[Federal Register Volume 80, Number 243 (Friday, December 18, 2015)]
[Rules and Regulations]
[Pages 79136-79180]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-31252]



[[Page 79135]]

Vol. 80

Friday,

No. 243

December 18, 2015

Part II





 Federal Communications Commission





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47 CFR Part 64





 Rates for Interstate Inmate Calling Services; Final Rule

  Federal Register / Vol. 80 , No. 243 / Friday, December 18, 2015 / 
Rules and Regulations  

[[Page 79136]]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 64

[WC Docket No. 12-375; FCC 15-136]


Rates for Interstate Inmate Calling Services

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) adopts comprehensive reforms of Inmate Calling Services, 
regardless of the technology used to provide service, to ensure just 
reasonable and fair rates as mandated by the Communications Act.

DATES: The rules in this document will become effective March 17, 2016, 
and the Compliance Date for this Second Report and Order will be 
January 19, 2016.

FOR FURTHER INFORMATION CONTACT: Lynne Engledow, Wireline Competition 
Bureau, Pricing Policy Division at (202) 418-1540 or at 
[email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second 
Report and Order, WC Docket 12-375, released November 5, 2015. The full 
text of this document may be downloaded at the following Internet 
Address: http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db1105/FCC-15-136A1.pdf. To request alternative formats for persons 
with disabilities (e.g. accessible format documents, sign language, 
interpreters, CARTS, etc.) send an email to [email protected] or call the 
Commission's Consumer and Governmental Affairs Bureau at (202) 418-0530 
or (202) 418-0432 (TTY).

I. Introduction

    1. Twelve years have passed since Martha Wright of Washington, DC 
petitioned this Commission for relief from exorbitant phone rates 
charged by inmate calling service (ICS) providers, so that she might 
afford telephone contact with her incarcerated grandson. For families, 
friends, clergy, and attorneys to the over 2 million Americans behind 
bars and 2.7 million children who have at least one parent behind bars, 
maintaining phone contact has been made extremely difficult due to 
prohibitively high charges on those calls. Family members report paying 
egregious amounts, adding up to hundreds of dollars each month, just to 
stay connected to incarcerated spouses, parents and children. For over 
a decade, they have pleaded with this agency for help fighting these 
excessive and unaffordable phone charges.
    2. In the Report and Order, we grant relief, answer the call of 
those millions of citizens seeking ICS reform, and adopt comprehensive 
reform of interstate and intrastate ICS calls to ensure just, 
reasonable and fair ICS rates as mandated by the Act. (Interstate 
communication ``means communication or transmission (A) from any State, 
Territory, or possession of the United States (other than the Canal 
Zone), or the District of Columbia, to any State, Territory, or 
possession of the United States (other than the Canal Zone), or the 
District of Columbia. Consistent with our authority under the 
Communications Act, this Order applies to all states and U.S. 
territories including Puerto Rico, Guam, and the U.S. Virgin Islands.) 
We follow these reforms with a Further Notice that recognizes there is 
more work yet to be done. While the Commission prefers to rely on 
competition and market forces to discipline prices, there is little 
dispute that the ICS market is a prime example of market failure. 
Market forces often lead to more competition, lower prices, and better 
services. Unfortunately, the ICS market, by contrast, is characterized 
by increasing rates, with no competitive pressures to reduce rates. 
With respect to the consumers who pay the bills, ICS providers operate 
as unchecked monopolists. The record indicates that, absent regulatory 
intervention, ICS rates and associated ancillary fees likely will 
continue to rise. After the adoption of interim interstate rate caps in 
2013, there was hope that states would take a more active role in 
reforming intrastate ICS rates and ancillary fees. While this has 
occurred in a handful of states, such as Alabama, Minnesota, New 
Jersey, and Ohio, the unfortunate reality is that many states have not 
tackled reform and intrastate ICS rates have continued to increase 
since the 2013 Order. 78 FR 67956, Nov. 13, 2013.
    3. Given this market failure, the Commission has a duty to act to 
fulfill our statutory mandate of ensuring that ICS rates are just, 
reasonable, and fair. Ensuring that rates comply with the statute also 
has several positive public interest benefits. Studies have shown that 
family contact during incarceration reduces recidivism and allows 
inmates to be more present parents for the 2.7 million children who 
suffer when an incarcerated parent cannot afford to keep in touch. One 
commenter tells us that ``[m]y family paid outrageous amounts, between 
$300 and $400 a month for the 10 months while I was incarcerated in the 
state of MD. Their savings were drained just so they could correspond 
with their only daughter who was pregnant with their first grandchild 
at the time.'' One mother writes: ``I pay 40 dollars a week for calls. 
I can't afford them but it puts a smile on my kid's face;'' another 
writes that her family has, at times, gone without food in order to pay 
these phone charges, ``so we don't grow apart and so my kids feel like 
they still have a father.'' These 2.7 million children are already 
coping with the anxiety of having an incarcerated parent, and often 
suffer additional economic and personal hardships that hinder their 
performance in school. By charging inmates exorbitant phone rates, ICS 
providers prevent incarcerated parents from maintaining a presence in 
their children's lives through regular phone contact. The testimony of 
a father in St. Cloud, Minnesota underscores the need for our efforts: 
``I want to be able to raise my child even if it's over the phone for 
the time being. I would love to be in her life as much as possible, but 
it's hard to do so when the phone [price] is steadily climbing higher 
and higher. I know I'm paying my debt to society for my crime, but I 
need to stay in contact with family.''
    4. Furthermore, inmates given access to regular phone contact with 
family are less likely to return to jail or prison. A 2014 report by 
the Department of Justice found that a staggering 75 percent of 
individuals released from prison were rearrested within five years. Of 
the inmates who do find success and reintegrate after release, many 
credit phone contact and family support during their incarceration. As 
one former inmate writes, ``The phone was my life line to that family 
and they got me through it intact. I thank God that my family was able 
to afford the phone calls. What happens to the families that can't? We 
all end up paying for it.'' Incarceration costs taxpayers an average of 
$31,000 per inmate per year. If telephone contact is made more 
affordable, we will help ensure that former inmates are not sent home 
as strangers, which reduces both their chances of returning to prison 
or jail and the attendant burden on society of housing, feeding, and 
caring for additional inmates.
    5. Another commenter stresses how regular phone contact makes 
prisons and jails safer spaces for inmates and officers alike:

    I get to see my loved one once in every six months or so, and he 
doesn't get any visitors apart from me, so calling daily helps him 
retain his sanity. I think the connection he's given to his family 
is really important; there are so many times that he's called really

[[Page 79137]]

angry at other inmates, saying that he just wanted to talk so that 
he can cool down and not start a fight. If calls are made more 
affordable, especially for indigent families, it may reduce prison 
violence as well as make the prisons a safer place for [corrections 
officers] to work in.

    6. The record indicates that our interim interstate rate caps 
increased call volumes, without compromising correctional facility 
security requirements. Similarly, we expect our actions in this Order 
to reduce rates and increase call volume, while ensuring that ICS 
providers receive fair compensation and a reasonable return. Some 
commenters have argued that lowering ICS rates will compromise security 
in correctional facilities and fail to cover the cost of providing 
calling services. Some have even argued the financial strain from rate 
regulation could lead to correctional facilities banning inmate calls 
altogether. However, we find these assertions unpersuasive and 
unsupported by the record and our experience from the 2013 reforms.
    7. While the actions taken to date have been positive in key 
respects (e.g., lower interstate rates and increased interstate call 
volume), more remains to be done. The Commission adopted interim 
interstate rate caps, but over 80 percent of calls to and from 
correctional facilities are intrastate, and were not subject to the 
reforms of the 2013 Order. Throughout this proceeding, the Commission 
has repeatedly called on states to reform inmate calling within their 
jurisdictions, but rates remain egregiously high in over half the 
states. The Commission has the legal authority to reform the rate 
structure for all ICS calls, and herein we determine it is appropriate 
and necessary to do so.
    8. In addition, we commit to continue evaluating the impact of 
these reforms and to conduct a review in two years to evaluate the 
changes in the market and determine whether further refinements are 
appropriate.

II. Executive Summary

    9. In the Order, we adopt comprehensive reform of all aspects of 
ICS to correct a market failure, foster market efficiencies, encourage 
ongoing state reforms, and ensure that ICS rates and charges comply 
with the Communications Act. As a threshold matter, we make clear that 
the reforms adopted herein apply to ICS offered in all correctional 
facilities, regardless of the technology used to deliver the service. 
Specifically, we take the following steps, which together form a 
comprehensive package of long-overdue reform to inmate calling 
services:
     Adopt tiered debit and prepaid rate caps that apply to all 
interstate and intrastate ICS, as well as a tiered rate cap for collect 
calling (which, after two years, will phase down to the rate caps 
adopted for prepaid and debit calls);
     Address payments to correctional institutions by excluding 
site commission costs from our rate caps (we otherwise discourage, but 
do not prohibit, ICS providers from sharing their profits and paying 
site commissions to facilities);
     Limit and cap ancillary service charges and address the 
potential for loopholes and gaming, including third-party services, 
thus addressing a disturbing trend in which ancillary service charges 
increased exponentially and unfairly, to the detriment of inmates and 
their families and in contravention of the statute;
     Prohibit ICS prepaid calling account funding minimums and 
establish an ICS prepaid calling account funding maximum limit;
     Establish a periodic review of ICS reforms, recognizing 
that further refinements may be appropriate as the marketplace 
evolves--thus complementing the Further Notice we initiate today 
(described in more detail below);
     Make clear that the rate caps and reforms we adopt today 
operate as a ceiling in states that have not enacted reforms with equal 
or lower caps on rates and ancillary fees and that we will preempt 
state laws that are inconsistent with the federal framework;
     Take measures to address ongoing concerns with access to 
ICS by inmates and their families with communications disabilities, 
including requiring that the per-minute rates charged for TTY-to-TTY 
calls be no more than 25 percent of the rates the providers charge for 
traditional inmate calling services and that no provider shall levy or 
collect any charge or fee for TRS-to-voice or voice-to-TTY calls;
     Adopt a transition period for rate caps and ancillary 
service charge reforms of March 17, 2016 for ICS provided in prisons 
and June 20, 2016 for ICS provided in jails to enable providers time to 
adjust contracts if necessary, given that the reforms adopted herein 
constitute regulatory changes and thus may trigger change-in-law 
provisions in existing ICS contracts;
     Take measures to prevent possible gaming during the 
transition to the new rules adopted herein;
     Require annual reporting and certification by ICS 
providers, to allow the Commission to ensure compliance and enable 
monitoring of developments, and require the providers to be transparent 
with regard to disclosure of their rates and policies;
     Confirm that section 276 of the Act is technology neutral 
and thus any service--regardless of name--that meets the definitional 
criteria for ``inmate calling services'' is subject to our rules, 
including the reforms adopted today; and
     Make clear that ICS providers may seek waivers if they are 
unable to receive fair compensation or request that the Commission 
preempt inconsistent state laws, and encourage the Wireline Competition 
Bureau to resolve such waivers within 90 days of submission of complete 
information.
    We adopt the following rate caps.

                                                    Table One
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                                                                   Collect rate    Collect rate    Collect rate
                                                   Debit/prepaid  cap per MOU as  cap per MOU as  cap per MOU as
            Size and type of facility              rate cap per    of effective     of July 1,      of July 1,
                                                        MOU            date            2017            2018
----------------------------------------------------------------------------------------------------------------
0-349 Jail ADP..................................           $0.22           $0.49           $0.36           $0.22
350-999 Jail ADP................................            0.16            0.49            0.33            0.16
1,000+ Jail ADP.................................            0.14            0.49            0.32            0.14
All Prisons.....................................            0.11            0.14            0.13            0.11
----------------------------------------------------------------------------------------------------------------

    We prohibit any ancillary service charges except for the following.

[[Page 79138]]



                                Table Two
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Permitted ancillary service charges and       Monetary cap per use/
                 taxes                             instruction
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Applicable taxes and regulatory fees...  Provider shall pass these
                                          charges through to consumers
                                          directly with no markup.
Automated payment fees.................  $3.00.
Fees for single-call and related         Provider shall directly pass
 services, e.g., direct bill to mobile    through third-party financial
 phone without setting up an account.     transaction fees with no
                                          markup, plus adopted, per-
                                          minute rate.
Live agent fee, i.e., phone payment or   $5.95.
 account set up with optional use of a
 live operator.
Paper bill/statement fees (no charge     $2.00.
 permitted for electronic bills/
 statements).
Prepaid account funding minimums and     Prohibit prepaid account
 maximums.                                funding minimums and prohibit
                                          prepaid account funding
                                          maximums under $50.
Third-party financial transaction fees,  Provider shall pass this charge
 e.g., MoneyGram, Western Union, credit   through to end user directly,
 card processing fees and transfers       with no markup.
 from third party commissary accounts.
------------------------------------------------------------------------

    10. These reforms supersede the reforms adopted in the 2013 Order 
and therefore will replace the interim interstate rate caps and cost-
based framework previously adopted. Accordingly, the extensive reforms 
we adopt in this Order constitute material changes of law and may also 
trigger contractual force majeure clauses. To comply with the new rules 
we adopt herein, we therefore expect that ICS providers may need to 
renegotiate many of their contracts with correctional facilities but 
note that ICS rates in numerous states are already below our adopted 
caps.
    11. While the steps we take today are significant, our work is not 
complete. With that in mind, in today's Further Notice, we seek 
additional comment on rates for international calls, promoting 
competition in the ICS industry, the benefits of a recurring Mandatory 
Data Collection, as well as a requirement that ICS providers file their 
ICS contracts with the Commission, video visitation, and other newer 
technologies to increase ICS options, and seek additional comment on 
the operations and economic impacts of providing those services as 
experienced by end users, correctional facilities, and ICS providers.

III. Background

    12. In 2003, Martha Wright and her fellow petitioners, current or 
former prison inmates and their relatives and legal counsel (Wright 
Petitioners or Petitioners), filed a petition seeking a rulemaking to 
address high long-distance ICS rates. The petition sought to prohibit 
exclusive ICS contracts and collect-call-only restrictions in 
correctional facilities. In 2007, the Petitioners filed an alternative 
rulemaking petition, asking the Commission to address high ICS rates by 
requiring a debit-calling option in correctional facilities, 
prohibiting per-call charges, and establishing rate caps for 
interstate, interexchange ICS. The Commission sought and received 
comment on both petitions (Wright Petitions).
    13. In December 2012, in response to the Wright Petitions, the 
Commission adopted a Notice of Proposed Rulemaking seeking comment on, 
among other things, the proposals in the Wright Petitions. The 2012 
NPRM, 78 FR 4369, Jan. 22, 2013, proposed ways to ``balance the goal of 
ensuring reasonable ICS rates for end users with the security concerns 
and expense inherent to ICS within the statutory guidelines of sections 
201(b) and 276 of the Act.''
    14. On August 9, 2013, the Commission adopted the Inmate Calling 
Report and Order and FNPRM (2013 Order), finding that market forces 
were not operating to ensure that interstate ICS rates were just, 
reasonable, and fair. The Commission concluded that, in light of the 
absence of competitive pressures working to keep rates just and 
reasonable in the ICS market, the default of cost-based regulation 
should apply. As such, the Commission focused on reforming interstate 
site commission payments, rates, and ancillary service charges. The 
Commission also determined that site commission payments ``were not 
part of the cost of providing ICS and therefore not compensable in 
interstate ICS rates.'' Analyzing data submitted into the record and 
public data, the Commission adopted interim per-minute interstate ICS 
safe harbor caps of $0.12 for debit and prepaid calls and $0.14 for 
collect calls and hard rate caps of $0.21 for debit and prepaid calls 
and $0.25 for collect calls. The Commission gave guidance to ICS 
providers regarding the process for obtaining waivers of the interim 
rate caps. The Commission also required that ancillary service charges 
be cost-based. At the time, the Commission declined to address 
intrastate ICS, noting instead that it had ``structured [its reforms] 
in a manner to encourage . . . states to undertake reform and sought 
comment on intrastate reforms as part of the FNPRM.'' Finally, the 
record indicates that as a result of our interim interstate rate caps, 
interstate call volumes have increased as much as 70 percent, while 
interstate debit and prepaid rates have decreased, on average, 32 
percent and interstate collect rates have decreased, on average, 44 
percent.
    15. To enable the Commission to enact ICS reform, the 2013 Order 
adopted a Mandatory Data Collection requiring ICS providers to file 
information regarding the costs of providing ICS, and an Annual 
Reporting and Certification Requirement for ICS rates. The Commission 
noted that the Mandatory Data Collection would help it ``develop a 
permanent rate structure, which could include more targeted tiered 
rates in the future.'' Through the data collected pursuant to the 
Mandatory Data Collection, the Commission obtained significant cost and 
operational data, including ancillary service charge cost data, from a 
variety of ICS providers representing well over 85 percent of the ICS 
market.
    16. Prior to the effective date of the Order, the United States 
Court of Appeals for the District of Columbia Circuit stayed three 
rules adopted by the Commission pending resolution of the appeal, 
including the rule requiring rates to be based on costs, the rule 
adopting interim safe harbor rates, and the rule requiring ICS 
providers to file annual reports and certifications. The court allowed 
other aspects of the 2013 Order to take effect, including the interim 
interstate rate caps and Mandatory Data Collection. Due to the partial 
stay, the requirement that ancillary service charges be based on costs 
did not go into effect. As a result,

[[Page 79139]]

there have been no reforms to ancillary service charges and fees and 
they have continued to increase since the 2013 Order. The litigation 
has been held in abeyance pending resolution of this Order.
    17. Since adoption of the 2013 Order, the Commission has continued 
to monitor the effects of its reforms on the ICS industry and pursue 
additional reform, including holding a workshop entitled ``Further 
Reform of Inmate Calling Services'' on July 9, 2014. The workshop 
evaluated options for additional ICS reforms, discussed the effects of 
the Order, the role ancillary service charges play in the ICS market, 
the provision of ICS at different types of facilities, and 
communications technologies beyond traditional payphone calling being 
deployed in correctional facilities.
    18. Second Further Notice of Proposed Rulemaking. In October 2014, 
the Commission adopted a Second FNPRM (79 FR 69682) and sought comment 
on several proposals in the record urging comprehensive ICS reform. The 
proposals the Commission sought comment on suggested a variety of ways 
to deal with issues identified in the record, including rate caps, site 
commission payments, and ancillary fees that were offered by various 
entities with differing perspectives in addressing ICS reform. For 
example, three ICS providers, GTL, Securus, and Telmate, jointly filed 
a proposal to comprehensively reform all aspects of ICS. Several other 
individual ICS providers, including CenturyLink and Pay Tel, submitted 
their own proposals for reform. The Wright Petitioners, along with 
several public interest groups, also urged the Commission to consider 
its proposals for comprehensive reform. Finally, the Commission sought 
comment on costs incurred by correctional facilities in the provision 
of ICS and the data received in response to the Mandatory Data 
Collection.
    19. State Reforms. Several states have undertaken ICS reform since 
the 2013 Order that reflect and are meant to address circumstances 
specific to their jurisdiction. The Alabama Public Service Commission 
(Alabama PSC), for example, adopted comprehensive ICS reforms that 
include tiered intrastate rate caps as well as a restricted number of 
ancillary service charges at caps it established. The Minnesota 
Department of Corrections initiated a pilot program in a limited number 
of correctional facilities in which a flat rate of $0.07 per minute is 
charged for all local and long-distance debit calls, bringing the cost 
of a 15-minute call to $1.05, plus applicable tax. New Jersey recently 
entered into a new ICS contract lowering rates for all interstate and 
intrastate calls from state prison facilities to $0.04348 a minute 
effective August 25, 2015. The Ohio Department of Rehabilitation and 
Correction reduced rates to $0.05 per minute for all ICS calls as of 
April 1, 2015. In announcing its change, the Ohio Department of 
Rehabilitation and Correction noted that ``[t]elephone calls are one of 
the primary means of inmates maintaining connections with family and 
loved ones during incarceration; maintaining these connections 
positively influences behavior in prison and the likelihood an offender 
will succeed upon release from prison.'' Inmates in the West Virginia 
Division of Corrections now pay $0.032/minute for all domestic ICS. We 
are pleased that some states have taken positive steps to reduce 
intrastate rates but remain concerned that many intrastate rates remain 
high and some have even increased following the 2013 Order. The actions 
we take today embrace previous reforms and encourage additional states 
to follow and enact more-tailored relief in their states. The framework 
we adopt today acts as a ceiling to enable reforms, such as those 
undertaken by New Jersey, Ohio, and West Virginia.

IV. Report and Order

A. Rate Caps That Comply With the Statute

    20. In this section we adopt tiered rate caps for intrastate and 
interstate ICS that will allow providers to continue to offer safe and 
secure ICS while complying with the requirements of the Communications 
Act. These rate caps will apply to jails, prisons and immigration 
detention facilities, secure mental health facilities and juvenile 
detention facilities.
    21. A review of the record, including over 100 comments and 
replies, costs reported in response to the Mandatory Data Collection, 
and various ex parte filings, indicates that, notwithstanding our 
interim caps on interstate rates, more work still must be done to bring 
ICS rates in conformance with the mandates of the Communications Act. 
The record demonstrates that many interstate rates are not ``just and 
reasonable rates as required by Sections 201 and 202'' and that many 
interstate and intrastate rates result in compensation that exceeds the 
fair compensation permitted by section 276. The Commission's finding in 
the 2013 Order that the marketplace alone has not ensured that ICS 
rates are just, reasonable, and fair remains true today. Nor has the 
risk of complaints filed under section 208, or enforcement actions 
pursuant to section 201(b) or section 276, been sufficient to keep ICS 
rates at levels that are just and reasonable and fairly compensatory. 
We therefore act, pursuant to our statutory authority, to ensure that 
ICS rates comply with the Communications Act, while balancing the 
unique security needs related to providing telecommunications service 
in correctional institutions and ensuring that ICS providers receive 
fair compensation and a reasonable return on investment.
    22. Specifically, we adopt a rate cap of $0.22/MOU for debit and 
prepaid calls from jails with an ADP of 0-349; a $0.16/MOU cap for 
debit and prepaid calls from jails with an ADP of 350-999; and a $0.14/
MOU cap for debit and prepaid calls from jails with an ADP of 1,000 or 
more. Debit and prepaid calls from prisons will be capped at a rate of 
$0.11/MOU. Collect calls from jail facilities will be capped at $0.49/
MOU and collect calls from prison facilities will be capped at $0.14/
MOU until July 1, 2017, and then transition down on an annual basis to 
the applicable debit/prepaid rate cap as described herein.

                                                   Table Three
----------------------------------------------------------------------------------------------------------------
                                                                   Collect rate    Collect rate    Collect rate
                                                   Debit/prepaid  cap per MOU as  cap per MOU as  cap per MOU as
            Size and type of facility              rate cap per    of effective     of July 1,      of July 1,
                                                        MOU            date            2017            2018
----------------------------------------------------------------------------------------------------------------
0-349 Jail ADP..................................           $0.22           $0.49           $0.36           $0.22
350-999 Jail ADP................................            0.16            0.49            0.33            0.16
1,000+ Jail ADP.................................            0.14            0.49            0.32            0.14
All Prisons.....................................            0.11            0.14            0.13            0.11
----------------------------------------------------------------------------------------------------------------


[[Page 79140]]

    23. In the subsections that follow, we describe our methodology for 
adopting these rate caps. Specifically, we: (1) Discuss the decision to 
adopt a tiered structure that distinguishes between jails and prisons, 
and, within jails, based upon ADP, (2) describe the reasoning for 
adopting the specified tiers, (3) describe the methodology and analysis 
supporting the specific rate caps adopted, using a carefully considered 
combination of analysis of the Mandatory Data Collection (including 
evidence suggesting that some providers submitted inflated cost data), 
successful reform in certain states, experience with the interim rate 
caps, and other data in the voluminous record of this proceeding, (4) 
explain the need for a temporary, separate rate for collect calls, 
which will phase out over a two-year period to equalize the rate for 
these calls with those of debit/prepaid calls, (5) reject per-call/per-
connection charges and flat-rate calling as inherently unjust, 
unreasonable, and unfair in contravention of the statute, and (6) 
explain our legal authority to adopt these reforms.
1. Tiered Structure Distinguishing Between Jails and Prisons
    24. Before determining the specific amount of any rate caps, a key 
question before us is the appropriate rate structure for ICS--i.e., 
whether there should be a single unitary rate for inmate calling 
services regardless of the facility type or size. We find in this Order 
that the record supports distinguishing between the type of facility 
(jails vs. prisons) as well as, for jails, tiering based on the size of 
the facility.
a. Justification for Separate Tiers
    25. In both the 2013 FNPRM (78 FR 68005) and Second FNPRM, the 
Commission sought comment on rate tiering. In the Second FNPRM, the 
Commission also sought comment on the appropriate definition of 
``prison'' and ``jail,'' and on the potential suitability of rate 
tiering based on differences between jails and prisons as well as 
population size. As discussed below, there was substantial record 
support for such an approach.
    26. Background. Some commenters support differentiating rates 
between different facility types or sizes. For example, Petitioners 
assert that the ``cost of providing service in these large facilities 
is substantially less than the cost of providing service in small 
jails, and that ICS providers can serve these larger facilities with 
less administrative costs.'' Other commenters assert that 
``characteristics unique to different types of facilities'' should lead 
to rate tiering. Some commenters contend that it costs more to provide 
ICS in smaller jails than it does in larger jails. These parties argue 
that a one-size-fits-all rate cap will not work, ignores the record and 
likely will lead to a violation of sections 201 and 276 of the Act. We 
note that the Alabama PSC recently adopted rate tiers tied to facility 
type, with separate rates for jails and prisons.
    27. The Los Angeles Sheriff's Department advocates that the 
Commission ``resist the temptation to set uniform rates'' because the 
differences in security requirements, inmates, age, infrastructure and 
maintenance needs of facilities must be accounted for in the 
Commission's decision-making process.'' The California State Sheriff's 
Association echoes these concerns, explaining that in California, the 
smallest jail can hold a maximum of 14 inmates, while the largest jail 
can hold a maximum of over 14,000 inmates, and contends that accounting 
for these differences ``is much more important and realistic than 
attempting to craft a single `solution' for uniformity's sake.'' NCIC 
also supports tiering in order to ``balance the needs of inmates, their 
families, correction facilities and ICS providers.''
    28. Moreover, some commenters assert that, without tiering, 
providers serving small- to medium-sized jails ``would likely be forced 
out of the market, particularly if the larger companies cross-subsidize 
between low-cost (Prison) and high-cost (Jail) facilities'' because it 
is more costly to providers to serve smaller facilities (as confirmed 
by our analysis of the Mandatory Data Collection). Additionally, there 
is evidence that some large ICS providers refuse to bid on contracts to 
serve only smaller institutions--suggesting again that the cost 
structure of serving smaller institutions is higher than that of larger 
institutions.
    29. Other commenters, however, disagree with a tiered rate approach 
and counter that the Commission should continue to impose unitary rate 
caps, similar to the current, interim rate caps. These commenters 
contend that unitary rates are less complex to understand and to 
administer, and that no real difference exists between the cost of 
serving jails and prisons. For instance, GTL and CenturyLink contend 
that ``there is no clean proxy for cost that could be relied upon to 
create tiers.'' Additionally, some commenters argue that adopting tiers 
based on a prison/jail distinction would be arbitrary, especially as 
many large providers serve both prisons and jails. Securus claims that 
``to adopt vastly different calling rates based on that empty [jails 
vs. prisons] distinction would constitute dissimilar treatment of 
customers that plainly are similarly situated,'' which it asserts is 
``unjustifiable.''
    30. Discussion. Based on the record and market evidence, we find 
that tiering based on jail versus prison is appropriate, and therefore 
reject proposals that we should adopt a unitary rate similar to the 
unitary rate caps adopted in the 2013 Order.
    31. In the 2013 Order, the Commission found it appropriate to adopt 
interim unitary rates for a number of reasons. First, the Commission 
observed the challenges to setting interim rates, including the fact 
that although the Commission relied on the best data available to it at 
the time, that data represented a very small subset of data, and 
included cost data from locations with varying cost and call volume 
characteristics. Second, the Commission noted that it considered 
setting different rate caps based on the size or type of correctional 
facility, but stated that ``the record contains conflicting assertions 
as to what those distinctions should be.'' Instead, the Commission 
adopted interim interstate rate caps ``for correctional facilities 
generally,'' ``based on the highest cost data available in the record, 
which [it] anticipated will ensure fair compensation for providers 
servicing jails and prisons alike.'' Finally, the Commission noted that 
unitary rates were the focus of the original petition for rulemaking 
and the focus of the majority of comments at that time. Upon release of 
that item, the Commission adopted the Mandatory Data Collection to 
``enable [it] to take further action to reform rates, including 
developing a permanent cap or safe harbor for interstate rates, as well 
as to inform our evaluation of other rate reform options in the Further 
Notice.'' The responses to the Mandatory Data Collection have greatly 
expanded the cost data available to us for analysis.
    32. We conclude that adopting tiered interstate and intrastate 
rates accounts for the differences in costs to ICS providers serving 
smaller, higher-cost facilities, such as the vast majority of jails. A 
similar concern applies to the potential for over-compensating ICS 
providers serving larger, lower cost facilities, such as very large 
jails and prisons. We agree with those commenters who assert that the 
$0.20 and $0.24 rate caps proposed in the Joint Provider Proposal could 
result in excessive profits for the largest providers to the detriment 
of end users who would have to pay inflated rates far

[[Page 79141]]

above the providers' costs. For example, in the public portion of its 
cost data filing Securus noted that its overall cost per minute across 
all of its ICS contracts is $0.1776. GTL similarly provided its overall 
cost per minute across all ICS contracts, which it estimated at 
$0.1341. These averaged, self-reported, costs are well below the $0.20 
and $0.24 rate caps proposed by these same providers in the Joint 
Provider Proposal.
    33. The record, and our analysis of costs reported in response to 
the Mandatory Data Collection, support rate tiering because, holding 
other factors constant, the costs to serve prisons are lower than to 
serve jails. This is not surprising. Prisons typically have more 
stable, long-term inmate populations. For example, there is less than 
one percent inmate churn in prisons per week compared to an average of 
58 percent inmate churn in jails. The record suggests that higher churn 
rates increase costs to process and grant a new inmate access to 
calling services, and also when an inmate exits a facility. The record 
also indicates that prison inmates make fewer but longer calls and 
providers appear to incur fewer bad debt costs when serving prisons.
    34. We also find that economies of scale, such as the recovering of 
fixed ICS costs over a larger number of inmates, support the tiering 
approach we adopt today. In the 2013 Order, the Commission noted that 
unit or average costs of providing ICS were decreasing as scale 
increased because of, for example, centralized application of security 
measures and ``the ability to centrally provision across multiple 
facilities.'' More generally, providers of ICS typically incur a range 
of costs that do not scale with volume, sometimes known as fixed costs. 
For example, the cost of a calling center is largely shared over a 
provider's entire operations, so the unit costs of the calling center 
fall quickly as call volumes increase. Similarly, the cost of 
connecting a facility to the ICS provider's network increases at a much 
lower rate when minutes of use increase. Indeed, in general, the 
incremental cost of a minute of use is almost zero. The Kansas 
Department of Corrections echoes these findings, stating in its support 
for rate tiering that ``[t]he cost to provide an ICS is largely driven 
by the size of a facility and length of stay. Larger facilities benefit 
from the economies of scale that allows agencies and ICS providers to 
spread the cost among a larger population.'' Pay Tel also reports that 
there are material fixed costs in providing ICS which can be 
distributed across larger facilities, like prisons, more readily than 
smaller facilities such as jails. Indeed, many ICS providers currently 
offer service to multiple facilities under one contract, reflecting the 
benefits of centralizing fixed costs across a larger base of customers. 
Lastly, ongoing industry consolidation supports our finding that there 
are economies of scale in the provision of ICS, i.e., the incentive to 
become more efficient through scale is an incentive for providers to 
enter into mergers.
    35. Recent state reforms also support tiering. Indeed, the Alabama 
PSC recently adopted rate tiers tied to facility type with separate 
rates adopted for jails and prisons. In December 2014, the Alabama PSC 
adopted a rate structure that ``provides lower rates [for prisons] in 
recognition that the per-minute costs for service in prisons is lower 
than it is for jails.'' In order ``to ensure ample opportunity to 
correct any funding shortfalls resulting from potential reductions in 
site commissions,'' the adopted rate caps included a two-year phase-
down period from $0.30/minute to $0.25/minute for collect and debit/
prepaid calling from jails and $0.25/minute to $0.21/minute for debit/
prepaid calling from prisons, while the prison collect rate stays at 
the initial $0.25/minute rate cap.
    36. We disagree with assertions that a tiered rate structure would 
be difficult for the Commission to administer, for ICS providers to 
implement, and for correctional officials to oversee. Those commenters 
who make such assertions already charge different rates across 
different ICS contracts and provide no real evidence or support for why 
rate tiers would be any more difficult or challenging than their 
current approaches.
    37. For all of these reasons, we conclude that adopting rate tiers 
based on facility type as well as size, or ADP, allows us to recognize 
the differences in the costs of serving facilities of different types 
as well as providing multiple checks to prevent gaming or manipulation 
as discussed below. Tiering will limit ``the impact of the higher rates 
to those facilities most in need, while ensuring that the vast majority 
of ICS calls are charged at a rate commensurate with the cost of 
providing the ICS service.''
b. Determination of Facility Type and Average Daily Population
    38. Defining Jails and Prisons. Given that our rates will differ 
for prisons and jails, it is necessary to define these key terms with 
specificity. The Commission sought comment on defining the terms 
``prison'' and ``jail'' in the Second FNPRM. Subsequent to the Second 
FNPRM, several commenters provided suggested definitions. We have 
considered these submissions and adopt the following definitions.
    39. Specifically, for purposes of this proceeding a jail is defined 
as the facility of a local, state, or federal law enforcement agency 
that is used primarily to hold individuals who are: (1) Awaiting 
adjudication of criminal charges, (2) post-conviction and committed to 
confinement for sentences of one year or less, or (3) post-conviction 
and are awaiting transfer to another facility. The term also includes 
city, county or regional facilities that have contracted with a private 
company to manage day-to-day operations; privately-owned and operated 
facilities primarily engaged in housing city, county or regional 
inmates; and facilities used to detain individuals pursuant to a 
contract with U.S. Immigration and Customs Enforcement (ICE) and 
facilities operated by ICE. For purposes of this proceeding a prison is 
defined as a facility operated by a territorial, state, or federal 
agency that is used primarily to confine individuals convicted of 
felonies and sentenced to terms in excess of one year. The term also 
includes public and private facilities that provide housing to other 
agencies such as the State Departments of Correction and the Federal 
Bureau of Prisons; and facilities that would otherwise fall under the 
definition of a jail but in which the majority of inmates are post-
conviction or are committed to confinement for sentences of longer than 
one year.
    40. Facility or Institution. The record indicates concern that some 
ICS providers may try to take advantage of the rate tiering structure 
we adopt in this Order by increasing the number of ``facilities'' in 
which they are allowed to charge the higher rate caps adopted for 
smaller jails above. For example, ICS providers may do this, commenters 
explain, by seeking to divide a detention facility into sub-units, such 
as wards or wings. The Commission sought comment on these possibilities 
in the Second FNPRM. Comments received in response confirmed that 
concerns that providers might try to game our rules were justified. 
Such gaming would be contrary to this Order, and would serve to 
frustrate the underlying purposes of sections 201 and 276 of the 
Communications Act. It would allow providers to appear as though they 
are serving smaller jails than they actually are, even though they 
achieve economies of scale by combining multiple small facilities under 
a single contract, because they are able to centralize services, like 
call monitoring

