilities (excluding site commission payments) averaged $0.137. We seek comment on how to reconcile these data submissions with the data filed in response to the Mandatory Data Collection and the Commission's analysis of that data described above, and how these data should inform our selection of rate caps. We also seek comment on and updates to intrastate rate data currently in the record. And we seek updated comment on international ICS and the need for Commission reform focused on such services.

1. Proposals for a Unitary Rate

61. Throughout this proceeding interested parties have filed in support of the Commission adopting unitary ICS rate caps for all intrastate and interstate debit/prepaid and collect calls in all facilities. We seek comment here on those proposals.

62.
Joint Provider Reform Proposal.
The Joint Provider Reform Proposal supports a rate cap of $0.20 per minute for debit and prepaid interstate and intrastate calls, and a rate cap of $0.24 per minute for all interstate and intrastate collect calls exclusive of per-call or per-connection charges, exclusive of any facility cost recovery, and regardless of facility size. The providers that submitted this proposal assert that this “simplified rate structure” “will make ICS charges more transparent for inmates and their friends and family,” as well as “easy for ICS providers and correctional facilities to implement quickly, and will simplify oversight and enforcement.”

63. Pay Tel and the Alabama PSC have raised concerns about the Joint Provider Reform Proposal for a unitary rate and urged the adoption of different rates for jails and prisons. For example, Pay Tel stated that the rate caps were “excessively high for prisons.”

64. We generally seek comment on the rate caps proposed by the Joint Provider Reform Proposal. We seek comment on how our data analysis described above reconciles with the rate caps proposed by the providers. As noted above, average debit and prepaid costs are lower than $0.20 per minute. Should we adopt the Joint Provider Reform Proposal's rate caps because any adopted rate caps will serve as a backstop to ensure that rates are just and reasonable? Would these rates enable the Commission to include a per-minute cost recovery of $0.005 for correctional facilities' cost recovery? We also seek comment on how ICS providers' earlier data filings reconcile with the rate caps suggested in the Joint Provider Reform Proposal.

65.
Current Interim Rate Caps.
Some parties have supported making the interim rate caps permanent for all interstate and intrastate ICS calls.

CenturyLink asserts that it could “support a unified cap approximately at the current interstate cap levels.” NCIC asserts that collect ICS rates should be capped at $0.25 per minute and debit call rates at $0.21 per minute. We seek comment on these proposals in light of the data received in response to the Mandatory Data Collection.

66.
Wright Petitioners' Proposal.
The Wright Petitioners previously proposed a $0.07/minute rate cap for all interstate ICS. We sought comment on this proposal in the
FNPRM,
particularly as it related to distance insensitive rate proposals. ICS providers suggested that the rate may jeopardize ICS security. Other commenters suggested that the Commission should adopt a $0.07/minute rate cap for all ICS and that current rates in states like New Mexico ($0.043/minute) and New York ($0.048/minute) support this cap. We now seek comment on whether we should adopt this proposal. If the Commission were to adopt this proposal, would rate caps at this level preclude ICS providers from paying site commissions and therefore negate the need for the Commission to regulate site commission payments as discussed above? What level of rate cap do commenters believe would change what providers are able to offer correctional facilities? Do the data from the Mandatory Data Collection support this rate cap? What are the considerations associated with such an approach?

2. Tiered Rate Caps

67. While we see certain benefits to a single set of rate caps such as administrative ease and avoidance of potential loopholes, some commenters recommend rates tied to the size or type of facility. In the
FNPRM
the Commission sought comment on the adoption of, and benefits of, tiered rates based on a facility's volume of minutes, type (i.e., jail versus prison) or size. Responses centered on the distinction between jails and prisons, with some commenters advocating for different ICS rate tiers for jails and prisons. These same commenters also point out that the differences between jails and prisons are not absolute, and acknowledge that some prisons “are more costly to serve than jails and the range of costs of serving jails and prisons is very wide.” The record indicates that jail administrators support a tiered rate instead of a flat rate because jails may face different costs than prisons as a result of their smaller size, higher turnover rate, and relative inability to take advantage of economies of scale. How do the data collected and reported herein impact our evaluation of these claims?

68.
Pay Tel Proposal.
In its proposal Pay Tel recommends separate rates for jails and prisons. Pay Tel proposes an $0.08 per minute rate for all prisons regardless of population. Pay Tel also estimated a $0.067 per minute average rate for the eight state prison systems that barred site commissions. Pay Tel suggests a rate of $0.26 per minute for jails with 1-349 average daily population [ADP], a $0.22 per minute rate for jails with 350 plus ADP, and a $0.08 per minute rate for all prisons regardless of size. We seek comment on these proposed rate caps.

