# 85 FR 67480: Rates for Interstate Inmate Calling Services

> Federal · Regulations · In force

URL: https://www.frixlaw.com/law-library/statutes/FR_PRORULE_2020-19954

## Section

- **Citation:** 85 FR 67480
- **Heading:** Rates for Interstate Inmate Calling Services
- **Jurisdiction:** Federal
- **Kind:** Regulations
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** Federal Register / Vol. 85 / 85 FR 67480

## Text

FEDERAL COMMUNICATIONS COMMISSION 47 CFR Part 64 [WC Docket No. 12-375, FCC 20-111; FRS 17046] Rates for Interstate Inmate Calling Services AGENCY:
Federal Communications Commission.

ACTION:
Proposed rule.

SUMMARY:
In this document, the Commission continues to comprehensively reform inmate calling services rates to ensure just and reasonable rates for interstate and international inmate calling services. Specifically, the Commission proposes to lower the current interstate rate caps to $0.14 per minute for debit, prepaid, and collect calls from prisons and $0.16 per minute for debit, prepaid, and collect calls from jails. The Commission also proposes to cap rates for international inmate calling services, which remain uncapped today. The Commission proposes a waiver process that would allow providers to seek relief from its rules at the facility or contract level if they can demonstrate that they are unable to recover their legitimate inmate calling services-related costs at that facility or for that contract. Finally, the Commission invites comment on whether the Commission should require the providers to submit additional data, and if so, how; on how the Commission's regulation of interstate and international inmate calling services should evolve in light of marketplace developments and innovations, including alternative rate structures; and on the needs of incarcerated people with hearing or speech disabilities.

DATES:
Comments are due November 23, 2020. Reply Comments are due December 22, 2020.

ADDRESSES:
Federal Communications Commission, 445 12th Street SW, Washington, DC 20554.
FOR FURTHER INFORMATION CONTACT:
Minsoo Kim, Pricing Policy Division of the Wireline Competition Bureau, at (202) 418-1739 or via email at Minsoo.Kim@fcc.gov.

SUPPLEMENTARY INFORMATION:
This is a summary of the Commission's Fourth Further Notice of Proposed Rulemaking, FCC 20-111, released August 7, 2020
ES:
Federal Communications Commission, 445 12th Street SW, Washington, DC 20554.
FOR FURTHER INFORMATION CONTACT:
Minsoo Kim, Pricing Policy Division of the Wireline Competition Bureau, at (202) 418-1739 or via email at Minsoo.Kim@fcc.gov.

SUPPLEMENTARY INFORMATION:
This is a summary of the Commission's Fourth Further Notice of Proposed Rulemaking, FCC 20-111, released August 7, 2020. This summary is based on the public redacted version of the document, the full text of which can be obtained from the following internet address: https://docs.fcc.gov/public/attachments/FCC-20-111A1.pdf.
I. Introduction
1. The Communications Act divides jurisdiction for regulating communications services, including inmate calling services, between the Commission and the states. Specifically, the Act empowers the Commission to regulate interstate communications services and preserves for the states jurisdiction over intrastate communications services. Because the Commission has not always respected this division, the U.S. Court of Appeals for the District of Columbia Circuit has twice remanded the agency's efforts to address rates and charges for inmate calling services.
2. The Commission proposes rate reform of the inmate calling services within its jurisdiction. As a result of the D.C. Circuit's decisions, the interim interstate rate caps of $0.21 per minute for debit and prepaid calls and $0.25 per minute for collect calls that the Commission adopted in 2013 remain in effect today. Based on extensive analysis of the most recent cost data submitted by inmate calling services providers, the Commission proposes to lower its interstate rate caps to $0.14 per minute for debit, prepaid, and collect calls from prisons and $0.16 per minute for debit, prepaid, and collect calls from jails
d $0.25 per minute for collect calls that the Commission adopted in 2013 remain in effect today. Based on extensive analysis of the most recent cost data submitted by inmate calling services providers, the Commission proposes to lower its interstate rate caps to $0.14 per minute for debit, prepaid, and collect calls from prisons and $0.16 per minute for debit, prepaid, and collect calls from jails. In so doing, the Commission uses a methodology that addresses the flaws underlying the Commission's 2015 and 2016 rate caps and that is consistent with the mandate in section 276 of the Act that inmate calling services providers be fairly compensated for each and every completed interstate call. Additionally, the Commission proposes to cap rates for international inmate calling services, which remain uncapped today.
3. The Commission believes that its actions today will ensure that rates and charges for interstate and international inmate calling services are just and
II. Background
4. Access to affordable communications services is critical for all Americans, including incarcerated members of its society. Studies have long shown that incarcerated individuals who have regular contact with family members are more likely to succeed after release and have lower recidivism rates. Unlike virtually every other American, however, incarcerated people and the individuals they call have no choice in their telephone service provider. Instead, their only option is typically an inmate calling services provider chosen by the correctional facility that, once chosen, operates as a monopolist. Absent effective regulation, rates for inmate calling services calls can be unjustly and unreasonably high and thereby impede the ability of incarcerated individuals and their loved ones to maintain vital connections.
5. Statutory Background
Instead, their only option is typically an inmate calling services provider chosen by the correctional facility that, once chosen, operates as a monopolist. Absent effective regulation, rates for inmate calling services calls can be unjustly and unreasonably high and thereby impede the ability of incarcerated individuals and their loved ones to maintain vital connections.
5. Statutory Background. The Communications Act of 1934, as amended (the Act) establishes a system of regulatory authority that divides power over interstate, intrastate, and international communications services between the Commission and the states. More specifically, section 2(a) of the Act empowers the Commission to regulate “interstate and foreign communication by wire or radio” as provided by the Act. This regulatory authority includes ensuring that “[a]ll charges, practices, classifications, and regulations for and in connection with” interstate or international communications services are “just and reasonable” in accordance with section 201(b) of the Act. Section 201(b) also provides that “[t]he Commission may prescribe such rules and regulations as may be necessary in the public interest to carry out” these provisions.
6. Section 2(b) of the Act preserves for the states jurisdiction over “charges, classifications, practices, services, facilities, or regulations for or in connection with intrastate communication service.” The Commission is thus “ `generally forbidden from entering the field of intrastate communication service, which remains the province of the states.' ” Stated differently, section 2(b) “erects a presumption against the Commission's assertion of regulatory authority over intrastate communications.”
7. Although the Telecommunications Act of 1996 “chang[ed] the FCC's authority with respect to some intrastate activities,” “the strictures of [section 2(b)] remain in force.” That is, “[i]nosfar as Congress has remained silent . .
e of the states.' ” Stated differently, section 2(b) “erects a presumption against the Commission's assertion of regulatory authority over intrastate communications.”
7. Although the Telecommunications Act of 1996 “chang[ed] the FCC's authority with respect to some intrastate activities,” “the strictures of [section 2(b)] remain in force.” That is, “[i]nosfar as Congress has remained silent . . . , [section 2(b)] continues to function.” Thus, while section 276 of the Act specifically directs the Commission to ensure that payphone service providers, including inmate calling services providers, “are fairly compensated for each and every completed intrastate and interstate call using their payphone,” that provision does not authorize the Commission to regulate intrastate rates. Nor does section 276 give the Commission the authority to determine “just and reasonable” rates.
8. Prior Commission Actions. The Commission has taken repeated action to address inmate calling services rates and charges. In the 2012 ICS Notice, the Commission sought comment on whether to establish rate caps for interstate inmate calling services calls. In the 2013 ICS Order, the Commission established interim interstate rate caps for debit and prepaid calls as well as collect calls and required all inmate calling services providers to submit data (hereinafter, the First Mandatory Data Collection) on their underlying costs so that the agency could develop a permanent rate structure. In the 2014 ICS Notice, the Commission sought comment on reforming charges for services ancillary to the provision of inmate calling services and on establishing rate caps for both interstate and intrastate inmate calling services calls. In the 2015 ICS Order, the Commission attempted to adopt a comprehensive framework for interstate and intrastate inmate calling services
permanent rate structure. In the 2014 ICS Notice, the Commission sought comment on reforming charges for services ancillary to the provision of inmate calling services and on establishing rate caps for both interstate and intrastate inmate calling services calls. In the 2015 ICS Order, the Commission attempted to adopt a comprehensive framework for interstate and intrastate inmate calling services. More specifically, the Commission adopted limits on ancillary service charges; set rate caps for interstate and intrastate inmate calling services calls; extended the interim interstate rate caps it adopted in 2013 to intrastate calls pending the effectiveness of the new rate caps; and sought comment on whether and how to reform rates for international inmate calling services calls. The Commission also addressed inmate calling services providers' ability to recover mandatory applicable pass-through taxes and regulatory fees. Additionally, the Commission adopted a Second Mandatory Data Collection to enable it to identify trends in the market and adopt further reform, and it required inmate calling services providers to annually report information on their operations, including their current interstate, intrastate, and international rates and their current ancillary service charge amounts. In the 2016 ICS Reconsideration Order, the Commission increased its rate caps to account for certain correctional facility costs related to the provision of inmate calling services.
9. The Commission's attempts to reform inmate calling services rates and charges have a long history in the courts and have not always been well received. In January 2014, in response to inmate calling services providers' petitions for review of the 2013 ICS Order, the D.C. Circuit stayed the application of certain portions of that Order but allowed the Commission's interim rate caps to remain in effect. Later that year, the court held the petitions for review in abeyance while the Commission proceeded to set permanent rates
ways been well received. In January 2014, in response to inmate calling services providers' petitions for review of the 2013 ICS Order, the D.C. Circuit stayed the application of certain portions of that Order but allowed the Commission's interim rate caps to remain in effect. Later that year, the court held the petitions for review in abeyance while the Commission proceeded to set permanent rates. In March 2016, in response to inmate calling services providers' petitions for review of the 2015 ICS Order, the D.C. Circuit stayed the application of that Order' s rate caps and ancillary service charge cap for single-call services while the appeal was pending. Later that month, the court stayed the application of the Commission's interim rate caps to intrastate inmate calling services. In November 2016, the court stayed the 2016 ICS Reconsideration Order pending the outcome of the challenge to the 2015 ICS Order. In 2017, in GTL v. FCC, the D.C. Circuit vacated the rate caps in the 2015 ICS Order, finding that the Commission lacked the statutory authority to regulate intrastate rates and that the methodology used to set the caps was arbitrary and capricious. The court remanded for further proceedings with respect to certain rate cap issues; remanded the ancillary service charge caps in that Order; and vacated one of the annual reporting requirements in that Order.
10. Because this procedural history is somewhat complicated, the Commission provides background on the relevant issues in turn below.