[[Page 79142]]

and recording, thereby reducing their overall costs. In order to 
establish and maintain just, reasonable, and fair ICS compensation, we 
must consider these issues and take steps to ensure that our adopted 
tiered rate caps cannot be undone by gaming.
    41. As such, we find that a jail, as defined above, and a prison, 
as defined above, cannot be divided into multiple wings, units, or 
wards by, for example, for the purpose of taking advantage of our 
tiered rate caps. If interested parties believe such gaming is 
occurring they may bring the issue to the Commission's attention, at 
which time the Commission will review the totality of the circumstances 
(e.g., treatment of the facility under state law, relevant contracts, 
physical attachment or proximity of units, etc.) to determine whether 
unlawful gaming has occurred.
    42. Average Daily Population for Jails. As an initial matter, for 
purposes of the reforms adopted in this Order, the initial average 
daily population will be the sum of all inmates in a facility each day 
in the 12-month period prior to the effective date of this Order 
divided by the number of days in the year. This definition is 
consistent with that used by the Department of Justice's Bureau of Jail 
Statistics. We note that correctional institutions often publicly 
report their ADP. This publicly-reported population data should be 
used, where available, to determine the appropriate ADP for a facility. 
Going forward, when the relevant ADP is not publicly reported, 
beginning with January 31, 2017, the ADP will be calculated on a 
calendar year basis as the sum of all inmates in a facility each day 
between January 1 and December 31 of the previous year, divided by the 
number of days in the year. The applicable ADP will then be determined 
as of January 31 of each year pursuant to the ADP from the previous 
year and will remain in effect throughout that year. Consistent with 
this approach, if a correctional facility adds a new building or wing 
to a facility, the inmate population of the new wing will not be 
accounted for immediately. Rather, the inmate population of a new 
building or wing will first be considered in the calculations for ADP 
to be applied in the following year. For example, if a new wing is 
established anytime between January 1, 2017 and December 31, 2017, its 
inmate population during this time frame will be included in the ADP to 
be applied on January 31, 2018. We find this to be the most 
administratively efficient and feasible option, rather than potentially 
having numerous rate changes during a calendar year. New buildings or 
wings may not be filled immediately, and it may take some time before 
population levels in a newly-established wing increase enough to push 
the facility as a whole into a new tier. We find these detailed 
definitions are necessary to ensure that end users are charged just, 
reasonable, and fair rates and that ICS providers receive fair 
compensation for the costs they incur in providing ICS to smaller and 
larger facilities.
    43. Categorization of Certain High-Cost Facilities. In the Second 
FNPRM the Commission sought comment on suggestions that it either 
exclude from any adopted rate caps what are reported to be high-cost 
facilities, such as juvenile detention facilities or secure mental 
health facilities, or provide a blanket waiver for such facilities. 
While the Commission did not request that providers separately 
calculate and report their costs for providing service to secure mental 
health facilities or juvenile detention facilities outside of jails or 
prisons in response to the Mandatory Data Collection, we agree with 
commenters that these facilities may be more costly to serve due to the 
smaller number of inmates. This is also consistent with our analysis 
above. We therefore conclude that the costs of providing ICS to 
juvenile detention facilities and secure mental health facilities are 
more akin to providing service to jail facilities. To the extent that 
juvenile detention facilities and secure mental health facilities 
operate outside of jail or prison institutions, they will be subject to 
the jail rate caps adopted herein.
2. Tiers for Jails
    44. After placing issues relating to the Mandatory Data Collection 
out for public comment, the Bureau reviewed written comments, met with 
interested parties, and adopted a template for submission of required 
data in the Mandatory Data Collection. In it, the Bureau directed ICS 
providers to document applicable costs and fees by ``contract size.'' 
Potential contract size categories for jails include 0-99, 100-349, 
349-999, and 1000 ADP and greater, and potential categories for prisons 
include 1-4999, 5000-19,999, and 20,000 ADP and greater.
    45. The Commission sought comment on proposed rate tiering in the 
Second FNPRM. Pay Tel asserts that it supports three rate tiers, one 
for ``small-to-medium sized jails (less than 350 ADP) based on 
`demonstrated operational and functional differences between prisons 
and jails--and the cost differences associated with [the] provision of 
ICS therein.''' Petitioners support a two-tiered structure and suggest 
rate caps for facilities with 0-349 ADP and facilities with 350 and 
over ADP in order to take into account the ``alleged higher costs 
incurred by small jails. The Joint Provider Proposal does not favor any 
rate tiers. Securus asserts that if the Commission adopts a tiered rate 
structure, ``the tiers should be defined in a way that account[s] not 
only for ADP but also differences in the investment required to serve a 
site. . . . And, as Securus previously has stated, ADP must be very 
closely defined such that carriers cannot game the system in the way 
that they report those figures.''
    46. In this Order we adopt rate tiers based on the following ADP 
for jails: 0-349, 350-999, and 1,000 and greater. We adopt these rate 
tiers for jails because we find that they most closely resemble the 
breakdown between small-to-medium jails, large jails, and very large, 
or mega-jails. We have decided not to include a 0-99 ADP breakdown in 
the rate tiers in part because, according to the Bureau of Justice 
Statistics, jails with an ADP under 99 make up less than 10 percent of 
the inmate population. We also believe that adopting fewer tiers than 
those requested in response to the Mandatory Data Collection responds 
to comments in the record expressing concern over potential confusion 
and burden of multiple rates. By adopting these tiers for jails, we 
conclude that our rate caps will most closely conform to the costs as 
filed in the record. As a group, jails are more varied than prisons 
and, as we have discussed herein, there are economies of scale to be 
gained as facility size increases. Finally, as discussed below, the 
data received in response to the Mandatory Data Collection support 
these tiers.
    47. Below we explain how we have determined that our prescribed 
rates will allow efficient providers to recover their costs. We rely 
principally upon: (1) Analysis of data received in response to the 
Mandatory Data Collection, which shows that firms operating efficiently 
would earn substantial profits under our prescribed rates, (2) evidence 
suggesting that providers' reported costs in response to the mandatory 
data collection are overstated, and (3) other evidence in the record, 
including ICS providers' provision of service in jurisdictions with 
rates lower than those we prescribe here.
3. Determination of Specific Rate Caps
    48. Having determined the basic structure of rate caps, we describe 
the methodology for the specific rate caps within that structure. 
Specifically, we find that the following rate caps will ensure that ICS 
rates are just,

[[Page 79143]]

reasonable, and fair for inmates, their families and loved ones, as 
well as the ICS providers, and will incorporate the costs associated 
with the necessary security protocols: $0.22/MOU for debit and prepaid 
calls from jails with an ADP of 0-349; $0.16/MOU for debit and prepaid 
calls from jails with an ADP of 350-999; and $0.14/MOU for debit and 
prepaid calls from jails with an ADP of 1,000 or more. Debit and 
prepaid calls from prisons will be capped at a rate of $0.11/MOU. 
Collect calls from jails will be capped at $0.49/MOU and collect calls 
from prisons will be capped at $0.14/MOU until July 1, 2017, and then 
transition down to the appropriate debit/prepaid rate cap.
a. Marketplace Evidence of Rates in Certain States
    49. Evidence of rates at the state level generally provides further 
support that the rate caps we adopt today allow sufficient room for 
providers to earn a fair profit. As noted above, Ohio eliminated site 
commissions and reduced ICS rates by 75 percent to $0.05 for Ohio 
Department of Rehabilitation and Correction (ODRC) facilities. West 
Virginia's Division of Corrections recently reviewed bids without 
regard to site commissions offered by the bidders (i.e., the DOC did 
not take site commissions into account in deciding the winning bidder). 
New Jersey recently awarded an ICS contract for state prisons that 
eliminated site commission payments and reduced rates below $0.05 per 
minute, yet the winning bidder, GTL, reported to the Commission average 
2012 through 2013 ICS costs of [BEGIN CONFIDENTIAL] [END CONFIDENTIAL]. 
The Pennsylvania Department of Corrections (DOC) contracted with 
Securus at a $0.059 per-minute rate for all ICS and the elimination of 
all ancillary fees, while offering a 35 percent site commission, even 
though Securus reported to the Commission that its average cost of 
providing ICS over 2012 and 2013 was [BEGIN CONFIDENTIAL] [END 
CONFIDENTIAL]. Similarly, in New Hampshire, the state DOC lowered 
intrastate rates to less than $0.06 per minute with a 20 percent site 
commission. That providers bid for these contracts, and supply ICS at 
rates consistent with these constraints, strongly suggests that 
efficient providers can provide ICS at rates closer to $0.05 per 
minute--less than half of our lowest rate cap of $0.11 per minute. This 
is not surprising, as a per-minute rate of approximately $0.05 per 
minute approximates the lowest average per-minute costs reported to us. 
We observe that it is unlikely that any provider would supply any state 
if the rates allowed in those states did not at least cover the 
incremental costs of supplying each of those states, which further 
suggests that reported costs may be inflated. We also note that no 
provider clearly argued that such rate levels are the result of cross-
subsidization, and there is no data in the record to support such a 
conclusion. While one provider made statements unsupported by data that 
might be so interpreted, those statements are too vague to evaluate.
b. Analysis of Data Received in Response to the Mandatory Data 
Collection
    50. Rate Methodology. In the 2013 Order, the Commission adopted the 
Mandatory Data Collection to enable it ``to take further action to 
reform rates, including developing a permanent cap or safe harbor for 
interstate rates, as well as to inform our evaluation of other rate 
reform options in the Further Notice.'' In 2014, the Wireline 
Competition Bureau (Bureau) developed a template and related 
instructions for ICS providers to use in responding to the Mandatory 
Data Collection. The Commission also provided notice of the data 
collection, its due date, and information on contacting Bureau staff 
available to answer specific questions on how to comply with the filing 
requirement and the template and instructions. The instructions, 
template, and other related material were posted on the Commission's 
Web site, and the data collection due date was announced by Public 
Notice which was also published in the Federal Register, 79 FR 35956, 
Nov. 21, 2014. Responsive data were received in August 2014.
    51. The Commission directed the Bureau to create the template in a 
manner intended to allow a provider to include all costs incurred in 
the provision of ICS. Without limiting or restricting costs or cost 
categories, the Bureau directed providers to report their ICS-related 
costs for telecommunications, equipment, and security, as well as any 
costs not captured in these categories (i.e., ``other costs''). The 
Commission directed providers to submit the data for fiscal years 2012, 
2013, and 2014, which provided the two most recent years of actual data 
and one year of partial actual and partial forecasted data. Providers 
were required to report intrastate, interstate and international ICS 
cost data in the aggregate for debit, prepaid, and collect calling 
services. For each service, providers were required to identify which 
costs were direct or common, and to allocate costs by facility type and 
size. Providers also submitted call volume data (MOU and number of 
calls) for each category. The Commission received data filings from 14 
of the 25 anticipated ICS provider respondents. We estimate that the 14 
responding providers together represent over 90 percent of the market.
    52. The debit and prepaid rate caps we adopt are based on 2012 and 
2013 data submitted by the 14 responding providers. The caps rely on 
the 2012 and 2013 data because it represents actual, rather than 
projected, data, and allows averaging across the two years to account 
for cost variations that may occur between the years. Costs per minute 
were calculated using a weighted average per minute cost (which is the 
same as dividing aggregate costs (i.e., the entirety of all costs 
reported by the providers for any category) by aggregate minutes of use 
in that category). This prevents small outliers from having a 
disproportionate impact on our analysis.
    53. Based on the record and our analysis described below, we 
believe the applicable rate caps will ensure just, reasonable and fair 
compensation for ICS. We have relied on the cost data and allocations 
as submitted by ICS providers in calculating these rate caps. We note 
that the providers cost data reflect their determinations about how to 
allocate certain common costs, such as call centers and back-office 
operations. It is generally understood that an economically rational 
provider will serve a facility if it can recover its incremental cost 
of doing so, which the record and our analysis indicate will be the 
case. We take the data at face value, even though the analysis shows 
that there is significant evidence--both from our own analysis and 
commenters' critiques--suggesting that the reported costs are 
overstated. We also find support in the record evidence of increased 
demand and additional scale efficiencies, which are not included in our 
quantitative analysis. Our analysis and the record evidence support our 
conclusion that efficient providers would be able to operate profitably 
under our rate caps.
    54. Discussion and Analysis. Based on the record and our own 
analysis described below, we find that our prescribed rate caps as 
outlined above are more than sufficient to allow providers to recover 
efficiently-incurred ICS costs (excluding reported commissions).
    55. The record supports our conclusion. Coleman Bazelon, economics 
consultant for the Wright Petitioners, analyzed our rate caps and 
concluded that they ``will largely cover the individual ICS providers' 
costs in

[[Page 79144]]

providing service.'' [BEGIN CONFIDENTIAL] [END CONFIDENTIAL] The 
Bazelon economic analysis does not take into account the evidence that 
lower rates will spur demand, such that the vast majority of the 
industry costs will be covered by the rates adopted today.
    56. ICSolutions, an ICS provider, states that it ``can comply with 
the proposed rules'' and notes that this ``strongly suggests that any 
entity failures in the industry are likely a result of inefficient 
operations.'' NCIC also supports our rate caps. Praeses ``believes that 
Providers will generally be able to provide services pursuant to these 
rate caps at a profit.'' Praeses also reports that interstate call 
volume and resulting revenue have increased since our 2013 interim 
reform, with facilities operated by its clients seeing approximately 76 
percent interstate call volume increases and overall interstate revenue 
growth of approximately twelve percent. This is unsurprising, as 
reduced prices typically lead to higher volume. ICSolutions reports 
seeing call volumes increase ``by as much as 150%, and revenues 
increase by about 30%'' when it implements lower call rates. In 
addition, our rate caps are generally higher than rates that have been 
adopted in several states that have undertaken reform and there is no 
evidence in the record that such rates have made provision of ICS 
unprofitable. Also, nothing in the record suggests that states that 
have adopted such reforms are different from those states that have not 
adopted reform with respect to either costs or revenues.
    57. Our own analysis likewise shows that the rate caps will permit 
just, reasonable, and fair recovery for the provision of ICS. Our 
approach is conservative in its analysis of both costs and call volumes 
(and hence revenues). It includes all the reported data, assumes they 
do not overstate costs, and takes no account of likely increases in 
call volumes that our rates would induce, thereby understating expected 
revenues. This analysis thus likely reflects a worst-case scenario, 
and, as discussed below, even in the worst-case scenario, our rates are 
fair and reasonable.
    58. Costs. Our analysis of costs supports our conclusion that 
efficient providers will be assured just, reasonable, and fair 
compensation under our rate caps. In particular, based on the unaudited 
costs for 2012 and 2013 reported by the 14 respondents to the 
Commission's Mandatory Data Collection, the lowest rate cap we 
prescribe ($0.11) is greater than the average per minute cost of each 
of the more efficient reporting providers. Two of these providers are 
quite small, and operate in relatively small jails only. As a result, 
as discussed below, the expected efficient cost of these small 
providers on a per minute basis is likely higher than the efficient 
costs larger reporting providers face, which implies that larger 
providers should also be able to operate at a profit at our prescribed 
prices. We recognize that some providers may supply a range of services 
that go beyond ICS, and the prices that they charge may be used to 
cross-subsidize these services. However, we do not consider it 
appropriate for non-ICS services, such as location-monitoring, to be 
paid for by inmates and their families and friends through ICS rates.
    59. Further, we find that providers reporting high costs could 
recover those costs and receive just, reasonable, and fair compensation 
under our rate caps through increased efficiencies. Our analysis 
suggests that providers generally may have been over inclusive in 
reporting their costs and that the supply of ICS is not fully 
competitive, implying that the adopted rate caps are conservative. We 
also note that no providers have submitted evidence that their higher 
costs may be attributable to higher-quality or more technologically-
advanced ICS.
    60. Other evidence reinforces our view that respondents' reported 
costs may in some cases exceed economic costs, and lead us to conclude 
that our prescribed rate caps will allow efficient firms to recover 
their economic costs, including a reasonable return. For example, the 
average per-paid minute cost of each of the seven largest firms 
substantially exceeds the average per-paid minute average cost of each 
of three smaller providers. This data point suggests these larger firms 
are either economically inefficient or that they overstated their costs 
of ICS provision. On one hand, if there were economies of scale or 
constant returns to scale in production of calls or call minutes of 
use, then larger firms would have lower or the same average costs as 
the smaller firms, implying that these larger firms' reported costs are 
above efficient levels. On the other hand, if there were diseconomies 
of scale (that is, the average per-minute cost rises with MOU volumes), 
then these firms are inefficiently large (they would be more effective 
broken up into smaller firms), and we should not subsidize that 
anomaly.
    61. More generally, we find above that average costs should fall 
with the provider's size. However, the reported data (implausibly) show 
only a very weak negative relationship between average costs and the 
number of calls or MOU. Similarly, the data (again implausibly) do not 
support a priori assumptions about underlying costs. For example, 
regression analysis indicates that the firms' costs were highly 
correlated with different measures of MOU, type of call, and facilities 
serviced. However, in most specifications the coefficients associated 
with the MOU and call variables were implausible: they were typically 
well above the expected marginal cost of an additional MOU. Further, in 
some specifications, the differences between the marginal costs of 
different types of calls were implausibly large and statistically 
significant. Both of these facts (the lack of scale economies in call 
production and minutes of use and oddities about reported marginal 
costs) suggest that the data do not reflect the actual economic costs 
of supply and lead us to doubt the extent to which reported costs 
accurately reflect efficient costs. Additionally, reinforcing our view 
that reported costs are inefficiently high, there is evidence that some 
of the providers' costs include services that are not directly related 
to the provision of ICS. In short, all these observations make it all 
the more likely that our prescribed rate caps would allow an efficient 
provider to earn economic profits.
    62. There is also evidence that competition to supply ICS may not 
always be robust, which in turn suggests providers are able to earn 
more than economic costs, and if faced with lower revenues, may remain 
profitable. The most important evidence in this last respect is that 
the providers' unaudited cost data show that roughly similarly situated 
providers have substantially different costs. This not only suggests 
that the higher cost providers are unlikely to be economically 
efficient, but also that if they were to operate more efficiently, they 
would have no difficulties in recovering their economic costs. For 
example, a lack of robust competition would explain why the reported 
cost data does not seem reflective of underlying costs (a result that 
is inconsistent with effective competition). Analysis of that data also 
finds a tight relationship between costs and output levels, both when 
commissions are included and excluded. This suggests a high degree of 
homogeneity in the industry between reported costs (with and without 
commissions) and output. One might expect such results if all bids for 
ICS were either competitive or non-competitive, but, as noted, other 
aspects

[[Page 79145]]

of the cost data are inconsistent with competition, and other evidence 
suggests competition, if it exists, is not found everywhere.
    63. Two of the six smallest responding providers when ranked by 
paid MOU would earn substantial imputed profits at our prescribed 
rates. For example, over 2012 and 2013, [BEGIN CONFIDENTIAL] [END 
CONFIDENTIAL] had an average per paid minute cost of $0.05 (and a 
similar average per all minute cost) when rounded to the nearest $0.05, 
earning imputed profits of well over 200 percent. Similarly, in 2012 
and 2013, [BEGIN CONFIDENTIAL] [END CONFIDENTIAL] had an average per-
paid minute cost of $0.10 when rounded to the nearest $0.05, earning 
imputed profits in excess of 100 percent.
    64. In contrast, our conservative approach imputed reductions in 
providers' ability to recover costs under our initial rate caps to 
seven of the reporting providers, but we find that all of these 
providers would be highly profitable if their cost structures resembled 
those of the two small efficient firms we identified. Four of these are 
among the six smallest responding providers. Each reported average per-
paid minute costs over 2012 and 2013 of $0.25 or higher. That is, in 
all cases their average per-paid minute costs were more than two and a 
half times, and in some cases several multiples of, the highest paid 
MOU average cost of the two small providers with imputed profits. 
Consequently, if these four providers' average costs were halved, so 
that they still exceeded those of the two small providers with imputed 
profits, then all four would operate at a profit given our conservative 
revenue assumptions. The remaining three providers with imputed 
reductions in cost recovery are considerably larger than the two small 
providers with imputed profits discussed above, and more than one 
supplies services in prisons as well as jails. Yet, each has an average 
per-paid minute cost that is at least three times as high as that of 
[BEGIN CONFIDENTIAL] [END CONFIDENTIAL] (which we found to have large 
imputed profits). Again, if these providers' costs were considerably 
closer to, but still well above those of [BEGIN CONFIDENTIAL] [END 
CONFIDENTIAL], then they would be able to earn profits while charging 
rates consistent with our prescribed rate caps. In the two subsequent 
years, providers' ability to recover costs would change, but in all 
cases if these providers were as efficient as the two efficient 
providers discussed above, they would earn an economic profit in all of 
the years discussed.
    65. Revenue. Turning to revenue, our analysis likewise demonstrates 
that our rate caps permit fair, reasonable, and just compensation. Once 
again, we take the provider's data as filed despite the evidence that 
they are overstated. Moreover, even assuming the same call volumes as 
experienced in 2012 and 2013, no other revenue sources, and no improved 
efficiency in service provision, we can impute in the initial year that 
all providers, if operating efficiently, would be profitable under our 
prescribed rate caps. With more realistic assumptions (greater call 
volumes, revenues from ancillary services, and productivity 
improvements), it is likely that any provider facing imputed revenue 
reductions in the range of 10 percent would remain profitable even if 
its reported costs were not overstated (and we find to the contrary). 
For example, for the reasons described below and based on record 
filings, capping rates is likely to increase minutes of use, thus 
raising revenues, and this would likely make up for such imputed 
reduction in revenue. The few remaining providers potentially could 
face larger imputed reductions in revenue (assuming their reported 
costs were efficient). However, these providers have reported costs 
significantly higher than the industry average, even more strongly 
suggesting that they are likely to be inefficient providers. In any 
event, to the extent such providers can demonstrate that they are 
unable to receive fair compensation under our rate caps, they would be 
eligible to seek a waiver as described below.
    66. In short, our revenue estimates are likely understatements, for 
the reasons described below. We also find that many of the providers' 
reported costs are likely to be higher than efficiently-incurred costs, 
and this is specifically the case for the carriers just discussed. 
Consequently, we have a high degree of confidence that our prescribed 
caps would allow efficient providers of ICS to operate profitably.
    67. Our revenue imputation likely underestimates the actual 
revenues providers would obtain for four reasons. First, our analysis 
does not take into account the demand stimulation from lower rates. But 
there is substantial record evidence showing that, to the extent that 
our caps lower existing rates, they will increase minutes of use and 
raise provider revenues.
    68. Second, we impute rates that in some cases will be lower than 
the rates the providers may actually charge. The resulting revenue 
underestimate could be material for six of the providers for which we 
impute losses at our prescribed rate caps, meaning that as a practical 
matter they could make up for any shortfall. All these providers have 
jail contracts with ADPs of at least 350, and some of these providers 
have a large number of such contracts. To estimate each provider's 
revenues under the rate caps we adopt today, we calculate the revenues 
the provider would have earned given the MOU the provider reported for 
2012 and 2013 for debit and prepaid calls in the three different jail 
size categories, 0-349, 350-999, and 1,000+, for prisons, and for 
collect calls (so, for example, if a carrier had 1,000 debit MOU in the 
0-349 category, we assume the provider would earn $220 (= 
1,000*$0.22)). This approach can understate revenues because providers 
reported contracts according to the sum of the ADP of the facilities 
covered under the contract, but in some cases providers will charge 
different rates in different facilities supplied under the same 
contract. In that case, when the contract has an ADP of 350 or more, 
but the provider serves under the contract jails with an ADP that is 
lower than the contract ADP, our estimate will understate the revenues 
they would have earned if our prescribed rates were applied. For 
example, a contract with an ADP of between 350 and 999 that currently 
sets different rates for different facilities might cover three jails, 
each with an ADP of 150. In that case, while we would impute a rate of 
$0.16 to the prepaid and debit MOU reported under that contract, in 
reality the provider could be entitled to the $0.22 rate cap on all 
those MOU. Similarly, all jails reported under contracts with an ADP of 
1,000 or more were imputed the debit and prepaid rate of $0.14, but 
some of these jails could have ADPs of less than 1,000, and in some 
cases of less than 350. If the contract specified separate rates by 
facility, then the provider could be entitled to either the $0.16 or 
the $0.22 rate in those smaller jails.
    69. Third, our analysis also does not take into account the caps 
that we impose on ancillary service charges, which likely will lead to 
an increase in minutes of use. Finally, our analysis does not take into 
account the fact that international calls are not subject to our rate 
caps and therefore, such calls will produce more revenue than 
reflected.
    70. A few providers, including GTL, Securus and Telmate, contend 
that our rate caps are too low and will not allow them to recover their 
costs. Others assert that our rate caps may be too low with respect to 
particular facilities. Some representatives of jail facilities express 
concern that the provision of ICS in

[[Page 79146]]

their facilities may be in jeopardy. Based on our analysis and the 
record, we find these assertions unpersuasive. Several providers 
dispute their claims, noting that GTL, Securus, and Telmate failed to 
break out their costs by facility type, and proposed rate caps well 
above their reported average costs over both prisons and jails. As a 
result, ``any claim that the Commission's draft rates are demonstrably 
below carriers' reported costs is wholly unsubstantiated and without 
merit.'' Our analysis indicates that the rate caps we adopt will permit 
just, reasonable, and fair compensation. Moreover, we expect that the 
reforms adopted will lead to increased minutes of use, incentivize 
increased efficiency, and permit providers to generate increased 
revenues. Thus, we do not believe that there is a reason for service to 
facilities to be in jeopardy but, as noted below, there is a process 
for considering any unique circumstances that may justify a waiver to 
ensure fair compensation.
c. Evidence That the Mandatory Data Collection Likely Overstates 
Providers' Costs
    71. In addition to the analysis detailed above, evidence in the 
record suggesting that a number of ICS providers overstated their costs 
in response to the Mandatory Data Collection provides us with further 
comfort that the rate caps adopted today are appropriate and ensure 
fair compensation to the providers.
    72. For instance, providers were directed to file a Description and 
Justification (D&J) with their Mandatory Data Collection response to 
document and explain their cost submissions. Three providers did not 
submit a D&J to the Commission. The D&Js received varied widely in 
detail and thoroughness. Five providers (CenturyLink, GTL, Pay Tel, 
Securus, and Telmate) claimed a cost of capital of 11.25 percent in 
developing their cost data submission. (While other providers did not 
specify a cost of capital, given the length of this proceeding and the 
fact that the Commission clearly signaled its focus on setting 
appropriate ICS rates, as well as the fact that these respondents are 
sophisticated parties, we think that it is reasonable to assume that 
all responding providers included a cost of capital whether they 
specified it or not.) The cost of capital has to be estimated and their 
estimate of 11.25 percent might be significantly higher than the 
prevailing cost of capital for companies that provide telecommunication 
services. In any event, none of these companies submitted evidence as 
to their costs of debt or equity capital or capital structure, the 
three components of the cost of capital, and so have not justified any 
cost of capital estimate. In addition, several providers (Securus, 
Telmate, and CenturyLink) included in their costs financing items as 
well as interest expense, which is included in the cost of capital. 
This suggests that these providers, and possibly others, have over-
estimated their capital costs, potentially double-counting their cost 
of debt. The five providers that specifically reported using 11.25 
percent account for a large portion of the market, and thus a 
commensurate weight is reflected in the weighted average caps that we 
calculate. Consequently, in the unlikely event that a provider omitted 
its cost of capital, the omission is unlikely to have a significant 
impact on the weighted average caps. We also note that the Bureau has 
recommended to the Commission that a zone of reasonableness for the 
Weighted Average Cost of Capital (WACC) is between 7.39 and 8.72 
percent.
    73. We also find that the manner in which the data was collected 
and the clearly-stated purpose of the data collection, which occurred 
in the context of a Commission effort to set caps on ICS rates, gave 
providers every incentive to represent their ICS costs fully, and 
possibly, in some instances, even to overstate these costs. For 
example, one provider noted in its D&J that it even included in its 
ICS-related costs amounts for dues, subscriptions, entertainment and 
meals. We question the appropriateness of including such costs as ICS-
related costs but as noted below we accept these reported costs without 
discounting or manipulating them. We have observed that at least one 
reporting provider did not actually calculate the percentage of traffic 
for each service (debit, prepaid or collect) represented but rather 
used the same percentage for each and merely offered a ``guess'' in 
reporting its 2014 data projections. This information forces us to call 
into question the accuracy of this provider's data and how rigorous 
this provider was in preparing its Mandatory Data Collection response. 
That the adopted rate caps include such costs, as well as the costs of 
international calls that are not subject to our rate caps, causes us to 
conclude that the adopted caps are generous. An analysis of the adopted 
rate caps shows that some providers will recover more than their stated 
costs, while others will recover less (because the caps are based on 
weighted industry averages but, as explained above, we believe all 
providers can more than recover the efficient costs of ICS supply).
    74. Moreover, comments in the record have also highlighted how the 
data likely overstate costs. For example, the Petitioners' economist, 
Coleman Bazelon, and Pay Tel's economic consultant Don Wood identified 
problems they observed with the data. Dr. Bazelon also reported that, 
based on an analysis that included information not included in the 
provider's Mandatory Data Collection submissions, the reported costs of 
Securus and GTL ``include many incorrectly calculated additions such as 
inappropriately recoverable financing costs.'' Dr. Bazelon reports 
that, [BEGIN CONFIDENTIAL] [END CONFIDENTIAL].
    75. After recalculating the providers' costs, Dr. Bazelon then 
concludes that their reported costs should be discounted by 
approximately [BEGIN CONFIDENTIAL] [END CONFIDENTIAL]. While we do not 
discount the costs as recommended by Dr. Bazelon and, instead, take a 
more conservative approach of using the data at face value, this 
analysis underscores that the data submitted likely overstates costs 
and, as a result, the rate caps we adopt today are conservative.
d. Alternative Proposals in the Record
    76. Numerous commenters have submitted rate reform proposals in the 
record. The Petitioners, along with several public interest groups, 
initially urged the Commission to adopt a $0.07 per minute rate cap for 
all interstate debit, prepaid, and collect calls, with no per-call 
charge, and no ancillary fees or taxes allowed. GTL, Securus, and 
Telmate, who describe themselves as ``the primary providers of inmate 
calling services . . . in the United States and represent[ ] 85% of the 
industry revenue in 2013,'' jointly filed a proposal to comprehensively 
reform all aspects of ICS. The Joint Provider Proposal urges the 
adoption of rate caps of $0.20 per minute for debit and prepaid 
interstate and intrastate ICS, and $0.24 per minute for all interstate 
and intrastate collect ICS, effective 90 days after adoption of a final 
order. The Joint Provider Proposal does not indicate that it is based 
on cost data received in response to the Mandatory Data Collection. In 
addition, the Joint Provider Proposal was signed by only three of the 
14 ICS providers that responded to the Mandatory Data Collection. Pay 
Tel submitted what it calls an ``Ethical Proposal,'' in which it 
proposes rate caps of $0.08 per minute for all prisons regardless of 
population, $0.26 per minute for jails with 1-349 ADP, and

