[Federal Register Volume 89, Number 183 (Friday, September 20, 2024)]
[Rules and Regulations]
[Pages 77244-77443]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19037]
[[Page 77243]]
Vol. 89
Friday,
No. 183
September 20, 2024
Part II
Federal Communications Commission
-----------------------------------------------------------------------
47 CFR Parts 14 and 64
Incarcerated People's Communication Services; Implementation of the
Martha Wright-Reed Act; Rates for Interstate Inmate Calling Services;
Final Rule
Federal Register / Vol. 89, No. 183 / Friday, September 20, 2024 /
Rules and Regulations
[[Page 77244]]
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 14, 64
[WC Docket Nos. 12-375, 23-62; FCC 24-75; FR ID 237400]
Incarcerated People's Communication Services; Implementation of
the Martha Wright-Reed Act; Rates for Interstate Inmate Calling
Services
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: In this document, the Federal Communications Commission
(Commission) adopts rules addressing all intrastate, interstate, and
international audio and video incarcerated people's communication
services (IPCS), including video visitation services. The reforms
include adopting permanent rate caps for audio IPCS and interim rate
caps for video; prohibiting IPCS providers from making site commission
payments associated with IPCS and preempting state and local laws and
regulations requiring such commissions; prohibiting IPCS providers from
imposing any separate ancillary service charges on IPCS consumers;
strengthening the Commission's requirements for access to IPCS by
incarcerated people with disabilities; permitting IPCS providers to
offer optional alternate pricing plans that comply with the rate caps;
strengthening existing consumer disclosure and inactive account
requirements; revising the existing annual reporting and certification
requirements; facilitating enforcement of the new IPCS rules; and
delegating authority to the Commission's Wireline Competition Bureau
(WCB), Consumer and Governmental Affairs Bureau (CGB), and Office of
Economics and Analytics (OEA).
DATES:
Effective date: This rule is effective November 19, 2024, except
for amendatory instruction 7 (Sec. Sec. 64.611(l)(2), (3), (5), (6));
amendatory instruction 15 (Sec. 64.6040(f)); amendatory instruction 17
(Sec. 64.6060); amendatory instruction 20 (Sec. 64.6090); amendatory
instruction 22 (Sec. 64.6110); amendatory instruction 23 (Sec.
64.6120); amendatory instruction 25 (Sec. 64.6130(d) through (f), and
(h) through (k)); amendatory instruction 27 (Sec. 64.6140(c), (d),
(e)(2) through (4), (f)(2), and (f)(4)), which are delayed
indefinitely. The Federal Communications Commission will publish a
document in the Federal Register announcing the effective date of these
provisions.
Delegation of authority: The delegations of authority to WCB, CGB,
and OEA are effective on November 19, 2024.
ADDRESSES: Federal Communications Commission, 45 L Street NE,
Washington, DC 20554. People with Disabilities: To request materials in
accessible formats for people with disabilities (Braille, large print,
electronic files, audio format), send an email to [email protected], or
call the Consumer and Governmental Affairs Bureau at (202) 418-0530
(voice) or (202) 418-0432 (TTY).
FOR FURTHER INFORMATION CONTACT: Stephen Meil, Pricing Policy Division
of the Wireline Competition Bureau, at (202) 418-7233 or via email at
[email protected], regarding the portions of this document relating
to matters other than communications services for incarcerated people
with disabilities, and Michael Scott, Disability Rights Office of the
Consumer and Governmental Affairs Bureau, at (202) 418-1264 or via
email at [email protected], regarding the portions of this document
relating to communications services for incarcerated people with
disabilities.
SUPPLEMENTARY INFORMATION: This is a summary of the Federal
Communications Commission's (Commission's) Report and Order, document
FCC 24-75, adopted on July 18, 2024 and released on July 22, 2024, in
WC Docket Nos. 12-375 and 23-62. This summary is based on the public
redacted version of the document, the full text of which can be
obtained from the Commission's Electronic Document Management System
(EDOCS) website at www.fcc.gov/edocs or via the Commission's Electronic
Comment Filing System (ECFS) website at www.fcc.gov/ecfs, or is
available at the following internet address: https://docs.fcc.gov/public/attachments/FCC-24-75A1.pdf.
Synopsis
I. Introduction
1. Today we take the most significant steps thus far to fulfill the
dream of Martha Wright-Reed, who advocated tirelessly to ensure that
incarcerated people would be able to communicate with family and loved
ones at just and reasonable rates. While this document implements the
requirements of the Martha Wright-Reed Just and Reasonable
Communications Act of 2022 (Martha Wright-Reed Act or Act), this
proceeding began over twenty years ago when a determined grandmother
petitioned the Federal Communications Commission to take action against
the egregiously high telephone rates and charges that were impeding
incarcerated people's ability to stay connected with their families and
friends. Martha Wright-Reed championed the idea of easing the financial
burdens imposed on incarcerated people and their families simply to
make a phone call. As a blind elderly woman, who could neither write
letters nor travel such long distances for in-person visits, she often
spent hundreds of dollars a month in long distance phone calls to stay
in touch with her incarcerated grandson. In her honor, and in the face
of years of litigation frustrating the Commission's reform efforts in
this area, Congress passed the Martha Wright-Reed Act, significantly
expanding the Commission's jurisdiction over incarcerated people's
communications services (IPCS) and directing the Commission to
``establish a compensation plan to . . . ensure just and reasonable
charges for telephone and advanced communications services in
correctional and detention facilities.''
2. In this item, we exercise the authority granted the Commission
by Congress and adopt comprehensive reforms that will significantly
reduce the financial burdens incarcerated people face to communicate
with their loved ones. We first reduce existing rate caps for all
incarcerated people's audio communication services, by implementing a
methodology specifically permitted by Congress in the Act, and
establish, for the first time, interim rate caps for incarcerated
people's video communications services. We also materially reduce the
prices consumers pay for IPCS by limiting the costs that can be
recovered through IPCS rates to only costs that the Commission finds
are used and useful in the provision of IPCS. We also permit states to
maintain rates lower than the Commission's rate caps. We next end IPCS
providers' long-standing practice of making site commission payments to
carceral facilities, the costs of which were passed through to
consumers via higher IPCS rates. We further strengthen the requirements
for access to IPCS by incarcerated people with disabilities, and adopt
stronger consumer protection rules. We also permit providers, for the
first time, to offer optional alternate pricing plans, subject to
conditions to protect and benefit IPCS consumers.
A. Executive Summary
3. The Report and Order implements the expanded authority granted
to the Commission by the Martha Wright-Reed Act to establish a
compensation plan that ensures both just and reasonable rates and
charges for incarcerated
[[Page 77245]]
people's audio and video communications services and fair compensation
for incarcerated people's communications service providers. The Report
and Order fundamentally reforms the regulation of IPCS in all
correctional facilities, regardless of the technology used to deliver
these services, and significantly lowers the IPCS rates that
incarcerated people and their loved ones will pay. These comprehensive
reforms:
Utilize the expanded authority Congress granted the
Commission, in conjunction with the FCC's preexisting statutory
authority, to adopt just and reasonable IPCS rates and charges for all
intrastate, interstate, and international audio and video IPCS,
including video visitation services;
Lower existing per-minute rate caps for audio IPCS and
establish initial interim per-minute rate caps for video IPCS, based on
industry-wide cost data submitted by IPCS providers, while permitting
states to maintain IPCS rates lower than the Commission's rate caps;
Lower the overall prices consumers pay for IPCS and
simplify the pricing structure by incorporating the costs of ancillary
services in the rate caps and prohibiting providers from imposing any
separate ancillary service charges on IPCS consumers;
Prohibit IPCS providers from making site commission
payments for IPCS and preempt state and local laws and regulations
requiring such commissions;
Limit the costs associated with safety and security
measures that can be recovered in the per-minute rates to only those
costs that the Commission finds are used and useful in the provision of
IPCS;
Allow, subject to conditions, IPCS providers to offer
alternate pricing plans for IPCS that comply with the rate caps we
establish;
Revise and strengthen accessibility requirements for IPCS
for incarcerated people with disabilities;
Revise and strengthen existing consumer disclosure and
inactive account requirements; and
Revise the existing annual reporting and certification
requirements.
4. We adopt the following rate caps:
Table One--New Rate Caps by Tier
----------------------------------------------------------------------------------------------------------------
Audio (permanent) (per minute) Video (interim) (per minute)
Tier (ADP) ---------------------------------------------------------------
Current caps New caps Current caps New caps
----------------------------------------------------------------------------------------------------------------
Prisons (any ADP)............................... * $0.14 $0.06 N/A $0.16
Large Jails (1,000+)............................ * 0.16 0.06 N/A 0.11
Med. Jails (350 to 999)......................... 0.21 0.07 N/A 0.12
Small Jails (100 to 349)........................ 0.21 0.09 N/A 0.14
Very Small Jails (0 to 99)...................... 0.21 0.12 N/A 0.25
----------------------------------------------------------------------------------------------------------------
* Current cap figures that include a $0.02 additive for facility costs, which equates to the allowance made for
facility-incurred IPCS costs reflected in contractually-prescribed site commissions, the closest available
comparison.
II. Background
A. The Martha Wright-Reed Just and Reasonable Communications Act of
2022
5. The Martha Wright-Reed Just and Reasonable Communications Act of
2022 (Martha Wright-Reed Act or Act), was enacted on January 5, 2023.
It represents the culmination of a years-long effort to comprehensively
address unreasonably high rates and charges that incarcerated people
and their families pay for communications services. The Act expands and
clarifies the scope of the Commission's authority over IPCS under
section 276 of the Communications Act of 1934, as amended
(Communications Act) by modifying section 276 to require the Commission
to ensure that the rates and charges for incarcerated people's
intrastate and interstate communications services be just and
reasonable. It also modifies the requirement in section 276(b)(1)(A)
that providers be fairly compensated by eliminating the requirement
that compensation occur on a ``per call'' basis and for ``each and
every [call].'' Thus, with the new amendments, section 276(b)(1)(A)
directs the Commission to establish a compensation plan to ``ensure
that all payphone service providers are fairly compensated and all
rates and charges are just and reasonable for completed intrastate and
interstate communications using their payphone or other calling
device.'' The Act further augments the Commission's jurisdiction by
modifying the Communications Act to expand the definition of payphone
service in correctional institutions to encompass advanced
communications services, including ``any audio or video communications
service used by inmates . . . regardless of technology used.''
6. The Martha Wright-Reed Act also amends section 2(b) of the
Communications Act to reinforce that the Commission's jurisdiction
extends to intrastate, as well as interstate and international,
communications services used by incarcerated people. The Communications
Act generally allocates regulatory authority over intrastate,
interstate, and international communications services between the
Commission and the states. It grants authority to the Commission to
ensure that ``[a]ll charges, practices, classifications, and
regulations for and in connection with'' interstate or international
common carrier communications services are ``just and reasonable,'' and
directs the Commission to ``prescribe such rules and regulations as may
be necessary in the public interest to carry out'' this mandate.
7. Section 2(b) of the Communications Act generally preserves
states' jurisdiction over ``charges, classifications, practices,
services, facilities, or regulations for or in connection with
intrastate communication service.'' The Commission is thus ``generally
forbidden'' from regulating ``intrastate communication service, which
remains the province of the states.'' Stated differently, section 2(b)
``erects a presumption against the Commission's assertion of regulatory
authority over intrastate communications.'' But Congress can enact
statutory provisions that overcome this presumption, including by
expressly excluding provisions of the Communications Act from section
2(b). Section 276 of the Communications Act always has been
[[Page 77246]]
clear that the Commission has authority to establish compensation plans
for ``intrastate and interstate'' payphone calls, and the Martha
Wright-Reed Act also specifically modified section 2(b) to include
section 276, as amended, in an explicit exception. This amendment makes
abundantly clear that the Commission's authority under section 276
encompasses intrastate IPCS.
8. In direct response to the D.C. Circuit's decision in GTL v. FCC,
the Act expressly allows the Commission to ``use industry-wide average
costs,'' as well as the ``average costs of service of a communications
service provider'' in setting just and reasonable rates and charges. In
implementing the Act, the Commission is required to consider the
``costs associated with any safety and security measures necessary to
provide'' telephone service and advanced communications services.
Finally, the statute directs the Commission to promulgate regulations
necessary to implement the statutory provisions not earlier than 18
months and not later than 24 months after its January 5, 2023 enactment
date.
B. Early Reform Efforts
9. Prior to the enactment of the Martha Wright-Reed Act, the
Commission had previously taken a number of steps to reform
communications services for incarcerated people. In 2012, the
Commission initiated its inmate calling services (ICS) rulemaking
principally in response to petitions filed by Martha Wright and her
fellow petitioners seeking relief from ``excessive'' inmate calling
services rates. In the 2013 ICS Order, the Commission found that rates
for calling services for incarcerated people greatly exceeded the
reasonable costs of providing those services and adopted interim
interstate rate caps of $0.21 per minute for debit and prepaid calls,
and $0.25 per minute for collect calls. The Commission also launched
its First Mandatory Data Collection to obtain industry cost data to
help develop permanent rate caps. In 2014, the Commission sought
comment on establishing permanent rate caps for both interstate and
intrastate calls and on reforming charges for services ancillary to the
provision of inmate calling services.
10. In 2015, the Commission adopted a comprehensive regulatory
framework for interstate and intrastate inmate calling services that
included permanent rate caps for interstate and intrastate inmate
calling services calls, and imposed limits on ancillary service
charges. Specifically, the 2015 ICS Order set tiered rate caps for
interstate calls based on the type and size of correctional facilities
and calculated these caps using industry-wide average costs as reported
in the First Mandatory Data Collection. The Commission excluded all
site commission payments from industry costs, having found such
payments were not reasonably related to the provision of inmate calling
services. The Commission also extended the interim interstate rate caps
it had adopted in 2013 to intrastate calls, pending the effectiveness
of the new rate caps, and sought comment on rate regulation of
international inmate calling services calls. Finally, the 2015 ICS
Order established a Second Mandatory Data Collection to guide further
reforms, and began an annual filing obligation to collect information
on providers' interstate, intrastate, and international rates, as well
as their ancillary service charges, among other information.
11. While an appeal of the 2015 ICS Order was still pending, the
Commission reconsidered the full exclusion of site commission payments
from its permanent rate cap calculations. The Commission's 2016 ICS
Reconsideration Order increased the permanent rate caps adopted in the
2015 ICS Order to account for claims that certain correctional facility
costs reflected in site commission payments are directly and reasonably
related to the provision of inmate calling services.
C. The GTL v. FCC Decision
12. The permanent rate caps adopted in the 2015 ICS Order were
vacated by the D.C. Circuit in GTL v. FCC in 2017 on three principal
grounds. First, the panel majority held that the Commission lacked the
statutory authority to cap intrastate calling services rates because
the Commission's authority over intrastate calls under section 276 of
the Communications Act did not authorize it to impose intrastate rate
caps, and the Commission's authority under section 201(b) of the
Communications Act did not extend to intrastate rates. Second, the D.C.
Circuit concluded that the Commission had erred by categorically
excluding site commissions from inmate calling services providers'
costs used to set rate caps. Because some site commissions were
``mandated by state statute,'' while others were ``required by state
correctional institutions,'' the court concluded that some portion of
site commissions might be legitimately included in provider costs, and
remanded to the Commission to determine what portion of site
commissions were directly related to the provision of inmate calling
services. Third, the court found that the Commission's use of a
weighted average per-minute cost in setting rate caps, on the existing
record as analyzed in the 2015 ICS Order, was arbitrary and capricious,
in part because this approach, as the Commission had applied it,
rendered calls with above-average costs unprofitable and thus did ``not
fulfill the mandate of [section] 276 that `each and every' '' call be
fairly compensated.
13. The D.C. Circuit also remanded the Commission's ancillary
service charge caps, finding that--on the available record--the
Commission ``had no authority to impose ancillary fee caps with respect
to intrastate calls.'' Although the court found ancillary service
charge caps on interstate calls ``justified,'' it could not ``discern
from the record whether ancillary fees [could] be segregated between
interstate and intrastate calls,'' and remanded the issue for the
Commission to determine whether it could segregate ancillary service
fee caps between interstate calls and intrastate calls. The court also
vacated the video visitation annual reporting requirements adopted in
the 2015 ICS Order as ``beyond the statutory authority of the
Commission.''
14. In a related case decided later that year, the D.C. Circuit
``summarily vacated'' the 2016 ICS Reconsideration Order ``insofar as
it purports to set rate caps on inmate calling service'' because the
revised rate caps in that order were ``premised on the same legal
framework and mathematical methodology'' rejected by the court in GTL
v. FCC. As a result of the D.C. Circuit's decisions in GTL and Securus
Techs. v. FCC, the interim rate caps that the Commission adopted in
2013 ($0.21 per minute for debit/prepaid calls and $0.25 per minute for
collect calls) remained in effect for interstate inmate calling
services calls.
D. More Recent Reform Efforts
15. Following the D.C. Circuit's remand in GTL v. FCC, the
Commission took additional actions to address unreasonable rates and
charges for communications services for incarcerated people. In
February 2020, the Wireline Competition Bureau (Bureau or WCB) issued a
document seeking to refresh the record on issues related to ancillary
service charges to respond to the D.C. Circuit's remand. The Bureau
sought comment on whether ancillary service charges may be ``segregated
between interstate and intrastate calls and, if so, how.'' It also
sought comment on the definition of jurisdictionally mixed services and
how the Commission should proceed if any
[[Page 77247]]
permitted ancillary service is deemed jurisdictionally mixed.
16. In August 2020, the Commission adopted the 2020 ICS Order on
Remand (85 FR 67450 (Oct. 23, 2020)), in which it found that ancillary
service charges generally are jurisdictionally mixed and cannot be
practicably segregated between the interstate and intrastate
jurisdictions, except in a limited number of cases. The Commission
therefore concluded that inmate calling services providers are
generally prohibited from imposing ancillary service charges other than
those permitted by the Commission's rules, and from imposing charges in
excess of the Commission's ancillary service fee caps. In an
accompanying document, the Commission proposed reform of the inmate
calling services rates then within its jurisdiction based on its
analysis of industry data collected in the Second Mandatory Data
Collection, as well as information collected in the 2020 Annual
Reports.
17. In May 2021, the Commission adopted the 2021 ICS Order, which,
among other actions, set new interim interstate rate caps for prisons
and larger jails, reformed the treatment of site commissions, and
capped international calling rates. The Commission first eliminated
separate rate caps for all collect calls and retained the existing
$0.21 per minute interstate rate cap for debit and prepaid calls for
correctional facilities with average daily populations below 1,000. The
Commission then lowered the interstate interim rate caps from $0.21 per
minute for debit and prepaid calls to $0.12 per minute for prisons and
$0.14 per minute for jails with average daily populations of 1,000 or
more incarcerated people. It allowed site commission payments mandated
by federal, state, or local law, to be passed through to consumers,
without any markup, and capped other site commission payments that
result from contractual obligations or negotiations with providers to
no more than $0.02 per minute for prisons and jails with average daily
populations of 1,000 or more. The Commission adopted a modified waiver
process that permits providers to seek waivers of the rate and
ancillary services fee caps on a facility-by-facility or contract-by-
contract basis. The Commission also delegated authority to WCB and the
Office of Economics and Analytics (OEA) to conduct a Third Mandatory
Data Collection to collect uniform cost data to use in setting
permanent rate and ancillary services fee caps that more closely
reflect inmate service providers' costs of providing service.
18. In 2021, the Commission sought comment on, among other matters,
the provision of communications services to incarcerated people with
disabilities, and the methodology to be employed in setting permanent
interstate and international rate caps. It also sought comment on
general reform of the treatment of site commission payments in
connection with interstate and international calls, and additional
reforms to the Commission's ancillary service charges rules.
19. In September 2022, the Commission issued the 2022 ICS Order,
which adopted requirements to improve access to communications services
for incarcerated people with disabilities and to reduce certain charges
and curtail abusive practices related to ICS. The Commission required
inmate calling services providers to provide access to substantially
all relay services eligible for Telecommunications Relay Services (TRS)
Fund support in any correctional facility where broadband is available
and where the average daily population incarcerated in that
jurisdiction (i.e., in that city, county, state, or the United States)
totals 50 or more persons. It also required that where inmate calling
services providers are required to provide access to substantially all
forms of TRS, they also must provide access to American Sign Language
(ASL) direct, or point-to-point, video communication. Additionally, the
Commission lowered its caps on certain provider charges and barred
certain abusive practices to lessen the financial burden on
incarcerated people and their loved ones when using calling services.
20. The Commission also issued 2022 seeking stakeholder input and
evidence relating to additional reforms concerning incarcerated people
with disabilities. It sought further comment on reforms concerning
providers' rates, charges, and practices in connection with interstate
and international calling services, including further refining the
Commission's rules concerning the treatment of balances in inactive
accounts, expanding the breadth and scope of the Commission's consumer
disclosure requirements, using the Commission's data collections to
establish just and reasonable permanent caps on interstate and
international rates and associated ancillary service charges, and
allowing providers to offer pilot programs for alternative pricing
structures.
E. Implementation of Martha Wright-Reed Act
21. Following the enactment of the Martha Wright-Reed Act in
January 2023, the Commission issued 2023 and 2023 IPCS Order in March
2023 to begin the process of implementing that Act. In 2023, the
Commission sought comment on how it should interpret the Martha Wright-
Reed Act's provisions expanding the Commission's authority over
communications services for incarcerated people, including the Act's
requirement that rates and charges for incarcerated people's
communications services be just and reasonable, the Act's expansion of
the Commission's authority to include advanced communications services,
including video services, the expansion of the Commission's
jurisdiction to include intrastate communications services, and other
aspects of the Act. It also sought comment on how the Martha Wright-
Reed Act affects the Commission's ability to ensure that IPCS services
and associated equipment are accessible to and usable by people with
disabilities. Finally, 2023 incorporated unresolved issues previously
raised in WC Docket No. 12-375 into the current dual-captioned
proceeding.
22. In the 2023 IPCS Order, the Commission reaffirmed its prior
delegation of data collection authority to WCB and OEA, and directed
them to update and restructure their most recent data collection as
appropriate in light of the requirements of the new statute. In July
2023, WCB and OEA exercised this delegated authority and adopted the
2023 Mandatory Data Collection Order (88 FR 27850, May 3, 2023) to
collect information on the additional services and providers subject to
the Commission's newly expanded authority and address the Act's other
provisions where necessary.
III. Discussion
A. Unique Marketplace for Incarcerated People's Communications Services
23. The history of this proceeding makes crystal clear that the
IPCS marketplace ``is not a well functioning market with competitive
forces that would drive prices towards costs.'' Once a provider
successfully competes for a contract to serve a facility, it has a
monopoly over the provision of IPCS at that facility. Incarcerated
people play no role in the process of selecting IPCS providers or the
services they offer and have no choice but to pay the rates and charges
imposed if they wish to call their family or other loved ones.
Consumers have no means of switching to another provider and no means
of redress even if the IPCS provider ``raises rates, imposes additional
fees, adopts unreasonable terms and conditions for use of the service,
or offers inferior
[[Page 77248]]
service.'' As a result, there are no competitive forces to constrain
providers from imposing rates and charges that far exceed the costs
required to provide the services. This absence of competitive
alternatives to discipline IPCS rates justifies rate regulation
independent of the problematic role that site commissions historically
have played. We thus reject arguments that the elimination of site
commission payments calls into question the need for rate regulations.
In stating its preference for relying on competition and market forces
to discipline prices, the Commission has acknowledged ``there is little
dispute that the [IPCS] market is a prime example of market failure.''
This market failure persists today. Indeed, one provider aptly
summarizes the IPCS market dynamics today as follows:
Fundamentally, due to the inherent structure of the [IPCS]
marketplace, [IPCS] providers' rational economic incentive is to
entice confinement facilities to award the provider a service
contract as the facility, and confinement facilities' rational
economic incentive is to award contracts to [IPCS] providers who
provide the greatest payments (monetary or otherwise) to the
facility. Notably absent from the foregoing calculus are the [IPCS]
consumers themselves, despite the fact that they are the ones who
ultimately pay for [IPCS] service.
24. Despite Commission actions over the years to constrain rates
and charges in the audio IPCS marketplace, the monopolistic nature of
the marketplace has not changed, and remains ``characterized by
increasing rates, with no competitive pressures to reduce rates.'' The
``unusual market dynamics'' of the IPCS marketplace and the ``inability
of market forces to constrain IPCS rates'' are also evident in a still
nascent portion of the marketplace--video IPCS, making clear that
``some form of regulatory constraint . . . is needed to ensure that end
user rates are just and reasonable.'' The bipartisan Martha Wright-Reed
Act is a directive that the Commission provide such regulatory
constraint on the IPCS marketplace through ensuring ``just and
reasonable charges for telephone and advanced communications services
in correctional and detention facilities.''
25. Some commenters argue that the IPCS marketplace is competitive
because contracts are awarded based on a bidding process, an argument
that appears challenging to square with Congress's enactment of the
Martha Wright-Reed Act. Independently, the Commission has not been
persuaded by such arguments in the past, and we find no further
evidence in the record that might warrant a departure from this
conclusion. Instead, we continue to find that ``because correctional
officials typically allow only one provider to serve any given facility
. . . there are no competitive constraints on a provider's rates once
it has entered into a contract to serve a particular facility.''
Indeed, the Commission has found that providers' cost data reflect this
lack of competition in the industry. And the Commission has explained
how factors such as site commissions ` ``distort[ ] the [IPCS]
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.'' Thus, even
if there is ``competition'' in the bidding market as some providers
assert, it is not the type of competition the Commission recognizes as
having an ability to ``exert downward pressure on rates for
consumers.''
B. Impact on Consumers and Society
26. The Commission has long recognized--and worked to combat--the
negative consequences that unreasonable communications rates and
charges have on incarcerated people, their families and loved ones, and
society at large. The record in this proceeding provides overwhelming
evidence of the substantial burden excessive communications rates have
on the ability of incarcerated people to stay connected and maintain
the vital, human bonds that sustain families and friends when a loved
one is incarcerated. In fact, ``[t]he high costs of keeping in contact
drive more than 1 in 3 families, who are already financially burdened,
into debt for phone calls and visits with their loved ones.'' As the
Prison Policy Initiative explains, ``[t]he cost of everyday
communication is arguably the worst price-gouging that people behind
bars and their loved ones face.'' Color of Change highlights these
burdens through the story of Maria Marshall, who, ``after spending $120
in just two weeks to maintain contact with both her teenage son and her
ex-husband behind bars, was forced to make the difficult choice between
the two, as she struggled to pay exorbitant phone rates and could only
afford one of their accounts.'' Brian Howard, a formerly incarcerated
person, speaks for all too many in stating, ``though we have committed
a crime and became incarcerated, we incarcerate our family as well.''
27. The Commission held several public listening sessions to learn
firsthand from individuals directly impacted by unreasonable IPCS rates
and charges. In these sessions, witnesses testified to the high cost of
communications as being the primary barrier to keeping families
connected--despite the well documented benefits of ``maintaining
communication with loved ones during incarceration.'' Universally,
testimony from formerly incarcerated individuals stresses the burden
that unreasonable communications rates and charges have had on their
ability to communicate with their families. For example, Colette Payne,
both formerly incarcerated and having an incarcerated son, relates how,
because of the cost of phone calls, ``I wasn't always able to speak
with my own children during my incarceration.'' Kim Thomas, a formerly
incarcerated person, explains the anguish of mothers ``who gave birth
while incarcerated and did not get to see their child for 18 months,
physically or in any other way.'' Other formerly incarcerated people
emphasize how the high cost of communications prevents mothers from
regularly speaking to their children. One grandmother, whose daughter
is incarcerated, details how her four young grandchildren are only able
to speak to their mother every ``week and a half and two weeks if
that'' because communications are so expensive. Jada Cochran, who gave
birth in prison and whose mother raised her four young children while
she was incarcerated, cried as she lamented that her mother could not
afford many calls, despite the fact they were her ``lifeline to my
family, to my children.'' Brione Smith, a teenager whose father is
incarcerated, describes being devastated when she could not reach her
father after her best friend and grandfather died within a few weeks of
each other.
28. Participants at the Commission's listening sessions explain how
the unreasonably high communications rates at times force incarcerated
people and their families to choose between basic necessities, such as
between food, and communications. For example, Deon Nowell reports at
the Chicago listening session how some incarcerated people had to beg
for food to reserve enough money to call their families. Ana Navarro
describes how families must choose between communication or rent, food,
or school supplies. Kim Thomas, a formerly incarcerated person,
explains how incarcerated people earn ``about 15 cents an hour. . . .
So if you calculate that out, it's not very much money, and you choose
to make a phone call or buy soap.'' Incarcerated people with
disabilities that impact their ability to communicate continually
experience barriers to access because ``prison
[[Page 77249]]
administrators fail to understand their communication needs.''
29. The benefits of communications between incarcerated people and
their families are wide-ranging and well-documented. For decades,
studies have linked regular contact with family with lowering rates of
recidivism and increasing likelihood of successful reentry into society
after release. During the listening sessions, the formerly incarcerated
emphasized how communication with family decreases recidivism and
sustains hope. Children who have regular communications with an
incarcerated parent have ``better relationships with that parent.''
Without these connections, incarcerated people tend to lose contact
with the outside world and can lose hope of reengaging with society and
their loved ones. Others suggest that unlawful activities within
correctional facilities would likely decrease if communications
services were affordable and accessible. Rosalind Akins, whose grandson
was formerly incarcerated, describes how ``[p]eople become induced
mentally ill because they can't communicate.'' Deon Nowell explains
that lower communications rates will ``help [the incarcerated people]
make the right decision. That's why it's called rehabilitation. Help
[the incarcerated people] to make the right decision, especially when
it deals with the costs of communications.''
30. The Martha Wright-Reed Act charges us with evaluating and
breaking down the financial barriers to communications between
incarcerated people and their families, consequently lessening the
burden of having to choose between buying food and communicating with
their family members, and helping facilitate a successful transition to
a life outside of correctional facilities. The Act gives us the tools
we need to meet these objectives. We anticipate that by lessening the
financial burdens of staying connected, the reforms we adopt today will
promote increased communication--allowing the preservation of essential
family ties, keeping vital family connections alive by enabling
incarcerated people to parent their children and connect with their
spouses, and helping families stay intact.
C. Interpreting the Martha Wright-Reed Act and the Commission's
Authority Thereunder
1. Purpose and Scope of the Martha Wright-Reed Act
31. In the Martha Wright-Reed Act, Congress gave the Commission a
clear mandate to fix a ``broken system,'' one in which the rates and
charges that incarcerated people pay to communicate with those they
love far exceed the amounts other Americans pay. The 2023 IPCS Notice
of Proposed Rulemaking (NPRM) (88 FR 20804, April 7, 2023) sought
comment on the proper interpretation of the scope and purpose of the
Martha Wright-Reed Act's amendments. We conclude that the Martha
Wright-Reed Act, taken as whole, fundamentally validates the
Commission's broad exercise of authority over IPCS. The record reflects
widespread agreement that the Martha Wright-Reed Act ``confers plenary
authority on the Commission'' to regulate a wide range of
communications services, including telephone and certain advanced
communications services, provided to incarcerated people regardless of
the technology or device used or a communication's status as interstate
or intrastate. More specifically, as certain commenters observe, the
Martha Wright-Reed Act's amendments to section 276 of the
Communications Act provide the Commission with authority over all IPCS
rates and charges, complemented by the Commission's section 201(b) of
the Communications Act authority over interstate and international
IPCS. The Commission has previously interpreted ``interstate,'' as used
in section 276 of the Communications Act, to include international
calling services. Consistent with our historical understanding of our
statutory authority--including in the IPCS context in the near-term
lead-up to the enactment of the Martha Wright-Reed Act--we adopt that
interpretation today, a step that no commenter opposes. Independently,
insofar as our rules treat international IPCS calls the same as
domestic IPCS calls, the record does not persuade us that it would be
practicable to make the sort of real-time jurisdictional determinations
that would enable our rules to distinguish international calls from
domestic calls in those scenarios, in any event. Congress's directives
guide our implementation of the Commission's responsibilities as
described in further detail below.
32. IPCS providers, state and local officials, and public interest
advocates broadly agree that this expanded authority over
communications services provided to incarcerated people includes not
just audio services, but also certain advanced communications services
that were previously outside the Commission's ratemaking authority. No
commenter challenges this overall interpretation of the purpose and
scope of the Martha Wright-Reed Act or suggests a more limited view of
the Commission's authority. We find no basis for disagreeing with this
consensus view, and thus, we exercise the full degree of our authority
in this regard to adopt a compensation plan ensuring just and
reasonable rates and charges, as well as fair compensation for
providers of incarcerated people's audio and video communications
services. We analyze below the specific amendments to section 276 of
the Communications Act included in the Martha Wright-Reed Act that
collectively expand our jurisdiction over IPCS and interpret each
amendment, consistent with the overarching goal of the Act--just and
reasonable rates for IPCS consumers and fair compensation for IPCS
providers.
2. Addition of ``Other Calling Device[s]''
33. At the outset of our analysis, we address the fact that the
Martha Wright-Reed Act extends the Commission's authority over IPCS to
include not just communications using traditional payphones, but also
communications using ``other calling device[s].'' As amended, section
276(b)(1)(A) of the Communications Act directs the Commission to
establish a compensation plan so all payphone service providers are
fairly compensated for communications ``using their payphone or other
calling device.'' Based on the record and consistent with the
Commission's proposal in 2023, we interpret the term ``other calling
device[s]'' in the Martha Wright-Reed Act broadly to encompass all
devices that incarcerated people either use presently or may use in the
future to engage in covered communications with individuals not
confined within their correctional institutions. Our interpretation is
further confirmed by Congress's expansion of our authority over
advanced communications services in section 3(1)(E) of the
Communications Act, to include ``any audio or video communications
service used by inmates . . . regardless of technology used.''
34. There is support in the record for this expansive
interpretation. As the Public Interest Parties explain, ``Congress
chose to use expansive language covering `any technology used' to grant
the Commission authority as broadly as possible, intending to cover any
and all technologies that an incarcerated person may use to communicate
[by audio or video] today or in the future.'' The breadth of Congress's
language and the ``absence of additional qualifying language'' limiting
the scope of the term ``other calling
[[Page 77250]]
device[s]'' persuades us that a broad reading of this term is intended.
Under this reading, the Commission's authority extends to ``all types
of calling devices'' that incarcerated people may now or in the future
use to communicate by audio or video with those not confined in the
incarcerated person's correctional institution. Furthermore, the
Commission has long understood section 276(b)(1)(A) of the
Communications Act to set requirements governing TRS communications
using TRS devices in correctional facilities. Given that backdrop,
coupled with the fact that TRS is designed to ensure service
functionally equivalent to telephone service, we conclude that
``payphone[s]'' and ``other calling devices'' under section
276(b)(1)(A) include devices that people with disabilities use for
purposes of ``communications'' regardless of whether the devices convey
those communications using audio and/or video, or also (or instead)
text, braille, or another communications medium.
35. To be clear, as proposed in 2023, the interpretation of ``other
calling device[s]'' we adopt today encompasses all wireline and
wireless phones, computers, tablets, and other communications equipment
capable of sending or receiving audio or video communications described
in section 276(d) of the Communications Act, regardless of transmission
format. And, ``[c]onsistent with the Commission's mandate to provide
Telecommunications Relay Service (`TRS') for incarcerated people with
disabilities,'' this statutory phrase also includes all wireline and
wireless equipment, whether audio, video, text, other communications
medium, or some combination thereof that incarcerated people with
disabilities presently use to communicate, through any payphone
service, with the non-incarcerated, including but not limited to
videophones, captioned telephones, and peripheral devices for
accessibility, such as braille display readers, screen readers, and
TTYs.
36. Finally, as proposed in 2023, our interpretation of ``other
calling device[s]'' includes other potential devices, not yet in use,
to the extent incarcerated people, including those with disabilities,
use them for covered communications in the future. Such a future-
oriented interpretation is necessary to ensure that IPCS rates and
charges remain just and reasonable, and that providers continue to be
fairly compensated, as IPCS technology evolves. It also will, to the
extent possible, keep IPCS providers from shifting ``exploitative
practices to spaces left unregulated'' by our actions today.
3. The Requirement To Establish a Compensation Plan
37. The Martha Wright-Reed Act preserved the requirement in section
276(b) of the Communications Act that the Commission ``establish a
compensation plan'' as a principal means of achieving the statutory
goals with regard to IPCS. As amended, section 276(b)(1)(A) requires
that this compensation plan ensure that ``all payphone service
providers are fairly compensated'' for completed communications and
that ``all rates and charges [for those communications] are just and
reasonable.'' The statute further requires the Commission to implement
this statutory directive by rule. We now turn to the legal framework
envisioned by the statute for establishing a compensation plan that
will realize these statutory goals.
a. Addition of the ``Just and Reasonable'' Requirement to Section
276(b)(1)(A)
38. We adopt the Commission's proposal that the term ``just and
reasonable,'' added to section 276(b)(1)(A) of the Communications Act
by the Martha Wright-Reed Act, be interpreted as having the same
meaning as the term ``just and reasonable'' in section 201(b) of the
Communications Act. Prior to the Martha Wright-Reed Act, section
276(b)(1)(A) contained no ``just and reasonable'' requirement. Instead,
that section required the Commission to evaluate payphone rates on a
per-call basis and to ensure that providers were fairly compensated for
each and every completed call. Congress, however, modified this
approach in the Act by removing the ``per call'' and ``each and every''
completed call language from section 276(b)(1)(A), which instead now
requires that all payphone service providers be fairly compensated, and
that all rates and charges imposed by those providers be ``just and
reasonable.'' Not only is there strong support in the record for the
conclusion that ``just and reasonable'' for the purposes of revised
section 276(b)(1)(A) has the same meaning as ``just and reasonable'' in
section 201(b), but the rules of statutory construction and judicial
precedent buttress this finding.
39. By way of example, the Public Interest Parties explain, and we
agree, that ``[t]racking the Section 201(b) meaning is the most sound
reading of the statute and of congressional intent,'' consistent with
the understanding ``that Congress was aware of the Section 201(b)
standard--and the Commission's decades of relevant precedent
interpreting it--when it chose to add the identical term to Section
276.'' The Supreme Court likewise explained in FCC v. AT&T that
``identical words and phrases within the same statute should normally
be given the same meaning.'' Both of these tenets have particular force
here. The identical terms ``just and reasonable'' appear in section
201(b) and have now been added to section 276(b)(1)(A), both sections
of Title II of the Communications Act, to describe the required end
result of our ratemaking. The Martha Wright-Reed Act also was enacted
against the regulatory backdrop of--and in response to--the GTL v. FCC
decision, where the D.C. Circuit found that the Commission unreasonably
relied on the ``just and reasonable'' standard of section 201(b) when
implementing the differently-worded language of section 276. Further,
in the wake of GTL v. FCC, the Commission continued to regulate rates
and practices for interstate and international IPCS services under its
section 201(b) ``just and reasonable'' authority, informed by the
obligation to ensure ``fair'' compensation under section 276(b)(1)(B).
40. Nothing in the text of the Martha Wright-Reed Act leads us to
believe that Congress intended to alter that general regulatory
approach in our implementation of section 276(b)(1)(A) in the case of
services we previously have regulated under section 201(b). Instead,
that regulatory backdrop reinforces our conclusion that ``just and
reasonable'' is best interpreted in a manner that harmonizes the
application of that standard in sections 201(b) and 276(b)(1)(A). The
record also provides no reason to interpret ``just and reasonable''
differently in the two sections of the Communications Act. We thus find
that ``just and reasonable'' has the same meaning in both statutory
provisions and regardless of the services to which the phrase is
applied.
41. The Used and Useful Framework. As Congress has imported section
201(b)'s ``just and reasonable'' standard into section 276(b)(1)(A), we
next find that the standard the Commission has used to determine just
and reasonable rates under 201(b) should also apply to our ratemaking
under section 276(b)(1)(A). Historically, the ``used and useful''
framework has ``both informed the Commission's regulatory cost
accounting and ratemaking rules and operated to protect the interests
of ratepayers and carriers.'' The record supports our conclusion that
this framework provides the most appropriate mechanism for ensuring
just and reasonable rates and charges for
[[Page 77251]]
IPCS, and therefore applies to all IPCS over which we now have
authority.
42. Accordingly, we rely on ``the `used and useful' doctrine and
its associated prudent expenditure standard'' to assess the costs that
should either be included or excluded from our rate cap calculations to
ensure just and reasonable rates and charges for IPCS. Under this
framework, the determination of just and reasonable rates focuses on
affording regulated entities an opportunity to recover their
``prudently incurred investments and expenses that are `used and
useful' in the provision of the regulated service for which rates are
being set.'' The used and useful framework permits regulated entities
to earn a reasonable return on their resources dedicated to public use
but it does not allow them to include a markup for profit beyond that.
This ``used and useful'' framework, which ``is rooted in American legal
theory and particularly in the constitutional limitations on the taking
of private property for public use,'' balances the ``equitable
principle that public utilities must be compensated for the use of
their property in providing service to the public'' with the
``[e]qually central . . . equitable principle that the ratepayers may
not fairly be forced to pay a return except on investment which can be
shown directly to benefit them.'' In this Order, we use the term ``used
and useful framework'' to refer collectively to the ``used and useful''
standard and the ``prudent expenditure'' standard. In applying these
principles, ``the Commission considers whether the investment or
expense `promotes customer benefits, or is primarily for the benefit of
the carrier.' '' There are several elements of the Commission's used
and useful analysis. First, the Commission considers the need to
compensate providers ``for the use of their property and expenses
incurred in providing the regulated service.'' Second, the Commission
looks to the ``equitable principle that ratepayers should not be forced
to pay a return except on investments that can be shown to benefit
them.'' In this regard, the Commission considers ``whether the expense
was necessary to the provision of'' the services subject to the ``just
and reasonable''. And third, the Commission considers ``whether a
carrier's investments and expenses were prudent (rather than
excessive).'' As the Commission has explained, ``[t]he used and useful
and prudent investment standards allow into the rate base portions of
plant that directly benefit the ratepayer, and exclude any imprudent,
fraudulent, or extravagant outlays.''