69. Alabama recently adopted ICS rates tied to facility type. For example, the Alabama PSC has adopted per-minute rates of $0.30, decreasing to $0.25 over two years, for jails and $0.25, decreasing to $0.21 over two years, for prisons. We seek comment on this approach.

70. Commenters suggest that rates tied to the type or size of facility would open loopholes in ICS reform and allow for gaming. Is this accurate? Recently, CenturyLink said it “does not support complex or tiered rate caps.” Other commenters contend that an insufficient record exists from which to develop rate tiers, and point to evidence that many jails house long-term inmates, which may indicate that costly account set-up fees are less of an issue than suggested. Do the data received in response to the Mandatory Data Collection assuage the concern regarding the sufficiency of the record? The data also suggest that certain ICS providers reported a large proportion of the costs of ICS as common costs, rather than direct or facility-specific costs. Does this further call into question the cost allocation methods used by providers in their data submissions to allocate common and direct costs? Or does it suggest that ICS providers did not use uniform standards to distinguish between direct and common costs? We seek updated comment on interested parties' opinions on tiered rates for different types of facilities. Specifically, if the Commission adopts a market-based approach of addressing site commission payments and allowing competition to drive rates closer to cost, should we consider rate tiers, or should we instead adopt common rate caps for all correctional institutions to accommodate any differences between jails and prisons? Would the adoption of tiered rates help promote competition among ICS providers and promote the widespread deployment of ICS—a form of payphone service—consistent with the goals of section 276? For example, would a lower rate cap for ICS in prison facilities promote additional usage, a potential means of promoting widespread deployment of payphone ICS service?

71. The Commission seeks comment above on prohibiting site commissions to address the primary cause of the ICS market failure. If the Commission does not prohibit site commissions should we focus more on rates tied to facility size or type? If the Commission were to set tiered rates, we seek comment on defining a jail facility as a correctional facility operated by a political subdivision of a state or its agent and defining a prison facility as a state-run or federally-run correctional facility. How would differences in tiered rate caps be administered? We seek comment on a simpler approach. Would a variety of rate caps cause confusion? We also seek comment on the administrability of cost on 4ICS providers on an approach that varies by size and type of facility. CenturyLink urges the Commission to exclude from ICS rate reform certain types of facilities that it considers high-cost, such as juvenile detention centers and secure mental health facilities. Do other commenters agree that these types of facilities are particularly high cost? If so, why? Are there other categories of facilities that the Commission should consider exempting because they are high cost? Would doing so be in keeping with our statutory mandate? How should the Commission regulate the provision of ICS at such facilities? Should it exempt such facilities from ICS rate reform? We seek comment on the appropriate definitions for juvenile detention facilities and secure mental health facilities.

72. In the
FNPRM,
the Commission also sought comment on rate tiers based on facility size as measured by the average daily population of the facility. The Prison Policy Initiative suggested that the Commission could use the Census of Jail Facilities population data to capture facility size but could also use more recent data. Would following the Census numbers result in too few or too many tiers? We seek comment on what interested parties believe to be the appropriate inflection points, in terms of ICS providers' scalability of costs, with regard to possible tiered rates. Some states have recently adopted ICS rate tiering. We seek comment on the jail and prison rates adopted by the Alabama PSC or any other states.

3. Additional Considerations Related to ICS Rates

73.
Debit/Prepaid and Collect Calling.
In the Order the Commission treated

debit and prepaid ICS alike and collect ICS separately because “[t]he record indicates that prepaid calling is generally less expensive than collect calling but can be about equal in rates to debit calling.” Data from the Mandatory Data Collection suggest a difference in cost between collect ICS calling and debit/prepaid ICS calling. The data also show, however, that debit and prepaid ICS costs are very similar. Commenters have recommended higher rates for collect calls. The Alabama PSC adopted different rate caps for different types of service from prisons. Other commenters have opposed differentiated rate caps for different types of ICS. We seek comment on retaining this distinction and adopting a rate cap for debit and prepaid calls and a rate cap for collect calls. We also seek comment on the appropriate differential, if any, between the debit/prepaid cap and the collect cap.

74.
Per-Call or Per-Connection Charges.
Per-call or per-connection charges are one-time fees often charged to ICS users at call initiation. We seek comment on banning the imposition of per-call or per-connection charges. In the
Inmate Calling Report and Order and FNPRM
the Commission noted several problems with per-call or per-connection charges, including the level of some of the charges, their effect on the rate for short calls, and evidence of premature, non-security related call terminations, and the assessment of multiple per-call charges for what was, in effect, a single conversation. The Commission, recognizing that many different ways to address per-call charges exist, did not prohibit all per-call charges in the
Order
but sought comment in the
FNPRM.
In the
FNPRM
the Commission noted the flexibility it gave ICS providers to use a rate structure that included per call charges and sought further comment on the risks and benefits of allowing per call charges. Specifically, the Commission “express[ed] serious concerns about such charges.” Some commenters suggested that the Commission eliminate per-call charges and that doing so would be beneficial because it “would lead to significant reductions in customer complaints regarding charges associated with dropped calls and in the amount of time providers are required to spend analyzing and resolving such complaints.” Is there continuing evidence of premature, non-security related call terminations since the Commission adopted the
Order
? The per-minute rate caps proposed by Joint ICS Providers do not contemplate the continued charging of a per-call or per-connection fee.