[[Page 79147]]

$0.22 per minute for jails with 350 plus ADP. The Commission sought 
comment on these proposals in the Second FNPRM.
    77. In response to the Second FNPRM, Petitioners submitted another 
reform proposal. The Petitioners propose a rate of $0.08/minute for 
prepaid and debit calls and $0.10/minute for collect calls from all 
prisons and jails with over 350 beds. Petitioners propose a rate of 
$0.18/minute for prepaid and debit calls and $0.20/minute for collect 
for facilities with fewer than 350 beds. Petitioners suggest that the 
Commission adopt these tiered rates to account for higher churn rates, 
increased non-revenue calls, and higher bad debt issues experienced in 
smaller facilities. In its comments to the Second FNPRM, PPI supports a 
cap of $0.05 to $0.07 per minute.
    78. Several commenters submitted economic justifications for their 
rate proposals, each of which relied on a slightly different subset of 
the data in the Mandatory Data Collection. For the reasons described 
below, the Commission declines to adopt any of these proposals.
    79. After comments were received in response to the Second FNPRM, 
Pay Tel filed an additional proposal based on its economic consultant's 
analysis of the data filed in response to the Mandatory Data 
Collection. The company proposes tiered per-minute rate caps, for all 
call types, plus institution cost recovery amounts to be added to those 
caps. The rates (rate cap plus additional facility cost recovery) would 
range from $0.10/min for prisons to $0.29/min for jails of 0-349 
inmates. Specifically, Pay Tel's economic consultant, Don Wood, 
excluded from his analysis, and subsequent proposed rate caps, the data 
from ATN, Encartele, and Protocall because he did not receive data from 
those providers, and from Combined Public Communications, Custom 
Teleconnect and Correct Solutions, because he deemed them ``unreliable 
for the purpose at hand.'' Mr. Wood then observed that the remaining 
eight reporting ICS providers' data included no description of how 
their cost studies were performed, and stated that ``a number of the 
studies are decidedly imperfect, and more complete documentation would 
certainly be desirable.'' Regardless, Mr. Wood suggested that ``key 
results of these studies should be relied upon by the Commission when 
making any decisions regarding the level and structure of ICS costs.'' 
We conclude that our approach is more appropriate because it includes 
data from all providers, rather than excluding six of the fourteen 
reporting providers' data. This approach is less reliable than our rate 
caps because of its selective nature. While we agree that the data are 
not perfect, we do not believe it is appropriate to ignore the filed 
data and we find Mr. Wood's rationale for excluding certain providers' 
data unpersuasive without additional justification. As such, the rate 
caps adopted herein are derived from all data filed in the record.
    80. In comments to the Second FNPRM, the Wright Petitioners' 
economist, Coleman Bazelon, identified problems he observed with the 
data received in response to the Mandatory Data Collection. For 
example, Dr. Bazelon identified inconsistencies in how providers 
categorized and allocated costs. Dr. Bazelon then discussed the rate 
caps that the Wright Petitioners' proposed in their comments. These 
rate caps were based on Securus' and GTL's average cost data, which Dr. 
Bazelon then discounted because of concerns regarding Securus' cost-
reporting methodology. As noted above, Dr. Bazelon found errors in 
Securus' and GTL's submissions, which led them to likely overstate 
their reported costs. After adjusting for these errors, the Wright 
Petitioners suggest that an appropriate rate cap for service to prison 
facilities should be $0.08/minute for debit/prepaid calling and $0.10/
minute for collect calling.
    81. We appreciate Dr. Bazelon's analysis highlighting that the data 
are likely to be overstated, but we do not believe it is appropriate 
for our purposes. Dr. Bazelon's analysis suggests that one provider may 
have overstated its costs by some significant amount. We find Dr. 
Bazelon's analysis of the submitted data troubling and believe that his 
conclusions, if true, might support discounting cost data from certain 
providers. (We note, however, that our filing instructions did not 
specify in detail how providers should account for the data that Dr. 
Bazelon discussed, although we required providers to identify and 
explain all costs in the accompanying Description and Justification. 
The lack of specific instruction regarding the method of cost reporting 
should not have been interpreted as license to manipulate or over-
report cost data, and the reference to the penalty for willful false 
statements should have made that evident.) While we are concerned that 
the analysis from Dr. Bazelon suggests that costs were overstated, we 
do not believe it is appropriate to adopt a rate cap based on 
discounting a single provider's costs when we have data from 13 other 
providers. In addition, we determine above that we should not 
manipulate the data but more conservatively accept the providers' costs 
as filed to avoid potentially arbitrary means of working with the data.
    82. Alabama Public Service Commission Utility Services Division 
Director Darrell Baker likewise reviewed the data. His proposal 
includes four tiers each for prisons and jails, based on inmate 
population, with both rate caps and additional facility cost-recovery 
amounts, yielding rates ranging from $0.12/min (prisons with more than 
19,999 inmates) to $0.25/min (jails of less than 100 inmates). In 
support of his proposal for prison rates, Mr. Baker relied on cost data 
from only seven of the reporting 14 providers. He excluded from his 
rate cap and cost-recovery calculations the seven smallest reporting 
providers, on the basis ``that the . . . [remaining] providers serve 
the overwhelming majority of jails and prisons and that . . . an 
analysis of their data should provide accurate and reliable results 
that are applicable across the entire industry.'' In support of his 
proposal for jail rates, Mr. Baker relied on data from only six of the 
reporting providers, excluding one of the seven remaining providers' 
data because that ``[o]ne provider's cost per MOU deviates 
substantially from the cost per MOU of other providers.'' We find Mr. 
Baker's approach problematic because it eliminated the higher cost data 
in the record. Put another way, the seven smallest providers submitted 
what were among the highest reported costs of providing ICS and the 
other excluded provider by process of elimination must be a larger 
provider that is responsible for a more-significant portion of ICS 
minutes of use. Additionally, Mr. Baker appears to have given no 
consideration to potential justifications, if any, for that provider's 
higher costs. We are unable, on the record before us, to exclude 
providers' reported data in calculating the appropriate rate caps.
    83. The comments in the record largely agree that the data are 
problematic but disagree on the reasons why and the overall effect on 
the reported data. Each analysis described above is based on a 
different data set and criticizes the data for slightly different 
reasons. We take seriously the concerns that the commenters have raised 
about inconsistencies in the data, and for at least some of the reasons 
described above, conclude that the reported data likely overstates the 
providers' actual costs. But, as explained herein, we are unable to 
agree with and do not adopt any of the commenters' choices about which 
data to exclude or discount.

[[Page 79148]]

e. Rate Caps for Collect Calls
    84. In this section, we conclude that it is appropriate to put in 
place a temporary, distinct rate structure for collect calls, with a 
two-year phase down after which rate caps for collect calls will be the 
same as those of debit and prepaid calls.
    85. In the 2013 Order, the Commission established a rate cap for 
interstate debit and prepaid calling and a separate rate cap for 
interstate collect calling. The interim interstate collect calling rate 
cap was $0.25. In setting this separate rate cap, the Commission 
recognized that, based on the data available at the time, collect 
calling can be more expensive for ICS providers to offer than debit and 
prepaid calling. The Commission encouraged facilities to move away from 
collect calling, noting that the use of prepaid calling helps called 
parties to better manage their budgets for ICS, thus making end-user 
costs for maintaining contact more predictable. The Commission also 
noted that debit and prepaid calling address the problem of call 
blocking associated with collect calling by enabling service providers 
to obtain payment for calls up front, thus eliminating the risk of 
nonpayment.
    86. In the Second FNPRM, the Commission sought comment on retaining 
the differentials between debit/prepaid and collect calling. The 
Commission noted that data received from the Mandatory Data Collection 
suggest that collect calling costs are higher than costs for prepaid 
and debit calls, and that collect calling accounted for less than nine 
percent of revenue producing minutes in the data collection in 2013. 
Commenters suggest that collect calling is more costly to provide 
because of bad debt, billing costs, uncollectible debts and issues 
related to collection of non-payment. For example, some commenters 
still assert that the Commission should adopt a higher rate cap for 
collect calling, largely because of the higher costs associated with 
collect call service. The Commission, along with several commenters, 
has noted that use of collect calling in correctional facilities has 
dropped significantly in recent years. Data received in response to the 
Mandatory Data Collection confirm this decline. Between 2012 and 2014, 
collect-calling minutes of use decreased over 50 percent, from 15 to 7 
percent of minutes of use. CenturyLink recently told the Commission 
that ``that traditional collect calling represents a small and 
declining percentage of inmate calls.''
    87. Based on our analysis of the record, including data submitted 
in response to the Mandatory Data Collection, we predict that collect 
calling usage will continue to decrease in the future. We do not want 
to include high collect calling costs in debit and prepaid rate tiers 
because that would compel the majority of ICS end users that do not use 
collect calling to subsidize such calls. In light of that concern, and 
because we continue to encourage correctional institutions to move away 
from collect calling, as the Commission did in the 2013 Order, we adopt 
a separate rate cap tier for collect calling. This separate tier is 
consistent with the Commission's prior actions in adopting a separate 
collect calling rate tier based on data indicating that collect calls 
were more expensive than other types of ICS calls. Since the adoption 
of our interim rate caps, only one provider has been granted a waiver 
based on an assertion of unreasonable or unsustainable rate caps, 
further supporting the reasonableness of the rate of the interim 
collect calling rate caps.
    88. We adopt a collect calling rate cap based on the cost data 
received in response to the Mandatory Data Collection, as well as a 
two-year step-down transitional period, as follows. First, we adopt a 
collect calling rate of $0.49/per minute for all jails and $0.14 for 
all prisons until July 1, 2017. Beginning July 1, 2017, we adopt a rate 
of $0.36/per minute for jails of 0-349 ADP, $0.33/per minute for jails 
of 349-999 ADP, and $0.32/per minute for jails of 1,000 or greater ADP, 
and $0.14/per minute for all prisons. This rate is halfway between the 
initial rate and the rates that are adopted in this Order for debit and 
prepaid calling. Finally, effective July 1, 2018 and beyond, we adopt a 
collect calling rate of $0.22/per minute for jails of 0-349 ADP, $0.16/
per minute for jails with 359-999 ADP, and $0.14/per minute for jails 
of 1,000 or greater ADP, and $0.11/per minute for all prisons, in order 
to arrive at rates that are identical to those adopted in this Order 
for jails and prisons and the respective tiers therein.
    89. We conclude that these separate tiers for collect calling rates 
will phase out after a two-year transition period. This two-year 
framework is justified by the data filed in response to the Mandatory 
Data Collection, showing that collect calling volume is decreasing and 
will most likely be at a nominal level in two years. By adopting a two-
year glide path, the rates ICS providers are permitted to charge phase 
down over time, with certainty and sufficient time to adapt to a 
changed landscape that includes reduced use of collect calling overall. 
We find that this transitional approach will be administratively 
efficient for both providers and the Commission, as it involves a 
straightforward two-year step-down process and reflects our expectation 
that providers will gain efficiencies in their contracts and collect 
calling, and that they will thus more easily adjust to the lower rate 
caps adopted for debit and prepaid calling.
    90. Moreover, the record supports a uniform rate for collect calls. 
Indeed, several commenters no longer support a separate rate cap for 
collect calling, indicating that collect calling costs may not, in 
fact, differ significantly from debit or prepaid calling costs, or that 
collect calling accounts for a relatively small portion of calls. The 
record indicates that this is because correctional institutions favor 
debit or prepaid calling over collect calling. For example, when the 
Commission adopted the 2013 Order, evidence in the record indicated 
that collect calling was the only ICS option offered in four states and 
now the record indicates that collect calling is the only ICS option in 
one state. As the Commission has stated previously, we encourage 
providers and facilities to move away from collect calling for the many 
efficiencies and cost savings that other types of calling offer. 
Finally, we find that a two-year transition will allow the Bureau to 
monitor collect calling and address any potential traffic arbitrage 
issue that might occur if providers shift calling patterns to take 
advantage of the higher collect calling rate caps.
    91. We acknowledge that the collect calling rate caps will be 
higher in year one than several of the collect calling caps proposed in 
the record. We expect that these caps will serve as backstops, not a 
target for providers, as efficiencies are gained by providers, and 
contracts are changed, or new contracts are entered into between 
parties. As discussed above, we expect that the trend towards declining 
collect calling volume will continue, and the adopted rate caps may be 
further modified in response to further data received as part of the 
MDC adopted herein.
    92. We delegate to the Bureau the authority to seek comment on the 
possibility of adjusting the adopted collect calling rate cap if 
necessary to address any gaming issues that may arise prior to 
completion of the phase-down. As part of the annual reporting and 
certification requirement adopted herein, the Bureau will be monitoring 
collect call volume in order to review trends and to ensure that gaming 
does not occur. As discussed below, the

[[Page 79149]]

Commission also plans to collect rate data, including data about 
collect calling rates that will further inform this review.
f. Cost-Benefit Analysis
    93. In adopting these rate caps, we have carefully considered each 
proposal or suggestion from the extensive comments in the record and 
weighed its potential benefit against any potential burden it may 
impose, bearing in mind our statutory mandate that ICS rates must be 
just, reasonable, and fair, maximizing the public benefit from any 
proposal we adopt. We find, on balance, that the benefits of our rate 
caps outweigh any potential burden that may be imposed. For example, 
regular family contact not only benefits the public broadly by reducing 
crime, lessening the need for additional correctional facilities and 
cutting overall costs to society, but also likely has a positive effect 
on the welfare of inmates' children. Ensuring just and reasonable ICS 
rates will foster regular contact between inmates and families, reduce 
the economic burden on ICS end users, support more cost-effective 
communication between inmates and their counsel, and produce cost 
savings for the justice system.
    94. Additionally, as the Commission discussed in the 2012 NPRM, 
studies show that regular contact with family reduces inmate 
recidivism. Children who continue to stay in touch with their parent in 
prison exhibit fewer disruptive and anxious behaviors. Yet, according 
to one study, only 38 percent of inmates reported ``at least'' monthly 
phone calls with their children. Real telephone contact between inmates 
and their loved ones at high rates places a heavy burden on inmates' 
families because families typically bear the burden of paying for the 
calls. The Government Accountability Office (GAO) has twice recognized 
the conclusions of Federal Bureau of Prisons officials that contact 
with family ``aids an inmate's success when returning to the 
community'' and thus lowers recidivism. Moreover, the GAO has found 
that ``crowded visiting rooms make it more difficult for inmates to 
visit with their families'' and that ``[t]he infrastructure of the 
facility may not support the increase in visitors as a result of the 
growth in the prison population.''
    95. As discussed above, there is little dispute that the ICS market 
is experiencing market failure. Numerous commenters have expressed as 
much. Various parties encourage the Commission to reform rates within 
inmate calling, and some offer specific reform proposals. Reforms are 
necessary to ensure that the benefits discussed above, which are in the 
public interest, will be realized.
    96. The Order recognizes, however, that imposing rate caps may 
impose burdens on some providers. We have taken steps to minimize 
burdens on providers. As discussed below, we allow a 90-day transition 
period for the rate caps adopted in this Order to take effect for 
prisons and six months for the applicable rate caps to take effect in 
jails. We find that this length of time adequately balances the 
pressing need for reform while affording ICS providers and facilities 
sufficient time to prepare for the new rates. Further, our rate caps 
are designed to ensure that efficient providers will recover all 
legitimate costs of providing ICS, including a reasonable return, and, 
to the extent a provider can demonstrate special circumstances, it may 
seek relief from our rules in the form of a waiver. Specifically, the 
Commission will consider requests from a provider arguing that 
particular facts, when considered in the context of the totality of the 
relevant circumstances, deprive the provider of fair compensation or 
have a substantial and deleterious effect on competition in the ICS 
market.
    97. Additionally, the rate caps adopted in the Order include fewer 
tiers than the number of tiers used in the data requested in our 
Mandatory Data Collection. The Commission collected data, for example, 
on the costs of serving jail facilities with 0-99 ADP, a grouping 
comprising less than 10 percent of the inmate population, but we did 
not adopt that as a rate tier, thereby mitigating any administrative 
burden on providers of adding a separate rate tier for this 
comparatively small grouping. The rate caps we adopt today respond to 
commenter concerns regarding potential confusion and burden caused by 
multiple rates. We also adopt a single rate cap for prisons, which 
should minimize the burden on providers that serve prisons. Finally, we 
disagree with those commenters who assert that adopting a tiered rate 
structure would be unduly burdensome and difficult for the Commission 
to administer and for ICS providers and correctional officers to 
implement. We find these allegations unsupported and commenters provide 
no persuasive evidence that our rate tiers would be more difficult for 
them to administer than the current approaches.
4. Rejection of Certain Types of Charges
a. No Per-Call or Per-Connection Charges
    98. Background. Per-call or per-connection charges are one-time 
fees often charged to ICS users at call initiation. In the 2013 Order, 
the Commission noted problems with per-call charges, ``potentially 
rendering such charges unjust, unreasonable and unfair.'' Problems 
included calls dropped ``without regard to whether there is a potential 
security or technical issue, and a per-call charge . . . imposed on the 
initial call and each successive call.'' The Commission expressed 
``serious concerns about such charges'' and sought comment about the 
risks of such charges, but did not ban them.
    99. In the Second FNPRM, the Commission sought additional comment 
about such charges. First, the Commission asked if it should consider 
per-call or per-connection charges to be part of the ICS rate and 
``therefore subject to the section 276 mandate to ensure fair 
compensation.'' Second, the Commission asked, in the alternative, if it 
should consider per-call or per-connection fees more analogous to the 
ancillary fees discussed in section 276(d). The Commission asked if 
there are ``instances in which the correctional facility or some other 
third party assesses a per-call or per-connection fee,'' and, if so, 
the Commission sought comment on its authority to ban such charges. 
Finally, the Commission sought comment on whether the elimination of 
per-call charges would allow for just and reasonable interstate and 
intrastate ICS rates and fair compensation for ICS providers, on 
``transitions'' away from such charges, and on its legal authority to 
act on per-call or per-connection charges.
    100. We received limited comment in the record, but all supported 
the elimination of per-call or per-connection fees. For example, HRDC 
supports the ``elimination of per-call charges'' for existing 
contracts. Legal Services for Prisoners with Children asserts that 
``per-call'' or connection fees are ``unreasonably high'' and that the 
Commission ``should ban these charges'' or, ``at the very least,'' 
should introduce a ``dropped call'' provision that ``prohibits ICS 
providers from charging multiple times for a call that has been 
reinitiated within a few minutes.'' Pay Tel notes that if the 
Commission adopts ``any rate cap regime--including Pay Tel's Proposal--
that does not allow providers to charge end users an upfront surcharge 
or per-call surcharge, it will

[[Page 79150]]

successfully eliminate the problem of premature disconnection of 
calls.''
    101. Discussion. We disallow the use of per-call or per-connection 
charges pursuant to our legal authority to ensure just, reasonable, and 
fair ICS rates. No evidence in the record supports a conclusion that 
these charges are a necessary part of cost recovery for ICS calls. 
Indeed, no commenters indicated that these fees are tied to a cost that 
providers incur in initiating a call. Providers did not break out per-
call or per-connection costs when they filed their per-minute costs in 
response to the Mandatory Data Collection, indicating that any costs 
incurred on a per-call basis were included in their per-minute cost 
calculations. Allowing providers to recover such charges on top of the 
per-minute rates we adopt in this Order would therefore risk allowing 
double recovery. Additionally, these fees appear to be less prevalent 
than they once were. Recent provider-drafted reform proposals in the 
record do not include per-call or per-connection charges, and many 
recently-adopted ICS contracts likewise do not include these fees. All 
of these factors indicate to us a trend away from the inclusion of such 
fees. Finally, we agree with the Commission's earlier finding in the 
2013 Order that allowing such fees may encourage providers to charge 
end users for dropped calls, which could lead to the ``assessment of 
multiple per-call charges for what was, in effect, a single 
conversation,'' which has no place in a framework for just, reasonable, 
and fair compensation. We find that disallowing such fees is in the 
public interest because it will decrease the cost to end users for 
shorter ICS calls and allow more contact between inmates and their 
loved ones.
b. No Flat-Rate Calling
    102. Background. In the 2013 Order the Commission noted that 
commenters raised issues regarding per-call charges that may be unjust, 
unreasonable, and unfair; callers are often charged more during a 
single conversation when calls are dropped, which the record reveals 
can be a frequent occurrence, thus resulting in multiple calls for a 
single conversation, each subject to a separate flat-rate charge. The 
Commission stated that ``a rate will be considered consistent with our 
rate cap for a 15-minute conversation if it does not exceed $3.75 for a 
15-minute call using collect calling, or $3.15 for a 15-minute call 
using debit, prepaid, or prepaid collect calling.'' Rule 64.6030 
mirrors this language and was intended to illustrate that the rate for 
a five-minute collect call must be capped at $1.25 and the rate for a 
five-minute debit or prepaid ICS call must be capped at $1.05, while a 
30-minute collect call could cost consumers no more than $7.50 and a 
30-minute debit or prepaid ICS call no more than $6.30.
    103. Discussion. Subsequent to the 2013 Order, Securus sought 
additional guidance on this issue, asking whether providers were 
allowed to impose a flat rate based on the interim rate caps for a 15-
minute call regardless of actual call duration. That is, it wished to 
know if it could charge a flat fee of $3.75 for a collect call of any 
duration up to 15 minutes. The Commission sought comment on Securus' 
question, as well as on whether it should revise the existing rules to 
prohibit flat-rate charges or to develop new rules prohibiting flat-
rated charges.
    104. The record reflects minimal support for this practice. The 
Alabama PSC opposes Securus' proposed clarification, stating that 
``flat-rate pricing allows providers to maximize call revenues and to 
dictate phone usage to the end users.'' It further asserts that flat-
rate calling increases complaints related to dropped calls and 
penalizes inmates that want to make shorter calls. Several commenters 
suggest that ICS providers will benefit from a ban on flat-rate calls 
because it will lower their costs related to consumer complaints and 
bill adjustments. HRDC notes that the proposed flat rates ``only fall 
within the rate caps when a full 15-minute call is actually completed'' 
and argues that ``this practice does not reflect the spirit'' of the 
Commission's 2013 Order. Pay Tel asserts that ``numerous ICS providers 
have taken advantage of this language and vague guidance since release 
of the ICS Order and are charging end users a flat rate of $3.15 or 
$3.75 per call, even if the call is disconnected prior to expiration of 
fifteen minutes,'' which it asserts is ``an abuse of the intent of the 
Commission's rules.''
    105. We prohibit the imposition of flat-rate calling. There is 
minimal record support for such charges, which penalize those who make 
shorter calls (the record indicates that ICS calls last typically less 
than 15 minutes). If an end user is charged for a 15-minute call but 
the duration of that call is less than 15 minutes, the price for that 
call is disproportionately high. We also agree with those commenters 
who assert that allowing providers to charge a flat rate based on a 15-
minute call does not comport with our requirement to make ICS rates 
just, reasonable, and fair. As such, we ban flat-rate calling rate 
plans.
5. Legal Authority for Intrastate and Interstate Rate Caps
    106. Background. In the 2013 FNPRM, the Commission tentatively 
concluded that section 276 affords it broad authority to reform 
intrastate ICS rates and practices that deny fair compensation, as well 
as to preempt inconsistent state requirements. The Commission sought 
comment on these tentative conclusions. Multiple commenters supported 
the Commission's tentative conclusion that it has jurisdiction over 
intrastate as well as interstate ICS rates. These commenters argue that 
section 276 provides the Commission with clear jurisdiction, and that 
it must regulate intrastate rates to ensure comprehensive ICS reform. 
After examining the record, we affirm the tentative conclusion that 
intrastate ICS rates are well within the Commission's jurisdiction for 
the reasons described below.
    107. Our authority to ensure the reasonableness of rates and 
practices for interstate ICS is not in dispute. Under section 201(b) of 
the Communications Act, the FCC is empowered to ``prescribe such rules 
and regulations as may be necessary'' to ensure that ``[a]ll charges 
[and] practices . . . for and in connection with [interstate] 
communication service'' by wire or radio are ``just and reasonable.'' 
Section 276 directs the Commission to ``establish a per call 
compensation plan to ensure that all payphone service providers''--
which the statute defines to include providers of ICS--``are fairly 
compensated for each and every completed intrastate and interstate 
call.'' (The Commission has previously found that the term ``fairly 
compensated'' permits a range of compensation rates that could be 
considered fair, but that the interests of both the payphone service 
providers and the parties paying the compensation must be taken into 
account.) We find that these statutory sections provide the Commission 
with the authority to regulate interstate ICS rates and practices, 
including the use of per-call or per-connection fees as well as flat-
rate calling.
    108. Legal Authority to Reform Intrastate Rates. The Commission's 
authority over intrastate telecommunications is, except as otherwise 
provided by Congress, generally limited by section 2(b) of the Act, 
which states that ``nothing in this Act shall . . . give the Commission 
jurisdiction with respect to . . . intrastate communication service by 
wire or radio.'' As the Supreme Court has held, however, section 2(b) 
has no

[[Page 79151]]

effect where the Communications Act, by its terms, unambiguously 
applies to intrastate services. We conclude that such is the case here.
    109. Under section 276 of the Communications Act, the Commission is 
charged with implementing Congress's directive ``that all payphone 
service providers [be] fairly compensated for each and every completed 
intrastate and interstate call.'' Section 276 contains several express 
references both to ICS and intrastate calling, making it clear that the 
Commission has the authority to regulate intrastate ICS calling. For 
example, section 276 requires the Commission to broadly craft 
regulations to ``promote the widespread development of payphone 
services for the benefit of the general public'' including, notably, 
``the provision of inmate telephone service in correctional 
institutions, and any ancillary services.'' In addition to this general 
grant of jurisdiction, section 276 includes a mandate to ``establish a 
per call compensation plan to ensure that all payphone service 
providers are fairly compensated for each and every completed 
intrastate and interstate call using their payphone.'' Section 276 also 
expressly directs the Commission to ``discontinue the intrastate and 
interstate carrier access charge payphone service elements. . .and all 
intrastate and interstate payphone subsidies.'' In addition, section 
276 explicitly grants the Commission authority to preempt state 
requirements to the extent they are inconsistent with FCC regulations.
    110. Furthermore, significant judicial precedent supports the 
Commission's authority to regulate intrastate ICS. In Illinois Public 
Telecommunications Association, the U.S. Court of Appeals for the D.C. 
Circuit found that the Act's requirement that ``all payphone service 
providers are fairly compensated'' provides the FCC with ``authority to 
set local coin call rates''--which included intrastate service rates. 
Additionally, in New England Public Comm'ns Council, Inc. v. FCC, the 
same court found that ``section 276 unambiguously and straightforwardly 
authorizes the Commission to regulate . . . intrastate payphone line 
rates.'' Therefore, we conclude that both section 276 and the 
associated case law give the Commission the authority to regulate ICS 
provider compensation for intrastate calls, including the rates ICS 
providers charge end users, per-call or per-connection charges, and 
flat-rate charges.
    111. We find arguments that the Commission lacks the authority to 
regulate intrastate ICS unpersuasive. For example, we disagree with 
commenters who argue that section 276 is limited to prohibiting 
discrimination by Bell operating companies (BOCs). While section 276(a) 
includes provisions specifically prohibiting discrimination by BOCs, we 
do not believe Congress intended for that subsection to limit the scope 
of the remaining provisions of section 276. For example, section 
276(b)(1) expressly mandates that the Commission adopt regulations 
addressing five specific subjects related to payphone services; only 
two of those subjects--clauses (C) and (D)--relate to preventing BOC 
discrimination.
    112. In addition, although section 276(a) refers to Bell operating 
companies, and applies only to the BOCs, section 276(b) refers more 
broadly to ``payphone service providers.'' If Congress had intended for 
the regulations prescribed under section 276(b) to be limited to the 
narrow purpose of effectuating the nondiscrimination goals set forth in 
section 276(a), it easily could have made that clear. Instead, Congress 
made clear that it was conferring a broader mandate in section 276(b), 
stating that: ``[i]n order to promote competition among payphone 
service providers and to promote the widespread deployment of payphone 
services . . . , the Commission shall take all actions necessary . . . 
to prescribe regulations that . . . [inter alia] ensure that all 
payphone service providers are fairly compensated for each and every 
completed intrastate and interstate call using their payphone[s] . . . 
.''
    113. We also disagree with commenters who argue that the Commission 
has never determined that section 276 extends to intrastate rates or 
that section 276 applies only to ``local calls made from a payphone and 
paid with coins.'' Section 276 does not specify that compensation is 
only for calls paid by coin but rather ``each and every'' call. Indeed, 
the very Commission order under review in Illinois Public 
Telecommunications held that the Commission had the authority to 
regulate intrastate payphone rates and preempt state regulation of 
intrastate rates. Therefore, the Commission's position regarding its 
authority over intrastate rates under section 276 has remained 
consistent.
    114. Rate Caps are Just, Reasonable and Fair. As noted above, we 
have accepted the data submitted by providers in response to the 
Mandatory Data Collection as reported even though there is evidence 
that they are overstated. As a result, we believe our rate caps are 
conservative and include sufficiently generous margins to allow 
providers to earn a profit. More generally, it is well-established that 
rates can be lawful if they fall within a zone of reasonableness, and 
hence a particular state's cap might be lower than our caps and still 
fall within that zone. The rate caps we adopt today are intended both 
to ensure that ICS rates are ``just and reasonable'' and do not take 
unfair advantage of inmates, their families, or providers consistent 
with the ``fair compensation'' mandate of section 276.
    115. The Commission has broad discretion in establishing just and 
reasonable rates, as long as it articulates a rational basis for its 
decisions and as long as the result is not confiscatory. As the Supreme 
Court has explained in construing the similar ``just and reasonable 
rates'' provision of the Natural Gas Act, ``the Commission is not 
required by the Constitution or the Natural Gas Act to adopt as just 
and reasonable any particular rate level; rather, courts are without 
authority to set aside any rate selected by the Commission which is 
within a `zone of reasonableness.''' Section 276(b) charges us with 
ensuring that ``all payphone service providers [be] fairly 
compensated.'' This provision must be read in conjunction with our 
obligation under section 201(b) to ensure that charges and practices be 
just and reasonable. Neither section 276(b) nor 201(b) require us to 
allow for recovery of costs that are not just, reasonable and fair.
    116. We recognize that some ICS providers may see their profits 
decrease because the adopted caps are below the costs they reported to 
us under the Mandatory Data Collection (assuming that MOU stay 
constant). The Commission has broad authority to set rate caps to apply 
to a particular service and does not have to set provider-specific 
rates that embody a rate of return for each individual provider. 
Indeed, as at least one provider has explained in this proceeding, 
courts have recognized that the use of industry-wide average cost data 
to set rates is not arbitrary, and therefore agencies may use composite 
industry data or other averaging methods to set rates. We therefore 
find that the rates we adopt today are reasonable for the reasons 
provided above and will allow economically efficient--possibly all--
providers to recover their costs that are reasonably and directly 
attributable to ICS. The costs reported by the providers that are above 
our rate caps represent significant outliers, suggesting that their 
reporting methods may have varied from those of other providers or that

[[Page 79152]]

they may be less efficient than their peers. Indeed, encouraging 
efficiency will lead to lower rates, which will both benefit end users 
as well as increase calling demand, thus furthering the dual goals of 
section 276 ``to promote competition among payphone service providers'' 
and encourage the ``widespread deployment of payphone services to the 
benefit of the public.''