43. As one commenter suggests, the used and useful framework allows
us to recognize all IPCS costs that benefit IPCS users, including any
such costs incurred by correctional facilities, as costs that should be
recovered though IPCS rates and charges. Conversely, that framework
allows us to exclude from that recovery any costs that do not benefit
IPCS users, either because they were imprudent or because they were for
non-IPCS products or services, regardless of whether the provider or
the facility incurred them. In short, the used and useful framework
functions as an ``equitable principle'' that prevents ratepayers from
having to pay for costs that are ``primarily for the benefit of the
carrier,'' while allowing regulated entities to be compensated for
providing service.
44. Some commenters express concerns over our reliance on the used
and useful framework in the IPCS context, describing the framework as
being ``a vestige of rate-of-return regulation.'' To the contrary, we
find that the framework remains the most practical and effective method
for determining the costs providers and facilities reasonably incur in
providing IPCS. As historically applied by the Commission, the used and
useful framework limits the costs recoverable through regulated rates
and charges to ``prudently incurred investments and expenses that are
`used and useful' in the provision of the regulated service.'' Contrary
to Pay Tel's and Securus's representations, our application of the used
and useful standard is not ``novel'' or otherwise inappropriate as
applied in the Report and Order. The used and useful standard is ``a
standard regulatory agencies have been using for decades'' to
``determine whether a regulated company's expenses are justified.
Nothing about the Commission's approach here is novel. Instead, it
reflects the familiar ratemaking exercise the Commission routinely
undertakes to determine those capital costs and expenses that may be
recovered through regulated rates. To the extent Pay Tel's argument is
premised on the notion that the used and useful standard ``is nowhere
specified in the Martha Wright-Reed Act or in Section 276,'' we explain
above that as Congress has imported section 201(b)'s ``just and
reasonable'' standard into section 276(b)(1)(A), the used and useful
framework that the Commission's has used to determine just and
reasonable rates under section 201(b) provides the most appropriate
mechanism for determining just and reasonable rates under section
276(b)(1)(A). And, in any event, section 201(b) is similarly silent on
the applicability of the used and useful standard. Further, we do not,
as Pay Tel suggests, rely on the used and useful framework ``to the
exclusion of `fair compensation.' '' As we explain below, the text of
section 276(b)(1)(A), as amended by the Martha Wright-Reed Act,
requires the Commission to implement both provisions in tandem, which
we do in setting rate caps using a zone of reasonableness approach. We
disagree with those commenters who argue that competition in the IPCS
market makes application of the used and useful standard unnecessary.
That argument conflates the bidding market (i.e., the market in which
IPCS providers compete against each other to win contracts with
correctional facilities) with the retail market (i.e., the market in
which IPCS consumers pay rates and charges for the communications
services that we must ensure are just and reasonable). Indeed, the
Commission has previously determined that ``even if there is
competition in the bidding market . . . it is not the type of
competition the Commission recognizes as having an ability to exert
downward pressure on rates for consumers.'' Pay Tel and ViaPath contend
that ``IPCS providers [should be] free to best determine how to manage
their investments and expenses.'' Allowing providers such complete
flexibility would run contrary to the plain text in the Martha Wright-
Reed Act and congressional directive to the Commission. Moreover, this
type of behavior has thus far resulted in unreasonable IPCS rates and
charges for consumers, underscoring the need for us to apply the used
and useful (or a similar) framework to prevent the inclusion of
imprudent and non-IPCS costs in IPCS rates and charges.
45. We also find unpersuasive arguments that we should allow all
prudently incurred ``operating expenses'' to be recovered through IPCS
rates and charges even if those expenses are not used and useful in the
provision of IPCS and related ancillary services. The National
Sheriffs' Association, in particular, expresses concern that the costs
of some expenditures that correctional officials find prudent,
including expenditures for certain safety and security measures, will
be excluded from our ratemaking calculus. It claims that relying on the
used and useful standard is inconsistent with section 4 of Martha
Wright-Reed Act, which specifies that ``[n]othing in the Act shall be
construed to . . . prohibit the
[[Page 77252]]
implementation of any safety and security measures'' related to IPCS
``at a State or local prison, jail, or detention facility.''
46. The National Sheriffs' Association's reasoning, however, does
not fully comport with the language of the Martha Wright-Reed Act
addressing safety and security measures. Section 3(b)(2) of that Act
requires that we ``consider costs associated with any safety and
security measures necessary to provide'' IPCS in promulgating
implementing rules and in ``determining just and reasonable rates'' for
IPCS. But neither section 3(b)(2) nor any other provision of the Martha
Wright-Reed Act concludes or requires that every safety and security
measure that a correctional institution chooses to implement in
connection with IPCS is ``necessary to provide'' IPCS, or mandate that
we require consumers to pay for all those measures through IPCS rates.
47. Rather, when read in conjunction with section 3(b)(2) and the
other provisions of the Martha Wright-Reed Act, section 4 simply makes
clear that, in directing the Commission to develop a compensation plan
to ensure just and reasonable IPCS rates and charges, Congress did not
intend to intrude on the ability of correctional institutions to
``adopt policies that, in their judgment, are needed to preserve safety
and security.'' Our actions in this Order make no such intrusion. We do
not prohibit any correctional institution from implementing any safety
and security measure that it deems appropriate or desirable. We do,
however, ensure that IPCS consumers do not bear the costs of those
safety and security measures that are not necessary to provide IPCS
regardless of how desirable these measures may be to correctional
institutions. Section 4 does not preclude such an outcome.
48. The Commission has relied on the used and useful framework to
ensure just and reasonable rates for decades. Our decision to apply
that framework in determining which costs should be recoverable from
consumers through IPCS rates and charges is fully consistent with the
Communications Act, as amended by the Martha Wright-Reed Act, as well
as with Commission precedent, including Commission regulation of IPCS
rates that formed the regulatory backdrop to the enactment of the
Martha Wright-Reed Act. The used and useful framework, including its
prudent expenditure component, embodies core ratemaking principles that
the Commission has long used to separate the costs that captive
ratepayers should pay for regulated services from those that are either
properly attributable to other products or services or excessive. In
applying that framework, along with the ``necessary'' standard that
section 3(b)(2) of the Martha Wright-Reed Act specifies for the costs
of safety and security measures and the other standards set forth in
that Act, we discharge our statutory duties, consistent with record
support, without intruding into matters outside our authority.
b. Effect on Other Laws
49. Section 4 of the Martha Wright-Reed Act provides additional
direction regarding the effect of the Act on existing laws. Section 4
consists of two clauses that are meant to guide the interpretation of
the remainder of the Act. The first clause of section 4 of the Act
specifies that ``[n]othing in this Act shall be construed to modify or
affect any Federal, State or local law to require telephone service or
advanced communications services at a State or local prison, jail, or
detention facility.'' We interpret ``this Act,'' as used in section 4
of the Martha Wright-Reed Act, as referring the Martha Wright-Reed Act,
rather than the Communications Act. All parties commenting on the
meaning of section 4 accept this interpretation. In 2023, the
Commission sought comment on the meaning of this statutory language.
The Commission asked whether ``the language of this clause simply
mean[s] that the Martha Wright-Reed Act does not create any new
obligation for state or local facilities to provide any form of
incarcerated people's calling services.'' The National Sheriffs'
Association supports this interpretation, adding that the language of
the Martha Wright-Reed Act would not support ``any new requirement to
make IPCS available.'' The United Church of Christ and Public Knowledge
likewise agree that ``this provision demonstrates that the Act does not
affirmatively require any additional service offerings'' at
correctional institutions. No commenter disputes this interpretation of
the first clause of section 4. We conclude that this clause means that
the Martha Wright-Reed Act neither expressly nor by implication
modifies any federal, state or local law in a manner that would require
the provision of any new or additional incarcerated people's
communications services at any state or local correctional institution.
50. The second clause of section 4 specifies that nothing in the
Martha Wright-Reed Act ``shall be construed to . . . prohibit the
implementation of any safety and security measures related to''
telephone service or advanced communications services at a State or
local prison, jail, or detention facility. In 2023, the Commission
sought comment on how to interpret this clause and asked, in
particular, whether the clause means that the Martha Wright-Reed Act,
with its focus on ``just and reasonable ratemaking'' was ``not intended
to interfere with any correctional official's decision on whether to
implement any type of safety or security measure that the official
desires in conjunction with audio or video communications services.''
Two commenters support this interpretation of the second clause of
section 4. In contrast, the United Church of Christ and Public
Knowledge contend more narrowly that ``this provision demonstrates that
the Act does not . . . prohibit safety and security measures.''
51. While the Commission's initial request for comment seems to
suggest the more expansive reading of the second clause of section 4
that the National Sheriffs' Association supports, we now conclude that
a narrower reading of that clause will more closely reflect the limited
scope of the statutory language. We find that the National Sheriffs'
Association's interpretation is overbroad and would expand the reach of
the second clause beyond its intended scope. When read in conjunction
with the other provisions of the Martha Wright-Reed Act, the second
clause of section 4 of that Act simply makes clear that, in directing
the Commission to develop a compensation plan to ensure just and
reasonable IPCS rates and charges, Congress did not intend to prohibit
correctional institutions from implementing policies that, in their
judgment, are needed to preserve safety and security. Consistent with
that interpretation and the specific language of section 4, we
interpret the second clause of section 4 as precluding us from
construing any provision of that Act as making such a prohibition
regarding the implementation of any safety and security measures at any
federal, state, or local correctional institution.
51. The National Sheriffs' Association expresses concern that the
costs of some expenditures for certain safety and security measures
will be excluded from our ratemaking calculus. The National Sheriffs'
Association relies on its broader interpretation of section 4 to assert
that the Commission must not ``interfere with the operation of jails by
eliminating their ability to recover [safety and security] costs''
through IPCS rates. Although the National Sheriffs' Association admits
that excluding certain safety and security costs from IPCS rates ``is
not a prohibition per se,'' it claims that, in
[[Page 77253]]
practice, disallowing any costs associated with safety and security
measures that law enforcement officials have approved effectively
prohibits the measures from being implemented.
53. The National Sheriffs' Association's reasoning, however, does
not comport with the broader statutory context of the Martha Wright-
Reed Act addressing safety and security measures. In particular,
section 3(b)(2) of that Act requires that we ``consider costs
associated with any safety and security measures necessary to provide''
IPCS in promulgating implementing rules and in ``determining just and
reasonable rates'' for IPCS. The best interpretation of the Martha
Wright-Reed Act will ensure a meaningful role for both section 3(b)(2)
and section 4.
54. If section 3(b)(2), of its own force, required the Commission
to allow recovery of all costs identified by providers or correctional
facilities as safety and security costs in regulated rates, as some
commenters suggest, then there would seem to be little to no possible
risk that such safety and security measures could be ``prohibited''
because they would, instead, be affirmatively funded by IPCS
ratepayers. That would leave section 4 with little or no risk to
address in that regard, and thus the relevant language of section 4
would be of substantially diminished significance. We reject Securus'
suggestion that failure to find all safety and security measures
``necessary'' and recoverable would violate the Administrative
Procedure Act (APA). As revealed by our consideration of the relevant
issues and the record before us on safety and security issues below, we
fully ensure that we have ``acted within a zone of reasonableness and,
in particular, ha[ve] reasonably considered the relevant issues and
reasonably explained the decision.'' We recognize that section 3(b)(2)
is focused on ``costs associated with any safety and security measures
necessary to provide'' IPCS, Martha Wright-Reed Act Sec. 3(b)(2)
(emphasis added), while section 4 is focused on ``safety and security
measures related to'' IPCS. Martha Wright-Reed Act Sec. 4 (emphasis
added). Despite the potential that ``necessary'' in section 3(b)(2) is
a narrower standard than ``related to'' in section 4, it is not clear
how much practical significance that would have if, as some commenters
contend, the Commission is required to simply defer to providers' and/
or correctional facilities' on what safety and security costs must be
recoverable in IPCS rates. But even under a stricter standard, we are
persuaded that mandatory recovery through IPCS rates of all ``costs
associated with any safety and security measures necessary to provide''
IPCS would leave the relevant proviso of section 4 of substantially
diminished significance.
55. Conversely, if section 4 were read to require recovery of the
full array of safety and security costs--deferring to the correctional
facilities' decision to approve the use of particular measures when
doing so--there would seem to be little meaningful left for the
Commission to ``consider'' in that regard under section 3(b)(2).
Matters such as identifying the magnitude of such costs and how they
should be allocated already would be necessitated by the ``just and
reasonable'' requirement in section 276(b)(1)(A) of the Communications
Act, as amended by the Martha Wright-Reed Act, if section 4 were
interpreted to require such recovery. That, in turn, would leave
section 3(b)(2) of substantially diminished significance.
56. Our interpretation of those provisions, by contrast, preserves
a meaningful role for each, particularly when understood in light of
the relevant regulatory backdrop. In the years leading up to the
enactment of the Martha Wright-Reed Act, one of the most-debated issues
was the recovery through IPCS rates of payments providers made to
correctional facilities, ostensibly--at least in some instances--
associated with safety and security measures. Some parties argued for a
categorical prohibition on any such recovery, while other parties
advocated for full recovery through IPCS rates of virtually any such
asserted costs or payments. For its part, the Commission sought to
navigate these competing claims by seeking to use the best available
evidence to assess whether there were costs--such as safety and
security costs--with a sufficient nexus to IPCS to potentially warrant
recovery of those costs in IPCS rates; using the best available data to
seek to quantify those costs; and continuing to evaluate additional
tools it might use to address the continued concerns about such cost
recovery, including possible preemption. Our reading of section 3(b)(2)
reflects an approach to safety and security costs analogous to the
middle path the Commission historically has sought to take. By
requiring that such costs be ``considered''--but only that they be
``considered''--the Martha Wright-Reed Act makes clear that it is not
putting a thumb on the scale of either extreme position by
categorically precluding or categorically allowing recovery of claimed
safety and security costs through regulated IPCS rates. At the same
time, section 4 of the Martha Wright-Reed Act makes clear that the
Commission cannot use that Act as a basis to go so far as outright
``prohibit[ing] the implementation of any safety and security measures
related to'' IPCS--such as by preempting even the implementation of
such measures--while not foreclosing the possibility that correctional
facilities ultimately must look elsewhere besides IPCS provider
payments passed through in IPCS rates to fund some (or many) of those
measures.
57. Our actions in this Order do not prohibit any correctional
institution from implementing any safety and security measure that it
deems appropriate or desirable. We do, however, ensure that IPCS
consumers do not bear the costs of those safety and security measures
that are not used and useful or necessary to provide IPCS regardless of
how desirable these measures may be to correctional institutions.
Section 4 does not preclude such an outcome.
58. In addition, without conceding the factual merits of the
National Sheriffs' Association's claim regarding our ability to exclude
costs of safety and security measures that are neither used and useful
nor necessary from our ratemaking analysis, as a statutory matter we
observe that in other contexts where Congress wanted to prevent not
only the prohibition of certain conduct, but even things that
effectively prohibit such conduct, it has done so explicitly.
Particularly because our interpretation best reconciles sections
3(b)(2) and 4 of the Martha Wright-Reed Act, we are not persuaded to
infer a de facto prohibition--a prohibition in fact--from the language
of section 4 as the National Sheriffs' Association suggests. With
respect to the factual merits of the National Sheriffs' Association
claims, we have provided for the recovery generally of used and useful
costs, including costs for necessary safety and security measures,
through the rate caps we adopt today. We find our actions adequately
address concerns about a de facto prohibition of safety and security
measures in this context.
c. Implementation of the ``Fairly Compensated'' Standard in Section
276(b)(1)(A)
59. We now turn to the requirement that we establish a compensation
plan to ensure IPCS providers are fairly compensated. We conclude that,
in addition to ensuring ``just and reasonable'' rates and charges, our
compensation plan for IPCS must accord meaning to the ``fairly
compensated'' clause in section 276(b)(1)(A) and its relationship to
the
[[Page 77254]]
``just and reasonable'' rates and charges mandate.
60. Meaning of the Fair Compensation Standard. We conclude that our
compensation plan for IPCS must give full effect to both the ``just and
reasonable'' and the ``fairly compensated'' clauses in section
276(b)(1)(A). In 2023, the Commission sought comment on how it should
balance the interests of both consumers and industry in giving effect
to both clauses. As proposed in 2023, we determine that giving effect
to both standards requires a balanced approach that ``emphas[izes]
consumers' (particularly incarcerated people's) and providers' right to
just and reasonable rates and charges for each audio and video
communications service now encompassed within the statutory definition
of `payphone service,' '' as well as ensuring that such rates ensure
that ``all payphone providers are fairly compensated.'' We thus reject
Securus's claim that the Order ``simply collapses the fair compensation
standard into the just and reasonable standard.'' As we explain, our
rate-making methodology and statutory interpretation of the Martha
Wright-Reed Act ensure that both standards are given full effect.
61. We view these clauses as imposing two interdependent statutory
mandates, each of which we must seek to fully implement. As discussed
below, as a general matter a range of possible outcomes potentially can
be found ``just and reasonable'' and a range of possible outcomes
potentially can be found to ``fairly compensate'' IPCS providers.
Because of that, we anticipate being able to find areas of overlap in
those two ranges that will satisfy both statutory mandates. We find
this expectation particularly reasonable given that the ``just and
reasonable'' precedent under section 201(b)--which we carry into our
application of section 276(b)(1)(A)--already involves a balancing that
accounts for the service provider's interests.
62. With respect to the ``just and reasonable'' mandate, as
discussed above, that directive leads us to balance the ``equitable
principle that public utilities must be compensated for the use of
their property in providing service to the public'' with the
``[e]qually central . . . equitable principle that the ratepayers may
not fairly be forced to pay a return except on investment which can be
shown directly to benefit them,'' drawing on Commission precedent under
section 201(b). In determining rates that are ``just and reasonable''
we look to whether costs to be recovered were prudently incurred and
used and useful in the provision of the services at issue. That
framework does not inevitably lead to a single ``just and reasonable''
rate, however, but allows for a range of rates with the agency
potentially able to find any rate with that zone to be ``just and
reasonable.''
63. There also is a body of precedent regarding the interpretation
of the ``fairly compensated'' mandate historically present in section
276(b)(1)(A)--but our approach here must account for certain ways in
which the Martha Wright-Reed Act altered the operative statutory
approach, necessitating related departures from that historical
precedent. Under that precedent, regulated rate levels historically
were viewed as in accordance with the ``fairly compensated'' standard
if they ``allow providers to generate sufficient revenue from each
interstate and international call--including any ancillary service fees
attributable to that call--(1) to recover the direct costs of that
call; and (2) to make a reasonable contribution to the provider's
indirect costs related to inmate calling services.'' As the Commission
recognized in the 2002 Pay Telephone Order--and recognized again in the
2021 ICS Order--the ``lion's share of payphone costs are those that are
`shared' or `common' to all services,'' and there are ``no logical or
economic rules that assign these common costs to `each and every call.'
'' As a result, ``a wide range of compensation amounts may be
considered `fair.' '' Securus argues that we have departed from the
2002 Pay Telephone Order's fair compensation determination based on
overall profitability to determine fair compensation evaluating
``profitability on a call-by-call basis.'' We disagree. Further,
Securus has not explained the difference between these two views of
profitability, and has not articulated why a provider would not be
profitable overall if it were profitable on a call-by-call basis.
64. The Continued Role of the Fair Compensation Standard. Prior to
the enactment of the Martha Wright-Reed Act, section 276(b)(1)(A) of
the Communications Act required that the Commission ``establish a per
call compensation plan'' ensuring that service providers be ``fairly
compensated for each and every completed'' call. The Martha Wright-Reed
Act eliminated the ``per call'' and ``each and every'' call
requirements and added a new dimension to section 276 by requiring that
our compensation plan for IPCS ``ensure that . . . all rates and
charges'' for incarcerated people's communications services ``are just
and reasonable.'' We disagree with UCC's argument that it would be
``arbitrary and capricious'' to require fair compensation for
providers. This is contrary to the explicit statutory text of section
276(b)(1)(A) that requires fair compensation. In 2023, the Commission
sought comment on how the Martha Wright-Reed Act's amendments to
section 276(b)(1)(A) affect the ``fairly compensated'' requirement in
that section. In particular, the Commission sought comment on
Congress's intent in striking the ``per call'' and ``each and every
[call]'' language from section 276(b)(1)(A) and the effect of its
removal on the ``fairly compensated'' requirement, particularly in
light of the Martha Wright-Reed Act's new requirement that all IPCS
rates and charges be just and reasonable.
65. The record persuades us that in striking the ``per call'' and
``each and every [call]'' language, Congress modified but did not
eliminate the requirement that providers be fairly compensated for
completed intrastate and interstate communications. Instead, as Pay Tel
explains, the fair compensation requirement ``was left as an
independent requirement by the Martha Wright-Reed Act, reflecting a
purposeful decision by Congress to retain the requirement as an
essential component of [IPCS] reform.'' We agree that we should not
``effectively read the requirement out of the statute or diminish its
importance.'' Instead, we address the fair compensation and just and
reasonable standards as interdependent standards as we implement the
requirements of section 276(b)(1)(A).
66. At the same time, we reject suggestions that the ``just and
reasonable'' mandate could be treated as subsidiary to the ``fairly
compensated'' mandate. We therefore reject any argument that IPCS rates
or ancillary services charges ``must be higher than they otherwise
would be under a `just and reasonable' '' analysis in order ``to
achieve `fairness.' '' The text of section 276(b)(1)(A) as amended by
the Martha Wright-Reed Act requires the Commission to implement both
provisions in tandem. And because the two mandates potentially can be
satisfied through a range of outcomes, the record here does not
persuade us that we will be forced into a situation where one mandate
must yield for the other mandate to be met.
67. Interpreting the Fair Compensation Standard in Light of the
Martha Wright-Reed Act. While we conclude that our compensation plan
for IPCS must accord meaning to the ``fairly compensated'' clause in
section 276(b)(1)(A), we also conclude that the
[[Page 77255]]
Martha Wright-Reed Act alters our interpretation and application of
that clause in certain key ways. For one, deletion of the ``per call''
and ``each and every [call]'' language from section 276(b)(1)(A)
fundamentally changes the requirements of that clause. Consistent with
the Commission's preliminary interpretation in 2023, we find that these
statutory amendments signal ``Congress's intent to restrict the
application of the `fairly compensated' requirement with respect to
[IPCS] by no longer requiring the Commission to ensure that its
compensation plan allows for `fair' compensation for `each and every'
completed call.'' Thus, while we must ensure that providers receive
fair compensation for completed intrastate and interstate
communications, we are not obliged to establish a per-call based
compensation plan, as section 276(b)(1)(A) previously required.
68. The Martha Wright-Reed Act also affects how we implement
section 276(b)(1)(A)'s directive that our compensation plan for IPCS
``ensure that all payphone service providers are fairly compensated''
for completed communications, consistent with the Act's amendments to
section 276(b)(1)(A). Section 3(b)(1) of the Martha Wright-Reed Act
grants us explicit authority to use ``industry-wide average costs.''
Use of industry-wide average costs, of necessity, evaluates provider
compensation on a more aggregated--rather than provider-by-provider--
basis. Section 3(b)(1) expressly permits the use of such data in
``determining just and reasonable rates'' as one permissible example,
alongside more general authority to use industry-wide average costs
``[i]n implementing this Act and the amendments made by this Act,'' and
``promulgating regulations under'' the Martha Wright-Reed Act's
amendments to the Communications Act. Nothing in the Martha Wright-Reed
Act compels the Commission to use ``the average costs of service of a
communications service provider'' in determining just and reasonable
rates. Martha Wright-Reed Act Sec. 3(b)(1). We thus reject Securus's
argument that the Commission somehow ``ignored'' the possibility of
using such costs in setting its rate caps. Based on that language we
interpret Congress as authorizing us to rely on industry-wide average
costs in implementing the ``fairly compensated'' mandate--and its
interplay with the ``just and reasonable'' mandate--as amended and
codified in section 276(b)(1)(A) by the Martha Wright-Reed Act. We
consequently interpret Congress' permission to use industry-wide
average costs to mean that rate caps based on costs evaluated on an
aggregated basis generally will satisfy the requirement that all
payphone service providers be fairly compensated. The record supports
this interpretation. Consistent with the Martha Wright-Reed Act, and
its amendments to section 276(b)(1)(A), we therefore adopt rate caps
based on industry-wide average cost data submitted by IPCS providers in
response to the Commission's 2023 Mandatory Data Collection, as
described below.
69. We also observe that these provisions of the Martha Wright-Reed
Act respond directly to the D.C. Circuit's holding in GTL v. FCC that
setting rate caps based on industry-wide average costs was ``patently
unreasonable'' because ``calls with above-average costs'' would not be
fairly compensated on a per call basis. The elimination by Congress of
the ``per call'' and ``each and every [call]'' language from section
276(b)(1)(A) leads to the interpretation that compensation need not be
evaluated on a per-call basis. In addition, our reading of section
3(b)(1) of the Martha Wright-Reed Act persuades us that fair
compensation need not be evaluated on a provider-by-provider basis--
still subject, of course, to Constitutional limits on rate regulation
as applied to individual providers.
70. At the same time, the flexibility in evaluating costs described
in section 3(b)(1) of the Martha Wright-Reed Act is tempered by certain
requirements to consider particular costs or cost characteristics under
section 3(b)(2) of that Act. Section 3(b)(2) provides that the
Commission ``shall consider costs associated with any safety and
security measures necessary to provide a service.'' Under that
provision, the Commission also must consider cost differences
associated with ``small, medium, or large facilities or other
characteristics.'' Consistent with that provision, we therefore also
evaluate such costs considerations in the rate caps we adopt, as
described below.
71. Consistent with the Commission's analysis in the 2021 ICS
Order, we find that a provider will be fairly compensated within the
meaning of section 276(b)(1)(A), as amended by the Martha Wright-Reed
Act, if the rates and charges we find just and reasonable afford it an
opportunity to be fairly compensated at the level of the contract,
regardless of the contributions that any particular communication or
service makes toward the provider's shared and common costs, ensuring
efficient providers have an opportunity to obtain fair compensation
when bidding on contracts. We decline to set rate caps that ensure cost
recovery for providers with unusually high costs because to let unusual
cases determine rates generally would result in unjust and unreasonable
rates. Instead, if such providers exist, they can seek a waiver. In
that Order, the Commission found that compensation could be fair, when
measured on a per-call basis, even if ``each and every completed call''
did not ``make the same contribution to a provider's indirect costs''
(i.e., costs shared among, or common to, groups of calls) and even if
the provider did not ``recover the total `cost' it claims in connection
with each and every separate inmate calling services call.'' Instead,
the Commission recognized that ``the lion's share'' of inmate calling
services costs were shared or common costs and that there were a range
of economically sound methods of assigning these costs to individual
calls. Under this approach, a provider will be fairly compensated if
the rates and fees it is permitted to charge will afford it an
opportunity to recover industry-average costs associated with prudent
investments used and useful in providing IPCS and associated ancillary
services at the facilities the provider serves.
d. Rates and Charges
72. We interpret the statutory language ``rates and charges'' to
encompass the amounts imposed on consumers by IPCS providers as the
Commission proposed in 2023. Section 276(b)(1)(A), as amended by the
Act, requires that ``all rates and charges'' imposed by providers for
the eligible communications are just and reasonable. The 2023 IPCS NPRM
proposed to interpret ``rates'' to include ``the amounts paid by
consumers of incarcerated people's communications services for calls or
other audio or video communications covered by the statute or [the
Commission's] rules.'' And 2023 proposed to interpret ``charges'' to
include ``all other amounts assessed on consumers of incarcerated
people's communications services'' including ``ancillary service
charges, authorized fees, mandatory taxes and fees, and any other
charges a provider may seek to impose on consumers.'' The record
supports these interpretations. We are persuaded that the statutory
language ``rates and charges'' encompasses the amounts imposed on IPCS
consumers, as we proposed in 2023, whether ``rates'' and ``charges''
are interpreted individually or if ``rates and charges'' is understood
as an all-encompassing category.
[[Page 77256]]
73. The regulation of ``rates and charges'' lies at the core of the
Martha Wright-Reed Act, and the amendments to section 276. Prior to the
enactment of the Martha Wright-Reed Act, the Commission's rules
commonly used the term ``rates'' when referring to the amounts
consumers paid for inmate calling services calls, while at other times
referring to such amounts as ``charges.'' The Commission's rules also
at times use the term ``rates'' in connection with ancillary service
charges. Nonetheless, on balance we conclude that under our rules in
place at the time of the enactment of the Martha Wright-Reed Act, the
term ``rates'' should be understood as referring to the amounts paid by
consumers of incarcerated people's communications services for calls,
supporting our adoption of the interpretation of that term proposed in
2023. Our interpretation also comports with the broad ordinary meaning
of the term ``rate.''
74. We also conclude that ``charge[s]'' properly are interpreted as
including ancillary services charges, mandatory taxes, mandatory fees,
and authorized fees. The Commission's rules at the time of the Martha
Wright-Reed Act's enactment defined ``Ancillary Service Charge'' as
``any charge Consumers may be assessed for, or in connection with, the
interstate or international use of Inmate Calling Services that are not
included in the per-minute charges assessed for such individual
calls.'' Although the ancillary service charges that were permitted to
be assessed under the Commission's rules were limited to five discrete
categories, Congress notably did not use the term ``ancillary service
charges'' in the Martha Wright-Reed Act, instead using the more generic
term ``charges.'' Consequently, we do not find it appropriate to focus
narrowly on the scope of ancillary service charges specifically
permitted to be assessed under the Commission's rules. Rather,
consistent with Congress's use of the broader term ``charges,'' we look
to the distinction drawn between per-minute rates and any other
``charge[s] Consumers may be assessed for, or in connection with, the
interstate or international use of Inmate Calling Services.'' That
encompasses not only ancillary service charges permitted under the
Commission's rules, but the other amounts identified in 2023 such as
mandatory taxes, mandatory fees, and authorized fees. This
interpretation likewise comports with the broad ordinary meaning of the
term ``charge.''
75. As an alternative basis for our decision, we conclude that
``rates and charges'' can be interpreted collectively as reflecting a
``belt and suspenders'' approach to the Commission's regulatory
authority under section 276(b)(1)(A) that encompasses the full array of
amounts assessed on IPCS customers discussed above. The statutory
context and regulatory history are consistent with that understanding.
For example, leading up to the enactment of the Martha Wright-Reed Act,
the Commission relied on authority under section 201(b)--which refers
to ``charges'' but includes no express reference to ``rates''--to adopt
rules governing ``rates and charges'' for IPCS. Treating ``rates and
charges'' as a doublet that emphasizes that meaning of these
overlapping terms also harmonizes section 3(b) of the Martha Wright-
Reed Act--which addresses the Commission's consideration of certain
cost information when, among other things, ``determining just and
reasonable rates''--with the fact that the Act amended section
276(b)(1)(A) to include a mandate that the Commission ensure that
``rates and charges are just and reasonable'' for IPCS. This
understanding of ``rates and charges'' also is understandable given the
Commission's own sometimes inconsistent usage of ``rates'' and
``charges'' in its IPCS rules in effect at the time of enactment of the
Martha Wright-Reed Act. Given that statutory context and regulatory
history, ``rates and charges'' need not necessarily be understood as
embodying two distinct concepts, but rather as ensuring that Congress
collectively encompassed the full range of amounts assessed on IPCS
customers over which it wanted the Commission to have authority.
Further, this interpretation of ``rates and charges'' reflects the
substantial overlap in the ordinary meaning of those terms.
76. Notably, section 276(b)(1)(A) also specifies that ``all rates
and charges'' be just and reasonable. By specifying that ``all,'' as
opposed to some smaller subset of ``rates and charges,'' are to be just
and reasonable, Congress obviously intended to grant us broad
regulatory oversight of ``rates and charges.'' We find that the
requirement that ``all'' rates and charges be just and reasonable
applies both to the rates providers impose and the rates consumers
ultimately pay. Thus, the totality of the rates and charges a provider
assesses on or collects from consumers must be just and reasonable. We
find support for this in the record and judicial precedent.
77. Thus, we disagree with ViaPath that we should interpret ``rates
and charges'' as excluding mandatory taxes, mandatory fees, and
authorized fees. ViaPath contends that our ``current IPCS rules
acknowledge'' that ``authorized fees and mandatory taxes and fees are
separate and apart from ancillary service charges.'' As we explain
above, the Martha Wright-Reed Act uses a broader term than ``ancillary
service charges,'' and we conclude it best effectuates Congress' choice
for our interpretation to sweep more broadly than the specific
categories of ancillary service charges permitted under our existing
rules. Nor are we persuaded by ViaPath's efforts to rely on rules and
precedent from the operator services context. We find the statutory and
regulatory considerations that we have described here to be much more
pertinent to understanding Congress's actions against that precise
legal backdrop than precedent and rules cited by ViaPath that were
adopted in a context that we find at most tangentially related to our
regulation of IPCS as relevant here.
78. To exclude any tax or fee that a provider might impose on IPCS
consumers from the term ``all rates and charges'' would risk opening
the door to assessments that could undercut the requirement of section
26(b)(1)(A) that amounts IPCS providers impose--and that IPCS customers
pay--be just and reasonable. Indeed, the Commission recognized as much
in the 2015 ICS Order (80 FR 79135, December 18, 2015) when it
repeatedly referred to mandatory taxes, mandatory fees, and authorized
fees as charges and banned all inmate calling services ``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.'' The Commission concluded that this ban would help ensure
just and reasonable rates for inmate calling services. The record at
that time demonstrated that providers had been marking up taxes and
regulatory fees before passing them on to consumers and that those
inflated fees had contributed to unreasonable inmate calling services
rates and charges. Given the history of inflated ICS charges, there can
be no assurance of a just and reasonable end result for IPCS if the
definition of rates and charges were limited in the manner ViaPath
proposes, which would allow providers to impose additional charges on
consumers or to mark up their authorized fees, mandatory taxes, or
mandatory fees before recovering them from consumers. Indeed, a recent
class action lawsuit alleges that an IPCS provider charges consumers
inflated fees under the guise of taxes. The rules we adopt today do not
alter the circumstances in which providers may pass authorized fees,
mandatory taxes,
[[Page 77257]]
and mandatory fees through to consumers. We therefore conclude that the
statute requires us to consider the totality of the rates and charges a
provider assesses or collects from consumers to ensure that all IPCS
rates and charges are just and reasonable.
e. Authority To Regulate IPCS Providers' Practices
79. In 2023, the Commission sought comment on whether section
276(b)(1)(A)'s mandate that we ``establish a compensation plan to
ensure that . . . all rates and charges'' for incarcerated people's
communications services be ``just and reasonable'' extends to ensuring
that the providers' practices, classifications, and regulations for or
in connection with those services are just and reasonable. The
Commission also asked for comment on the extent of its section
276(b)(1)(A) authority, if any, to address providers' practices,
classifications, and regulations, as well as any limitations on that
authority. Based on the record, we conclude that the Martha Wright-Reed
Act provides us with limited authority to regulate IPCS providers'
practices, classifications, and regulations (collectively,
``practices'') as a necessary part of our obligation to establish a
compensation plan to ensure fair IPCS compensation to providers and
just and reasonable rates and charges for IPCS consumers and providers
under section 276(b)(1)(A). In addition, section 201(b)'s grant of
authority over practices for or in connection with interstate and
international common carrier incarcerated people's communications
services enables us to act in certain circumstances, as well. We
address these two sources of authority below.
80. Section 276(b)(1)(A) Compensation Plan Requirement. We conclude
that the section 276 requirement that the Commission ``establish a
compensation plan'' to achieve the goals of fair compensation for
providers and just and reasonable rates and charges for consumers and
providers, requires more of the Commission than the simple act of
setting rates and charges. When implementing section 276(b)(1)(A)
historically, the Commission has not limited itself just to the
regulation of rate levels when seeking to effectuate the ``fairly
compensated'' requirement that preceded the Martha Wright-Reed Act. By
adding the ``just and reasonable'' mandate, while leaving the directive
to establish a ``compensation plan'' unaltered, we understand Congress
to intend that the Commission undertake an integrated set of actions
designed to work in concert to achieve the statute's central goals of
fair compensation and just and reasonable rates and charges.
81. Long prior to the enactment of the Martha Wright-Reed Act, the
Commission implemented section 276(b)(1)(A)'s mandate to establish a
compensation plan to ensure payphone providers are fairly compensated
by addressing the practical details associated with charging for, and
receiving payment for, payphone services. In its implementation of
section 276(b)(1)(A) over time, the Commission adopted various
requirements in particular payphone contexts apart from simply rate
setting. Such requirements have included, among other things: (1)
requiring the transmission of information to enable tracking of calls
from payphones; (2) allocating responsibility for paying compensation
for payphone calls; and (3) defining the permissible arrangements
between payphone providers and the carriers paying them compensation
for payphone calls. A unifying premise of these requirements is that
their inclusion in a compensation plan enabled the Commission to
advance the fair compensation mandate in section 276(b)(1)(A).
82. In light of the Martha Wright-Reed Act's addition of the ``just
and reasonable'' mandate in section 276(b)(1)(A), we find that the
statute's direction to establish a compensation plan likewise
necessarily carries with it the authority to prescribe regulations to
govern providers' practices to the extent that those practices
implicate the Commission's ability to ensure that rates and charges are
just and reasonable. In this way, the ``compensation plan''
requirement--which the Martha Wright-Reed Act left unaltered--gives the
Commission authority in the case of the ``just and reasonable'' mandate
that is comparable to what it historically has possessed when crafting
compensation plans to account for the ``fairly compensated'' mandate.
As the Public Interest Parties indicate, the responsibility to
establish a comprehensive plan ensuring just and reasonable rates and
charges ``necessarily encompasses a corresponding responsibility to
ensure that IPCS providers do not evade [the Commission's rate and fee]
caps through their other practices, classifications, and regulations.''
Given the mandate of the Martha Wright-Reed Act and its revisions to
section 276(b)(1)(A), we find that the Commission's authority over
rates and charges necessarily extends to practices that affect our
ability to ensure that rates and charges are just and reasonable, as
well as that providers are fairly compensated.
83. If section 276(b)(1)(A) instead were read only to allow us to
regulate IPCS rate levels, providers' practices could thwart Congress'
direction to ensure just and reasonable rates and charges for consumers
and fair compensation for IPCS providers. The risk that providers'
practices could subvert the goals of the statute is not speculative.
For example, in light of evidence that inmate calling services
providers were ``engaging in unjust and unreasonable practices and
imposing unfair rates by instituting minimum or maximum amounts that
may be deposited for prepaid calling accounts,'' the Commission
prohibited providers from instituting prepaid account minimums and
required that any provider that limits deposits set the maximum
purchase amount at no less than $50 per transaction. Securus asks that
we ``set minimum funding amounts to allow [IPCS providers] to better
manage costs. We decline on the record before us to adopt its proposal,
but will continue to monitor its concerns. And, more recently, the
Commission concluded that all funds deposited into a debit-calling or
prepaid calling account and not spent on products or services are
generally the property of the account holder and that any action
inconsistent with this finding is an unjust and unreasonable practice.
The Commission also has found affirmative requirements, such as
consumer disclosure rules, necessary to ensure that rates and charges
as implemented are just and reasonable as applied to consumers. In sum,
we find that section 276, as amended by the Martha Wright-Reed Act,
gives us authority over providers' practices to the extent they may
affect the Commission's ability to ensure just and reasonable IPCS
rates and charges and fair compensation for all incarcerated people's
communications services. Those services include the full range of
services now subject to Commission authority as a result of the Martha
Wright-Reed Act, including intrastate IPCS and the advanced
communications services now included in the statutory definition of
``payphone service.''
84. We agree with commenters insofar as they note that Congress did
not incorporate the entirety of the section 201(b) legal framework to
ensure just and reasonable practices, classification, and regulations
into section 276(b)(1)(A). At the same time, we reject claims that we
lack any authority at all over IPCS provider practices under section
276(b)(1)(A). In particular, we reject arguments that our
interpretation
[[Page 77258]]
fails to properly credit Congress' decision to use different language
in section 201(b) and section 276(b)(1)(A). To the contrary, we honor
Congress's choice because we do not interpret our section 276(b)(1)(A)
authority over IPCS practices to be as extensive as the Commission's
authority over common carrier practices under section 201(b). At the
same time, we also must honor Congress's choice to leave intact the
requirement that the Commission ``establish a compensation plan'' in
the regulation mandated by section 276(b)(1)(A). As indicated by our
analysis above, the compensation plan provision goes beyond the
establishment of individual rates and necessarily entails a harmonized
set of requirements that act as a coordinated whole to achieve the new
statutory mandate of just and reasonable rates and charges.
85. Section 201(b) Authority Over Interstate and International
Practices. Apart from the statutory directives in section 276 taken as
a whole that support our finding of jurisdiction over certain IPCS
practices to the extent they bear on just and reasonable rates and
charges, we conclude that section 201(b) provides an independent
statutory basis for regulating providers' practices with regard to
IPCS. This authority explicitly extends to IPCS-related practices for
or in connection to the interstate and international telecommunications
services that are within our section 201(b) authority, as well as to
practices for or in connection with other IPCS services within our
section 276 authority to the extent those practices cannot practicably
be separated from practices applicable to services within our section
201(b) authority.
86. Section 201(b) grants the Commission jurisdiction over
``practices, classifications, and regulations'' of carriers ``for or in
connection with'' interstate and international communications services,
including those services used to provide IPCS. That authority has been
interpreted by the Commission to extend ``to the intrastate portion of
jurisdictionally mixed services `where it is impossible or impractical
to separate the service's intrastate from interstate components' and
state regulation of the intrastate component would interfere with valid
federal rules applicable to the interstate component.'' In 2023, the
Commission sought comment on whether it could use this ``impossibility
exception'' to regulate practices for or in connection with
incarcerated people's intrastate communications services and to audio
and video services that were unregulated prior to the enactment of the
Martha Wright-Reed Act. The record is mixed on this issue.
87. The Commission has previously applied section 201(b) and the
impossibility exception to regulate providers' practices that affect
both interstate and intrastate inmate calling services. In the 2020 ICS
Remand Order, the Commission relied on section 201(b) in adopting rules
applicable to both interstate and intrastate ancillary service charges,
finding that ``ancillary service charges generally cannot be
practically segregated between the interstate and intrastate
jurisdiction except in the limited number of cases where, at the time a
charge is imposed and the consumer accepts the charge, the call to
which the service is ancillary is a clearly intrastate-only call.'' In
the 2022 ICS Order, the Commission exercised its 201(b) authority to
prohibit provider seizure of outstanding balances in inactive accounts
that could be used to pay for interstate, intrastate, and nonregulated
services, and to set limitations on ancillary service fees in order to
curtail the incentives for providers to engage in revenue-sharing
schemes that drive up prices charged to inmate calling services
consumers.
88. Consistent with this precedent, we conclude that our section
201(b) authority over providers' practices extends to the full range of
``payphone service[s],'' as defined in section 276(d), to the extent
the practices for or in connection with the payphone services outside
of our separate section 201(b) authority cannot practicably be
separated from the practices for or in connection with the payphone
services within that authority. Consistent with the Commission's
finding in the 2020 ICS Remand Order, we find that this inseverability
generally extends to providers' rate and ancillary services charge
practices in connection with interstate and intrastate IPCS to the
extent that IPCS-related practices cannot practicably be separated into
interstate, intrastate or non-section 201(b) regulated services
components.
4. Amendment to Section 2(b) of the Communications Act
89. In the next step of our analysis, we address the Martha Wright-
Reed Act's confirmation of our jurisdiction to regulate the rates of
all forms of intrastate IPCS to ensure they are not unreasonably high.
Section 276(b)(1)(A) always has been clear that the Commission has
authority to establish compensation plans for ``intrastate and
interstate'' payphone calls, and as explained above, the Martha Wright-
Reed Act amended that provision to clearly establish the Commission's
authority to ensure just and reasonable rates for both intrastate and
interstate communications, as newly encompassed by section 276(d).
Above and beyond that, the Martha Wright-Reed Act added section 276 to
the express exceptions to the general preservation of state authority
in section 2(b) of the Act. Consistent with the Commission's proposal
in 2023, we conclude that the collective effect of the amendments to
section 276 as to intrastate communications, when coupled with the
Martha Wright-Reed Act's amendment to section 2(b) of the
Communications Act, is to remove any doubt that our authority over IPCS
includes both interstate and intrastate jurisdiction.
5. Inclusion of Advanced Communications Services Within the Definition
of Payphone Service
90. In 2023, the Commission recognized that the Martha Wright-Reed
Act had expanded its section 276 authority over ``payphone service'' in
correctional institutions to include ``advanced communications
services,'' as defined in sections 3(1)(A), 3(1)(B), 3(1)(D), and new
(3)(1)(E) of the Communications Act. The Commission asked how this
expansion of statutory authority applies to each type of enumerated
advanced communications service for incarcerated people. We conclude
that the Martha Wright-Reed Act not only retains the Commission's
preexisting authority over audio communications in the carceral
setting, but extends that authority to include four categories of
advanced communications services--``interconnected VoIP service,''
``non-interconnected VoIP service,'' ``interoperable video conferencing
service,'' and ``any audio or video communications service used by
inmates for the purpose of communicating with individuals outside the
correctional institution where the inmate is held, regardless of
technology used''--within the definition of ``payphone service. We also
conclude, as proposed in 2023, that the language in the new statute
confers on the Commission broad jurisdiction to develop a compensation
plan for the categories of audio and video communications included in
the definition of ``payphone service'' in order to ensure that IPCS
providers are fairly compensated and all IPCS rates and charges are
just and reasonable. We likewise find that the expansion of the types
of services and devices over which we have authority correspondingly
includes entities that may not have previously been subject to
[[Page 77259]]
our rules and that now fall under our regulatory oversight. Below, we
discuss, in turn, the four types of advanced communications services
now included in the definition of ``payphone service.''
a. Interconnected and Non-Interconnected VoIP Services (47 U.S.C.
153(1)(A) to (B))
91. The Martha Wright-Reed Act expressly confirms the Commission's
authority over interconnected and non-interconnected VoIP services,
adding interconnected and non-interconnected VoIP services, as
referenced in sections 3(1)(A) and 3(1)(B) of the Communications Act,
to section 276(d)'s definition of ``payphone service.'' Based on
universal support in the record, we find that this authority includes
audio services using interconnected or non-interconnected VoIP, and
extends to each entity that provides IPCS via interconnected or non-
interconnected VoIP, including entities that provide those services via
non-traditional equipment such as tablets or kiosks. As the Commission
has observed, ``[s]ection 276 makes no mention of the technology used
to provide payphone service. . . . Thus, the use of VoIP or any other
technology for any or all of an ICS provider's service does not affect
our authority under section 276.'' Our authority over inmate calling
services is therefore unaffected by the application of VoIP technology;
rather, the expansion of our inmate calling services authority to
include VoIP technology reflects the Commission's long-held
understanding of inmate calling services as inherently technology
neutral. If a particular service meets the relevant definition in the
Commission's rules, it is a form of inmate calling services and subject
to the Commission's inmate calling services rules. To the extent an
entity provides any of these services in ``correctional institutions,''
it will be subject to the rules we adopt in the Report and Order.
b. Interoperable Video Conferencing Service (47 U.S.C. 153(1)(D))
92. The Martha Wright-Reed Act extends our section 276 authority to
``interoperable video conferencing service'' by adding a reference to
sub-paragraph 3(1)(D) of the Communications Act to the definition of
``payphone service'' in section 276(d). The Communications Act defines
``interoperable video conferencing service'' as ``a service that
provides real-time video communications, including audio, to enable
users to share information of the user's choosing.'' This definition
encompasses video conferencing applications commonly in use outside the
incarceration context, including applications that rely on transmission
over the internet; and the rules we adopt in the Report and Order
extend to such applications and similar applications should they be
used in the incarceration context.
93. One commenter suggests that ``[i]n the absence of a Commission
adopted definition of `interoperable,' it is difficult to identify
which video services made available to incarcerated persons qualify for
potential rate regulation.'' That argument is outdated. In the Access
to Video Conferencing Order, the Commission revisited its previous
views regarding the interpretation of the statutory term
``interoperable video conferencing service'' and concluded that there
was ``no persuasive reason to modify or limit the scope of the
statutory definition of this term.'' There, the Commission explained
that the statutory definition of ``interoperable video conferencing
service'' encompasses a variety of video communication services that
are commonly used today, or that may be used in the future, to enable
two or more users to share information with one another. In 2011, the
Commission interpreted a qualifying phrase in the definition--``to
enable users to share information of the user's choosing''--to mean
that services ``provid[ing] real-time video communications, including
audio, between two or more users'' would be included, ``even if they
can also be used for video broadcasting purposes (only from one
user).'' It rejected arguments that the term ``interoperable'' had
meaning independent of the statutory definition or in some way limited
the scope of the statutory definition of the service. It concluded that
the term interoperable ``may simply reflect the fact that any video
service satisfying [the statutory] definition . . . necessarily
involves some level of interoperability among the particular devices
and software employed by users of that service.'' We find arguments to
the contrary to have been fully addressed by the Commission's actions
in the Access to Video Conferencing proceeding.
94. As the Commission has explained, the definition of
interoperable video conferencing services does not reflect an intention
to exclude any service based on whether it is used primarily for point-
to-point or multi-point conversations, or based on the type of device
used to access the service. Likewise, the definition does not depend on
the options offered to users for connecting to a video conference
(e.g., through a dial-up telephone connection or by broadband, through
a downloadable app or a web browser), what operating systems or
browsers users' devices may employ, whether the service works with more
than one operating system, or whether the service may be classified as
offered to the public or to a private group of users (such as a
telehealth platform). The Commission concluded that the important
characteristic is that two or more people can use the service to share
information with one another in real-time, via video.
95. Our section 276 authority over interoperable video conferencing
services in the IPCS context therefore includes all options offered to
users for connecting to a video conference, regardless of what
operating systems or browsers their devices may use, whether the
service works with more than one operating system, or whether the
service may be classified as offered to the public or to a private
group of users. Where two or more people can use a video conferencing
service to share information with one another in real-time, that
service is subject to our section 276 authority in the incarceration
context. This authority also extends to educational, vocational, or
other video programming in which incarcerated people participate in
real-time in the incarceration context. To be clear, entertainment and
other forms of content that are not real-time communications services
are not included in our authority over interoperable video
conferencing. They may, however, be subject to our authority under
section 3(1)(E), which is not limited to real-time communications
services.
96. We disagree that this interpretation somehow constitutes an
assertion of authority over internet content. Notwithstanding certain
parties' comments suggesting otherwise, we have not proposed to
regulate internet content, nor do we do so in the Report and Order. The
rules we adopt today are content-neutral, and our authority over
interoperable video conferencing services, like our authority over
traditional payphone services, is independent of the information
communicated though those services. Neither the Communications Act nor
the Martha Wright-Reed Act includes any language limiting the content
or information that may be offered through interoperable video
conferencing, and we do not impose any such limitations in our rules.
97. Interoperable Video Conferencing Service for People with
Disabilities. Under section 716 of the Communications Act, as amended
by the Twenty-First Century
[[Page 77260]]
Communications and Video Accessibility Act of 2010 (CVAA),
interoperable video conferencing service and equipment used for
interoperable video conferencing service must be accessible to and
usable by people with disabilities, unless those requirements are not
achievable. Consistent with the Commission's analysis in the Access to
Video Conferencing Order, we find no persuasive reason to modify or
limit the scope of these accessibility requirements as they apply in
the IPCS context. Instead, we conclude that the accessibility
requirements in section 716 of the Communications Act and part 14 of
our rules apply, without limitation, to all interoperable video
conferencing services provided in correctional institutions and to all
equipment that people with disabilities use to access those services.
As explained in more detail below, in the 2011 ACS Order the Commission
assumed that the word ``interoperable'' needed to be defined
independently of the term ``interoperable video conferencing service.''
In the Access to Video Conferencing Order, the Commission revisited
this issue and rejected arguments that the term ``interoperable'' had
meaning independent of the statutory definition or in some way limited
the scope of the statutory definition of the service. The Commission
explained that the statutory definition of ``interoperable video
conferencing service'' encompasses a variety of video communication
services that are commonly used today, or that may be used in the
future, to enable two or more users to share information with one
another.
c. Any Audio or Video Communications Service (47 U.S.C. 153(1)(E))
98. The Martha Wright-Reed Act added new subsection (E) to section
3(1) of the Communications Act to expand the definition of ``advanced
communications services'' to include ``any audio or video
communications service used by inmates for the purpose of communicating
with individuals outside the correctional institution where the inmate
is held, regardless of technology used.'' It also included these same
services in the definition of payphone service in section 276(d),
expanding the scope of the Commission's authority over incarcerated
people's communications services. As proposed in 2023, we interpret the
phrase ``any audio or video communications service'' in subsection
3(1)(E) as encompassing every method that incarcerated people may
presently, or in the future, use to communicate, by wire or radio, by
voice, sign language,'' or other audio or video media, without
qualification. The record strongly supports this interpretation. In
doing so, we fulfill Congress's intent that a broad range of
communications services and technologies be available to incarcerated
persons and their loved ones at just and reasonable rates. Congress
included all aspects of the section 3(1) definition of advanced
communications services in the section 276(d) definition of payphone
services with the exception of electronic messaging services defined in
section 3(1)(C). Certain commenters address the exclusion of electronic
messaging services from the Commission's regulatory jurisdiction in the
record, particularly to the extent audio or video communications may be
sent via electronic messaging service. On the limited record before us,
we decline at this time to determine what is or is not an electronic
messaging service for purposes of excluding such services from the
scope of the Act's implementation mandate. While we decline to make a
determination, we reiterate that under section 716 of the
Communications Act, electronic messaging service is required to be
accessible to and usable by people with disabilities, including those
in carceral facilities. Separately, some commenters argue that the
Commission should assert authority over voicemail. Other commenters
argue that the Commission may not regulate voicemail because the
Commission treats voicemail as an information service. The record in
this regard is underdeveloped. Thus, at this time, we decline to
address the Commission's regulatory jurisdiction over voicemail in the
IPCS context.
99. Our interpretation encompasses technology used by people with
disabilities. We find that, consistent with our mandate to provide TRS
to incarcerated persons with disabilities, ``any audio or video
communications services,'' as used in section 3(1)(E) includes all
services currently provided in correctional institutions that an
incarcerated person who is deaf, hard of hearing, deafblind, or has
speech or other disabilities may use to communicate with individuals
outside the correctional institution where the incarcerated person is
held, and incorporates all future services and technologies that will
assist incarcerated people with disabilities to communicate with the
non-incarcerated--or incarcerated people to communicate with non-
incarcerated people with disabilities--so long as it involves audio or
video communications services.
100. We interpret ``audio or video communications services'' to
encompass not only services that are audio and/or video at both ends of
the communication, but also services that are audio and/or video at
only one end of the communication or otherwise involve audio and/or
video for only a segment or portion of the communication. The focus of
section 3(1)(E) is not on whether a particular party to a communication
is communicating in audio and/or video form, but rather on whether the
service is an ``audio or video communications service.'' So long as the
communications service involves audio and/or video in at least some
respect, we conclude the ``audio or video communications service''
criterion is satisfied. The breadth of this interpretation, which may
be of particular relevance where communications involving people with
disabilities are concerned, is further supported by the fact that
Congress chose to include that service within the category of
``advanced communications services'' that are subject to various
disability access requirements, along with the recognition in section
276(b)(1)(A) that the communications services covered by that provision
would include TRS.
101. Unlike some other services included within the section 3(1)
definition of advanced communications services, the services included
in section 3(1)(E) are not expressly restricted to real-time or near
real-time communications services. We interpret Congress' omission of
such limiting language for the comprehensive set of IPCS services
covered by section 3(1)(E) as bringing non-real-time communications
services generally within the ambit of our IPCS jurisdiction, to the
extent an incarcerated person may use them to communicate with the non-
incarcerated.
102. While Congress included no limitations to the range of audio
and video communications services encompassed in section 3(1)(E), it
addressed the parties involved by limiting the definition to audio or
video services used for communications between two classes of users,
i.e., ``inmates'' and ``individuals outside the correctional
institution where the inmate is held.'' While there is no dispute in
the record regarding the meaning of the statute's reference to inmates,
parties do dispute the meaning of the latter phrase.
103. Consistent with one of the alternatives raised in the
Commission's discussion in 2023, we interpret the phrase ``individuals
outside the correctional institution where the inmate is held'' to
mean, not the precise physical location of the individual with whom the
incarcerated person is
[[Page 77261]]
communicating, but instead the status of that individual as someone who
is ``neither confined in nor employed by the institution, even if [they
are] temporarily located on the premises of the institution for
purposes of communicating with incarcerated individuals through some
form of audio or video communications service.'' The record supports
this interpretation. As the Public Interest Parties recognize,
``although the term `outside the correctional institution' can mean
`not physically within the structure,' it can equally mean `not held
within the institution.' '' The relevant statutory language appears
very similar to part of the Commission's longstanding definition of
``inmate calling service,'' which likewise refers to ``individuals
outside the Correctional Facility where the Inmate is being held.''
Although the Commission did not definitively interpret the meaning of
the ``outside'' language in its IPCS rules prior to the enactment of
the Martha Wright-Reed Act, in the inmate calling context it regularly
used the term ``outside'' of a correctional facility when referring to
the status--rather than the physical location--of the party with whom
the inmate was communicating. We recognize that the FCC Form
established for purposes of a proposed collection of data on video
visitation services described ``Off-Site Video Visitation'' as ``a call
that allows an Inmate to communicate via video with another party (or
parties) located outside the Facility where the Inmate is being
detained.'' That limited example does not overcome our understanding of
the broader usage of ``outside'' in Commission decisions in this
context, particularly where it referred to communications to another
party ``located'' outside the relevant correctional facility--a
qualifier signaling physical location that is not present in either the
Commission's definition of ICS or the text of section 3(1)(E) of the
Communications Act. Because our interpretation is both consistent with
the ordinary meaning of ``outside'' and accords with the trend we
discern in the regulatory backdrop relevant here, we find that the best
reading of ``outside the correctional institution'' in section 3(1)(E)
refers to a party's status rather than its physical location.
Consistent with the arguments of a number of commenters, we thus
conclude that communications with ``individuals outside the
correctional institution where the inmate is held'' is best understood
to mean communications with individuals who are neither incarcerated
in, nor employed by, the incarcerated person's correctional
institution, i.e., ``outside'' of the institution's framework,
regardless of the physical location where they can use the
communication service. By the same token, our analysis leads us to
reject claims that we must interpret ``outside the correctional
institution'' to refer to the physical location of the party with whom
the inmate is communicating. These commenters do not persuade us that
anything in the statutory text itself counsels against our
interpretation, and insofar as they otherwise have a narrow view of
congressional intent underlying the language it adopted, we are not
persuaded by that either, as discussed more below.
104. Our interpretation also is supported by our view of
congressional intent and associated policy considerations. We agree
with Worth Rises that ``[t]here is no evidence that Congress intended
for a miniscule regulatory cut-out that leaves IPCS ratepayers
unprotected from rate regulation when they are physically located
within a building that is property of the correctional authority.
Whether the outside called party is on their mobile phone in the lobby
of a correctional facility or sitting at a video kiosk booth in the on-
site video calling room, they should be protected by the Commission's
ratemaking authority.'' This reinforces our conclusion that the best
reading of the statutory language is that it refers to the non-
incarcerated status of the individual with whom the incarcerated person
is communicating, rather than the physical location of individuals with
whom an inmate can communicate using a given service.
105. The ordinary tools of statutory interpretation strongly
support the view that the qualifier, ``individuals outside the
correctional institution where the inmate is held,'' in section 3(1)(E)
should be limited to services that only meet the definition of advanced
communications services under that specific provision. Section 3(1)
consistently has been understood as a disjunctive list of services such
that meeting any one of those categories is sufficient to render a
service an advanced communications service. While several commenters
agree with this interpretation, one commenter contends that ``the
limiting phrase of new subsection 3(1)(E)'' applies to all of the
services included in section 3(1) ``in the context of IPCS.'' While the
scope of section 3(1)(E) outside of the phrase in question is
sufficiently expansive to encompass virtually all communications
services, the National Sheriffs' Association points to nothing in the
Martha Wright-Reed Act or the amended text of section 3(1) that would
suggest that Congress intended to override the preexisting operative
structure of that provision or subsume the definitions of
interconnected VoIP service, non-interconnected VoIP service, and
interoperable video conferencing service within section 3(1)(E).
Indeed, if the relevant qualifier in section 3(1)(E) either were
interpreted to apply to sections 3(1)(A), (B), and (D) or if section
3(1)(E) were read as subsuming sections 3(1)(A), (B), and (D), it is
not clear what remaining practical significances sections 3(1)(A), (B),
and (D) would have given the existence of section 3(1)(E). Under
ordinary canons of statutory interpretation, such an outcome cuts
against that reading. Had Congress intended the ``outside the
correctional institution'' language in section 3(1)(E) to apply to
other advanced communications services, it could have included that
language in section 3(1) as a whole, appended it to other subsections
of section 3(1) as it deemed appropriate, or incorporated that language
into section 276(d). It did none of these things.
106. Nor can the National Sheriffs' Association's interpretation be
reconciled with the broader statutory context. The definition of
``advanced communications service'' in section 3(1) does not owe its
existence solely to IPCS regulation under section 276 of the
Communications Act. Indeed, section 3(1) includes ``electronic
messaging service,'' 47 U.S.C. 153(1)(C), which was not included as a
specified category of service covered by amended section 276(d) of the
Communications Act. Rather, a range of statutory provisions rely on
that definition. Interpreting section 3(1) to mean that each of the
individual audio and video services listed in sections 3(1)(A), (B),
and (D) are subject to the limitation in (E) would result in a
substantial narrowing of preexisting statutory requirements dealing
with matters such as disability access.
107. Likewise, the National Sheriffs' Association's interpretation
cannot readily be squared with section 276(d) as amended by the Martha
Wright-Reed Act. In pertinent part, that provision as originally
enacted defined ``payphone service'' subject to Commission authority
under section 276 as encompassing ``the provision of inmate telephone
service in correctional institutions.'' When Congress amended that
definition in the Martha Wright-Reed Act to include certain advanced
communications services, it made those services subject to the ``in
correctional institutions'' limitation, as well. Yet if
[[Page 77262]]
the relevant terms in section 3(1) all already were subject to the
limitation in 3(1)(E), it is not clear how much work would be left for
the section 276(d) qualifier ``in correctional institutions'' to
perform. At a minimum, Congress's deliberate choice to subject the
advanced communications services covered by section 276(d) to the ``in
correctional institutions'' qualifier provides good reason to pause
before inferring arguably similar limitations in section 3(1) in a
manner that appears contrary to that statutory text.
108. Consequently, we adopt the proposal in 2023 that the language
requiring that communications involve ``individuals outside the
correctional institution where the inmate is held'' applies only with
regard to subparagraph 3(1)(E). We therefore agree with other
commenters that the phrase ``outside the correctional institution where
the inmate is held'' does not apply outside the context of section
3(1)(E).
6. Onsite Video Visitation
109. In 2023, the Commission sought comment on whether its expanded
authority over IPCS extends to onsite video visitation services. The
widespread use of onsite video visitation is a relatively recent
phenomenon, initially driven by significant health risks posed by the
COVID-19 pandemic. During the pandemic, ``nearly every jail and
prison'' shifted from in-person visitation to onsite video services to
prevent exposure to and the spread of coronavirus. In many instances,
correctional institutions continue to restrict onsite visits to video
communications in lieu of in-person visits.
110. Consistent with the description in 2023, we define onsite
video visitation services as services that enable video communications
between a person incarcerated in a correctional institution and a non-
incarcerated person visiting that institution. We find that our
authority over incarcerated peoples' advanced communications services
extends to onsite video visitation on two independent grounds: (a)
onsite video visitation's status as an ``interoperable video
conferencing service'' within the meaning of section 3(1)(D); and (b)
its status as an ``audio or video communications service used by
inmates for the purpose of communicating with individuals outside the
correctional institution where the inmate is held, regardless of
technology used'' within the meaning of section 3(1)(E).
111. Onsite Video Visitation as an Interoperable Video Conferencing
Service under Section Sec. 3(1)(D). We conclude that onsite video
visitation includes each of the elements of the definition of
interoperable video conferencing service in section 3(27) of the
Communications Act and that it is therefore a ``payphone service''
within the meaning of section 276(d) when provided in correctional
institutions. Section 3(27) defines ``interoperable video conferencing
service'' as ``a service that provides real-time video communications,
including audio, to enable users to share information of the user's
choosing.'' Onsite video visitation meets those criteria: it is a real-
time service that involves video communications, including audio, and
that enables the incarcerated and the non-incarcerated to share
information of their choosing. Notwithstanding the National Sheriffs'
Association's advocacy to the contrary, we find above that the
limitation to ``individuals outside the correctional institution''
included in section 3(1)(E) is specific to the grant of authority in
that section and is not generally applicable to section 3(1) as a
whole. Thus, to the extent it were relevant in a given scenario, we
observe that the definition of interoperable video conferencing service
does not include any limitation or requirement that the communications
be with individuals outside the correctional institution. Instead, we
find the statute best interpreted to mean that any interoperable video
conferencing service, a service that includes onsite video visitation,
is a payphone service, and therefore subject to our authority under
section 276(b)(1)(A), to the extent it is provided in correctional
institutions. Onsite video visitation uses the same or functionally
similar technology and equipment as is used generally for video IPCS.
112. We also find that Congress intended our authority under
section 276 to extend to the full range of interoperable video
conferencing services, including onsite video visitation services,
given the inclusion of section 3(1)(D) in section 276(d). By this
inclusion, Congress eliminated doubt that video visitation was subject
to the Commission's authority in response to the D.C. Circuit's GTL v.
FCC decision casting doubt on whether video visitation reporting
requirements were within the Commission's authority. As amended by the
Martha Wright-Reed Act, the definition of ``payphone service'' in
section 276(d) of the Communications Act now includes all interoperable
video conferencing services, without qualification, to the extent they
are provided in correctional institutions. Given this statutory
language, we conclude that our authority under section 276(b)(1)(A)
extends to all onsite video visitation services.
113. Our conclusion does not change regardless of whether onsite
video visitation is offered free of charge. Though one commenter argues
that we should limit our oversight because ``the industry has no
history of charging for such services, we find that because such
services meet the definition of ``payphone service'' in section 276(d),
they fall within the Commission's jurisdiction. We affirm that onsite
video visitation services are interoperable video conferencing
services, and as such, are subject to our section 276 jurisdiction and
the rules we adopt herein.
114. Onsite Video Visitation as a Video Communications Service
under Section 3(1)(E). In 2023, the Commission sought comment on
whether onsite video visitation services constitute ``video
communications service[s]'' within the meaning of section 3(1)(E). As
an initial matter, we find that, based on the record in response to
2023, onsite video visitation is a video communications service under
section 3(1)(E), giving us an alternative basis for exercising section
276 authority over those services independent of section 3(1)(D). We
are persuaded by commenters' explanations that ``[o]n-site video
visitation service used by an incarcerated person for the purpose of
communicating with those neither confined nor employed by the
correctional facility fits plainly within the statutory language in
section 3(1)(E), as the service is used by incarcerated persons to
communicate with . . . persons not held within the institution.''
115. Nor do we find any ``reasonable justification to interpret the
Act to allow the Commission to regulate [remote video services] but
[not onsite video services].'' We are not persuaded by suggestions that
Congress intended to include a limitation based on the physical
location of the non-incarcerated person involved in the communication
such that we have no authority over onsite video visitation under
section 3(1)(E). As discussed above, the language of the statute is
best read as focused on the status of the individuals involved in an
audio or video communication--not on the physical location of the
called party at the time of the communication. Indeed, even assuming
arguendo that the qualifier in section 3(1)(E) were interpreted to
apply to the physical
[[Page 77263]]
location rather than status of the individuals with whom an inmate is
communicating, the relevant statutory question would be where the
service can be used, and not where a given communication occurs. If an
audio or video communications service can be used by inmates for the
purpose of communicating with individuals outside the correctional
institution where the inmate is held, the details associated with a
given individual communication using that service would be irrelevant.
116. Policy considerations likewise support our interpretation. We
find it compelling that ``[b]oth remote and on-premises video calls are
typically operated by the same IPCS providers, involve the same
technological systems, and have the same functions and equipment for
the incarcerated user, regardless of the location of the person with
whom they are communicating.'' While some providers offer such service
for free today, it does not follow that consumers never would or could
need the protection of the ``just and reasonable'' standard provided by
the Martha Wright-Reed Act for these video communications. Absent
Commission oversight of onsite video visitation, both facilities and
IPCS providers could, for example, have ``a perverse incentive . . . to
reduce the availability of other forms of IPCS as well as in-person
visitation.'' We are persuaded that, because these services share
providers, equipment, and other technology systems, the only difference
between onsite and remote video communications is the location of the
non-incarcerated party with whom the incarcerated individual is
communicating. We therefore agree that ``[t]here is no reasonable
justification to interpret the Act to allow the Commission to regulate
one but not the other.''
D. Rate Caps
117. After carefully considering our expanded statutory authority,
the data received in response to the 2023 Mandatory Data Collection,
and the record developed from the 2023 and the precursor requests for
comment, we take a series of actions to establish just and reasonable
rates for IPCS while also ensuring fair compensation for providers.
Specifically, we adopt the Commission's proposals to set separate rate
caps for audio IPCS and video IPCS, and to treat interstate and
intrastate communications uniformly, as supported by both the record
and provider responses to the 2023 Mandatory Data Collection. We also
revise our rate cap tiers, and adopt separate per-minute rate caps
within each of those tiers for audio IPCS and video IPCS. Collectively,
these steps will achieve the dual directives of the statute to ensure
just and reasonable rates for consumers and providers and fair
compensation for providers.
118. These actions reflect our application of the ``used and
useful'' framework in evaluating the costs of providing IPCS,
consistent with the Commission's proposal in 2023. Under this
framework, the determination of just and reasonable rates focuses on
affording regulated entities an opportunity to recover their
``prudently incurred investments and expenses that are `used and
useful' in the provision'' of the regulated service. In applying this
framework, we use provider-submitted data and other information from
the record to estimate the costs incurred in providing IPCS, including
any safety and security measures used and useful in the provision of
these services. Our rate cap calculations incorporate the costs
providers reported as their costs of providing ancillary services,
consistent with our decision to eliminate separate charges for
ancillary services. Finally, our rate caps reflect our best estimate of
the costs incurred in implementing the TRS reforms adopted in the 2022
ICS Order and our best estimate of the costs facilities incur in the
provision of IPCS.
119. Accordingly, we adopt the following permanent rate caps for
audio IPCS, and interim rate caps for video IPCS:
For all prisons, $0.06 per minute for audio
communications, and $0.16 per minute for video communications;
For jails with an average daily population (ADP) greater
than or equal to 1,000 incarcerated people, $0.06 per minute for audio
communications and $0.11 per minute for video communications;
For jails with an ADP between and including 350 and 999
incarcerated people, $0.07 per minute for audio communications and
$0.12 per minute for video communications; and
For jails with an ADP between and including 100 and 349
incarcerated people, $0.09 per minute for audio communications and
$0.14 per minute for video communications.
For jails with an ADP with 99 or fewer incarcerated
people, $0.12 per minute for audio communications and $0.25 per minute
for video communications.
We establish these rate caps using a zone of reasonableness
approach. This approach allows us to respond to the limitations of the
cost-of-service data before us in a manner that appropriately balances
fair compensation for IPCS providers with just and reasonable rates and
charges for consumers and providers. Through this approach, we afford
providers an opportunity to recover the used and useful costs incurred
to provide IPCS and also keep IPCS rates affordable for incarcerated
people and their loved ones.
1. Rate Cap Structure
120. Adopting Rate Caps as the Regulatory Mechanism. We conclude
that rate caps are the appropriate mechanism for ensuring that all
rates for IPCS are just and reasonable. Consistent with the
Commission's prior ratemaking with regard to inmate calling services,
we find that rate caps provide the best overall rate structure for IPCS
because of the flexibility that rate caps afford providers while still
ensuring that the incarcerated individual and their loved ones are
protected from unreasonably high rates and charges. We also find that
rate caps are preferable to prescriptive rate setting for IPCS because
a rate cap approach does not preclude or prevent providers and parties
representing facilities from negotiating and entering into agreements
to provide IPCS at lower or no cost to incarcerated people and their
friends and family, as is shown in the record. The record strongly
supports the use of rate caps rather than prescriptive rate setting.
Rate caps also allow providers to be responsive to the differing needs
of each facility, and ``protect ratepayers as a group from high prices
and provide carriers with an incentive to increase productivity.'' As
the IPCS industry continues to develop and offer advanced
communications services including video communications, we find that
flexibility in pricing and in service offerings will be important to
ensure that providers and incarcerated people and their friends,
families, and loved ones benefit from the rate caps we adopt today.
121. Separate Rate Caps for Audio IPCS and Video IPCS. With the
Martha Wright-Reed Act's expansion of the Commission's authority to
regulate advanced communications services, and in keeping with the
Commission's obligation to ensure just and reasonable rates, we adopt
separate rate caps for audio IPCS and video IPCS. In adopting these
rate caps, we do not intend any modification of the requirements of
Sec. 64.6040(d) of our rules, which addresses TRS and certain related
services (TTY-to-TTY communications and point-to-point video
communication in American Sign Language). For IP CTS, CTS, and point-
to-point video communication in ASL, an IPCS provider may assess
charges
[[Page 77264]]
that do not exceed its charges for an equivalent voice telephone call.
Thus, charges for these services will be effectively capped at the
applicable rate cap for audio communications. For TTY-to-TTY
communication, an IPCS provider may assess a charge that does not
exceed 25 percent of the applicable per-minute rate for a voice call.
Thus, such charges are effectively capped at 25 percent of the
applicable per-minute rate for a voice call. We find the record,
including the 2023 Mandatory Data Collection data, overwhelmingly
support this approach. Record comments support separate rate caps
because of the materially different cost structures of offering audio
and video IPCS, and we agree. The data show that video communications
typically require more expensive equipment, and even when comparing
audio and video communications made using the same equipment, the data
suggest that video communications are more expensive to provide. This
difference in costs justifies the need to adopt separate rate caps for
these services to satisfy our obligations for both providers and
consumers of IPCS. Accordingly, we separately analyze audio and video
IPCS costs and develop separate rate caps at each tier for both
services.
122. As proposed in 2021 and 2023, we adopt permanent rate caps for
audio IPCS. The Commission has previously been constrained to adopt
only interim rates for these services given persistent limitations of
the industry data available to it. We now find that the audio cost data
received in response to our most recent data collection provide a
sufficient basis for setting permanent audio IPCS rate caps.
123. By contrast, video IPCS involves relatively new services in an
emerging market for the correctional industry, and one which the
Commission has not previously had the authority to regulate. The
reported costs show a marked differential between audio and video costs
per minute, which may be attributable, in part, to the respective
difference in maturity of the two types of service offerings. As a
result of the relative nascency of the video IPCS market generally, the
wide variations among facilities in the per-minute costs of providing
IPCS, and the likely need to revise any video rate caps in the future
to account for growth and evolution of the video IPCS marketplace, we
find that the reported costs and demand for video IPCS are best suited
for interim rate caps. We find that the video data present similarities
to the data that the Commission reviewed in 2021, when the Commission
was faced with data that it determined was unreliable, resulting in the
adoption of interim rate caps. NCIC argues that the Commission should
``delay the adoption of interim rates until it receives comprehensive
data from all video visitation providers, and deliver immediate relief
by simply prohibiting flat-rate billing, which is currently being
offered at up to $12.99 per session''). While we recognize that the
video marketplace is in its nascent stages, we find that the available
data sufficiently support the interim rate caps we adopt today. In
addition, as we note below, interim rate caps for video are necessary
to curb abuses identified in the record concerning other existing rate
structures in the video market.
124. Per-Minute Rate Caps for Audio IPCS and Video IPCS. We adopt
the Commission's proposal to set rate caps for audio and video IPCS on
a per-minute basis as the foundation of our efforts to ensure just and
reasonable IPCS rates and charges. The record provides no basis to
abandon the long-standing per-minute rate caps for audio IPCS, and we
find no reason to deviate from this approach. The Commission has
historically set per-minute rate caps for audio IPCS. This decision is
further supported by our adoption today of rules to permit alternate
pricing plans subject to specified conditions. Similarly, given the
per-minute rate structure we adopt for audio calls, we find that taking
a consistent approach for video communications would offer several
benefits for IPCS consumers. First, per-minute rates are simple to
understand and reflect the actual duration of the call or
communication. As a matter of policy, the Commission has stated that
transparency regarding the charges for IPCS ``is critical because it
ensures that incarcerated persons and their families understand the
prices they are, or will be, charged for the services they use,
enabling them to make informed decisions when purchasing those
services.'' We find that consistent use of per-minute rates for audio
and video IPCS will result in an easier to understand and more
transparent regulatory framework. We therefore reject proposals to use
other rate metrics, such as per-session charges, in the rate caps that
serve as the foundation for ensuring just and reasonable IPCS rates.
Per-minute rates also provide greater transparency and offer greater
familiarity and flexibility for both industry and consumers.
125. Establishing interim per-minute rate caps for video IPCS is
also responsive to concerns voiced in the record about the need to curb
abusive practices associated with other existing rate structures for
video IPCS. At the same time, however, our new rules permitting
providers to deploy alternate pricing plans for both audio and video
IPCS, subject to certain conditions, including, in particular,
compliance with the overall rate caps adopted here, will permit
providers to experiment with optional rate structures that may be
beneficial and desirable for IPCS consumers. Taken together, we find
these actions satisfy two goals: our default per-minute rates will
ensure just and reasonable rates for IPCS consumers and providers and
fair compensation for providers; and our optional alternate pricing
plan rules will provide some measure of flexibility for the industry,
allowing providers and customers to voluntarily opt-in to other pricing
arrangements that may be mutually beneficial. The Commission has
previously found that when providers used flat-rate charges for audio
calls, if the duration of the audio call was less than the maximum time
allowable, ``the price for that call is disproportionately high.''
Receiving no record evidence to the contrary, we find that a similar
result is likely in the case of per-call or per-session charges for
video IPCS.
126. We decline to adopt a model carrier approach to establish the
rates for either audio or video IPCS. As proposed in the record, a
model carrier approach would set rates by reference to general
telecommunications industry-average costs for non-IPCS calls, including
a predetermined return, ``and then potentially adjust for costs that
may be particular to the provision of service in incarceration
facilities.'' Although the Commission has employed a similar approach
in other circumstances, we find that our tiered approach based on the
currently available IPCS-provider data provides a more accurate
estimate of just and reasonable IPCS rates and will better reflect the
size variance and the economies of scale in the IPCS market rather than
relying on a uniform general telecommunications industry rate setting
approach. We find further that the marketplace is still adapting to the
requirements of IPCS video communications, which counsels in favor of
allowing more time before adopting a model carrier approach. Because we
do not base our analysis on the model carrier approach, we find it
unnecessary to address arguments concerning the Commission's authority
in this respect. At the same time, a model carrier based approach is
useful for comparative analysis, and as explained further in a
technical appendix, can be used to confirm our
[[Page 77265]]
understanding of certain aspects of providers' cost data.
127. Adopting Rate Caps Derived from Industry Average Costs. As
permitted by the Martha Wright-Reed Act, we use industry average costs
reported by IPCS providers at the company-wide and facility levels in
response to the 2023 Mandatory Data Collection as the basis for
developing the IPCS rate caps we adopt today. In 2021, the Commission
sought comment on whether to ``calculate industry-wide mean contract
costs per paid minute of use,'' or to ``analyze costs at the facility
level.'' We resolve this question by confirming that we analyze costs
at the facility level, in the interest of evaluating providers' costs
as accurately as possible, consistent with the facility-level cost data
staff sought and obtained through the 2023 Mandatory Data Collection.
The Commission previously used industry average costs to set inmate
calling services rate caps, but the D.C. Circuit rejected that approach
as not providing fair compensation for providers on a ``per call''
basis for ``each and every call,'' as was then required by the language
of section 276(b)(1)(a) of the Communications Act. The Martha Wright-
Reed Act removed the ``each and every call'' language from section
276(b)(1)(a) and authorized the Commission to use ``industry-wide
average costs'' in determining just and reasonable rates. We can only
conclude, and commenters concur, that the Act thereby removed the
limitations set forth in the D.C. Circuit's decision. We also believe
that using industry average costs to set rates will best ensure rates
that are just and reasonable for consumers and providers and provide
fair compensation for providers.
128. We further find that the Act's elimination of the requirement
that ``each and every'' completed communication be fairly compensated
means that we are no longer required to establish a per-call based
compensation plan. Commenters agree. Rate caps based on costs evaluated
on an aggregated basis generally will satisfy the requirement that all
payphone service providers be fairly compensated. Based on our
interpretation of the Act in light of the D.C. Circuit's holding in GTL
v. FCC, as well as the Act's explicit terms, we further find that
setting the upper and lower bounds of our zone of reasonableness based
on industry-wide average costs at each tier of facilities--without the
need to consider one standard deviation or any other measure of
deviance from the average--will satisfy this requirement. We find that
Congress's express permission to use industry average costs in setting
rate caps encompasses the specific approach to using industry average
costs that the Commission adopted in the 2015 ICS Order: setting rate
caps at the level of the weighted average of providers' reported costs
at each tier. The regulatory history--particularly our understanding of
the ways that the Martha Wright-Reed Act sought to respond to the D.C.