75. We seek comment on our legal authority to ban the imposition of per-call or per-connection charges, for both interstate ICS calls and intrastate ICS calls. More specifically, we seek comment on whether such fees are part of the rate for ICS and therefore subject to the section 276 mandate to ensure fair compensation. Alternatively, should the Commission consider per-call or per-connection charges an ancillary service as discussed in section 276(d)? Are there instances in which the correctional facility or some other third party assesses a per-call or per-connection fee? If so, we seek comment on our authority to ban such charges. Would the elimination of per-call charges allow for just and reasonable interstate and intrastate ICS rates and fair compensation for providers? Would pure per-minute rate caps at an appropriate level or levels ensure fair compensation for ICS providers? Section 276 specifically requires us to “establish a per call compensation plan.” We seek comment on whether section 276 gives the Commission the legal authority to ban per-call compensation. We seek comment on whether we should also rely on our section 201 authority to ban per-call charges for interstate calls. The record has not shown significant per-call costs that could not reasonably be recovered using per-minute charges. With one exception, ICS providers have successfully implemented the interim per-minute rate caps for interstate ICS mandated by the
Order.
We seek comment below on transitions and whether rate caps should be effective 90 days after the effective date of a Commission order. If the Commission continues to allow per-call charges, should it nonetheless disallow an additional per-call charge when a call has been reinitiated within one or two minutes of having been mistakenly disconnected? If states have conducted ICS reform, we seek comment on whether we should review the effective rates for consistency with the Commission's regulations based on the calculation of the cost of a 15-minute ICS call. Are there other considerations relating to per-call charges in the ICS context that the Commission should consider?

76.
Flat-Rate Charges.
We seek comment on whether or not it is necessary to ban flat-rated charges for calls of a fixed duration to ensure rates are just and reasonable and fair. In the
Order
the Commission stated that “a rate will be considered consistent with our rate cap for a 15-minute conversation if it does not exceed $3.75 for a 15-minute call using collect calling, or $3.15 for a 15-minute call using debit, prepaid, or prepaid collect calling.” Rule 64.6030 mirrors this language and was intended to illustrate that a five-minute collect call would equal $1.25 and a five-minute debit or prepaid ICS call would equal $1.05, while a 30-minute collect call could equal no more than $7.50 and a 30-minute debit or prepaid ICS call could equal no more than $6.30. In the
FNPRM
the Commission sought comment on whether it should adopt an overall rate cap based on call duration, how such a rate cap might ensure that ICS rates are just, reasonable, and fair, and whether a per-minute cap is still necessary to ensure that shorter calls are reasonably priced. Commenters expressed concern that “consumers who make shorter calls would necessarily be penalized” and that “there is no principled basis for capping the amount that can be charged for a call.” The Public Service Commission of the District of Columbia discussed the benefits of its $1.75 per-call cap regardless of call length.

77. Subsequent to the
FNPRM
comment deadline, Securus sought additional guidance on whether the
Order
allows providers to use a flat-rated charge based on the interim rate caps for a 15-minute call regardless of call duration. We seek comment on this practice. Should we allow ICS providers to charge fixed call duration pricing for all interstate ICS usage regardless of call duration? Is this an appropriate interpretation and application of rule 64.6030 and the relevant discussion in the
Order
? We also seek comment on how we should address the use of flat-rate charges for ICS going forward and our legal authority to act on such charges. We seek comment on whether we should revise the existing rules to prohibit flat-rate charges or develop new rules prohibiting flat-rated charges. If not, how much flexibility should the Commission allow if flat-rate charges are permitted? How can we ensure that flat-rate charges allow for just and reasonable ICS rates to end users as well as fair compensation to ICS providers?

78. One commenter asserts that correctional facilities seek such flat-rated charges. Is this the case and, if so, why? What impact would allowing this level of flexibility have on the effective per-minute rates end users pay? If the Commission adopted a lesser degree of flexibility, how would it work? Should such a flat rate be used only for calls 15 minutes in length? Will flat-rated charges, at the rate caps discussed above, for a 15-minute call duration

allow for just and reasonable ICS rates and fair compensation? In the
Order,
the Commission found that the record supported 15-minute average call duration. Data from the Mandatory Data Collection show that the average call length reported by respondents was below 13 minutes in 2013. Is 15 minutes still a useful average call duration for purposes of discussing flat-rate charges? If not, what would be an appropriate average call duration?

79.
Waivers.
The
Order
made clear that the Commission's standard waiver process applies to ICS, specifically, that ICS providers seeking a waiver of the interim rules must demonstrate good cause. The Commission delegated to the Bureau the authority to seek additional information necessary for evaluating waivers. Since release of the
Order,
the Bureau has processed three waiver requests. CenturyLink suggests that the Commission “invite waivers where new rules conflict with state statutes, or where they would force ICS providers to offer service at a loss.” The ICS providers that submitted the Joint Provider Reform Proposal suggest that the Commission “permit an ICS provider to seek a waiver of the rate cap for a particular correctional facility if the ICS provider can demonstrate that the proposed rate cap does not allow the ICS provider to economically serve the correctional facility. However, such waivers should be permissible only on a facility-by-facility basis.” We seek comment on these suggestions. Specifically, is such action necessary if the Commission preempts inconsistent state regulations pursuant to section 276(c) of the Act? We seek comment on how the Commission would determine that rates are below-cost in a waiver proceeding and how any adopted regulations should address this issue. We further seek comment on what information would be important for providers to demonstrate when seeking a waiver in the ICS context. We also seek comment on whether exempting a provider's highest-cost facilities from the final, adopted regulations would be a suitable remedy to a waiver request. Conversely, would such an exemption encourage ICS providers to focus on particular facilities so as to arbitrage our rules?

C. Reforms to Ancillary Charges

1. Background

80. In addition to unreasonable rates, ICS providers typically assess a wide range of separate charges for services ancillary to the provision of ICS. These charges impose significant additional burdens on consumers and considerably inflate the effective price they pay for ICS. The record indicates that ancillary charges represent a significant proportion of the total expense of ICS to consumers. The Prison Policy Initiative estimated that ancillary charges represent 38 percent of all consumer payments for ICS. Others have suggested that this estimate may be low. Fees to open, fund, maintain, close, and refund an ICS account represent just a few of a variety of ancillary charges assessed by ICS providers. The sheer number of ancillary charges, their varying nomenclature, and the variability of the amounts charged cause considerable customer confusion, let alone consternation.

81. In the
Order,
the Commission “question[ed] whether such charges are reasonable in and of themselves” and noted that “the levels of such charges do not appear to be cost-based.” The Commission required that all interstate ancillary service charges be cost-based and reasonably and directly related to provision of ICS. The Commission concluded that it had the jurisdiction and authority to regulate ancillary service charges. The Commission also required ICS providers to file cost data about ancillary services as part of the Mandatory Data Collection, and in the
FNPRM
sought comment on additional steps the Commission could take to address ancillary service charges and ensure that they are cost-based. We now seek further comment on issues related to ICS ancillary charges.

82. Since the release of the
Order,
evidence indicates that ancillary charges have increased, suggesting that any reforms limited to ICS rates could be circumvented through increased and new ancillary charges. As the Commission stated in the
Order,
ICS reform and ensuring just and reasonable rates to end users “could not be achieved if ancillary charges were not also controlled.” Given that ancillary charges are typically shielded from site commission assessments in correctional institutions' contracts with providers, ICS providers appear to have an incentive to assess additional ancillary charges as an alternative source of revenue to compensate for lowered ICS rates or for increasingly high site commission payments. We seek comment on the extent to which the proliferation of ancillary charges may be a result of the market distorting effects of site commissions.

83. There is broad consensus in the record on the need for the Commission to reform ancillary charges. The Wright Petitioners and prisoner advocacy groups have recommended the regulation or elimination of ancillary charges. A number of ICS providers have made similar recommendations. For example, CenturyLink stated that “the Commission should prohibit all or all but a very narrow class of ancillary fees. Ancillary fees are the chief source of consumer abuse and allow circumvention of rate caps.” NCIC stated “[a]lthough telecom companies don't normally welcome a regulation, we see the need for the FCC and state regulators to set a standard rate and fee structure.” Pay Tel stated “you ought to get rid of all of them except the fees where the consumer makes a choice.” And Securus stated that it “offered, however, to cease passing through several types of fees and to cap its fees for optional, convenient payment methods for a period of five years.”

84.
Mandatory Data Collection.
ICS providers submitted a significant amount of ancillary service cost and usage data in response to the Mandatory Data Collection. The ancillary services data provide some useful insight into the costs of ancillary services. For example, the data show that approximately 82 percent of total ancillary costs incurred by ICS providers pertain to the provision of bill processing services, particularly for the processing of credit and debit card transactions. Conversely, only about 10 percent of providers' ancillary costs pertain to ancillary services that are typically treated as normal utility overhead. Even so, the data have some limitations given providers' inconsistent approaches in assessing and labeling such fees, different allocation methodologies, and different ways of reporting those costs. The data, while mixed, also show that the per transaction cost of processing financial transactions point to the reasonable nature of the $3.00 caps for financial transaction processing fees set by the Alabama PSC. We seek comment on these general observations and on the ancillary charge data generally.