11. Ancillary Service Charges. Ancillary service charges are fees that inmate calling services providers assess on inmate calling service consumers that are not included in the per-minute rates assessed for individual calls. In the 2015 ICS Order, in light of the continued growth in the number and dollar amount of ancillary service charges, and the fact that such charges inflate the effective price that consumers pay for inmate calling services, the Commission adopted reforms to limit such charges
rs assess on inmate calling service consumers that are not included in the per-minute rates assessed for individual calls. In the 2015 ICS Order, in light of the continued growth in the number and dollar amount of ancillary service charges, and the fact that such charges inflate the effective price that consumers pay for inmate calling services, the Commission adopted reforms to limit such charges. The Commission established five types of
12. In the 2015 ICS Order, the Commission applied these caps to all services ancillary to inmate calling services, regardless of whether the underlying service was interstate or intrastate. In particular, the Commission held that “section 276 of the Act authorizes the Commission to regulate charges for intrastate ancillary services.” On review, the D.C. Circuit held that “the Order' s imposition of ancillary fee caps in connection with interstate calls is justified” given the Commission's “plenary authority to regulate interstate rates under § 201(b), including `practices . . . for and in connection with' interstate calls.” The court held, however, that just as the Commission lacks authority to regulate intrastate rates pursuant to section 276, the Commission likewise “had no authority to impose ancillary fee caps with respect to intrastate calls.” Because the court could not “discern from the record whether ancillary fees can be segregated between interstate and intrastate calls,” it remanded the issue “to allow the Commission to determine whether it can segregate [the ancillary fee] caps on interstate calls (which are permissible) and the [ancillary fee] caps on intrastate calls (which are impermissible).”
13. Mandatory Pass-Through Taxes and Fees. In the 2015 ICS Order, the Commission found record evidence that inmate calling services providers were charging end users fees under the guise of taxes
low the Commission to determine whether it can segregate [the ancillary fee] caps on interstate calls (which are permissible) and the [ancillary fee] caps on intrastate calls (which are impermissible).”
13. Mandatory Pass-Through Taxes and Fees. In the 2015 ICS Order, the Commission found record evidence that inmate calling services providers were charging end users fees under the guise of taxes. The Commission therefore held that such providers “are permitted to recover mandatory-applicable pass-through taxes and regulatory fees, but without any additional mark-up or fees.” To implement this determination, the Commission added rules governing an “Authorized Fee” and a “Mandatory Tax or Mandatory Fee.” The rule regarding authorized fees included language precluding markups in the absence of specific governmental authorization. The rule regarding mandatory taxes or fees, however, contained no parallel language. To correct this oversight, the Commission amended the rule in the 2016 ICS Reconsideration Order to specify: “A Mandatory Tax or Fee that is passed through to a Consumer may not include a markup, unless the markup is specifically authorized by a federal, state, or local statute, rule, or regulation.”
14. On review, the D.C. Circuit vacated the 2016 ICS Reconsideration Order “insofar as it purport[ed] to set rate caps on inmate calling service” and remanded “the remaining provisions” of that Order to the Commission “for further consideration . . . in light of the disposition of this case and other related cases.” As a result, the Commission's rule governing Mandatory Taxes or Mandatory Fees was vacated to the extent that it “purport[ed] to set rate caps.”
15. Rate Caps. In the 2013 ICS Order, in light of record evidence that rates for inmate calling services calls greatly exceeded the reasonable costs of providing service, the Commission adopted interim interstate rate caps of $0.21 per minute for debit and prepaid calls and $0.25 per minute for collect calls
axes or Mandatory Fees was vacated to the extent that it “purport[ed] to set rate caps.”
15. Rate Caps. In the 2013 ICS Order, in light of record evidence that rates for inmate calling services calls greatly exceeded the reasonable costs of providing service, the Commission adopted interim interstate rate caps of $0.21 per minute for debit and prepaid calls and $0.25 per minute for collect calls. In the 2015 ICS Order, in light of “egregiously high” rates for intrastate inmate calling services calls, the Commission relied on section 276 and section 201(b) of the Act to adopt rate caps for both intrastate and interstate inmate calling services calls. The Commission set tiered rate caps of $0.11 per minute for prisons; $0.14 per minute for jails with average daily populations of 1,000 or more; $0.16 per minute for jails with average daily populations of 350 to 999; and $0.22 per minute for jails having average daily populations of less than 350. The Commission calculated these rate caps using industry- wide average costs and stated that this approach would allow providers to “recover average costs at each and every tier.” Additionally, the Commission held that site commissions—payments made by inmate calling services providers to correctional facilities or state authorities that are often required to win the contract for provision of service to a given facility—were not costs reasonably related to the provision of inmate calling services. The Commission therefore excluded site commission payments from the cost data used to set the rate caps.
16. On reconsideration in 2016, the Commission increased the rate caps for both interstate and intrastate inmate calling services to expressly account for correctional facility costs that are directly and reasonably related to the provision of inmate calling services
inmate calling services. The Commission therefore excluded site commission payments from the cost data used to set the rate caps.
16. On reconsideration in 2016, the Commission increased the rate caps for both interstate and intrastate inmate calling services to expressly account for correctional facility costs that are directly and reasonably related to the provision of inmate calling services. The Commission set the revised rate caps at $0.13 per minute for prisons; $0.19 per minute for jails with average daily populations of 1,000 or more; $0.21 per minute for jails with average daily populations of 350 to 999; and $0.31 per minute for jails with average daily populations of less than 350.
17. On review, the D.C. Circuit in GTL v. FCC vacated the rate caps adopted in the 2015 ICS Order. First, the court held that the Commission lacked the statutory authority to cap intrastate inmate calling services rates. The court explained that the Commission's authority over intrastate calls is, except as otherwise provided by Congress, limited by section 2(b) of the Act and nothing in section 276 of the Act overcomes this limitation. In particular, section 276 “merely directs the Commission to `ensure that all [inmate calling services] providers are fairly compensated' for their inter- and intrastate calls,” and it “is not a `general grant of jurisdiction' over intrastate ratemaking.”
18. Second, the D.C. Circuit held that the “Commission's categorial exclusion of site commissions from the calculus used to set [inmate calling services] rate caps defie[d] reasoned decisionmaking because site commissions obviously are costs of doing business incurred by [inmate calling services] providers.” The court directed the Commission to “assess on remand which portions of site commissions might be directly related to inmate calling services and therefore legitimate, and which are not.” The court did not reach inmate calling services providers' remaining arguments “that the exclusion of site commissions denies [them] fair compe
of doing business incurred by [inmate calling services] providers.” The court directed the Commission to “assess on remand which portions of site commissions might be directly related to inmate calling services and therefore legitimate, and which are not.” The court did not reach inmate calling services providers' remaining arguments “that the exclusion of site commissions denies [them] fair compensation under
19. Third, the D.C. Circuit held that the Commission's use of industry-wide averages in setting rate caps was arbitrary and capricious because it lacked justification in the record and was not supported by reasoned decisionmaking. More specifically, the court found the Commission's use of a weighted average per-minute cost to be “patently unreasonable” given that such an approach made calls with above-average costs unprofitable and thus did “not fulfill the mandate of [section] 276 that `each and every' ” call be fairly compensated. Additionally, the court found that the 2015 ICS Order “advances an efficiency argument—that the larger providers can become profitable under the rate caps if they operate more efficiently—based on data from the two smallest firms,” which “represent less than one percent of the industry,” and that the Order did not account for conflicting record data. The court therefore vacated this portion of the 2015 ICS Order and remanded to the Commission for further proceedings.
20. Also in 2017, in Securus v. FCC, the D.C. Circuit ordered the 2016 ICS Reconsideration Order “summarily vacated insofar as it purports to set rate caps on inmate calling service” because the revised rate caps in that Order were “premised on the same legal framework and mathematical methodology” rejected by the court in GTL v. FCC. The court remanded “the remaining provisions” of that Order to the Commission “for further consideration . . . in light of the disposition of this case and other related cases.” As a result of the D.C
s to set rate caps on inmate calling service” because the revised rate caps in that Order were “premised on the same legal framework and mathematical methodology” rejected by the court in GTL v. FCC. The court remanded “the remaining provisions” of that Order to the Commission “for further consideration . . . in light of the disposition of this case and other related cases.” As a result of the D.C. Circuit's decisions in GTL and Securus, the interim rate caps that the Commission adopted in 2013 ($0.21 per minute for debit/prepaid calls and $0.25 per minute for collect calls) are in effect for interstate inmate calling services calls.
21. More Recent Developments. In the 2015 ICS Order, the Commission directed that the Second Mandatory Data Collection be conducted two years from publication of Office of Management and Budget (OMB) approval of the information collection. The Commission received such approval in January 2017 and publication occurred on March 1, 2017. Accordingly, on March 1, 2019, inmate calling services providers submitted their responses to the Second Mandatory Data Collection. The Commission's Wireline Competition Bureau (Bureau) and Office of Economics and Analytics (OEA) undertook a comprehensive analysis of the Second Mandatory Data Collection responses and conducted multiple follow-up discussions with inmate calling services providers to supplement and clarify their responses.
22. In February 2020, the Bureau issued a public notice seeking to refresh the record on ancillary service charges in light of the D.C. Circuit's remand in GTL v. FCC
and Analytics (OEA) undertook a comprehensive analysis of the Second Mandatory Data Collection responses and conducted multiple follow-up discussions with inmate calling services providers to supplement and clarify their responses.
22. In February 2020, the Bureau issued a public notice seeking to refresh the record on ancillary service charges in light of the D.C. Circuit's remand in GTL v. FCC. The Bureau sought comment on, among other issues, (1) whether each permitted inmate calling services ancillary service charge may be segregated between interstate and intrastate calls and, if so, how; (2) how the Commission should proceed in the event any permitted ancillary service is “jurisdictionally mixed” and cannot be segregated between interstate and intrastate calls; and (3) any steps the Commission should take to ensure that providers of interstate inmate calling services do not circumvent or frustrate the Commission's ancillary service charge rules.
23. In April 2020, inmate calling services providers submitted data pursuant to the Commission's annual reporting requirements and they did so using a revised annual reporting form and accompanying instructions. First, the Bureau made minor revisions to the form and instructions in light of the D.C. Circuit's vacatur of the Commission's annual reporting requirement for video visitation services offered by inmate calling services providers. The GTL court held that the video visitation services reporting requirement adopted in the 2015 ICS Order was “too attenuated to the Commission's statutory authority to justify this requirement.” Accordingly, the Bureau eliminated questions regarding video visitation from the annual reporting reform.
24. Second, the Bureau made additional revisions to the annual reporting form and instructions based on its experience in analyzing past annual reports and based on formal and informal input from inmate calling services providers, thereby making the annual reports easier to understand and analyze
dingly, the Bureau eliminated questions regarding video visitation from the annual reporting reform.
24. Second, the Bureau made additional revisions to the annual reporting form and instructions based on its experience in analyzing past annual reports and based on formal and informal input from inmate calling services providers, thereby making the annual reports easier to understand and analyze. Bureau and OEA staff used the April 2020 annual report responses to supplement their understanding of the Second Mandatory Data Collection responses.