Circuit's decision in GTL, including with specific respect to the use
of industry average costs--reinforces the reasonableness of our
interpretation.
a. Rate Caps Based on Total Costs
129. Consistent with the changes to our authority, we adopt the
proposal to set rate caps that incorporate total IPCS costs by
including all relevant costs incurred in the provision of IPCS in our
calculations of average provider costs. In implementing that approach,
we depart from the Commission's previous approach to allowing and
capping separate charges for certain ancillary services and instead
include the costs related to the provision of those ancillary services
in our IPCS rate caps. We also depart from the Commission's use of
separate rate additives for facility-incurred costs in the 2021 ICS
Order, in favor of including those costs, to the extent recoverable, in
our per-minute rate caps. This will substantially simplify our cap
structure. Pay Tel proposes that we account for facility costs
``through an explicit additive to IPCS rate caps,'' as this will
``incentivize facilities to compare service-based, competitive market
factors when awarding contracts.'' We find that the approach we adopt
here will obtain a fundamentally similar result. After analyzing
providers' cost data, we find that the data for calendar year 2022
collected in response to the 2023 Mandatory Data Collection, together
with other record evidence, provide a sufficient and reasoned basis on
which to take these steps in establishing our rate caps. One commenter
notes that we should consider ``free video calls through off-the-shelf
video platforms,'' such as Microsoft Teams, Zoom, and Ameelio, as part
of the industry-wide definition of IPCS providers. We find that these
video platform business models are substantially different from those
of most IPCS providers, and we decline at this time to do so. Taken
together, reforming our ancillary services charge rules, and including
costs incurred by facilities to provide IPCS and TRS-related costs into
our rate caps, result in a total cost approach to setting IPCS rate
caps which is more straightforward, results in rates which are easier
to understand, and will empower incarcerated persons and their loved
ones to make better informed choices. We address each of these steps
below. Lastly, we disagree with commenters that suggest that we
incorporate an inflation factor into our methodology for setting rate
caps. Secretariat Economists' data show that, historically, growth in
the Telecommunications PPI has been lower, on average, than general
measures of inflation. Over the last decade, the average annual change
of the Telecommunications PPI was 0.7%, as compared to the average
annual change of the broader GDP Deflator over the same time period of
2.6%. Those commenters generally fail to acknowledge the role that
productivity increases play in offsetting inflation. Neither study
includes data on the rates of increase in productivity in the
telecommunications industry. We also note that the data in the
Secretariat Economists May 8, 2023 Report shows that inflation in the
telecommunications industry has generally been lower than the broader
measure of inflation. We find that they fail to establish that
productivity increases did not offset the inflation that has incurred
since 2022, much less that inflation will outpace productivity gains in
the future.
130. Incorporating Costs Associated with Ancillary Services. We
find that the five types of ancillary services addressed by our rules
are intrinsic to the provision of IPCS, and we incorporate the costs of
providing these services into our per-minute rate caps for a number of
reasons. For one, incorporating the costs of these services into a
single rate cap--rather than allowing providers to assess a separate
ancillary service charge for each ancillary service--will result in
rates and charges that are easier for consumers to understand and
easier for providers to administer, while still allowing providers to
recover the average costs associated with these ancillary services
through our per-minute rates.
131. In addition, in the 2021 ICS Order, the Commission found that,
based on record data, there was ``no reliable way to exclude ancillary
service costs'' from the calculations for the provider-related rate cap
component, resulting in interim rate caps that included the costs that
consumers already paid for through separate ancillary services fees. To
address this issue, in 2022 the Commission asked whether ``some or all
of [the ancillary] services'' for which separate charges were permitted
are ``an inherent part of providing inmate calling services,'' such
that the Commission should continue to
[[Page 77266]]
``include these costs in [the] per-minute rate cap calculations and
eliminate some or all charges for ancillary services.'' As the record
shows, all of these fees ``relate to payment and billing,'' and other
than the paper bill fee, all of these fees address consumers' means of
paying for the service they rely upon. Put otherwise, consumers may pay
for IPCS via a payment card or a third-party money transmitter, with
the assistance of a live agent, and/or may pay to complete a
communication without setting up an account. Although these ancillary
services may have qualified as a ``convenience'' in 2015 when the
Commission first identified them in its rules, the record indicates
that they are now the predominant means by which consumers gain access
to IPCS. While alternative methods of funding an account remain
available (e.g., by check or money order), we find that automated
payment or money transmitter services are ``an intrinsic part'' of
accessing the service, like most other services in the 21st-century
economy. Indeed, one provider has pointed to the decline in one
alternative payment mechanism--collect calls--in support of its
proposal that the Commission eliminate the fee for paper statements. In
short, ``incarcerated people and their families must either incur
[these charges] when making a call or forego contact with their loved
ones.''
132. Our decision to incorporate the costs of ancillary service
functions in our rate caps also reflects the limitations in the cost
data providers submitted for their ancillary services. Like the
Commission found in the 2021 ICS Order, we still cannot reliably
isolate the costs of providing each type of ancillary service from
other IPCS costs. In contrast to the Second Mandatory Data Collection,
the instructions for the 2023 Mandatory Data Collection required
providers to report their costs of each ancillary service separately.
Nevertheless, we find that providers failed to reliably or consistently
allocate their costs among the various ancillary services, or even
between ancillary services and other IPCS costs. Incorporating all of
these reported costs into the rate cap avoids the risk of setting
individual fee caps for each ancillary service that misestimate
providers' actual costs. We therefore find that incorporating ancillary
service costs into our rate caps is the best means of recovering the
aggregated ancillary services costs reported by providers and ensuring
just and reasonable IPCS rates. We find that this approach is
preferable to allowing double recovery of the same costs by adopting
separate rates and charges.
133. Incorporating the costs of providing ancillary services into
our rate caps will provide several benefits to IPCS consumers and
respond to concerns raised in the record. First, this rate cap
structure will eliminate the incentive and ability for providers to
charge multiple fees for the same transaction, as a way of exacting
revenue from consumers that far exceeds their actual costs of
completing the transaction, a problem that is well-documented in the
record. The comment record reflects substantial debate (even confusion)
as to whether--and if so, under what circumstances--multiple fees can
be charged for a single transaction, and more generally, what activity
the payment-related fees were intended to encompass. By folding the
costs of all ancillary services into our rate caps and eliminating
providers' ability to charge for them separately, we also remove the
incentive for providers to ``double dip'' in this manner, effectively
mooting related concerns under our new rules, and mitigate consumer
confusion arising from these practices. Certain providers contend that
any circumstances in which they have charged multiple fees are
legitimate. Because the rate cap structure we adopt enables providers
to recover their average costs of providing ancillary services, as
permitted by the Martha Wright-Reed Act, we find it unnecessary to
resolve this dispute in this rulemaking. The record also shows that
such practices have engendered consumer confusion. We similarly
eliminate the ability of providers to engage in other rent-seeking
activity described in the record, including concerns that providers may
``steer'' consumers to a more expensive single-call option for an
incarcerated person's initial call after incarceration in an effort to
artificially inflate revenues through single-call fees. These practices
undermine the intent of our rules, and inflate providers' revenues well
beyond costs, at the expense of consumers, all while providing no
additional consumer value. Indeed, by removing such incentives, we find
that the rate cap structure we adopt in this Order may, for example,
motivate providers to make it easier to set up an account when
consumers receive an IPCS communication for the first time.
134. We likewise find that incorporating ancillary service costs
into our rate caps will align rates and charges more fairly with actual
user activity. Several commenters point out the seeming
unreasonableness and disproportionality of charging a $3.00 fee for a
call that may only last one minute, or passing through similar fees for
small deposits, causing consumers to ``lose a significant amount'' of
their account deposits paying such fees. By incorporating ancillary
service costs into our rate caps, we ensure that the cost of any
particular communication for any IPCS consumer is more proportionate to
its duration. We also eliminate certain distortions that our current
fee structure may perpetuate, such as avoiding a live agent, or
transferring funds to relatives less frequently in an effort to avoid
such charges. Our actions today reduce these barriers to communication.
135. Incorporating ancillary service costs into our rate caps will
also simplify the billing process, easing the administrative burden on
providers and clarifying the bills and general operational process for
consumers. We agree that these changes will ``simplify matters for
consumers.'' Similarly, with respect to paper billing fees, by
incorporating the costs of these bills into our rate caps we align IPCS
billing practices more closely with consumers' experiences for other
forms of telecommunications service outside of the carceral context,
where separate charges are not assessed for paper bills.
136. Finally, we find that incorporating ancillary service costs
into our rate caps aligns our rate and fee structure more effectively
with broader patterns in the industry and the diminishing utility of
certain ancillary services. As the Commission has previously observed,
several jurisdictions have already banned ancillary service charges,
either piecemeal or outright. The record affirms that several of these
services are declining in use. For example, several providers assert
they rarely charge a paper bill fee as few consumers require paper
bills, even proposing outright that this fee be eliminated. At least
one provider no longer charges a live agent fee, having switched to an
automated system during the pandemic. Meanwhile, providers have shifted
from offering single-call services through third parties (as defined in
our rules) to instead provide these services themselves. The record
further suggests that the single-call service, which ostensibly offers
the convenience of completing initial contact without setting up an
account, may in practice--like paper billing--offer little benefit to
consumers, as they still have to enter their payment card information
to accept the call. The record does not establish the marginal
difference between single-call payment and account creation, and we are
not
[[Page 77267]]
convinced that the margin would be great enough to significantly deter
interested consumers.
137. Some commenters object to the approach of incorporating
ancillary service costs into the rate caps. Those commenters argue that
this methodology ``does not reflect the manner in which costs are
caused by users of the service,'' and ``would impose costs for payment
processing on all consumers, rather than just those consumers directly
responsible for the cost.'' We are unpersuaded. We find that most of
these functions have become ``an intrinsic part of providing'' IPCS
because they provide IPCS consumers the means to obtain IPCS, such that
consumers typically ``must either incur [these charges] when making a
call or forego contact with their loved ones.'' For the same reason, we
are not persuaded by Securus's implicit argument that the current
ancillary fees are offered ``as a convenience to incarcerated persons
or their friends and family and are not intrinsic to the provision of
ICS.'' The sole fee unrelated to paying for IPCS, the paper bill fee,
is sufficiently rarely used that it has a negligible impact on the per-
minute rate caps. It is not necessary that these services be used by
``all consumers''; the fact that these services operate as a threshold
to most IPCS communications, coupled with the many factors identified
above in support of ancillary service cost recovery through our per-
minute IPCS rate caps, establishes that our regulatory approach
provides for just and reasonable rates for consumers and providers,
while also providing appropriate cost recovery for providers. In the
2015 ICS Order, the Commission found that single-call services were not
``reasonably and directly related to the provision of ICS'' because
they ``inflate the effective price end users pay for ICS and result in
excessive compensation to providers.'' We find that this pattern has
been ameliorated, in part, by the changes to single-call fees adopted
in the 2021 ICS Order and 2022 ICS Order; we also recognize that
providers incur some amount of legitimate costs for providing this
service, which for at least some consumers may offer a crucial means of
completing an IPCS communication. At the same time, we find that the
continuing abuse of this fee described in the record supports
elimination of the single-call fee as an independent charge--and
suggests that our analysis of ancillary service costs may actually
overestimate providers' actual costs. We also find unpersuasive the
argument that we should abstain from ``[f]urther changes to, or
eliminating, ancillary fees'' because this ``likely will cause new
efforts to subvert the FCC's ancillary fee caps.'' NCIC also argues
that changes to, or elimination of, ancillary fees would ``require ICS
providers to spend thousands of hours renegotiating contracts to comply
with a new fee structure.'' The rate caps we adopt today will require
contract amendments or renegotiations regardless, and NCIC does not
provide evidence or elaboration to support its conclusory assertions
regarding the implications of the particular change associated with
ancillary fees, so we find this argument unpersuasive. The history of
this proceeding demonstrates that ``efforts to subvert [our] ancillary
fee caps'' or otherwise abuse ancillary fees is merely an endemic
feature of the market. The record contains no evidence that eliminating
separate ancillary service fees would amplify this pattern; indeed, the
record suggests, and logic supports the fact, that eliminating separate
fees would eliminate entirely the incentive and ability to subvert
them. For example, the 2015 ICS Order banned several types of ancillary
service charges, e.g., ``account set-up, maintenance, closure, and
refund fees.'' The record is bereft of any evidence that the
elimination of these fees has encouraged providers to attempt to
subvert the Commission's rules.
138. Incorporating Facility Costs in IPCS Rate Caps. We also
include in our rate caps an estimate of the costs that correctional
facilities incur that are used and useful in the provision of IPCS.
Previously, the Commission found that correctional facilities incur
certain costs that are ``reasonably and directly related'' to the
provision of IPCS. However, despite repeated efforts to collect data
from which to reliably measure such costs, we find that neither the
collected data nor the record before us allow us to identify those
costs with reasonable certainty. At best, the record discussion
concerning IPCS costs which facilities may bear falls short of the sort
of quantitative evidence which would ordinarily support the
Commission's ratemaking efforts. Further, requiring accurate cost
accounting of facilities' costs would unreasonably burden facilities,
and facilities have declined to provide such data voluntarily.
Consequently, as proposed in 2023, we make generalized findings based
on the available record information before us. Our rate caps,
therefore, include our best estimate of the used and useful facility
costs incurred in the provision of IPCS.
139. Incorporating TRS Costs in IPCS Rate Caps. We also include in
our IPCS rate caps an estimate of the costs associated with providing
TRS in correctional facilities as required by the 2022 ICS Order to the
extent that they are not recoverable through TRS support mechanisms.
Industry and stakeholders overwhelmingly support the provision of
communications services to incarcerated people with hearing or speech
disabilities, but the record indicates that, in the carceral
environment, enabling these services imposes certain costs upon IPCS
providers. We find that our inclusion of a TRS cost estimate into our
zones of reasonableness accounts for providers' concerns about the
imposition of costs at smaller facilities; and further, we disagree
that ensuring the availability of functionally equivalent communication
services provides ``little'' benefit to those who rely on such services
to communicate with their friends, families, and loved ones. We find,
as the record demonstrates, that these costs to provide TRS are
particularly challenging to recover at the smallest facilities. In
light of that record and informed by responses to the 2023 Mandatory
Data Collection, we now include cost recovery for the additional
infrastructure and hardware costs to deliver TRS in the carceral
environment in our rate caps, estimated based on the best available
data.
b. Additional Components of Rate Cap Structure
140. Single Rate Cap for Audio IPCS. Consistent with the proposal
in 2023 and the record, we find that the costs to provide interstate
and intrastate audio IPCS are not materially different from each other
and therefore adopt a single rate cap that applies to both interstate
and intrastate audio IPCS communications at each tier. The Martha
Wright-Reed Act's directive to set rates and charges that are ``just
and reasonable'' for interstate and intrastate IPCS establishes the
framework for our analysis. Examining the record through this lens, we
find support for treating the costs of providing interstate and
intrastate audio IPCS as functionally identical. The record indicates
that providers do not distinguish between the costs of providing
interstate and intrastate audio IPCS communications, and we find no
reason to do otherwise. We thus set a single rate cap for these
communications, and find that this simplified approach will benefit
consumers and providers alike. The record supports our conclusion that
the adoption of identical rate caps for interstate and intrastate audio
IPCS communications will benefit the public interest. For example, one
commenter
[[Page 77268]]
suggests that adopting a single rate cap for interstate and intrastate
audio IPCS communications will benefit providers by ``ensur[ing] a
consistent regulatory approach,'' and benefit consumers ``by
simplifying and unifying rate structures in a manner more consistent
with today's consumer expectations and experiences with other
telecommunications services.'' Indeed, at least one provider has
already independently set a unitary rate for interstate and intrastate
IPCS communications, reflecting that providers are likely to benefit
from the implementation of a single rate cap. We agree that a simple
unified rate cap will benefit both providers and consumers, and this
finding further supports our action today.
141. Our action today is consistent with the Commission's previous
findings that provider cost data failed to identify meaningful
differences between interstate and intrastate audio IPCS costs. In the
Third Mandatory Data Collection, the Bureau offered providers the
option to allocate their expenses so as to reflect any cost differences
between providing interstate and intrastate ICS, and no providers
exercised this option. This fact suggests either that no providers had
differences to report, or that any such differences were de minimis.
Commenters have subsequently recognized the same, and emphasized that
providers declined to distinguish between costs for interstate and
intrastate audio IPCS in responding to prior mandatory data
collections.
142. More recently, 2023 sought comment on whether to ``treat costs
for interstate voice services and intrastate voice services as having
identical per-unit costs.'' All commenters to address the subject
support this approach. Several commenters state that there is no
material cost difference between providing interstate and intrastate
audio IPCS. Subsequently, in the 2023 Mandatory Data Collection, the
Bureau again offered providers the option to allocate their costs
between intrastate and interstate audio IPCS. Once more, providers
declined to exercise this option. In short, nothing in the record
suggests any material differences between interstate and intrastate
audio IPCS costs, and we therefore adopt a single unified rate cap for
each facility tier. Independently, our adoption of identical rates
based on an analysis of the collective (i.e., aggregate of both
interstate and intrastate) average costs of providing IPCS is further
underpinned by the Martha Wright-Reed Act's authorization to ``use
industry-wide average costs'' in setting rates.
143. Single Rate Cap for Video IPCS. We also find that interstate
and intrastate video IPCS communications have costs that are not
materially different, and adopt a single rate cap for interstate and
intrastate video IPCS communications at each tier. As with audio IPCS,
the adoption of a unified rate cap for interstate and intrastate video
IPCS communications is uniformly supported by the record and fully
consistent with the treatment of interstate and intrastate video
services by providers.
144. In 2023, the Commission sought comment on whether to assume
that the average costs for intrastate and interstate video
communications services are identical. All commenters to address the
subject support taking this approach. Several commenters observe that
there are no material cost differences between interstate and
intrastate video IPCS, while others note that providers do not separate
costs between interstate and intrastate video IPCS internally and will
likely face challenges in separating such costs.
145. In the 2023 Mandatory Data Collection, the Bureau offered
providers the option to allocate their video IPCS expenses to reflect
any cost differences between providing interstate and intrastate video
IPCS. No providers exercised this option, supporting our view that such
costs are materially indistinguishable between the two jurisdictions.
In the absence of any demonstrated material differences between
interstate and intrastate video IPCS costs or record data supporting
such a distinction, we adopt a single unified rate cap for video IPCS
communications for each tier as well. Similar to audio IPCS, setting a
single rate cap for video IPCS will benefit both providers and
consumers by establishing an efficient and simplified mechanism for
video IPCS rate regulation.
c. Rate Cap Tiers
146. In light of the directives established by the Martha Wright-
Reed Act and record support, we adopt a rate cap structure that first
distinguishes between two types of facilities (jails and prisons) and
then four tiers of jails based on size. We agree with commenters that
continuing to ``distinguish[ ] between the type of facility (jails vs.
prisons), as well as, for jails, between different size facilities'' is
a reasonable approach. While one commenter supports differentiation
between prisons and jails, it also suggests that myriad factors may be
``glossed over'' by our reliance upon industry averages. As set out in
a technical appendix and explained below, we believe this tiering
structure best captures the costs across the various types and sizes of
facilities, and the record does not establish that such other factors
are more cost-causative. The record and the data also support rate cap
distinctions based on the ``differences in the costs'' of providing
IPCS that relate to facility size and ``other characteristics.'' We
adopt the following rate cap tiers to reflect the cost characteristics
attributable to differences in facility type and size:
(1) Jails with an average daily population of 0 to 99;
(2) Jails with an average daily population between and including
100 to 349;
(3) Jails with an average daily population between and including
350 to 999;
(4) Jails with an average daily population of 1,000 or more; and
(5) A separate tier for all prisons regardless of average daily
population.
We also revise the definition for average daily population in our
rules by establishing a date certain each year by which the jail
population during the preceding calendar year must be determined.
Specifically, we set April 30 as the date on which the annual
recalculation of average daily population becomes effective, in order
to promote greater uniformity in its application. We find that the
combination of size and type rate tiers that we adopt reflect the most
critical factors driving providers' costs, and will result in both just
and reasonable rates for consumers and providers and fair compensation
for providers.
147. Facility Size. The Martha Wright-Reed Act directs the
Commission to ``consider . . . differences in the costs'' incurred to
provide IPCS ``by small, medium, or large facilities'' in setting rates
for IPCS. We note that, by requiring only that we ``consider'' cost
differences ``by small, medium, or large facilities or other
characteristics,'' the statute does not require the Commission to set
rate tiers based on facility size or other applicable factors where,
after appropriate consideration, we determine that there are not
meaningful cost differences attributable to these factors. For example,
as discussed below, we do not find support in the record or the data
for establishing different size tiers for prisons, and so decline to
adopt such tiers. In 2023, the Commission sought comment on how to
interpret the requirement imposed by the Martha Wright-Reed Act to
``consider . . . differences in the costs . . . by small, medium, or
large facilities or other characteristics'' in
[[Page 77269]]
determining rates. The Commission asked for comment on what size
categories to adopt and where to set the size thresholds for each
category. The Commission proposed that the rate structure adopted in
the 2021 ICS Order, which ``establish[ed] separate caps for prisons and
jails, as well as separate rate tiers for different-sized jails,''
seemed consistent with this provision of the Act. However, the
Commission sought comment on whether the Act required any change to the
approach of analyzing providers' costs ``based on the type and size of
correctional institution being served,'' such as by implementing more
or fewer rate tiers based on facility type or size.
148. The record nearly uniformly supports maintaining a rate cap
structure that distinguishes among jails based on facility size. For
administrative simplicity, we decline to apply size tiering to prisons
for several reasons. First, as the Commission has previously observed,
``prisons are almost uniformly large,'' allowing them to enjoy greater
economies of scale than jails. Second, the data filed in response to
the 2023 Mandatory Data Collection do not indicate significant
differences in the costs of serving different prison facilities.
Finally, only one commenter raised the prospect of tiered rates for
prisons. All commenters addressing the issue agree that the Act permits
us to maintain this general tiering structure. Several commenters
contend that the available data do, in fact, indicate significant
variations in costs due to facility size, and that we should therefore
set rate tiers accounting for these variations. Indeed, the record in
this proceeding ``contains extensive documentation of [the] cost
differences, and the reasons for those differences,'' in providing
audio and video IPCS among different sizes of jails. Several factors
contribute to these cost disparities, particularly the economies of
scale associated with serving larger facilities and the fact that
smaller facilities are often located in more rural areas. As set forth
in Appendices D and G, our data analysis indicates that there remain
statistically significant differences in the costs of providing audio
and video IPCS among jails of different sizes. The data submitted in
response to the Third Mandatory Data Collection further support this
conclusion. The record supports adopting four size tiers of jails,
expanding the categories contemplated by the Martha Wright-Reed Act.
Although we find that the present record and data support establishing
rate caps that vary with size tiers for jails, we reiterate that the
statute does not require us to set rate tiers as described. After
appropriate consideration, however, we determine that the record and
data do support a tiering structure for prisons. Specifically, we find
evidence that providers incur progressively greater costs in serving
jails at the lower tiers of ADP than at the highest tier that we adopt.
We found in the 2021 ICS Order that the available data suggested that
``providers incur higher costs per minute for jails with [ADPs] below
1,000 than for larger jails.'' The data submitted for the 2023
Mandatory Data Collection continues to reflect this pattern. However,
at that time we deferred on further rate cap setting with respect to
jails with ADPs below 1,000 ``because the available data [did] not
allow us to quantify the extent to which providers' costs of serving
[such] jails . . . exceed the industry average.'' With the data
submitted for the 2023 Mandatory Data Collection, we are now able to
determine with greater accuracy the cost differential of providing
service to jails with ADPs below 1,000. Consequently, we adopt average
daily population cutoffs of 100, 350, and 1,000 incarcerated persons in
order to distinguish among different sizes of jails. Although certain
commenters suggest other size thresholds, we find that the size tiers
we adopt here best fit the data submitted for the 2023 Mandatory Data
Collection.
149. While the Martha Wright-Reed Act specifies that we consider
cost differences among three sizes of facilities (``small, medium, and
large''), we do not interpret that specification as a directive that
limits our actions to only three size tiers that correspond to the
terms referenced in the statute. Instead, we interpret Congress' intent
as mandating that the Commission analyze the relevant data to assess
the cost characteristics of different-sized facilities, including those
referenced in the statute, and then to reflect that analysis in the
rate cap structure the Commission ultimately adopts. Pursuant to their
delegated authority, WCB and OEA structured the 2023 Mandatory Data
Collection to ensure it included the requisite facility-level data
needed to support this analysis. After ``consider[ing] . . .
differences in the costs'' incurred to provide IPCS ``by small, medium,
or large facilities'' as directed by the Act, we find that the data do
reflect size differences among jails--and that the data further support
distinguishing a further, fourth size tier of jails to best ensure just
and reasonable rates for consumers and providers and fair compensation
for providers.
150. We find that the record supports adopting a more granular
tiering structure than that referenced in the Act or established by our
current rules to better capture cost differences among ``small, medium,
and large facilities,'' in addition to creating a separate tier for
very small jails. The record supports adopting this tiering arrangement
to better reflect the ``differences in the costs'' of serving various
sizes of jails, particularly where the record distinguishes jails of
the smallest sizes as subject to special per-unit cost differences. Our
adoption of an additional tier for very small jails is consistent with
the statutory directive to consider cost differences for ``small,
medium, and large'' facilities as well as an ``other characteristic''
for which to account. This rate cap structure finds further support in
the rate cap tiers previously adopted by the Commission, which also
distinguished among facilities based on facility type and size based on
average daily population. In the 2015 ICS Order, the Commission found
that there was ``substantial record support'' from commenters for
``rate tiering based on differences between jails and prisons as well
as population size'' given the differences in provider costs arising
from these factors, a conclusion supported by the Commission's analysis
of the First Mandatory Data Collection. The Commission therefore
adopted rate cap tiers based on facility type and size, to ``account[ ]
for the differences in costs to ICS providers'' and to avoid ``over-
compensating ICS providers serving larger, lower-cost facilities.'' In
the 2021 ICS Order, following similar reasoning, the Commission again
adopted a rate cap structure distinguishing between prisons and jails
and among jails based on size. We also seek comment in the Further
Notice on whether obtaining more granular data from providers serving
very small jails would allow us to further disaggregate this size tier
to better reflect the variability of provider costs and other
characteristics in our rate tiers.
151. Other Characteristics. In addition to the three specified
sizes of facilities, the Martha Wright-Reed Act also directs the
Commission to ``consider . . . differences in the costs'' incurred to
provide IPCS due to ``other characteristics.'' The Commission sought
comment on whether it should continue to use the type of facility as
another characteristic in determining its IPCS rate cap structure.
Several commenters propose that we maintain a rate cap structure that
incorporates
[[Page 77270]]
facility type as one of these ``other characteristics,'' by
distinguishing between prisons and jails. One commenter also proposes
that we consider several other factors that impact providers' costs,
including the variations in facilities' costs associated with providing
IPCS, the different IPCS systems employed by different facilities, and
the fact that facilities in rural areas may be more costly to serve.
152. All commenters that address the ``other characteristics''
language agree that the Act permits the Commission to maintain a
distinction between prisons and jails. Several commenters contend that
the available data indicate significant variations in costs due to
facility type, and that the Commission should therefore set rate tiers
to account for these variations. We agree that the record ``contains
extensive documentation of [the] cost differences, and the reasons for
those differences,'' of providing audio IPCS between prisons and jails.
Several factors contribute to these cost disparities, particularly the
higher turnover in jails than in prisons, economies of scale associated
with serving larger facilities (as prisons tend to be larger than
jails), and the fact that jails are often located in more rural areas.
Many of these cost differences stem from the fact that prisons, in
contrast to jails, are ``used primarily to confine individuals . . .
sentenced to terms in excess of one year.'' The consequent differences
in average durations of stay and turnover rates between prisons and
jails account for much of the disparities in costs between the two
types of facilities. As set forth in a technical appendix, our data
analysis indicates that there remain statistically significant
differences in the costs of providing audio IPCS in prisons versus
jails, as well as greater variations from mean costs for jails than for
prisons. The data submitted in response to the Third Mandatory Data
Collection further support this conclusion. The same pattern applies to
the costs of providing video IPCS. We find this evidence credible and
sufficient to support incorporating facility type, by adopting separate
rate cap tiers for prisons and jails, as an ``other characteristic''
contemplated by the Martha Wright-Reed Act.
153. One commenter proposed specific additional factors beyond
facility size and type. The National Sheriffs' Association identifies
several other factors that may impact the costs of providing IPCS: that
facility staff ``provide more functions in some cases tha[n] in others
and that the hourly wage and benefits of jail employees varies by state
and locality''; that ``different facilities employ different IPCS
systems,'' and ``require different security measures,'' with attendant
variation in costs; that ``jails in rural areas are more costly to
serve''; and that ``jails allow different amounts of inmate calling.''
Another commenter claims there are no significant differences after
accounting for facility size. However, after controlling for provider
and state, we find that the main predictors of providers' costs per
minute are facility size and type. By contrast, other variables provide
negligible independent predictive value. Consequently, we find that
such factors are best accommodated through the use of rate caps based
on industry-wide average costs, which enable the provision of IPCS to
be commercially viable across the tiers we adopt. In sum, we find that
incorporating these attributes into our rate caps would provide little
benefit in terms of meaningfully reflecting providers' costs, while
imposing additional administrative burden on providers and potentially
introducing consumer confusion. We also find that, in the absence of
any data indicating otherwise, many of the factors identified by the
National Sheriffs' Association are simply not well suited for direct
incorporation into a rate cap structure. Because these factors vary in
a nonlinear manner, they are ill-suited to a tiered rate cap structure,
and incorporating them into our rate caps would necessitate an
exceedingly granular and therefore intractable system. The National
Sheriffs' Association does not point to any concrete data that might
reflect the impact of any of these factors on providers' costs. After
``consider[ing] . . . other characteristics'' proposed by commenters as
directed by the statute, we decline to incorporate any other additional
characteristics in our IPCS rate cap structure. We have insufficient
data to evaluate the cost-causative impact of variations in the
services provided or staffing costs incurred by facilities. In the 2023
Mandatory Data Collection, we asked providers to submit ``any
verifiable, reliable, and accurate information'' they have regarding
any expenses incurred by facilities to provide IPCS. However, no
provider submitted any information on facilities' costs in response to
this request. Given this limitation, we address the role of costs
incurred by facilities in providing IPCS separately.
154. Alternative Proposals. Not all commenters agree with the
tiering structure we adopt in the Report and Order. The National
Sheriffs' Association supports adopting three size tiers of jails,
proposing that the thresholds be set at ADPs of 350 and 2,500.
Conversely, ViaPath argues that the rate caps adopted in the 2021 ICS
Order do not require any modification other than ``necessary
adjustments for market changes.'' We disagree, and find that neither
proposal takes into account the wider record; nor do they incorporate
the data provided in response to the 2023 Mandatory Data Collection.
The National Sheriffs' Association relies on data from its 2015 cost
survey, which we have previously distinguished. Meanwhile, the rate
structure adopted in the 2021 ICS Order was based on data from the
Second Mandatory Data Collection. Furthermore, in the 2021 ICS Order,
the Commission explicitly deferred on setting rate caps for jails with
ADPs below 1,000 because the available data did not enable accurate
calculation of the relative costs of such facilities--a gap that, as
noted above, has been rectified with the data submitted for the 2023
Mandatory Data Collection. Consequently, we find that both of these
proposals fail to accurately account for the current differences in the
costs that we observe.
155. For similar reasons, we decline to adopt the proposals from
NCIC and ViaPath that we adopt a single rate cap, either for all jails
(with a separate rate cap for prisons) or for all facilities. As
several commenters observe, setting a single rate cap for all
facilities, or even all jails, would almost certainly result in either
unreasonably low rates in smaller facilities, such that providers may
be unable to recover the costs of providing service to these higher-
cost facilities, or else a windfall for those serving prisons and
larger jails at the cost of those incarcerated in such facilities. We
find that these consequences would outweigh any benefits from adopting
a single rate cap. We agree with commenters that, given our analysis of
the data, adopting a single rate cap ``will run counter to'' the goals
of section 276 as well as the Martha Wright-Reed Act, and would less
effectively address the implications of our consideration of the
``differences in the costs . . . by small, medium, or large facilities
or other characteristics.'' Indeed, in the 2015 ICS Order, the
Commission thoroughly examined the negative consequences of
establishing a single rate cap in the context of data indicating that
costs of providing IPCS vary by facility size and type. Once again, we
find that the commenters proposing a single rate cap ``provide no real
evidence or support for why rate tiers would be any more
[[Page 77271]]
difficult or challenging than'' the current approach.
156. Definition and Use of Average Daily Population. In 2023, the
Commission sought comment on the ``use of average daily population as
the primary metric'' for the size of correctional institutions,
including whether there were ``compelling reasons to adopt a different
metric for determining size.'' The Commission also incorporated prior
calls for comments on how ADP should factor into our rate caps,
including on whether the definition for ADP in the Commission's rules
``sufficiently addresses fluctuations in jail populations and
variations in how correctional facilities determine average daily
populations.'' The record confirms that ADP continues to be the most
practical metric for determining the size of correctional facilities
for the purposes of applying our rate caps. However, the record
reflects a need for ``a clear date and a clear standard by which the
ADP is measured,'' so that all parties can uniformly determine
``whether a particular jail must comply with'' different rate caps than
in the prior year. Additionally, we find that the definition for
average daily population under our rules, which requires the
measurement of all incarcerated persons ``in a facility'' (rather than
those merely within that facility's jurisdiction), over a ``calendar
year,'' effectively addresses related concerns that states and
localities may track population figures differently. Accordingly, we
revise the definition for average daily population in our rules by
establishing April 30 as the date on which the annual recalculation of
ADP reflecting data from the prior calendar year (and, as applicable,
the new corresponding rate cap) becomes effective.
157. Adopting a specific date on which the annual ADP recalculation
must be performed--and by which providers must implement new rates to
comply with the appropriate rate cap, where applicable--will yield
greater uniformity and accountability in the application of this
metric, and address related concerns raised in the record. A uniform
effective date for implementing each year's newly recalculated ADP (and
corresponding rate caps) will help consumers ``to determine which jails
must comply with [each of] the FCC's new rate caps,'' and will help
providers by establishing a more predictable and consistent calculation
process. We select April 30 as the effective date for the annual ADP
recalculation because, as Securus points out, providers need to obtain
data from correctional officials in order to determine each jail's
average daily population during the preceding calendar year. To the
extent they have not already done so, providers should ensure that
their contracts with correctional facilities provide for the providers'
timely receipt of all information they need to recalculate average
daily populations in accordance with our rules. Our rules already
require providers to report that information in their annual reports,
which are due each year on April 1. An April 30 date for determining
each jail's rate cap tier going forward avoids the imposition of any
additional burden on providers, while providing a ``realistic
timeframe'' for providers to collect and process data on average daily
populations as part of the mandated annual review and updating of rate
cap tiers.
158. ViaPath cites the ``concerns [raised] about consistency and
variations in population'' and suggests that the current requirement
for annual calculation of ADP ``could require negotiated per-minute
IPCS rates to increase or decrease each year due to changes in facility
population year-to-year.'' To address this concern, and aid
consistency, ViaPath proposes that we redefine ADP to permit it to be
``calculated and applied for the initial term of an IPCS contract, and
thereafter recalculated and applied for each renewal term of a
contract.'' We decline to adopt ViaPath's proposal. We are concerned
that this approach would incentivize providers to commence or renew
contract terms at times of unusually low populations to ``lock in'' the
consequently higher rates for the full contract term. ViaPath's
proposal may not even meaningfully improve consistency in the
calculation of ADP, given the substantial variation in IPCS contract
terms. Although we recognize that requiring ADP to be recalculated
annually may entail a near-term administrative burden, the record fails
to suggest that this burden outweighs the benefit of IPCS rates that
correspond to the costs associated with different size jails. No other
commenter addresses the issue of the yearly recalculation requirement
for ADP, suggesting that this requirement does not impose a
disproportionate burden. We also find that the revision we adopt today,
which grants providers a full month to calculate and (where necessary)
implement the newly-applicable ADP figures each year, will help to
ameliorate this burden. For similar reasons, we decline to adopt Talton
Communications' proposal that ADP be calculated quarterly ``by taking
an average of the population of detainees across all facilities
serviced by a single ICS provider.'' First, we find that this proposal
risks generating either insufficient returns or excessive returns for a
given provider, depending on the nature of the facilities it serves.
Second, we find that it would also make the rates imposed on any given
consumer relatively arbitrary, based purely on the portfolio of the
IPCS provider serving their respective facility rather than the actual
costs of providing service. Finally, this proposal would ultimately
require updating the applicable rates even more frequently than under
our current rules, imposing greater administrative burdens on providers
and greater inconsistency on consumers. And over the longer term,
contracting will occur against the backdrop of our rule providing
certainty regarding the timing of ADP calculations and from the outset
such contracts can be tailored accordingly as needed.
2. Preliminary Costing Issues
159. To assess the costs that should be included in or excluded
from our rate cap calculations to ensure just and reasonable rates for
IPCS, we rely on the ``used and useful'' framework and its associated
prudent expenditure standard. Under the used and useful framework the
Commission first considers the need to compensate providers ``for the
use of their property and expenses incurred in providing the regulated
service.'' Second, the Commission looks to the ``equitable principle
that ratepayers should not be forced to pay a return except on
investments that can be shown to benefit them.'' In this regard, the
Commission considers ``whether the expense was necessary to the
provision of'' the regulated service. And third, the Commission
considers ``whether a carrier's investments and expenses were prudent
(rather than excessive),'' and has found that ``imprudent or excess
investment . . . is the responsibility and coincident burden of the
investor, not the ratepayer.'' Although the Commission has identified
these ``general principles regarding what constitutes `used and useful'
investment,'' it ``has recognized `that these guidelines are general
and subject to modification, addition, or deletion' '' and that ``
`[t]he particular facts of each case must be ascertained in order to
determine what part of a utility's investment is used and useful.' ''
The Commission ``may, in its reasonable discretion, fashion an
appropriate resolution that is tailored to the specific circumstances
before it.''
160. We apply this framework in evaluating the costs and expenses
to be included in our IPCS rate cap
[[Page 77272]]
calculations. As described below, we rely on a zone of reasonableness
approach to adopt separate rate caps for audio and video IPCS by
facility size and type. As applied here, our approach begins by looking
to the record to identify an upper limit for each rate category that
corresponds to a rate level above which rates would clearly be unjustly
and unreasonably high. We then make adjustments to that upper limit
based on the record to remove costs that are not used and useful for
the provision of IPCS in order to identify the lower limit of our zone
of reasonableness. Between the upper and lower limits of that zone, we
then seek to identify a particular rate level that will best reflect
the proper balancing of the equitable interests that ratepayers only
bear costs or expenses that reasonably benefit them and that providers
earn a reasonable return when their property is used in the provision
of regulated services. The particular rate level we identify within
that zone of reasonableness is then adopted as the relevant rate cap
for that rate category.
161. The upper bounds we adopt include all reported provider costs,
including those categories that we generally find are not ``used and
useful'' in the provision of IPCS. We are confident based on this
record that rate caps set above the upper bound clearly would be
unjustly and unreasonably high. In turn, we rely on the used and useful
framework to make reasonable adjustments to those upper bound costs to
establish the lower bounds of the zones of reasonableness. By deriving
our rate caps from the ``used and useful'' framework, our approach
reflects the Commission's longstanding methodology for ensuring that
providers are able to obtain recovery for the costs and expenses that
demonstrably benefit ratepayers. At the same time, including all
reported provider costs to establish the upper bound reflects a
conservative approach. As a result, we are confident that setting rates
within that zone of reasonableness will yield rate caps designed to
afford fair compensation to IPCS providers.
162. Next, our interpretation of section 3(b)(2) of the Martha
Wright-Reed Act requires us to examine available evidence of ``costs
associated with any safety and security measures necessary to provide''
IPCS which, along with the other costs, we review and use to arrive at
a reasoned conclusion regarding the recoverability of those costs. To
conduct that examination--including with respect to safety and security
costs--we employ the ``used and useful'' framework. In doing so, we
consider all relevant cost evidence in the record before us that could
conceivably fall within the scope of costs of safety and security
measures required to be considered as ``necessary'' under section
3(b)(2) of the Martha Wright-Reed Act. As we discuss below, we
therefore have no need to more precisely define the ultimate scope and
contours of the term ``necessary'' under section 3(b)(2) at this time.
3. Accounting for Correctional Facility Costs
163. To account for the possibility that some correctional
facilities may incur--and IPCS providers may reimburse--used and useful
costs in allowing access to IPCS, we incorporate into our zones of
reasonableness the Commission's best estimate of IPCS costs that
correctional facilities may incur. To facilitate recovery of any used
and useful costs--but only such costs--that correctional facilities
incur, we permit IPCS providers to reimburse correctional facilities
for the used and useful costs they may incur as those costs have been
identified in the Report and Order. Together, these measures ensure
that we account for used and useful correctional facility costs in our
ratemaking calculations to the extent the record allows. Finally, our
actions also ensure that rates and charges for IPCS will be just and
reasonable as required by the Martha Wright-Reed Act, while also
ensuring fair compensation for providers to the extent justified by the
record here.
164. Our treatment of correctional facility costs reflects a
careful balancing of two competing factors. First, certain commenters
generally assert--though largely without support or current data--that
correctional facilities may incur some used and useful costs in
providing access to IPCS. While the nature and extent of such costs is
unclear on the current record, Worth Rises explains that ``[w]hile
exceedingly rare in the provision of IPCS, correctional facilities may
incur used and useful costs which the Commission could include within
rates.'' These assertions and the Commission's prior recognition that
correctional facilities may incur some costs in allowing access to IPCS
persuade us to recognize a measure of these costs in our ratemaking
calculus to the extent the record permits.
165. Second, despite some commenters' assertions that correctional
facilities incur costs in their administration of IPCS, the available
cost data (i.e., the 2015 survey data submitted by the National
Sheriffs' Association) do not allow us to quantify what those costs are
with any level of exactitude. This issue is not new. In the 2020 ICS
Notice, the Commission asked ``correctional facilities to provide
detailed information concerning the specific costs they incur in
connection with the provision of interstate inmate calling services.''