B. Payments to Correctional Institutions

    117. The record indicates that, in many cases, ICS bids are 
predicated on the winning providers' willingness to share part of its 
ICS revenues with the correctional facility. These payments, commonly 
referred to as ``site commissions,'' may take the form of monetary 
payments, in-kind payments, exchanges, or allowances. In this Order, we 
define the term ``site commission'' broadly, to encompass any form of 
monetary payment, in-kind payment requirement, gift, exchange of 
services or goods, fee, technology allowance, product or the like.
    118. After carefully considering the evidence in the record, we 
affirm our previous finding that site commissions do not constitute a 
legitimate cost to the providers of providing ICS. Accordingly, we do 
not include site commission payments in the cost data we use in setting 
the rate caps established in this Order. We conclude that we do not 
need to prohibit site commissions in order to ensure that interstate 
rates for ICS are fair, just, and reasonable and that intrastate rates 
are fair. We reiterate, however, that site commissions have been a 
significant driver of rates and that ICS rates have dropped 
dramatically in states that have eliminated site commissions. We 
therefore encourage other states and correctional facilities to curtail 
or prohibit such payments as part of an effort to further ensure that 
inmates and their families have access to ICS at affordable rates.
    119. We recognize that some states have adopted reasonable rates 
that include a margin sufficient to allow providers to pay site 
commissions, thus demonstrating that it is possible to have rates that 
are consistent with our rate caps but still allow for the payment of 
site commissions. The decision to establish fair and reasonable rate 
caps for ICS and leave providers to decide whether to pay site 
commissions--and if so, how much to pay--is supported by a broad cross-
section of commenters, including consumer advocates, such as the Wright 
Petitioners; ICS providers, such as CenturyLink, NCIC and ICSolutions; 
representatives of correctional facilities, such as Praeses; and state 
regulators, such as the Alabama PSC. This broad support from 
practically every type of interested party underscores the 
reasonableness of our approach. We will continue to monitor the market 
and will take appropriate action if we find that, notwithstanding our 
rate caps, site commissions are somehow driving ICS rates to levels 
that are unjust, unreasonable, or unfair.
1. Background
    120. In the 2002 Order, the Commission concluded that, consistent 
with prior precedent, site commissions ICS providers paid to inmate 
facilities were not a cost of providing payphone service, ``but 
represent an apportionment of profits between the facility owners and 
the providers of [ICS].'' In the 2012 NPRM, the Commission sought 
comment on its longstanding conclusion that site commissions are not a 
cost of providing ICS, and additional comment and data on site 
commissions and their impact on ICS rates.
    121. In the subsequent 2013 Order, the Commission affirmed the 
previous determination that site commissions ``are not costs that are 
reasonably and directly related to the provision of ICS'' and 
determined that site commissions were ``a significant factor 
contributing to high [ICS] rates.'' The Commission concluded that, 
``under the Act, [site] commission payments are not costs that can be 
recovered through interstate ICS rates.'' The Commission noted, 
however, the possibility that correctional facilities may incur costs 
in making ICS available to inmates and sought comment on whether there 
were any such costs that should be compensable through ICS rates.
    122. In the Second FNPRM, the Commission sought additional comment 
on potential reforms to site commissions and its legal authority to 
``restrict the payment of site commissions in the ICS context pursuant 
to sections 276 and 201(b) of the Act.'' As the Commission explained, 
site commissions ``distort[] the ICS marketplace'' by creating 
incentives for the facilities to select providers that pay the highest 
site commissions, even if those providers do not offer the best service 
or lowest rates. The Commission cited responses to the Mandatory Data 
Collection showing that ICS providers paid over $460 million in site 
commissions in 2013 alone. Press reports have cited even higher 
figures. These payments represent a significant portion of total ICS 
revenues. Indeed, as the Commission has noted, site commissions can 
amount to as much as 96 percent of gross ICS revenues. The Commission, 
therefore, sought comment on whether it should prohibit all site 
commission payments for interstate and intrastate ICS. The Commission 
also sought comment on whether correctional institutions incur any 
costs in the provision of ICS, and requested data demonstrating that 
any costs that facilities bear are ``directly related to the provision 
of ICS.'' To the extent that correctional facilities were found to 
incur costs ``reasonably and directly related to making ICS 
available,'' the Commission sought comment on whether recovery of those 
costs should be ``built into any per-minute ICS rate caps.''
2. Discussion
    123. Although we do not prohibit providers from paying site 
commissions, we do not consider the cost of any such payments in 
setting our rate caps. (Regardless of whether site commission payments 
constitute an ``appointment of profits'' or a cost to the provider, 
they cannot be recovered through ICS rates unless they are ``reasonably 
and directly related to the provision of ICS.) Evidence submitted in 
response to the Second FNPRM reinforces the Commission's conclusion 
that the site commissions ICS providers pay to some correctional 
facilities are not reasonably related to the provision of ICS and 
should not be considered in determining fair compensation for ICS 
calls. HRDC, for example, describes site commissions as ``legal bribes 
to induce correctional agencies to provide ICS providers with lucrative 
monopoly contracts.'' Other parties use less colorful language, but 
still indicate that site commissions often ``have nothing to do with 
the provision'' of ICS. We agree with commenters opposed to recovery of 
site commissions in ICS rates and find that site commission payments 
should not be included in our rate cap calculations.
    124. We therefore agree with inmate advocates, such as the Wright 
Petitioners and the Civil Rights Coalition, a group of 20 national 
civil rights and social justice organizations; providers, such as 
CenturyLink and NCIC; United States Senators; and state regulators, 
such as the Alabama PSC that, at this time, we should focus on our core 
ratemaking authority in reforming ICS and not prohibit or specifically 
regulate site commission payments. While we continue to view such 
payments as an apportionment of profit, and therefore irrelevant to the 
costs we consider in setting rate caps for ICS, we do not prohibit ICS 
providers from paying site commissions. (Of course, providers' rates 
must comply

[[Page 79153]]

with our rate caps, regardless of whether the provider pays site 
commissions.)
    125. The record supports excluding site commission payments from 
the costs used to calculate the rate caps for ICS. Indeed, even many of 
the commenters that oppose a prohibition on site commissions urge the 
Commission to consider only costs related to the provision of ICS in 
calculating the rate caps. If site commissions were factored into the 
costs we used to set the rate caps, the caps would be significantly 
higher. Passing the non-ICS-related costs that comprise site commission 
payments including contributions to general revenue funds, onto inmates 
and their families as part of the costs used to set rate caps would 
result in rates that exceed the fair compensation required by section 
276 and that are not just and reasonable, as required by section 201.
    126. We note that several commenters argue that the programs 
currently supported by site commissions should be paid for out of tax 
funds collected from the population at large, or from other sources. 
HRDC, for example, argues that ``all taxpayers should fund the cost of 
operating correctional facilities, including the cost of providing 
ICS,'' just as homeowners pay taxes to fund schools, regardless of 
whether they have school-age children. We need not reach such arguments 
to support our decision. Rather, we conclude that, because the programs 
in question are unrelated to the provision or use of ICS, the burden of 
paying for them may not, under the Communications Act, be imposed on 
end users of ICS. As the Commission has explained, how facilities use 
the site commission payments they receive from ICS providers is 
irrelevant to our analysis: ``[t]he Act does not provide a mechanism 
for funding social welfare programs or other costs unrelated to the 
provision of ICS, no matter how successful or worthy.'' Consistent with 
the record in this proceeding, as well as the Commission's decision in 
the 2013 Order, we therefore exclude site commission payments from our 
rate cap calculations.
    127. In the Second FNPRM, the Commission sought comment on whether 
it could or should prohibit site commissions. A variety of commenters 
support such a prohibition, primarily based on their belief that a rule 
against site commissions is needed to ensure that ICS rates are fair, 
just, and reasonable. Other commenters, primarily sheriffs and others 
associated with correctional facilities, favor the continued use of 
site commissions. As noted above, many of these parties, however, 
appear to be concerned mostly with ensuring that facilities can recover 
costs they incur in allowing access to ICS. As a threshold matter, as 
noted herein the record is not clear as to whether the correctional 
facilities in fact bear a cost in the provision of ICS that is unique 
to the provision of phone service in addition to the costs of operating 
a correctional facility. The record suggests that site commissions are 
used mainly to fund a wide and disparate range of activities, including 
general governmental or correctional activities unrelated to the costs 
of providing ICS by either the provider or facility. Even assuming 
facilities do incur costs tied to the provision of ICS, we have 
addressed such a concern by not prohibiting providers from sharing 
their profits with correctional facilities to recover such costs, if 
appropriate. Some of these commenters also argue that site commissions 
should be preserved because they provide an important incentive for 
facilities to make ICS available to their inmates. Another group of 
commenters question the Commission's legal authority to prohibit site 
commissions and argue that prohibiting site commissions would not 
produce any material benefit. A number of commenters, representing a 
wide range of interests, urge the Commission to follow the lead of the 
Alabama PSC and restrict site commissions only indirectly, by imposing 
caps on ICS providers' rates, thereby limiting the amount of profit 
available to pay site commissions. The Wright Petitioners, among 
others, suggest that we adopt a similar approach here, arguing that the 
Commission should ``simply establish an ICS rate that complies with 
Sections 201, 205, and 276 of the Act, and let ICS providers and 
correctional authorities allocate the revenue in any manner they 
wish.'' ICS provider NCIC ``agrees that jails and prisons should be 
allowed [to seek] site commission payments after the FCC caps the 
rates, ancillary fees and convenience payment options, which will 
reduce commission payments to reasonable levels to provide cost-
recovery.'' GTL disagrees, however, arguing that under the Alabama 
model, ``providers must generate revenue to pay the unconstrained site 
commissions . . . which puts upward pressure on end-user prices.'' In 
fact, GTL and others contend that a regulatory regime that permitted 
providers to make site commission payments, but did not take those 
payments into account in setting the rates would result in an 
unconstitutional ``taking'' in violation of the Fifth Amendment, and is 
``arbitrary and capricious.''
    128. Based on the evidence in the record, we conclude that we do 
not need to prohibit site commissions at this time to achieve the 
statutory directives of ensuring that ICS rates are just, reasonable, 
and fair. The fact that we do not prohibit site commission payments 
does not mean, however, that we have failed to address site 
commissions. To the contrary, we have addressed the harmful effects of 
outsized site commissions by establishing comprehensive rate caps and 
caps on ancillary service charges that may limit providers' ability to 
pass site commissions through to ICS consumers. We have also made the 
considered decision to establish caps on rates and ancillary service 
charges and allow market forces to dictate adjustments in site 
commission payments. As noted below, this approach is consistent with 
the Commission's general preference to rely on market forces, rather 
than regulatory intervention, wherever reasonably possible. Our 
expectation that ICS providers and correctional facilities will find an 
approach that meets their needs and complies with our rate caps is 
neither arbitrary nor capricious. In fact, evidence in the record 
demonstrates that ICS rates can be set at levels that are well within 
our rate caps while allowing for fair compensation and still leaving 
room for site commission payments. For example, in Pennsylvania, the 
per-minute rate of $0.059 includes a 35 percent site commission. 
Similarly, in New Hampshire, the state DOC lowered intrastate rates to 
less than $0.06 per minute with a 20 percent site commission. Thus, it 
is possible to have reasonable rates and fair compensation without 
expressly prohibiting site commissions.
    129. We emphasize that the actions we take here are based on our 
ratemaking authority and are intended to ensure fair, just, and 
reasonable ICS rates. The caps and restrictions we impose on providers' 
rates should eliminate or substantially reduce the ability of site 
commissions to inflate rates above providers' costs or reasonable 
profit to otherwise distort ICS rates. As explained elsewhere in this 
Order, we have seen some positive steps toward the lowering and/or 
elimination of site commissions and we believe that this trend, coupled 
with the actions we take today, constitutes a reasonable means of 
addressing ICS issues one step at a time, given the fact that some 
portion of some site commissions are said to represent the recovery of 
reasonable institutional

[[Page 79154]]

costs. We reiterate that we will, however, continue to monitor the ICS 
market and will not hesitate to take additional action to prohibit site 
commissions, if necessary.
    130. Our decision not to prohibit site commission payments should 
not be viewed as an endorsement of such practices. Rather, our decision 
simply reflects our focus on achieving our statutory objectives with 
only limited regulatory intervention. We understand the positions of 
those parties calling for the regulation of site commission practices, 
or even those calling for a complete ban of them. We also acknowledge 
that some commenters have questioned our legal authority to prohibit 
site commissions. Other parties argue that we have clear authority to 
regulate site commission payments. Ultimately, however, we do not need 
to determine whether we have authority to ban site commission payments, 
given our decision to take a less heavy-handed approach, similar to 
that adopted by the Alabama PSC. This approach is consistent with the 
Commission's general preference to rely on market forces, rather than 
regulatory fiat, whenever possible.
    131. We expect that the approach adopted in this Order will result 
in lower site commissions, and strongly encourage additional 
jurisdictions to eliminate site commissions altogether to help ensure 
that inmates and their families have access to ICS at affordable rates. 
We applaud recent efforts by New Jersey and Ohio to eliminate site 
commissions. The per-minute intrastate ICS rates in these states have 
dropped considerably (from $0.15 to under $0.05 in New Jersey and $0.39 
to $0.05 in Ohio). Pay Tel estimates that in eight states that have 
eliminated site commissions the rates average less than $0.07/minute. 
The actions taken by these states demonstrate that site commissions can 
be eliminated without sacrificing facilities' ability to implement 
robust security protocols. Additional states continue to take similar 
steps to curb or prevent the use of site commissions in their state 
prison systems and we urge other states to take similar actions. We 
also reiterate that rates can be significantly below our rate caps and 
still offer ICS providers sufficient profit to allow them to pay 
reasonable site commissions.
    132. Further, we note that, despite what some entities appear to 
suggest, this Order does not maintain the status quo in the ICS market. 
To the contrary, we conclude that our actions in this Order constitute 
changes in law and/or instances of force majeure that are likely to 
alter or trigger the renegotiation of many ICS contracts. We also think 
it reasonable to anticipate that ICS providers are on notice of these 
changes in law and, going forward, will not enter into contracts 
promising exorbitant site commission payments that they will not be 
able to recover through their ICS rates under our rate caps. Indeed, we 
anticipate that the reforms adopted in this Order will help recalibrate 
ICS market competition by motivating correctional facilities to 
evaluate bids based on factors other than the highest site commission. 
However, as noted above, we will monitor the market and will take 
appropriate action if our prediction proves inaccurate.
a. Facility Costs Related To Providing ICS
    133. Background. In the Mandatory Data Collection, the Commission 
required ICS providers to submit their costs related to the provision 
of ICS, including their telecommunications, equipment and security 
costs. For example, in the Mandatory Data Collection Instructions, the 
Bureau directed ICS providers to include ``security costs incurred by 
the ICS provider in the provision of inmate calling services, such as, 
but not limited to, voice biometrics technology and call recording and 
monitoring.'' In their responses, ICS providers indicated that the data 
they filed included costs associated with security features relating to 
the provision of ICS.
    134. In the Second FNPRM, the Commission noted that the record to-
date was mixed regarding how much, if anything, facilities spend on 
ICS. It sought comment on the ``actual costs'' that facilities may 
incur in the provision of ICS and the appropriate vehicle for enabling 
facilities to recover such costs. The Commission also sought comment on 
whether any such costs should be recoverable through the per-minute 
rates ICS providers charge inmates and their families. In response, 
some law enforcement representatives assert that correctional 
facilities incur costs related to ``call monitoring, responding to ICS 
system alerts, responding to law enforcement requests for records/
recordings, call recording analysis, enrolling inmates for voice 
biometrics, and other duties,'' including ``administrative duties'' 
that arguably are related to ICS. Some ICS providers, however, contend 
that many of the activities the facilities claim as ICS-related costs 
are, in fact, handled by the ICS provider. For example, Securus states 
that it performs most ICS-related tasks for facilities, including 
handling U.S. Marshal inquiries, cell phone detection and interception, 
listening to calls, and providing call recordings to courts. Similarly, 
GTL explains that the ``established industry protocol'' is for ICS 
providers to handle security duties for the correctional facilities 
they serve, either as part of a turnkey ICS product or as a condition 
of the contract award, regardless of the size of the facility.
    135. Although some commenters argue that allowing ICS creates costs 
for facilities, others question whether correctional facilities incur 
any costs that should be passed on to consumers as part of the per-
minute rates for ICS. One issue is whether the costs parties seek to 
attribute to ICS are, in fact, costs that facilities would incur 
regardless of whether they allowed ICS. Andrew Lipman, for example, 
argues that many correctional facilities seek payment for ``activities 
that have nothing to do with the provision of a telecommunications 
service.'' These parties argue that the costs facilities seek to pass 
on to ICS providers and users are more properly classified as law 
enforcement costs related to operating a correctional facility that 
should be borne by the government and not ICS users.
    136. Even commenters asserting that facilities incur costs that are 
properly attributable to the provision of ICS do not agree on the 
extent of those costs. A group of the largest ICS providers, for 
example, notes that while they support the recovery of ``legitimate 
costs incurred by correctional facilities that are directly related to 
the provision of inmate calling services,'' they cannot agree on how 
those costs should be calculated. The NSA suggests that the Commission 
approve a ``compensation amount for the security and administrative 
duties performed in jails in connection with ICS that is an additive 
amount to the ICS rate.'' Relying, in large part, on the results of a 
survey it took of its members, as well as analyses submitted by other 
parties, NSA suggests that this additive amount should range from $0.01 
to $0.11 per minute, depending on the size of the facility being 
served.
    137. Several commenters offer critiques of NSA's survey data, 
however. GTL's economic consultant, for example, concludes that NSA's 
latest proposal would offer facilities ``significantly larger'' annual 
compensation than would be justified by estimates derived from the 
analyses conducted by itself and other parties, particularly for small 
facilities such as jails with an ADP below 350. Even Pay Tel, which 
generally supported the NSA's survey as a ``robust and significant 
dataset,'' agrees that NSA failed to remove outliers from its 
calculations and that NSA included

[[Page 79155]]

costs that are ``typically associated with on-going investigations that 
would not be considered for Cost Recovery purposes.'' Andrew Lipman 
notes that the NSA survey was based on only three months of data from 
only approximately five percent of NSA's members and that NSA had not 
provided any indication of whether the survey respondents were 
representative of NSA's broader membership. Mr. Lipman also points out 
that the NSA did not provide the raw data, a copy of the survey, any 
information on the methodology used by members to allocate time, or 
detailed descriptions of the tasks encompassed by various categories of 
costs, such as ``administrative,'' ``security'' or ``other.'' Relying 
on other evidence in the record, Mr. Lipman suggests that it would be 
unreasonable for providers to agree to pay more than $0.01-$0.03 per 
minute to reimburse facilities for any costs they may incur in agreeing 
to make ICS available to inmates. Darrell Baker of the Alabama PSC 
recommends a cost recovery rate of $0.04 per minute for jails of all 
sizes and $0.01 to $0.02 per minute for prisons, while an earlier 
analysis from GTL yields median cost recovery rates of $0.005 per 
minute for prisons and $0.016 per minute for jails.
    138. Discussion. The record contains a wide range of conflicting 
views regarding whether correctional facilities incur any costs that 
are directly and reasonably related to making ICS available and that 
must be recovered through ICS rates. As at least one commenter points 
out, ICS continues to be offered in states that have prohibited 
payments from ICS providers to facilities. This evidence undermines 
claims that facilities incur unique costs that are attributable to ICS 
and that must be recovered from ICS rates. These claims are further 
undermined by the fact that ``[n]one of the correctional facilities and 
associations submitted sufficient detail in this proceeding to support 
the amount of their alleged costs, or to demonstrate that these costs 
meet the used and useful standard.''
    139. Some commenters argue that the costs claimed by facilities are 
``basic law enforcement activities [such as surveillance and 
investigation of calls] and not costs for providing a 
telecommunications service.'' The record is not clear that the costs 
facilities claim to incur due to ICS would actually be eliminated if 
the facilities ceased to allow inmates to have access to ICS. Moreover, 
providers indicate that costs that facilities claim to incur in 
allowing ICS are, in fact, borne directly by the providers. Those costs 
are already built into our rate cap calculations and should not be 
recovered through an ``additive'' to the ICS rates. Accordingly, while 
we strongly encourage the elimination of site commission payments, we 
do not dictate what an ICS provider can do with its profits and 
conclude that the most reasonable and fair approach is to leave it to 
ICS providers and facilities to negotiate the amount of any payments 
from the providers to the facilities, provided that those payments do 
not drive the provider's rates above the applicable rate cap. We note, 
however, that evidence submitted in the record--and discussed above--
indicates that if facilities incurred any legitimate costs in 
connection with ICS, those costs would likely amount to no more than 
one or two cents per billable minute. Our rate caps are sufficiently 
generous to cover any such costs.
    140. As noted above, some parties contend that correctional 
facilities will remove or limit access to telephones if the Commission 
acts to limit site commission payments. We find it highly unlikely, 
however, that facilities would eliminate or limit access to ICS as a 
result of this Order. Given that we do not ban site commissions, 
facilities have no basis for taking such extreme measures. Notably, the 
record contains no indication that ICS deployment has decreased in 
states that have eliminated site commissions. This is unsurprising, 
given what we anticipate would be an intensely negative backlash to 
such an action. In addition, the record indicates that ICS provides 
valuable, non-monetary benefits to correctional facilities, such as 
correctional management and incentives to inmates who exhibit good 
behavior.
b. Ensuring Fair Compensation
    141. Some parties argue that it would be confiscatory for the 
Commission to exclude the costs of site commission payments from our 
rate cap calculations without also explicitly prohibiting ICS providers 
from paying such commissions. According to these parties, ICS providers 
will not be able to afford the site commission payments demanded of 
them by correctional facilities if the providers' revenues are limited 
by the rate caps established here. These claims rest largely on the 
fact that existing ICS contracts may obligate providers to pay site 
commissions to the facilities they are serving. As explained further 
below, we conclude that these concerns are largely unfounded.
    142. For the same reasons set forth in the 2013 Order, we reject 
arguments that the reforms we adopt herein effectuate unconstitutional 
takings. The offering of ICS is voluntary on the part of ICS providers, 
who are in the best position to decide whether to bid to offer service 
subject to the contours of the request for proposal (RFP). There is no 
obligation on the part of the ICS provider to submit bids or to do so 
at rates that would be insufficient to meet the costs of serving the 
facility or result in unfair compensation. We also reiterate that our 
rate caps are based on the reported costs that the providers themselves 
submitted into the record without any adjustment by the Commission. 
Thus, the rate caps provide ample room for an economically efficient 
provider of ICS to earn a reasonable profit on its services. The fact 
that our rate caps do not include an explicit allowance for site 
commission payments does not render them confiscatory. As explained 
above, the record does not support a conclusion that site commission 
payments are costs that are ``reasonably related to the provision of 
ICS.'' The fact that providers choose to pay site commissions is not 
enough to render them compensable through the ICS rate, particularly in 
light of section 276's requirement that ICS compensation must be 
``fair.'' Excluding site commission payments from the rate cap 
calculation is no different than excluding any other cost that is not 
reasonably related to the provision of the service. For example, if a 
provider decided to purchase a fleet of private jets to ferry its 
executives from place to place, we would not prohibit such an 
expenditure, but--because the purchase of private jets is not 
``reasonably related'' to the provision of ICS--we would not include 
such an expense in the costs used to determine a fair compensation rate 
for ICS.
    143. In addition, we re-emphasize that a party carries a heavy 
burden if it seeks to demonstrate that a regulation creates an 
unconstitutional ``taking.'' For instance, to succeed on a ``takings'' 
claim, a party must demonstrate that the losses caused by the 
regulation in question are so significant that the ``net effect'' is 
confiscatory. When confronted with a ``takings'' claim, courts will 
examine the net effect of the regulation on the company's enterprise as 
a whole, rather than on a specific product or service. Thus, it is not 
enough for a provider to show that it is losing money on a particular 
service or in serving a particular customer. Instead, a provider 
seeking to show that our rate caps are confiscatory will have to 
demonstrate that any cognizable harm caused by our regulations is so 
severe that it meets the high bar for a takings with respect to the 
company as a whole, e.g., by ``destroying the value of [the provider's]

[[Page 79156]]

property for all the purposes for which it was acquired.'' Moreover, 
providers have been on notice for years that the Commission might adopt 
rate caps, or even eliminate site commissions. Thus, any claims that 
our actions today upset ``investment-backed expectations of ICS 
providers'' are likely to fail, particularly claims from providers that 
recently entered into new contracts with high site commissions in an 
effort to circumvent possible Commission regulations. We find it 
unlikely that our rates will result in a ``taking,'' but the waiver 
process described below should offer providers an adequate avenue for 
relief if they find our ICS regulations unworkable.

C. Ancillary Service Charges and Taxes

1. Background
    144. The record contains evidence that ancillary service charges 
have increased since the 2013 Order, which highlights the fact that, 
absent reform, ICS providers have the ability and incentive to continue 
to increase such charges unchecked by competitive forces. Indeed, the 
continuing growth in the number and dollar amount of ancillary service 
charges represents another example of market failure necessitating 
Commission action. These charges are unchecked by market forces because 
inmates and their families must either incur them when making a call or 
forego contact with their loved ones. Ancillary service charges inflate 
the effective price consumers pay for ICS. According to some estimates, 
ancillary service charges may represent as much as 38 percent of total 
consumer ICS payments. The sheer number of ancillary service charges, 
their varying nomenclature, and the variability of the amounts charged 
make for a confusing system.
    145. The record overwhelmingly supports the need to reform 
ancillary service charges. While we would prefer to allow the market to 
discipline rates, the evidence since the Commission's 2013 Order 
confirms that ancillary service charges have not only increased, but 
new charges have appeared. We find our statutory directive requires us 
to adopt reforms to limit ancillary service charges. As described 
below, we adopt caps for certain ancillary fees, and we prohibit all 
other charges that are ancillary to ICS.
    146. Our Mandatory Data Collection confirmed that various ICS 
providers charge a plethora of ancillary service charges, and that 
different providers may describe the same charge by different names. 
Commenters suggest that ancillary service charges inflate the cost of 
ICS to end users without justification. For example, some providers 
charge account set-up, maintenance, closure, and refund fees. Praeses 
contends that ``[p]roviders should not be permitted to charge any 
ancillary fees to recover . . . intrinsic ICS costs, such as validation 
fees or fees related to Facility-required security.'' This distinction 
between what is an intrinsic part of providing ICS, and what is not, 
has helped us to select the ancillary service charges we find 
appropriate and to ban all other ancillary service charges.
    147. In responding to the unique challenges posed by escalating 
ancillary fees, this Order establishes a limited list of ancillary fees 
that the Commission will permit ICS providers to charge. The amount of 
each of these fees is capped, and ICS providers are restricted from 
charging any ancillary fees not specifically allowed in our Order. For 
fees for single-call and related services and third-party financial 
transaction fees, we allow providers to pass through only the charges 
they incur without any additional markup. We limit automated payment 
fees to $3.00, live agent fees to $5.95, and paper statement fees to 
$2.00. Apart from these specific fees, no additional ancillary service 
charges are allowed. Taxes are discussed separately and must be passed 
through with no markup. We also take action to avoid potential 
loopholes in these rules, such as artificial limits on minimum and 
maximum account balances that could require inmates to reload accounts 
frequently and unnecessarily increase costs borne by consumers. This 
approach involved analyzing the data submitted by carriers, as well as 
comments in the record, to determine which fees ICS providers should 
legitimately be able to charge end users.
2. Discussion
    148. Review of Ancillary Service Charges in the Record. In response 
to the Mandatory Data Collection, the Commission received some data 
regarding ancillary service charges, but providers did not follow 
consistent approaches in assessing and labeling such fees, and 
allocated and reported these costs in inconsistent ways. Accordingly, 
in the Second FNPRM the Commission sought comment on these data 
inconsistencies and on the ancillary service charge data generally. The 
Commission also sought comment on prohibiting separate ancillary 
service charges for functions that are typically part of normal utility 
overhead and should be included in the rate for any basic ICS offering, 
and asked if certain types of ancillary service charges, such as refund 
charges, should be disallowed altogether.
    149. In response to the Second FNPRM, commenters disagreed over the 
exact nature of the reforms that should be implemented, but the 
majority agreed that many or all ancillary service charges should be 
eliminated. ICS provider CTEL claims that ancillary service charges, 
not site commissions, drive high ICS calling rates. ICS users also 
supported reforming ancillary service charges with examples of the 
impact of such charges on their ability to make calls. Even when 
consumers are made aware of the fees, they can still seem unjustified 
or unclear. The record indicates that ICS providers can receive fair 
compensation and provide secure services with a simplified ancillary 
service charge structure.
    150. Prohibiting Ancillary Service Charges. The Commission sought 
comment on prohibiting ancillary service charges altogether. Certain 
parties argued that the best approach to ancillary service charges was 
to ban them outright. The Wright Petitioners, for example, contend that 
no cost data in the record justifies the existence of ancillary fees, 
and that ancillary fees differ significantly among providers for no 
reason except that ICS providers will charge as much as they can. If 
the Commission does not eliminate ancillary service charges, then the 
Wright Petitioners contend that any rules addressing ancillary service 
charges must specifically identify the fees that may be charged and 
prohibit all others. PLS argues the Commission should prohibit 
ancillary service charges because many of these fees bear no relation 
to ICS costs.
    151. Reducing Categories of Ancillary Service Charges. The 
Commission also sought comment on limiting the number of allowable 
ancillary service charges. Many commenters support this approach as 
enabling ICS providers to still earn a profit, while providing their 
services at just and reasonable rates. CenturyLink explains that ``the 
overall cost of ICS to inmate families will not be reduced without 
restrictions on ancillary fees'' and recommends that the Commission 
``eliminate all but a narrow class of ancillary fees and impose 
reasonable rate caps on those that it allows.'' One commenter explains 
that ancillary fees have ``no actual relation to actual costs borne by 
ICS providers and have become a mechanism by which providers sustain or 
increase their overall revenues.'' Indeed, even ICS providers have 
recognized the need for reform and have submitted various proposals to 
that end.