25. Commission staff also analyzed the intrastate rate data submitted as part of inmate calling services providers' most recent annual reports. Staff's analysis reveals that the vast majority of inmate calls—roughly 80%—are reported to be intrastate and that inmate calling services providers are charging egregiously high intrastate rates across the country. Intrastate rates for debit or prepaid calls substantially exceed interstate rates in 45 states, with 33 states allowing rates that are at least double the Commission's cap and 27 states allowing excessive “first-minute” charges up to 26 times that of the first minute of an interstate call. Indeed, while interstate rates for the first minute and all subsequent minutes may not exceed $0.25, inmate calling services providers' first-minute charges for intrastate calls may range from $1.65 to $6.50. For example, one provider reported the first-minute intrastate rate of $5.341 and the additional per-minute intrastate rate of $1.391 in Arkansas while reporting the per-minute interstate rate of $0.21 for the same correctional facility. Similarly, another provider reported the first-minute intrastate rate of $6.50 and the additional per-minute intrastate rate of $1.25 in Michigan while reporting the per-minute interstate rate of $0.25 for the same correctional facility
341 and the additional per-minute intrastate rate of $1.391 in Arkansas while reporting the per-minute interstate rate of $0.21 for the same correctional facility. Similarly, another provider reported the first-minute intrastate rate of $6.50 and the additional per-minute intrastate rate of $1.25 in Michigan while reporting the per-minute interstate rate of $0.25 for the same correctional facility. Further, Commission staff identified instances in which a 15-minute intrastate debit or prepaid call costs as much as $24.80—almost seven times more than the maximum $3.15 that an interstate call of the same duration would cost.
III. Fourth Further Notice of Proposed Rulemaking
26. As a result of the D.C. Circuit's decisions in GTL and Securus, the interim interstate rate caps that the Commission adopted in the 2013 ICS Order —$0.21 per minute for debit and prepaid calls and $0.25 per minute for collect calls—remain in effect today. Based on extensive analysis by Commission staff of the most recent cost data submitted by inmate calling services providers, the Commission proposes comprehensive rate reform of the inmate calling services within its jurisdiction.
27. First, the Commission proposes to lower its rate caps for interstate inmate calling services to $0.14 per minute for debit, prepaid, and collect calls from prisons and $0.16 per minute for debit, prepaid, and collect from jails. In so doing, the Commission accounts for reasonable correctional facility costs, consistent with the court's opinion in GTL, and the Commission accounts for the fair compensation mandate of section 276 of the Act. The Commission further proposes to find that the benefits of its interstate rate cap proposal far exceed the costs.
28. Second, the Commission proposes to cap rates for international inmate plus the amount that the provider must pay its underlying international service provider for that call on a per-minute basis
he Commission accounts for the fair compensation mandate of section 276 of the Act. The Commission further proposes to find that the benefits of its interstate rate cap proposal far exceed the costs.
28. Second, the Commission proposes to cap rates for international inmate plus the amount that the provider must pay its underlying international service provider for that call on a per-minute basis. The Commission believes these proposals will ensure that the rates that incarcerated individuals and their loved ones pay for interstate and international inmate calling services are just and reasonable as required by section 201(b) of the Act.
29. The Commission seeks comment on its proposals, including their impact on small businesses, and the Commission seeks comment on any alternative proposals.
A. Proposing New Interstate Rate Caps
30. The Commission proposes to adopt permanent rate caps for interstate inmate calling services of $0.14 per minute for debit, prepaid, and collect calls from prisons and $0.16 per minute for such calls from jails. These rate caps would apply to all calls that a provider identifies as interstate and to calls that the provider cannot definitively identify as intrastate.
31. The proposed rates are based on its analyses of detailed cost data submitted by inmate calling services providers in their Second Mandatory Data Collection responses. These data demonstrate that the proposed rates, in conjunction with the fees permitted for ancillary services, will generally allow providers to recover their costs, including their overheads, and reimburse correctional facilities for any costs that they incur that are directly related to the provision of inmate calling services. The Commission defines “overheads” as the difference between the costs inmate calling services providers assigned to their contracts and their total inmate calling services costs
will generally allow providers to recover their costs, including their overheads, and reimburse correctional facilities for any costs that they incur that are directly related to the provision of inmate calling services. The Commission defines “overheads” as the difference between the costs inmate calling services providers assigned to their contracts and their total inmate calling services costs. The Commission establishes its proposed rate caps based on (1) its calculated mean contract costs per paid minute to provide inmate calling services as reported by providers plus one standard deviation; and (2) an allowance for recovery of correctional facility costs directly related to the provision of inmate calling services observed in that data. “Contract costs per paid minute” refers to the sum of a contract's direct costs and allocated overheads divided by the number of paid minutes of use reported for that contract. The Commission calculates the mean of this value across all contracts for each facility type and use those averages in determining its proposed rate caps. The Commission's proposed rate cap methodology and its impact on providers' ability to recover their costs differ materially from the methodology and impact that were before the D.C. Circuit in GTL v. FCC. The Commission seeks comment on each aspect of its proposed rate cap methodology and on whether it will result in interstate inmate calling services rates that are just and reasonable as required by the Communications Act.
32. Uniform Caps for Prepaid/Debit and Collection Calls. The Commission proposes to adopt identical interstate rate caps for prepaid/debit and collect calls based on the absence of any data demonstrating a material difference in the costs of providing these different types of calls. For convenience, the Commission refers herein to prepaid and debit calls collectively as prepaid/debit calls
Act.
32. Uniform Caps for Prepaid/Debit and Collection Calls. The Commission proposes to adopt identical interstate rate caps for prepaid/debit and collect calls based on the absence of any data demonstrating a material difference in the costs of providing these different types of calls. For convenience, the Commission refers herein to prepaid and debit calls collectively as prepaid/debit calls. While each of these call types is separately defined in the Commission's rules, 47 CFR 64.6000(g) and (p), each involves a form of advanced payment for inmate telephone calls as distinguished from collect calls for which payment is sought from the called party at the time that the inmate call is placed. What is more, collect calling is no longer a popular method of inmate calling, and data show that the number of collect calls is small and has been declining relative to prepaid or debit calls. In 2014, collect call minutes represented 4.9% of all paid call minutes. In 2018, the share of collect calls in all paid call minutes had fallen to 2.2%. These findings are based on staff analysis of the data received in the Second Mandatory Data Collection. The Commission seeks comment on current trends for collect calling, and on its proposal to adopt a single rate cap for prepaid/debit and collect calls made from the same facilities and on the overall data upon which the Commission bases its proposal. Are there cost differences between collect and prepaid/debit calls that providers failed to identify in response to its data collection? If so, commenters should submit additional data on this point into the record. The Commission also seeks comment on whether attempting to distinguish between the costs of providing prepaid/debit calls and collect calls is necessary (or administratively efficient) given that collect calls appear to be a disappearing service.
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that providers failed to identify in response to its data collection? If so, commenters should submit additional data on this point into the record. The Commission also seeks comment on whether attempting to distinguish between the costs of providing prepaid/debit calls and collect calls is necessary (or administratively efficient) given that collect calls appear to be a disappearing service.
33. The Commission do notes one apparent difference between collect and prepaid/debit calls: Specifically, collect calls are more likely to be initiated through the use of a live operator. The Commission tentatively does not believe, however, that this difference merits different rates because inmate calling service providers are already permitted to charge a separate fee if an incarcerated individual makes use of a live operator to place an interstate collect call. This additional ancillary service charge is on top of the per-minute rate for the interstate collect call. Are there nevertheless reasons to maintain different interstate rate caps for collect versus prepaid/debit calling? If so, commenters should explain these reasons in detail.
34. Different Caps for Prisons and Jails. The Commission proposes to distinguish between two distinct facility types, proposing a rate cap for jails that is $0.02 per minute higher than the rate cap the Commission proposes for prisons. This $0.02 per-minute differential reflects the Commission's analysis of the cost data, which shows greater variations from mean costs for jails than prisons (and therefore a greater standard deviation from the mean for jail than prisons). This two-tier rate structure departs from the four-tier rate structure the Commission adopted in the 2015 ICS Order, which established a rate cap for prisons as well as three different rate caps for jails, based on the jails' average daily populations
ch shows greater variations from mean costs for jails than prisons (and therefore a greater standard deviation from the mean for jail than prisons). This two-tier rate structure departs from the four-tier rate structure the Commission adopted in the 2015 ICS Order, which established a rate cap for prisons as well as three different rate caps for jails, based on the jails' average daily populations. As discussed in greater detail in an Appendix, staff analysis of the data submitted by the providers indicates that the average daily population for jails does not meaningfully influence per-minute costs. The analysis similarly indicates that per-minute costs are not materially influenced by other characteristics of the facilities being examined. The Commission seeks comment on this analysis.
35. The Commission seeks comment on its proposal to adopt a single rate cap for prisons and a single rate cap for jails. Are there differences in the costs of serving different types of prisons or jails that are not apparent from the data submitted in response to the Second Mandatory Data Collection? If so, commenters should provide additional analysis or data establishing those differences and explain how the Commission should take them into account in setting interstate rate caps for different types of facilities.
36. Cost Recovery at the Contract Level. The Second Mandatory Data Collection responses make clear that inmate calling services providers seek to recover their costs at the contract, rather than facility, level. The providers therefore do not typically keep, and have not submitted, data that would capture cost differences among facilities
37. Effective Date for New Interstate Rate Caps. The Commission proposes that its new rate caps take effect 90 days after notice of them is published in the Federal Register
g services providers seek to recover their costs at the contract, rather than facility, level. The providers therefore do not typically keep, and have not submitted, data that would capture cost differences among facilities
37. Effective Date for New Interstate Rate Caps. The Commission proposes that its new rate caps take effect 90 days after notice of them is published in the Federal Register . This is the same transition timeframe that the Commission adopted when providers first became subject to the current interim caps, and the record in this proceeding indicates that implementation occurred without difficulty. The Commission seeks comment on this view and on its proposal. Any commenter favoring a shorter or longer transition period should provide a detailed explanation of precisely what steps providers and correctional facilities must take before they can implement new rate caps for interstate inmate calling services and how much time they anticipate it will take to accomplish each of those steps.
1. Methodology
38. Calculating Mean Contract Costs per Paid Minute. The Commission's rate cap methodology begins with the calculation of mean contract costs per paid minute in the provision of inmate calling services. This calculation is based on data for the most recent year (2018) submitted in providers' Second Mandatory Data Collection responses, as supplemented and clarified in the record via follow-up discussions with each provider. While the Second Mandatory Data Collection collected data for 2014 to 2018, the Commission relies on data from 2018 because it is likely to be most representative of the current situation. Although the Commission requested data for each facility a provider serves, including information such as the average daily inmate population, the number of calls annually, the number of annual call minutes, and the cost of serving that facility, in many instances providers reported data only at the contract level
a from 2018 because it is likely to be most representative of the current situation. Although the Commission requested data for each facility a provider serves, including information such as the average daily inmate population, the number of calls annually, the number of annual call minutes, and the cost of serving that facility, in many instances providers reported data only at the contract level. The cost data include both (1) costs that may be directly attributed to the provider's inmate calling services operations and, in many instances, to a given inmate calling services contract; and (2) costs, such as general corporate overheads, that cannot be directly attributed to a particular facility or even, in some cases, a particular line of business.
39. The collected data are subject to certain limitations based on differences in recordkeeping practices among the respondent providers. For example, many providers assess their inmate calling services operations on a contract-by-contract basis, although many contracts include multiple correctional facilities. Based on staff analysis of the data, CenturyLink treated the Wisconsin DOC contract similarly, and GTL treated many, and perhaps all, of its multifacility contracts similarly. These providers therefore reported information—and the Commission analyzed that information—on a contract, rather than a facility, basis. The Commission seeks comment on this approach, in the absence of information provided about the costs incurred on a facility-by-facility basis.