2. Legal Authority for Ancillary Charge Reform

85. In the
Order,
the Commission asserted jurisdiction over interstate ICS ancillary charges, citing as sources of authority sections 201(b) and 276 of the Act. Given section 276's mandate of fair compensation “for each and every completed intrastate and interstate call,” and its inclusion of “inmate telephone service” and “any ancillary services” in the definition of “payphone service,” we seek comment on whether section 276 gives the Commission authority to regulate both interstate and intrastate charges for ICS ancillary services. While the Commission has

previously adopted a definition of ancillary charges, we have not adopted a definition for “ancillary services” and therefore seek comment on such a definition. Additionally, given the absence of any qualifying statutory language to the contrary, we seek comment on whether section 276 gives the Commission jurisdiction over charges that are ancillary to ICS to the extent such services are considered IP-enabled services. Further, in the
Order
the Commission asserted in regard to ICS generally that “[o]ur exercise of authority under sections 201 and 276 is further informed by the principles of Title I of the Act.”

86. We seek comment on whether this assertion also encompasses the Commission's regulation of services ancillary to the provision of ICS to the extent that ICS may be considered an IP-enabled service. Additionally, to the extent that ancillary charges are assessed in connection with ICS provided through wireless phones, we seek comment on whether sections 276 and 332(c) confer jurisdiction on the Commission to reform such fees. We also seek comment on assertions that charges for ancillary services are primarily related to billing and collection and therefore may not be considered to be communications services subject to Commission regulation. Finally, we seek comment on whether regulation by the Commission of ICS ancillary services should be treated as a default federal framework, with states encouraged to adopt additional reforms to the extent they are consistent with the Commission's regulations. Regarding the jurisdictional nature of ancillary charges, the Alabama PSC stated that “any schedule of ancillary fees applies to both the interstate and intrastate jurisdictions.” Are ancillary charges inherently dual jurisdictional in nature? We seek comment on this assertion and its impact on our legal authority to regulate such charges.

3. Discussion

a. Prohibition of Certain Ancillary Charges

87. The
FNPRM
sought comment on whether certain ancillary charges constituted unjust and unreasonable practices under section 201(b), or practices that would result in providers being unfairly compensated under section 276. We now seek comment on prohibiting separate charges for certain ancillary services that are basic requirements for consumers to gain access to ICS, and that are typically recovered through rates as part of normal utility overhead costs. We also seek comment on capping charges for certain other ancillary services such as payment processing for credit and debit card payments that enhance convenience for ICS consumers. We seek comment on whether this approach will promote the Commission's mandate of ensuring just and reasonable ICS rates and fair compensation for ICS providers, as well as promote competition and deployment in the ICS market.

88. The record, including the discussion at the Commission's 2014 ICS Workshop, supports the notion that the Commission should prohibit separate ancillary charges for services that represent normal utility overhead but allow other charges for services that represent an additional option or convenience for consumers. For example, the Alabama PSC workshop participant stated that its approach “is first, establish a basic level of ICS service and what is included in that basic service at no additional charge to the customer. . . . Beyond that basic level, the Commission will consider fees.” The Alabama PSC participant described its goal to be to “[m]ake the rates a true reflection of cost for providing the service.” Other commenters support making a similar distinction. For example, Pay Tel's President stated at the 2014 ICS Workshop “what I characterize as ancillary fees are all these extra things that really should be incorporated into the cost of the call. . . . [T]he fees that should be separated are the ones that are driven by consumer choice.” Securus similarly proposed “not to have any mandatory fees and to have only fees for optional, convenience-related payment methods.” The Minnesota Department of Commerce stated that if an ancillary charge applies “to all ICS end-users at a facility, or cannot be avoided by a purchaser of ICS (e.g., in a situation in which a no-cost alternative is not offered), the ancillary charge or line-item fee should be incorporated in the per-minute rate, and should be subject to the per-minute rate cap.”

89. We seek comment on prohibiting separate ancillary charges for functions that are typically a part of normal utility overhead and should be included in the rate for any basic ICS offering. These functions should include account establishment by check or bank account debit; account maintenance; payment by cash, check or money order; monthly electronic account statements; account closure; and refund of remaining balances. Separate charges for such ancillary services can often represent unreasonable practices and result in unfair compensation. For example, the record indicates that GTL currently requires a minimum deposit of $25 to create a prepaid collect account for an inmate's family member. If the customer does not spend the $25 in the account, GTL charges a $5 refund charge that is only triggered once the customer asks for a refund. If the account remains inactive for 180 days, the remaining funds become the property of GTL. We seek comment on prohibiting separate charges for these functions and on whether separate charges for other services should also be prohibited. Would such prohibitions help ensure just and reasonable ICS rates and fair, not excessive, ICS compensation?