[[Page 79157]]

    152. Parties differ about which ancillary service charges should be 
capped. For example, a number of commenters believe that the Commission 
should eliminate all fees for services that a consumer is required to 
pay in order to access basic ICS, including, but not limited to, 
account set-up, maintenance, funding, refund, and closure fees. In 
addition, Praeses suggests that ``[a]ll costs that Providers 
necessarily and unavoidably incur as part of completing an inmate call 
should be recovered through ICS rates. As a result, Providers should 
not be permitted to charge any ancillary fees to recover such intrinsic 
ICS costs, such as validation fees or fees related to Facility-required 
security.''
    153. Of additional concern is the ability of ICS providers to evade 
any limitation on a particular ancillary service charge simply by 
changing its name. ICSolutions notes that if an RFP for ICS prohibits a 
specific fee, some bidding ICS providers simply rename it or create a 
new fee to take its place. Other commenters contend that if ICS 
providers want to impose additional ancillary service charges, then 
they should ask for a waiver from the Commission or a rule 
modification.
    154. This concerns us because it suggests that ICS providers are 
using ancillary service charges as a loophole to increase revenues and 
undermine the impact of the interstate rate caps adopted in the 2013 
Order. Illustrating the impact this trend has on consumers, Pay Tel 
explains that if a family has $100 to spend on inmate calling for the 
month, ancillary fees can consume up to $60, leaving only $40 for the 
actual phone calls. Ancillary fees often increase the average cost of a 
15-minute call to as much as $8.33, more than double the price of a 15-
minute call at the Commission's interim rate caps adopted in the 2013 
Order. Some commenters also raise concerns that some ICS providers may 
impose unfair rates by instituting minimum or maximum amounts that may 
be deposited for prepaid calling accounts.
    155. Proposals in the Record. The Commission has focused on market 
failure with regard to unchecked and escalating ancillary service 
charges in this proceeding, including releasing a public notice prior 
to the 2013 Order seeking additional information about this topic. 
Since 2012, the Commission has received several proposals detailing 
comprehensive ICS reform approaches, and had the benefit of observing 
real world models regulating ancillary service charges.
    156. Alabama PSC Reforms. In the Second FNPRM, the Commission noted 
that the Alabama PSC had implemented an approach to ancillary service 
charges that both limited the kinds of allowable ancillary service 
charges and capped the fees for those charges. Specifically, the 
Alabama PSC authorized, but capped, separate ancillary service charges 
for particular services, including a $3.00 maximum fee for debit/credit 
card payment, $5.95 maximum fee for payment via live agent, $3.00 
maximum cap for bill processing for collect calls billed by a call 
recipient's local telecommunications service provider, $5.95 maximum 
cap on third-party payment services, five percent cap on inmate 
canteen/trust fund transfers, and a $2.00 maximum cap on paper billing 
statements. The Commission sought comment on this approach.
    157. In the Second FNPRM, the Commission specifically asked whether 
the Alabama PSC's rate caps for credit card payments ($3.00 maximum) 
and live operator assisted payments ($5.95) would be appropriate for 
the Commission to adopt. Many commenters seeking to reform ancillary 
service charges focused not only on reducing the kinds of ancillary 
service charges that may be imposed, but also on imposing caps on the 
fees that may be charged for the approved ancillary service charges. 
Some commenters expressed concern that unreasonable costs would 
continue to be passed through to end users if regulations only 
specified the ancillary service charges that may be levied, without 
also imposing caps on those charges.
    158. Joint Provider Proposal. In the Second FNPRM, the Commission 
also sought comment on the Joint Provider Proposal's suggestions for 
ancillary service charge reform. This proposal would voluntarily 
eliminate a number of types of fees, including per-call fees, account 
set-up fees, billing statement fees, account close-out and refund fees, 
wireless administration fees, voice biometrics and other technology 
fees, and regulatory assessment fees, and cap charges for non-
eliminated fees. The Joint Provider Proposal supported a $7.95 cap for 
three years on debit/credit card payment or deposit fees, a cap for 
three years at existing fees (as high as $14.99) for calls billed to a 
credit card and as high as $9.99 for calls billed to a mobile phone, 
and a cap on money transfer fees at the existing level (as high as 
$11.95), plus a $2.50 administrative fee cap. Joint Provider Proposal 
supporters claim that their proposal will ``dramatically alter the 
economic landscape of the ICS industry, making it possible for 
providers to forego many fees and cap others at current levels.''
    159. Some commenters criticize the Joint Provider Proposal as 
retaining the most lucrative ancillary service charges, and undermining 
reform efforts by allowing the large providers to maintain their 
dominant positions. CTEL asserts that smaller ICS providers lack the 
market power to impose high ancillary service charges. The Alabama PSC 
also states that it ``cannot emphasize strongly enough that the 
outliers in terms of excessive ancillary fees are the providers that 
submitted the Proposal to the Commission.''
    160. Pay Tel Proposal. On October 3, 2014, Pay Tel submitted an ex 
parte describing a proposal for comprehensive reform, including rate 
reform, a proposed approach for site commission payments, reporting 
requirements, and a proposal for ancillary service charge reform. The 
Commission sought comment on this proposal in the Second FNPRM. The 
Wright Petitioners agree with Pay Tel that there should be specific 
guidelines for the disclosure of rate and ancillary fee information.'' 
The Alabama PSC, Wright Petitioners, CenturyLink, and NCIC agree with 
Pay Tel's suggested ancillary service charge rate caps in a number of 
respects. Securus, however, argues that Pay Tel mischaracterizes the 
Joint Provider Proposal, and that, to justify its own proposal, Pay Tel 
grossly overestimates the amount of ancillary service charges that 
consumers will have to pay under the Joint Provider Proposal.
3. Establishing Limited List of Permitted Ancillary Service Charges
    161. After careful consideration of the record, including analysis 
of the Mandatory Data Collection, we conclude that reform is necessary 
to address ever-increasing fees that are unchecked by competitive 
forces and unrelated to costs. ICS providers, which typically have 
exclusive contracts to serve a facility, have the incentive and ability 
to continue to extract unjust and unreasonable ancillary service 
charges. As a result, we conclude it is necessary to reform the 
ancillary service charge structure imposed on consumers by ICS 
providers, as shown in Table Four below. All other ancillary service 
charges not specifically included in Table Four are prohibited. (Thus, 
providers would be prohibited from imposing charges for biometric 
technology, for example.) We conclude that the allowable charges will 
facilitate communications between inmates and their loved ones and will 
allow ICS providers to recover the costs incurred for providing the 
ancillary service associated with the relevant fee. We find no other 
examples in the record of

[[Page 79158]]

ancillary services that are actually provided today and that have a 
cost that warrants recovery.
    162. Our approach is supported by the record and will reduce the 
cost of service for millions of consumers. Even so, as with all reforms 
adopted in this Order, we will reevaluate these charges in two years to 
determine if adjustments are appropriate. We expect that these caps 
will serve as backstops as efficiencies are gained by providers, and 
contracts are changed, or new contracts are entered into between 
parties. For example, the record indicates that the recently-adopted 
New Jersey state correctional institutions' ICS contract specifically 
prohibits ``discretionary fees,'' which include bill statement fees, 
monthly recurring wireless account maintenance charges, account setup 
fees, funding fees, refund fees, and a single bill fee. Finally, we 
believe it is reasonable to expect that the ancillary service charge 
caps may encourage providers to more efficiently provide ancillary 
services, potentially stimulating competition among ICS providers to 
the added benefit of consumers and in keeping with section 276's 
statutory mandate. The reforms are intended to facilitate the proper 
functioning of the ICS market.
    163. Each of the entries in Table Four focuses on the particular 
functions related to each type of charge listed below. (Thus, even if a 
provider renames one of its fees to match the terminology in this 
table, that will not be sufficient to make an allowable ancillary 
service charge. Also, each individual ancillary service charge that an 
ICS provider levies must serve one of the permitted functions in order 
to qualify as a permissible ancillary service charge, regardless of the 
precise terminology used. In the event of dispute, the Commission will 
evaluate the fee charged to a consumer on the basis of the totality of 
the circumstances, judged from a reasonable consumer's point of view, 
to determine whether the fee serves one of the permitted functions. 
Automated payments include payments by interactive voice response 
(IVR), web, and kiosk.)

                               Table Four
------------------------------------------------------------------------
Permitted ancillary service charges and       Monetary cap per use/
                 taxes                             instruction
------------------------------------------------------------------------
Applicable taxes and regulatory fees...  Provider shall pass these
                                          charges through to consumers
                                          directly with no markup.
Automated payment fees.................  $3.00.
Fees for single-call and related         Provider shall directly pass
 services, e.g., direct bill to mobile    through third-party financial
 phone without setting up an account.     transaction fees with no
                                          markup, plus adopted, per-
                                          minute rate.
Live agent fee, i.e., phone payment or   $5.95.
 account set up with optional use of a
 live operator.
Paper bill/statement fees (no charge     $2.00.
 permitted for electronic bills/
 statements).
Prepaid account funding minimums and     Prohibit prepaid account
 maximums.                                funding minimums and prohibit
                                          prepaid account funding
                                          maximums under $50.
Third-party financial transaction fees,  Provider shall pass this charge
 e.g., MoneyGram, Western Union, credit   through to end user directly,
 card processing fees and transfers       with no markup.
 from third-party commissary accounts.
------------------------------------------------------------------------

    164. Data Analysis. Based on our analysis of the ancillary service 
charge cost data submitted in response to the Mandatory Data Collection 
and the record, we conclude that the caps we adopt for ancillary 
service charges will allow ICS providers to recover their reported 
costs attributable to providing these services and earn fair 
compensation. Ten of the fourteen ICS providers that submitted data in 
response to the Mandatory Data Collection included cost and revenue 
data for ancillary service charges. One provider did not report any 
direct costs related to ancillary service charges and one provider 
reported only one ancillary service charge. The reported rates for 
ancillary service charges range from $0.08 to $10.97 per use for 
automated payments, from $2.49 to $5.95 per use for transactions 
handled by a live agent, and from $1.50 to $5.00 for paper billing 
fees. In comparison, ICS providers report that they incur costs for 
ancillary service charges ranging from $0.10 to $6.58 when they offer 
automated payments, $2.49 to $5.26 when they offer transactions handled 
by a live agent, and $0.08 to $2.88 when they offer paper billing. 
These numbers serve to illustrate the enormous difference between the 
charges imposed on ICS end users and the much lower costs to ICS 
providers of offering those services. The ancillary service charge caps 
we have selected fall within a reasonable range of the reported costs 
for the services, and are supported by the record for each fee cap as 
explained below.
    165. We also note that some jurisdictions have banned ancillary 
service charges and that providers have complied with such regulations. 
This suggests that ancillary service costs can be recovered with 
reasonable ICS rates. Accordingly, our ancillary service charge caps 
should more than adequately compensate for the costs incurred. 
Moreover, we conclude that the annual reporting, certification and data 
collection requirements adopted herein regarding ancillary fee 
information will ensure compliance with the requirements. We will use 
this information to ensure that ICS providers are complying with the 
reforms adopted herein.
    166. Ancillary Services Charge Cap Methodology. The reforms we 
adopt herein represent a middle ground between the various proposals in 
the record. First, we determined which categories of ancillary service 
charges should be allowed. Next, we evaluated the information obtained 
through our Mandatory Data Collection as discussed above, and comments 
in the record addressing the specific proposals in and in response to 
the Second FNPRM. We conclude that prohibiting ICS providers from 
recovering their costs reasonably and directly related to making 
available an ancillary service would not allow ICS providers to receive 
fair compensation for those services. We also conclude that certain 
proposed high ancillary service charges, such as those in the Joint 
Provider Proposal, would result in excessively compensatory fees and 
would violate our requirement to make ICS rates just, reasonable and 
fair to end users. Therefore, we adopt caps on fees for ancillary 
service charges that will allow ICS providers to recover the costs 
incurred for providing the ancillary service associated with the 
relevant fee while ensuring just, reasonable, and fair

[[Page 79159]]

rates to end users. Below we explain the analysis that went into 
determining the appropriate cap for each category of permitted 
ancillary service charge.
    167. Automated Payment Fee. We permit up to a $3.00 automated 
payment fee for credit card, debit card, and bill processing fees, 
including payments made by interactive voice response (IVR), web, or 
kiosk. This approach is supported by the record and more than ensures 
that ICS providers can recoup the costs of offering these services. The 
Commission specifically sought comment on automated payment fees in the 
Second FNPRM. For example, the Commission asked whether a $3.00 cap for 
debit and credit card payment fees via the web, an IVR, or a kiosk was 
an appropriate charge. We find support for our approach from numerous 
commenters, including the Alabama PSC, which concluded, as we do, that 
a $3.00 cap for credit card processing and bill processing is 
appropriate. This $3.00 cap is also supported by Pay Tel, which charges 
this amount for automated payments. In addition, multiple parties 
support this approach in the record, including the Wright Petitioners, 
CenturyLink, and NCIC--all of which agree this amount is an appropriate 
cap for automated payments. Securus, one of the largest ICS providers 
in the market, asserted that allowing end users to pay with credit 
cards costs the company more than $3.00. The credit-card processing 
costs that Securus cites indicate to us that it is an outlier, 
especially since, as just discussed, companies that are much smaller 
than Securus acknowledge that they can process credit card payments at 
a $3.00 rate. We find that a $3.00 cap on automated payments is 
supported by the reported costs of providing the service as opposed to 
other rates for the service.
    168. Live Agent Payment Fee or Account Set Up. We allow ICS 
providers to recover up to $5.95 when consumers choose to make use of 
an optional live operator to complete ICS transactions. We have 
recognized that interaction with a live operator to complete ICS 
transactions may add to the costs of providing ICS. Thus, we allow an 
ancillary service charge to compensate providers for offering this 
optional service. As with the other ancillary service charges we have 
determined are appropriate, in the Second FNPRM, the Commission also 
specifically asked commenters about the $5.95 maximum fee for live 
operator assisted payments. For the live agent phone payment of $5.95 
that we adopt, we note that multiple ICS providers including, 
CenturyLink, NCIC, and Pay Tel, as well as the Wright Petitioners, and 
the Alabama PSC, all agree that this is the correct rate. This $5.95 
fee may only be charged once per interaction with a live operator, 
regardless of the number of tasks completed in the call, and live 
operator calls may not be terminated in order to attempt to charge this 
fee an additional time. We will monitor any complaints we receive with 
regard to the live agent fee that suggest that providers are attempting 
to circumvent the limitations this rule sets forth.
    169. Paper Bill/Statement Fee. We permit a cap of $2.00 for 
optional paper billing statements. In the Second FNPRM, the Commission 
noted that the Alabama PSC had capped the charge for a paper bill or 
statement, and asked commenters to explain whether this, and other 
approaches taken by the Alabama PSC, were reasonable and would lead to 
just and reasonable rates and fair ICS compensation. Multiple 
commenters agreed. Specifically, the $2.00 paper bill charge we adopt 
is supported by the Wright Petitioners, Pay Tel, and the Alabama PSC, 
while CenturyLink argues that the rate should be marginally higher at 
$2.50 per bill.
    170. Third-Party Financial Transaction Fee. In the Second FNPRM, 
the Commission asked how it should ensure that money transfer service 
fees paid by ICS consumers are just and reasonable and fair. The record 
establishes that inmates' families frequently do not have bank 
accounts, and therefore rely on third-party money transfer services 
such as Western Union or MoneyGram to fund calls with inmates. Third-
party financial transaction fees as discussed herein consist of two 
elements. The first element is the transfer of funds from a consumer 
via the third-party service, i.e., Western Union or MoneyGram, to an 
inmate's ICS account. (We use these two services as an example but do 
not foreclose the possibility that there are other third-party 
financial transaction services. Credit card payment processing also 
falls under the discussion here.) The second element is the ICS 
provider's additional charge imposed on end users for processing the 
funds transferred via the third party provider for the purpose of 
paying for ICS calls. We find that this first aspect of third-party 
financial transaction, e.g., the money transfers or credit card 
payments, does not constitute ``ancillary services'' within the meaning 
of section 276. The record suggests that ICS providers have limited 
control over the fees established by third parties, such as Western 
Union or credit card companies, for payment processing functions.
    171. However, the record indicates that ICS providers are imposing 
significant additional charges, as high as $11.95, for end users to 
make account payments via third parties, such as Western Union or Money 
Gram, and sharing the resulting profit with those third-party financial 
institutions. We find that the ICS providers' additional fee or mark-up 
to the third-parties' service charges function as a billing-and-
collection related charge, on top of the third-party charge, that the 
Commission has authority to address. Providers have offered no cost-
based justification for imposing an additional fee on end users on top 
of the third-party money-transfer service or financial institution fee, 
nor have they explained what (if any) functions they must necessarily 
perform to ``process'' a transfer already transferred from the third-
party provider. Therefore, as discussed in more detail below, we 
require that ICS providers pass through to their end users, with no 
additional markup, the money transfer or third-party financial 
transaction fees they are charged by such third parties. (The record 
indicates that no additional markup is warranted on top of the fees 
charged by the third-party payment providers.)
    172. Our adopted approach ensures that, in transactions like these, 
ICS providers do not receive excessive compensation, while also 
protecting consumers from unreasonable additional fees that result in 
unjust and unreasonable ICS rates. We find support for our third-party 
financial transaction fee approach from parties such as CenturyLink and 
NCIC, and the Alabama PSC additionally urges the Commission to require 
ICS providers to ``eliminate the provider ancillary charge premium they 
assess on top of the $5.95 payment transfer fee available to their 
customers from Western Union and MoneyGram.''
    173. Prohibited Fees. As explained above, our approach to fees 
charged for ancillary services specifically enumerates the charges 
permitted and bans all other ancillary service charges. We find no 
other examples in the record of ancillary services that are actually 
provided today and that have a cost that warrants recovery. While we 
place limits on the types of ancillary service charges we allow, we 
note that it is important to have payment options that permit the 
consumer simply to pay for service without incurring any additional 
charges. Many commenters, including ICS providers, agree that these 
basic or standard methods, such as making

[[Page 79160]]

payments by check or money order, must remain available without charge. 
Securus, for example, has assured the Commission that ``[p]ayment by 
check or money order always will be available and free of charge.'' In 
accordance with our decision to allow only the specific ancillary 
service charges we enumerate in this Order, we clarify that no charges 
are permissible for payment by check or money order.
    174. At this time, we do not find it necessary to eliminate all 
ancillary service charges to be consistent with our statutory 
objectives and policy goals for ICS reform. We are mindful of and 
concerned about the potential for continued abuse of ancillary service 
charges, and we will monitor the implementation of these caps and 
determine if additional reforms are necessary in the future. By 
limiting the scope of ancillary service charges, we also resolve other 
problems presented in the record. We prohibit all other ancillary 
service charges not enumerated because the record did not demonstrate 
that any other ancillary services are reasonably and directly related 
to the provision of ICS, nor are they necessary to ensure that ICS 
providers receive fair compensation for providing service. Permitting 
any other ancillary service charges would promote unfair, unjust, and 
unreasonable rates to end users, and would thus be contrary to our 
statutory mandate. Further, we find that removing a substantial number 
of unjustifiable charges not only benefits consumers, but also reduces 
compliance costs for ICS providers by allowing them easily to identify 
whether a particular charge is permitted by our rules. Additionally, 
since we have determined that the only justifiable ancillary service 
charges are the ones we specifically enumerated, there are no 
countervailing costs that would outweigh our selected approach.
    175. Purchase Minimums and Maximums. In the Second FNPRM, the 
Commission asked commenters whether anything should be done about 
policies, such as funding minimums and maximums that may restrict 
consumers' access to ICS. In response, some parties raise concerns that 
some ICS providers are engaging in unjust and unreasonable practices 
and imposing unfair rates by instituting minimum or maximum amounts 
that may be deposited for prepaid calling accounts. CenturyLink, for 
example, contends that ``[p]roviders might impose high purchase 
minimums and complex refund policies to obtain captured funds. 
Providers might also adopt low purchase maximums to force customers to 
have to repeatedly re-purchase services and generate transaction 
fees.'' Similarly, ICSolutions urges the Commission to regulate minimum 
and maximum funding requirements, arguing that high minimum funding 
requirements ``can preclude consumers from receiving calls from their 
loved ones,'' while low maximums can force consumers to ``fund their 
account more frequently, so that [the provider] can charge more 
ancillary fee payments.'' Furthermore, NCIC points out that ``payments 
for prepaid service by money order or check [are] available free of 
charge to ICS end users but this payment method is frequently 
impractical because of the excessive latency involved in establishing 
service (up to ten days for some providers).'' Thus, inmates are 
essentially forced into entering into more costly prepaid options, many 
of which require minimum payments and/or impose maximum limits on 
deposits.
    176. We agree that high purchase minimum requirements can lead to 
unfair compensation by forcing consumers to deposit relatively large 
sums of money even if they only want to make one short call or by 
driving consumers to more expensive calling options. Thus, high 
purchase minimums can effectively allow providers to charge exorbitant 
amounts for single calls. Such a result would be antithetical to the 
Commission's goals and to the requirements of sections 201 and 276.
    177. An artificial limit on maximum account deposits could also 
lead to gaming and loopholes. CenturyLink points out that low maximums 
on deposits can allow providers to increase transaction fees. A 
provider may refuse to permit a consumer from depositing more than a 
certain amount of money into an inmate calling account in a single 
transaction, thereby compelling the consumer to engage in additional 
transactions and, as a result, incur multiple ancillary service 
charges. Thus, providers could circumvent our reforms by placing 
artificially low limits on deposits and requiring consumers to incur 
ancillary charges every time they add additional money to an account.
    178. In order to prevent ICS providers from obtaining unfair 
compensation by inflating costs for end users relating to maximum and 
minimum deposits, we prohibit ICS providers from instituting prepaid 
account minimums, and require that any provider that limits deposits to 
set the maximum purchase amount at no less than $50 per transaction. 
Data from the Mandatory Data Collection show that the average call 
length reported by respondents was approximately 13 minutes. Under our 
new rate structure, that means the average cost of a call from a prison 
would be about $1.43. Accordingly, a $50 maximum per transaction would 
mean that consumers will be able to make a relatively large number of 
calls with a single deposit (on average about 35 calls). We find that 
allowing a lower limit would create an unacceptable risk that providers 
would be able to compel consumers to incur multiple ancillary service 
charges, as explained above. We note, however, that the record also 
reflects concerns that setting the floor for maximum allowable deposits 
too low could create risks for ICS providers, including the potential 
for fraud. Allowing providers to institute maximum deposit amounts, but 
requiring that those maximums be no lower than $50, strikes a 
reasonable balance between the competing concerns expressed in the 
record. We also note that various providers have instituted maximum 
deposit policies that conform to our requirement of no less than a $50 
maximum per transaction, and in some circumstances have even instituted 
higher maximum deposit limits. As noted below, we will continue to 
monitor the ICS marketplace and to investigate any attempts, such as 
these, to circumvent our rate caps or our rules governing ancillary 
charges. Due to the history of the large number and ever-changing and 
growing nature of ancillary service charges, as described in the 
record, we will be diligent in identifying any providers that violate 
the new rules covering ancillary service charges, third-party financial 
transaction fees, and minimum and maximum account funding. Accordingly, 
we delegate to the Bureau the authority to clarify the rule as 
necessary, after public notice and an opportunity to comment, where 
appropriate, to ensure that the reforms adopted in this Order relating 
to ancillary service charges and third-party financial transaction fees 
are properly reflected. This includes seeking comment on prohibiting 
additional ancillary fees if there is evidence of abuse of the 
permitted charges.
4. Cost-Benefit Analysis
    179. After careful consideration, we find that our approach to 
adopt simple ancillary service charge caps provides significant and 
important benefits to ICS end users, outweighing any potential burdens 
to providers. As discussed above, we conclude that reform is necessary 
to address ever-increasing and multiplying fees that are unchecked by 
competitive forces and unrelated to costs. We find that the allowable 
ancillary service charges will facilitate communications between 
inmates and their families, while enabling ICS

[[Page 79161]]

providers to recover the costs incurred for providing the associated 
ancillary services.
    180. It is clear that market failure exists with regard to 
ancillary service charges. Numerous parties cite specific instances of 
such market failure or abuse among ancillary service charge categories. 
Additionally, commenters request the Commission take action to curb 
these abuses by adopting reforms.
    181. By creating simple rate caps and limiting the scope of 
ancillary service charges, we resolve these problems and reform 
ancillary charges. We prohibit all ancillary service charges not 
specifically allowed, not only for the foregoing reasons, but also 
because the record did not demonstrate that any other ancillary 
services are reasonably and directly related to the provision of ICS or 
necessary to ensure that ICS providers receive fair compensation for 
providing service. Further, we find that removing a substantial number 
of unjustifiable charges not only benefits consumers, but also reduces 
compliance costs for ICS providers by allowing them easily to identify 
whether a particular charge is permitted by our rules, thus reducing 
the burden on them. As noted below, however, to minimize any potential 
burdens associated with ancillary service charges, we will reevaluate 
these charges to determine if adjustments are appropriate.
5. Fees for Single-Call and Related Services
    182. Background. The record indicates that single-call and related 
services are a growing part of the ICS market. These options, such as 
single-call services, are billing arrangements whereby an ICS 
provider's collect calls are billed through third-party billing 
entities on a call-by-call basis to parties whose carriers do not bill 
collect calls. A single-call service thus may be used for calls placed 
from the inmate facility to mobile phones or a telecom service where 
the called party does not have an account, does not want to establish 
an account, or does not know the party can establish an account with 
the ICS provider. Although some efficiencies may derive from single-
call and related services, the record is replete with evidence that 
some of these services are being used in a manner to inflate charges, 
and may be offered at unjust, unreasonable, or unfair rates, and/or at 
rates above our interim rate caps or rate caps adopted in this Order. 
The record also highlights substantial end-user confusion regarding 
single-call services.
    183. A significant problem with single-call and related services is 
that they end up being among the most expensive ways to make a phone 
call. In the Second FNPRM, the Commission sought comment on the 
prevalence of single-call services and whether rates for such services 
are just and reasonable.
    184. There is a diversity of views in the record on single-call and 
related services. CPC believes that single-call services should be 
treated as ancillary services subject to rate caps and that consumers 
must be notified of the option to set up a prepaid account instead. 
Several commenters believe that all of these single-call and related 
services should be eliminated because they are simply an ``end run'' 
around the Commission's rate caps. The Wright Petitioners note that any 
proposed rate caps should also apply to single-call services, along 
with a $3.00 funding fee. PPI also argues that, in the alternative, 
charges for single call services should be restricted to a reasonable 
deposit fee, plus a reasonable capped call fee. As the Alabama PSC 
notes, ``[t]he regulator's duty is to set fair and reasonable rates for 
ICS calls.''
    185. ICSolutions notes that the single-call or related service 
charge is often $9.99 or $14.99, regardless of whether the call lasts 
one minute or 10 or 15 minutes, and that these rates are 300 percent or 
376 percent higher than the effective interstate rate caps. It contends 
that such calls pose a danger to consumers, and that providers 
manipulate consumers into selecting these calling options even though 
less costly call options may exist. Other providers share ICSolutions' 
concern that single-call or related services are used to ``inflate 
ancillary fees'' at the expense of end users. CenturyLink, ICSolutions, 
and NCIC, among others, expressed concern about the use of third 
parties, including unregulated subsidiaries, to provide single-call or 
related services at high fees, and about revenue-sharing arrangements 
that enable ICS providers to recoup all or a portion of the ancillary 
service charge as profit outside our rate caps. Additionally, the 
Alabama PSC analyzed these single-call services in a jail, and found 
that ``[a]lthough single payment calls account for 14% of the calls and 
17% of the minutes at the facility, they are responsible for 42% of all 
the revenue generated.'' Conversely, GTL urges the Commission not to 
regulate these services, arguing the Commission does not have 
jurisdiction to do so. Securus similarly argues that single-call and 
related services should not be considered ancillary services because 
they are optional and are not intended to be a substitute for 
traditional ICS calls. Securus asserts that if the Commission regulates 
the rates for single-call and related services, ICS providers will be 
forced to stop offering them, and inmates and their friends and 
families will have fewer calling options by which to stay in touch.
    186. Discussion. We agree with commenters that suggest single-call 
and related services are another form of ancillary service charges. The 
additional costs stemming from single-call and related services are 
ancillary to the provision of ICS because they are additional fees 
charged to consumers, based on the consumer's discretion and desire to 
make use of such a service because, for example they want to speak to 
the incarcerated person as quickly as possible in order to arrange 
their release. We therefore believe that reform is necessary and that 
it is appropriate to address unreasonable charges. As a result, for 
single call and related services, we permit ICS providers to charge the 
amount of the third-party financial transaction (with no markup) added 
to a per-minute rate no higher than the applicable rate cap. These 
reforms are necessary to ensure that when end users decide to take 
advantage of single-call and related services, the rates for such calls 
comply with the statute.
    187. Unlike the ancillary service charge caps adopted above, we do 
not find that single-call and related services are reasonably and 
directly related to the provision of ICS, but are ancillary to ICS. We 
believe that charges for single-call and related services inflate the 
effective price end users pay for ICS and result in excessive 
compensation to providers. Accordingly, for single-call and related 
services, the Commission will allow ICS providers to charge end users 
for each single call in a manner consistent with our approach to third-
party financial transaction fees--i.e., ICS providers may charge the 
amount of the third-party financial transaction (with no markup) added 
to a per-minute rate no higher than the applicable rate cap. This 
approach is consistent with our overall approach to reforming both ICS 
per-minute rates and ancillary service charges. It will ensure just and 
reasonable rates for end users that are based on actual costs incurred 
by ICS providers.
    188. The record supports our reforms to fees charged for single-
call and related services. We have authority to reform ancillary 
service charges and we therefore disagree with ICS providers that argue 
we lack authority. Moreover, our approach in no way interferes with 
contracts between ICS providers and third-party payment processors or

[[Page 79162]]

mobile phone companies because our rule simply prevents ICS providers 
from adding additional fees to the cost of these calls. It does not 
dictate what fees an ICS provider itself may choose to pay or not pay 
these third parties for services rendered.
    189. We have also heard from commenters that a major problem with 
single-call and related services is that customers are often unaware 
that other payment options are available, such as setting up an 
account. To help alleviate the problem of customers continually paying 
set up fees for single-call and related service calls, we encourage 
providers to make clear to consumers that they have other payment 
options available to them. This is consistent with our discussion and 
analysis regarding consumer disclosure requirements below. We will 
continue to monitor the use of such calling arrangements and seek 
specific information about them in the Further Notice of Proposed 
Rulemaking published elsewhere in this issue of the Federal Register.
6. Taxes and Regulatory Fees
    190. The record in this proceeding indicates that ICS providers 
charge ICS end users ``fees under the guise of taxes.'' In an effort to 
ensure just, reasonable and fair ICS rates, in the Second FNPRM, the 
Commission asked ``whether the cost of regulatory compliance should be 
considered a normal cost of doing business and as such should be 
recovered through basic ICS rates, not additional ancillary fees.'' In 
response, Lattice asserts that ``ICS providers also must be permitted 
to continue to collect pass-through charges such as state and local 
taxes, universal service and numbering charges, and other federal, 
state and local fees.''
    191. ICS providers are permitted to recover mandatory applicable 
pass-through taxes and regulatory fees, but without any additional 
mark-up or fees. The Commission has defined a government mandated 
charge as follows: ``amounts that a carrier is required to collect 
directly from customers, and remit to federal, state or local 
governments.'' Non-mandated charges are defined to be ``government 
authorized but discretionary fees, which a carrier must remit pursuant 
to regulatory action but over which the carrier has discretion whether 
and how to pass on the charge to the consumer.'' Commission precedent 
prohibits providers from placing a line item on a carrier's bill that 
implies a charge is mandated by the government when it is in fact, 
discretionary.
    192. We agree that the ability to collect applicable pass-through 
taxes and regulatory fees without adding a markup is important and 
consistent with precedent. However, we reiterate that it is misleading 
``for carriers to state or imply that a charge is required by the 
government when it is the carriers' business decision as to whether and 
how much of such costs they choose to recover directly from consumers 
through a separate line item charge.'' As such, we do not permit fees 
or charges beyond mandatory taxes and fees, and authorized fees that 
the carrier has the discretion to pass through to consumers without any 
mark up. This will help ensure, consistent with the goals of the 
reforms adopted in this Order, that ICS end user's rates are just, 
reasonable and fair because they are paying the cost of the service 
they have chosen and any applicable taxes or fees, and nothing more. 
This approach has support in the record, including from the Joint 
Provider Proposal and Pay Tel.
7. Legal Authority
    193. We reaffirm the Commission's finding in the 2013 Order that it 
has jurisdiction over interstate ICS ancillary service charges and 
further find that we have authority to reform intrastate ancillary 
service charges. The Commission sought comment in the Second FNPRM as 
to whether it is also authorized to regulate intrastate ancillary 
service charges. In response, several commenters took the position that 
section 276 of the Act authorizes the Commission to regulate intrastate 
ancillary service charges. We agree.
    194. We find that the Commission has the legal authority to adopt 
necessary reforms to interstate, intrastate, and international 
ancillary service charges. In the 2013 Order, the Commission addressed 
interstate charges and found that billing and collection services 
provided by a common carrier for its own customers are subject to 
section 201, and are therefore, subject to Commission regulation. The 
Commission explained that it has jurisdiction ``to regulate the manner 
in which a carrier bills and collects for its own interstate offerings, 
because such billing is an integral part of that carrier's 
communication service.'' We reaffirm that finding here. Thus, providers 
are on notice that efforts to circumvent our rate caps through 
artificially high ancillary fees will not be tolerated.
    195. Although ``ancillary services'' are not defined by statute, 
and there is some disagreement in the record on this point, the 
dictionary meaning of the term ``ancillary''--``providing necessary 
support to the primary activities or operation of an organization, 
institution, industry, or system''--is instructive. Additionally, 
section 276(b)(1)(A) specifies that any compensation plan set forth by 
the Commission must ensure that providers ``are fairly compensated for 
each and every completed intrastate and interstate call . . . .''
    196. In the discussion above, we find that we have jurisdiction 
over intrastate ICS charges, pursuant to section 276 of the Act. We 
also note that section 276(d) defines ``payphone service'' as ``the 
provision of public or semi-public pay telephones, the provision of 
inmate telephone service in correctional institutions, and any 
ancillary services.'' Thus, we believe it is clear that Congress 
provided the Commission with authority over ICS-related ``ancillary 
services.'' Based upon the plain language of these statutory provisions 
and the common definition of the term ``ancillary,'' we find that the 
term ``ancillary services,'' as used in section 276(d), is reasonably 
interpreted to mean services that provide necessary support for the 
completion of international, interstate and intrastate calls provided 
via ICS. We find that section 276 authorizes the Commission to regulate 
charges for intrastate ancillary services, such as billing and 
collection services, to the extent those charges involve the completion 
of a call, or other communications services. Such charges are quite 
literally the ``necessary support'' essential for the completion of 
inmate phone calls. Indeed, often the only purpose for establishing ICS 
accounts is to fund communication with inmates; therefore, these 
charges are reasonably understood to be ancillary to the completion of 
phone calls. As such, we conclude that billing-and-collection-related 
ancillary services such as account set up and transaction fees fall 
within the Commission's jurisdictional authority and will be regulated 
in the manner described above.