In the 2021 ICS Order, the Commission observed that despite this
request, ``nothing more current was submitted'' into the record
regarding correctional facility costs. Again the Commission, in 2021,
sought broad comment on correctional facility costs, including
methodologies to estimate such costs and how to obtain reliable data.
And, in an effort to understand potential cost differentials between
prisons and jails of differing sizes, the Commission also sought
specific comment on facility costs for each type of correctional
facility. Finally, in the 2023 Mandatory Data Collection, WCB and OEA
directed IPCS providers to report ``any verifiable, reliable, and
accurate information'' in their possession showing the costs incurred
by correctional facilities.
166. Despite these numerous and repeated public attempts to obtain
relevant data, commenters have neither provided updated facility cost
data nor proposed a methodology that would allow the Commission to
accurately estimate used and useful correctional facility costs.
Instead, the National Sheriffs' Association continues to rely on its
2015 cost survey as a ``reasonable proxy'' for facility costs, while a
single provider simply lists various tasks for which correctional
facilities allegedly incur costs but provides no supporting data as to
what those costs are. Given the state of the record, it is reasonable
for us to conclude that no allowance for correctional facility costs is
warranted in our lower bounds. In particular, the failure of providers
and facilities--which would have the relevant data--to provide such
data to the Commission despite repeated calls for them to do so
warrants an adverse inference that actual information would not support
the case for recovery. However, out of an abundance of caution, and in
recognition of those commenters that continue to assert that
correctional facilities may incur used and useful costs in allowing
access to IPCS, we conclude that we should incorporate some allowance
for such costs into the upper bounds of the zones of reasonableness.
Specifically, based on data from a 2015 cost survey provided by the
National Sheriffs' Association we incorporate $0.02 into the upper
bounds of our zones of reasonableness for all facilities. We do not
include an estimate of correctional facility costs in the lower
[[Page 77273]]
bounds of our zones of reasonableness as neither the record nor
providers' cost data reported in the 2023 Mandatory Data Collection
adequately or consistently support the inclusion of any specific level
of cost.
167. To that end, there are two sources of data we can look to in
determining whether and how to incorporate a measure of correctional
facility costs into our ratemaking calculus. The first is the 2015 cost
survey from the National Sheriffs' Association, upon which the National
Sheriffs' Association and Pay Tel ask us to rely. The Commission
relied, in part, on data from that survey in the 2021 ICS Order when it
adopted a $0.02 interim cap for recovery of IPCS providers'
contractually prescribed site commission payments. Although the
Commission expressed concerns about the National Sheriffs' Association
survey data at that time, it explained that ``they are the best data
available from correctional facility representatives regarding their
estimated costs.'' That remains true today. As the Prison Policy
Initiative observes, the National Sheriffs' Association survey relies
``entirely on self-reported data from correctional facilities'' and
involves ``inappropriately expansive descriptions'' of IPCS-related
tasks. Such infirmities make it very likely that the National Sheriffs'
Association data overstated correctional facility costs at the time of
the survey, and severely limit the data's value as a proxy for current
facility costs. Indeed, neither correctional facilities nor IPCS
providers have an incentive ``to understate their costs in the context
of a rate proceeding, lest the Commission adopts rates that are below
cost.'' But, as the Commission has explained, ``an agency may
reasonably rely on the best data available where perfect information is
unavailable.'' The National Sheriffs' Association survey data are the
best data available from correctional facility representatives which we
may, and do, reasonably consider in determining how to account for used
and useful correctional facility costs in our ratemaking calculations.
168. The second source of data we consider in determining whether
and to what extent correctional facility costs may incur used and
useful costs is the data providers reported regarding their site
commission payments in response to the 2023 Mandatory Data Collection.
A technical appendix compares the costs per minute that providers
reported for contracts requiring the payment of monetary site
commissions with the costs per minute that providers reported for
contracts not requiring the payment of monetary site commissions. We
find this comparison potentially helpful because both facilities and
providers have explained that some portions of some site commission
payments may compensate facilities for costs they incur in permitting
access to IPCS. If we saw lower per-minute costs for providers at
facilities with site monetary commission payments than for facilities
without monetary site commission payments, we might reasonably infer
(or at least hypothesize, subject to further analysis) that facilities
may be incurring such significant levels of used and useful costs as to
require an approach materially different from our approach in this
Order. Our comparison, however, shows higher per-minute costs for
providers at facilities with monetary site commission payments than for
facilities without monetary site commission payments. Previously, the
Commission relied in part on a similar analysis of earlier provider
data--in conjunction with the National Sheriffs' Association data--as
grounds for a $0.02 per minute interim allowance for reasonable
correctional facility costs. However, even the 2021 data analysis
suggested that the $0.02 per minute interim allowance might have been
too high. And our analysis of the data from the 2023 Mandatory Data
Collection ultimately provides no basis to identify an amount of
correctional facility costs that should be recoverable through
regulated IPCS rates. In particular, performing the same comparison
used in 2021, but updated to reflect the latest data, discloses that
providers actually incur greater costs per minute to serve facilities
for which they pay monetary site commissions, providing no
substantiation of certain commenters' suggestion that site commissions
operate to compensate for the transfer of some costs of service from
providers to facilities. We conclude that because providers report
greater costs per minute for contracts requiring the payment of
monetary site commissions versus those that do not, our approach of
including a $0.02 per-minute additive for facility costs in the upper
bounds of our zones of reasonableness, but no additive for facility
costs in the lower bounds of those zones, is the best approach given
the record before us. This balancing reflects our recognition, on the
one hand, that correctional facilities may well incur used and useful
costs in allowing access to IPCS, with the absence of any basis in the
record that would enable us to estimate those costs with any degree of
precision.
169. In accounting for correctional facility costs in this manner,
we decline requests that we instead account for those costs by adding a
specific amount per-minute to our rate caps based on data from the
National Sheriffs' Association cost survey. These data do not enable us
to quantify such costs with anything near the level of specificity that
would be required to adopt a specific ``just and reasonable'' additive
reflecting used and useful correctional facility costs. Commenters
supporting a rate additive have failed to explain a connection between
their proposed additives and the National Sheriffs' Association 2015
cost survey data. Nor have they explained the methodology used to
derive the additives they propose or, indeed, any alternative
additives. We therefore cannot accept at face value the proposed rate
additives, or adopt any alternative additive, based on these data and
simultaneously ensure that the rate caps we adopt are just and
reasonable and fairly compensatory. Given the state of the record, we
conclude that our approach, as described below, strikes the best
balance.
170. Incorporating A Measure of Correctional Facility Costs Into
the Upper Bounds of the Zones of Reasonableness. In establishing the
upper bounds of our zones of reasonableness, we use providers'
unadjusted reported IPCS costs. Ordinarily, we would undertake the same
exercise to incorporate correctional facility costs into our upper
bounds. But as detailed above, we have no reliable reported
correctional facility cost data, which requires us to find a reasonable
substitute. Because the National Sheriffs' Association 2015 cost survey
is the only available correctional facility cost data reported by
correctional facility representatives in the record, we rely on those
data to incorporate $0.02 into the upper bounds of our zones of
reasonableness for all facilities. The $0.02 figure derives from the
Commission's prior analysis of the amount of used and useful
correctional facility costs the National Sheriffs' Association's cost
survey reasonably supported. In the 2021 ICS Order, the Commission
relied, in part, on these data to conclude that $0.02 was a reasonable
estimate of the used and useful correctional facility costs recovered
through IPCS providers' contractually prescribed site commission
payments for prisons and for jails with average daily populations of
1,000 or more. The Commission explained that the majority of prisons
and large jails that responded to the National Sheriffs' Association
survey reported ``average total costs per minute
[[Page 77274]]
of less than $0.02'' but declined to adopt a lower figure, reflecting
the Commission's ``conservative approach'' to estimating correctional
facility costs in setting interim rate caps based on these data. The
Commission, nevertheless, continued to express concerns about the data.
171. The record has not developed in any meaningful way since the
Commission determined that the National Sheriffs' Association data
supported, at most, a $0.02 allowance for correctional facility cost at
prisons and jails with average daily populations of 1,000 or more. We
sought to identify in using data from the 2023 Mandatory Data
Collection the extent to which correctional facilities bear costs by
seeking to determine how much providers' reported expenses decline when
they pay monetary site commissions, but found providers' reported
expenses increase in a statistically significant manner when they pay
such commissions. We thus see no principled or reasonable basis on
which to depart from that determination so as to find a higher cost
justified now. As one commenter explains, instead of ``refreshing the
record or seriously engaging on the merits of the Commission's
inquiry,'' the National Sheriffs' Association ``simply continues its
years-long practice of rote repetition of the cost categories
identified in its 2015 survey findings.'' The National Sheriffs'
Association contends that because the Commission found its cost survey
``credible'' in the 2016 ICS Reconsideration Order, there is ``no
basis'' to change that conclusion now. This argument is unpersuasive.
The Commission made a credibility determination in the 2016 ICS
Reconsideration Order in the context of a record on facility costs that
the Commission acknowledged was lacking. The National Sheriffs'
Association's arguments do not acknowledge the very specific
circumstances under which the Commission relied on the 2015 survey
data, and do not provide sufficient basis for the Commission to deviate
from its subsequent findings in the 2021 ICS Order.
172. The National Sheriffs' Association acknowledges the
imprecision of the data it provided but argues that the ``wide
unexplained variations'' in costs that the Commission observed in the
data are attributable to the fact that ``there are different hourly
rates for Sheriffs' and jail employees'' and that different facilities
use different IPCS systems and require different administrative and
security measures. These arguments do not provide us with a methodology
that would let us verify or isolate costs used and useful in the
provision of IPCS from the other costs that correctional facilities
incur and that are reflected in the survey data. Rather, the National
Sheriffs' Association's statements concede that correctional facilities
do not incur costs uniformly, making it even more likely these data
overstate correctional facility costs. The National Sheriffs'
Association also continues to maintain that the costs reported in its
cost survey should be fully recoverable. These include costs related to
various safety, security, surveillance, and administrative tasks. The
National Sheriffs' Association explains that without these functions no
IPCS would be provided in certain correctional facilities and,
conversely, without IPCS, correctional facilities would not incur costs
associated with the administrative and security tasks it lists. We find
the argument that IPCS would not be provided in certain facilities as
the National Sheriffs' Association and FDC claim to be unsubstantiated.
In effect, then, the National Sheriffs' Association's argues that
because IPCS is made available to incarcerated people, the costs that
it has put into record are necessarily used and useful and therefore
recoverable in full. This argument misses the mark. Simply because some
tasks ``are sometimes performed does not end the Commission's
inquiry.'' But simply because certain tasks are performed by facilities
or sheriffs does not automatically mean that such tasks are related to
communications services. If anything, the fact that certain tasks may
be performed by the correctional facilities suggests that these are
costs of incarceration, not of IPCS. For example, the fact that a
correctional facility might elect to undertake certain activities given
the existence of IPCS in that facility does not automatically mean that
the activities are of sufficient benefit to IPCS ratepayers to warrant
their bearing the activities' costs through IPCS rates. We instead must
undertake a more nuanced analysis to determine the types of costs that
are allowable in IPCS rates. And we do so by applying the used and
useful framework the Commission has relied on for decades. Employing
that approach, we incorporate, to the extent the record provides
meaningful data, the used and useful costs incurred in the provision of
IPCS into our rate cap calculations, regardless of whether those costs
are incurred directly by IPCS providers or instead incurred directly by
correctional facilities and subject to IPCS provider reimbursement. As
to costs that we do not find used and useful in the provision of IPCS,
IPCS ratepayers should not be forced to bear them--nor should IPCS
providers be compelled to do so themselves. Thus, while correctional
facilities remain free to engage in (or employ) activities or functions
that are not used and useful in the provision of IPCS, they must look
elsewhere besides regulated IPCS rates to fund them.
174. Fundamentally, the costs reflected in the National Sheriffs'
Association survey are, for the most part, ``cost[s] of operating
prisons and jails, not providing communication service'' and, as such,
do not benefit IPCS consumers sufficiently to render them used and
useful in the provision of IPCS. Stated differently, ``[t]he presence
or absence'' of these tasks ``does not actually prevent or enable
communication.'' Subject to those costs we conclude are used and useful
in the provision of IPCS as reflected in our ratemaking calculus, we
agree. But outside of the costs we do allow, the National Sheriffs'
Association cost survey fails to support the inclusion of any amount
greater than $0.02 to account for used and useful correctional facility
costs.
175. We decline to give any weight to the survey provided by Pay
Tel's outside consultant, which purports to quantify ``an estimate of
the [s]afety and [s]ecurity costs incurred by confinement facilities
that are specifically caused by making IPCS available at that
facility.'' We find this survey to be unreliable. First, the survey is
unrepresentative. As the consultant concedes, the ``sample size of
[the] data collection effort is limited.'' It encompasses 30
correctional facilities, which is less than 1% of all facilities
included in the 2023 Mandatory Data Collection, and covers only ``small
county jails and large regional facilities'' thereby excluding prisons
and large jails. Second, the survey does not attempt to account for the
nuances of how safety and security measures are administered and, in
particular, the division of labor between correctional facilities and
IPCS providers. The record is clear that these and other functions and
activities for which correctional facilities allegedly incur costs are
sometimes performed by the IPCS provider and sometimes performed by the
correctional facility. What is more, certain IPCS providers have stated
that they offer comprehensive services, that include safety and
security services, as part of a unified platform they sell to
correctional facilities.
Thus, we find it unlikely that the information provided in the Pay
Tel consultant's survey is representative of
[[Page 77275]]
the costs incurred by correctional facilities in connection with safety
and security measures across the IPCS industry. As such, we decline to
rely on it to estimate used and useful correctional facility costs.
Even if we were to find the data reliable enough to be decisional, it
would support the $0.02 that we incorporate into the upper bounds of
our zones of reasonableness based on the National Sheriffs' Association
survey. The June 7, 2024 Wood Report, which is based on information
self-reported by correctional facilities across seven categories of
safety and security measures, suggests that the ``average reported cost
for these 30 facilities in $0.08 per MOU.'' However, this estimate
includes three categories of safety and security measures that we
conclude today are not used and useful in the provision of IPCS,
including ``Routine Preventative Call Monitoring,'' ``Call Recording
Review'' and ``Enrolling Inmates for Voice Biometrics.'' These three
categories account for a total of 74% of the average reported costs of
safety and security measures in the Wood June 7, 2024 Report (38% for
routine preventative call monitoring, 28% for call recording review,
and 8% for enrolling inmates for voice biometrics). Removing costs
associated with those measures reduces the $0.08 per minute figure that
the report argues represents facilities' safety and security costs by
74%, yielding an average cost of approximately $0.0208 per minute.
Thus, in excluding categories of safety and security costs that we
conclude are generally not used and useful from the amount in the Wood
June 7, 2024 Report, we arrive at essentially the same $0.02 that we
incorporate into the upper bounds of our zones of reasonableness.
176. Therefore, we adopt the $0.02 allowance for correctional
facility costs in the upper bounds of our zones of reasonableness for
all facilities. In the 2021 ICS Order, the Commission limited the
applicability of the $0.02 cap for recovery of contractually prescribed
site commissions to prisons and jails with average daily populations of
1,000 or more individuals ``in response to criticism that this value
would not be sufficient to recover the alleged higher facility-related
costs'' of smaller facilities. Because commenters ``did not provide
sufficient evidence to enable [the Commission] to quantify'' the
allegedly higher costs incurred by smaller correctional facilities, the
Commission sought comment on that issue in 2021. The Commission further
explained that the National Sheriffs' Association data varied too
widely to determine whether correctional facility costs were indeed
higher for smaller facilities.
177. Here, too, commenters have not substantiated their claims that
correctional facility costs are higher in smaller facilities. The
National Sheriffs' Association argues that the Commission's concerns
about its data concerning smaller facilities ``contradict the
Commission's finding in the 2016 ICS Reconsideration Order.'' They also
argue that ``a wide variation in data is not disqualifying when there
is an explanation for the variation,'' which they claim the survey data
provide. Prior statements from the National Sheriffs' Association
potentially account for the variation in costs for smaller facilities,
including differences in employee time spent on certain tasks,
compensation rates, and differences in minutes of use. And the
Commission noted that ``there are many potential variables that impact
facilities' costs'' and sought ``detailed comment on those variables''
in an attempt to obtain a clearer record on costs for smaller
facilities. Yet commenters have not provided any such details to
explain the wide variation in facility costs for smaller facilities
reflected in the National Sheriffs' Association survey. In short, the
record does not support the inclusion of an amount greater than $0.02
into the upper bounds of the zones of reasonableness for all
facilities.
178. Correctional Facility Costs in the Lower Bounds of the Zones
of Reasonableness. The lower bounds of our zones of reasonableness
reflect only those costs that the record affirmatively establishes as
generally being used and useful in the provision of IPCS. Due to the
lack of any reliable data concerning correctional facility costs in
connection with IPCS, we rely on data reported by IPCS providers in the
2023 Mandatory Data Collection in connection with providers' site
commission payments. While we recognize that correctional facilities do
incur used and useful costs in allowing access to IPCS, the record
provides no data that would allow us to estimate those costs with any
degree of precision. Accordingly, we include no estimate for such costs
in the lower bounds of our zones of reasonableness. We decline to rely
on the National Sheriffs' Association cost survey in connection with
our evaluation of whether and how to incorporate correctional facility
costs into the lower bounds of our zones of reasonableness. As
discussed above, we find that the National Sheriffs' Association survey
data that we use to incorporate correctional facility costs into the
upper bounds of the zones of reasonableness do not enable us to
quantify such costs with any level of specificity. The same applies to
the Wood June 7, 2024 Report. As discussed above, that ``limited''
report covers only 30 correctional facilities and only includes ``small
county jails and large regional facilities,'' rendering the survey far
too unrepresentative as a measure of correctional facility costs across
the industry. We therefore conclude that we cannot meaningfully adjust
the data providers reported for purposes of establishing the lower
bounds.
179. We reach our decision regarding correctional facility costs in
the lower bounds based on the absence of a record quantifying such
costs, and supported by the analysis described in a technical appendix.
This analysis, which is based on the Commission's analysis in the 2021
ICS Order, takes providers' cost and site commission data reported in
response to the 2023 Mandatory Data Collection and compares providers'
relative costs per minute for contracts with and without site
commissions. That analysis indicates that contracts with site
commissions exhibit greater costs per minute than those without site
commissions, which provides no support for the assertion that site
commissions operate to transfer some costs of service from providers to
facilities. If the opposite were true, and site commissions did recover
facility costs used and useful in the provision of IPCS, we would
expect to see higher costs to the provider for contracts without site
commissions. Because providers' responses to the 2023 Mandatory Data
Collection ``incorporate[ ] no correctional facility-provided cost
data,'' we find that our approach of including a $0.02 per-minute
additive for facility costs in the upper bounds of our zones of
reasonableness, but no additive for facility costs in the lower bounds
of those zones, properly balances our recognition that correctional
facilities may well incur used and useful costs in allowing access to
IPCS with the absence of any basis in the record that would enable us
to estimate those costs with any degree of precision. Pay Tel argues
that not including a measure of facility costs in the lower bound
``reflects a misunderstanding of the evidence in the record and in no
way justifies withholding cost recovery from facilities.'' Yet Pay Tel
does not contend with the inadequacies of the record data we have
identified in any meaningful way beyond asserting that they show that
correctional facilities incur costs associated with making IPCS
available. As we explain above, the available
[[Page 77276]]
correctional facility cost data are unreliable for purposes of
including a measure of correctional facility costs in the lower bounds
of our zones of reasonableness. Furthermore, we do not withhold cost
recovery from facilities by declining to include a measure of
correctional facility costs in the lower bounds. As explained below, we
take the fact that our lower bounds may not reflect all used and useful
costs into account in setting rate caps, and we allow IPCS providers to
reimburse correctional facilities for the used and useful costs they
may incur, if any. And because the available provider data do not
enable us to quantify the extent to which providers' site commission
payments compensate facilities for any costs that they incur that are
used and useful in the provision of IPCS, we do not incorporate
correctional facility costs into the lower bounds of our zones of
reasonableness.
180. We acknowledge that because we do not incorporate a measure of
correctional facility costs in the lower bounds of our zones of
reasonableness, those bounds may understate the used and useful costs
of providing IPCS. As discussed above, none of the data in the record
concerning correctional facility costs allow the Commission to quantify
these costs with any level of precision and, as such, preclude any
adjustment to the lower bounds. We account for that fact in choosing
rate caps at levels that exceed the lower bounds, as discussed below.
181. Reimbursement for Used and Useful Correctional Facility Costs.
Despite the limitations in our data reflecting facilities' costs, we
nevertheless take measures to ensure that correctional facilities have
a mechanism to recover their used and useful costs, if any, in the
provision of IPCS. To that end, we permit IPCS providers to reimburse
correctional facilities for such used and useful costs, if it is
apparent that such costs are, indeed, incurred by a facility. The IPCS
rate caps we adopt today reflect, based on the record before us, all of
the used and useful costs incurred in the provision of IPCS regardless
of whether such costs are incurred by IPCS providers or correctional
facilities. Thus, the rate caps recognize, consistent with the record,
that correctional facilities may incur some used and useful costs in
allowing access to IPCS. Pay Tel's contention that the Commission
``fail[s] to allow for a mechanism by which facilities may recover
their costs associated with making IPCS available'' is contradicted by
our explicit allowance for such a mechanism here. Pay Tel's argument
appears to be grounded in its preference for an ``express additive to
IPCS rate caps'' rather than the reimbursement mechanism permitted by
the Report and Order. As we explain above, the available data do not
enable us to quantify correctional facility costs in a way that would
allow us to disaggregate our rate caps into just and reasonable
provider components and facility components, and Pay Tel has not
supplied more robust data or otherwise attempted to cure the defects in
the available data. As a result, we rely on our rate caps, which
reflect all of the used and useful costs incurred in the provision of
IPCS, and therefore ``allow IPCS providers to recover facility costs,''
despite Pay Tel's argument to the contrary. Because we eliminate site
commissions below, which have historically been the primary means by
which correctional facilities may have, to some extent, recovered used
and useful costs they may incur in allowing access to IPCS,
correctional facilities would have no means to recover those costs
absent that further action to allow a level of provider reimbursements.
182. The reimbursement we allow extends only to those costs that
are used and useful in the provision of IPCS as reflected in the Report
and Order. Given the over-arching problems associated with site
commission payments, if a correctional facility seeks reimbursement
from an IPCS provider for an allegedly used and useful cost, the IPCS
provider should determine whether the cost for which the correctional
facility seeks reimbursement is a cost that the Commission has
determined to be used and useful and thus properly reimbursable under
the standard set forth in the Report and Order. We otherwise leave the
details of any reimbursement transaction to the parties to resolve.
IPCS providers and their correctional facility customers are well aware
of the types of costs that are used and useful in the provision of IPCS
and are in the best position to negotiate reimbursement as they see
fit. We also clarify that while we permit IPCS providers to reimburse
correctional facilities for their used and useful costs in allowing
access to IPCS, nothing in the Report and Order should be interpreted
to require IPCS providers to do so. To the extent a correctional
facility incurs used and useful costs in allowing access to IPCS, the
correctional facility and the IPCS provider are free to negotiate such
reimbursement in accordance with the Report and Order. ICSolutions asks
whether, within the rate caps, IPCS providers can ``pay correctional
facilities up to the $0.02/minute for reasonable corrections
facilities' costs'' and, if so, whether the $0.02 per minute is a safe
harbor. ICSolutions July 12, 2024 Ex Parte at 1. We do not establish a
safe harbor. The $0.02 figure to which ICSolutions presumably refers
reflects the Commission's best estimate of used and useful correctional
facility costs for the purpose of calculating the upper bounds of our
zones of reasonableness. That figure is not meant to suggest that $0.02
per minute would be an appropriate reimbursement amount and does not
establish a safe harbor for purposes of the reimbursement we permit.
For example, ``[i]f a correctional facility were to pay for internet
installation and maintenance to enable the provision of IPCS,'' that
payment would be considered used and useful in the provision of IPCS.
In that case, the IPCS provider could reimburse the correctional
facility for its costs from the revenue collected by the IPCS provider
since the cost of internet installation is included in our rate caps.
In contrast, IPCS providers may not reimburse correctional facilities
for costs that we find not to be used and useful in the provision of
IPCS, such as costs for certain safety and security measures that we
conclude are not used and useful in the provision of IPCS. Finally,
under no circumstances may reimbursement result in IPCS consumers being
charged more than the rate caps we adopt today.
4. Adopting Audio and Video Incarcerated People's Communications
Services Rate Caps
183. We adopt permanent audio IPCS and interim video IPCS rate caps
by employing a zone of reasonableness approach, similar to the
Commission's previous efforts. We find that adopting zones of
reasonableness, updated from the Commission's approach in the 2021 ICS
Order, is the best means of establishing rate caps in which IPCS rates
are ``just and reasonable'' and, in conjunction with our ban on site
commissions, providers are ``fairly compensated.'' We further find that
the data collected in the 2023 Mandatory Data Collection offers a
sufficient basis from which to derive the zones and rate caps, despite
the limitations of the reported cost data. We reject cursory claims
that our rate caps will be unreasonable because our rules ``impose[ ]
significant and new operational obligations and changes on all
providers'' but ``fails to account for the costs of these new
obligations.'' Securus does not quantify or otherwise substantiate this
claim, nor does it demonstrate that the waiver process
[[Page 77277]]
would be inadequate to address any unusual implementation costs that
theoretically might arise for a given provider. We derive the upper
bounds and lower bounds of the zones for each facility tier by
evaluating and analyzing the data and other information received in
response to the 2023 Mandatory Data Collection.
184. Reliance on Data from the 2023 Mandatory Data Collection. The
2023 Mandatory Data Collection, which updated and supplemented the
Third Mandatory Data Collection, is the most comprehensive data
collection in the IPCS proceeding to date, building upon the lessons
learned from each previous effort. As instructed by the Commission, WCB
and OEA structured this data collection to strike a balance between
meeting the statutory timeline directed by the Martha Wright-Reed Act
and simultaneously reducing the burdens on providers to respond to an
expanded collection, such as by limiting the information requested,
lowering reporting requirements, and making other changes associated
with reducing burdens through the notice and comment process. To reduce
the time required and the burdens associated with responding to the
2023 Mandatory Data Collection, it was decided to only require parties
to report data collected in the ordinary course of their business, to
require at least GAAP consistency for financial reporting, and to allow
providers to develop cost allocations based on their knowledge of their
businesses and accounts, rather than imposing a regulatory set of
accounts on providers. These decisions traded minimizing burdens off
against obtaining useful data. Staff experience acknowledged that
different providers would take different approaches, would have
different business models, and would differ in other important ways,
and accordingly, questions designed to provide necessary context to
understanding these differences were updated and included as well. We
agree with commenters who assert that the currently available data are
of substantially greater quality than that available in 2021 when we
established interim rates, and we find the most recent reported data
continued to improve in the same fashion. These data are derivative of
the cost allocation instructions for this data collection, which have
been improved and refined themselves. Even so, the data from the 2023
Mandatory Data Collection are imperfect. While we afforded providers
the leeway to report data collected in the ordinary course of business
rather than imposing a regulatory set of accounts upon them, the
absence of a uniform system of accounting rules engenders variance in
the reported data. We likewise acknowledge that providers are
incentivized to report their data in ways that produce higher IPCS
costs, that providers are differently situated and may interpret our
data requests differently, and that cost allocation, as a general
matter, can be difficult. While the record raises some questions as to
whether these data accurately capture IPCS expenses, we have sought to
account for that risk as best we can, including by using a range of
other record sources or publicly available information beyond our data
collection.
185. Nevertheless, we find the data from the 2023 Mandatory Data
Collection sufficient to support our actions today. As stated
previously, agencies may reasonably rely on the best available data
where perfect information is unavailable. The Supreme Court has
recognized that ``[i]t is not infrequent that the available data does
not settle a regulatory issue,'' and in such cases, ``the agency must
then exercise its judgment in moving from the facts and probabilities
on the record to a policy conclusion.'' Having ``explain[ed] the
evidence which is available,'' we apply our judgment to the record and
reach results that provide a ``rational connection between the facts
found and the choice made.'' In doing so, we minimize our reliance on
data that we find inaccurate or unreliable by setting lower bounds that
adjust for anomalies in the reported data. Under the circumstances, we
choose ``to use the best available data, and to make whatever
adjustments appear[ ] necessary and feasible'' to ensure that audio and
video IPCS rates are just and reasonable. NCIC argues that ``nearly
half of the current video visitation service providers'' did not
respond to the 2023 Mandatory Data Collection, and so urges the
Commission to ``delay the adoption of interim rates until it receives
comprehensive data from all video visitation providers, and deliver
immediate relief by simply prohibiting flat-rate billing.'' In effect,
NCIC asks that we pursue ``the perfect at the expense of the
achievable.'' For the reasons set forth herein, we find it appropriate
to address the limitations in providers' video IPCS data by making
appropriate adjustments to our upper and lower bounds and in setting
interim rate caps, rather than abandoning the effort to set rate caps
altogether in contravention of Congress's mandate. We have undertaken a
comprehensive analysis of the available data, explained our concerns
with the imperfections that we have identified, and fully explicated
the basis for the rate methodology that we adopt in light of the
relative merits of the data. We also provide our reasoning for
excluding certain data from our analysis, based on both flaws in the
data and the directives of the Martha Wright-Reed Act.
186. Implementing the Zone of Reasonableness Approach. In 2023, the
Commission sought comment on the approach to ratemaking and the
statutory directive that we may use industry-wide average costs. The
zone of reasonableness approach is well-suited to reconcile competing
concerns, such as those reflected by the Martha Wright-Reed Act's
respective obligations to set ``just and reasonable'' rates that
``fairly compensate[ ]'' providers. This approach helps avoid ``giving
undue weight to the assumptions that would lead to either unduly high
or unduly low per-minute rate caps,'' and helps us balance the
respective competing interests of providers and consumers. Precedent
establishes that we are ``free, within the limitations imposed by
pertinent constitutional and statutory commands, to devise methods of
regulation capable of equitably reconciling diverse and competing
interests.'' It also gives us the flexibility to effectively address
imperfections in the data and ultimately select rate caps that satisfy
both statutory standards. Indeed, the D.C. Circuit has emphasized the
``basic principle'' that ``rate orders that fall within a `zone of
reasonableness,' where rates are neither `less than compensatory' nor
`excessive,' '' are ``just and reasonable.'' We reiterate, ``[i]t is
well-established that rates are lawful if they fall within a zone of
reasonableness.''
187. The record supports this approach. As certain commenters
observe, the zone of reasonableness approach ``allowed the Commission
to take into account the different approaches to cost reflected in the
Second Mandatory Data Collection,'' and it ``continues to be the
appropriate method for establishing permanent rates based on the data
submitted in response to the Third Mandatory Data Collection.''
Commenters add that the zone of reasonableness remains appropriate
under the Martha Wright-Reed Act, which ``embraces the use of industry-
wide average costs to set rate caps for IPCS'' and ``adjust[ing] those
costs as necessary.''
188. Not all commenters agree, however. A few argue that the zone
of reasonableness approach is unnecessary with higher quality data and
advocate for us to employ a statistical method paradigm. While the data
collected in
[[Page 77278]]
the 2023 Mandatory Data Collection are more comprehensive and reliable
than the data from prior data collections, we disagree that the
improvement in the collected data requires us to change our approach.
As we discuss elsewhere, the market for video IPCS is still developing,
which strengthens the case for applying the zone of reasonableness to
the data before us. Nor have those commenters persuaded us that their
alternative approaches to rate regulation would be an improvement. The
alternative statistical methods advanced by providers, including using
a mean plus standard deviation or an interquartile range, ignore the
limitations of the data and the likelihood that providers have
overstated their costs, problems which the zone of reasonableness
approach helps us address. We also find that the zone of reasonableness
approach remains particularly apt for balancing the directives
established by the Martha Wright-Reed Act on the basis of the data
before us. NCIC separately criticizes the zone of reasonableness as
``overly complicated,'' and suggests that it ``may well be impossible
to monitor at small- and medium-sized facilities that have frequently
fluctuating populations with varying lengths of incarceration.'' We are
unpersuaded. The resultant caps are straightforward, and NCIC fails to
explain how monitoring rates at individual facilities (regardless of
size) is problematic. Indeed, providers are required to track and
report the rates they charge, and neither providers nor facilities have
any role (much less any responsibility) in the ``zone of
reasonableness'' calculation process. Nor has NCIC explained how
population turnover impacts the zone of reasonableness calculation
process. As we explain in a technical appendix, by distinguishing
between prisons and jails, our rate-setting methodology helps account
for turnover to the extent relevant, and NCIC's comments do not
demonstrate what, if anything, more is justified in that regard.
a. Establishing the Zones of Reasonableness
189. Our zone of reasonableness approach involves three distinct
steps which echo the approach the Commission took in the 2021 ICS
Order. First, we establish ceilings, or upper bounds, for our zones for
each audio and video tier by using the data that providers submitted in
response to the 2023 Mandatory Data Collection. To reach these
ceilings, we also add all reported safety and security costs to the
industry averages reflected by the reported data without regard to
whether those costs are used and useful, and include estimates of
facility costs and TRS costs. Second, we make reasonable, conservative
adjustments to the reported data, including by reducing the types of
safety and security costs and amount of facility costs we incorporate
into our industry average cost calculation, among other steps. We use
those adjusted data to establish reasonable floors, which become the
lower bounds of our zones of reasonableness. In determining the upper
and lower bounds, we calculate industry average costs across the sum of
both billed and unbilled minutes, as we find that this sum (rather than
billed minutes alone) more accurately reflects providers' average
costs. Finally, we rely on record evidence and on our agency expertise
to pick reasonable rate caps for each tier from within those zones for
both audio and video IPCS communications.
190. Determining Upper Bounds for the Zones of Reasonableness. We
begin our determination of the upper bounds for our permanent audio
rate caps and our interim video rate caps by identifying the weighted
average of providers' reported IPCS costs at each tier. To do this, we
exclude those submissions we find incomplete or otherwise unusable, and
we otherwise accept providers' costs as reported. Because reported
costs include costs which we find are not used and useful in the
provision of IPCS, our upper bounds mark the upper limits of what might
be considered ``industry-wide average costs'' within the meaning of
section 3(b)(1) of the Martha Wright-Reed Act.
191. In keeping with our acceptance of providers' IPCS costs as
reported, we also include all reported safety and security costs in our
upper bounds of the zones of reasonableness. We do so for several
reasons. First, we recognize that while questions were pending
surrounding the inclusion of such costs in our IPCS rates, providers
continued to develop and offer safety and security measures for the
benefit of and use by authorized personnel in the carceral environment.
This suggests that historically, IPCS providers were able to provide
service without certain safety and security services which have been
more recently developed. In developing our upper bounds, however, we
decline to weigh the various categories of safety and security
measures, and instead give providers the benefit of the doubt by
treating all such measures as used and useful IPCS costs, regardless of
whether such measures are of the type that were historically used and
useful in the provision of IPCS. Second, because of limitations in the
reported data, we cannot further disaggregate or distinguish costs for
individual safety and security measures with precision. Rather than
attempt to remove costs for specific constituent safety and security
measures which are not used and useful in the provision of IPCS, we
take a conservative approach and include all reported safety and
security measures costs within the upper bounds.
192. Next, we incorporate an estimate of the separate IPCS costs
which facilities may incur in allowing access to IPCS. First, as we
explain above, we adopt an estimate of $0.02 per minute for the
proposed caps at each tier for our upper bounds to reflect any used and
useful costs facilities may incur. As we have explained, the record
does not sufficiently quantify the amount of such costs, particularly
at smaller facilities. Although the Commission has repeatedly sought
more recent and more accurate data, the record before us is lacking. We
derive an estimate of these costs from the facility cost additive the
Commission used in its 2021 ICS Order, which previously applied to
prisons and large jails, depending on the existence of contractually
prescribed site commissions related to a given facility. This $0.02
estimate continues to reflect the best data available concerning
facility costs despite outstanding questions. The use of this additive
did not generate any waiver requests in the interim, suggesting that
the estimate was not unduly low. Without better data from which to
determine how facilities' IPCS costs may differ, if at all, between
facilities of different sizes and types, we apply this same estimate
uniformly across all tiers.
193. Finally, we also include an estimate of the costs incurred by
providers to implement the changes to TRS services required under the
2022 ICS Order. These changes did not take effect until January 9,
2023, and the costs of implementing them therefore were not reflected
in the data filed in response to the 2023 Mandatory Data Collection,
which are for calendar year 2022. We understand that the costs to
provide TRS in the carceral environment may frequently exceed the
support available to TRS providers because of the specialized equipment
and networks often required to deploy these services inside of prisons
or jails. We include this estimate so that our rate caps will cover
these excesses and fully compensate providers for the costs of
providing these services. However, the record quantifying these costs
is once again scant. The only available data in the 2023 Mandatory Data
Collection stems from the response of a single provider, which suggest
that these costs
[[Page 77279]]
may be $0.002 per minute. Without more data on which to rely, we
incorporate that estimate into both our upper and lower bounds.
194. As we explain in a technical appendix, we find that the upper
bounds overstate providers' actual costs of providing both audio IPCS
and video IPCS, likely by a significant margin. This conclusion echoes
the reasoning in the Commission's 2021 ICS Order. In addition to the
overinclusion of safety and security costs and facility costs which we
discuss above, all providers have reasons to overstate their general
IPCS costs in response to our data collection, as higher costs could
lead to higher cost-based rate caps, and thus higher profits.
195. Additionally, our upper bounds also incorporate the weighted
average cost of capital (WACC) as reported by providers, another factor
which heightens the likelihood that they are overstated. The
instructions to the 2023 Mandatory Data Collection included the caveat
that the Commission would apply a WACC figure of 9.75% for any provider
that failed to justify the application of an alternative figure.
Generally, 9.75% is the Commission's currently authorized rate of
return for incumbent local exchange carriers regulated on a rate-of-
return basis. Of all providers, only Securus and ViaPath reported
higher costs of capital than the standard 9.75% rate of return. We find
Securus and ViaPath failed to justify the higher costs of capital they
reported and therefore use 9.75% in determining our lower bounds.
Particularly because the weighted average cost of capital has a
cascading effect upon reported costs, accepting these figures as
reported tends to overstate the upper bounds.
196. There are also distinct attributes of the video IPCS market
which reinforce our conclusion that the upper bounds likely overstate
providers' used and useful costs. One overarching attribute is that
video IPCS remains a developing marketplace--in fact, providers report
offering video IPCS at less than half of all facilities where they
offer audio IPCS. Currently, video IPCS is being deployed at 49.24% of
facilities in the dataset. There are significant indicia that the
reported data reflect high upfront costs to develop and deploy video
IPCS across the nation's carceral facilities, which costs should
decrease over time. For example, many facilities represented in the
dataset have extraordinarily high costs per minute for video IPCS, yet
very low relative demand, which is consistent with newly deployed
services. Further, the variation in providers' reported data for almost
every aspect of video communication is substantially higher than for
audio, suggesting that video supply in 2022 was in an early
developmental stage, and that providers will likely become more
efficient over time, resulting in lower unit costs. Keeping in mind the
rate caps that we adopt today reflect data from 2022, we expect
providers have become more efficient in supplying video services and
will continue to do so. We also expect usage of video IPCS to increase
and hence, as providers reap economies of scale, for costs relative to
demand to decrease over time.
197. In light of the above, we calculate the upper bounds for audio
and video IPCS rate caps for each tier as follows:
Prisons: $0.107 per minute for audio communications and
$0.326 per minute for video communications;
Large Jails: $0.098 per minute for audio communications
and $0.223 per minute for video communications;
Medium Jails: $0.110 per minute for audio communications
and $0.216 per minute for video communications;
Small Jails: $0.121 per minute for audio communications
and $0.208 per minute for video communications; and
Very Small Jails: $0.151 per minute for audio
communications and $0.288 per minute for video communications.
Taken together, these upper bounds form a reasonable, yet
cautiously overstated, edifice from which to continue our calculation
of the zones of reasonableness.
198. Determining Lower Bounds of the Zone of Reasonableness. Our
lower bound calculations begin by incorporating the results of our
upper bound analysis, which ``provides an appropriate starting point
for determining the lower bounds of the zones.'' We then make
reasonable adjustments to the upper bound figures to ``minimize our
reliance on data that we find inaccurate or unreliable.'' We also
adjust the upper bound figures to remove the costs of those categories
of safety and security measures that we find generally are not used and
useful in the provision of IPCS.
199. Our lower bound adjustments to providers' reported costs
entail several modifications beyond those applied to reach our upper
bound figures. Nevertheless, we find that several significant anomalies
in providers' reported data justify these modifications. Most
critically, providers' total reported costs across the industry for
2022 exceed their total reported revenues by approximately $219
million. This represents a deficit amounting to over 16% of the total
size of the IPCS market. This pattern applies individually as well as
in the aggregate, with half of the providers making up our database
reporting cost-revenue deficits for 2022, including four of the top
five providers by market share, a result ``inconsistent with the record
evidence establishing that providers are able to achieve significant
economies of scale.'' The existence of such a disparity, let alone its
magnitude, strongly suggests that reported costs are inflated, given
that rational firms are profit seeking. Nor have any providers offered
an explanation of why costs might reasonably exceed revenues at such a
magnitude, either in their responses to the 2023 Mandatory Data
Collection or otherwise in the record. Consequently, we find that even
the more impactful modifications that we adopt to establish our lower
bounds represent reasonable, conservative adjustments, which help
account for this deficit, in addition to addressing the other anomalies
in the reported data we detail further below.