40. The Second Mandatory Data Collection sought information about costs in several steps. A filer must first identify which of its and its corporate affiliates' total costs are directly attributable to inmate calling services and which are directly attributable to other operations
t on this approach, in the absence of information provided about the costs incurred on a facility-by-facility basis.
40. The Second Mandatory Data Collection sought information about costs in several steps. A filer must first identify which of its and its corporate affiliates' total costs are directly attributable to inmate calling services and which are directly attributable to other operations. The filer must then allocate the remainder of the inmate calling services provider's and its affiliates' total costs ( i.e., the costs identified as indirect costs or overhead) between inmate calling services and the affiliate groups' other operations. The filer may then choose to allocate some or all of these costs to its particular inmate calling services contracts or even to a given facility. The Commission notes that some providers interpreted different steps in different ways. The Commission seeks comment on each aspect of the submitted data and invite parties to submit their own analyses consistent with the terms of the Protective Order in this proceeding. Are there other issues regarding the data that the Commission should consider? Are there other types of data the Commission could seek to more fully capture industry costs beyond the detailed and comprehensive data the Commission has already collected and which providers claim reflects the level of granular cost data they keep? The Commission invites parties to submit alternative proposals for us to consider in further evaluating the Second Mandatory Data Collection responses. To the extent that commenters believe the Commission should collect additional data, the Commission seeks comment on the likelihood that inmate calling services providers would be able to provide the requested data, and, if so, at what cost and in what timeframe.
41. The Second Mandatory Data Collection did not require providers to allocate costs that are not directly associated with a specific contract among their different contracts
e Commission should collect additional data, the Commission seeks comment on the likelihood that inmate calling services providers would be able to provide the requested data, and, if so, at what cost and in what timeframe.
41. The Second Mandatory Data Collection did not require providers to allocate costs that are not directly associated with a specific contract among their different contracts. The Commission therefore needs to perform such an allocation. The Commission proposes to use the reported minutes of use associated with each contract to perform that allocation. The Commission seeks comment on this allocation method, including whether reported minutes of use provides a reasonable allocator. Would a different allocator better capture how costs are caused, and if so, why? Are there systematic differences in costs or systematic differences in the way costs are calculated that the Commission should consider in its analysis?
42. In developing its Second Mandatory Data Collection response, one provider, GTL, allocated indirect costs between its inmate calling services operations and its other operations based on the percentages of total company revenue each operation generated. GTL and certain other providers also used relative revenues to allocate their indirect costs among contracts. The Commission has long disclaimed this allocation methodology because it fails to provide a reliable method for determining the costs of providing inmate calling services given that “revenues measure only the ability of an activity to bear costs, and not the amount of resources used by the activity.” One way of viewing the problem of using revenues as a cost allocation key is to consider two identical services that have different prices. A revenue cost allocation key would allocate costs to the two services differently even though, by definition, they have the exact same costs. Consider allocating costs between the interstate and intrastate jurisdiction based on revenues
used by the activity.” One way of viewing the problem of using revenues as a cost allocation key is to consider two identical services that have different prices. A revenue cost allocation key would allocate costs to the two services differently even though, by definition, they have the exact same costs. Consider allocating costs between the interstate and intrastate jurisdiction based on revenues. The record shows no reason to think that intrastate costs should be any higher than interstate costs. However, because intrastate calls have higher prices and earn higher revenues per minute, such a mechanism would imply intrastate costs are significantly higher than interstate costs. A related problem is that using revenues to allocate costs is somewhat circular—because the whole point of allocating costs is to help determine what revenues need to be to cover those costs. Thus, a revenue-based allocator tends to “lock in” the historical pricing decisions of providers rather than drive rates toward actual costs. The Commission instead considered several other means of allocating costs: Call minutes, call numbers, contracts, and facilities, and determined call minutes to be the most reasonable. The Commission invites comment on these observations and this allocator, and ask parties to suggest alternative ways to more appropriately allocate costs for
43. Calculating Interstate Rate Caps for Prisons and Jails. The Commission next calculates proposed interstate rate caps for both prisons and jails. Those proposed caps equal the mean contract costs per minute for all reporting providers, plus one standard deviation, plus an additional $0.02 for correctional facility costs. Its calculations use total industry costs, both interstate and intrastate, because the available data do not suggest that there are any differences between the costs of providing interstate and intrastate inmate calling services
proposed caps equal the mean contract costs per minute for all reporting providers, plus one standard deviation, plus an additional $0.02 for correctional facility costs. Its calculations use total industry costs, both interstate and intrastate, because the available data do not suggest that there are any differences between the costs of providing interstate and intrastate inmate calling services. Nor do such data suggest a method for separating reported costs between the intrastate and interstate jurisdictions that might capture such differences, if any. Finally, providers do not assert any such differences. The Commission seeks comment on these views.
44. The Commission's analysis of the cost data shows greater variations from mean costs for jails than for prisons, and its proposed rate caps reflect these standard deviations. The Commission examined whether various characteristics, such as location or size, would reveal additional, meaningful differences in costs that would justify separate rate caps for different groups of contracts. The Commission found the main predictors of both costs per minute and high-cost contracts were the provider's identity and the state where the facilities subject to a particular contract are located. The Commission also found that facility type (whether the contracts covered prisons or jails) was a less strong predictor of costs per minute and high-cost contracts. By contrast, other variables such as facility size (measured by average daily population) and rurality, or combinations of such variables provided negligible predictive value. The Commission seeks comment on this analysis and on whether the Commission nevertheless should set interstate rate caps on a more granular basis. The Commission invites parties to suggest alternative approaches. Any commenter proposing an alternative approach should submit an explanation of how the data support such an approach, as well as a discussion of the administrative feasibility of the proposed alternative.
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mment on this analysis and on whether the Commission nevertheless should set interstate rate caps on a more granular basis. The Commission invites parties to suggest alternative approaches. Any commenter proposing an alternative approach should submit an explanation of how the data support such an approach, as well as a discussion of the administrative feasibility of the proposed alternative.
45. The Commission believes its proposed rate caps will permit cost recovery for interstate inmate calling services and the Commission seeks comment on this view. The Commission specifically invites comment on whether its proposed interstate rate caps would allow providers to recover their costs of providing interstate inmate calling services, including their direct costs of providing interstate inmate calling services under each of their contracts and correctional facility costs directly related to the provision of inmate calling services, while making reasonable contributions to providers' indirect costs that are associated with inmate calling services.
46. The Commission's calculations show a limited number of contracts where providers' reported costs plus its allocation of overhead exceed the revenues that the proposed interstate rate caps would generate: Specifically, in only two out of 131 prison contracts, and 114 out of 2,804 jail contracts. The Commission notes that the inmate calling services providers' reported costs exclude site commission payments, although they do report information on site commission payments. The Commission has determined previously that some portion of these site commission payments do reflect legitimate costs that correctional facilities incur that are reasonably related to the provision of inmate calling services. Based on its analysis, the Commission's proposed rate caps include a $0.02 per minute allowance for these correctional facility costs
ormation on site commission payments. The Commission has determined previously that some portion of these site commission payments do reflect legitimate costs that correctional facilities incur that are reasonably related to the provision of inmate calling services. Based on its analysis, the Commission's proposed rate caps include a $0.02 per minute allowance for these correctional facility costs. If revenues that are currently generated from certain ancillary services, such as automated payment fees and paper billing and statement fees, are included, only 42 jail contracts fail to recover costs under the Commission's allocation of overheads. Over half of these 42 jail contracts belong to a single provider, but account for a small portion of that provider's broad contract portfolio. Based on staff analysis of these 42 jail contracts, approximately [REDACTED]. In addition, the Commission does not include revenues earned from live operator fees because those data were not collected, even though the costs of live operators were collected and are included in its analysis. The Commission seeks comment on this approach and on whether the Commission should exclude both the costs of, and revenues from, live operator interactions from its analysis.
47. In GTL v. FCC, the Court found the Commission's reliance on industry average costs unreasonable because even if any cost component of site commissions were disregarded, the proposed caps were “below average costs documented by numerous ICS providers and would deny cost recovery for a substantial percentage of all inmate calls.” Unlike that result, however, the Commission proposes a methodology that begins with an industry mean cost, increases that mean by a standard deviation, and then adds an additional amount—$0.02 per minute—to account for correctional facility costs
posed caps were “below average costs documented by numerous ICS providers and would deny cost recovery for a substantial percentage of all inmate calls.” Unlike that result, however, the Commission proposes a methodology that begins with an industry mean cost, increases that mean by a standard deviation, and then adds an additional amount—$0.02 per minute—to account for correctional facility costs. The revenues from the proposed rate caps would enable the vast majority of providers to recover at least their reported costs, leaving only 1.5% (or 42/2,804) of all jail contracts with reported average costs above what the proposed interstate rate caps would recover (and the Commission seeks comment below on potentially waiving its caps in these extraordinary cases).
48. As discussed in an Appendix, the Commission assigned costs to contracts based on relative minutes of use. For robustness, the Commission also takes the data at face value and analyzes its proposed caps against those data. In that scenario, only one prison contract and 32 jail contracts would fail to recover reported direct costs based on the Commission's analysis. And only one prison contract or 0.8% (1/131) of prison contracts and 21 or 0.7% (21/2,804) of jail contracts would fail to recover their reported direct costs after accounting for certain ancillary service fees. The Commission seeks comment on this analysis. The Commission also asks whether it would be appropriate to set rates based on the costs of the vast majority of providers (for example, all but the one or two providers with the highest average costs per minute), in order to incent providers with above average costs to be more efficient. While the court in GTL rejected an efficiency argument advanced by the Commission, its concern in that case was that the “average rates” relied on cost data from firms representing only a small fraction of the industry and were not sufficiently supported by the record
o providers with the highest average costs per minute), in order to incent providers with above average costs to be more efficient. While the court in GTL rejected an efficiency argument advanced by the Commission, its concern in that case was that the “average rates” relied on cost data from firms representing only a small fraction of the industry and were not sufficiently supported by the record. The approach the Commission proposes here, however, is based on the costs of a majority of providers and is consistent with the record.