D. Periodic Review of Reforms

    197. While the 2013 Order and today's reforms are a significant 
step forward, we are committing to continuing to review the ICS market, 
including both costs and rates, to ensure that regulation remains 
necessary and that the reforms we adopt herein strike the right 
balance. The reforms adopted in this Order may facilitate changes in 
the ICS market that potentially could make it function properly and 
enable the Commission to reduce regulations. At the same time, changes 
in the market, for example, may necessitate additional modifications to 
the reform we adopt today. We will incorporate lessons learned from the 
prior data collection to

[[Page 79163]]

improve quality and eliminate anomolies. While the policies adopted in 
this Order have been carefully designed based on the record before us, 
we remain dedicated to evaluating how changing circumstances impact the 
nature and scope of reform. The Commission has the authority to take 
steps to effectively monitor compliance with this Order going forward.
    198. To enable the Commission to take further ICS reform action, 
identify and track trends in the ICS market, as well as monitor 
compliance with the reforms adopted herein, we adopt a second, one-time 
Mandatory Data Collection to occur two years from publication of Office 
of Management and Budget (OMB) approval of the information collection. 
We believe it is appropriate to be able to conduct a review of the ICS 
market including ICS costs, rates and ancillary service charges to 
ensure that any regulations continue to be necessary to fulfill our 
statutory objectives and to ensure that any such reforms and rate caps 
reflect current market dynamics and costs.
    199. In the Second FNPRM, the Commission sought comment on the 
benefits of establishing a review process. The Commission also sought 
comment on the Wright Petitioners' suggestion that the Commission 
commit to review the interim rates adopted in the 2013 Order. In its 
comments, HRDC states generally that periodic reviews by the Commission 
to evaluate the ways in which ICS reforms impact phone rates, ancillary 
service charges and competition in the industry are ``essential to 
ensure that the reforms create and maintain the proper incentives to 
drive ICS rates to competitive levels.''
    200. We find that, on balance, Petitioners' proposal for a periodic 
review of ICS data is not necessary at this time, nor is it the best 
tool for monitoring compliance with the Order. Therefore, we establish 
a less onerous requirement, which we anticipate will provide 
significant benefit at minimal cost. In lieu of the Petitioners' 
proposal, we adopt an approach similar to the one used by the 
Commission in a prior payphone order establishing the per-call rate for 
payphones, in which the Commission determined that it would ``have to 
periodically review the cost-based compensation rate in order to ensure 
that it continues to `fairly compensate' PSPs and promote payphone 
competition and widespread deployment of payphones.'' The Commission 
explained that, ``[e]specially when market conditions have changed 
significantly, it is incumbent upon us to reexamine whether the 
conditions resulting in the recent Commission-prescribed rate still 
apply.'' As with that situation, we conclude that the Commission should 
have the tools necessary to review the reforms that we adopt in this 
Order, in light of changing market conditions, to ensure that the rates 
continue to be just, reasonable, and fair. As explained above, 
ancillary service charges also significantly impact the effective rates 
ICS providers charge, and should therefore be part of this review.
    201. To allow for consistent data reporting and to prevent 
duplicative filings, we direct the Bureau to develop a template for 
submitting the data and provide ICS providers with further instructions 
to implement the data collection. We direct the Bureau to complete a 
review of ICS costs and rates within one year from the date data is 
submitted, and we delegate to the Bureau authority to require an ICS 
provider to submit such data as the Bureau deems necessary to perform 
its review. Information in response to the forthcoming data collection 
may be filed under the Protective Order in this proceeding and will be 
treated as confidential.
    202. Several commenters have expressed concern for the lack of 
transparency regarding ICS rates and fees. We share the concern that 
ICS contracts are not sufficiently transparent and we find adequate 
evidence, such as numerous public records lawsuits, to support HRDC's 
assertion that members of the public must ``unnecessarily expend time 
and money to obtain records'' of ICS contracts. We also recognize 
evidence suggesting that the information regarding ICS contracts and 
rates that is publically available may not be reliable. Therefore, we 
encourage ICS providers and facilities to make their contracts publicly 
available.

E. Harmonization With State ICS Rules and Requirements

    203. Below, we provide guidance to ICS providers, correctional 
facilities and state regulatory bodies on the effect of the 
comprehensive reforms adopted herein on ICS requirements in the states 
and the Commission's authority to regulate these services pursuant to 
section 276 of the Communications Act.
1. Background
    204. In the 2013 Order, the Commission sought comment on its 
tentative conclusion that section 276 ``affords the Commission broad 
discretion to regulate intrastate ICS rates and practices . . . and to 
preempt inconsistent state requirements.'' Commenters' responses were 
mixed. The Commission then followed up by seeking more focused comments 
on issues related to preemption and harmonization of state ICS 
requirements. Several commenters support preemption of state laws and 
requirements that are inconsistent with the federal regime, while a 
small number of commenters oppose such preemption and question our 
authority to preempt state requirements related to intrastate ICS. As 
discussed below, we now adopt the tentative conclusion the Commission 
first expressed in the 2013 Order, and hold that we have the authority 
to preempt state requirements that are inconsistent with the rules we 
adopt in this Order. More specifically, we conclude that a state 
requirement that ICS be provided at a particular rate that exceeds the 
caps we have adopted would trigger change-in-law provisions or require 
renegotiation. If for some reason that does not occur for any 
particular contract, parties can file a petition with the Commission 
seeking the appropriate relief. State rates below our rate caps or 
ancillary fee caps will not be preempted.
    205. The rate caps and reforms adopted herein should operate as a 
ceiling in areas where states have not enacted reforms. This is 
consistent with Commission precedent in which it has determined that 
rates at or below a newly-enacted rate cap were not to be changed. We 
strongly encourage all states to evaluate additional measures to reduce 
and eliminate site commissions and ensure that rates for inmate calling 
services are as low as possible while still ensuring that robust 
security protocols are in place. Our actions today serve to ensure that 
a much-needed default framework is in place in areas where states have 
not acted to curb ICS rates.
    206. In the Second FNPRM, the Commission sought comment on a number 
of issues related to the preemption of state regulation of ICS, as well 
as the potential to harmonize state requirements that are inconsistent 
with the Commission's comprehensive framework for regulation of both 
interstate and intrastate ICS. Among other questions, the Commission 
sought comment on its belief that it has ``broad discretion to find 
that a particular state requirement, or category of state requirements, 
is either consistent or inconsistent with Commission ICS regulations 
under section 276(c)'' and to preempt those regulations that are 
inconsistent.
    207. Several commenters support preemption, urging the Commission 
to establish a uniform framework for both interstate and intrastate 
ICS. ICS

[[Page 79164]]

provider Lattice, for example, argues that ``[s]ound public policy as 
well as the Communications Act and FCC precedent all support FCC reform 
across all ICS.'' Lattice contends not only that ``[s]ection 276 grants 
the Commission express authority to preempt state requirements to the 
extent they are inconsistent with FCC regulations,'' but that 
``preemption of state regulation is required to fulfill the 
requirements of section 276.'' Pay Tel also argues that the Commission 
has authority over intrastate ICS, and must ``preempt inconsistent 
state regulations.'' Additional commenters echo these assertions, 
arguing that the Commission has jurisdiction over both interstate and 
intrastate rates and must preempt inconsistent state requirements. 
Indeed, the Wright Petitioners state that ``there is no debate that the 
FCC has the authority to preempt those state regulations that conflict 
with regulations adopted in this proceeding.''
    208. Other commenters contend that the Commission lacks the 
authority to preempt state ICS requirements. According to the Arizona 
Corporation Commission (ACC), for example, ``[s]ection 276 must be read 
in pari materia with 47 U.S.C. 152's reservation of authority over 
intrastate matters.'' The ACC further asserts that ``the primary 
purpose of section 276 was to prevent unfair competition by incumbent 
local exchange carriers against the payphone providers [and t]he other 
express purpose of this section was to ensure that payphone providers 
were fairly compensated for all calls placed using their payphones.'' 
In addition, the ACC claims that state regulation of intrastate ICS is 
part of the states' ``historic police powers'' and therefore should not 
be preempted unless preemption ``was the clear and manifest purpose of 
Congress.''
2. Discussion
    209. NARUC and the ACC argue that our authority under section 276 
is limited to interstate services, and that our regulations must be 
narrowly targeted to address concerns about anticompetitive conduct by 
incumbent local exchange carriers. We disagree. These arguments are 
contradicted by the plain language of section 276. As explained above, 
the statute provides the Commission with the authority to regulate both 
interstate and intrastate ICS. Similarly, although section 276 
addresses potential discrimination by Bell operating companies, it also 
contains provisions related to other subjects, including compensation 
for ``payphone service providers,'' a group that, by definition, 
encompasses providers ``of inmate telephone service in correctional 
institutions, and any ancillary services.'' Furthermore, we believe 
that section 276's broad mandate stands in stark opposition to ACC's 
and NARUC's attempts to narrowly confine the Commission's ICS-related 
preemption authority.
    210. Pay Tel urges the Commission to preempt state-imposed 
intrastate rates that are below the adopted caps, arguing that any 
rates that deviate from the Commission's caps are ``by definition, 
`inconsistent''' and must be preempted. We disagree. The primary 
purpose of the rate caps we adopt today is to ensure that ICS rates are 
``just and reasonable'' and do not take unfair advantage of inmates or 
their families. State requirements that result in rates below our caps 
advance that purpose and there is no credible record evidence 
demonstrating or indicating that any requirements that result in rates 
below our conservative caps are so low as to clearly deny providers 
fair compensation. Evidence in the record shows that ICS can be 
provided at rates at or below $0.05 a minute. We applaud the efforts 
some states have made to lower ICS rates and hope other states follow 
their lead. Our goal is affordable rates that provide fair 
compensation, and the federal framework we adopt today is meant to 
serve as a backstop to ensure rates are consistent with the statute in 
absence of state action.
    211. We are mindful, however, of the fact that we also have a 
statutory obligation to ensure that payphone service providers, 
including ICS providers, are ``fairly compensated.'' If any state 
adopts intrastate requirements that result in providers being unable to 
receive fair compensation, providers may either seek appropriate relief 
in that state or from the Commission. We will review the relevant state 
requirements if they are brought to our attention in a petition and 
will decide at that time what, if any, remedial actions are warranted. 
If any party believes that a particular form of relief is called for, 
that party should clearly state the requested relief in a petition and 
set forth the legal authority for granting such relief. As noted above, 
section 276 explicitly grants the Commission authority to preempt state 
requirements to the extent they are inconsistent with FCC regulations. 
Accordingly, if a provider is able to demonstrate that a particular 
state law or requirement is inconsistent with the rules we adopt in 
this Order, we will, consistent with section 276, preempt the 
inconsistent requirement. We strongly encourage providers to seek 
relief from the relevant state entity before approaching the 
Commission, however. We also note that there is no presumption that 
state-mandated rates deny fair compensation simply because they are 
lower than our rate caps. To the contrary, as noted above, we encourage 
states to enact additional reforms to inmate calling service and to 
drive intrastate rates as low as possible, consistent with the need to 
ensure fair compensation, retain service quality, and maintain adequate 
security.
    212. Consistent with the regulatory approach adopted herein, 
providers may be able to comply with such statutory requirements 
without charging rates that exceed our rate caps. Given the absence of 
clear evidence indicating whether there are any state laws or other 
requirements that, in practice, would require providers to charge rates 
that exceed our caps, we need not decide whether any laws currently 
exist that are ``inconsistent'' with our regulatory framework. To the 
extent there are state requirements, including possible contractual 
requirements, that make our rate caps onerous for a particular 
provider, the affected provider may file for preemption of the state 
requirement or seek a temporary waiver of the rate caps for the 
duration of any existing contract. We note that any waiver request 
should include a discussion of the provider's efforts to renegotiate 
the subject contracts and the outcome of such efforts. We delegate to 
the Bureau the authority to rule on such petitions and to seek 
additional information as needed. We also direct the Bureau to endeavor 
to complete review of any such petitions within 90 days of the provider 
submitting all information necessary to justify a waiver.
3. Existing Contracts
    213. As the Commission has previously noted, ICS contracts 
``typically include change of law provisions.'' We expect that the new 
rate caps and other requirements adopted in this Order constitute 
regulatory changes sufficient to trigger contractual change-in-law 
provisions that will allow ICS providers to void, modify or renegotiate 
aspects of their existing contracts to the extent necessary to comply 
with the new rate caps and/or to relieve the providers from site 
commission payments that would prove to be unduly onerous once this 
Order takes effect. The record regarding implementation of the 2013 
interim rate caps indicates that such changes were implemented quickly. 
Indeed, the Commission has previously highlighted the fact that the 
record ``indicates that ICS contracts are amended on a regular basis.'' 
For

[[Page 79165]]

instance, the record indicates that Securus provided nine days' notice 
to facilities prior to implementing the rate caps adopted in the 2013 
Order. The record also indicates that GTL had a four-day transition 
period after executing a new contract to serve the state of Ohio.
    214. Parties have further argued that invoking contractual change 
of law provisions and engaging in renegotiations with correctional 
facilities would materially affect ICS providers' ability to conduct 
their daily business. Yet the Commission saw little such impact 
regarding implementation of the 2013 interim rate caps. Those rate caps 
affected all interstate calls throughout the country, much like today's 
reforms will affect calls nationwide. Our experience with the 
Commission's previous reforms leads us to conclude that, for ICS 
providers that choose to invoke existing change of law provisions--and 
subsequently to engage in renegotiations with the facilities they 
serve--any inconvenience imposed on them in doing so will not 
materially affect the providers' ability to conduct their day-to-day 
business. Finally, the negotiations for any new or renewed contracts 
can and should be informed by the decisions in this Order, including 
our adoption of new rate caps for ICS.
    215. ICS providers that have entered into contracts without change-
of-law provisions did so with full knowledge that the Commission's ICS 
proceeding has been pending since 2012. Even so, we encourage 
facilities to work with those ICS providers during the transition 
period described below which we believe provides ample time to 
renegotiate contracts, if necessary, to be consistent with this Order. 
If any provider believes it is being denied fair compensation during 
the transition or implementation of the reforms adopted in this Order--
due, for example, to the interaction of our rate caps with the terms of 
the provider's existing service contracts--it may file a petition 
seeking a limited waiver of our new rate caps or seek preemption of the 
requirement to pay a site commission, to the extent that it believes 
that such a requirement is a state requirement and is inconsistent with 
the Commission's regulations. Finally, negotiations for any new or 
renewed contracts can and should comply with the decisions in this 
Order, including our limitation on site commission payments and our 
adoption of new rate caps.
    216. We note that the contractual provisions to which a state 
subjects itself, or its subdivision, may reasonably be subsumed within 
the ``state requirements'' addressed by section 276(c). Therefore, if a 
state or a political subdivision thereof uses a contractual agreement 
as a vehicle to impose certain requirements regarding rates or other 
aspects of ICS, we would consider, on a case-by-case, fact-specific 
basis, preempting those requirements to the extent they are 
``inconsistent with the Commission's regulations'' as set forth in this 
Order. Without deciding whether preemption is factually or legally 
warranted in any particular case, we note that a contrary 
interpretation could leave states and localities free to undermine the 
Commission's implementation of section 276 by doing so via a contract, 
rather than a state law or regulation, which result appears to be 
counter to Congress's objectives in enacting section 276(c). As the 
Commission has noted in this very proceeding, ``agreements cannot 
supersede the Commission's authority to ensure that the rates paid by 
individuals who are not parties to those agreements are fair, just and 
reasonable.'' To the extent ICS providers require waiver relief, they 
may take advantage of the procedures described below.

F. Waivers of Rules Adopted in This Order

    217. In the 2013 Order, the Commission held that an ICS provider 
that ``believes that it has cost-based rates for ICS that exceed our 
interim rate caps'' may file a petition for waiver for good cause. The 
2013 Order also confirmed that the Commission's standard waiver process 
applies to ICS providers. The Commission delegated to the Bureau the 
authority to approve or deny waiver requests. The Commission 
articulated the following factors that the Bureau could consider in 
reviewing a waiver request: Costs directly related to the provision of 
interstate ICS and ancillary services; demand levels and trends; a 
reasonable allocation of common costs; and general and administrative 
cost data. The Commission also noted that, because the adopted interim 
interstate rate caps were set at conservative levels, it expected that 
petitions for waiver ``would account for extraordinary circumstances.'' 
Additionally, the Commission held that, for ``substantive and 
administrative reasons,'' waiver petitions would be evaluated at the 
holding company level. The Bureau processed three requests for waiver 
of the interim interstate rate caps following this guidance and granted 
a temporary waiver to one provider.
    218. In the Second FNPRM, the Commission sought comment on the 
waiver process detailed in the 2013 Order. Several commenters object to 
the use of this waiver process to address concerns about the 
sufficiency of the rate caps. Some ICS providers ask that we review 
waiver petitions on a facility-by-facility basis in order to review 
locations where the costs of service exceed the rate caps. One 
commenter requests an expedited waiver process to allow the adoption of 
products or services involving costs paid to a third party, such as 
those involving a software agreement or new security feature. 
Commenters also suggest that the Bureau issue a blanket waiver 
excluding juvenile detention centers, secure mental health facilities, 
and jails with small populations, from our rate caps.
    219. We have relied on the Mandatory Data Collection in 
establishing the rate caps adopted above. For the reasons previously 
given, we believe our rate caps are more than sufficient to allow 
carriers to receive fair compensation. We agree with the Petitioners 
that a tiered rate cap approach, as adopted herein, will reduce the 
need for waivers. We recognize, however, that we cannot foreclose the 
possibility that in certain limited instances, our rate caps may not be 
sufficient for certain providers. For those instances, we reaffirm the 
waiver standard for ICS providers adopted in the 2013 Order and 
delegate to the Bureau the authority to rule on such waivers. 
Accordingly, an ICS provider that believes the rate caps for interstate 
and intrastate ICS do not allow for fair compensation may seek a waiver 
pursuant to the guidance articulated in the 2013 Order. ICS provider 
waiver petitions may be accorded confidential treatment to the extent 
consistent with rule 0.459. We direct the Bureau to endeavor act to on 
such waivers within 90 days of the provider submitting all information 
necessary to justify a waiver. As the Commission previously stated, 
waiver petitions should be filed at the holding-company level. We 
believe that this approach best captures the way the majority of the 
ICS market functions; specifically that ICS providers serve multiple 
facilities utilizing centralized infrastructure, thus spreading related 
costs across their correctional facility customer base whenever 
possible. Furthermore, as described in the 2013 Order, providers will 
be expected to provide data showing why they are unable to meet their 
costs under the applicable rate caps. We reiterate that ``unless and 
until a waiver is granted, an ICS provider may not charge rates above 
the [applicable] rate cap and must comply with all aspects of this 
Order . . . .'' However, consistent with Commission precedent,

[[Page 79166]]

exigent circumstances may warrant that the Bureau provide interim 
relief during the pendency of its review of a waiver request.
    220. We also conclude that there is insufficient evidence available 
at this time to support a blanket waiver to providers incurring third-
party technology costs or serving high-cost facilities. The Bureau will 
consider waiver petitions, including those from providers claiming to 
serve high-cost facilities, and evaluate the details specific to such 
petitions on a case-by-case basis.

G. Disability Access to ICS

1. Background
    221. In the 2012 NPRM, the Commission noted that ``there is 
evidence in the record to indicate that inmates with hearing 
disabilities may not have access to ICS at reasonable rates using TTYs 
[text telephones].'' Specifically, the Commission cited evidence that 
``deaf and hard of hearing inmates who use TTYs have to pay more than 
their hearing counterparts'' because ``the average length of a 
telephone conversation using a TTY is approximately four times longer 
than a voice telephone conversation.'' In light of this record, the 
Commission sought comment about the ICS access available to deaf and 
hard of hearing inmates and about the rates such inmates paid for ICS.
    222. In the 2013 Order, the Commission clarified that ICS providers 
may not collect additional charges for calls made through any type of 
telecommunications relay service (TRS). In the Second FNPRM that 
accompanied the 2013 Order, the Commission also noted commenters' 
assertions that TTY calls take ``at least three to four times longer 
than voice-to-voice conversations to deliver the same conversational 
content.'' The Commission, therefore, tentatively concluded that per-
minute ICS rates for TTY calls should be 25 percent of the rate for 
standard ICS calls, and sought comment on this proposal. In addition, 
the Commission sought comment on a number of other issues related to 
ICS for inmates who are deaf and hard of hearing, including: (1) 
Whether and how to discount the per-minute rate for ICS calls placed 
using TTY; (2) whether action is required to ensure that ICS providers 
do not deny access to TRS by blocking calls to 711 and/or state 
established TRS access numbers; (3) the need for ICS providers to 
receive complaints on TRS and file reports on those complaints with the 
Commission; and (4) actions the Commission can take to promote the 
availability and use of video relay service (VRS) and other assistive 
technologies in prisons.
    223. The Commission asked additional questions about accessible ICS 
in the Second FNPRM. Specifically, the Commission sought comment on the 
following: (1) The actual relative length of TTY-to-TTY and TTY-to-
voice calls as compared to voice-to-voice calls; (2) the claim that no 
ICS provider charges for voice-to-TTY or TTY-to-voice calls because 
``the `interexchange company holding the [state] TRS contract carries 
the call to the called party,' '' and if true, whether the final 
reduced ICS rates for TTY calls should only apply to TTY-to-TTY calls; 
(3) whether AT&T and other entities that provide TRS are providing ICS 
for TRS calls placed by inmates; (4) how the Commission's relay service 
registration requirements can be met in a correctional facility setting 
where the equipment is handled by several users; and (5) the 
availability of and security concerns relating to devices used with 
newer technologies, such as videophones used for VRS and point-to-point 
video communications, devices used for IP CTS, and devices used for IP 
Relay.
    224. Since 2012, when the Commission first sought comment on access 
to ICS for inmates who are deaf or hard of hearing, the Commission has 
continued to receive filings expressing concern about these prisoners' 
lack of access to telephone services that are functionally equivalent 
to the services available to users of traditional voice services. The 
Washington Lawyers' Committee (WLC), for example, claims that 
correctional facilities often fail to make TRS available to inmates. 
Similarly, Helping Educate to Advance the Rights of the Deaf (HEARD) 
asserts that ``deaf prisoners in several states have had no 
telecommunications access for several years, while deaf detainees often 
spend their entire time in jail with no telecommunication.'' According 
to the Rosen Bien Galvan & Grunfeld (RBGG) law firm, its clients 
``routinely report that their access even to outdated and disfavored 
[TTYs], particularly in county jail facilities, is limited to 
nonexistent and that their ability to communicate with loved ones and 
attorneys is thereby impaired.'' RBGG further asserts that, even when 
correctional facilities have TTYs, ``they are often not actually 
available to our clients because they are broken, because staff does 
not know they exist, or because staff does not know how to use the 
machines.''
    225. In response to the Second FNPRM, Securus and GTL contend that 
correctional facilities, not the ICS providers, ``set correction 
facility policy as to the amount of access that hearing-impaired 
inmates (or any inmates) have to telecommunications services.'' GTL 
also asserts that ``disability access concerns are being addressed by 
the industry'' and that GTL's inmate calling services and the rates for 
those services are ``fully compliant with the requirements of the 
Americans with Disabilities Act (ADA), the Communications Act of 1934, 
as amended, and current Commission requirements.''
2. Discussion
    226. Functionally Equivalent Access. We now take measures to 
address the various concerns and ongoing reports regarding the lack of 
equal telephone access by inmates. As an initial matter, we note that 
this proceeding has generally referred to individuals who are ``deaf 
and hard of hearing,'' in discussing accessibility matters. Because 
inmates who are deaf-blind or have speech disabilities also use TRS, 
they, too, have the same or similar policy concerns as inmates who are 
deaf or hard of hearing. Accordingly, we will now refer more generally 
to inmates with ``communication disabilities'' when discussing these 
accessibility issues. Additionally, we note that while our focus here 
is primarily on calls that are made by inmates with these disabilities, 
some of the policies we adopt requiring access to TRS will also benefit 
inmates who need to place calls to people with such disabilities.
    227. Section 225 of the Act requires every common carrier that 
provides voice services to offer access to TRS within their service 
areas. Accordingly, all common carriers must make available, or ensure 
the availability, to their customers of those types of TRS that the 
Commission has required to be mandatory services provided to the 
public. At present, the Commission mandates two forms of TRS: TTY-based 
TRS and speech-to-speech (STS), both of which are provided over the 
PSTN. We remind ICS providers of their obligations to ensure the 
availability and provision of these forms of TRS. Consistent with these 
obligations, ICS providers also may not block calls to 711, a short 
form dialing code that is used to access TRS provided by state-run TRS 
programs.
    228. We note that several parties have requested that the 
Commission require correctional facilities to provide more ``modern'' 
forms of TRS as well, along with the equipment needed to access those 
services. These parties assert that TTYs are largely outdated and that 
videophones and captioned telephones

[[Page 79167]]

are the standard modes of communication for people with communication 
disabilities. For example, RBGG urges the Commission's ``active 
intervention'' to encourage facilities to adopt modern communications 
technologies, such as videophones. Similarly, the National Association 
of the Deaf (NAD) asserts that ``correctional facilities should be 
required to install and provide access to the telecommunications 
equipment required by deaf and hard of hearing inmates--whether it's a 
TTY, videophone, captioned telephone, or even an amplified telephone or 
one that is amplified and has large buttons.''
    229. The Communications Act requires TRS to be provided ``in a 
manner that is functionally equivalent to the ability of a hearing 
individual'' to use conventional voice telephone services. We agree 
with commenters that limiting all inmates with communication 
disabilities to one form of TRS, particularly what many view as an 
outdated form of TRS that relies on TTY usage, may result in 
communication that is not functionally equivalent to the ability of a 
hearing individual to communicate by telephone. However, as noted 
above, at this time, only two forms of TRS, TTY-based TRS and STS, are 
mandated services for all common carriers. While the Commission 
authorizes compensation from the Interstate TRS Fund for VRS, IP Relay, 
and both PSTN-based CTS and IP CTS, it does not mandate that these 
types of services be provided by any common carrier at this time. 
Accordingly, while we are only able to require ICS providers to make 
TTY-based TRS and STS available to inmates with communication 
disabilities, or to inmates who communicate by telephone with users of 
these services at this time, we strongly encourage correctional 
facilities to work with ICS providers to offer these other forms of 
TRS.
    230. Several inmates with communications disabilities that have 
commented in the record note that in some instances, using a 
Telecommunication Device for the Deaf (TDD) is unsatisfactory because 
``[o]ur family members and friends who are deaf, are no longer using 
the obsolete TDD system.'' We reaffirm our existing policy of strongly 
encouraging correctional facilities to provide inmates with 
communication disabilities with access to TTYs, as well as equipment 
used for advanced forms of TRS, such as videophones and captioned 
telephones. In addition, we strongly encourage correctional facilities 
to comply with obligations that may exist under other federal laws, 
including Title II of the ADA, which require the provision of services 
to inmates with disabilities that are as effective as those provided to 
other inmates. Access to more advanced forms of TRS, including VRS, IP 
Relay, CTS, and IP CTS, may be necessary to ensure equally effective 
telephone services for these inmates. We recognize that some facilities 
have already begun providing access to alternative forms of TRS, often 
as the result of litigation brought under these other statutes. We 
strongly encourage other facilities to continue this trend voluntarily, 
without the need for further litigation. The Commission will monitor 
the implementation and access to TRS in correctional institutions and 
may take additional action if inmates with communications disabilities 
continue to lack access to functionally equivalent service.
    231. Rates. Several commenters have also expressed concern about 
the costs inmates with communication disabilities incur when they use 
TTYs. HEARD, for example, asserts that TTY calls are ``at least four 
times slower than voice-to-voice conversations'' and that ``this time 
estimation does not account for varied literacy levels of users; 
`garbled' transmissions that frequently occur in loud settings or with 
incompatible newer telephone technology; or the time required to 
connect to the operator, and subsequently to the party being called, 
among other things.'' One commenter describes his experience as an 
inmate with communications disabilities:

[a]fter you give the relay operator your name for the collect call 
the relay operator put[s] you back on hold once again to see if 
charges will be accepted by the party at the other end of your call. 
This process takes at least 5 to 8 minutes. This time is part of the 
15-minute time limit that the Department of Corrections has on their 
timers for each call. Now keep in mind that a regular call costs a 
total of about $2 but the relay service had a $3.62 hook up fee, 
then so much per minute after that so you only get 5 to 7 min. and 
you have to call back and repeat this process.

    232. Given the differences between TTY and traditional voice 
service, several commenters argue that TTY users should be charged a 
discounted rate for ICS calls. The Prison Law Office, for example, has 
argued that if the Commission does not take into account the relatively 
slow speeds of TTY-based conversations, it will be ``in effect placing 
a surcharge on deaf prisoners.'' The Commission itself tentatively 
concluded in the 2013 Order that the per-minute ICS rate for TTY calls 
should be set at 25 percent of the safe harbor rate of $0.12/minute for 
debit/prepaid calls and $0.14/minute for collect calls.
    233. Neither ICS providers, nor any other commenters, dispute 
arguments that TTY calls are longer, and therefore more expensive to 
consumers than non-TTY calls. Instead, Securus merely contends that it 
receives no additional compensation for this type of call above its 
tariffed rate. GTL, for its part, generally asserts that its ICS and 
associated rates are ``fully compliant with the requirements of the 
Americans with Disabilities Act, the Communications Act of 1934, as 
amended, and current Commission requirements.''
    234. We find that the record overwhelmingly supports the conclusion 
that TTY calls take significantly longer than voice conversations, due 
to factors that include the longer time it takes the TTY user to type--
rather than speak--his or her part of the conversation; the time delays 
that occur while the text is transmitted; and the technical 
difficulties that appear to affect TTY calls disproportionately 
compared to voice calls. TTY calls through TRS can take even longer 
than calls between two TTY users, because of the need for such calls to 
be set up before the communications assistant can connect the TTY user 
to the voice telephone user, and the need for the communications 
assistant to transcribe the spoken part of the call and relay it to the 
TTY user.
    235. Given that there does not appear to be any dispute in the 
record over whether TTY calls take longer to transact than voice calls 
involving similar content, the question remains whether inmates with 
communication disabilities (or their families) should be required to 
pay more for ICS calls than their hearing counterparts simply because 
they need to rely on TTYs to communicate with their friends and 
relatives. As explained below, we find that it would be unfairly 
discriminatory to require TTY users to pay more per call than users of 
traditional voice telephone equipment.
    236. In the 2013 Order, the Commission clarified that it would be 
inconsistent with section 225 of the Act for ICS providers to collect 
``additional charges'' (i.e., charges in excess of those charged by the 
ICS provider for functionally equivalent voice communications service) 
for calls made through any type of telecommunications relay service. 
The 2013 Order, however, did not address the relevance of section 276 
to ICS provider charges for TRS calls. Section 276, which requires the 
Commission to ensure that ICS

[[Page 79168]]

providers ``are fairly compensated for each and every completed 
intrastate and interstate call,'' also states that TRS calls ``shall 
not be subject to such compensation.'' Thus, we believe it is 
reasonable for the Commission to interpret 276(b)(1)(A) to mean that 
TRS calls are not subject to the per-call compensation framework 
adopted herein. Specifically, section 276 exempts both emergency calls 
and TRS calls from the fair compensation mandate. The exemption of 
emergency calls means that providers may not charge for emergency 
calls. We believe it is reasonable to interpret the pairing of TRS with 
emergency calls as an indication that Congress also intended TRS calls 
be provided for no charge. Therefore, we prohibit ICS providers from 
assessing charges for ICS calls between a TTY device and a traditional 
telephone.
    237. As for TTY-to-TTY calls, we find that, because such calls, by 
their nature, are of longer duration than voice calls, and because 
inmates with communication disabilities do not have the alternative of 
placing voice calls, it would be unfairly discriminatory to require TTY 
users to pay more per call than users of traditional voice telephone 
equipment. This finding is compelled not only by the evidence in the 
record, but also by the language of the relevant statutory provision. 
Section 276 requires the Commission to establish a ``per call 
compensation plan'' to ensure that payphone providers, including ICS 
providers, are fairly compensated for ``each and every . . . call.'' 
Such per-call compensation must be ``fair'' not only to the provider 
but also to the party paying for the call. Because of the significantly 
longer time that is necessarily consumed by TTY calls--as compared to 
the duration of voice telephone ICS calls--we conclude that, to ensure 
fair compensation on a per-call basis, ICS providers should offer TTY 
calls at lower per-minute rates than are charged for voice calls, even 
if such lower rates do not provide the level of per-minute compensation 
determined to be fair for voice telephone calls in the ``per call 
compensation plan.'' We reach this decision because of the per-call 
discrimination that would result were we to set the same rates for both 
types of calls.
    238. Accordingly, for the reasons described above, we require that 
the rates charged by ICS providers for TTY-to-TTY calls be no more than 
25 percent of the rates the providers charge for traditional inmate 
calling services. We recognize that this discounted rate may not 
represent the same level of compensation that is provided for voice 
telephone calls carried over the same networks, but we have considered 
any additional costs that might be incurred by providers in setting the 
rate caps for ICS and concluded that there is enough room within the 
general rate caps to ensure the providers are still fairly compensated. 
Thus, ICS providers can expect to recover the cost of the TTY discount 
through the rates they charge other users, who account for the vast 
majority of ICS calls.
    239. In setting the mandatory discount for ICS calls involving 
TTYs, we are cognizant of Securus' claim that it cannot track TTY calls 
separately from other ICS calls and that any type of TRS-related 
billing requirement ``would be extremely time-consuming and 
burdensome.'' If Securus, or any other ICS provider, finds it too 
burdensome to track TTY calls and bill customers the discounted rate 
for those calls, it may opt to provide TTY-to-TTY calling for free. We 
expect the cost of forgoing the discounted fees for the relatively 
small number of TTY users of ICS will be nominal and that providers 
will be able to recover those costs through the ``cushion'' we have 
built into our rate caps. We find that the benefit to inmates that use 
TTY and TRS technologies outweighs any nominal costs to ICS providers. 
Finally, we note that facilities and ICS providers can avoid costs 
related to TRS calls by allowing inmates to use IP-based forms of TRS, 
such as VRS, IP Relay and IP CTS. However, the record indicates that 
``only a handful of prisons are equipped with videophones (e.g., 
Vermont, Virginia, and Wisconsin) and no prison or jail is known to 
have installed captioned telephones, many using security as an excuse 
for discrimination.'' These calls would not require the services of an 
ICS provider and would be provided free of charge to both the user and 
to the facility.
    240. Disability-Access Related Reporting. In discussing ICS 
disability access issues in the 2013 Order, the Commission asked 
whether ICS providers should be required to collect and report: ``(i) 
Data on TRS usage via ICS, and (ii) complaints from individuals that 
access TRS via ICS.'' The Commission also sought comment ``on the 
benefits and burdens, including on small entities, of imposing these 
reporting requirements.''
    241. In the Second FNPRM, the Commission again sought comment on 
possible recordkeeping and reporting requirements specific to 
accessible ICS. Specifically, the Commission asked if ``ICS providers 
[should] be required to report to the Commission the number of 
disability-related calls they provide, the number of problems they 
experience with such calls, or related complaints they receive?'' In 
response, the NAD asserts that the Commission should require 
``complaints, technical problems, how much telecommunications access is 
provided as compared to non-deaf or hard of hearing inmates, and 
whether there is access to modern telecommunications equipment.'' HEARD 
asserts that ``[t]he Commission can generate a genuine sense of 
accountability simply by requiring ICS providers to collect and report 
data on calls made using relay service, especially if prisoners and 
family members are paying for the service.'' More specifically, HEARD 
suggests that, pursuant to the Commission's existing consumer complaint 
procedures, correctional facilities should be required to report how 
long they have been without relay service or access, and if a recent 
change in the ICS provider preceded the problem.
    242. Securus counters that ``tracking of TTY is not possible'' and 
that culling out calls would require Securus ``to write a new computer 
application for its billing system'' and ``establish `separate 
databases at each correctional facility to identify inmates that may 
use a TTY device or call friends or family that require the use of a 
TTY or similar device.' '' Securus further asserts that this difficulty 
is ``compounded for any facility that does not use Prison 
Identification Numbers in association with its inmate telephone 
system.'' Securus asserts generally that any type of TRS-related 
billing or call recordkeeping requirement ``would be extremely time-
consuming and burdensome.''
    243. GTL separately asserts that the new technologies it is 
introducing, which are ``better categorized as advanced communications 
services (ACS), enhanced services, or simply new technologies'' are 
already subject to certain disability access requirements, including 
recordkeeping and reporting requirements. GTL is specifically referring 
to rule 14.31, which requires ACS providers discontinuing a product or 
service to create and keep records (for a two year period) relating to: 
(1) Their efforts to consult with individuals with disabilities; (2) 
the accessibility features of their products and services; and (3) the 
compatibility of their products and services with peripheral devices or 
specialized customer premise equipment commonly used to help 
individuals with disabilities achieve access. Additionally, ACS 
providers must file an annual compliance certificate with the 
Commission.