200. The construction of the lower bounds is driven by removing the
costs of those categories of safety and security measures that we find
generally are not used and useful in the provision of IPCS. As
discussed above, we find that only two of the seven categories of
safety and security measures identified in the 2023 Mandatory Data
Collection are generally used and useful in the provision of IPCS: the
Communications Assistance for Law Enforcement Act (CALEA) compliance
measures and communication security services. By incorporating the
costs reported for these service categories into our lower bounds, we
retain a significant portion of providers' reported safety and security
costs, i.e., $180 million. This sum is equivalent to nearly half of
providers' reported costs of providing audio and video IPCS (even
before applying the additional adjustments addressed below).
Additionally, as discussed above, several commenters contend that none
of the costs of providing safety and security measures should be
incorporated into our rate caps, arguing that these measures are not
``used and useful'' to IPCS consumers but instead merely ``elective
features,'' and that incorporating these costs into our caps
effectively requires consumers to finance the conditions of their own
confinement as a condition of communicating with loved ones. We
disagree, and find that allowing a portion of such costs results in
just and reasonable rate caps. Conversely, incorporating the costs of
the five remaining categories would run counter to the purposes and
language of the Martha Wright-Reed Act and would fail
[[Page 77280]]
to yield just and reasonable rates. Excluding these costs reduces
industry-wide total costs by approximately $326 million. By excluding
these costs from our lower bound figures, we ``ensure that IPCS
consumers do not bear the costs of those safety and security measures
that are not necessary to provide IPCS.''
201. Next, we revisit our per-minute estimate of the IPCS related
costs that facilities incur, and set the estimate of such costs at zero
for the lower bounds. Again, the lower bounds of our zones of
reasonableness include only those costs we find are used and useful;
with respect to the costs facilities may incur to provide IPCS, the
limited record and the lack of quantifying data persuade us to estimate
that there are no facility costs that we should consider used and
useful in IPCS. Given the likelihood that the estimate we accepted for
the upper bounds is overstated, we find that using a lower estimate of
these costs at the lower bounds minimizes reliance on flawed data while
we still provide for the opportunity to recover costs for providing
IPCS through our process for determining rate caps. In sum, we conclude
from both the record and the reported cost data that it is reasonable
to estimate facility costs to be zero in our lower bounds. And because
we do not permit--let alone require--IPCS providers to reimburse
correctional facilities for costs those facilities incur that are not
used and useful in the provision of IPCS and not allowed in regulated
IPCS rates, or to otherwise provide in-kind site commissions to
correctional facilities, providers will not face the prospect of paying
unrecoverable site commissions to correctional facilities that might
deny the providers fair compensation.
202. We do, however, continue to incorporate the same estimate for
TRS costs in our lower bounds as we did in our calculation of the upper
bounds. There is nothing in the record that suggests a range for these
costs.
203. We also revise the weighted average cost of capital (WACC) for
ViaPath and Securus, the only two companies which elected to estimate
an alternative WACC figure. ViaPath and Securus adopted a weighted
average cost of capital of 14.86% and 11.43%, respectively, well above
the 9.75% rate which every other reporting provider adopted. We find
that neither provider offered sufficient justification to support their
proposed alternatives to the Commission's 9.75% WACC. Both providers
rely on several assumptions which we find lacking and which
consistently favor material overestimation of the ultimate WACC figure.
For example, certain components of the WACC calculation are supposed to
rely on data assimilated from a ``demonstrably comparable group of
firms.'' Both providers assembled groups of firms that we find, on
balance, are not ``demonstrably comparable.'' Furthermore, ViaPath
failed to document its underlying calculations and processes with the
requisite detail, rendering its approach nonreplicable--a flaw that not
only undermines the reliability of such calculations, but also makes
them impossible to validate. Given these concerns, we find that Securus
and ViaPath failed to meet their burden of justifying the alternative
WACCs they propose and that the most reasonable approach for factoring
the WACC into our lower bounds is to apply the default WACC figure of
9.75% for both providers. This default 9.75% WACC is equal to the
Commission's authorized rate of return for local exchange carrier
services subject to rate-of-return on rate base regulation, which
reflects comprehensive analyses of capital structures and the costs of
debt and equity, and is designed to compensate these carriers for their
cost of capital.
204. Finally, we adjust Securus's reported video cost data downward
in order to address significant and unresolvable, on the record before
us, issues with those data. Unadjusted, Securus's reported video cost
data stand apart from those reported by the rest of the industry. For
example, Securus reports average video IPCS costs per minute that
exceed the average of the rest of the industry by anywhere from 100% to
over 250%, depending on the facility tier. Across all facilities,
Securus's reported per-minute video IPCS costs are over four times the
average of all other providers: an anomalous result, given that we
would expect Securus--as one of the two largest providers in the IPCS
market--to benefit from economies of scale and scope. Indeed, Securus's
reported cost data for audio IPCS reflect such economies of scale--with
substantially lower costs per minute at each tier than the industry
average--which only raises further concerns with the reliability of its
reported video IPCS costs. This situation is analogous to the situation
the Commission confronted in 2021; as the Commission then concluded
with respect to ViaPath, Securus ``should be better enabled to spread
its fixed costs over a relatively large portfolio of contracts relative
to other providers,'' but ``[i]nstead, taking [its] reported costs at
face value would imply that it does not achieve economies of scale.''
Indeed, Securus's reported video IPCS costs are even more out of
proportion than ViaPath's reported costs examined in the 2021 ICS
Order. This conclusion is strengthened by comparing Securus's and
ViaPath's reported costs to their respective minutes of use. Instead,
we find that Securus's reported video IPCS data likely reflect
substantial initial investment in fixed assets that, while presumably
proportionate to the number of video IPCS minutes over which this
investment may eventually be spread, is disproportionate to the number
of video IPCS minutes Securus provided in 2022, the year covered by the
2023 Mandatory Data Collection. Incorporating Securus's video cost data
as reported would therefore inaccurately skew the industry's mean above
what it is likely to be as demand grows significantly over time. At
base, we find that Securus's per-minute video IPCS costs are simply
non-representative for the industry at large. We disagree that it is
appropriate to set rates for the IPCS industry based on per-minute cost
data so heavily skewed by one provider's outsized investment in upfront
costs for a nascent service offering; to do so would lead to recovery
in excess of long run average costs, failing to meet our obligations
for just and reasonable rates.
205. We conclude that the best way to address this anomaly is to
follow an approach similar to that adopted in the 2021 ICS Order, and
adjust Securus's video expenses to align more closely with their
competitors. Specifically, we set Securus's video IPCS cost per minute
equal to the weighted average for all other providers and estimate
Securus's new annual total expense for video. We then calculate the
percentage reduction in Securus's annual total expenses as a result of
this adjustment, and reduce the cost per-minute data reported for each
facility at which Securus provides video IPCS by the same percentage,
in order to retain Securus's relative allocations of video expenses. We
describe this method in greater detail and show its application to
Securus's data in a technical appendix. In the 2021 ICS Order, the
Commission applied the k-nearest neighbor method to determine
appropriate substitutes for ViaPath's reported cost data. This approach
reasonably preserves the non-cost information that Securus reported for
the facilities it serves (e.g., average daily population, facility
type, and total video IPCS minutes of use), while reducing its
anomalous reported cost data to fit the industry norm. We also
considered removing all of Securus's data from our lower bound
calculations; however, we
[[Page 77281]]
find this approach too sweeping because it would exclude all of
Securus's video cost data from our analysis. Given the developing
nature of the video IPCS market, and the role which Securus plays
within it, excluding its data would create an incomplete picture of the
video IPCS industry. However, we recognize that this adjustment may
still overestimate Securus's costs per minute, particularly given
certain attributes of the nascent market for video IPCS. These flaws in
providers' video IPCS cost data (both industry-wide and for Securus in
particular), as well as evidence suggesting that this market has
significant room for future growth, confirm that it is appropriate to
adopt interim video rate caps to effectively account for these
conditions. Conversely, the fact that we do not implement any
adjustments specific to any provider's reported audio IPCS costs
further reflects our confidence in our approach to audio IPCS and our
incrementally greater confidence in the underlying data, such that we
do not apply the ``interim'' descriptor to the rate caps that we adopt
for audio IPCS. In particular, the more established marketplace for
audio IPCS, coupled with our experience with audio IPCS data analysis
in the past, gives us sufficient confidence that our overall rate-
setting approach will appropriately account for the remaining
limitations in those data sufficient to justify rate caps that will
apply indefinitely. Although our audio IPCS rate caps are in that sense
``permanent'' rate caps, they naturally remain subject to reevaluation
if warranted in the future based on new developments or new
information.
206. Following the aforementioned steps, we calculate the lower
bounds for audio and video IPCS rate caps for each tier as follows:
Prisons: $0.049 per minute for audio communications and
$0.122 per minute for video communications;
Large Jails: $0.047 per minute for audio communications
and $0.087 per minute for video communications;
Medium Jails: $0.061 per minute for audio communications
and $0.102 per minute for video communications;
Small Jails: $0.080 per minute for audio communications
and $0.126 per minute for video communications; and
Very Small Jails: $0.109 per minute for audio
communications and $0.214 per minute for video communications.
b. Determining Permanent Rate Caps for Audio IPCS and Interim Rate Caps
for Video IPCS
207. Based on our analysis of the available information, we find
that the following rate caps within the zones of reasonableness for
each tier of facilities will provide just and reasonable rates while
ensuring fair compensation:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Audio (per minute) Video (per minute)
-----------------------------------------------------------------------------------------------
Tier (ADP) Audio rate Interim video
Lower bound caps Upper bound Lower bound rate caps Upper bound
--------------------------------------------------------------------------------------------------------------------------------------------------------
Prisons (any ADP)....................................... $0.049 $0.06 $0.107 $0.122 $0.16 $0.326
Large Jails (1,000+).................................... 0.047 0.06 0.098 0.087 0.11 0.223
Med. Jails (350 to 999)................................. 0.061 0.07 0.110 0.102 0.12 0.216
Small Jails (100 to 349)................................ 0.080 0.09 0.121 0.126 0.14 0.208
Very Small Jails (0 to 99).............................. 0.109 0.12 0.151 0.214 0.25 0.288
--------------------------------------------------------------------------------------------------------------------------------------------------------
208. We settle on these rate caps through our examination of the
record, our analyses of the available data, and on the basis of our
extensive regulatory experience in this market. As discussed above, the
Commission has been engaged in an ongoing process of examining and
regulating various aspects of the IPCS market for over a decade, in the
course of which the Commission has conducted several notice and comment
cycles and supporting data collections (and analyses of the data
produced therefor).
209. Lower Bounds as an Accurate Metric for Used and Useful Costs.
We begin by considering the midpoint in each of the zones of
reasonableness, and whether the record and evidence suggest the
appropriate cap lies above or below those midpoints. On balance, we
find that just and reasonable rates are likely below the midpoint of
each tier for both audio and video IPCS. As discussed above, we find
that only those categories of safety and security costs included in the
lower bounds generally are truly used and useful in the provision of
IPCS. Setting rate caps at the midpoint, which would give equal weight
to both upper and lower bounds would risk incorporating costs that we
find are ultimately highly unlikely to benefit the ratepayer and,
therefore, produce rates that are not ``just and reasonable.'' This
risk is nontrivial: the adjustment made for safety and security costs
accounts for 84% of the overall reduction in audio costs and 50% of the
overall reduction in video costs between the upper and lower bounds,
such that even a minor increase above our midpoint is likely to
incorporate a significant portion of costs we find are properly
excluded from the rate caps. The record suggests that some providers
may have had difficulty isolating and properly allocating their safety
and security expenses, a difficulty which would increase reported IPCS
costs where providers were unable to report these costs separately.
Consequently, we find that the lower bounds operate as a more accurate
reference point for providers' used and useful costs. As discussed
further below, we recognize that, given the limitations inherent in the
2023 Mandatory Data Collection and providers' responses to the data
collection, our estimate of providers' safety and security costs may
not incorporate all costs that are used and useful in providing IPCS.
While we find that this warrants setting rate caps marginally above the
lower bounds, it does not fundamentally change our conclusion here. The
substantive evidence in support of the other adjustments we make in
setting our lower bounds warrants a similar conclusion: that we must
set rate caps well below the midpoint if we are to obtain an accurate
estimate of those costs that are used and useful in providing IPCS.
210. Unaccounted Factors Which Support Choosing Lower Rate Caps.
Our calculation of the lower bound left several other factors
unaccounted for, which collectively reinforce our decision to set caps
below the midpoints. While we were unable to precisely quantify the
effect of these factors upon reported industry costs, the factors
nevertheless indicate that providers' reported costs are likely
inflated. At the outset, we reiterate that total industry reported
costs exceeded total industry revenues by $219 million. Without
context, this might indicate that the IPCS industry at large is
unprofitable, and suggests that rational
[[Page 77282]]
firms might exit the market, results inconsistent with the fact that
there is no evidence that any provider is not an ongoing viable
operation. This is also inconsistent with the lack of competition and
competitive pressures that we have documented above. While some of the
observed cost-revenue gap for the industry can be explained by the
nascent state of the video IPCS marketplace as providers continue to
develop and deploy video IPCS, investing heavily in fixed assets needed
to provide those services, this does not explain the gulf, which
strongly suggests that costs are overstated. As discussed elsewhere,
the high per-minute video costs attributable to nascency do not reflect
the efficient costs of the industry in a steady-state.
211. There are also several factors that we find are likely to
decrease providers' costs per minute going forward, suggesting that
their reported costs tend to overestimate future costs. As the
Commission has previously observed, ``[w]hen prices fall, quantity
demanded increases.'' NSA points out that the increase in minutes of
use will also result in an increase in ``associated safety and security
costs.'' Our rate cap structure accounts for this demand-driven basis
of safety and security costs by basing the recovery of those costs that
we find used and useful in the provision of IPCS on relative demand,
i.e., via the incorporation of such costs into the per-minute rate
caps. We find that the increase in communications generated by the
reductions in price which our rate caps will achieve should reduce
providers' average costs, other things being equal. And incorporation
of ancillary service charges into our rate caps (which, as noted above,
should reduce overall prices) will only amplify this effect. This
effect should be further augmented to the extent that the growth in
market-wide minutes of use from 2021 to 2022 reflects an independent
trend of increased demand, unrelated to the impact of the decrease in
rates resulting from the 2021 ICS Order. Similarly, video IPCS, as a
service, is still in its nascent stages, and it may be that the
reported figures overstate costs (as providers, in addition to Securus,
make large capital investments that will be depreciated over time) and
understate demand compared to what could be expected in a more mature
market. We expect that, as the video IPCS market approaches a more
stable equilibrium, cost per minute will decline. The record suggests
that the hardware used by providers in deploying video IPCS (including
both tablets and network infrastructure) may also be used to provide,
or improve the service for, audio IPCS. Thus, as providers continue to
invest in capital as part of the expansion of their video IPCS
offerings, these investments will cross-subsidize costs for audio IPCS,
reducing the net costs of providing IPCS.
212. Several elements of providers' responses to the 2023 Mandatory
Data Collection also indicate that providers accounted for costs in a
way that likely overestimated the costs attributable to IPCS and
ancillary services. For example, several providers recognize
substantial amounts of goodwill. The size of these amounts, whether
these amounts are amortized or written down upon being tested for
impairment, and how these amounts are allocated can significantly
impact reported IPCS costs. Goodwill represents the difference between
the purchase price of a company and the company's fair market value at
the time of purchase. Under the Generally Accepted Accounting
Principles (GAAP), until 2021, private companies were required to elect
either to amortize goodwill on a straight-line basis over a period of
up to ten years, or to conduct annual impairment testing. The threshold
step of the impairment testing process is a qualitative assessment of
whether the goodwill carried on a company's balance sheet likely
exceeds its fair market value, which takes into account several factors
including macroeconomic developments and regulatory changes. Since the
goodwill reported by these providers was first recorded on their
balance sheets, several events have transpired that would seem likely
to have triggered the impairment testing process, potentially leading
to a significant write down of these amounts: most notably, the Covid-
19 pandemic, several orders issued in this proceeding and by certain
state Commissions, and the passage of the Martha Wright-Reed Act. We
question whether providers' goodwill figures are overstated as none
recorded any significant write down of the goodwill on its balance
sheet notwithstanding these events, and thus we find their reported
goodwill figures unreliable. These providers left their allocations of
goodwill largely unexplained, which makes it difficult to assess to
what extent it is properly attributable to IPCS. The instructions for
the 2023 Mandatory Data Collection require providers to comply with
GAAP in calculating their goodwill figures attributable to IPCS.
However, GAAP does not necessarily entail distinguishing between
goodwill attributable to IPCS and IPCS-related services versus
nonregulated services. A similar principle applies to providers'
incentives to over-allocate costs that support both video IPCS and
nonregulated services to IPCS, particularly where the Commission has no
effective means of auditing these allocations. Providers often offer
IPCS using the same platform as nonregulated services (and thus the
platform costs are shared between these services). The instructions to
the 2023 Mandatory Data Collection, despite a high level of specificity
left providers with substantial leeway in choosing precisely how to
allocate costs that support both video IPCS and nonregulated services
(e.g., tablet and app development expenses) between video IPCS (and
ancillary services) and nonregulated services. For example, providers'
Word template responses illustrate that they may have failed to
disaggregate platform development costs, reporting the full costs of
development as a video IPCS expense even where the platform provides
non-IPCS services. Such expenses can be significant, and misallocating
them could readily skew costs toward IPCS. Each of these factors tend
to inflate reported costs--and therefore suggests our rate caps should
be lowered--for reasons entirely unrelated to the costs of service.
213. Factors Supporting Rates Above the Lower Bounds. We also
recognize a series of factors which support setting the rate caps above
our lower bound. As a general matter, we find it appropriate to set
rates somewhat above the lower bounds to minimize reliance on the
imperfect data on which we base our rate caps, which will better ensure
that providers will have the opportunity to recover the costs of
providing IPCS, consistent with both the equitable considerations
underlying just and reasonable rates and the fair compensation mandate
of section 276(b)(1)(A). Setting rate caps above the lower bounds will
help to account for the possibility that the adjustments we applied to
providers' reported costs to obtain the lower bound estimates were too
aggressive, to account for the possibility that aspects of our
evaluation of used and useful costs to provide IPCS may be inaccurate
to some degree, to account for any inflation not offset by productivity
growth, and to ensure that providers will be better able to recover
their costs of providing TRS.
214. We also recognize several specific factors that guide us to
select rate caps above our lower bounds. In particular, we find that
the data submitted for the costs of providing safety and security
measures are imperfect and imprecise; we recognize
[[Page 77283]]
these flaws are likely attributable, at least in part, to the
inevitable imprecision of the allocations required to comply with the
2023 Mandatory Data Collection. For example, providers generally
declined to provide further detail on the costs attributable to each
individual function. The questions regarding safety and security costs
in the 2023 Mandatory Data Collection necessarily reflected some
imprecision for at least two reasons. First, the Commission was
operating with limited information on this subject, given the limited
detail obtained on this subject in prior data collections. Second, the
Commission took efforts to avoid imposing an outsize burden on
providers in reporting specific details of their safety and security
costs, particularly in light of the comment record suggesting that
providers have not historically accounted for the costs of their safety
and security measures in particularly discrete detail. Due to the
aggregation of the submitted data within each category, we are unable
to meaningfully identify the specific costs for the various functions
within each safety and security category enumerated in the data
collection. Consequently, we recognize the possibility that providers
may have misallocated the costs of providing certain component
functions, causing those costs to be improperly excluded from the
calculation of the lower bounds. For example, NCIC {[REDACTED]{time} .
Material that is set off by double brackets {[ ]{time} is subject to a
request for confidential treatment and is redacted from the public
version of this document. Given the limitations in the data provided,
we are unable to ascertain costs for any of these individual services.
The costs of any such services, to the extent they exist, would have
been improperly excluded from the calculation of the lower bounds.
Similarly, we recognize that facilities may incur certain costs that
are used and useful in the provision of IPCS but the lack of reliable
data in the record makes it impossible to quantify those costs with any
degree of precision. Finally, although we exclude one-time
implementation costs which are inappropriate for inclusion in permanent
rate caps, providers' ongoing costs of implementing the Report and
Order may, on balance, exceed their ongoing savings from, for example,
not having to process site commission payments. We thus take the
conservative approach of setting our rates somewhat above the lower
bounds to account for facilities' used and useful costs. Additionally,
as noted above, the record and the data make clear that video IPCS is
still a developing market. Given this context, we find it appropriate
to set interim rates above the lower bounds for video IPCS in
particular, to afford providers flexibility in responding to the cost
and demand uncertainties inherent to such markets. As discussed above,
we recognize that the developing nature of the video IPCS market also
suggests that providers' reported costs per minute may be higher than
similar figures would be in a more mature market. We account for both
of these implications of the nascent market in selecting our rate caps.
215. Collectively, these reasons counsel in favor of setting our
rate caps higher than the lower bounds. But we find that these factors
are generally outweighed by countervailing factors, including the
providers' incentive to overstate their costs and the lack of evidence
that the upper bounds accurately capture providers' actual costs of
providing IPCS. Accordingly, we find it appropriate to set our rate
caps at levels nearer to, but still above, the lower bounds, to more
accurately account for all of these factors. We reiterate, however,
that even these lower bounds largely reflect providers' costs as
reported. The rate caps we set reflect our reasonable balancing of
these considerations.
216. Commercial Viability and Cost Recovery. Applying these rate
caps to each provider's reported minutes of use allows us to calculate
their potential revenues under these caps. In making this
determination, we refer to providers' reported costs, net of those
categories of costs that we identify in this Order as unrelated to the
provision of IPCS: i.e., site commissions, and the five excluded
categories of safety and security costs discussed above. The fact that
several states and smaller jurisdictions have adopted rate caps equal
to or lower than those we adopt today--with no evidence in the record
indicating that these rates have made the provision of IPCS
unprofitable--lends further support to our findings as to providers'
commercial viability. Potential revenues for eight out of 12 IPCS
providers exceed their total reported costs when excluding site
commissions and safety and security categories that generally are not
used and useful in the provision of IPCS. Because our estimates of
providers' average costs are likely overstated, we find it unlikely
that any provider will be unable to recover its individual average
costs of providing audio and video IPCS. In the event providers are
unable to recover their used and useful IPCS costs, providers remain
free to seek a waiver of our rules, a process we revise herein. These
eight firms represent over 90 percent of revenue, 96 percent of ADP,
and 96 percent of billed and unbilled minutes in the dataset. An
alternate method to estimate potential revenue under the rate caps sums
reported IPCS and ancillary services for audio and video by facility,
reducing these values, if applicable to match potential revenues under
the rate caps. Under this method, the projected revenues of the same 8
of 12 providers exceed their costs. In the 2021 ICS Order, the
Commission conducted a similar analysis at the facility-specific level.
However, in light of the Martha Wright-Reed Act's amendments to section
276, and its authorization to use both ``industry-wide average costs''
and the ``average costs of service of a communications service
provider'' in setting rates, we find it more appropriate to conduct
this analysis across each provider's full portfolio of facilities
served and, more generally, across the full IPCS industry.
217. We reiterate that our rate caps likely overestimate providers'
actual costs of providing IPCS, for the reasons set forth above.
Additionally, our rate caps, by lowering prices, will likely increase
communications volumes (and so decrease average costs per minute), as
will providers' continuing expansion of and investment into their video
IPCS services. Taken together, we find that these reasons demonstrate
that this number is conservative, and that we likely underestimate the
extent to which providers will be able to recover their costs under our
rate caps. We anticipate that, over time, revenues for additional
providers will exceed their total actual costs even beyond those
already identified in our analysis above. Our analysis of the
underlying facility-level data corroborates this conclusion.
{[REDACTED]{time} of facilities report per-minute revenues net of site
commissions under our rate caps, meaning that providers will be able to
recover the same per-minute revenues at these facilities under our rate
caps. Assuming that these facilities are generally profitable (as
profit-maximizing firms are unlikely to bid for unprofitable
contracts), our rate caps will therefore not undermine providers'
profitability for these facilities. However, this does not mean that
the remaining facilities would not recover their costs under our rate
caps, as detailed further in a technical appendix (for example, per-
minute revenues net of site commissions likely exceed providers' per-
minute costs net of site commissions).
218. Finally, we find that our rate caps do not threaten providers'
financial
[[Page 77284]]
integrity such that they could be considered confiscatory, even in
those anomalous circumstances where a provider cannot recover its costs
under our rate caps. Further, we find the fact that providers negotiate
for per-minute rates lower than our choice of caps to support our
conclusion that these rate caps do not threaten providers' financial
integrity. The rate caps are based on data supplied by providers and
correctional facilities. As the Commission has previously observed,
neither of these parties ``have incentives to understate their costs in
the context of a rate proceeding, lest the Commission adopts rates that
are below cost.'' Rather, providers had ``every incentive to represent
their [IPCS] costs fully, and possibly, in some instances, even to
overstate these costs.'' Further, our rate caps explicitly account for
all costs of providing IPCS identified in the record, including costs
incurred by correctional facilities, costs of necessary safety and
security measures, and cost variations attributable to facility size
and type. Additionally, as the Commission has repeatedly observed, the
offering of IPCS ``is voluntary on the part of the [IPCS] providers,
who are in the best position to decide whether to bid to offer service
subject to the contours of the request for proposal''; IPCS providers
have no obligation ``to submit bids or to do so at rates that would be
insufficient to meet the costs of serving the facility or that result
in unfair compensation.''
c. Consistency With Statutory Requirements
219. Section 276(b)(1)(A) of the Communications Act, as amended by
the Martha Wright-Reed Act, requires the Commission to ``establish a
compensation plan to ensure that all payphone service providers are
fairly compensated and all rates and charges are just and reasonable
for completed intrastate and interstate communications.'' We conclude
that the rate caps and waiver process we adopt in the Report and Order
fully satisfy this mandate. We find that rates will be just and
reasonable if they afford providers an opportunity to recover their
``prudently incurred investments and expenses that are `used and
useful' in the provision of the regulated service for which rates are
being set,'' and upon reflection of the amendments to section 276, we
find that a provider will be fairly compensated if it is afforded an
opportunity to recover the industry average of those costs on a
company-wide basis. Securus argues that the Martha Wright-Reed Act
requires that each provider be able to recover its average costs. We
conclude the Act does not require such particularized analysis and
reiterate that rate caps based on costs evaluated on an aggregated
basis generally will satisfy the requirement that all payphone service
providers be fairly compensated. And as the Public Interest Parties
explain, ``for a service provider to be `fairly compensated' for its
services would signify that it is paid an amount that reasonably
reflects the value of the services that it provides. . . . The standard
does not require every carrier to be profitable, but rather for rates
to be set at a level where carriers receive compensation that would
allow a well-run and prudent IPCS carrier to realize a fair rate of
return.'' Securus argues that our rate caps fail to ensure that ``all''
providers are fairly compensated, threatening the competitiveness of
the IPCS marketplace, because our industry average-based rate caps do
not account for costs on a provider-by-provider basis. We disagree.
Securus interprets the term ``all payphone service providers'' in
section 276(b)(1)(A) to mean ``each payphone service provider,'' and
ignores the fact that fair compensation does not require the Commission
to adopt rate caps which allow for the recovery of inefficiently
incurred costs.
220. Across the industry, these rate caps will allow providers to
generate sufficient revenue from the audio and video communications
they provide (1) to recover the actual, direct costs of each
communication, and (2) to make a reasonable contribution to their
indirect costs related to IPCS. Because they reflect what we have
determined are the industry average costs incurred to provide IPCS,
falling ``squarely within the zones of reasonableness,'' the rate caps
we adopt today meet this standard. Indeed, by setting our rate caps
above our lower bounds, ``[o]ur approach incorporates assumptions and
actions that lean toward over-recovery of costs.'' At the same time,
these rate caps reflect our best estimate of providers' actual costs of
providing IPCS, therefore limiting the recoverable costs to those costs
``that directly benefit the ratepayer'' and excluding ``any imprudent,
fraudulent, or extravagant outlays.'' Direct Action for Rights and
Equality, et al., argue that our caps ``remain far from `just and
reasonable' for indigent individuals and communities,'' and so
``encourage the Commission to propose even lower caps--the lowest
possible caps for voice and video communications. However, these
commenters fail to identify what rate caps would be more appropriate,
or how such rate caps would both be ``just and reasonable'' and ensure
that providers are ``fairly compensated.''
221. The rate caps we adopt in the Report and Order also meet the
separate rate-making evaluation requirements set out by the Martha
Wright-Reed Act. The Act requires that we ``shall consider costs
associated with any safety and security measures necessary to provide''
IPCS, as well as the ``differences in costs'' of providing IPCS ``by
small, medium, or large facilities or other characteristics.'' We
disagree that ``small facility cost[s]'' are not adequately captured by
our use of industry averages. Because we set our caps on the basis of
several tiers, costs for facilities of various sizes are captured at
the respective tier. WCB and OEA directed providers to explain the
nature of their safety and security costs in their responses to the
2023 Mandatory Data Collection, and we sought comment on these issues
in 2023. Having examined the data and the record on these issues, we
have incorporated into our rate caps the costs of those safety and
security measures we find are, in fact, used and useful in the
provision of IPCS, as well as the most critical factors driving the
differences in providers' costs, including facility size. Our analysis
therefore takes into account all of the factors identified in the
record and the data that ``account[ ] for cost discrepancies among
providers,'' and addresses certain commenters' concerns that our use of
average costs ``must take into account size and type differences.'' We
find that any cost variation that is not accounted for by the tiers we
adopt (and not reflective of ``imprudent, fraudulent, or extravagant
outlays'' by individual providers) is accommodated by our use of a rate
cap structure. Accordingly, our rate caps meet these requirements
imposed by section 3 of the Act. The Act also requires that we
``promulgate any regulations necessary'' to implement the Act ``[n]ot
earlier than 18 months and not later than 24 months after the date of
[its] enactment.'' The Act was enacted on January 5, 2023, requiring
the adoption of implementing regulations between July 5, 2024 and
January 5, 2025.
222. Our regulatory approach also includes measures to ensure that
providers are not forced to bear unrecoverable costs, through our
actions to prohibit all monetary and in-kind site commissions at all
facilities. Thus, outside the context of reimbursements paid to
correctional facilities for costs or expenses that we find used and
useful in the provision of IPCS--and for which we allow recovery in
IPCS rates--providers will not be permitted or
[[Page 77285]]
required to make monetary payments or in-kind contributions to
correctional facilities that arguably could represent unrecoverable
costs at odds with section 276(b)(1)(A)'s fair compensation mandate. To
the extent that providers voluntarily elect to incur other costs or
expenses that are not used and useful in the provision of IPCS and
subject to recovery under the rate caps we adopt (or the associated
waiver process), that voluntary assumption of costs or expenses does
not give rise to a burden on the Commission to provide for recovery
under the fair compensation mandate of section 276(b)(1)(A). In the
event that a provider is not afforded the opportunity to recover its
costs for providing IPCS under our caps, that provider may seek a
waiver of those caps in accordance with our revised waiver procedures
adopted in the Report and Order. The combination of our regulatory
actions here, including our rate caps and our revised waiver process,
consequently will afford all providers the opportunity to be fairly
compensated at just and reasonable rates for providing IPCS consistent
with section 276(b)(1)(A). Our approach of setting rate caps that we
find reasonable based on general conclusions from the industry as a
whole, while leaving providers the opportunity to make provider-
specific showing that additional recovery should be permitted, thus
does not ``preclude[ ] a[ ] `provider-by-provider' assessment'' as some
contend. The regulatory approach we employ also is consistent with
regulatory approaches the Commission has employed in setting just and
reasonable rates in other contexts in the past.
5. Preemption
223. Consistent with section 2(b) of the Communications Act, as
amended by the Martha Wright-Reed Act, and section 276(c) of the
Communications Act, we preempt state and local laws and regulations
that require IPCS rates that exceed the rate caps we adopt today. We
similarly preempt state and local laws and regulations requiring
separate ancillary service fees. We decline, however, to preempt state
and local laws and regulations requiring IPCS rates below the rate caps
we adopt today.
224. It is well established that ``a federal agency may pre-empt
state law only when and if it is acting within the scope of its
congressionally delegated authority.'' Section 276(b)(1)(A) always has
been clear that the Commission has authority to establish compensation
plans for ``intrastate and interstate'' payphone calls, and as
explained above, the Martha Wright-Reed Act amended that provision to
clearly establish the Commission's authority to ensure just and
reasonable rates for both intrastate and interstate communications, as
newly expanded under section 276(d). Above and beyond that, the Martha
Wright-Reed Act added section 276 to the express exceptions to the
general preservation of state authority in section 2(b) of the Act.
Commenters uniformly agree that this demonstrates Congress's intent to
grant the Commission authority to ensure just and reasonable rates for
all intrastate IPCS, firmly anchoring the Commission's authority over
such services. Furthermore, while the Martha Wright-Reed Act decisively
expanded the scope of the Commission's authority over IPCS, it retained
the express preemption provision in section 276(c), which provides that
``[t]o the extent that any State requirements are inconsistent with the
Commission's regulations, the Commission's regulations on such matters
shall preempt such State requirements.''
225. We find that state and local laws and regulations that require
IPCS rates that exceed the rate caps we adopt today or that require
separate ancillary service charges conflict with the Commission's
regulations adopted in the Report and Order to ensure just and
reasonable rates and charges for intrastate and interstate IPCS and
fair compensation for IPCS providers under section 276(b)(1)(A).
Pursuant to section 276(b)(1)(A), as amended by the Martha Wright-Reed
Act, the compensation plan the Commission adopts today includes IPCS
rate caps carefully calibrated to ensure that all payphone service
providers are fairly compensated and all rates and charges are just and
reasonable for all IPCS, including intrastate. These rate caps are
ceilings limiting what IPCS providers may charge for intrastate and
interstate audio and video communications. To the extent state and
local laws or regulations require IPCS rates that exceed those
ceilings, such state and local laws or regulations would, by
definition, lead to unjust and unreasonable IPCS rates and charges. In
connection with ancillary service charges, as noted above, our rate
caps incorporate the costs of providing these services. Thus, to the
extent state or local laws and regulations require separate ancillary
service charges, such charges would also be unjust and unreasonable as
they would exceed the Commission's IPCS rate caps.
226. Commenters broadly agree that state and local requirements
mandating IPCS rates and charges that are higher than the rate caps we
adopt today are subject to preemption. No commenter argues that the
Commission lacks authority to preempt such state and local requirements
or should not do so. As noted above, the Communications Act provides
the Commission the necessary authority to adopt regulations ensuring
just and reasonable rates and charges for intrastate and interstate
IPCS, which requires preemption of state and local laws and regulations
requiring IPCS rates that exceed the Commission's adopted rate caps or
that require separate ancillary service charges.
227. Preemption of State Requirements. When a federal law contains
an express preemption clause, the courts ``focus on the plain wording
of the clause, which necessarily contains the best evidence of
Congress' preemptive intent.'' The Supreme Court has explained that
where a ``statute `contains an express pre-emption clause,' we do not
invoke any presumption against pre-emption but instead `focus on the
plain wording of the clause, which necessarily contains the best
evidence of Congress' pre-emptive intent.' '' Independently, even
assuming arguendo that any preemption analysis should begin ``with the
assumption that the historic police powers of the States [are] not to
be superseded by the Federal Act unless that was the clear and manifest
purpose of Congress''--particularly where ``Congress has `legislated .
. . in a field which the States have traditionally occupied' ''--it
nonetheless remains the case that ``Congress' intent, of course,
primarily is discerned from the language of the pre-emption statute and
the `statutory framework' surrounding it.''
228. Here, the express preemption clause in section 276(c) applies
to ``State requirements'' to the extent they are ``inconsistent with
the Commission's regulations.'' ViaPath argues the Commission should
``preempt any existing state rates that are higher than the
Commission's rates as well as all future state regulation of voice
IPCS.'' As stated herein, the Report and Order preempts state
regulations which mandate prices above the caps we set today. As also
discussed, we see no rationale for disturbing state regulations which
require pricing below our caps, nor has ViaPath offered any, and we
decline to preempt such regulations at this time. ViaPath also suggests
that the Commission should preempt state regulation of all video IPCS
because it has ``historically been treated under the law as inherently
interstate.'' We are unpersuaded. Our exercise of our preemption
authority does not require
[[Page 77286]]
such a categorical approach. The term ``state requirements'' in express
preemption provisions has been interpreted by the Supreme Court more
broadly than terms like ``laws or regulations.'' For example, the Court
has concluded that ``[a]bsent other indication, reference to a State's
`requirements' in an express preemption provision includes its common-
law duties.'' By contrast, the Court has found that references to state
``laws or regulations'' preempt only ``positive enactments.''
Consistent with this precedent, we find that the reference to ``state
requirements'' in section 276(c) is broad enough to reach state laws
and regulations requiring IPCS rates that exceed the rate caps we adopt
today.
229. The surrounding statutory framework also demonstrates that
preemption of laws and regulations requiring IPCS rates that exceed the
rate caps we adopt today is authorized by section 276(c). As noted
above, section 276(b)(1)(A) always has been clear that the Commission
has authority to establish compensation plans for ``intrastate and
interstate'' payphone calls, and as explained above, the Martha Wright-
Reed Act amended that provision to clearly establish the Commission's
authority to ensure just and reasonable rates for all communications
now encompassed by section 276(d). In amending section 276, Congress
left the express preemption provision in section 276(c) unaltered,
revealing Congress' understanding that Commission regulations
implementing the full scope of amended section 276(b)(1)(A) would be
subject to that express preemption provision.
230. This point was further emphasized by the amendment of section
2(b) of the Communications Act to expressly exempt section 276 from the
preservation of state authority over intrastate communications under
that provision. In the Martha Wright-Reed Act, Congress expressly
considered the potential effect of that statute on other laws, and only
disclaimed the intent to ``modify or affect any'' state or local law
``to require telephone service or advanced communications services at a
State or local prison, jail, or detention facility or prohibit the
implementation of any safety and security measures related to such
services at such facilities.'' That narrow express preservation of
existing law is not implicated by our preemption here. The statutory
context provided by section 276 as a whole, coupled with the Martha
Wright-Reed Act, thus reinforces our understanding of the scope of
preemption encompassed by section 276(c).
231. Relatedly, we conclude that preemption is consistent with
section 4 of the Martha Wright-Reed Act, which states that nothing in
that Act ``shall be construed to modify or affect any Federal, State,
or local law to require telephone service or advanced communications
services at a State or local prison, jail, or detention facility or
prohibit the implementation of any safety and security measures related
to such services at such facilities.'' We preempt only those state laws
and regulations that require IPCS rates that exceed the rate caps we
adopt today or that require separate ancillary service charges. To the
extent federal, state, or local laws or regulations require IPCS to be
provided to incarcerated people at state or local correctional
facilities, such laws and regulations are not preempted by our actions
here. Similarly, we do not prohibit the implementation of any safety
and security measures related to IPCS at any state or local
correctional facility. As we explain above, section 4 of the Martha
Wright-Reed Act is ``not intended to interfere with any correctional
official's decision on whether to implement any type of safety and
security measure that the official desires in conjunction with audio or
video communications services.'' Consistent with that interpretation,
here we preempt state laws and regulations requiring IPCS rate caps
that exceed the Commission's adopted caps or that require separate
ancillary service charges, a pre-emption that we conclude is necessary
to achieve the statutory requirements of section 276(b)(1)(A) to ensure
just and reasonable rates and charges for IPCS consumers and fair
compensation for providers. Correctional officials remain free to
implement desired safety and security measures.
232. Preemption of Local Requirements. Our analysis of our
preemptive authority is somewhat different when it comes to local
requirements that may require IPCS rates and charges that exceed the
Commission's rate caps because section 276(c) does not expressly
reference ``local'' laws or regulations. Nonetheless, we conclude that
principles of conflict preemption allow us to also preempt such local
laws and regulations. As an initial matter, we note that ``for the
purposes of the Supremacy Clause, the constitutionality of local
ordinances is analyzed in the same way as that of statewide laws.''
Thus, relevant precedent concerning state law is equally applicable to
local law.
233. As a threshold matter, we find that local laws and regulations
that require IPCS rates and charges that exceed the Commission's IPCS
rate caps or that require separate ancillary service charges stand as
an obstacle to our regulation of IPCS. We explained above the conflict
that occurs as a result of state requirements, and that conclusion is
not altered if the requirements originate instead at the local level.
Consequently, under section 276(b)(1)(A) coupled with standard conflict
preemption principles we preempt local laws and regulations that
require IPCS rates and charges exceeding the Commission's caps or that
require separate ancillary service charges.
234. Our conflict preemption determination is bolstered by the
enactment of the Martha Wright-Reed Act, which modified the
Communications Act in a manner that we see as intended to establish a
uniform system of federal regulation for all IPCS under section
276(b)(1)(A). As explained above, the Martha Wright-Reed Act was
enacted against the regulatory backdrop of--and in response to--the GTL
v. FCC decision, where the D.C. Circuit found that the Commission had
unreasonably relied on the ``just and reasonable'' standard of section
201(b) when implementing the differently-worded language of section
276. Insofar as that left the Commission to rely on section 201(b) to
ensure IPCS rates and charges were not too high, it generally precluded
the Commission from addressing excessive intrastate IPCS rates. The
Martha Wright-Reed Act's amendment of section 276(b)(1)(A) gave the
Commission clear authority to ensure just and reasonable rates under
that provision, which always has encompassed both intrastate and
interstate services. Given the legal and regulatory backdrop, that
persuades us that Congress envisioned a uniform system of federal
regulation as far as IPCS rates and charges are concerned.