90. The Alabama PSC implemented such an approach to the regulation of ancillary charges in its Further Order. It defined basic utility overhead services as including account set-up, account maintenance, account funding, payment by check or money order, monthly electronic billing statements, and refunds, declining to authorize separate fees for these services. The Alabama PSC took other steps to address fees and practices, including barring payment limits for certain forms of customer payments, barring wireless administration fees for linking wireless numbers to an account, and requiring providers to include up to five pre-approved numbers on the call list for prepaid ICS at no charge. In contrast, it authorized, but capped, separate ancillary charges for other services, including debit/credit card payment, payment via live agent, bill processing for collect calls billed by a call recipient's local telecommunications service provider, third party payment services, inmate canteen/trust fund transfers, and paper billing statements. We seek comment on whether the Alabama PSC's approach to prohibiting certain fees and capping others is reasonable and would lead to just and reasonable rates and fair ICS compensation. We also seek comment on the approach taken by the New Mexico Public Regulation Commission, which adopted a similar but more proscriptive approach, barring all fees except payment processing fees for credit card or check by phone payments and a refund fee.

91. We seek comment on other proposals in the record to reform ICS ancillary charges. The Wright Petitioners recommend prohibiting all ancillary charges but, if the Commission were to permit ancillary fees, it suggests adopting an approach similar to Alabama's and New Mexico's. The Prison Policy Initiative recommends “ban[ning] all illegitimate fees.” Several ICS providers also recommend

reforming ancillary charges. Pay Tel recommends that ancillary charges be “generally prohibited, subject to a narrow list of clearly-defined exemptions,” particularly “fees associated with the processing of payments.” CenturyLink suggests similar treatment. Securus proposes eliminating all mandatory fees, bill statement fees, federal regulatory recovery fees and state cost recovery fees, and capping all convenience fees, including transaction funding fees, for five years.

92. We also seek comment on the Joint Provider Reform Proposal, which includes a proposal “that ancillary fees are limited to a specified list of permissible fees,” proposing to eliminate a number of types of fees, including per call fees, account set-up fees, billing statement fees, account close-out and refund fees, wireless administration fees, voice biometrics and other technology fees, and regulatory assessment fees and the capping of rates for remaining fees. The Proposal also requires providers to offer free payment processing options such as payment by check or money order when offering single call payment options. The Alabama PSC raised concerns with the Joint Proposal, including its treatment of site commissions, proposed rate caps that purportedly overcompensate providers serving prisons, and proposed ancillary fees that it asserted would result in substantial net revenue increases for providers. Pay Tel also identified concerns with the Proposal, stating that it “lacked legitimacy from a number of perspectives” and “would allow the Proposers . . . to continue to burden inmates and their friends and family with excessive fees and practices that significantly and unjustifiably increase the cost of ICS.” The Alabama PSC's and Pay Tel's concerns are addressed at greater length below. Will the suggestions in the Joint Provider Reform Proposal result in just and reasonable rates for consumers and fair, not excessive, compensation? If the use of ancillary charges was driven by pressure from increasingly high site commissions and the Commission were to prohibit site commissions, is there continued justification for allowing providers to assess ancillary fees generally?

93. If the Commission were to prohibit some ancillary charges, should ICS providers be required to seek prior Commission approval before assessing a new ancillary charge? If so, what should such an approval process involve and what information should providers file? Certain states already require prior approval of new ancillary charges. Should states continue to play such a role even if the Commission regulates ICS ancillary charges? In lieu of seeking approval, should ICS providers file a notice about a change such as 60 days before? If we take this approach, should the new fee be allowed to go into effect absent Commission or a state action? We seek comment on these approaches, including the administrability and relative burden associated with each approach.

b. Rate Caps for Ancillary Charges

94. We seek further comment on whether the Commission should set rate caps for ancillary charges that it finds permissible to ensure those charges are just and reasonable and ensure fair compensation. Commenters, including some ICS providers, support the use of rate caps. Some commenters note with approval the Alabama PSC's Further Order that capped rates for ancillary charges it allows. For example, the Wright Petitioners support the use of rate caps for ancillary charges if the Commission decides to authorize them, and cites with approval the two states that already proposed taking such a step. Would either the Alabama PSC's or the New Mexico PRC's approaches to capping ancillary charges be appropriate models for the Commission to consider? If the Commission were to establish rate caps for ancillary charges it did not prohibit, what would be appropriate levels for such rate caps? We seek comment specifically on the Alabama PSC's rate caps for debit and credit card payment fees via the web, an IVR, or a kiosk ($3.00 maximum) and for live operator assisted payments ($5.95 maximum). NCIC and Pay Tel expressly support ancillary charge rate caps at these levels, as other ICS providers reportedly have. How do these rate caps compare to providers' costs?