[[Page 79169]]

Finally, ACS providers facing formal or informal accessibility 
complaints must produce responsive records to the Commission upon 
request.
    244. After reviewing the record, we adopt the reporting 
requirements proposed by HEARD and supported by NAD. Specifically, we 
require all ICS providers to include in the Annual Reporting and 
Certification filing described below: (1) The number of disability-
related calls they provided; (2) the number of dropped disability-
related calls they experienced; and (3) the number of complaints they 
received related to access to ICS by TTY and TRS users, e.g., dropped 
calls, poor call quality and the number of incidences of each. We agree 
with HEARD that these reporting requirements will foster accountability 
on the part of ICS providers. We believe these reporting requirements 
will encourage providers to actively address problems affecting users' 
ability to access TRS (including TTY) via ICS. Moreover, the reports 
will give the Commission the information needed to assess ICS 
providers' compliance with the requirements adopted herein, as well as 
those imposed by section 225, including the statutory requirement that 
individuals with communications disabilities must be able to engage in 
communication by wire or radio ``in a manner that is functionally 
equivalent to the ability of a hearing individual who does not have a 
speech disability,'' as well as the requirement that TRS be provided 
``in the most efficient manner.''
    245. Securus' main objection to the reporting requirements appears 
to be related solely to the difficulty of tracking TRS calls. But the 
record indicates that TRS calls make up only a small portion of ICS 
calls. Moreover, TTY-based TRS calls require specialized equipment and/
or require calling a designated number such as 711. Either scenario 
should facilitate tracking TTY-based TRS calls. For instance, it should 
not be difficult to track a relatively small number of calls made from 
specialized equipment located in a correctional facility. Moreover, any 
burdens associated with providing limited reporting on these calls are 
far outweighed by the benefits such reporting will offer in terms of 
greater transparency and heightened accountability on the part of ICS 
providers. For example, our reporting requirements will facilitate 
monitoring of issues related to TRS calls, encourage greater engagement 
by the advocacy community, and provide the Commission the basis to take 
further action, if necessary, to improve inmates' access to TRS.
    246. We further address concerns regarding the burdensomeness of 
our reporting requirements by establishing a safe harbor that will 
allow ICS providers to avoid any reporting obligations if certain 
conditions are met. Specifically, if an ICS provider either (1) 
operates in a facility that allows the offering of additional forms of 
TRS beyond those we currently mandate or (2) has not received any 
complaints related to TRS calls, then it will not have to include any 
TRS-related reporting in the Annual Report detailed below, provided 
that it includes a certification from an officer of the company stating 
which prong(s) of the safe harbor it has met. If the facility an ICS 
provider serves either ceases allowing additional forms of TRS beyond 
those we mandate or the ICS provider begins to receive TRS-related 
complaints, however, it must include all required TRS reporting 
information in its next Annual Report. We note that a report that 
includes the number of TRS calls provides important context for 
determining whether the number of complaints or dropped calls reported 
by a provider is problematic. We believe that allowing these safe 
harbors will provide equal or superior benefits over the reporting 
requirements because if taken advantage of they help mitigate ICS 
providers' concerns over the burdens associated with reporting 
(although we believe these burdens are minimal), and will help drive 
the adoption of more modern forms of TRS by correctional facilities, 
which helps further the deployment of ICS as well as helps maintain or 
increase contact between more incarcerated persons and the outside 
world.
    247. Cost-Benefit Analysis. We find that the reporting and 
recordkeeping requirements related to disability-access ICS calling 
adopted in this Order are not overly burdensome. Parties have 
complained that the disability access communications within 
correctional facilities are not priced at rates that are just, 
reasonable, and fair, and that Commission intervention is necessary.
    248. As discussed above, we conclude that these recordkeeping 
requirements are necessary to foster accountability on the part of ICS 
providers, and will encourage providers to address problems limiting 
users' ability to access TRS (including TTY) via ICS. Further, the 
reporting requirements will give us the information we need to assess 
ICS providers' compliance with the requirements adopted herein, as well 
as those imposed by section 225.
    249. We find unpersuasive the objections raised to the reporting 
requirements. Reporting the number of problems and complaints 
associated with TRS calls does not seem unduly burdensome. TRS calls 
make up only a small portion of ICS calls. Moreover, as noted above, 
TTY-based calls require specialized equipment and/or require calls to a 
designated number, such as 711; either scenario should allow for ease 
of tracking. Moreover, any burdens associated with providing limited 
reporting on these calls are far outweighed by the benefits such 
reporting will offer in terms of greater transparency and heightened 
accountability on the part of ICS providers. We further mitigate any 
potential burden from our reporting requirements by establishing safe 
harbors that allow ICS providers to avoid any reporting obligations if 
certain conditions are met, as discussed more fully above.

H. Section 276 Is Technology Neutral

    250. We confirm the findings in the 2013 Order that section 276, by 
its terms, is technology neutral with respect to inmate calling 
services. As such, our rules adopted herein apply to ICS regardless of 
the technology used to deliver the service. Therefore, if a particular 
service meets the relevant definition in our rules, then it is a form 
of ICS that was subject to our interim rules and that is subject to the 
rules we adopt today. The nomenclature used to describe a service is 
not dispositive of whether the service is or is not ICS. Whether any 
particular service meets those definitions requires a fact-specific 
inquiry that we may adjudicate if necessary. (We note that our 
definition of ``inmate telephone'' is broad and does not inherently 
rule out advanced services, and that the burden is on the provider in 
the first instance to determine whether it is providing ICS, and if it 
is not certain, to seek guidance from the Commission, for example in 
the form of a Declaratory Ruling.)

I. Transition and Existing Contracts

    251. In establishing the transition, we balance the critical goal 
of providing necessary relief to consumers from unreasonably high ICS 
rates while remaining mindful of the potential impact on ICS providers 
and facilities to ensure a smooth transition to implement the new 
reforms. In designing our transition for this Order, we build on the 
lessons learned from implementing the 2013 ICS reforms. The record does 
not indicate that providers experienced difficulties implementing the 
rate caps within 90 days after the 2013 Order's publication in the 
Federal Register. For example, the record shows that one provider sent 
a one-page letter to its customers informing them of the rate

[[Page 79170]]

changes to be implemented as a result of the Commission's 2013 Order. 
The letter provided nine days' notice before rates changed. While we 
find that a multi-year transition period for new rate caps is 
unnecessary, we recognize that the new rate caps and ancillary service 
charge framework adopted in this Order may require some adjustment time 
for ICS providers and facilities. Accordingly, the reforms adopted in 
this Order will become effective March 17, 2016 for prisons and June 
20, 2016 for jails.
    252. This transition period reflects a careful balancing of the 
important goal of expediting relief to end users while allowing the 
necessary time to prepare for any impact our new rules may have on ICS 
providers and correctional institutions. In adopting the transition, we 
note as a threshold matter that the issue of ICS reform has been 
pending for years and, with the substantial progress made in recent 
years through the 2013 Order and Second FNPRM, ICS providers and 
facilities have been on notice that the Commission may reform ICS. With 
that consideration in mind, we transition to our new rules March 17, 
2016 for prisons and June 20, 2016 for jails. Below we also discuss the 
effect of our adopted reforms on existing ICS contracts.
1. Transition Proposals in the Record
    253. In the Second FNPRM, the Commission sought comment on a 
variety of transition paths for the new rules and encouraged commenters 
advocating for a transition to identify the appropriate transition 
framework and the justifications for doing so. For example, the ICS 
providers that submitted the Joint Provider Proposal suggested that 
``[t]he new rate caps should become effective 90 days after adoption, 
along with any site commission reductions and ancillary fee changes 
outlined below.'' They further asserted that ``[t]his period for 
implementation should ensure ICS providers and correctional facilities 
have adequate time to implement the new rate caps and any corresponding 
reductions in site commissions, including any contract amendments or 
adjustments that may be necessary.'' Pay Tel suggested a 90-day, after 
final order publication transition period for transaction fees, third-
party money transfer service fees, and ancillary fees and an 18-month 
transition period for jail and prison rate caps. In the Second FNPRM 
the Commission also specifically sought comment on the 90-day delayed 
effective date we implemented in the 2013 Order as well as a two year 
transition.
    254. In response to the Second FNPRM, many interested parties 
submitted detailed comments explaining how the Commission should 
structure the transition to new rules for ICS rates. Commenters 
advocated for a variety of transition period lengths and the responses 
varied depending on the type of fee being transitioned. Some commenters 
suggested that all of the new rate caps, ancillary service charges, and 
other charges should be transitioned together. For example, GTL 
explained that ``[i]t is unlikely that the Commission's goal of 
achieving market-based ICS rates will occur without simultaneous 
Commission action to establish backstop rate caps for all ICS rates, to 
transition site commissions to admin-support payments, and to define 
industry-wide ancillary service charges and fee caps.'' We took such 
arguments into consideration in designing our transition.
    255. At the other end of the spectrum, commenters advocating for a 
longer transition contend that longer transitions are necessary to 
ensure that correctional authorities and ICS providers can plan for the 
new regulatory regime. As discussed above, facilities have received 
certain inducements, such as site commissions, from ICS providers for 
selecting them to be the sole provider of ICS in their facilities. 
These commissions have been used for a variety of purposes, some of 
which are wholly unrelated to the provision of ICS to inmates and their 
families. We acknowledge that our adopted rules and requirements may 
affect facility budgets, and we want to ensure that those facilities 
have time to account for disturbances to their budgets, which is why we 
are not adopting an immediate transition.
    256. Proponents of the shorter length transitions note that ICS 
providers and facilities have been on notice of upcoming changes and 
have successfully adjusted quickly to new rules in the past. For 
example, NJAID and NYU IRC explain that ``[i]n New Jersey and around 
the country, states and localities were able to implement the 2013 
Order within ninety days. Moreover, these governments have been on 
notice since the issuance of the First FNPRM in 2013.'' Commenters 
advocating for shorter length transitions expressed confidence that 90 
days was sufficient time to implement caps and would be the timeliest 
option. Indeed, some parties argued that no more than 60 days are 
necessary to complete the transition. Conversely, others worry that 
abbreviated transitions, such as 90-day transitions, will not be 
feasible for facilities to implement. However, other commenters point 
out that ``[a]lmost every ICS contract has a provision for 
renegotiation due to changes in the regulatory environment, so no one 
year grace period should be required for implementation of rates and 
fees.'' CenturyLink is concerned that a 90-day transition is not 
``realistic,'' and advocates for a substantially longer transition 
period. NSA argues that a 90-day transition is not sufficient for 
jails, in particular. NSA notes that the sheer number of contracts to 
be renegotiated would require additional time to complete, specifically 
noting that there are ``over 2000 jails in the country and only a 
``handful of ICS providers.'' Thus, NSA explains, each ICS provider 
would have to renegotiate ``potentially hundreds of contracts with 
Sheriffs and jails in a 90-day period.'' According to NSA, 90 days is 
not enough time to allow providers to negotiate all of these contracts 
and for those contracts to be approved by the relevant authorities. 
These concerns are echoed by Praeses and others. We agree that these 
parties raise valid concerns regarding the time needed to transition 
all of the country's jails to the new rate regime. Accordingly, we 
adopt a six-month transition period for jails, in order to give 
providers and jails enough time to negotiate (or renegotiate) contracts 
to the extent necessary to comply with all of the rules adopted herein. 
We do not believe an extended transition is necessary for prisons to 
obtain new or revised contracts, however. There are far fewer prisons/
departments of correction than jails (typically one per state) and 
providers are likely to prioritize negotiations with prisons over 
negotiations with jails, particularly given that prisons tend to house 
much larger inmate populations and generate significantly more ICS 
revenues than jails. Moreover, according to the record more than 10 
prison systems already have rates at or below our rate caps. Therefore, 
we adopt a 90-day transition period for prisons.
2. Implementation of Reforms and Transition Periods
    257. The record reflects commenters advocating for immediate 
transitions and also for transition periods ranging from 90 days to up 
to three or four years. We find the arguments for a shorter transition 
period to be the most persuasive. The immediate transition and long 
transition options are impractical. For example, proponents of an 
immediate transition generally explained that longer transition periods 
are not necessary and would only serve to delay relief from quickly 
reaching inmates and their families. Despite such

[[Page 79171]]

arguments, we think that the reforms adopted in this Order warrant 
providing some amount of time to ensure a smooth transition for end 
users, providers, and facilities.
    258. As explained above, the record clearly shows that charges for 
ancillary services have increased since the 2013 Order. This highlights 
that ICS providers have the incentive and ability to increase ancillary 
service charges absent reform, which could have the effect of 
frustrating the Commission's and Congress's policy goals by undermining 
the rate caps we adopt. While we have received substantial comment in 
the record about the challenges associated with transitioning for our 
site commission action and rate caps, the record lacks explanation as 
to why an immediate transition for ancillary service charges would be 
burdensome for ICS providers. As such, we find that transitioning 
ancillary service charges on March 17, 2016 for prisons and June 20, 
2016 for jails is appropriate because it will provide significant 
relief to many ICS end users, while still giving providers ample time 
to adjust their systems and procedures.
    259. As explained above, our goal is to ensure a reasonable 
transition and minimize disruption, while providing relief to end users 
as quickly as possible. We have the benefit of understanding how the 
transition to implement the interim interstate rate caps occurred. 
Evidence in the record about actual transition periods calls into 
question protestations in the record about the excessive time it will 
take to renegotiate contracts, particularly for prisons. We adopt here 
a 90-day transition from publication in the Federal Register for 
prisons and six months from publication in the Federal Register for 
jails for the adopted rate caps. We find that this length of time 
adequately balances the pressing need for reform, affords ICS providers 
enough time to prepare for the new rates, and is amply supported by the 
record.
    260. Evidence in the record indicates that some ICS providers and 
their customers have been acting to modify contracts in an attempt to 
lock in attractive terms at the expense of the ratepayers, the end 
users, in anticipation of this Order. We are concerned that such 
activity may also occur in between the adoption and effective dates of 
this Order. We will be vigilant in monitoring the industry during the 
transition period. If we observe or are made aware of evidence of price 
gouging or other harmful behavior through, but not limited to, 
increased rates, ancillary service charges, and/or site commissions, we 
will not hesitate to take appropriate remedial action up to and 
including enforcement action pursuant to our legal authority under 
sections 201 and 276 or referral to another appropriate agency.

J. Anti-Gaming Provisions

    261. We are concerned that parties may seek to negotiate agreements 
aimed at circumventing the rules we adopt in this Order, and we are 
particularly concerned that parties will have an incentive to do so 
before our new rules take effect. To minimize this type of ``gaming,'' 
we prohibit ICS providers from entering into new contracts (including 
contract renewals)--or negotiating amendments to existing contracts--
that would require or permit providers to charge rates in excess of our 
adopted rate caps, impose ancillary service charges that are prohibited 
by this Order, or charge ancillary service charges that exceed the caps 
adopted in this Order. These prohibitions will take effect immediately 
upon publication of the Order in the Federal Register.
    262. We find that there is good cause to make this requirement 
effective upon publication. There is evidence in the record that this 
type of gaming has already occurred in anticipation of the changes we 
enact in this Order. For example, a recent Securus contract requires 
the payment of a $4 million minimum annual guarantee (MAG), which 
advocates have called a ``signing bonus,'' and subsequent MAG payments 
equal to the greater of $3.5 million or 81 percent of commissionable 
revenues per year. In determining whether good cause exists, an agency 
should ``balance the necessity for immediate implementation against 
principles of fundamental fairness which require that all affected 
persons be afforded a reasonable amount of time to prepare for the 
effective date of its ruling.'' In this case, the rule must take effect 
as soon as possible in order to minimize gaming of the sort already 
noted in the record, and the attendant harm to prisoners and their 
families in the form of unjust, unreasonable, and unfair rates and 
fees. In these circumstances, we find that the need for immediate 
implementation outweighs any concerns that parties may not be afforded 
sufficient time to prepare for the effective date of this prohibition, 
particularly given that parties have long been on notice that the 
Commission might impose new regulations governing ICS rates and 
ancillary fees. We are not requiring providers to take any action; 
instead we are merely requiring that they refrain from taking certain 
steps that would effectively undermine our regulations governing rates 
and ancillary service charges. Accordingly, providers do not need time 
to prepare to meet this prohibition. Therefore, on balance, we find 
good cause to make this requirement effective upon publication in the 
Federal Register.

K. Annual Reporting and Certification Requirement

    263. In the 2013 Order, the Commission adopted an Annual Reporting 
and Certification Requirement that included the submission of 
interstate and intrastate ICS rate and demand data, as an additional 
means of ensuring that each and every ICS provider's rates and 
practices were just, reasonable, and fair, and remain in compliance 
with the 2013 Order, as well as to facilitate any future enforcement 
that may be needed regarding the adopted rules. Additionally, the 
Commission adopted a requirement that an officer or director from each 
ICS provider file an annual certification with the Commission as to the 
accuracy of the data filed and as to the provider's compliance with all 
portions of the adopted Order. These requirements were later stayed by 
court order.
    264. Recordkeeping and Reporting. The Joint Provider Proposal 
suggests that ICS providers ``should be required to provide certain 
information to the Commission annually for three (3) years to ensure 
the caps on per-minute rates and any admin-support payments are 
implemented as required.'' Specifically, the Proposal suggests that 
such information should include four things: ``a list of the ICS 
provider's current interstate and intrastate per-minute ICS rates, the 
ICS provider's current fee amounts, the locations where the ICS 
provider makes admin-support payments, and the amount of those admin-
support payments.'' The Commission sought comment on this proposal in 
the Second FNPRM.
    265. In its comments, CPC recommends that the Commission look to 
the ``Alabama model,'' including the ``specific reporting requirements 
that will serve to monitor compliance with those [adopted] 
restrictions.'' In its 2014 Further Order Adopting Revised Inmate Phone 
Service Rules Order, the Alabama PSC adopted a number of recordkeeping 
and reporting requirements. Items to be recorded and reported annually 
include, but are not limited, to, monthly number of local, intrastate, 
and interstate calls; monthly local, intrastate, and interstate minutes 
of use; monthly local, intrastate, and interstate call revenue, divided 
into collect, prepaid collect, prepaid debit, prepaid inmate calling 
card, and direct-billed service, divided by facility; ancillary call 
charges;

[[Page 79172]]

unused prepaid collect, prepaid debit, and prepaid inmate phone card 
account balances; and total number of calls disconnected for suspected 
three-way call violations. That order was temporarily stayed by court 
order which expired on July 1, 2015.
    266. We find that a recordkeeping and reporting requirement will 
best serve the Commission's stated goals of ensuring that each and 
every ICS provider's rates and practices are just, reasonable, and 
fair, and that they remain in compliance with this Order. We also 
believe that an annual recordkeeping and reporting requirement will 
help the Commission capture any trends or changes in calling patterns, 
will facilitate any future enforcement action, and allow other 
interested parties the ability to monitor ICS providers' compliance 
with the Order. We also believe that such a requirement is necessary 
because the ICS industry is modernizing and will continue to change. 
Consistent with the Commission's approach in the 2013 Order, if after 
an investigation it is determined that ICS providers rates and/or 
ancillary service charges are unjust, unreasonable or unfair under 
sections 201 and 276 of the Act, lower rates will be prescribed and ICS 
providers may be ordered to pay refunds. Providers also may be found in 
violation of our rules and face additional forfeitures.
    267. We thus require all ICS providers to provide, on an annual 
basis, categorized by facility and size of facility, the following 
information: First, we require all ICS providers to file their current 
interstate, international and intrastate ICS rates. Second, we require 
all ICS providers to file their current ancillary service charge 
amounts and the instances of use of each. Third, where an ICS provider 
makes site commission payments, we require the ICS provider to file the 
monthly amount of such payment. Fourth, for ICS providers that provided 
video visitation services, either as a form of ICS or not, during the 
reporting period, we require that they file the minutes of use and per-
minute rates and ancillary service charges for those services. Fifth, 
as discussed in greater detail in the Disability Access section above, 
we also require that ICS providers report: (1) The number of 
disability-related calls they provided; (2) the number of problems they 
experienced with such calls, e.g., dropped calls, poor call quality and 
the number of incidences of each; and (3) the number of complaints they 
received related to access to ICS by TTY and TRS users.
    268. In order to facilitate compliance with this requirement, we 
direct the Wireline Competition Bureau to develop a template for such 
annual reports and provide for confidential treatment of any particular 
information warranting it, consistent with our rules. We believe this 
will help ensure that the incoming information is provided in the most 
straight-forward and consistent manner. The use of such a template will 
also be beneficial to any interested parties that want to view the 
information thus encouraging increased public participation in this 
proceeding. Each annual report shall be submitted to the Commission by 
April 1st of each year, regarding the providers' interstate, 
international and intrastate ICS. The first annual report will be due 
after the Commission publishes Office of Management and Budget (OMB) 
approval pursuant to the Ordering Clauses below. If for example, OMB 
approval is granted in 2016 then the first annual report and 
certification (as discussed below) will be due on April 1, 2017 and 
cover the time period from January 1, 2016 to December 31, 2016.
    269. Cost-Benefit Analysis. We find that a recordkeeping and 
reporting requirement serves the Commission's goal of ensuring that ICS 
rates and practices are just, reasonable, and fair, and that they 
remain in compliance with this Order. We find, on balance, that the 
benefits of such recordkeeping and reporting outweigh any potential 
burden that may be imposed.
    270. We find that such recordkeeping and reporting requirements 
will help monitor ICS providers' compliance with the Order, capture any 
trends or changes in calling patterns, and will facilitate any future 
enforcement action. Such a requirement is necessary because the ICS 
industry is modernizing and will continue to change.
    271. We find very few objections raised to the reporting 
requirements, and none to be persuasive. Additionally, we also find no 
cost objections to these requirements. We have taken steps to minimize 
burdens on providers by adopting less burdensome recordkeeping 
requirements than some of those suggested by commenters. Moreover, any 
burdens associated with providing limited reporting on these calls are 
far outweighed by the benefits such reporting will offer in terms of 
greater transparency and heightened accountability on the part of ICS 
providers. Additionally, these data will guide the Commission as it 
evaluates next steps in the Further Notice.
    272. Annual Certification. The participants in the Joint Provider 
Proposal suggest that all ICS providers should be required, in addition 
to their recordkeeping and reporting requirements, to submit an annual 
certification signed by the company Chief Executive Officer, Chief 
Financial Officer, and General Counsel, under penalty of perjury, 
certifying that the company is in compliance with the Commission's ICS 
rate rules and adopted payment rules. CenturyLink counters that ``there 
is no need for more than a single officer to certify that the company 
has complied with Commission rules.''
    273. We agree with CenturyLink that ``there is no need for more 
than a single officer to certify that the company has complied with 
Commission rules.'' We find that, on balance, requiring more than one 
officer of an ICS provider to certify to compliance would be 
unnecessarily burdensome on some providers and is in fact, contrary to 
the manner in which the Commission conducts other annual 
certifications. Therefore we adopt CenturyLink's proposal and require 
one officer of each ICS provider to annually certify its companies' 
compliance with our adopted rules. The annual certification should be 
submitted at the same time as the annual report.

L. Consumer Disclosure Requirements

    274. Background. In the 2013 Order, the Commission reminded 
providers of their current and ongoing obligations to ``comply with 
existing Commission rules.'' Specifically, the Commission reminded 
providers of their obligations pursuant to section 64.710 of our rules, 
which requires providers of inmate operator services to disclose to the 
consumer the total cost of the call prior to connecting it, including 
any surcharges or premise-imposed fees that may apply to the call as 
well as methods by which to make complaints concerning the charges or 
collection practices. Additionally, ICS providers that are non-dominant 
interexchange carriers must make their current rates, terms, and 
conditions available to the public via their company Web sites. Any 
violation of such responsibilities, or failure to comply with existing 
rules, may subject ICS providers to enforcement action, including, 
among other penalties, the imposition of monetary forfeitures.
    275. In the Second FNPRM, the Commission sought comment on ``how to 
ensure that rates and fees are more transparent to consumers'' and 
specifically on the requirement that ICS providers notify their 
customers regarding the ICS options available to them and the cost of 
those options. ICS providers that offer interstate toll

[[Page 79173]]

service are already required to post their rates on their Web sites, 
and, to the extent they offer inmate operator services, their live 
agents are already required to make certain notifications to customers. 
The Commission sought comment on whether providers' Web sites, 
automated IVRs, and live agents should be required to offer in a more 
prominent fashion no-cost or lower-cost options before offering other, 
higher-priced optional services. The Commission also sought comment on 
two reform proposals that offered suggestions for requiring the 
publication of ancillary service charges.
    276. The Joint Provider Proposal, acknowledging existing 
requirements for providers to publish interstate rates, terms and 
conditions on their Web sites, offered a detailed proposal regarding 
notification requirements for so-called ``convenience or premium 
payment options,'' and suggested that all providers be required to 
``clearly and conspicuously identify the required information . . . so 
that it is actually noticed and understood by the customer.'' 
Specifically, the Joint Provider Proposal suggests that an ICS provider 
``may provide this information to consumers (1) on its Web site, (2) in 
its web-posted rates, terms, and conditions, (3) orally when provided 
in a slow and deliberate manner and in a reasonably understandable 
volume, or (4) in other printed materials provided to a customer.'' The 
providers that signed on to the Joint Provider Proposal suggest that 
``clear and conspicuous'' means that ``notice would be apparent to the 
reasonable customer,'' and that to determine the effectiveness of the 
disclosure, the Commission should ``consider the prominence of the 
disclosure in comparison to other information, the proximity and 
placement of the information, the absence of distracting elements, and 
the clarity and understandability of the text of the disclosure.'' Pay 
Tel suggests that on a Web site, postings must list call rates and 
fees, as well as refund instructions. Pay Tel also suggests that the 
vendor Web site must provide a link to the FCC Enforcement Bureau Web 
site and the applicable state regulatory agency Web site. Pay Tel also 
suggests making facility-specific printed material available at each 
facility. The Commission explicitly sought comment on these proposals 
in the Second FNPRM.
    277. In comments to the Second FNPRM, CenturyLink notes that 
especially in jails and short-term facilities, payment decisions are 
``typically made in `real-time,' as the call is received from the 
inmate'' and that ``there is no reasonable way for called parties to 
make informed decisions unless the ICS provider proactively informs 
them of options in clear, concise language prior to payment.'' 
CenturyLink further asserts that ``simple posting[s] on Web sites or 
reactive responses upon request are not sufficient'' when faced with 
time-sensitive situations such as initial incarceration. The record 
indicates that many consumers face the problem of uncertainty with 
respect to the cost of ICS. Praeses argues that in addition to 
disclosing their ancillary service charges in a prominent location on 
their Web sites, providers should be required to disclose all 
applicable fees at the time that a consumer seeks a service that is 
subject to an ancillary service charge from a provider, but prior to 
the inmate or call recipient incurring the fee. DC Prisoners' Project 
of the Washington Lawyers' Committee suggests that the Commission 
require all ICS providers to train their staff to disclose all rate and 
fee information to anyone who contacts the provider. In addition to the 
suggestions in the Joint Provider Proposal, GTL asserts that the 
Commission ``should enforce its existing requirements regarding oral 
disclosures and the posting of rates, terms, and conditions.'' GTL 
notes that ``ICS providers have `ongoing responsibilities' to comply 
with these existing rules, and violations of those responsibilities or 
failure to comply with those existing rules could subject ICS providers 
to enforcement action.''
    278. Discussion. We believe that transparency in rates, terms, and 
fees will facilitate compliance with the reforms and ensure that 
consumers are informed of their choices. We find persuasive arguments 
that ICS payment decisions are often made in ``real time,'' especially 
in short-term detention facilities, and ``there is no reasonable way 
for called parties to make informed decisions'' unless rates and terms 
are clearly available for consumers prior to the commencement of the 
call. For example, transparency about the rates charged for ICS will 
provide substantial consumer protection benefits by empowering 
consumers to make informed decisions about the ICS offerings they 
decide to use. We also applaud voluntary commitments that enhance 
transparency for consumers. Here, we supplement our existing rules to 
require ICS providers to clearly and accurately disclose their 
interstate, international and intrastate rates and ancillary service 
charges to consumers. The new rule we adopt will provide key consumer 
benefits with minimal burden on ICS providers. Ensuring that end users 
know the costs of the services they seek to use will help consumers 
make informed decisions about what types of services they can afford 
and for what amount of time.
    279. We do not mandate a specific format for how consumer 
disclosures must be made. Rather, we find that suggestions for 
disclosure such as those in the Joint Provider Proposal offer a 
reasonable framework as to how to make these disclosures. However, we 
note that this would not necessarily be the only framework for 
compliance. We will formally evaluate the reasonableness of the Joint 
Provider Proposal and any other disclosure formats if and when 
complaints arise as to the adequacy of the disclosures. We note that 
each failure to disclose all charges to consumers is counted as an 
individual violation, which should create a significant incentive for 
compliance. In addition, the Commission shall evaluate disclosures of 
all consumer charges for reasonableness, in part, on the basis of the 
following factors:
     Disclosure of information regarding all material charges, 
such as the applicable rate, any and all ancillary service charges--
whether one time or recurring--including those to initiate service, and 
the name, definition and cost of each rate or fee;
     Use of plain language accessible to current and 
prospective end users;
     Description of single call and related services and 
disclosures making clear that consumers have less-costly options rather 
than single call and related services;
     Ability of end users to easily understand the disclosure;
     Timeliness of any updates/changes to the rates and fees, 
prior to any updates/changes;
     Availability of the disclosure in a prominent location on 
the ICS provider's Web site;
     Listing of the name, address, and toll-free number of the 
ICS provider; and
     Listing of the toll-free number for the FCC Consumer Help 
Center (888-225-5322).
    280. Providers should already be informing customers about the 
total amount on a per-call basis that they will be charged so the 
disclosure requirements should not be onerous or a significant new 
burden. Indeed, the addition to our rules with respect to ancillary 
service charges should in fact simplify transparency, as it greatly 
reduces the number and variable rates of allowable ancillary service 
charges, and thus charges ICS providers must disclose to consumers. 
This information

[[Page 79174]]

is relevant to consumer decision making, and the providers must also 
keep this information in order to comply with the Annual Reporting and 
Certification Requirements adopted herein.
    281. The new disclosure rule discussed above falls well within the 
confines of the First Amendment. As explained, these disclosures serve 
important government purposes, ensuring that end users have accurate 
and accessible information about ICS providers' services. This 
information is central both to preventing consumer deception and to the 
overall deployment and operation of ICS.
    282. The Supreme Court has made plain in Zauderer v. Office of 
Disciplinary Counsel of Supreme Court of Ohio that the government has 
broad discretion in requiring the disclosure of information to prevent 
consumer deception and ensure complete information in the marketplace. 
Under Zauderer, mandatory factual disclosures will be sustained ``as 
long as disclosure requirements are reasonably related to the State's 
interest in preventing deception to consumers.'' As the Court observed, 
``the First Amendment interests implicated by disclosure requirements 
are substantially weaker than those at stake when speech is actually 
suppressed.'' The DC Circuit recently reaffirmed these principles in 
American Meat Institute v. United States Department of Agriculture, an 
en banc decision in which the Court joined the First and Second Circuit 
Courts of Appeals in recognizing that other government interests beyond 
preventing consumer deception may be invoked to sustain a disclosure 
mandate under Zauderer.
    283. The new disclosure rule and disclosure language suggested in 
this Order clearly pass muster under these precedents. Preventing 
consumer deception in the ICS market lies at the heart of the 
disclosure rule we adopt today. The Commission has found that ICS 
providers have the incentive and ability to engage in harmful 
practices, as discussed above. Similarly, the suggested disclosure 
language is designed to prevent confusion to all consumers of the ICS 
providers' services, and serve to curb providers' incentives to engage 
in harmful practices by shedding light on the business practices of ICS 
providers. Accurate information about ICS provider offerings encourages 
consumer choice and the widespread deployment of ICS. In sum, the 
government interests supporting the disclosure rule (as well as the 
suggested disclosure language), in addition to the interest of 
preventing consumer deception, are substantial and justify our consumer 
disclosure suggestions.
    284. In addition, the disclosure rule adopted in this Order meets 
the analysis the Supreme Court developed for commercial speech cases in 
Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n. Central 
Hudson's test first asks whether the expression is protected by the 
First Amendment, which requires that the speech concern lawful activity 
and not be misleading. Next, the Court asks whether the asserted 
governmental interest is substantial. If the first two prongs of the 
analysis are met, the Court then determines whether the regulation 
directly advances the governmental interest asserted and whether it is 
not more extensive than necessary to serve that interest. Requiring ICS 
providers to disclose information about ICS rates meets this four-part 
test. First, ICS providers' rate information qualifies as an expression 
protected by the First Amendment, as it is speech concerning lawful 
activity that is not misleading. Second, as explained elsewhere in this 
Order, the Commission has a substantial interest in consumer protection 
and advancing the public interest, particularly where, as here, 
Congress has directed the Commission to ensure that ICS rates are just, 
reasonable and fair, pursuant to regulations that redound ``to the 
benefit of the general public.'' Third, as explained above, the 
regulation directly advances the public interest and consumer 
protection in requiring disclosure of this information, as transparency 
in rates and charges allows consumers to make more informed choices. 
Finally, this new consumer disclosure requirement is not more extensive 
than is necessary to protect consumers. Since ICS providers have 
already been operating under similar requirements, this information is 
readily available to them and, as explained above, we do not prescribe 
a particular format for how consumer disclosures must be made, thereby 
affording providers leeway to comply with the revised rule in a 
flexible, individualized manner that minimizes burden.
    285. Cost-Benefit Analysis. We find that, on balance, requiring ICS 
providers to disclose information for their intrastate, interstate and 
international ICS rates, categorized by facility and size of facility, 
as well as ancillary service charges, is not overly burdensome. These 
requirements are necessary to ensuring that end users know the costs of 
the services they seek to use and helps consumers make informed 
decisions about what types of services they can afford and for what 
amount of time.
    286. The Commission has found that ICS providers have the incentive 
and ability to engage in harmful practices, as discussed above. 
Commenters have asked the Commission to mandate additional disclosure 
and transparency regarding ICS rates and fees. Similarly, these 
disclosure requirements are designed to prevent confusion to all 
consumers of the ICS providers' services, and serve to curb providers' 
incentives by shedding light on the business practices of ICS 
providers. Numerous commenters support these reforms.
    287. These requirements provide key consumer benefits with minimal 
burden on ICS providers. Providers currently are required to post their 
rates publicly on their Web sites. Additionally, providers must keep 
this information to comply with the Mandatory Data Collection and 
Annual Reporting and Certification Requirements adopted herein.
    288. To minimize any potential burden on providers, the Commission 
does not prescribe a particular format for how consumer disclosures 
must be made, but suggests a framework for consideration and allows 
providers flexibility in adopting such disclosures, thus allowing 
providers with maximum flexibility and minimum burden.