235. Scope of Preemption. At this time, our preemption extends only
to those state and local laws and regulations that require IPCS rates
and charges exceeding the Commission's rate caps or that require
separate ancillary service charges. The record is mixed as to whether
the Commission should or must also preempt state and local laws or
regulations that set IPCS rates and charges that are below the
Commission's caps. For example, Pay Tel and Securus assert that the
Commission must preempt these lower rates. They argue that the
Commission must adopt rates for intrastate and interstate IPCS that
ensure fair compensation for IPCS providers, and state rate caps that
are below the
[[Page 77287]]
Commission's caps are necessarily ``inconsistent'' with the
Commission's regulation of IPCS since such caps would be below cost and
thus not afford fair compensation. These commenters assert that below-
cost intrastate rate caps are problematic insofar as they may require
``increases in federal rates to defray costs which are not being
recovered at the state level'' and lead to cross-subsidization between
states because ``[i]f consumers in one state pay less than the rate the
Commission has determined is necessary to fairly compensate providers .
. . consumers in other states may end up making a larger contribution
to the company's costs.'' They add that below-cost intrastate rates
``may lessen the willingness of providers to bid for facilities,
depress market participation (particularly by smaller, regional
providers), and reduce investment in new technologies'' while also
raising the ``very real possibility of confiscatory rates,''
particularly if rates are set using a zone of reasonableness approach.
We address concerns about confiscatory rates in connection with our
zone of reasonableness analysis above.
236. On the other hand, state commenters and public interest
advocates argue that the Commission is not required to preempt state
rates that are lower than the Commission's caps. The California Public
Utilities Commission explains that ``states and local governments are
in a better position to assess what a reasonable rate would be for the
provision of services in their geographic locations.'' The Public
Interest Parties assert that state and local laws that require
intrastate rates to be lower than the Commission's rate caps are not
inconsistent with the Commission's regulations ``because any intrastate
rates lower than the Commission's rate cap would not violate any
specific provision of the Communications Act and lower rates are
consistent with the underlying purpose of the MWRA.'' Both the
California Public Utilities Commission and the Public Interest Parties
explain that to the extent the Commission's rate caps act as ceilings
and not floors, the Commission should not preempt lower state rates. We
agree. State IPCS rate proceedings are designed to look at cost data
and market conditions unique to that particular state, a much smaller
geographic area and a much more disaggregated basis than the ratemaking
analysis the Commission was required to undertake on a national level
which covered the entire country. It is entirely possible that cost
data reflecting a smaller subset of the national footprint of
facilities targeted to only certain state specific facilities could
yield fair compensation for providers operating in that state at those
facilities at lower rates than reflected by the Commission's rate caps
adopted today.
237. We decline to preempt state or local laws and regulations
requiring rates lower than the caps we adopt today. As the California
Public Utilities Commission explains, the argument from Securus and Pay
Tel that lower intrastate rates is necessarily inconsistent with the
Commission's regulation of IPCS is ``question-begging'' as it ``assumes
that the FCC's regulations do not allow rates below the federal cap.''
The rate caps we adopt today establish ceilings, rather than floors
that inherently would limit potential state action. These rate caps,
which are based on provider-supplied data, appropriately balance the
need to ensure just and reasonable rates and charges for IPCS consumers
based on industry averages and fair compensation for IPCS providers.
More generally, it is well established that rates can be lawful if they
fall within a zone of reasonableness. Thus, a state's intrastate rate
cap might fall within that zone even if it is lower than the
Commission's specified rate caps.
238. We also find that state or local requirements that mandate
intrastate IPCS rates or charges below the Commission's caps are
consistent with the ``underlying purpose of the [Martha Wright-Reed
Act]'' to fundamentally reform the IPCS marketplace and eliminate, to
the greatest extent possible, decades of exorbitant rates for
communications services used and paid for by incarcerated people and
their loved ones. Finally, this approach is also consistent with the
policy the Commission established when it considered this issue in the
2021 ICS Order. In light of considerable state-level reform efforts,
the Commission decided that the ``federal requirements will operate as
ceilings'' for jurisdictionally mixed calling services.
239. Should an IPCS provider claim that a state or local
requirement leads to unfair compensation, that provider may seek
appropriate relief in the relevant state or locality or from the
Commission by submitting a petition for preemption.
240. Our approach to state or local requirements mandating lower
IPCS rates is consistent with the legal and regulatory backdrop here.
When the Commission undertook regulation of intrastate inmate calling
services rates in the 2015 ICS Order, the Commission adopted an
analogous approach to preemption--it declined requests to treat state
or local requirements mandating rates below the FCC's caps as
inherently in conflict with the Communications Act or Commission rules,
instead leaving providers to seek relief on a case-by-case basis should
they be able to demonstrate in a particular scenario that they were not
being fairly compensated. Although the D.C. Circuit in GTL subsequently
rejected the Commission's claim of statutory authority to cap
intrastate calling services rates under section 276, the Martha Wright-
Reed Act made clear the Commission's authority to ensure just and
reasonable rates for intrastate IPCS under section 276(b)(1)(A). Yet
Congress left section 276(c)'s express preemption of conflicting state
laws unchanged relative to the provision in place when the Commission
acted in 2015. Nor does the amended text of section 276(b)(1)(A)
expressly mandate the exclusivity of the Commission's implementing
rules. Thus, in acting consistent with the general approach to
preemption adopted in 2015, we are acting consistent with the
Commission's historical regulatory approach, which we see no intent by
Congress to displace through the Martha Wright-Reed Act.
241. Finally, we decline to adopt Securus's proposal that the
Commission preempt lower state rates unless a state can ``make a
showing to the Commission that IPCS costs in the state justify a lower
rate and that the lower rate satisfies the statutory standard that
providers are fairly compensated and that rates and charges are just
and reasonable.'' We also decline to pursue Securus's recommendation
that ``states should be required to adopt a waiver process.'' We see no
basis on which we could mandate that states or localities adopt such a
process and Securus offers none. Under this proposal, ``a lower state
rate cap would not take effect until the Commission first finds that
the state had met its burden of demonstrating that the lower rate
complies with the statutory standard.'' Securus's proposal would have
us begin from the premise that lower state rates and charges are
necessarily inconsistent with the Commission's regulations and preempt
them. In order to reverse this preemption decision, the onus would then
be on the state or locality to justify why its lower rates or charges
are consistent with the statutory standard in that they provide fair
compensation for providers and just and reasonable rates for consumers.
We decline to make a determination ex ante that state and local rates
and charges below our caps are inconsistent with a fair compensation
plan. As we explain above, we do not find lower state rates
[[Page 77288]]
to be inconsistent with the Commission's IPCS regulations.
6. Site Commissions
a. Introduction
242. We next comprehensively reform the Commission's treatment of
site commission payments associated with IPCS to implement the
requirements of the Martha Wright-Reed Act. Our actions today continue
to allow IPCS provider reimbursement of correctional facilities for
costs used and useful in providing IPCS while decoupling other IPCS
provider payments to correctional facilities, which constitutes what we
henceforth refer to as ``site commissions.'' We then end the practice
of paying site commissions associated with IPCS.
243. In 2021, the Commission highlighted the difficulties in
accounting for and isolating the portion of site commission payments,
if any, that may be used and useful in the provision of audio calling
services for incarcerated people. The Commission sought comment on
whether it should prohibit providers from entering into contracts
requiring the payment of site commissions and whether it should preempt
state or local laws and regulations that require such payments. The
Commission also questioned the propriety of allowing providers to
recover the costs of their site commission payments from consumers.
244. After carefully considering the record in these proceedings
and the Martha Wright-Reed Act, we find that site commission payments--
payments from IPCS providers to correctional facilities that are not
used and useful in the provision of IPCS--are fundamentally
incompatible with our mandate under section 276(b)(1)(A), as amended,
to ensure both just and reasonable IPCS rates and charges for IPCS
consumers and providers as well as fair compensation for IPCS
providers. Considering the requirements of the Martha Wright-Reed Act
and the demonstrated negative effects of site commission payments,
particularly with regard to consumer affordability, we conclude that we
must eliminate site commissions associated with IPCS.
245. Accordingly, we prohibit all IPCS providers from paying site
commissions of any kind associated with intrastate, interstate,
international, jurisdictionally mixed, and jurisdictionally
indeterminate audio and video IPCS, including all monetary and in-kind
site commissions, at all facilities. To implement this prohibition, and
consistent with the record and the Commission's proposals in 2021, we
preempt all state and local laws and regulations requiring or allowing
IPCS providers to pay site commissions associated with IPCS and
prohibit IPCS providers from entering into contracts requiring or
allowing them to pay site commissions associated with IPCS. Compliance
with our reforms associated with site commission payments will be
required by the dates specified in Section III.H below.
246. Although we eliminate site commissions associated with IPCS,
we do not deny correctional facilities the opportunity to be reimbursed
by IPCS providers for any costs the correctional facilities incur that
are used and useful in the provision of IPCS. The IPCS rate caps we
adopt today reflect, based on the record before us, all of the used and
useful costs incurred in the provision of IPCS regardless of whether
such costs are incurred by IPCS providers or correctional facilities.
Consistent with that record, the rate caps account for used and useful
costs associated with IPCS providers' provision of IPCS incurred by
correctional facilities. Therefore, we permit IPCS providers to
reimburse correctional facilities for the used and useful costs the
facilities incur to enable the provision of IPCS. We therefore find
without merit the National Sheriffs' Association's argument that
``[t]he proposals to arbitrarily disallow legitimate costs and preclude
their recovery is contrary to the Communications Act requirement to set
reasonable rates, the Commission's statutory mandate to promote access
to ICS, and court precedent.'' The Commission has identified the used
and useful costs, including a measure of facility costs for safety and
security measures, in the rate caps it adopts today. The Commission is
thus fully in accordance with ``rate-making principles that require the
allowance of legitimate costs in rates.'' We also find the National
Sheriffs' Association's argument that ``[f]acility compensation through
rates also is consistent with the Commission's precedent that costs
should be recovered from the cost causer'' to be moot given our
allowance for facility-related cost recovery in our rate caps. We are
unpersuaded by the National Sheriffs' Association's assertion that the
Commission has ``found that the calling and called party are the cost
causer and the beneficiary of calls'' such that the costs of calls
should be recovered from the ratepayers. The Commission made that cost-
causation determination in the context of certain intercarrier
compensation reforms, not with respect to IPCS, which occurs in a
fundamentally different context where the users of the service have no
choice in the provider they use--and the choice of provider can
significantly affect the cost of service. In any case, costs that are
not used and useful in the provision of IPCS are not caused by IPCS
communications, and thus neither party to such communications
reasonably can be seen as causing those costs through the use of IPCS.
To the extent a correctional facility performs a function that is used
and useful in the provision of IPCS under the standards set forth in
the Report and Order, the IPCS provider may reimburse the correctional
facility for that function's cost. As we explain above, any costs that
facilities incur to provide ``safety and security measures necessary''
for the provision of IPCS are also used and useful in the provision of
IPCS. This reimbursement therefore encompasses any costs a correctional
facility incurs in performing safety and security measure functions
that are necessary for the provision of IPCS. We emphasize, however,
that the cost recovery we permit extends only to costs that the
Commission has classified as used and useful in the Report and Order.
Costs that the Commission has not found to be used and useful in the
provision of IPCS may not be recovered from IPCS providers through
revenues under the rate caps we establish. And under no circumstances
may reimbursement result in IPCS consumers being charged more than the
rate caps we adopt today.
b. Background
(i) Site Commissions and IPCS
247. IPCS connect incarcerated people to their families, loved
ones, clergy, and counsel. But unlike communications services offered
to the general public outside of the correctional environment, IPCS
providers have monopoly power in the facilities they serve. As the
Commission has explained:
[I]ncarcerated people have no choice in the selection of their
calling services provider. The authorities responsible for prisons
or jails typically negotiate with the providers of [IPCS]. Once the
facility makes its choice--often resulting in contracts with
providers lasting several years into the future--incarcerated people
in such facilities have no means to switch to another provider, even
if the chosen provider raises rates, imposes additional fees, adopts
unreasonable terms and conditions for use of the service or offers
inferior service.
248. In many cases, correctional authorities award contracts for
IPCS ``based in part on what portion of [IPCS] revenues a provider has
offered to share with the facility.'' These payments, historically
referred to as ``site
[[Page 77289]]
commissions,'' are salient components of the exclusive contracts
between correctional authorities and IPCS providers. Site commissions
broadly include ``any form of monetary payment, in-kind payment
requirement, gift, exchange of services or goods, fee, technology
allowance, product or the like.'' They can be expressed ``in a variety
of ways, including as per-call or per-minute charges, a percentage of
revenue or a flat fee.''
249. Site commissions can arise in several different scenarios.
First, a state or local statute or regulation ``that operate[s]
independently of the [IPCS] contract process'' may mandate ``site
commission payments at a specified level.'' Second, ``there can be
situations where the correctional institution's request for proposal,
or the like, asks bidders to agree to pay site commissions at a
specified level.'' And third, there may be circumstances where no state
or local law or regulation ``compels site commission payments and the
correctional institution soliciting bids does not request any specific
payment (even if it indicates that offers to pay site commissions will
influence bid selection).'' Some state laws permit--but do not
require--correctional institutions to collect site commissions while
others may require site commissions but do not specify any particular
level. In these circumstances, IPCS providers and correctional
institutions may negotiate the amount of the site commission.
250. In general, site commissions provide benefits to correctional
authorities and the IPCS providers bidding on IPCS contracts. By
providing a mechanism for correctional authorities to share in some
portion of IPCS revenues, site commission payments allow correctional
authorities to ``benefit financially from the contract that they sign
with their [IPCS] provider.'' And ``by proposing higher prices'' during
the bidding process, IPCS providers ``can pay more in commissions to
the state, thereby increasing the probability with which they win the
contract.'' It is due to these market dynamics that site commissions
have sometimes been described as ``kickbacks'' or ``legal bribes.''
251. Regardless of how they arise, site commissions, as
historically understood, ``fund a wide and disparate range of
activities.'' In some cases, site commission revenues may be used to
fund programs related to ``education and reintegration into society.''
``In certain jurisdictions, state law requires that revenue from site
commission payments, or a portion thereof, be deposited into welfare
funds or the state's general treasury. In other cases, site commission
payments may be used to ``defray costs of maintaining carceral
facilities.'' Because site commission revenues can include many
different types of payments, they may also be offered for the benefit
of correctional officials, through, for example, campaign contributions
or ``payments to influential sheriff-led associations'' or through in-
kind payments. In one instance, correctional officials were offered
cruises as part of IPCS contracts. Finally, site commissions--as that
term historically was understood--may also serve, in part, to
``compensate correctional facilities for the costs they reasonably
incur in the provision of [IPCS].'' Those facility-related costs may
encompass various safety, security, surveillance, and administrative
tasks. These functions and activities may be performed by correctional
authorities or IPCS providers, depending on their mutually agreed
arrangements.
252. Regardless of the purposes for which site commissions may be
used, they historically have been ``a significant driver of rates''
that incarcerated people and their loved ones pay. Specifically, site
commissions have exerted and continue to exert ``upward pressure'' on
rates. By imposing higher rates, IPCS providers historically could
afford to pay more in commissions to correctional authorities. Thus,
providers ultimately recovered the costs of their site commission
payments through the rates they charged consumers. This means that
incarcerated people and their loved ones, who cannot choose their own
IPCS providers, were forced to bear the financial burden imposed by
site commissions in the rates they pay, thereby subsidizing the tasks
or activities that correctional officials or, in some cases, state law,
dictate associated with the use of site commission revenue. As
explained above, this subsidization could have extended to tasks and
activities that have nothing to with enabling communication between
incarcerated people and their loved ones, including funding ``inmate
welfare programs . . . salaries and benefits of correctional
facilities, states' general revenue funds, and personnel training.''
253. These historical consumer costs could be substantial. Site
commissions historically could account for ``33 percent of the out-of-
pocket consumer call charges on average'' and rising ``to more than 70
percent in some jurisdictions.'' Collectively, as set forth in a
technical appendix, providers reported total industry site commissions
of over $446 million. Relatedly, in jurisdictions that have eliminated
site commissions, IPCS rates have ``decreased significantly.'' In
short, there is ``no question'' that the site commissions result in
higher consumer prices.
254. At the same time, site commissions have distorted the IPCS
marketplace. Each correctional facility has ``a single provider of
[IPCS] that operates as a monopolist within that facility,'' and very
often ``correctional authorities award the monopoly franchise for
[IPCS] based in part on what portion of inmate calling services
revenues a provider has offered to share with the facility.'' Such
scenarios can create ``reverse competition'' in which ``the financial
interests of the entity making the buying decision (the correctional
institution) are aligned with the seller (the ICS provider) and not the
consumer (the incarcerated person or a member of his or her family).''
Thus, as a matter of historical practice, ``providers bidding for a
facility's monopoly franchise compete to offer the highest site
commission payments,'' instead of competing on ``service-based,
competitive market factors'' such as price or quality of service that
would ultimately benefit incarcerated people and their loved ones.
While reverse competition occurs in other contexts, it has been ``at
its most pernicious in the inmate phone service context because buyers
not only do not have a choice of service providers, they also have
strong reasons not to forego using the service entirely.'' What is
more, once a contract is signed, ``the terms of the contract are set in
stone'' in that they need not be renegotiated by the IPCS provider
absent a change in law and, because the provider then has monopoly
power, it ``[does] not have to worry about'' lowering its prices ``in
order to stay competitive.'' As a result in such scenarios, ``at any
given time, the end-users are not necessarily benefitting from the
lowest possible'' IPCS prices.
(ii) The Commission's Regulation of Recovery for Site Commission
Payments
255. The Commission has historically viewed site commission
payments as ``a division of locational monopoly profit'' and not a cost
of providing payphone service. This characterization led the Commission
to exclude site commission costs from the costs it used to set interim
calling services rate caps in the 2013 ICS Order and permanent rate
caps in the 2015 ICS Order. Over time, however, the Commission
recognized that ``some portion of [site commission payments] may be
attributable to legitimate facility costs.'' Thus, in the 2016 ICS
Reconsideration Order (81 FR 62818, September 13, 2016), the
[[Page 77290]]
Commission explained that ``some facilities likely incur costs that are
directly related to the provision of ICS,'' and determined that ``it is
reasonable for those facilities to expect ICS providers to compensate
them for those costs . . . [as] a legitimate cost of ICS that should be
accounted for in [the] rate cap calculations.'' As a result, the
Commission reconsidered its decision to entirely exclude site
commission payments from its 2015 rate caps and adopted additives to
those caps ``to account for claims that certain correctional facility
costs reflected in site commission payments are directly and reasonably
related to the provision of inmate calling services.''
256. In the 2017 GTL v. FCC opinion, the D.C. Circuit held that the
``wholesale exclusion of site commission payments from the FCC's cost
calculus'' in the 2015 ICS Order was ``devoid of reasoned decision-
making and thus arbitrary and capricious.'' The court was unpersuaded
by the Commission's assertion that site commissions have nothing to do
with the provision of calling services, reasoning that ``[i]n some
instances, commissions are mandated by state statute'' while in others
``commissions [are] required by state correctional institutions as a
condition of doing business with ICS providers.'' The court also
explained that because the Commission acknowledged that some portion of
some providers' site commission payments might represent ``legitimate''
costs of providing inmate calling services, the Commission could not
``categorically exclude[ ] site commissions and then set rate caps at
below cost.'' ``Ignoring costs that the Commission acknowledges to be
legitimate,'' the court explained, ``is implausible.'' But the court
left it to the Commission on remand to determine ``which portions of
site commissions might be directly related to the provision of ICS and
therefore legitimate, and which are not.''
257. In 2020, the Commission proposed rate reform of the inmate
calling services then within its jurisdiction with the 2020 ICS Notice.
Based on extensive analysis of the data the Commission collected in the
Second Mandatory Data Collection, the Commission proposed to lower the
interstate rate caps to $0.14 per minute for debit, prepaid, and
collect calls from prisons and $0.16 per minute for debit, prepaid, and
collect calls from jails. Consistent with the D.C. Circuit's opinion in
GTL v. FCC, the Commission also proposed to include ``an allowance for
site commission payments in the interstate rate caps to the extent
those payments represent legitimate correctional facility costs that
are directly related to the provision of inmate calling services.'' The
Commission proposed an allowance of $0.02 per minute, which reflected
the Commission's ``analysis of the costs correctional facilities incur
that are directly related to providing inmate calling services and that
the facilities recover from inmate calling services providers as
reflected by comparing provider cost data for facilities with and
without site commission requirements.'' Recognizing that facility costs
for contracts covering only jails with low average daily populations
might exceed the proposed $0.02, the Commission invited comment on
adopting higher allowances for correctional facility costs for such
contracts if the record supported such allowances.
(iii) 2021 Rate Structure Reforms
258. In the 2021 ICS Order, the Commission adopted interim inmate
calling services rate caps that included an allowance for site
commission payments ``consistent with section 276's fair compensation
provision'' as interpreted by the D.C. Circuit's decision in GTL v.
FCC. In relevant part, the Commission adopted two facility-related rate
components reflecting different types of site commissions for prisons
and larger jails: legally mandated site commission payments that
providers are obligated to pay under laws or regulations; and
contractually prescribed site commission payments that providers agree,
by contract, to make. The Commission did not adopt facility-related
rate components for jails with average daily populations below 1,000,
which remained subject to the existing $0.21 per-minute total rate cap.
This outcome reflected, in part, record arguments suggesting that
``legitimate facility costs related to [IPCS] may indeed be higher for
smaller facilities.'' Because commenters ``did not provide sufficient
evidence to enable [the Commission] to quantify any such costs,'' the
Commission sought comment on facility costs for smaller jails as part
of 2021. The Commission permitted providers to recover the costs of
their legally mandated site commission payments, without any markup, as
an additive to the interim interstate per-minute rate caps up to a
total rate cap of $0.21 per minute. Where site commission payments
resulted from contractual obligations or negotiations between providers
and correctional officials, the Commission permitted providers to
recover no more than $0.02 per minute for prisons and larger jails.
259. In evaluating cost recovery for site commissions in the 2021
ICS Order, the Commission emphasized that full recovery of site
commission payments is not required by the D.C. Circuit's decision in
GTL v. FCC, given that the court made clear that the Commission may
``assess on remand which portions of site commissions might be directly
related to the provision of [inmate calling services] and therefore
legitimate, and which are not.'' The Commission reasoned that full
recovery of site commissions ``cannot be reconciled with [the
Commission's] statutory duty to ensure that incarcerated people and the
people with whom they speak are charged `just and reasonable' rates for
inmate calling services.'' At the same time, the Commission concluded
that it could not, consistent with the record before it at that time
and ``current law and policy'' treat all site commissions solely as a
division of locational monopoly profit and therefore deny any recovery
of such payments.
260. The Commission relied on its section 201(b) authority over
interstate and international rates and charges in the 2021 ICS Order in
analyzing cost recovery separately for legally mandated and
contractually prescribed site commissions. As to legally mandated site
commissions payments, the Commission recognized them ``as a cost that
providers must incur to provide calling services, consistent with
section 276's fair compensation provision.'' Thus, the Commission found
legally mandated site commission payments ``to be used and useful in
the provision of interstate and international inmate calling services
at least as long as the Commission continues to permit providers of
interstate and international inmate calling services to continue to
make these site commission payments.''
261. The Commission next found that contractually prescribed site
commission payments ``reflect[ ] not only correctional officials'
discretion as to whether to request site commission payments . . . but
also providers' voluntary decisions to offer payments to facilities
that are mutually beneficial in the course of the bidding and
subsequent contracting process.'' The Commission also recognized that
contractually prescribed site commissions payments that ``simply
compensate a correctional institution for the costs (if any) an
institution incurs to enable interstate and international inmate
calling services'' were ``prudently incurred expenses used and useful
in the provision of interstate and international inmate calling
services.'' Contractually prescribed site
[[Page 77291]]
commission payments were deemed not recoverable, however, ``insofar as
they exceed[ed] the level needed to compensate a correctional
institution for the costs (if any) an institution incurs to enable
interstate and international inmate calling services.''
262. Ultimately, the Commission arrived at the $0.02 per minute
allowance for prisons and larger jails on two independent bases. First,
it estimated ``the portion of site commissions that are legitimately
related to inmate calling services'' based on a comparison of per-
minute costs for facilities that receive site commission payments and
those that do not from cost and site commission data that providers
reported in response to the Second Mandatory Data Collection. The
Commission first used this methodology in Appendix E of the 2020 ICS
Notice but updated it with corrected cost data in Appendix B of the
2021 ICS Order. Because those data ``incorporated no correctional
facility-provided cost data,'' the Commission's methodology ``reflected
its reasoned judgment as to the best estimation of legitimate facility
costs related to inmate calling services in the absence of cost data
from correctional facilities themselves.'' The Commission agreed with
commenters that it is ``difficult to disentangle which part of the site
commission payment goes towards reasonable facility costs and which
portion is due to the transfer of market power.'' The Commission
emphasized that its own analysis ``reflect[ed] even lower estimates for
legitimate facility costs'' but declined to adopt an allowance lower
than $0.02 at that time.
263. Second, data from a survey of facilities' inmate calling
services costs that the National Sheriffs' Association had conducted in
2015 independently supported the $0.02 allowance for correctional
facility costs at prisons and larger jails. Though the Commission had
previously relied on these data in the absence of any other data, the
Commission expressed continuing concern about their reliability because
``some of the facilities included in the . . . survey [had] report[ed]
an exceedingly high number of hours of correctional facility officials'
time compared to most other reporting facilities.'' The Commission
flagged one facility with an average daily population of approximately
1,500, which reported approximately 694 total hours per week on inmate
calling services-related activities, which was ``roughly 400 hours more
than the next highest facility with an equal or lower average daily
population.'' The Commission did ``not find these data credible when
comparing them to data of similarly sized reporting facilities that
have no incentive to under-report their hours or costs.''
Notwithstanding these issues, the Commission concluded that they were
``the best data available from correctional facility representatives''
that allowed the Commission to balance the ``objectives to ensure just
and reasonable rates under section 201 of the Act with the requirement
to ensure fair compensation under section 276 of the Act.'' The
Commission therefore relied on the data from the National Sheriffs'
Association survey in addressing providers' site commissions payments
to prisons and larger jails. The Commission found, however, that the
survey data for jails having average daily populations of fewer than
1,000 incarcerated people ``varied far too widely to comfortably
estimate any values'' for correctional facility costs ``that would
withstand scrutiny today'' (i.e., in May 2021). The Commission
circumscribed its interim treatment of site commissions based on the
record and regulatory backdrop at that time, and confirmed that nothing
in the 2021 ICS Order would limit its ``ability, on a more complete
record and with sufficient notice, to reconsider [its] treatment of
site commission payments.''
264. In 2021, adopted at the same time as the 2021 ICS Order, the
Commission sought comment on how and where to draw the line between
legitimate and illegitimate portions of site commission payments and
asked for specific data concerning legitimate portions of those costs,
if any. Additionally, the Commission asked commenters to provide
methodologies that the Commission could use to identify legitimate site
commission expenses. The Commission also sought comment on
``prohibiting providers from entering into any contract requiring the
payment of contractually prescribed site commissions for interstate and
international calling services'' and ``preempting state or local laws
that impose [legally mandated site commission] payments on interstate
or international calling services.''
(iv) The Martha Wright-Reed Act and 2023 Request for Comment
265. On December 22, 2022, Congress passed the Martha Wright-Reed
Act, which was signed into law on January 5, 2023. Just slightly over
two months later, the Commission adopted 2023, in which it sought
comment on several aspects of the effect of the Martha Wright-Reed Act
on the Commission's consideration of site commission payments. First,
as a general matter, the Commission incorporated its prior questions on
site commissions from 2021 into 2023. In particular, the Commission
asked whether its ratemaking calculations should ``include providers'
site commission payments only to the extent, if any, that they
compensate facilities for used and useful costs that the facilities
themselves incur.'' Second, the Commission requested comment on how the
dual requirements of section 276(b)(1)(A) to ensure just and reasonable
rates and charges for IPCS consumers and providers and fair
compensation for IPCS providers should affect its treatment of site
commission payments including any decision on whether to preempt state
and local laws and regulations that impose site commissions. And third,
the Commission invited comment ``on the relationship, if any, between
safety and security measures and site commission payments.''
(v) Other Trends in the Treatment of Site Commissions
266. Broadly, the ``structure of the market for providing
communications services to incarcerated persons has changed and
continues to change.'' This is particularly true in the case of site
commissions. Indeed, ``[t]here is already a growing trend to eliminate
the use of site commissions.'' One IPCS provider explains that it
offers ``commission-less options in its proposals to correctional
authorities'' to ``improve affordability for consumers.'' In addition
to provider-led efforts, ``a number of states have banned site
commissions'' or have made IPCS free to end users driven, at least in
part, by the goal of protecting incarcerated people and their loved
ones ``from detrimental practices by private corporations providing
goods and services to people confined in carceral facilities.'' States
that have eliminated site commissions include California, Michigan,
Missouri, Nebraska, New Mexico, New York, Rhode Island, and South
Carolina. And five states--Massachusetts, Connecticut, California,
Minnesota, and Colorado have now enacted legislation providing for free
communications services for incarcerated people, meaning that IPCS
consumers now pay nothing for IPCS site commissions. More recently,
other states have introduced legislation requiring IPCS to be provided
free of charge to incarcerated people and their loved ones or have
eliminated site commission payments. This is also true for some
municipalities, for example, San Diego and San Francisco. Together,
these trends point to a decreasing
[[Page 77292]]
reliance on site commission payments in providing IPCS.
c. Discussion
(i) Overview of Our Approach to Site Commissions
267. In the Report and Order, we only permit IPCS provider payments
to correctional facilities for costs used and useful in the provision
of IPCS. As Pay Tel explains, facility cost recovery and site
commissions are ``two separate (but currently interrelated) issues.''
Pay Tel emphasizes that ``site commission payments often ultimately
provide facilities with necessary cost recovery for their role in
administering ICS'' but that ``does not mean site commission payments
are necessary for--i.e., the only means of ensuring--facility cost
recovery.'' We agree. Decoupling the conceptually distinct category of
IPCS provider payments to correctional facilities for costs used and
useful in the provision of IPCS from other payments IPCS providers have
been asked--or required--to make to correctional facilities (i.e.,
``site commissions'') illuminates how those markedly different
categories of IPCS provider payments can and should be treated under
our new regulatory approach.
268. We find that our rate caps will allow for IPCS provider
reimbursements to correctional facilities for costs used and useful in
the provision of regulated IPCS. In particular, we enable facilities to
be reimbursed for these costs by including them in our rate caps and
allowing providers to compensate facilities for them. At this time, we
do not see the need to amend the Commission's definition of site
commission to carve out the reimbursement we permit. By adopting a
mechanism that enables correctional facility cost recovery extending
only to used and useful costs reimbursed by IPCS providers, we ensure
that correctional facilities will not be without recourse to recover
their legitimate costs from providers within the bounds of the rate
caps we adopt today. We also ensure that providers' obligations to
reimburse correctional facilities will be limited to the used and
useful costs associated with the provision of IPCS that they actually
incur.
269. We take a different approach with respect to site commissions.
Today we conclude, based on the record and consistent with precedent,
that site commission payments are not used and useful in the provision
of IPCS and must therefore be excluded from the calculation of the
Commission's rate caps. We further prohibit site commission payments to
all facilities to the extent those payments are associated with
intrastate, interstate, international, jurisdictionally mixed, and
jurisdictionally indeterminate audio and video IPCS, including all
monetary and in-kind site commissions. To effectuate this prohibition
we take two actions consistent with 2021 and 2023. First, we preempt
state and local laws and regulations allowing or requiring site
commission payments for IPCS. And second, we prohibit IPCS providers
from entering into contracts allowing or requiring the payment of site
commissions. We emphasize that the actions we take today in eliminating
site commissions apply to all correctional institutions: prisons,
larger jails, smaller jails, and other types of correctional
institutions.
(ii) Site Commissions Are Not Used and Useful in the Provision of IPCS
270. Based on the record and core ratemaking precedent, we find
that site commission payments are not used and useful in the provision
of IPCS and must therefore be excluded from our rate and fee cap
calculations. As discussed below, site commissions, whether legally
mandated or contractually prescribed, do not satisfy any prong of the
used and useful framework as that framework is applied by courts and
the Commission.
271. Securus argues that the used and useful framework ``is
unsuited for the purpose of determining cost recovery for site
commission payments'' and is not an ``appropriate basis'' to restrict
or eliminate site commissions. Securus explains that the used and
useful framework ``potentially leads to unreasonable outcomes where the
entity that sets the requirements for service, the correctional
institution, is different from the ``rate payer.'' In Securus's view,
correctional facilities, not incarcerated people, are the ``direct
customer[s]'' of IPCS and, as such, prescribe the ``features and
functions'' they deem used and useful to provide the service. It is
thus ``untenable,'' Securus argues, to suggest that all features a
correctional facility deems used and useful must ``inure directly to
the benefit of each caller.''
272. While it is true that correctional authorities contract with
IPCS providers for the provision of IPCS in their facilities, we are
not persuaded by Securus's arguments. IPCS are used and paid for by
incarcerated people and their loved ones. In implementing section
276(b)(1)(A)'s just and reasonable and fair compensation standards,
``[t]he Commission's duty is to protect IPCS ratepayers and ensure
reasonable compensation for providers, not to protect the interests and
demands of non-ratepaying stakeholders.'' And it is through the used
and useful framework that the Commission balances the ``equitable
principle that public utilities must be compensated for the use of
their property in providing service to the public'' with the
``[e]qually central . . . equitable principle that the ratepayers may
not fairly be forced to pay a return except on investment which can be
shown directly to benefit them.'' It is therefore entirely appropriate
to evaluate site commission payments under the used and useful
framework.
273. To the extent Securus is concerned that applying the used and
useful framework will somehow interfere with the discretion of
correctional officials, we find those concerns overstated. We do not
limit the ability of a correctional authority to ``prescribe[ ] the
features and functions it deems necessary to provide the service in its
facilities.'' Correctional authorities remain free to contract for the
``equipment, network facilities, operations and services'' they deem
appropriate. All we do here is evaluate site commission payments under
long-standing principles the Commission uses in evaluating whether
rates and charges are just and reasonable and conclude, based on the
record developed over many years in these proceedings, that those
payments are not used and useful in the provision of IPCS and must
therefore be excluded from our rate cap calculations. Doing so ensures
that incarcerated people and their loved ones ``bear only legitimate
costs of providing service to them.''
274. Securus also contends that the ``used and useful'' framework
is ``inapplicable to site commissions for the further reason that it is
a feature of rate of return regulation'' that is ``unsuited for the
purpose of determining cost recovery for site commission payments.''
Securus explains that the role of the ``used and useful'' framework
under rate-of-return regulation is ``to determine the rate base,
defined as net investment in plant and equipment'' and ``plays no role
in determining appropriate operating expenses, such as site
commissions,'' which may be recovered ``unless totally unrelated to the
provision of service or excessive.'' Securus claims that because the
Commission has opted to use ``a form of price cap,'' rather than ``rate
of return regulation to set incarcerated communications services rate
caps,'' the used and useful framework should be inapplicable. And even
in the context of rate-of-return regulation, Securus asserts
[[Page 77293]]
that regulators are not required to apply the used and useful framework
and may instead use the prudent investment rule.
275. We find Securus's arguments in this regard unpersuasive.
First, as the Commission has explained, it has ``not only . . . applied
[the used and useful framework] in the context of carriers operating
under rate-of-return regulation, but rates set on that basis were also
used as the foundation for the price caps.'' Indeed, the Commission's
price cap regime for incumbent local exchange carriers started with
rates ``generated by the conventional cost-of-service formula,'' an
approach that has become, over time, the prevailing methodology to
determine the rate base and allowable expenses under rate-of-return
regulation. Setting price caps therefore involves some measure of the
cost of service that is the hallmark of rate-of-return regulation.
Fundamentally, setting IPCS rates is an ``exercise in cost-based
ratemaking'' that ``requires a determination of the costs providers
incur in providing those services.'' And the used and useful framework
is the standard the Commission has historically applied to ``exclude[ ]
certain impermissible costs from any rate methodology.'' Accordingly,
we conclude that we may apply the used and useful framework to
providers' site commission payments.
276. Second, the used and useful standard, and the just and
reasonable ratemaking standard more broadly, are fundamentally
concerned with balancing the interests of ratepayers with the need to
compensate public utilities for the use of their property. The policy
of allowing only investments and expenses which are ``used and useful''
to be recovered from ratepayers ``is intended to ensure that current
ratepayers bear only legitimate costs of providing service to them.''
The concept thus is not inherently limited to physical plant owned by
the provider and irrelevant to expenses. The Commission's previous
employment of the ``used and useful'' framework to evaluate recovery of
site commissions through just and reasonable rates as part of the
regulatory backdrop to the Martha Wright-Reed Act's addition of the
``just and reasonable'' mandate to section 276(b)(1)(A) reinforces our
conclusion that it is reasonable for us to rely on that approach again
here. And the standard is necessarily flexible, allowing the Commission
to analyze ``[t]he particular facts of each case . . . in order to
determine what part of a utility's investment is used and useful.'' We
rely on this flexibility to ensure that IPCS consumers bear ``only
legitimate costs of providing service to them.'' Importantly, however,
we do not rely solely on the used and useful framework to eliminate
site commissions. Instead, our actions stem principally from the
requirements of section 276(b)(1)(A), as amended by the Martha Wright-
Reed Act, that we ensure just and reasonable rates and charges for
consumers and providers and fair compensation for providers. In doing
so, we do as Securus requests, which is to exercise ``the full degree
of [our] authority'' to prohibit site commission payments entirely.
(a) Used and Useful Assessment
277. In the 2021 ICS Order, the Commission conducted a used and
useful analysis applying a prudent investment standard and ultimately
permitted providers to pass through to consumers, on an interim basis,
the full amount of their legally mandated site commission payments up
to a total interstate rate cap of $0.21 per minute and no more than
$0.02 per minute for their contractually prescribed site commission
payments for prisons and larger jails. In conducting its cost recovery
analysis under the used and useful framework, the Commission explained
that it did not consider site commission payments of any kind to
``involve[e] the use of provider property and investment in a manner
analogous to the circumstances addressed in [its] provider-based rate
caps.'' The Commission reasoned that the site commission payments, or
the portions thereof, that it allowed providers to recover on an
interim basis were ``akin to exogenous costs.'' Separately, the
Commission independently justified its decision ``as a matter of the
flexibility provided by the `just and reasonable' framework of section
201(b) of the [Communications] Act under the particular
circumstances.'' The Commission concluded that allowing only a pass-
through of site commission expenses it found to be prudently incurred
and used and useful ``adequately accounts for the use of providers'
property . . . balanced with the equitable interest of customers of
interstate and international inmate calling services.''
278. Our approach here differs from the Commission's 2021 interim
reforms in which the Commission concluded that a portion of some site
commission payments was used and useful in the provision of calling
services, and therefore compensable for purposes of the used and useful
analysis. For one, we separate out from our definition of ``site
commissions'' the reimbursement IPCS providers make to correctional
facilities for costs those facilities incur that we have already found
to be used and useful in the provision of IPCS under our analysis
above. The question then turns to whether site commissions as defined
here separately are used and useful in the provision of IPCS and thus
separately compensable under the just and reasonable standard. We
conclude that they are not. Thus, in developing the IPCS rate caps we
adopt today, we have identified, based on the record, all of the used
and useful costs and expenses in the provision of intrastate,
interstate, international, and jurisdictionally mixed audio and video
IPCS, regardless of whether those costs are incurred by IPCS providers
or correctional facilities. Accordingly, we have considered, consistent
with this element of the used and useful framework, what is required to
compensate IPCS providers for offering IPCS while safeguarding the
interests of incarcerated people and their loved ones under the just
and reasonable mandate.
279. On the record now before us and considering the requirements
of section 276(b)(1)(A), as amended by the Martha Wright-Reed Act, we
find that, to the extent they exceed the costs correctional
institutions prudently incur in the provision of IPCS, site
commissions, whether contractually prescribed or legally mandated, are
not used and useful in the provision of IPCS because there is no
indication that such payments benefit IPCS consumers. To begin with,
the Commission predicated its 2021 interim reforms on the assumption
that a portion of providers' site commission payments provided a
benefit to IPCS consumers and was thus recoverable ``at least as long
as the Commission continues to permit providers . . . to make site
commission payments.'' That is, the Commission assumed, on the record
before it, that some portion of providers' site commission payments
compensated correctional facilities for the costs they incurred in
enabling the provision of ICS. But even in the 2021 ICS Order, the
Commission concluded that site commission payments above that level
were not used and useful and/or not prudently incurred and should not
be subject to recovery in order to ensure just and reasonable rates.
Nothing in the record here persuades us to change our mind in that
respect, and we thus again conclude that such costs are not used and
useful and/or prudently incurred, and thus not recoverable through just
and reasonable rates. And, as discussed below, absent any viable data
that demonstrate any portion of a site commission in this context
provides compensable costs, we find that site
[[Page 77294]]
commissions are in their entirety not recoverable.