95. In the alternative, we seek comment on whether we should prohibit separate ancillary fees and instead permit the recovery of such costs using a per minute rate cap. The data submitted by ICS providers on the cost of processing financial transactions yields a wide range of per-minute costs. We seek comment on establishing a per-minute ancillary charge rate cap or safe harbors. If so, how should these charges be set and what level is appropriate? If so, what would permanent rate caps inclusive of such charges be?

96. We also seek comment on the Joint Provider Reform Proposal which proposes to (1) cap deposit fees to fund prepaid and debit ICS accounts at $7.95 for three years, (2) allow providers to charge a $2.50 administrative fee to process payments made through third party payment processing companies such as Western Union and MoneyGram in addition to the fees they charge, (3) allow providers to charge a per call validation fee of eight percent to compensate providers for call-specific security functions, and (4) cap fees for “convenience or premium payment options” for single call services at current rates for three years. The Alabama PSC generally opposes these fee proposals. AmTel agrees and asserts that the “Proposal is very misleading and will not lower prices to inmate families.” Pay Tel comments that the consumer benefits of the proposed ancillary fees' `reduction' are illusory. For example, Pay Tel suggested that “[v]alidation is a legitimate expense, but one that is included in Pay Tel's normal cost of providing service. In no event does this expense rise to the level of 8% of gross call revenue.” We seek comment on whether these proposals would ensure reasonable rates and fair compensation. How do these proposed caps compare with providers' costs? How do they compare with previous proposals made by ICS providers?

97. The following table is provided as a means of facilitating comparison of several of the ancillary charge reform proposals referenced herein. The fees included in this table represent a non-exhaustive list of fees addressed in the various proposals.

Table Two

Ancillary charge proposals
Alabama PSC further order
ICS provider reform proposal
Pay Tel proposal

Check/money order payment
No charge
No charge
No charge.

Debit/credit card payment or deposit fees

$3.00 cap (web/IVR)
$5.95 cap (live operator)

$7.95 cap for 3 years

$3.00 cap (web/IVR).
$5.95 cap (live operator).

Single call/single payment services
Sum of $3.00 cap on bill processing fee plus capped per minute charge for a 12 minute call
Cap at existing fees (as high as $14.99 billed to card, $9.99 billed to cell phone) for 3 years

Jails (ADP 1-349): $6.12.
Jails (ADP 350+): $5.64.
Prisons: Prohibit service.

Account set-up, maintenance, closure, and refund fees
Prohibited
Prohibited
Not addressed.

Bill processing fee for collect calls (by call recipient's carrier)
$3.00 cap
Not addressed
Not addressed.

Bill statement fee
No charge for electronic bill. $2.00 cap for paper bill
Not addressed
No charge for electronic bill. $2.00 cap for paper bill.

Money transfer fees
Fees above $5.95 require affidavit and are subject to investigation
Existing fees (as high as $11.95) plus an additional administrative fee capped at $2.50

$5.95 cap (Western Union).
$5.65 cap (MoneyGram).
No additional fee.

Regulatory cost recovery fees
State regulatory cost recovery fees prohibited
Various regulatory cost recovery fees prohibited (but “federal and state regulatory fees” allowed)
Not addressed (but pass through government mandated taxes and fees).

Security fees
Allow separate security biometrics fee
Validation fee of up to 8% per call. Prohibited fees include VINE, location validation fees, voice biometrics fees, and technology fees

$0.02 per minute voice biometric fee (only where deployed; lower in prisons).
Vendors may apply for new technology fees.

c. Charges for Other Services

98.
Single Call Services.
ICS providers also make available so-called single payment or single call services. These services enable the billing of ICS collect calls through third party billing entities on a call-by-call basis to parties whose carriers refuse to bill collect calls. The Alabama PSC addressed single call services in its Further Order, asserting jurisdiction over intrastate single call services and capping the rates ICS providers may charge for them. By some accounts, the use of single call services has increased dramatically, particularly since the adoption of the
Inmate Calling Report and Order and FNPRM
. One commenter stated that such services have recently been estimated to account for as much as 40 percent of provider revenues. We seek further comment on the prevalence of the use of single call services in the ICS industry. Have such services become more prevalent in the market since the Commission's
Order
? If so, why? Are such services effectively an end run around the Commission's rate caps or are customers fully apprised of the higher costs and select such services for convenience or value? We also seek comment on how significant a role such services play in the ICS market today and what usage trends for such services are likely to be.

99. While ICS providers appear to offer single call services under a variety of names, they appear to be generally two types. The first involves a one-time credit or debit card payment to enable the completion of a single collect call to a wireline phone. Examples of this type of single call service include Securus' “Pay Now” and GTL's “Collect2Card” services, both of which are priced at a flat rate of $14.99 per call, substantially higher than the Alabama PSC's proposed interim intrastate rate caps. A second type of single call service involves a similar payment arrangement for the completion of a single collect call to a wireless phone, the charge for which is confirmed by a text message to the called party's wireless phone. Examples of this type of single call service include Securus' “Text2Collect” and GTL's “collect2phone” services, both of which are priced at a flat rate of $9.99 per call, also well above the Alabama PSC's intrastate rate caps, as well as the Commission's interstate rate caps. Do charges for such services circumvent or violate either set of rate caps or are such services sufficiently distinct from collect ICS to warrant separate pricing? Both types of single call services are charged on a flat rate basis, regardless of call duration, further distorting the effective per-minute charge consumers pay and raising concerns about multiple charges in the case of inadvertent call disconnection. Consumers using these services may be unaware that they could dramatically reduce the charges for ICS simply by establishing an account with an ICS provider. Some ICS providers have been successful in educating consumers on lower cost options. We seek comment on whether these rates are just and reasonable and whether they ensure fair and not excessive compensation for providers. We also seek comment on whether ICS providers incur additional costs in providing single call services, and if so, what they are.

100. Providers have challenged the Alabama PSC's jurisdiction over both types of single call services. In the case of single call services to wireline phones, ICS providers disputed the Alabama PSC's authority to regulate such services, citing interference with their contractual relationships with third party billing and payment processing entities which typically contract with ICS providers to provide the service. The Alabama PSC characterized these entities as “third party billing aggregators” which performed the “the billing and delivery functions for ICS calls.” We seek comment on the nature of these services and the types of functions such entities provide. For example, do these third parties perform functions analogous to those performed by third party billing entities used by local exchange carriers? Do the third parties actually contribute any facilities or services used to provide these services? The Alabama PSC also noted that ICS providers advertise and provide these services in their own name and bills refer consumers to an ICS provider Web site. The Alabama PSC determined that it had “jurisdiction over the charges for collect calls originating from Alabama confinement facilities regardless of any intermediaries the ICS provider chooses to include prior to call termination.” We seek comment on whether Commission regulation of single call services would

not impermissibly infringe on such contractual relationships.

101. In the case of single call services to wireless phones, ICS providers have asserted that such services are not subject to state commissions' authority since they entail the use of a text message to confirm the source and charges for the call and involve calls to wireless phones, the rates for which are not subject to state jurisdiction. We seek comment on the concept that neither the fact that such calls are preceded by a text message nor the fact that the called party uses a wireless phone alters the nature of the ICS provided. If, however, the Commission were to determine that either of these factors is relevant to determining the nature of the ICS, we seek comment on whether the Commission's section 276 jurisdiction over all forms of ICS give it authority to regulate such services.

102. The Alabama PSC set a rate cap for single call services at a flat rate amount that included a billing or payment charge capped at $3.00 per call and a usage charge derived from its per-minute rate caps. We seek comment on this approach. Should the Commission adopt a rate cap for single call services? Should ICS providers be required to charge a per-minute rate on the basis of actual call duration? Should the rates for such calls reflect the per-minute charge for collect calls along with an appropriate bill or payment processing fee? Should there be a transition period to allow providers to adapt their single call service offerings? Are ICS providers required to publish on their Web sites their charges for single call services and notify consumers of the option of establishing an account to obtain a more reasonable rate? Alternatively, should these services be considered ancillary services?

103.
Money Transfer Services.
The
FNPRM
sought comment on fees assessed by third parties such as Western Union and MoneyGram to process debit and prepaid account payments for ICS. The Prison Policy Initiative previously noted that third party payment processing fees for the provision of ICS are typically higher than such fees in other industries and suggested that ICS providers were receiving compensation from such third party service providers. We seek comment, data and other evidence on how prevalent the use of third party money transfer services is and what percent of account funding is accomplished through such services. We also seek comment on the Alabama PSC Proposed Order which acknowledges that money transfer “fees are set by these financial services but [the PSC] is also aware that agents hosting such services are paid a portion of the fee.” The Alabama PSC Proposed Order states that “ICS providers are prohibited from receiving any portion of fees paid by their customers to third-party financial services.” It also proposed a rate cap of $5.95 per transaction, above which providers would face an investigation of their rates and potential refund liability. Similarly, CenturyLink suggests that “[c]ertain consumer-optional third party fees such as Western Union charges should be allowed, but without mark-ups, revenue sharing arrangements or volume rebates.” In contrast, the Joint Provider Reform Proposal suggested adding an additional administrative fee of a maximum of $2.50 per transaction on top of existing money transfer fees. We seek further comment on these proposals and on whether ICS providers' receipt

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2014-26922. Public record. Not legal advice.