M. Severability

    289. All of the rules that are adopted in this Order are designed 
to ensure just, reasonable, and fair ICS rates. Each of the reforms we 
undertake in this Order serve a particular function toward this goal. 
Therefore, it is our intent that each of the rules and regulations 
adopted herein shall be severable. We believe that ICS end users will 
benefit from the rates caps adopted and will also benefit separately 
from the adopted ancillary service charge caps. If any of the rules or 
regulations, or portions thereof including, for example, any portion of 
our rate caps and ancillary service charge rules, are declared invalid 
or unenforceable for any reason, it is our intent that the remaining 
rules shall be in full force and effect.

N. Outstanding Petitions

    290. After the Commission released the 2013 Order, numerous 
entities petitioned the Commission for a stay of the new rules and 
requirements. The requests for stay generally expressed concern about 
one or more of the following categories of issues: (1) That a ``one-
size-fits-all'' approach for ICS rate reform will be ineffective, and 
ignores the fact that jails incur real costs

[[Page 79175]]

and will face budget shortfalls under the Commission's adopted 
approach; (2) the continued need for site commissions, or a concern 
about how to manage correctional budgets built on a reliance on those 
site commissions; (3) a concern about the Commission seeking comment on 
asserting jurisdiction over intrastate ICS calls or classifying all ICS 
calls as interstate; (4) a potentially harmful impact on the security 
at facilities and the safety of citizens stemming from the Commission's 
rules and requirements; and (5) general requests that the Commission 
stay its Order with no legal analysis or justifications for the 
request. We dismiss the first four categories on the basis that the 
present order adequately addresses and answers the arguments and 
concerns contained within them. We adopt tiered rate caps based on 
population size, address site commissions and security concerns, as 
well as assert jurisdiction over intrastate ICS, in this Order. We 
dismiss the fifth category of stay requests on the basis that they do 
not present any legal reasoning or analysis to justify a stay of our 
rules and have been rendered moot by this Order.

O. Ex Parte Requirements

    291. This proceeding shall be treated as a ``permit-but-disclose'' 
proceeding in accordance with the Commission's ex parte rules. Persons 
making ex parte presentations must file a copy of any written 
presentation or a memorandum summarizing any oral presentation within 
two business days after the presentation (unless a different deadline 
applicable to the Sunshine period applies). Persons making oral ex 
parte presentations are reminded that memoranda summarizing the 
presentation must (1) list all persons attending or otherwise 
participating in the meeting at which the ex parte presentation was 
made, and (2) summarize all data presented and arguments made during 
the presentation. Memoranda must contain a summary of the substance of 
the ex parte presentation ad not merely a list of the subjects 
discussed. More than a one or two sentence description of the views and 
arguments presented is generally required. If the oral presentation 
consisted in whole or in part of the presentation of data or arguments 
already reflected in the presenter's written comments, memoranda or 
other filings in the proceeding, the presenter may provide citations to 
such data or arguments in his or her prior comments, memoranda, or 
other filings (specifying the relevant page and/or paragraph numbers 
where such data or arguments can be found) in lieu of summarizing them 
in the memorandum. Documents shown or given to Commission staff during 
ex parte meetings are deemed to be written ex parte presentations and 
must be filed consistent with rule 1.1206(b). In proceedings governed 
by rule 1.49(f) or for which the Commission has made available a method 
of electronic filing, written ex parte presentations and memoranda 
summarizing oral ex parte presentations, and all attachments thereto, 
must be filed through the electronic comment filing system available 
for that proceeding, and must be filed in their native format (e.g., 
.doc, .xml, .ppt, searchable .pdf). Participants in this proceeding 
should familiarize themselves with the Commission's ex parte rules.

P. Paperwork Reduction Act Analysis

    292. This Report and Order contains new or modified information 
collection requirements subject to the Paperwork Reduction Act of 1995 
(PRA), Public Law 104-13. It will be submitted to the Office of 
Management and Budget (OMB) for review under section 3507(d) of the 
PRA. OMB, the general public, and other Federal agencies are invited to 
comment on the new or modified information collection requirements 
contained in the proceeding. In addition, we note that pursuant to the 
Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 
U.S.C. 3506(4), we previously sought comment on how the Commission 
might further reduce the information collection burden for small 
business concerns with fewer than 25 employees.

Q. Congressional Review Act

    293. The Commission will send a copy of this Report and Order in a 
report to be sent to Congress and the Government Accountability Office 
pursuant to the Congressional Review Act. See 5 U.S.C. 801(a)(1)(A).

R. Final Regulatory Flexibility Analysis

    1. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA). an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Second Notice of Proposed Rulemaking (Second FNPRM) 
in WC Docket 12-375. The Commission sought written public comment on 
the proposals in the Second FNPRM, including comment on the IRFA. The 
Commission did not receive comments directed toward the IRFA. This 
Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.
1. Need for, and Objectives of, the Report and Order
    294. The Second Report and Order (Order) adopted rules to ensure 
that interstate, intrastate, and international inmate calling service 
(ICS) rates in correctional institutions are just, reasonable, and 
fair. In the initiating Second FNPRM, the Commission sought information 
on issues related to the ICS market, payments to correctional 
facilities, ICS interstate and intrastate rates, ancillary fees, 
additional ways to promote competition, harmonization of state 
regulations, existing contracts, transition periods, accessible ICS, 
advanced ICS, periodic review, enforcement, and a cost/benefit analysis 
of reform proposals.
    295. In this Order, the Commission adopts comprehensive reform of 
all aspects of ICS to correct a market failure, foster market 
efficiencies, encourage ongoing state reforms and ensure that ICS rates 
and charges comply with the Communications Act. The Order does this by 
addressing interstate and intrastate ICS rates, payments to 
correctional facilities, ancillary service charges, connection and per-
call charges, flat-rate charges, harmonization with state regulations, 
disability access, transition periods, periodic review, mandatory data 
collection, waivers, and consumer protection measures such as annual 
certification and reporting requirements. The reforms adopted in this 
Order apply to ICS offered in all correctional facility types and 
regardless of technology used to deliver the services.
2. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA
    296. The Commission did not receive comments specifically 
addressing the rules and policies proposed in the IRFA.
3. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply
    297. Small Businesses. Nationwide, there are a total of 
approximately 27.9 million small businesses, according to the SBA.
    298. Wired Telecommunications Carriers. The SBA has developed a 
small business size standard for Wired Telecommunications Carriers, 
which consists of all such companies having 1,500 or fewer employees. 
According to Census Bureau data for 2007, there were 3,188 firms in 
this category, total, that operated for the entire year. Of this total, 
3,144 firms had employment of 999 or fewer employees, and 44 firms had 
employment of 1,000 employees or

[[Page 79176]]

more. Thus, under this size standard, the majority of firms can be 
considered small.
    299. Local Exchange Carriers (LECs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to local exchange services. The closest applicable size 
standard under SBA rules is for Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or 
fewer employees. According to Commission data, 1,307 carriers reported 
that they were incumbent local exchange service providers. Of these 
1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and 
301 have more than 1,500 employees. Consequently, the Commission 
estimates that most providers of local exchange service are small 
entities that may be affected by the Commission's action.
    300. Incumbent Local Exchange Carriers (incumbent LECs). Neither 
the Commission nor the SBA has developed a size standard for small 
businesses specifically applicable to incumbent local exchange 
services. The closest applicable size standard under SBA rules is for 
Wired Telecommunications Carriers. Under that size standard, such a 
business is small if it has 1,500 or fewer employees. According to 
Commission data, 1,307 carriers reported that they were incumbent local 
exchange service providers. Of these 1,307 carriers, an estimated 1,006 
have 1,500 or fewer employees and 301 have more than 1,500 employees. 
Consequently, the Commission estimates that most providers of incumbent 
local exchange service are small businesses that may be affected by the 
Commission's action.
    301. The Commission has included small incumbent LECs in this 
present RFA analysis. As noted above, a ``small business'' under the 
RFA is one that, inter alia, meets the pertinent small business size 
standard (e.g., a telephone communications business having 1,500 or 
fewer employees), and ``is not dominant in its field of operation.'' 
The SBA's Office of Advocacy contends that, for RFA purposes, small 
incumbent LECs are not dominant in their field of operation because any 
such dominance is not ``national'' in scope. The Commission has 
therefore included small incumbent LECs in this RFA analysis, although 
it emphasizes that this RFA action has no effect on Commission analyses 
and determinations in other, non-RFA contexts.
    302. Competitive Local Exchange Carriers (Competitive LECs), 
Competitive Access Providers (CAPs), Shared-Tenant Service Providers, 
and Other Local Service Providers. Neither the Commission nor the SBA 
has developed a small business size standard specifically for these 
service providers. The appropriate size standard under SBA rules is for 
the category Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 1,442 carriers reported that they were 
engaged in the provision of either competitive local exchange services 
or competitive access provider services. Of these 1,442 carriers, an 
estimated 1,256 have 1,500 or fewer employees and 186 have more than 
1,500 employees. In addition, 17 carriers have reported that they are 
Shared-Tenant Service Providers, and all 17 are estimated to have 1,500 
or fewer employees. In addition, 72 carriers have reported that they 
are Other Local Service Providers. Of the 72, 70 have 1,500 or fewer 
employees and two have more than 1,500 employees. Consequently, the 
Commission estimates that most providers of competitive local exchange 
service, competitive access providers, Shared-Tenant Service Providers, 
and Other Local Service Providers are small entities that may be 
affected by the Commission's action.
    303. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to interexchange services. The closest applicable size 
standard under SBA rules is for Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or 
fewer employees. According to Commission data, 359 companies reported 
that their primary telecommunications service activity was the 
provision of interexchange services. Of these 359 companies, an 
estimated 317 have 1,500 or fewer employees and 42 have more than 1,500 
employees. Consequently, the Commission estimates that the majority of 
interexchange service providers are small entities that may be affected 
by the Commission's action.
    304. Local Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 213 carriers have reported 
that they are engaged in the provision of local resale services. Of 
these, an estimated 211 have 1,500 or fewer employees and two have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of local resellers are small entities that may be affected by 
the Commission's action.
    305. Toll Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 881 carriers have reported 
that they are engaged in the provision of toll resale services. Of 
these, an estimated 857 have 1,500 or fewer employees and 24 have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of toll resellers are small entities that may be affected by 
the Commission's action.
    306. Other Toll Carriers. Neither the Commission nor the SBA has 
developed a size standard for small businesses specifically applicable 
to Other Toll Carriers. This category includes toll carriers that do 
not fall within the categories of interexchange carriers, operator 
service providers, prepaid calling card providers, satellite service 
carriers, or toll resellers. The closest applicable size standard under 
SBA rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 284 companies reported that their primary 
telecommunications service activity was the provision of other toll 
carriage. Of these, an estimated 279 have 1,500 or fewer employees and 
five have more than 1,500 employees. Consequently, the Commission 
estimates that most Other Toll Carriers are small entities that may be 
affected by the Commission's action.
    307. Payphone Service Providers (PSPs). Neither the Commission nor 
the SBA has developed a small business size standard specifically for 
payphone services providers. The appropriate size standard under SBA 
rules is for the category Wired Telecommunications Carriers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 535 carriers have reported 
that they are engaged in the provision of payphone services. Of these, 
an estimated 531 have 1,500 or fewer employees and four have more than 
1,500 employees. Consequently, the Commission estimates that the 
majority of payphone service providers are small entities that may be 
affected by the Commission's action.

[[Page 79177]]

4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements for Small Entities
    308. Recordkeeping, Reporting, and Certification. The Order 
requires that all ICS providers file annually data, categorized by 
facility and size of facility, on their current intrastate, interstate, 
and international ICS rates. The Commission also requires ICS providers 
to file their current ancillary service charge amounts and the 
instances of use of each. ICS providers that make site commission 
payments must file the monthly amount of any such payment. The 
Commission requires ICS providers that provided video visitation 
services, either as a form of ICS or not, during the reporting period, 
to file the minutes of use and per-minute rates for those services. As 
discussed in greater detail in the Disability Access section above, the 
Commission also requires that ICS providers report: (1) The number of 
disability-related calls they provided; (2) the number of problems they 
experienced with such calls; and (3) the number of complaints they 
received related to access to ICS by TTY and TRS users e.g., dropped 
calls, poor call quality and the number of incidences of each. The 
adopted reporting requirements will facilitate enforcement and act as 
an additional means of ensuring that ICS providers' rates and practices 
are just, reasonable, fair and in compliance with the Order.
    309. The Commission delegates to the Wireline Competition Bureau 
(Bureau) the authority to adopt a template for submitting the required 
data, information, and certifications.
5. Steps Taken To Minimize the Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    310. The RFA requires an agency to describe any significant, 
specifically small business, alternatives that it has considered in 
reaching its proposed approach, which may include the following four 
alternatives (among others): ``(1) the establishment of differing 
compliance or reporting requirements or timetables that take into 
account the resources available to small entities; (2) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the rules for such small entities; (3) the 
use of performance rather than design standards; and (4) an exemption 
from coverage of the rule, or any part thereof, for such small 
entities.''
    311. The Commission needs access to data that are comprehensive, 
reliable, sufficiently disaggregated, and reported in a standardized 
manner. The Order recognizes, however, that reporting obligations 
impose burdens on the reporting providers. Consequently, the Commission 
limits its collection to information that is narrowly tailored to meet 
its needs.
    312. Monitoring and Certification. The Commission requires ICS 
providers to submit annually their data on their intrastate, interstate 
and international ICS rates, categorized by facility and size of 
facility. The Commission requires ICS providers to file their charges 
to consumers that are ancillary to providing the telecommunications 
piece of ICS. Providers are currently required to post their rates 
publicly on their Web sites. Thus, this additional filing requirement 
should entail minimal additional compliance burden, even for the 
largest ICS providers.
    313. The information on providers' Web sites is not certified and 
is generally not available in a format that will provide the per-call 
details that the Commission requires to meet its statutory obligations. 
Thus, the Commission further requires each provider to annually certify 
its compliance with other portions of the Order. The Commission finds 
that without a uniform, comprehensive dataset with which to evaluate 
ICS providers' rates, the Commission's analyses will be incomplete. The 
Commission recognizes that any information collection imposes burdens, 
which may be most keenly felt by smaller providers, but concludes that 
the benefits of having comprehensive data substantially outweigh the 
burdens. Additionally, some of these potential burdens, such as the 
filing of rates currently required to be posted on an ICS provider's 
Web site, are minimally burdensome.
    314. Data Collection. The Commission is cognizant of the burdens of 
data collections, and has therefore taken steps to minimize burdens, 
including directing the Bureau to adopt a template for filing the data 
that minimizes burdens on providers by maximizing uniformity and ease 
of filing, while still allowing the Commission to gather the necessary 
data. The Commission also finds that without a uniform, comprehensive 
dataset with which to evaluate ICS providers' costs, its analyses will 
be incomplete, and its ability to establish ICS rate caps will be 
severely impaired. The Commission thus concludes that requiring ICS 
providers to report this cost data appropriately balances any burdens 
of reporting with the Commission's need for the data required to carry 
out its statutory duties.
6. Report to Congress
    315. The Commission will send a copy of the Order, including this 
FRFA, in a report to be sent to Congress pursuant to the Small Business 
Regulatory Enforcement Fairness Act of 1996. In addition, the 
Commission will send a copy of the Order, including this FRFA, to the 
Chief Counsel for Advocacy of the Small Business Administration. A copy 
of the Order and FRFA (or summaries thereof) will also be published in 
the Federal Register.

V. Ordering Clauses

    316. Accordingly, it is ordered that, pursuant to sections 1, 2, 
4(i)-(j), 201(b), 215, 218, 220, 276, 303(r), and 403 of the 
Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i)-(j), 
201(b), 215, 218, 220, 276, 303(r), and 403 this Second Report and 
Order is adopted.
    317. It is further ordered that Part 64 of the Commission's Rules, 
47 CFR part 64, is amended as set forth in Appendix A of the Second 
Report and Order. These rules shall become effective March 17, 2016.
    318. It is further ordered, that the prohibition against entering 
into new contracts,--or negotiating amendments to existing contracts, 
as discussed in paragraphs 261 and 262, herein, shall take effect 
immediately upon publication in the Federal Register.
    319. It is further ordered, that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Second Report and Order, including the Final Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration.
    320. It is further ordered, that pursuant to sections 1.4(b)(1) and 
1.103(a) of the Commission's rules, 47 CFR 1.4(b)(1) and 1.103(a), that 
the Compliance date for this Second Report and Order shall be January 
19, 2016.

List of Subjects in 47 CFR Part 64

    Claims, Communications common carriers, Computer technology, 
Credit, Foreign relations, Individuals with disabilities, Political 
candidates, Radio, Reporting and recordkeeping requirements, 
Telecommunications, Telegraph, Telephone.


[[Page 79178]]


Federal Communications Commission.
Gloria J. Miles,
Federal Register Liaison Officer, Office of the Secretary.

Final Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 64 as follows:

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

0
1. The authority citation for part 64 continues to read as follows:

    Authority:  47 U.S.C. 154, 254(k); 403(b)(2)(B), (c), Pub. L. 
104-104, 110 Stat. 56. Interpret or apply 47 U.S.C. 201, 218, 222, 
225, 226, 227, 228, 254(k), 616, 620, and the Middle Class Tax 
Relief and Job Creation Act of 2012, Pub. L. 112-96, unless 
otherwise noted.

0
2. Section 64.6000 is revised to read as follows:


Sec.  64.6000  Definitions.

    As used in this subpart:
    (a) Ancillary Service Charge means any charge Consumers may be 
assess for the use of Inmate Calling services that are not included in 
the per-minute charges assessed for individual calls. Ancillary Service 
Charges that may be charged include the following. All other Ancillary 
Service Charges are prohibited.
    (1) Automated Payment Fees means credit card payment, debit card 
payment, and bill processing fees, including fees for payments made by 
interactive voice response (IVR), web, or kiosk;
    (2) Fees for Single-Call and Related Services means billing 
arrangements whereby an Inmate's collect calls are billed through a 
third party on a per-call basis, where the called party does not have 
an account with the Provider of Inmate Calling Services or does not 
want to establish an account;
    (3) Live Agent Fee means a fee associated with the optional use of 
a live operator to complete Inmate Calling Services transactions;
    (4) Paper Bill/Statement Fees means fees associated with providing 
customers of Inmate Calling Services an optional paper billing 
statement;
    (5) Third-Party Financial Transaction Fees means the exact fees, 
with no markup, that Providers of Inmate Calling Services are charged 
by third parties to transfer money or process financial transactions to 
facilitate a Consumer's ability to make account payments via a third 
party.
    (b) Authorized Fee means a government authorized, but 
discretionary, fee which a Provider must remit to a federal, state, or 
local government, and which a Provider is permitted, but not required, 
to pass through to Consumers. An Authorized Fee may not include a 
markup, unless the markup is specifically authorized by a federal, 
state, or local statute, rule, or regulation.
    (c) Average Daily Population (ADP) means the sum of all inmates in 
a facility for each day of the preceding calendar year, divided by the 
number of days in the year. ADP shall be calculated in accordance with 
Sec.  64.6010(e) and (f);
    (d) Collect Calling means an arrangement whereby the called party 
takes affirmative action clearly indicating that it will pay the 
charges associated with a call originating from an Inmate Telephone;
    (e) Consumer means the party paying a Provider of Inmate Calling 
Services;
    (f) Correctional Facility or Correctional Institution means a Jail 
or a Prison;
    (g) Debit Calling means a presubscription or comparable service 
which allows an Inmate, or someone acting on an Inmate's behalf, to 
fund an account set up though a Provider that can be used to pay for 
Inmate Calling Services calls originated by the Inmate;
    (h) Flat Rate Calling means a calling plan under which a Provider 
charges a single fee for an Inmate Calling Services call, regardless of 
the duration of the call;
    (i) Inmate means a person detained at a Jail or Prison, regardless 
of the duration of the detention;
    (j) Inmate Calling Service means a service that allows Inmates to 
make calls to individuals outside the Correctional Facility where the 
Inmate is being held, regardless of the technology used to deliver the 
service;
    (k) Inmate Telephone means a telephone instrument, or other device 
capable of initiating calls, set aside by authorities of a Correctional 
Facility for use by Inmates;
    (l) International Calls means calls that originate in the United 
States and terminate outside the United States;
    (m) Jail means a facility of a local, state, or federal law 
enforcement agency that is used primarily to hold individuals who are;
    (1) Awaiting adjudication of criminal charges;
    (2) Post-conviction and committed to confinement for sentences of 
one year or less; or
    (3) Post-conviction and awaiting transfer to another facility. The 
term also includes city, county or regional facilities that have 
contracted with a private company to manage day-to-day operations; 
privately-owned and operated facilities primarily engaged in housing 
city, county or regional inmates; and facilities used to detain 
individuals pursuant to a contract with U.S. Immigration and Customs 
Enforcement;
    (n) Mandatory Tax or Mandatory Fee means a fee that a Provider is 
required to collect directly from Consumers, and remit to federal, 
state, or local governments;
    (o) Per-Call, or Per-Connection Charge means a one-time fee charged 
to a Consumer at call initiation;
    (p) Prepaid Calling means a presubscription or comparable service 
in which a Consumer, other than an Inmate, funds an account set up 
through a Provider of Inmate Calling Services. Funds from the account 
can then be used to pay for Inmate Calling Services, including calls 
that originate with an Inmate;
    (q) Prepaid Collect Calling means a calling arrangement that allows 
an Inmate to initiate an Inmate Calling Services call without having a 
pre-established billing arrangement and also provides a means, within 
that call, for the called party to establish an arrangement to be 
billed directly by the Provider of Inmate Calling Services for future 
calls from the same Inmate;
    (r) Prison means a facility operated by a territorial, state, or 
federal agency that is used primarily to confine individuals convicted 
of felonies and sentenced to terms in excess of one year. The term also 
includes public and private facilities that provide outsource housing 
to other agencies such as the State Departments of Correction and the 
Federal Bureau of Prisons; and facilities that would otherwise fall 
under the definition of a Jail but in which the majority of inmates are 
post-conviction or are committed to confinement for sentences of longer 
than one year;
    (s) Provider of Inmate Calling Services, or Provider means any 
communications service provider that provides Inmate Calling Services, 
regardless of the technology used;
    (t) Site Commission means any form of monetary payment, in-kind 
payment, gift, exchange of services or goods, fee, technology 
allowance, or product that a Provider of Inmate Calling Services or 
affiliate of an Provider of Inmate Calling Services may pay, give, 
donate, or otherwise provide to an entity that operates a correctional 
institution, an entity with which the Provider of Inmate Calling 
Services enters into an agreement to provide ICS, a governmental agency 
that oversees a correctional facility, the city, county, or

[[Page 79179]]

state where a facility is located, or an agent of any such facility.

0
3. Section 64.6010 is revised to read as follows:


Sec.  64.6010  Inmate Calling Services rate caps.

    (a) No Provider shall charge, in the Jails it serves, a per-minute 
rate for Debit Calling, Prepaid Calling, or Prepaid Collect Calling in 
excess of:
    (1) $0.22 in Jails with an ADP of 0-349;
    (2) $0.16 in Jails with an ADP of 350-999; or
    (3) $0.14 in Jails with an ADP of 1,000 or greater.
    (b) No Provider shall charge, in any Prison it serves, a per-minute 
rate for Debit Calling, Prepaid Calling, or Prepaid Collect Calling in 
excess of:
    (1) $0.11;
    (2) [Reserved]
    (c) No Provider shall charge, in the Jails it serves, a per-minute 
rate for Collect Calling in excess of:

----------------------------------------------------------------------------------------------------------------
                                                                   Collect rate    Collect rate    Collect rate
                                                   Debit/prepaid  cap per MOU as  cap per MOU as  cap per MOU as
            Size and type of facility              rate cap per     of June 20,     of July 1,      of July 1,
                                                        MOU            2016            2017            2018
----------------------------------------------------------------------------------------------------------------
0-349 Jail ADP..................................           $0.22           $0.49           $0.36           $0.22
350-999 Jail ADP................................            0.16            0.49            0.33            0.16
1,000+ Jail ADP.................................            0.14            0.49            0.32            0.14
----------------------------------------------------------------------------------------------------------------

    (d) No Provider shall charge, in the Prisons it serves, a per-
minute rate for Collect Calling in excess of:
    (1) $0.14 after March 17, 2016;
    (2) $0.13 after July 1, 2017; and
    (3) $0.11 after July 1, 2018, and going forward.
    (e) For purposes of this section, the initial ADP shall be 
calculated, for all of the Correctional Facilities covered by an Inmate 
Calling Services contract, by summing the total number of inmates from 
January 1, 2015, through January 19, 2016, divided by the number of 
days in that time period;
    (f) In subsequent years, for all of the correctional facilities 
covered by an Inmate Calling Services contract, the ADP will be the sum 
of the total number of inmates from January 1st through December 31st 
divided by the number of days in the year and will become effective on 
January 31st of the following year.

0
4. Section 64.6020 is revised to read as follows:


Sec.  64.6020  Ancillary Service Charge.

    (a) No Provider shall charge an Ancillary Service Charge other than 
those permitted charges listed in Sec.  64.6000.
    (b) No Provider shall charge a rate for a permitted Ancillary 
Service Charge in excess of:
    (1) For Automated Payment Fees--$3.00 per use;
    (2) For Single-Call and Related Services--the exact transaction fee 
charged by the third-party provider, with no markup, plus the adopted, 
per-minute rate;
    (3) For Live Agent Fee--$5.95 per use;
    (4) For Paper Bill/Statement Fee--$2.00 per use;
    (5) For Third-Party Financial Transaction Fees--the exact fees, 
with no markup that result from the transaction.

0
5. Section 64.6030 is revised to read as follows:


Sec.  64.6030  Inmate Calling Services interim rate cap.

    No Provider shall charge a rate for Collect Calling in excess of 
$0.25 per minute, or a rate for Debit Calling, Prepaid Calling, or 
Prepaid Collect Calling in excess of $0.21 per minute. These interim 
rate caps shall sunset upon the effectiveness of the rates established 
in Sec.  64.6010.

0
6. Section 64.6040 is revised to read as follows:


Sec.  64.6040  Rates for calls involving a TTY device.

    (a) No Provider shall levy or collect any charge in excess of 25 
percent of the applicable per-minute rate for TTY-to-TTY calls when 
such calls are associated with Inmate Calling Services.
    (b) No Provider shall levy or collect any charge or fee for TRS-to-
voice or voice-to-TTY calls.

0
7. Section 64.6060 is revised to read as follows:


Sec.  64.6060  Annual reporting and certification requirement.

    (a) Providers must submit a report to the Commission, by April 1st 
of each year, regarding interstate, intrastate, and international 
Inmate Calling Services for the prior calendar year. The report shall 
be categorized both by facility type and size and shall contain:
    (1) Current interstate, intrastate, and international rates for 
Inmate Calling Services;
    (2) Current Ancillary Service Charge amounts and the instances of 
use of each;
    (3) The Monthly amount of each Site Commission paid;
    (4) Minutes of use, per-minute rates and ancillary service charges 
for video visitation services;
    (5) The number of TTY-based Inmate Calling Services calls provided 
per facility during the reporting period;
    (6) The number of dropped calls the reporting Provider experienced 
with TTY-based calls; and
    (7) The number of complaints that the reporting Provider received 
related to e.g., dropped calls, poor call quality and the number of 
incidences of each by TTY and TRS users.
    (b) An officer or director of the reporting Provider must certify 
that the reported information and data are accurate and complete to the 
best of his or her knowledge, information, and belief.

0
8. Section 64.6070 is added to subpart FF to read as follows:


Sec.  64.6070  Taxes and fees.

    (a) No Provider shall charge any taxes or fees to users of Inmate 
Calling Services, other than those permitted under Sec.  64.6020, 
Mandatory Taxes, Mandatory Fees, or Authorized Fees.

0
9. Section 64.6080 is added to subpart FF to read as follows:


Sec.  64.6080  Per-Call, or Per-Connection Charges.

    No Provider shall impose a Per-Call or Per-Connection Charge on a 
Consumer.
0
10. Section 64.6090 is added to subpart FF to read as follows:


Sec.  64.6090  Flat-Rate Calling.

    No Provider shall offer Flat-Rate Calling for Inmate Calling 
Services.
0
11. Section 64.6100 is added to subpart FF to read as follows:


Sec.  64.6100  Minimum and maximum Prepaid Calling account balances.

    (a) No Provider shall institute a minimum balance requirement for a 
Consumer to use Debit or Prepaid Calling.
    (b) No Provider shall prohibit a consumer from depositing at least 
$50

[[Page 79180]]

per transaction to fund a Debit or Prepaid Calling account.
0
12. Section 64.6110 is added to subpart FF to read as follows:


Sec.  64.6110  Consumer disclosure of Inmate Calling Services rates.

    Providers must clearly, accurately, and conspicuously disclose 
their interstate, intrastate, and international rates and Ancillary 
Service Charges to consumers on their Web sites or in another 
reasonable manner readily available to consumers.

[FR Doc. 2015-31252 Filed 12-17-15; 8:45 am]
 BILLING CODE 6712-01-P