49. The presence of a number of prisons and jails with rates below the proposed interstate rate caps is further evidence that leads the Commission to conclude that its proposed caps will broadly allow cost recovery. The Commission has identified nearly 800 prisons in 35 states that have set their interstate debit, prepaid, and collect inmate calling service rates at levels below its proposed cap of $0.14. These include prisons in locations as diverse as Alabama, California, New Jersey, New Mexico, West Virginia, and Wyoming. Similarly, nearly 200 jails in 35 states set all of their interstate debit, prepaid, and collect inmate calling service rates at levels below the Commission's proposed caps. Confirming the Commission's analysis
50. The Commission notes that its rate cap calculations do not account for revenues earned from certain ancillary services, even though the costs of these services, which were not independently collected, are included in reported inmate calling services costs. The Commission invites comment on whether the Commission should adjust the proposed interstate rate caps to address ancillary services. For example, should the Commission exclude the costs from these services from its calculations? The Commission notes that while revenues from such services are small or do not exist for many contracts, in other cases, they are significant
e calling services costs. The Commission invites comment on whether the Commission should adjust the proposed interstate rate caps to address ancillary services. For example, should the Commission exclude the costs from these services from its calculations? The Commission notes that while revenues from such services are small or do not exist for many contracts, in other cases, they are significant. For example, the contract mean of automated payment and paper bill/statement revenues per paid minute of use is approximately $0.05. This is calculated by taking the mean of the quotient of revenues from automated payment and paper bill and statement fees and paid minutes of use for each contract. The Commission seeks comment on how the Commission should take these revenue sources into account in setting interstate rate caps. Should the Commission reduce its proposed interstate caps by $0.05 across the board or would this distort providers' pricing decisions, especially in the case of contracts where automated payment and paper bill/statement fees are small or zero? Should the Commission instead impose an interstate revenue cap and let providers decide how to raise those revenues? Or would that type of discretion lead to rates that are hard to police in practice? What alternative mechanisms could be applied to ensure that a provider's total revenue from interstate inmate calling services and related ancillary services allows the provider an opportunity to recover its costs of providing those services without subjecting incarcerated people and those they call to unreasonably high interstate rates?
51. The Commission also asks whether there is any other source of revenue from inmate calling services that the Commission should consider in its analysis. For example, in the 2015 ICS Further Notice, the Commission expressed concern regarding alleged revenue sharing arrangements between inmate calling services providers and financial companies
se they call to unreasonably high interstate rates?
51. The Commission also asks whether there is any other source of revenue from inmate calling services that the Commission should consider in its analysis. For example, in the 2015 ICS Further Notice, the Commission expressed concern regarding alleged revenue sharing arrangements between inmate calling services providers and financial companies. Some commenters argue that certain inmate calling services providers have entered into revenue-sharing arrangements with third-party processing companies such as Western Union and MoneyGram where a third-party processing company shares its revenues generated from processing transactions for an inmate calling services provider' customers. In contrast to typical third-party processing companies such as Western Union and MoneyGram, Pay Tel argues that affiliates of an inmate calling services provider should not be treated as third parties in applying the Commission rules as the affiliated processing company's revenues will end up in the same bucket as the affiliated inmate calling services provider's revenues. Commenters further argue that the shared revenue is an additional source of profits for these inmate calling services providers. One commenter suggests that certain providers have effectively created a third-party entity with whom those providers share revenue that is passed through to consumers in the form of a third-party fee for single-call services. Marking up third-party fees, whether directly or indirectly, is prohibited under the Commission's rules. The Commission seeks any evidence that providers are using kickbacks or other means to indirectly mark up such fees
ave effectively created a third-party entity with whom those providers share revenue that is passed through to consumers in the form of a third-party fee for single-call services. Marking up third-party fees, whether directly or indirectly, is prohibited under the Commission's rules. The Commission seeks any evidence that providers are using kickbacks or other means to indirectly mark up such fees. What is the best way for us to detect these types of practices? Should we, for example, require providers to include in their Annual Reports detailed information on all sources of revenue in connection with their inmate calling services operations and, if so, what specific additional data should the Commission require providers to submit? The Commission also invites comment on how the Commission should account for any revenue that providers receive from such arrangements in its rate cap calculations. For example, should the Commission reduce the amount that a provider may recover through per-minute rates and ancillary fees by the amount it receives from sharing arrangements with third parties? The Commission seeks comment on any additional modifications to the language in its current ancillary services rules that may be necessary to clarify what providers are permitted and not permitted to do with respect to ancillary services charges.
2. Necessary Adjustments to Data
52. The interstate rate caps the Commission proposes reflect certain adjustments to some provider data to correct for anomalies that would improperly skew its results and lead to unreasonably high interstate rate caps vis-à-vis rate caps that approximate the true costs of providing inmate calling service. The Commission seeks comment on these adjustments. Specifically, to calculate the return component of its costs, GTL uses what it refers to as the “invested capital of GTL.” That value equals the amount GTL's current owners paid in 2011 to purchase the company from its prior owners plus the amounts GTL paid for subsequent acquisitions
approximate the true costs of providing inmate calling service. The Commission seeks comment on these adjustments. Specifically, to calculate the return component of its costs, GTL uses what it refers to as the “invested capital of GTL.” That value equals the amount GTL's current owners paid in 2011 to purchase the company from its prior owners plus the amounts GTL paid for subsequent acquisitions. In December 2011, American Securities purchased GTL from Goldman Sachs Capital Partners and Veritas Capital Fund Management LLC for $1 billion, including a $50 million contingencies bonus. That purchase price significantly exceeded the $345 million that Goldman Sachs and Veritas had paid to purchase GTL in February 2011. Those amounts as a matter of basic financial theory reflect GTL's estimate of the future profit streams the company would generate as an ongoing concern in the provision of inmate calling services and the other services GTL provides incarcerated people. Consequently, these prices include any expected market rents embodied in those profit streams. “Market rents” refers to the stream of profits that a company expects to earn that it would not otherwise earn if faced with effective competitive market constraints. Use of GTL's invested capital as a basis for a regulated cost-based rate is inconsistent with the well-established principle that the purchase prices of companies that possess market power “are not a reliable or reasonable basis for ratemaking.”
53. The Commission proposes to reduce the costs reported by GTL by 10% in order to reduce or eliminate the distortion caused by the Commission's estimate of the market rents reflected in GTL's reported costs and to use those reduced costs in calculating its interstate rate caps for inmate calling services. The Commission adjusts its proposed interstate rate caps to reflect its reasoned estimate of the market rents captured in GTL's reported costs
ported by GTL by 10% in order to reduce or eliminate the distortion caused by the Commission's estimate of the market rents reflected in GTL's reported costs and to use those reduced costs in calculating its interstate rate caps for inmate calling services. The Commission adjusts its proposed interstate rate caps to reflect its reasoned estimate of the market rents captured in GTL's reported costs. As explained more fully in an Appendix, the Commission estimates those market rents by analyzing GTL's goodwill, as reported on its balance sheet. GTL's goodwill reflects the unamortized portion of excess purchase price and, presumably, market rents. This excess purchase price includes the value remaining after accounting for fair market values for tangible and intangible assets (excluding goodwill)
54. The Commission recognizes that additional measures may be needed to eliminate what appear to be other significant overstatements in the inmate calling services costs reported by GTL. Indeed, the Commission's analysis of the cost data from all providers makes clear that GTL's reported costs are likely significantly overstated—both vis-à-vis other providers and in absolute terms. First, the Commission's analysis shows that GTL's reported costs are substantially greater than the industry average, an anomalous result given that the Commission would expect GTL—as the largest provider in the inmate calling services market—to benefit from economies of scale and scope. The Commission notes that ICSolutions and CenturyLink have just filed section 214 transfer of control applications with the Commission whereby ICSolutions would acquire control of all of CenturyLink's inmate calling services business, except for the Texas Department of Corrections contract which CenturyLink subcontracts with Securus. GTL's reported share of the total costs reported by all providers of inmate calling services is roughly 1.5 times greater than its reported share of the industry's minutes of use
with the Commission whereby ICSolutions would acquire control of all of CenturyLink's inmate calling services business, except for the Texas Department of Corrections contract which CenturyLink subcontracts with Securus. GTL's reported share of the total costs reported by all providers of inmate calling services is roughly 1.5 times greater than its reported share of the industry's minutes of use. Indeed, GTL's per paid minute contract costs are higher than those of all but two of the other providers. This data is difficult to reconcile with GTL's scale and scope, and apparent efficiency, which suggest that GTL's per-minute costs should be lower than other provider's costs. Scale economies arise when certain upfront costs, such as inmate calling services platform costs, can be shared over increasing volumes of service. Consistent with this, GTL, in its 2018 Description and Justification, reports [REDACTED]% of its assets to be intellectual property. The costs of developing and maintaining such assets are generally not related to extension of supply of call minutes, and so as call minutes increase, the per minute share of these costs decline. Economies of scope arise when certain upfront costs, such as a payment platform, can be shared over increasing numbers of services, such as inmate calling services, commissary services, and tablet access and internet access. This again applies to GTL. While GTL may not face full competitive pressure when it bids to supply inmate calling services, it is the largest provider in the industry. This suggests it is a reasonably effective competitor, which in turn suggests it is not a high cost provider, and therefore, its reported costs are likely significantly overstated. Second, even after a 10% reduction, GTL is still an outlier among the larger providers, having a materially higher share of reported costs than minutes and with reported costs still substantially above the industry average
s suggests it is a reasonably effective competitor, which in turn suggests it is not a high cost provider, and therefore, its reported costs are likely significantly overstated. Second, even after a 10% reduction, GTL is still an outlier among the larger providers, having a materially higher share of reported costs than minutes and with reported costs still substantially above the industry average. While the reduction lowers GTL's average costs from [REDACTED] per minute, GTL's average costs remain [REDACTED] above the industry average per minute cost. Upon reducing GTL's costs by the proposed percentage, the industry average per minute cost falls from $0.089 to $0.084. Third, the highest per minute rates charged on many, including some large GTL contracts, are materially less than the Commission's estimate of the contract's per paid minute costs.
55. While some of this imbalance stems from GTL's inflated asset valuations, other aspects of GTL's Second Mandatory Data Collection response suggest that the company's costing methodology systematically overstated its inmate calling services costs. For example, the Second Mandatory Data Collection required all providers to identify their direct costs ( i.e., those costs that are completely attributable to a specific service, such as inmate calling services). GTL ignored this instruction and instead identified as direct inmate calling services costs only those costs “that could be directly attributable to a particular correctional facility contract.” This failure to comply with the instructions resulted in GTL incorrectly reporting as indirect inmate calling services costs its “expenses for originating, switching, transporting, and terminating ICS calls” and “costs associated with security features relating to the provision of ICS,” among other costs that appear to be completely attributable to and thus properly identifiable as direct costs of inmate calling services
ith the instructions resulted in GTL incorrectly reporting as indirect inmate calling services costs its “expenses for originating, switching, transporting, and terminating ICS calls” and “costs associated with security features relating to the provision of ICS,” among other costs that appear to be completely attributable to and thus properly identifiable as direct costs of inmate calling services. The net result of this failure is that GTL's only reported direct inmate calling services cost is its “bad debt expense.”
56. Viewed in isolation, GTL's noncompliance with the instructions could have merely shifted its inmate calling services costs from one contract to another, a result that would have no impact on GTL's total reported costs for inmate calling services. GTL's Second Mandatory Data Collection response, however, leaves open the possibility that the company also failed to properly identify the direct costs of its non-inmate calling services operations. In that case, then GTL's method of identifying its indirect inmate calling services cost—“multiplying its total indirect costs by a percentage received from ICS divided by its total revenue”—almost certainly overstated its inmate calling services costs. Indeed, allocating total company costs based on revenue is particularly inappropriate for a company, like GTL, that is not only expanding beyond a core business—inmate calling services—by investing in other lines of business, but that also reaps revenues from egregiously high intrastate rates that serve to increase the amount of indirect costs allocated to inmate calling services reported under this methodology.
57. In light of the impact that overstatements of this magnitude by one of the market's largest providers may have on its analysis, the Bureau has directed GTL to provide additional information regarding its operations, costs, revenues, and cost allocation procedures
te rates that serve to increase the amount of indirect costs allocated to inmate calling services reported under this methodology.
57. In light of the impact that overstatements of this magnitude by one of the market's largest providers may have on its analysis, the Bureau has directed GTL to provide additional information regarding its operations, costs, revenues, and cost allocation procedures. The information GTL files in response to this directive will be available to commenters, subject to the Protective Order in this proceeding. How should the Commission properly value GTL's assets in a manner that excludes all market rents? How should the Commission properly identify the direct costs of GTLs' inmate calling services and other operations? How should the Commission allocate GTL's indirect costs using methods that reflect how those costs are incurred? The Commission asks parties to address all aspects of GTL's responsive submission that may affect its ability to meaningfully evaluate GTL's cost data and methodology. The Commission also asks how the Commission should use the information in that submission in setting interstate rate caps for inmate calling services.
58. It also appears that other providers, notably Securus, may have also overstated their inmate calling services costs, although likely not to the same degree as GTL. The Commission invites each provider to reexamine its costing methodology in light of this Further Notice and to address in detail in its comments whether that methodology properly identifies and allocates its inmate calling services costs. Providers should also update their Second Mandatory Data Collection responses to correct any discrepancies.
3. Accounting for Correctional Facilities Costs
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Commission invites each provider to reexamine its costing methodology in light of this Further Notice and to address in detail in its comments whether that methodology properly identifies and allocates its inmate calling services costs. Providers should also update their Second Mandatory Data Collection responses to correct any discrepancies.
3. Accounting for Correctional Facilities Costs
59. The Commission's proposed interstate rate caps of $0.14 per minute for prisons and $0.16 per minute for jails include $0.02 per minute to account for the costs correctional facilities incur that are directly related to the provision of inmate calling services and that represent a legitimate cost for which providers of inmate calling services may have to compensate facilities. This $0.02 per-minute allowance reflects its analysis of data submitted in response to the Second Mandatory Data Collection. The Second Mandatory Data Collection indicates that payments in excess of $0.02 per minute would exceed the costs correctional facilities incur in the provision of inmate calling services. Nevertheless, the Commission recognizes that for contracts covering only smaller jails, the facility costs at these particular facilities may exceed $0.02 per minute. The Commission therefore considers adopting higher allowances for correctional facility costs for such contracts if the record in response to this Further Notice supports such allowances. The Commission invites comment on these proposals.
60. Background. Site commissions are payments that inmate calling services providers make to correctional facilities. They have two components. They compensate correctional facilities for the costs they reasonably incur in the provision of inmate calling services, and they compensate those facilities for the transfer of their market power over inmate calling services to the inmate calling services provider
round. Site commissions are payments that inmate calling services providers make to correctional facilities. They have two components. They compensate correctional facilities for the costs they reasonably incur in the provision of inmate calling services, and they compensate those facilities for the transfer of their market power over inmate calling services to the inmate calling services provider. That market power is created by incarcerated people's inability to choose an inmate calling services provider other than the provider the correctional facility selects, effectively creating a monopoly for inmate calling services within a prison or jail. This dynamic produces site commission payments that exceed correctional facilities' costs. The responses to the Second Mandatory Data Collection show that inmate calling services providers paid [REDACTED] in site commissions which amounts to [REDACTED] of total inmate calling services-related revenues in 2018. The record in previous proceedings and the First Mandatory Data Collection also showed high site commission payments. In the 2013 ICS Order, the record showed that site commission payments are often based on a percentage of revenues, which could range from 20% to 88%. Data from the First Mandatory Data Collection showed that site commissions for at least one contract had reached as much as 96% of gross revenues.
61. Allowing inmate calling services providers to treat all their site commission payments as “costs” would almost inevitably result in unjust and unreasonably high rates for incarcerated individuals and their loved ones to stay connected. Prior to 2016, the Commission viewed these payments solely as an apportionment of profits between providers and facility owners even though it recognized some portion of them may be attributable to legitimate facility costs
ir site commission payments as “costs” would almost inevitably result in unjust and unreasonably high rates for incarcerated individuals and their loved ones to stay connected. Prior to 2016, the Commission viewed these payments solely as an apportionment of profits between providers and facility owners even though it recognized some portion of them may be attributable to legitimate facility costs. In the 2016 ICS Reconsideration Order, however, the Commission recognized that “some facilities likely incur costs that are directly related to the provision of ICS,” and determined that “it is reasonable for those facilities to expect ICS providers to compensate them for those costs . . . [as] a legitimate cost of ICS that should be accounted for in [the] rate cap calculations.” The Commission therefore increased the rate caps it had adopted in 2015 to allow for the recovery of the facilities' legitimate costs. Because the qualitative record before it indicated that those per-minute costs increased as facilities' inmate populations decreased, the Commission varied its allowance for site commission payments based on correctional facilities' average daily populations. The rate caps for prepaid/debit inmate calling services calls were increased to “$0.31 per minute for jails with an average daily population (ADP) below 350, $0.21 per minute for jails with an ADP between 350 and 999, $0.19 per minute for jails with an ADP of 1,000 or more, and $0.13 per minute for prisons.” The Commission also increased the rate caps for collect calls by a commensurate amount. The Commission based these adjustment factors on comments and information provided in the record at that time but did not base its adjustments on an analysis of provider-submitted data as the Commission does herein.
62. In 2017, the D.C
or jails with an ADP of 1,000 or more, and $0.13 per minute for prisons.” The Commission also increased the rate caps for collect calls by a commensurate amount. The Commission based these adjustment factors on comments and information provided in the record at that time but did not base its adjustments on an analysis of provider-submitted data as the Commission does herein.
62. In 2017, the D.C. Circuit held that the “wholesale exclusion of site commission payments from the FCC's cost calculus” in the 2015 ICS Order was “devoid of reasoned decision-making and thus arbitrary and capricious.” The court therefore vacated the Commission's decision to exclude site commission payments from its cost calculus and remanded the matter to the Commission for further consideration.
63. Allowance for Reasonable Correctional Facility Costs. Consistent with the D.C. Circuit's opinion in GTL v. FCC, 250 the Commission proposes to include an allowance for site commission payments in the interstate rate caps to the extent those payments represent legitimate correctional facility costs that are directly related to the provision of inmate calling services. The $0.02 per minute that the Commission proposes reflects its analysis of the costs correctional facilities incur that are directly related to providing inmate calling services and that the facilities recover from inmate calling services providers as reflected by comparing provider cost data for facilities with and without site commission requirements. This analysis treats any costs associated with site commission payments as correctional facility costs, and not inmate calling services provider costs. The Commission requests comment on this analysis, which is discussed in more detail in an Appendix
ver from inmate calling services providers as reflected by comparing provider cost data for facilities with and without site commission requirements. This analysis treats any costs associated with site commission payments as correctional facility costs, and not inmate calling services provider costs. The Commission requests comment on this analysis, which is discussed in more detail in an Appendix. Does it properly capture the costs that providers should reasonably be expected to pay correctional facilities to cover the costs those facilities reasonably incur in connection with interstate inmate calling services? If not, how should the Commission adjust its analysis? Should we, for example, vary the allowance for reasonable correctional facility costs based on a facility's average daily population, annual minutes of use, or other measure of expected calling volume? The Commission asks correctional facilities to provide detailed information concerning the specific costs they incur in connection with the provision of interstate inmate calling services, to the extent those costs are not already reflected in providers' costs, and why those costs should be considered directly related to the provision of inmate calling services. The Commission also seeks alternative analyses that explain whether a $0.02 per-minute allowance would properly cover those correctional facility costs that are legitimately related to inmate calling services. The Commission similarly seeks comment on whether the Commission should reduce the allowance for prisons to $0.01 based on the analysis reflecting the differential of providers' costs with and without a site commission obligation for prison facilities.
64. The Commission also invites comment on whether a $0.02 per minute allowance would be adequate to cover the costs that smaller jails incur in
65. In GTL v. FCC, the D.C. Circuit directed that the Commission address on remand the issue of whether “the exclusion of site commissions . .
g the differential of providers' costs with and without a site commission obligation for prison facilities.
64. The Commission also invites comment on whether a $0.02 per minute allowance would be adequate to cover the costs that smaller jails incur in
65. In GTL v. FCC, the D.C. Circuit directed that the Commission address on remand the issue of whether “the exclusion of site commissions . . . violates the Takings Clause of the Constitution because it forces providers to provide services below cost.” The Commission does not believe that there are any potential taking concerns arising from its rate cap proposals. The Commission has not received any post-remand comments addressing the takings issue with respect to adopting permanent interstate rate caps. The Commission did, however, receive a single comment from an inmate calling services provider in response to the Worth Rises Request that inmate calling services providers offer “unlimited free service” during COVID-19 in the event ICS providers did not sign the Chairman's Keep America Connected Pledge. The “takings” reference in that response, however, pertained to a request that providers offer service with no compensation, unlike the actions proposed herein where the Commission proposes just and reasonable rate caps that include recovery for facility provider costs, based on providers' reported costs. Inmate calling services providers' payment of site commissions is consistent with agreements between other types of payphone providers and property owners
to a request that providers offer service with no compensation, unlike the actions proposed herein where the Commission proposes just and reasonable rate caps that include recovery for facility provider costs, based on providers' reported costs. Inmate calling services providers' payment of site commissions is consistent with agreements between other types of payphone providers and property owners. Because “many of the payphone locations are controlled by owners that can limit the entry of competing payphones,” the property owners “attempt to limit entry to increase the profitability of payphones and then demand at least a share of the profits in the form of a location rent.” The Commission has acknowledged that, as a result of the dynamic between payphone operators and property owners, the Commission would “not expect to see money-losing payphones[.]” Because site commissions are part of voluntary, negotiated agreements between inmate calling services providers and the correctional facilities they serve, the Commission similarly dies not expect inmate calling services providers to be forced to provide services at a loss, provided that the rate caps allow them to recover their actual costs plus a reasonable opportunity for profit. Here, the Commission's proposed rate caps include an allowance of $0.02 per minute, as indicated above, to account for correctional facility costs included in reasonable site commissions; thus they reflect the actual costs of providing service as reported by providers in the record, plus a reasonable opportunity for profit. Because the Commission's proposed rate caps allow the correctional facility and the inmate calling services provider to recover all of their costs that are reasonably related to the provision of inmate calling services plus a reasonable opportunity for profit, there is no concern that the proposed rate caps violate the Takings Clause. The Commission seeks comment on these views.
66. The Public Interest Advocates assert that, in GTL v. FCC, the D.C
correctional facility and the inmate calling services provider to recover all of their costs that are reasonably related to the provision of inmate calling services plus a reasonable opportunity for profit, there is no concern that the proposed rate caps violate the Takings Clause. The Commission seeks comment on these views.
