U.S. Cap on Prison Call Prices to Hit Private Equity Firms

  • Securus, Global Tel*Link brace for new rate limits from FCC
  • A 15-minute call to a relative in jail can cost up to $6

Families paying a combined $1 billion a year to stay in contact with inmates can expect some relief as the U.S. set new limits on what regulators call the “exorbitantly high rates” phone companies charge.

The Federal Communications Commission voted 3-2 at its monthly meeting Thursday to limit charges for inmate calls, after saying high rates isolate prisoners, erode family ties and increase the chance of repeat incarceration. A 15-minute call can cost as much as $6, according to civil rights groups calling for new limits.

Commissioner Mignon Clyburn, a Democrat, called prison phone rates the result of a “predatory failed market regime.”

“None of us would consider ever paying $500 a month for a voice-only service where calls are dropped for seemingly no reason, where fees and commissions could be as high at 60 percent per call and, if we are not careful, where a four-minute call could cost us a whopping $54,” Clyburn said.

The win for inmate families may be a double loss for a prison-phone industry dominated by private equity-backed firms. The companies will not only collect less per call, but they lost their bid to bar prisons and jails from charging them commissions to access their captive markets.

Jailer’s Dilemma

Some sheriffs say rate caps will squeeze commissions, which in turn could force reductions in service as jailers lose a way to pay for monitoring calls and escorting inmates to phone banks.

“The jailer is stuck with really a Hobbesian choice,” said Jonathan Thompson, executive director of the National Sheriffs’ Association. “Do I provide the service with no budget, no ability to recoup my costs? Or do I not offer service. Let me tell you -- as sure as God makes green apples, there will be a lot of sheriffs who won’t offer service."

The prison-phone companies still will be able to share revenue to help corrections officials cover costs, said Lee Petro, an attorney for advocates seeking reduced charges.

‘B’ Rating

Lowering rates without limiting commissions is “borderline catastrophic,” Brian Oliver, chief executive officer of the inmate-calling leader Global Tel*Link Corp., said in an interview. He called commissions “the equivalent of a regressive tax on families” and a prime reason for high calling rates.

Global Tel*Link, owned by New York-based American Securities LLC, and Securus Technologies Inc., owned by Boston-based Abry Partners, said in a filing that paying the commissions can double their costs. The companies are already getting hit by the impact of the FCC ruling: On Oct. 8, they were placed under a warning of a possible one-level credit downgrade from Standard & Poor’s Ratings Services, reflecting uncertainty resulting from the FCC’s proposal.

The FCC vote creates “significant financial instability in the industry,” Global Tel*Link said in an e-mailed statement. Securus Chief Executive Officer Richard Smith said the 
FCC made a “colossal error in judgment.”

An FCC order to cap rates without reducing or eliminating commissions could materially hurt profitability for each company and force them to renegotiate contracts with jails and prisons, S&P said. Reston, Virginia-based Global Tel*Link and Dallas-based Securus each carry a ‘B’ rating, S&P said.

The companies may be able to make up revenue after rates drop because call volume may increase, Standard & Poor’s said.

The FCC in 2013 capped rates for calls across state lines; the proposal to be voted Thursday would extend limits to all inmate calls. The agency in its proposal “strongly discourages” site commissions, according to a summary released in September.

The proposal comes from Clyburn and Chairman Tom Wheeler and was also supported by five-member agency’s third Democrat, Jessica Rosenworcel, who called the matter “a broader issue of social justice.” Both Republican FCC members voted "no," saying the agency lacked authority for the restrictions.

40% Drop

The cap voted Thursday would decrease average rates 40 percent, to no more than
$1.65 for a 15-minute call, the FCC said. The rate of 11 cents a minute
compares with the 21 cents-per-minute maximum for interstate calls set in 2013,
the agency said earlier.

Despite the FCC’s 2013 vote, rates have continued to climb, mainly due to commission payments that can be as high as 96 percent of revenue, the agency said in a notice. It said commissions subsidize everything from inmate welfare programs to salaries and benefits for correctional facilities, states’ general revenue funds and personnel training.

California sheriffs worry that rates mandated by the FCC will be too low to let phone companies reimburse jails for costs such as monitoring inmate calls, as well as pay into a welfare fund for services such as education and counseling, said Cory Salzillo, legislative director for the California State Sheriffs’ Association.

“The rate proposed may not allow for all of the things that come out of it,” Salzillo said.

Little Sympathy

Such arguments find little sympathy among proponents of lowering calling rates, who have petitioned the FCC for more than a decade.

Service providers offer high commissions because they fear a competitor will offer to pay even higher fees, Petro, attorney for the Martha Wright petitioners, said in a filing. The group is named for Martha Wright, a Washington, D.C., grandmother who struggled to stay in touch with an incarcerated grandson, and who petitioned for lower rates before dying this year.

Securus and Global Tel*Link told the FCC that leaving commissions unregulated threatens “irreparable, immediate harm.” They proposed an “admin-support payment” in addition to the FCC’s proposed rates.

A telephone call to Abry Partners wasn’t returned and Russell Roberts, a Securus spokesman, didn’t return a telephone call and e-mail.

Securus and Global Tel*link together controlled more than three-fourths of the $1.2 billion inmate telecommunications market last year, according to Standard & Poor’s.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE