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HRDC/PLN quoted about upcoming action by FCC on prison phone rates and commissions, Oct. 21, 2015.

FCC Treads Lightly In Lowering Rates For Inmate Phone Calls

By Margaret Harding

Law360, Washington (October 20, 2015, 9:56 PM ET) -- The Federal Communications Commission will take up a proposal Thursday to slash the rates inmates are charged for phone calls from jail, but experts say the agency is skirting the larger issue of whether it has the authority to decide whether prisons can demand payment from service providers.

So far, the FCC plans only to discourage the payments to the facilities, known as site commissions, which have been singled out as the biggest factor in raising rates for inmates' phone calls. The proposal will cut average call rates in half, but inmate calling services providers say they still will be on the hook for payments promised to jails and prisons in order to win the contracts.

The largest providers are already threatening litigation if the agency doesn’t do more than discourage the commissions, and other observers have wondered why the agency is holding back on the issue based on jurisdiction concerns.

“The FCC has never really shied away from expansive views of its jurisdiction, so it’s odd to me that on this fight they would tread lightly,” said Allison Rule, partner at telecom-focused Marashlian & Donahue PLLC who has watched the proceeding but is not involved.

An FCC official said the proposal focuses on establishing just, reasonable and fair rates, goals the FCC believes are possible to achieve without banning site commissions. There is some debate about whether the agency has clear legal authority to regulate the payments, which are a form of revenue sharing between the prisons and the calling service companies.

Alex Friedmann, associate director of the Human Rights Defense Center, said reform advocates had pushed the FCC to outright ban the payments, but said if the rates are low enough, the commission problem will solve itself over time without the agency sticking its neck out. He said the FCC took the safe route by avoiding a battle over site commissions.

“By taking that off the table, that’s one less thing we have to deal with on appeal and it’s less sticky,” Friedmann said.

ICS providers don’t see it that way. Four of the largest competitors teamed up to tell the FCC that they will appeal the order if it does not address site commissions. Global Tel*Link Corp. CEO Brian Oliver, who represented the company in the meeting, said the providers will have no option but to appeal.

“The math of it is pretty straight-forward,” Oliver said. “I think for most of the industry, if they don’t do something with site commissions it’s catastrophic to the industry’s ability to provide service.”

One provider, however, told the FCC that it supports the agency’s proposal to simply discourage site commissions. Network Communications International Corp. said in a filing that the agency is not responsible for ensuring that providers maintain the profits to which they have become accustomed. President Bill Pope said his company hasn't "played the game" of high commissions and has found that lower call rates lead to higher call volume.

"I don’t think it’s the end of the world," Pope said. "It decreases the stress on the inmate's family and it gives everybody in the industry a number to work with and we’ll adjust our budgets accordingly."

The FCC asked for advice throughout the commenting period on whether it has the legal authority to regulate site commissions, and has seemingly determined that it does not, said Lee G. Petro, an attorney at Drinker Biddle & Reath who represents the petitioners who asked the FCC to regulate the call rates in 2007.

“Certain advocacy groups want to see the elimination of commissions, and I think that is an admirable goal,” Petro said. “We would love to see the end of commissions, too. But we also don’t want to see this issue overturned at the Court of Appeals because the FCC regulates rates that they have authority to do so but then go beyond their authority with site commissions and have the whole matter overturned.”

Oliver dismissed arguments that the FCC lacks the legal authority to regulate site commissions, saying the arguments to regulate rates could also apply to site commissions. But the potential fight would then be with sheriffs and states over cutting off the flow of money to their facilities, rather than with the phone providers.

“I do not believe it’s a matter of law,” Oliver said. “I believe it’s a matter of political courage. The law is uncertain on rates, fees and site commissions. Proper public policy needs to be more courageous and not politically expedient.”

Site commissions are a form of revenue sharing in which the ICS provider pays a certain percentage of its profits from the phone calls back to the correctional facility. Oliver said the percentage a county or state expected in return for awarding a contract skyrocketed beginning with the recession to the point that he’s seen site commissions at 90 percent.

Phone call rates increased as ICS providers passed on the costs to the inmates and their families.

“You have to raise the rates,” Oliver said. “The rates that are raised aren’t a surprise to the county or the state, either. If you want a 75 percent commission, the only way it can be done is charging these rates, and they say, ‘That’s OK.’ They want the money.”

With the commission set to cap all calling rates at 11 cents per minute for prisons and 14 to 22 cents per minute for jails, the revenues will get a lot smaller for the providers to share with the facilities, while the costs will not, Oliver said.

Five members of Congress also pushed the FCC to address site commissions in the upcoming order, saying in a letter Tuesday that capping rates is a step in the right direction, but that it must be coupled with eliminating site commissions to yield the lowest possible phone rates.

The providers will have to renegotiate contracts with the facilities, a tall order in the FCC’s proposed 90-day implementation period. Oliver said in reviewing GTL’s top 200 contracts, about half have a change in law provision.

“The leverage we have is we go out of business,” Oliver said. “We go to a county and say: 'Here are the keys we’re not providing service, we can’t afford it.' And that’s disastrous.”

Friedmann, of the Human Rights Defense Center, said he’s dubious the situation is as dire as the providers are making it out to be.

“We think the rate is high enough that there is sufficient money to go around,” Friedmann said. “They’ll continue to use the commissions.”

Petro argued that the providers’ claims ignore data that has shown that a decrease in the call rate can stimulate more calls. He pointed to data that showed the call volume in Arkansas correctional institutions increased by more than 150 percent in one month after the FCC’s 2013 caps on interstate call rates took effect in 2014.

Rule also acknowledged that it’s difficult to feel sympathy for the relatively small number of providers that make up the billion-dollar industry. Still, she questioned the FCC’s move to regulate call rates on what appears to be a cost-based manner while allowing the site commission scheme to remain market-based.

A major issue could be work-around fees that could further distort what it costs to actually provide the calls, she said. One provider already warned the agency it had spotted ways to circumvent the proposed rules in advocating for site commission regulation.

“To me, if the the problem is a lack of transparency, the best way to deal with that is to regulate it more vigorously,” Rule said.


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