66. The Public Interest Advocates assert that, in GTL v. FCC, the D.C. Circuit “did not consider several important factors in the FCC's decision-making, including decades of consistent competition policy excluding locational monopoly payments from rates . . . and repeated FCC decisions to preempt state and local rules or contract provisions that the FCC finds are anti-competitive . . . .” To ensure a complete record, the Commission seeks comment on this view. Notwithstanding the Commission's decision in 2016 recognizing that some portion of site commissions reflect legitimate facility costs related to the provision of inmate calling services, the Commission seeks comment on whether including an allowance for correctional facility costs in its rate caps will have adverse competitive effects that the Commission should consider. If so, what are those effects?
67. The Commission seeks comment on what types of correctional facility costs should properly be recovered through the rates that consumers pay for inmate calling services. Commenters are encouraged to provide detailed responses, describing with specificity which types of correctional facility costs they contend should, or should not be, recovered through those rates. The Commission asks, in particular, whether correctional facilities' security and surveillance costs in connection with inmate calling services should be recovered through inmate calling services rates. As the Public Interest Advocates point out, correctional facilities do not pass on the costs of other types of security measures, such as scrutinizing mail, to incarcerated people or their families
The Commission asks, in particular, whether correctional facilities' security and surveillance costs in connection with inmate calling services should be recovered through inmate calling services rates. As the Public Interest Advocates point out, correctional facilities do not pass on the costs of other types of security measures, such as scrutinizing mail, to incarcerated people or their families. Given this, to what extent, if at all, should security and surveillance costs be recovered through inmate calling services rates, particularly in light of the D.C. Circuit's decision in GTL v. FCC ?
4. Waiver Process for Outliers
68. The Commission proposes to adopt a waiver process that permits inmate calling services providers to seek waivers on a facility-by-facility or contract basis if the rate caps adopted by the Commission pursuant to this Further Notice would prevent the provider from recovering the costs of providing interstate inmate calling services at that facility or at the facilities covered by that contract. The Commission seeks comment on this proposal. Since first adopting interstate rate caps in the 2013 ICS Order, the Commission has permitted an inmate calling services provider to file a petition for waiver if it believed it could not recover its costs under the Commission-adopted rate caps. The Commission has required that, for “substantive and administrative reasons, waiver petitions would be evaluated at the holding company level.” The Commission proposes to revise the waiver process so that it must be evaluated at a facility or contract level. The Commission seeks further comment on administering the waiver process to address cost recovery on a facility or contract basis. In particular, are there ways to decrease the administrative burdens of processing such requests on a facility or contract basis?
69
ing company level.” The Commission proposes to revise the waiver process so that it must be evaluated at a facility or contract level. The Commission seeks further comment on administering the waiver process to address cost recovery on a facility or contract basis. In particular, are there ways to decrease the administrative burdens of processing such requests on a facility or contract basis?
69. The Commission proposes that a provider seeking a waiver of its interstate rate caps must demonstrate, through the submission of reliable, accurate, and transparent cost, demand, and revenue data, including data on any ancillary services it provides, that it will be unable to recover its costs for each facility or contract for which a waiver is sought. At a minimum, the Commission proposes that a provider seeking such a waiver be required to submit, among other information: (a) The providers' total company costs, including the original costs of the assets it uses to provide inmate calling services at the facility or under the contract; (b) the provider's methods for identifying its direct costs and for allocating its indirect costs among its various operations, contracts, and facilities; (c) the revenue the provider receives from interstate inmate calling services, including the portion of any permissible ancillary services fees attributable to interstate inmate calling services at the contract and facility level; (d) an unredacted copy of the contract with the correctional facilities and any amendments to such contract; and (e) a copy of the initial request for proposals
70. The Commission also proposes to require that the provider explain why circumstances associated with that facility or contract differ from other similar facilities it serves, and from other facilities within the same contract, if applicable
unredacted copy of the contract with the correctional facilities and any amendments to such contract; and (e) a copy of the initial request for proposals
70. The Commission also proposes to require that the provider explain why circumstances associated with that facility or contract differ from other similar facilities it serves, and from other facilities within the same contract, if applicable. Finally, the Commission proposes to require a company officer with knowledge of the underlying information to attest to the accuracy of all of the information the provider submits in support of its waiver request. The Commission seeks comment on these proposals.
71. Consistent with its past waiver process for inmate calling services, the Commission proposes to direct the Bureau to rule on such petitions for waiver, and to seek any additional information as needed. The Commission also proposes to direct the Bureau to endeavor to complete its review of any such petitions within 90 days of the provider's submission of all information necessary to justify such a waiver, although the Bureau may extend this timeframe for good cause. The Commission proposes that, if a provider carries its burden of demonstrating that its rate caps are insufficient to cover the costs it incurs to serve a particular facility, the Bureau would waive the otherwise applicable rate cap and allow the provider to charge a rate sufficient to allow the provider an opportunity to recover its costs of providing interstate inmate calling services at that facility. The Commission seeks comment on this proposed approach and on the proposed remedies. The Commission also seeks comment on whether there are alternative procedures that would more efficiently facilitate the effective operation of the waiver process.
5. Consistency With Section 276 of the Act
72
an opportunity to recover its costs of providing interstate inmate calling services at that facility. The Commission seeks comment on this proposed approach and on the proposed remedies. The Commission also seeks comment on whether there are alternative procedures that would more efficiently facilitate the effective operation of the waiver process.
5. Consistency With Section 276 of the Act
72. Section 276(b)(1)(A) of the Act requires that the Commission “ensure that all payphone service providers are fairly compensated for each and every completed intrastate and interstate call.” In this Further Notice, the Commission proposes to adopt rules that satisfy this statutory mandate by setting rate caps for interstate calls that generate sufficient revenue for such calls (including any ancillary fees attributable to those calls) that (1) allow the provider to recover from those calls the direct costs of that call and (2) reasonably contribute to the provider's indirect costs related to inmate calling services. This approach would recognize that inmate calling services contracts typically apply to multiple facilities and that inmate calling services providers do not expect each call to make the same contribution toward indirect costs. The Commission invites comment on this proposal.
73. In the 2015 ICS Order, the Commission set tiered rate caps, applicable to both interstate and intrastate inmate calling services using industry-wide average costs derived from inmate calling services providers' responses to the First Mandatory Data Collection. In GTL v. FCC, the D.C. Circuit rejected as “patently unreasonable” the Commission's “averaging calculus” in setting the 2015 rate caps. The court explained that the Commission erred in setting rate caps using industry average costs, because calls with above-average costs would be “unprofitable,” in contravention of the “mandate of § 276 that `each and every' inter- and intrastate call be fairly compensated.”
74
e D.C. Circuit rejected as “patently unreasonable” the Commission's “averaging calculus” in setting the 2015 rate caps. The court explained that the Commission erred in setting rate caps using industry average costs, because calls with above-average costs would be “unprofitable,” in contravention of the “mandate of § 276 that `each and every' inter- and intrastate call be fairly compensated.”
74. The Commission finds that its proposed rules are consistent with GTL v. FCC in this regard. Though the D.C. Circuit found that the Commission's averaging calculus did not comport with the fair compensation mandate under section 276, this finding does not mean that each and every completed call must make the same contribution to a provider's indirect costs. Instead, compensation is fair if each call “recovers at least its incremental costs, and no one service recovers more than its stand-alone cost.” The Commission's proposed rate methodology, as detailed in an Appendix, is consistent with this approach. As the Commission recognized in the 2002 ICS Order, the “lion's share of payphone costs are those that are `shared' or `common' to all services,” and there are “no logical or economic rules that assign these common costs to `each and every call.' ” As a result “a wide range of compensation amounts may be considered `fair.' ” The Commission seeks comment on this view. Is compensation “fair” if inmate calling services providers can recover their direct costs for a given call and receive a reasonable contribution to their indirect costs? Why or why not? Can inmate calling services providers assign indirect or common costs for each and every call? If so, how? Commenters arguing that indirect costs can be assigned to each call must provide data regarding how that assignment can be done and a justification for why a given allocation is reasonable.
75
ts for a given call and receive a reasonable contribution to their indirect costs? Why or why not? Can inmate calling services providers assign indirect or common costs for each and every call? If so, how? Commenters arguing that indirect costs can be assigned to each call must provide data regarding how that assignment can be done and a justification for why a given allocation is reasonable.
75. The Commission has estimated that more than 99% of existing contracts for both prisons and jails would recover their reported costs at its proposed rates, even accepting all the providers' costs submissions at face value with no adjustments. To the extent that the Commission's proposed rates would make it impossible in the unusual case where a contract was not able to recover its costs, providers may avail themselves of the Commission's waiver process. Moreover, the record in this proceeding strongly suggests that inmate calling services providers do not, in fact, expect that each call or even facility will make a contribution to their indirect costs. This is evidenced most acutely by the fact that providers largely fail to even record their costs on anything less than a contract basis, often where multiple facilities exist under one contract. For example, CenturyLink reports its inmate calling services cost data “by correctional system,” explaining that “each facility within that correction[al] system reflects the costs developed for serving that contract.” This evidence suggests that CenturyLink bids for contracts covering multiple facilities within a single correctional system, offering service at a single rate for all of those facilities, even though they may have different costs. Thus, the company does not expect to make the same profit from each facility or expect each call to contribute equally to CenturyLink's indirect costs
ng that contract.” This evidence suggests that CenturyLink bids for contracts covering multiple facilities within a single correctional system, offering service at a single rate for all of those facilities, even though they may have different costs. Thus, the company does not expect to make the same profit from each facility or expect each call to contribute equally to CenturyLink's indirect costs. Similarly, Securus explains that its “accounting systems track costs as a company, and not on a customer or facility level” but that “facility-specific costs are taken from a separate data base used to track profits and losses for each site.” And the assertion that Securus tracks costs “as a company” rather than on a customer or facility level strongly suggests that Securus, like other providers, bids for contracts, rather than specific facilities, with the idea that the company will profit from the contract as a whole but will not make the same amount from each facility or each call. It also appears that inmate calling services providers bid on contracts covering multiple facilities and offer a single interstate rate for calls from those facilities even though the provider may incur different costs to serve various facilities covered by a single contract. Do commenters agree? What factors do providers of inmate calling services consider in bidding on contracts, particularly contracts covering more than one facility? The Commission seeks comment on this issue and on whether commenters agree that its proposed rate caps would meet the fair
6. Cost-Benefit Analysis
76. The Commission proposes to find that, independent of its statutory obligation, the benefits of its interstate rate cap proposal (reducing its current caps on interstate inmate calling rates to $0.14 per minute for prisons and $0.16 per minute for jails) exceeds the costs at least five-fold
on whether commenters agree that its proposed rate caps would meet the fair
6. Cost-Benefit Analysis
76. The Commission proposes to find that, independent of its statutory obligation, the benefits of its interstate rate cap proposal (reducing its current caps on interstate inmate calling rates to $0.14 per minute for prisons and $0.16 per minute for jails) exceeds the costs at least five-fold. Specifically, the Commission expects an increase in interstate inmate call volumes elicited by lowered rates would conservatively generate approximately $7 million in direct benefits due to expanded call volumes, primarily to the benefit of incarcerated people, their families, and friends. The Commission also expects resulting expanded call volumes to reduce recidivism, which will in turn reduce prison operating costs, foster care costs, and crime. The Commission estimates these secondary benefits to well-exceed $23 million. The Commission estimates the one-time cost of implementing the interstate rate cap changes to be $6 million. The Commission seeks comment on these estimates.
77. Expected Benefits of Expanded Call Volumes. To estimate the benefits of its proposed lower rates the Commission estimates how many call minutes are currently made at prices above those rates, the price decline on those call minutes that moving to its rates would imply, and the responsiveness of demand to a change in price. The Commission estimates, in 2018, approximately 592 million interstate prepaid and debit minutes and 3.3 million interstate collect minutes were made to or from prison individuals incarcerated in prisons at rates above its proposed caps, and approximately 453 million interstate prepaid and debit minutes and 2 million interstate collect minutes were made to and from individuals incarcerated in jails at rates above its proposed caps. The Commission used rate information from the 2019 Annual Reports and interstate minutes from the Second Mandatory Data Collection
n individuals incarcerated in prisons at rates above its proposed caps, and approximately 453 million interstate prepaid and debit minutes and 2 million interstate collect minutes were made to and from individuals incarcerated in jails at rates above its proposed caps. The Commission used rate information from the 2019 Annual Reports and interstate minutes from the Second Mandatory Data Collection. These estimates are calculated as the difference between total interstate minutes in each category and the equivalent interstate minutes from nine states—Alaska, Delaware, Hawaii, Maryland, New Mexico, Texas, Vermont, Washington, and West Virginia—where either the rates of some important contracts are below the caps the Commission proposes, or all of the rates are below the caps the Commission proposes. These estimates likely understate the number of interstate minutes with rates that exceed the proposed caps because the Commission excludes from its calculations many contracts which have rates in excess of its proposed rates, even if in some cases the Commission includes those relatively rare contracts with rates below its proposed rates. The Commission estimates prices for those call minutes decline by half of the difference between its current caps and its proposed caps. Its current interim rate caps are $0.21 for debit and prepaid calls and $0.25 for collect calls. Its proposed rates imply the following price declines from these rates: For prison debit and prepaid calls, 33% (= ($0.21−$0.14)/$0.21); for prison collect calls, 44% (= ($0.25−$0.14)/$0.25); for jail debit and prepaid calls, 24% (= ($0.21−$0.16)/$0.21); and for prison collect calls, 36% (= ($0.25−$0.16)/$0.25). To allow for contracts with rates below the current caps, the Commission assumes inmate calling services rates fall only one-half the difference between the existing rate caps and the proposed caps
(= ($0.21−$0.14)/$0.21); for prison collect calls, 44% (= ($0.25−$0.14)/$0.25); for jail debit and prepaid calls, 24% (= ($0.21−$0.16)/$0.21); and for prison collect calls, 36% (= ($0.25−$0.16)/$0.25). To allow for contracts with rates below the current caps, the Commission assumes inmate calling services rates fall only one-half the difference between the existing rate caps and the proposed caps. Finally, the Commission estimates, relying on a price elasticity of demand at the lower end of those estimated for interstate calling, a price elasticity of demand at the lower end of those estimated for interstate calling: That for each percentage point drop in rates, inmate calling services demand will increase by 0.2%. The Commission assumes a price elasticity of −0.2. This estimate comes from the most recent data available to us and is conservative relative to most other estimates the Commission reviewed. On the one hand, this is likely an understatement because on average incarcerated individuals and their families and friends have lower incomes than the general population. On the other hand, inmates may not be fully able to respond to lower prices given limits on making calls. For example, call lengths are often limited to 15 or 20 minutes (based on staff analysis of the Second Mandatory Data Collection). Under these assumptions, the Commission estimates annual benefits of approximately $1 million, or a present value over ten years of approximately $7 million. The present value of a 10-year annuity of $1 million at a 7% discount rate is approximately $7 million. The Office of Management and Budget recommends using discount rates of 7% and 3%. Erring on the side of understatement, the Commission uses the 7% rate. Additionally, even at current demand levels, the Commission estimates the cost savings to incarcerated individuals, their families, and friends, from lower calling rates alone, to be $32 million per year or $225 million in present value terms over 10 years
e of Management and Budget recommends using discount rates of 7% and 3%. Erring on the side of understatement, the Commission uses the 7% rate. Additionally, even at current demand levels, the Commission estimates the cost savings to incarcerated individuals, their families, and friends, from lower calling rates alone, to be $32 million per year or $225 million in present value terms over 10 years. The Commission notes this benefit is not a “net” benefit, however, given that it is offset for purposes of its analysis by the loss of the inmate calling service industry of $218 million in revenues in present value terms over 10 years.
78. The Commission also expects greater call volumes to reduce recidivism, generating further benefits well in excess of $23 million. It is well established that family-to-incarcerated individual contact reduces recidivism. Although the Commission does not know exactly how much increased telephone contact would reduce recidivism among incarcerated individuals, savings of more than $3 million per year, or more than $20 million over 10 years in present value terms, would result if only 100 fewer individuals were incarcerated due to recidivism each year. Approximately $33,274 per year would be saved for every case of recidivism avoided, or $3.3 million per year for 100 cases avoided. The average annual cost of incarceration for federal inmates was a comparable $34,704 in Fiscal Year 2016. One hundred fewer cases of recidivism in each year would represent approximately 0.02% of those released from prison each year, a negligible decline in the recidivism rate. To allow for releases to continue to exceed admissions, the calculation assumes that 500,000 persons are released every year. In 2018, approximately 600,000 persons were admitted to prison. The present value of a ten-year annuity of $3.3 million at a discount rate of 7% is approximately $23.2 million. Other savings would also be realized, for example, through reduced crime, and fewer children being placed in foster homes
continue to exceed admissions, the calculation assumes that 500,000 persons are released every year. In 2018, approximately 600,000 persons were admitted to prison. The present value of a ten-year annuity of $3.3 million at a discount rate of 7% is approximately $23.2 million. Other savings would also be realized, for example, through reduced crime, and fewer children being placed in foster homes. The potential scale of fiscal saving—in addition to the immense social benefits—is suggested by the fact that administrative and maintenance costs incurred by state and local governments average $25,782 per foster placement. The Commission seeks comment on these expected societal cost reductions.
79. Costs of Reducing Rates for Interstate Inmate Calling Services Calls. The costs of reducing rates for interstate inmate calling services calls are likely to be modest for providers, estimated at approximately $6 million. Including the Federal Bureau of Prisons and Immigration and Customs Enforcement, approximately 3,000 inmate calling services contracts would need to be revised if the Commission were to adopt its proposed rules, and a smaller number of administrative documents
80. The Commission also recognizes that lowering per-minute rates could result in lower investment because a substantial proportion of industry costs do not vary with minutes carried, but must be covered. The Commission does not expect, however, reduced investment to be a significant concern, however, given its findings that the proposed rates would more than recover efficient total costs of operation. The Commission seeks comment on this view.
81. Summary of Benefits and Costs. On net, the Commission estimates that the actions the Commission proposes today would result in benefits which far exceed their costs. While the Commission identifies a range of benefits, for the purposes of a cost benefit analysis, the Commission only quantifies the direct benefits from some of these
sts of operation. The Commission seeks comment on this view.
81. Summary of Benefits and Costs. On net, the Commission estimates that the actions the Commission proposes today would result in benefits which far exceed their costs. While the Commission identifies a range of benefits, for the purposes of a cost benefit analysis, the Commission only quantifies the direct benefits from some of these. Looking out only ten years, the conservative estimate of these benefits alone is approximately $30 million in present value terms. The Commission expects other substantial benefits due to reduced recidivism. By contrast, the Commission conservatively estimates the high side of costs of its actions to be approximately $6 million. The Commission seeks comment on ways to improve these estimates, including how to quantify any indirect or secondary benefits the Commission unable to quantify here, as well as on any additional costs and benefits of its proposed actions that the Commission has not considered.
B. Proposing International Rate Caps
82. The Commission proposes to establish a rate cap formula that inmate calling services providers must use in setting the maximum permissible per-minute rates for international inmate calling services. The Commission seeks comment on its proposal to cap international inmate calling service rates. In the 2015 ICS Further Notice, the Commission sought specific comment on whether and how to reform rates for international inmate calling services, including on extending its domestic inmate calling service rate caps to international inmate calling service calls. The Commission has also collected international inmate calling service rate and cost data from inmate calling services providers, including in annual reports and the Second Mandatory Data Collection.
83. There is no question that the Commission has authority to adopt rate caps for international inmate calling services pursuant to section 201(b) of the Act
ernational inmate calling service calls. The Commission has also collected international inmate calling service rate and cost data from inmate calling services providers, including in annual reports and the Second Mandatory Data Collection.
83. There is no question that the Commission has authority to adopt rate caps for international inmate calling services pursuant to section 201(b) of the Act. Moreover, while the record on the need for international inmate calling service reform is mixed, the Commission's most recent data reflecting international calling rates for many inmate service providers convinces the Commission such reform is needed. Some commenters have urged the Commission to regulate international inmate calling services rates, arguing that the Commission has the authority and obligation to ensure just and reasonable rates. Another party has claimed that international calling is such a small percentage of inmate calling that it need not be regulated.
84. Calculating International Rate Caps. The Commission proposes to adopt a rate cap formula for international inmate calling services calls that permits a provider to charge a rate up to the sum of the inmate calling services provider's per-minute interstate rate cap for that correctional facility plus the amount that the provider must pay its underlying international service provider for that call on a per-minute basis (without a markup). This allowance for international transmission capability would exclude any amount that is rebated to, or otherwise shared with, the inmate calling services provider. The Commission seeks comment on this proposal. Its proposal is designed to enable the provider to recover the full costs of the international telephone service it is essentially reselling to the inmate calling services consumer, plus the cost it incurs to make that service available to persons incarcerated in that facility
rebated to, or otherwise shared with, the inmate calling services provider. The Commission seeks comment on this proposal. Its proposal is designed to enable the provider to recover the full costs of the international telephone service it is essentially reselling to the inmate calling services consumer, plus the cost it incurs to make that service available to persons incarcerated in that facility. As a result, the Commission believes this international rate cap would be just and reasonable under section 201(b) of the Act and would enable inmate calling services providers to account for the widely varying costs and associated international rates they are charged by their wholesale suppliers of international calling capability. The Commission seeks comment on this view.
85. The Commission believes its proposal has the benefit of simplicity and ease of administrability. It would allow inmate calling services providers to recover the additional costs they incur to resell international calling services, yet should result in substantial reductions in international calling rates for incarcerated individuals and their families based on what many providers report for certain international calling rates in their latest Annual Reports. Additionally, it would account for the varied international rates identified by some commenters, and enable providers to charge higher international calling services rates than charged for domestic calls to the extent international settlement rates and foreign termination rates make the costs to transport and terminate international calls higher than those for domestic calls. The Commission seeks comment on this proposed approach
r the varied international rates identified by some commenters, and enable providers to charge higher international calling services rates than charged for domestic calls to

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FR_PRORULE_2020-19954. Check the current official text before relying on it. Not legal advice.