280. As to those site commission payments the Commission did allow
to be recovered under its used and useful and prudent investment
analysis in the 2021 ICS Order, the Commission relied, in part, on the
National Sheriffs' Association 2015 survey as the best available proxy
for those costs and limited recovery for contractually prescribed site
commission payments to no more than $0.02 per minute at prisons and
larger jails, even though the Commission's independent estimates of the
portion of site commissions that were legitimately related to inmate
calling services supported ``even lower potential estimates for
legitimate facility costs.'' With respect to legally mandated site
commission payments, the Commission assumed, on the record before it at
that time, that legally mandated site commission payments at the level
required by the relevant statute or regulation were used and useful. We
address certain particularities with respect to legally mandated site
commissions below. The Commission chose to rely on the National
Sheriffs' Association data--despite significant reservations about
their accuracy--in large part due to ``the absence of any other
facility-provided data'' in the record. Rather than delay much-needed
relief, the Commission chose to rely on the ``best data available'' to
estimate facility costs used and useful in the provision of
communications services ``until more updated facility-related data are
submitted into the record.'' As discussed above, however, no commenter
or other stakeholder has provided updated facility-related cost data
sufficient to enable the Commission to isolate the portions of
providers' site commission payments, if any, that actually compensate
correctional facilities for the costs they incur in the provision of
IPCS. Accordingly, we decline to rely on those data here to allow
additional recovery for providers' site commission payments.
281. Putting aside the lack of reliable data, the record persuades
us that site commission payments primarily compensate correctional
facilities for the transfer of their market power over IPCS at a given
facility or are used by providers to ``overcome . . . competitors to
become the exclusive provider of multiple services, including
nonregulated services at a correctional facility'' while providing no
clear benefit to IPCS consumers. In the 2021 ICS Order, the Commission
identified a collective action problem ``that makes providers, as a
group, reluctant to limit or omit site commission payments in their
bids for fear that competitors fail to do so, and that correctional
institutions will select competitors that do offer site commissions (or
offer higher site commissions) instead.'' Securus confirms that ``[t]he
problem identified by the Commission is real,'' suggesting that
providers cannot ``unilaterally end the established practice of many
local governments in seeking site commission payments in their
negotiations with providers.'' Thus, it appears that ``when providers
offer site commission payments as part of their bids, they do so to
gain a benefit for themselves, rather than to satisfy a formal
precondition of access to a correctional facility.''
282. Consider, for example, monetary site commission payments. In
certain cases, contract language requiring the payment of monetary site
commissions demonstrates that such payments compensate correctional
facilities ``for the transfer of their market power over [IPCS] to the
[IPCS] provider'' and cannot be shown to directly benefit consumers of
incarcerated people's communications services. For example, the
language in a contract between CenturyLink Public Communications, Inc.,
a former provider of incarcerated people's communications services, and
Milwaukee County, Wisconsin, explains that ``[i]n consideration of
being granted the right and obligation to operate the Inmate Pay
Telephone Concession at the Correctional Facilities, CenturyLink shall
pay County a commission rate equal to 70.1% of the Gross Revenue
generated from completed or accepted calls made at the CenturyLink pay
phones covered by this agreement.'' In another case, the contract calls
for the payment of a percentage of gross revenue ``in return for the
exclusive right to install and operate the [p]hones in the premises.''
283. Provisions like these illustrate that the site commission
payments benefit the facilities insofar as they receive compensation
for allowing the provider (instead of the correctional authority) to
offer communications services at the facility or facilities covered by
the contract. And, the site commission payments benefit the providers,
which receive the exclusive right to offer communication services for
the duration of the contract. There is nothing in these contracts, or
the record generally, suggesting that such site commission payments are
conditioned on, for example, improved service quality or lower prices
for consumers of calling services or compensating the correctional
facility for any costs it incurs in allowing IPCS. Thus, the benefits
flow first to the facility and then to the provider, ``all to the
detriment of [IPCS] customers.''
284. Record evidence submitted by Pay Tel also demonstrates the way
in which site commissions may be used by IPCS providers to ``increase
the probability with which they win [a] contract.'' Pay Tel provides
documentation relating to recent requests for proposals ``in which Pay
Tel competed but ultimately lost due to site commission payment
amounts.'' Pay Tel notes that, in two instances, it ranked higher in
each scoring category except for the site commission category but still
lost the bids. Indeed, the winning bidders had proposed to pay site
commissions of 90% and 88.8% on all calls. Thus, Pay Tel at least
plausibly lost those bids on the basis of its site commission offerings
indicating that ``providers may feel compelled to offer site
commissions in order to remain competitive'' rather than to compensate
correctional facilities for the costs, if any, they incur in making
IPCS available. To the extent these site commissions were, in fact,
related to any legitimate IPCS costs, we would have expected to see
similar offers from the other bidders. But we do not. Instead, it
appears that the winning bidder used its site commission offerings in
this context ``to overcome its competitors'' in the bidding process.
285. The National Sheriffs' Association offers a different
explanation of Pay Tel's data. It claims that a high site commission
percentage does not ``necessarily mean the commission payment exceeds
the cost to the facility of allowing ICS or that the rate charged for
ICS service at the facility is unreasonable.'' In its view, Pay Tel's
experience ``may show that the cost to serve the specific facility is
below the Commission's nationwide average rate and the dollar amount of
the revenues is significant enough that ICS providers are willing to
offer a greater percentage of their profits to capture that specific
contract.'' Or, it ``may also reflect the fact that ICS providers are
not required to bid on facility contracts or provide ICS at all
facilities and . . . can boost profit by declining to provide service
in higher cost facilities.'' These alternative explanations are
speculative and otherwise unsupported by record evidence. In contrast,
Pay Tel provides concrete evidence, including bid evaluation forms used
by the correctional authorities, that portrays a compelling, first-hand
account of how site commissions factored into the bid evaluation
processes. We find it highly persuasive that Pay Tel obtained higher
[[Page 77295]]
scores across all bid scoring categories except site commissions but
still lost those contracts. We believe these outcomes clearly
illustrate ``the current incentive for facilities to award contracts
based primarily (or, at times, exclusively) on site commission
offerings'' rather than on the basis of price or quality of service, to
the detriment of IPCS consumers.
286. In-kind payments also demonstrate that site commissions
primarily benefit correctional authorities and IPCS providers but not
IPCS consumers, as they are often wholly unrelated to the provision of
IPCS. This is because in-kind payments from the IPCS provider can take
varied forms, including software packages, {[REDACTED]{time} campaign
contributions, ``payments to influential sheriff-led associations,'' or
anything else of value to the correctional authority. One provider
describes the fluid nature of in-kind site commissions noting that they
``{[REDACTED]{time} .'' For example, Smart Communications offered,
among other inducements, an ``Annual Technology Training Summit
Cruise'' as part of its proposal to a sheriff's office. Those cruises
had a value of over $84,000 over the contract term. Because these in-
kind contributions are often offered at low or no cost to the
correctional authority, they clearly benefit the correctional
authority, which receives something of value from the IPCS provider.
And such inducements also benefit the IPCS provider to the extent they
allow that provider to surpass its competitors in the bidding process.
In contrast, there is nothing in the record showing the extent, if any,
to which these types of in-kind site commissions, whatever form they
may take, are used and useful in the provision of IPCS and thus benefit
incarcerated people and other ratepayers. Indeed, no commenter has
suggested as such. Rather, such payments are more accurately understood
as inducements ``designed to influence a correctional authority's
selection of its monopoly service provider.'' This is the kind of
``excess investment'' that should not be recoverable from ratepayers
under the used and useful framework.
287. We acknowledge, however, that some portion of providers' site
commission payments, whether contractually prescribed or legally
mandated, may be used for socially beneficial purposes when viewed from
a broader perspective. These may include ``inmate health and welfare
programs such as rehabilitation and educational programs; programs to
assist inmates once they are released; law libraries; recreation
supplies; alcohol and drug treatment programs; transportation vouchers
for inmates being released from custody; or other activities.'' These
causes, while worthy, are unrelated to the provision of IPCS and as
such IPCS consumers do not bear the responsibility to bear their costs
under the Communications Act. As commenters have observed, such
programs could instead ``be paid for from general revenue sources'' or
other state or local funding, enabling state and local governments to
continue to advance the objectives of ``reducing recidivism and
providing basic care'' consistent with their existing efforts in those
areas. We agree. And as the Commission has observed, the Communications
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.'' As such, we do not dispute the notion that
``there are many factors that may be indicative of a legitimate
penological interest'' such as ``crime interdiction, deterrence, inmate
management and . . . revenue generation'' but the costs associated with
pursuing these interests are not costs used and useful in the provision
of communications services for incarcerated people under the
Communications Act. Were we to find such non-IPCS costs used and useful
in the provision of IPCS and therefore recoverable from consumers, we
would be unable to ensure just and reasonable IPCS rates and charges
consistent with section 276(b)(1)(A), as amended by the Martha Wright-
Reed Act. We recognize that in GTL v. FCC, the D.C. Circuit concluded
that ``it does not matter that the states may use commissions for
purposes unrelated to the activities of correctional facilities.'' But,
as we explain below, the GTL decision was premised on IPCS providers
actually paying site commissions as a condition of doing business. In
contrast, our actions today prohibit the payment of site commissions,
thus eliminating the concern expressed by the D.C. Circuit about the
use of site commissions as a precondition to providing service in
correctional facilities. We therefore conclude that we may, under these
circumstances, consider how site commissions are used.
288. While we conclude that site commissions, whether legally
mandated or contractually prescribed, are not used and useful because
they do not benefit consumers, some further discussion of legally
mandated site commissions in this context is necessary in light of the
Commission's 2021 interim reforms. In the 2021 ICS Order, the
Commission assumed that legally mandated site commission payments that
``exceed the level that simply compensates a correctional institution
for any costs the institution incurs to enable interstate and
international inmate calling service'' were prudent expenses because
there was ``no evidence that either the provider or the correctional
institution could agree to a lower amount (or no site commissions at
all) based on the current record and current law.'' Thus, the
Commission concluded, on an interim basis, that legally mandated site
commissions ``at the level required by the relevant statute or rule to
be used and useful in the provision of interstate and international
inmate calling services at least as long as the Commission continues to
permit providers . . . to continue to make these site commission
payments.'' The Commission made no determination regarding how legally
mandated site commissions may ``impact [the Commission's] ability to
ensure just and reasonable . . . rates.'' The Commission also
emphasized that ``this [was] a close question'' and that the record
developed in response to 2021 ``may persuade [the Commission] to reach
a different conclusion'' in addressing site commissions on a permanent
basis. The Commission's interim approach to legally mandated site
commission payments in the 2021 ICS Order thus turned in significant
part on the legal backdrop that the Commission took as given at that
time, namely: (1) legally mandated site commissions could not be
avoided; and (2) IPCS providers were allowed to make those payments.
289. We no longer believe our used and useful analysis should
proceed based on those assumptions. For one, the Martha Wright-Reed Act
added to section 276(b)(1)(A) the requirement that the Commission's
compensation plan ``ensure that . . . all rates and charges'' for
intrastate and interstate IPCS are ``just and reasonable,'' putting
that legal mandate on equal footing with the preexisting ``fair
compensation'' requirement and bringing it within the purview of the
express preemption provision in section 276(c). In addition, the
Commission sought comment and developed a record on whether to prohibit
site commission payments and preempt contrary state and local laws and
regulations in light of that updated legal authority. Because we
conclude that we are substantively and procedurally in a position to
prohibit site commission payments and preempt contrary state and local
laws and regulations, the better course is to approach the used and
useful analysis
[[Page 77296]]
without the presumption of inevitability that so significantly
influenced the Commission's prior assessment of legally mandated site
commission payments.
290. Nothing in the record persuades us that legally mandated site
commissions ``reflect[ ] the actual costs associated with the provision
of [IPCS], separate and apart from the legal compulsion for facilities
to collect it.'' Particularly given that we no longer find it warranted
to assume the existence or continuation of such a legal requirement, we
agree that ``[t]here is nothing with respect to [a] statutory
obligation that makes such a charge `used and useful' under the
Commission's obligation to ensure rates are just and reasonable.'' We
also see no evidence or support for the notion that legally mandated
site commissions flow through to benefits in IPCS such that users of
those services should be expected to bear those costs under a used and
useful analysis. This is particularly true where state or local law or
regulation requires site commission payments as a percentage of gross
(i.e., total) revenue for a group of services that is not restricted to
IPCS. It is difficult to see how a site commission based on such a
formula reflects any relation to the underlying costs of providing
IPCS. But, on the record before us, it is similarly difficult to tie
other types of site commissions, such as those framed as per-call
charges, to any legitimate IPCS costs. In sum, the record is devoid of
any indication that legally mandated site commissions are set at levels
that are designed simply to reimburse correctional facilities for the
costs they incur in making IPCS available such that their payment would
affect the provision of IPCS and that IPCS customers reasonably should
bear those costs.
291. If anything, the record suggests that legally mandated site
commission payments support activities that quite clearly do not enable
the provision of the underlying communication services that IPCS
consumers pay for. In Tennessee, for example, per-call fees are
required to be remitted by the provider to the state treasurer on a
quarterly basis ``and credited to a special account in the state
general fund designated as the local correctional officer training fund
to be used exclusively to fund certification training provided through
the institute for local correctional personnel within the state.'' It
is difficult to see how funding officer certification training enables
or improves the communications services incarcerated people and their
loved ones use. Indeed, the training of correctional officials is
plainly necessary to the general operation of a correctional
institution separate and apart from the presence or absence of IPCS.
And yet, at least under Tennessee law, IPCS consumers are subsidizing
these efforts. To allow such costs to be recovered from those consumers
would be ``at odds with well-established principles of ratemaking'' and
directly ``impact our ability to ensure just and reasonable . . .
rates.'' Thus, given the state of the record and the requirements of
the Martha Wright-Reed Act, we conclude that because there is no
indication that legally mandated site commission payments provide any
benefit to incarcerated people and their loved ones who are the
customers of IPCS, they are not used and useful in the provision of
IPCS.
292. In concluding that legally mandated site commissions are not
used and useful in the provision of IPCS, we are mindful of the
Commission's observations in the 2021 ICS Order, that in jurisdictions
that require legally mandated site commission payments, ``facilities
have no immediate ability to entertain offers from providers that wish
to supply a facility without paying the site commission demanded'' and
that ``absent further legislative process to amend the government
statute, facilities would appear to have to forgo making
[communication] services available.'' Rather than taking that as a
given, today we exercise our authority to preempt state and local laws
and regulations that require IPCS providers to pay site commissions
associated with IPCS. Such preemption will alleviate the concerns the
Commission expressed in the 2021 ICS Order as to both IPCS providers
and the correctional facilities themselves. Thus, both providers and
correctional facilities may pursue commission-free contracts without
running afoul of contrary legal mandates.
(b) Prudent Expenditure Analysis
293. Finally, because the forgoing analysis demonstrates that site
commissions are not used and useful in the provision of IPCS, that is
sufficient to exclude them from just and reasonable rates. At times,
the Commission might elect to consider the prudence of investments and
expenses as an independent alternative to its decision that particular
costs are not used and useful. But the prudent investment inquiry does
not provide an alternative ground for including costs in provider rates
when they are not used and useful. In other words, once we have
determined that site commissions are not used and useful, any provider
payment of site commissions is necessarily imprudent.
(iii) Prohibiting Site Commission Payments Associated With IPCS
294. Having found that site commissions do not recover costs or
expenses used and useful in the provision of IPCS, we now evaluate the
interplay between that determination and the broader regulatory
framework specified by the Communications Act. We conclude that the
payment of site commissions, whether legally mandated or contractually
prescribed, would create a conflict between the dual statutory
requirements of ensuring fair compensation for providers and just and
reasonable IPCS rates and charges for consumers and providers.
Accordingly, pursuant to sections 276(b)(1)(A), 276(c), and 201(b) of
the Communications Act, we reconcile these statutory objectives by
prohibiting site commissions associated with intrastate, interstate,
international, jurisdictionally mixed, and jurisdictionally
indeterminate audio and video IPCS.
295. Our Approach Best Reconciles Our Statutory Duties In Light of
the Harms of Site Commissions. The Martha Wright-Reed Act added to
section 276(b)(1)(A) the requirement that the Commission's compensation
plan ``ensure that . . . all rates and charges'' for intrastate and
interstate IPCS are ``just and reasonable.'' Thus, section
276(b)(1)(A), as amended by the Martha Wright-Reed Act, requires the
Commission to establish a compensation plan to ensure that all IPCS
providers are ``fairly compensated'' and that ``all [IPCS] rates and
charges are just and reasonable.'' As stated above, we view the ``just
and reasonable'' and ``fairly compensated'' requirements as
interdependent and complementary statutory mandates, which we must
fully implement. Section 201(b) of the Communications Act also requires
just and reasonable rates and charges for interstate and international
IPCS.
296. Site commissions interfere with the Commission's ability to
implement these dual requirements of determining ``just and
reasonable'' rates and charges and ``fair[ ] compensat[ion]'' for IPCS
providers. To the extent that IPCS providers face a legal necessity to
pay site commissions, the D.C. Circuit's decision in GTL v. FCC
suggests that the fair compensation requirement in section 276(b)(1)(A)
requires that IPCS providers be able to recover those payments through
IPCS rates and charges. We thus reject the argument that a prohibition
on site commissions
[[Page 77297]]
is beyond the scope of the Commission's authority. As we explain, the
prohibition on site commissions best reconciles our statutory duties to
ensure both just and reasonable rates and charges for IPCS consumers
and providers and fair compensation for IPCS providers. Yet, allowing
that recovery would lead to unjust and unreasonable IPCS rates and
charges given our finding that providers' site commission payments are
expenditures that are not used and useful in the provision of IPCS.
Even beyond that, payment of site commissions introduces competitive
distortions in the bidding market for IPCS. Thus, site commissions
create conflict between the fair compensation and the just and
reasonable requirements in section 276(b)(1)(A). The policy harms
arising from site commissions likewise frustrate the Commission's
ability to alleviate competitive distortions and foster greater
competition in the IPCS marketplace.
297. Site commissions historically have been a major driver of
excessive IPCS rates. As discussed above, site commissions have exerted
``upward pressure'' on IPCS rates because by proposing higher rates,
IPCS providers can afford to pay more in site commissions to
correctional authorities. Site commission payments, however, are used
to fund a ``wide and disparate'' range of activities, including
educational and welfare programs, the state or local government's
general revenue fund, the costs of maintaining correctional
institutions, and, in extreme cases, campaign contributions or
entertainment for correctional officials. And ``most or all'' of these
functions ``have no reasonable and direct relation to the provision of
ICS--a historical assessment confirmed by our used and useful analysis
above. Because IPCS consumers ``are forced to absorb . . . site
commissions in the rates they pay,'' they ``subsidize everything from
inmate welfare programs, to salaries and benefits of correctional
facilities, states' general revenue funds, and personnel training.'' As
the Commission has observed, ``[p]assing the non-ICS-related costs that
comprise site commission payments . . . onto inmates and their families
. . . result[s] in rates . . . that are not just and reasonable.''
298. Site commissions also historically have distorted the IPCS
marketplace. Commenters and the Commission have long recognized that
site commissions undermine the integrity of the bidding process for
IPCS. In a properly functioning marketplace, correctional institutions
would select an IPCS provider based on the quality of service the
provider offered and on the rates the provider would charge. But the
interests of correctional institutions diverge from the interests of
consumers using IPCS. While IPCS consumers are interested in lower
prices for IPCS, correctional institutions have an incentive to
maximize the revenues they receive from providing access to the
correctional facility to an IPCS provider. IPCS providers historically
responded to this state of affairs in the marketplace by increasing
IPCS rates, thereby enabling them to offer higher site commissions and
increasing the likelihood they would be chosen as the monopoly provider
for a facility for the term of a multi-year contract. This market
distortion results in higher IPCS rates for consumers, providing an
additional, independent basis for concluding that site commissions are
unjust and unreasonable.
299. Securus acknowledges that ``[t]here is no question that site
commissions continue to play a role in the bidding process'' but argues
that the Commission ``overstates the case . . . to the extent it claims
that awards always go to the provider offering the highest site
commissions.'' Securus provides a study based on data analyzing ``the
contribution of price and site commissions to the scoring criteria
utilized'' by facilities. The study finds that ``[c]ontrary to what we
may expect based on suggestions that the entity bidding the highest
site commission payment always or generally wins, the bid evaluation
criteria used by most RFP issuers reflect a strong preference for bids
with high levels of performance on the qualitative aspects of a bid,
not necessarily based on price or site commission proposals.'' Securus
also argues that site commissions ``may actually play some role in
fostering competition by enabling smaller providers to successfully
compete against larger providers, particularly for smaller facilities
that may rely more on site commission revenue.''
300. At the same time, however, Securus argues that ``[t]o the
extent site commissions continue to distort competition in the bidding
market, the solution is to further regulate site commissions.'' We
agree. Even if site commissions do not always or exclusively result in
problematic distortions in the IPCS marketplace, the record confirms
that site commissions create incentives ``for facilities to award
contracts based primarily (or at times, exclusively) on site commission
offerings.'' Even if some correctional facilities do not fully act on
those incentives at given points in time, as long as those incentives
remain the risk of marketplace distortions will persist based on
factors--i.e., correctional facility decision-making preferences--that
are outside the control of the Commission and IPCS consumers. And where
facilities do act on those financial incentives, even assuming there
was perfect competition in the IPCS bidding market, ``[t]he benefit
would be to . . . providers and to facilities offering the contracts,
not to the people paying.'' The solution, then, is to remove the
incentive to award contracts ``based in whole or in part on site
commissions.'' That is what we do today. Doing so ``leave[s] facilities
with only service-based, competitive market factors [to consider] when
awarding contracts.'' This, in turn, pushes providers to ``compete to
provide the best service for the lowest consumer cost as the only way
to distinguish themselves and win bids.'' Our action to alleviate
competitive distortions in the IPCS market through the elimination of
site commission payments thus advances the purpose of section 276 to
``promote competition among payphone service providers and promote
widespread deployment of payphone services to the benefit of the
general public.'' Securus argues that the Commission has not accounted
for the market effects of eliminating site commissions. Securus
explains that ``the Commission has pointed to the existence of site
commissions and their alleged impact on the IPCS market as creating the
conditions that require additional regulation.'' In eliminating site
commissions, Securus contends that the Commission ``removes the
condition purportedly justifying regulation over the IPCS market and
then proceeds to continue and expand upon the regulation that is
allegedly justified by the existence of site commissions that are now
removed.'' Securus argues that the Commission ``should at least proffer
some justification why permanent, highly prescriptive rate regulation
must continue even though it believes it has created the conditions for
a properly functioning, competitive marketplace.'' While the Commission
has identified site commissions as ``the primary reason'' IPCS rates
can be unjust and unreasonable, the Commission has never stated that
they are the only reason that IPCS rates can be unjust and
unreasonable. Indeed, the Commission has specifically recognized that
rate regulation is needed because ``no competitive forces within the
[correctional] facility constrain providers from charging rates that
far exceed the costs . . . providers incur in
[[Page 77298]]
offering service.'' Rate regulation is thus clearly necessary to, for
example, prevent IPCS providers from overcharging consumers even in the
absence of site commission payments. To suggest that the elimination of
site commissions should be the basis for reduced rate regulation also
ignores abusive ancillary service charging practices that have
historically plagued the industry.
301. There is significant support in the record for our approach.
In 2021, recognizing ``the difficulties and complexities . . . in
accounting for and isolating what portion of site commission payments
may be related to legitimate facility costs,'' the Commission sought
comment on prohibiting providers from entering contracts requiring the
payment of site commissions and preempting state and local laws and
regulations requiring providers to pay site commissions. A variety of
commenters support a prohibition, primarily based on their view that a
rule against site commissions is needed to ensure just and reasonable
IPCS rates and charges. As Securus observes, ``the use of site
commissions is inimical to the shared goals of all stakeholders of
improving access to, and affordability of, communications services for
incarcerated persons and their families.'' Many of these same
commenters support the Commission's identification of options in 2021
to prohibit IPCS providers from entering into contracts requiring the
payment of site commissions and preempting state and local laws and
regulations requiring site commissions.
302. Consistent with the record and the Martha Wright-Reed Act, we
prohibit all site commission payments associated with IPCS. To
effectuate this prohibition we take two actions consistent with 2023
and 2021. First, we preempt state and local laws and regulations
allowing or requiring site commission payments for IPCS. And second, we
prohibit IPCS providers from entering into contracts allowing or
requiring the payment of site commissions. The scope of site
commissions subject to the prohibition and preemption include all
monetary payments, including lump-sum or upfront payments, payments
based on percentage of revenue, and per-call payments associated with
IPCS or associated ancillary services. It also includes all in-kind
payments and contributions providers may offer associated with IPCS or
associated ancillary services, including technology grants, equipment,
training programs, or any other payment, gift, or donation offered by
an IPCS provider to a correctional institution or a representative of a
correctional institution.
303. In contrast, a minority of commenters oppose further site
commission reforms. Praeses and NCIC argue that rate caps sufficiently
protect consumers against unjust and unreasonable rates while also
allowing facilities to recover the costs they incur in providing IPCS.
Praeses contends that the Commission should continue to adhere to its
historically ``permissive position'' towards site commissions in which
it concluded that it did not need to prohibit or otherwise regulate
site commissions. NCIC and Praeses further assert that the continued
use of rate caps ``will necessarily lead to fair and reasonable site
commissions'' and will protect consumers from unjust and unreasonable
rates and charges. And the National Sheriffs' Association asserts that
preempting laws requiring site commissions and prohibiting providers
from entering into contracts requiring the payment of site commissions
is not ``appropriate'' because ``facilities incur costs to allow ICS in
jails and . . . jails require commission payments in connection with
allowing ICS in jails.''
304. Restricting the recovery of IPCS provider payments to
correctional facilities through regulated rates is at best a highly
imperfect tool so long as site commissions are allowed to be paid. For
one, as discussed above, if IPCS providers face a legal obligation to
pay site commissions, the D.C. Circuit's decision in GTL v. FCC
suggests that the fair compensation requirement in section 276(b)(1)(A)
requires that IPCS providers be able to recover those payments through
IPCS rates and charges. That scenario leaves the door open to the full
panoply of excessive rates and charges along with the marketplace
distortions that historically have plagued IPCS.
305. Marketplace distortions also are likely to remain so long as
site commissions are permissible. Rate caps set based on industry-wide
average costs are likely to leave headroom for additional profit by
providers with below-average costs. As long as site commissions remain
permissible, such providers can use that headroom to, in effect, pay
higher site commissions by using excess revenues earned from regulated
rates. This is likely to result in marketplace distortions similar to
those historically experienced in the IPCS marketplace, as discussed
above--i.e., correctional facilities choosing providers for paying
higher site commissions, and the benefits of efficiency improvements
and cost savings thus flowing to correctional facilities and winning
bidders but not IPCS consumers. These harmful effects would be even
more extreme if, rather than relying on industry-wide average costs,
the Commission relied on costs just from higher-cost or highest-cost
providers. These effects could be mitigated to some degree by the use
of more granular categories of providers when averaging costs and
setting rates if that resulted in less disparity in the range between
the highest- and lowest-cost providers included in the category. But to
go further in mitigating those concerns would require a shift to
provider-by-provider, ongoing rate-of-return rate regulation. However,
the Commission has previously disavowed any willingness to conduct
full-blown rate regulation for individual IPCS providers, nor is it
clear how viable provider-by-provider rate-of-return regulation even
would be in a context where rates typically are specified in multi-year
RFPs rather than biennial (or more frequent) tariff filings. Thus, we
think it is all too likely that, despite our best efforts, distortions
in the IPCS marketplace would remain as long as the traditional array
of site commission payments are allowed.
306. We also disagree with Praeses that the Commission should
continue to decline to prohibit site commissions as it has in the past.
Praeses contends that the Commission has ``repeatedly and expressly
declined to interfere with the often complex and multi-faceted private
contractual negotiations between Providers and Facilities.'' It relies
on statements in the 2013 ICS Order, 2015 ICS Order, and the 2016 ICS
Reconsideration Order, in which the Commission concluded that it did
not need to prohibit or otherwise directly regulate site commissions.
But those decisions were a function of the circumstances and limited
record before the Commission during that period. The Commission's
previous decisions not to prohibit site commissions do not foreclose it
from doing so on the basis of the circumstances and the record before
it now, particularly in light of the requirements of the Martha Wright-
Reed Act to ensure that IPCS providers are fairly compensated and that
all rates and charges are just and reasonable. As our analysis above
indicates, we now are persuaded that simply regulating recovery of site
commission payments through regulated rates to the extent permitted by
the ``fair compensation'' standard--while leaving IPCS providers free
to pay site commission as a general matter--would not be ``just and
reasonable.'' Nor are we persuaded that
[[Page 77299]]
it would be workable to address such concerns through case-by-case
evaluations. Our analysis indicates that legally-mandated site
commissions lead to the full array of harms historically experienced in
this context. And even in the case of contractually-prescribed site
commissions, case-by-case evaluations would be burdensome for everyone
involved--including the Commission and private parties. Further, it is
not clear how such case-by-case evaluations could be sufficiently
timely to avoid delaying the typical RFP process yet still guard
against the risk of marketplace distortions before they occur. Thus, we
conclude that our bright-line prohibition on site commissions reflects
the best way of dealing with these problems.
307. Our Approach Is Consistent with GTL v. FCC. Some commenters
argue that the Commission's actions today conflict with GTL v. FCC.
These commenters contend that the D.C. Circuit ``expressly recognized
that site commissions are legitimate costs of ICS providers'' and thus
the Commission could not categorically exclude them from its rate
methodology. This has led some to argue that ``[t]he Commission must .
. . ensure its rate caps allow ICS providers to recover all of their
costs associated with the payment of site commissions.'' But, as the
Wright Petitioners explain, the decision in GTL v. FCC ``was made
against background conditions in which ICS providers were actually
paying those site commissions pursuant to negotiated agreements to
provide ICS at facilities or in compliance with legal mandates'' and
not in a regulatory environment in which site commissions were
prohibited. The court had ``no occasion to consider the Commission's
authority to prohibit negotiated agreements . . . or its authority to
preempt state and local requirements.'' And the court ``never suggested
that the Commission lacked authority to take such actions to fulfill
its statutory mandate.'' By precluding providers from paying site
commissions altogether, we eliminate the factual predicate--the payment
of site commissions as a condition precedent to providing IPCS--which
led the court in GTL to hold that site commissions could not be wholly
excluded from the Commission's ratemaking calculus. Thus, we conclude
that GTL v. FCC is no bar to our actions today, particularly since our
rate cap calculations incorporate, to the extent the record permits,
the costs facilities incur that are used and useful and/or necessary in
providing IPCS. And, in any event, the Martha Wright-Reed Act is an
intervening development that reinforces the Commission's mandate to
ensure just and reasonable rates and charges for IPCS that also afford
fair compensation.
308. Our Approach Accounts For Legitimate Interests of Correctional
Facilities Associated with IPCS. Separate from the issue of site
commission payments, the rate caps we adopt today recognize, consistent
with the record, that correctional facilities may incur some used and
useful costs in their provision of IPCS. Because we allow providers to
reimburse correctional facilities for the used and useful costs, if
any, they incur, we have thus afforded correctional facilities an
avenue to facilitate recovery of their used and useful costs associated
with allowing access to IPCS in their facilities.
309. We emphasize that the actions we take today in eliminating
site commissions apply to all correctional institutions: prisons,
larger and smaller jails, and other correctional institutions. The
facility-related rate components that the Commission adopted in the
2021 ICS Order apply only to prisons and jails with average daily
populations of 1,000 or more incarcerated people. Because of the
``concern raised in the record about facility size variations in
facility-related costs for [smaller] jails'' the Commission left the
existing $0.21 per-minute rate cap in effect for facilities whose
average daily populations were below 1,000 incarcerated people. Thus,
providers serving these relatively small jails could continue to
recover site commissions as long as they did not exceed the $0.21 cap
applicable to those jails. The Commission, however, sought comment in
2021 on facility costs for jails with average daily populations below
1,000, and asked commenters to ``provide detailed descriptions and
analyses of the cost drivers'' for these facilities. The National
Sheriffs' Association and Pay Tel assert that facility costs per
incarcerated person are higher for smaller jails than for larger jails.
They urge continued reliance on the National Sheriffs' Association 2015
survey to justify higher facility-related cost recovery for smaller
jails, but otherwise provide no responsive data. For the reasons
discussed above, we reject continued reliance on the National Sheriffs'
Association 2015 survey. Because we now can accommodate smaller jails
in the same overall regulatory approach as prisons and larger jails, it
best advances our statutory mandates of ensuring just and reasonable
rates and charges consistent with fair compensation for IPCS providers
for us to do so.
310. To the extent commenters' arguments against the elimination of
site commissions are premised on the loss or depletion of state
programs currently funded by site commission payments, the ``just and
reasonable'' standard of the Communications Act does not contemplate
funding such programs that are unrelated to the provision of IPCS
through regulated rates, regardless of how worthy those programs may
be. In support of site commissions, ViaPath contends that ``IPCS
`providers who are required to pay site commissions as a condition of
doing business have no control over the funds once they are paid,'
which does not change the record evidence that site commissions are a
cost of providing IPCS.'' ViaPath has not articulated why provider-
control over such funds after payment has been made has any bearing on
why the practice is beneficial, nor why the practice should continue.
We find this argument unpersuasive. And, in any event, we expect that
the implementation period applicable to the reforms we adopt today will
be sufficient to allow state and local governments time to adjust to an
environment without site commissions.
311. Given the availability of reimbursement from IPCS providers
for costs that are used and useful in the provision of IPCS, consistent
with our statutory duties, we see no reason to believe that
correctional institutions will decrease or limit access to IPCS as some
commenters assert. Some commenters allege that ``if compensation for .
. . providers and Sheriffs is not adequate, access to ICS is likely to
decrease'' or be disallowed. In NCIC's view, ``there is almost no
scenario in which a correctional agency could lose site commission
revenue and continue to provide the critical services and programs
funded by that revenue.''
312. We find it highly unlikely that correctional facilities would
limit or deny access to IPCS as a result of the elimination of site
commission payments. As the Commission has observed, there are ``well-
documented benefits, for communities and correctional institutions
alike, in allowing incarcerated people access to'' IPCS. Further, the
record contains no indication that IPCS deployment has decreased or
been eliminated in states that have eliminated site commissions. And,
as the Commission has previously noted, arguments premised on a denial
or reduction of access to IPCS are likely to elicit an ``intensely
negative backlash.'' Thus, we see no reason to believe that
correctional institutions
[[Page 77300]]
will curtail or eliminate access to IPCS simply because they no longer
receive site commission payments. In fact, given the generally lower
rates we adopt in the Report and Order, it is reasonable for us to
anticipate increased usage of IPCS once the Report and Order takes
effect.
(a) Preempting State and Local Laws and Regulations Requiring or
Allowing Site Commissions Associated With IPCS
313. As part of the overall prohibition on site commissions we
adopt today, we preempt state and local laws and regulations allowing
or requiring the payment of monetary site commissions or the provision
of in-kind site commissions associated with the provision of IPCS
regulated pursuant to sections 201(b) and 276(c) of the Communications
Act and consistent with 2023 and 2021. As explained above, our actions
preempting state and local laws and regulations allowing or requiring
the payment of monetary site commissions or the provision of in-kind
site commissions associated with the provision of IPCS and prohibiting
IPCS providers from entering into contracts requiring or allowing them
to pay site commissions are necessary because they best ensure the
harmonization of both the ``just and reasonable'' and ``fair
compensation'' mandates of section 276(b)(1)(A). Our actions not only
benefit individual ratepayers, but also the public and the IPCS
marketplace more generally. As an additional matter, we note that our
actions also give timely effect to our findings under section
276(b)(1)(A), consistent with Congress' objective as revealed by its
establishment of a statutory deadline for the Commission to
``promulgate any regulations necessary to implement this Act and any
amendments made by this Act.'' It is well established that ``a federal
agency may pre-empt state law only when and if it is acting within the
scope of its congressionally delegated authority.'' Section 201(b) of
the Communications Act gives the Commission authority over interstate
and international IPCS. And as explained above, the Martha Wright-Reed
Act amended section 276(b)(1)(A) to clearly establish the Commission's
authority to ensure just and reasonable rates for intrastate as well as
other jurisdictional inmate communications. The Martha Wright-Reed Act
also expanded the Commission's section 276 authority over ``payphone
service'' in correctional institutions to include ``advanced
communications services,'' as defined in sections 3(1)(A), 3(1)(B),
3(1)(D), and new (3)(1)(E) of the Communications Act. Furthermore,
while the Martha Wright-Reed Act decisively expands the scope of the
Commission's authority over IPCS, it retained section 276(c), which
provides that ``[t]o the extent that any State requirements are
inconsistent with the Commission's regulations, the Commission's
regulations on such matters shall preempt such State requirements.''
Further, the record also reflects that a variety of stakeholders
believe the Commission should preempt state and local laws that require
or allow site commissions.
314. We find that state and local laws and regulations authorizing
or requiring site commissions conflict with the Commission's
regulations adopted in the Report and Order to ensure just and
reasonable rates and charges for IPCS and fair compensation for IPCS
providers under section 276(b)(1)(A) and to ensure just and reasonable
rates and charges for interstate and international IPCS under section
201(b) of the Communications Act. In particular, state and local laws
and regulations requiring or allowing providers to pay site commissions
associated with IPCS lead to unjust and unreasonable rates and charges
insofar as consumers are being charged for non-IPCS costs where
providers pay site commissions. Those laws and regulations also lead to
unjust and unreasonable rates and charges through the resulting
marketplace distortions. Such laws and regulations are therefore in
conflict with the ``just and reasonable'' requirement in section
276(b)(1)(A) of the Communications Act and our implementation of those
mandates through regulations adopted in the Report and Order.
Precluding providers from paying site commissions pursuant to state and
local law will enable us to address one of the ``primary reason[s]
[IPCS] rates are unjust and unreasonable.'' We therefore agree with
those commenters arguing that the Commission should exercise its
authority to preempt laws and regulations that require providers to pay
site commissions associated with IPCS.
315. At the same time, commenters point out that preemption is
relevant to ensuring that IPCS providers are fairly compensated as
required by section 276(b)(1)(A), as interpreted by the D.C. Circuit in
GTL v. FCC. Commenters explain that ``[a]s long as local governments
are allowed to require site commissions as a condition of providing
service . . . GTL teaches that section 276 and section 201 require that
they be recoverable.'' Separately, experience has shown that when
recovery of site commissions associated with IPCS is constrained by
regulation, correctional facilities can attempt to maintain those
revenue streams by shifting the nature of site commission arrangements.
Absent a prohibition on site commissions, we anticipate correctional
facilities seeking increasingly creative ways to maintain monetary or
in-kind payments, with the Commission (and IPCS providers) playing an
endless game of `whack-a-mole' in an effort to enforce section
276(b)(1)(A)'s fair compensation mandate. Thus, preemption is
``preferable to the Commission's efforts to regulate . . . site
commissions through regulation of provider rates'' alone. Indeed,
according to Securus ``[d]irectly addressing site commissions through
preemption is . . . consistent with GTL.'' We agree.
316. Commenters have extensively reviewed the Commission's
authority to preempt site commissions in these proceedings. Prior to
the enactment of the Martha Wright-Reed Act, arguments regarding the
Commission's preemption authority focused on the Commission's
jurisdiction over interstate and international communications under
section 2(a) of the Communications Act. Other commenters have argued
that section 276(c) gives the Commission ``express authority'' to
preempt inconsistent state requirements. The Wright Petitioners explain
that ``[s]ection 276 of the Communications Act gives the Commission the
authority to preempt state requirements that are `inconsistent with the
Commission's regulations.' '' As explained below, we are persuaded that
the Communications Act provides the Commission the necessary authority
to adopt regulations addressing the problems caused by site commissions
in the IPCS marketplace, which requires preemption of state and local
laws and regulations requiring or authorizing the site commission
payments.
317. Preemption of State Requirements. Section 276(c) contains an
express preemption provision upon which we rely to preempt state laws
and regulations that allow or require the payment of site commissions
associated with IPCS. Because we conclude that section 276(c) provides
the Commission the necessary preemption authority, we decline to invoke
the Commission's authority under section 253, including the preemption
provision of section 253(d). Section 276(c) states that ``[t]o the
extent that any State requirements are inconsistent with the
Commission's regulations, the Commission's regulations on such matters
shall preempt such State requirements.'' As part of the reforms we
adopt today, we adopt a rule prohibiting the payment of site
commissions as set forth in the
[[Page 77301]]
Report and Order. When a federal law contains an express preemption
clause, the courts ``focus on the plain wording of the clause, which
necessarily contains the best evidence of Congress' preemptive
intent.'' The Supreme Court has explained that where a ``statute
`contains an express pre-emption clause,' we do not invoke any
presumption against pre-emption but instead `focus on the plain wording
of the clause, which necessarily contains the best evidence of
Congress' pre-emptive intent.' '' Independently, even assuming arguendo
that any preemption analysis should begin ``with the assumption that
the historic police powers of the States [are] not to be superseded by
the Federal Act unless that was the clear and manifest purpose of
Congress''--particularly where ``Congress has `legislated . . . in a
field which the States have traditionally occupied' ''--it nonetheless
remains the case that ``Congress' intent, of course, primarily is
discerned from the language of the pre-emption statute and the
`statutory framework' surrounding it.''
318. Here, the express preemption clause in section 276(c) applies
to ``State requirements'' to the extent they are ``inconsistent with
the Commission's regulations.'' This is consistent with how the
Commission has applied section 276(c) in the past. The term ``state
requirements'' in express preemption provisions has been interpreted by
the Supreme Court more broadly than terms like ``laws or regulations.''
For example, the Court has concluded that ``[a]bsent other indication,
reference to a State's `requirements' in an express preemption
provision includes its common-law duties.'' By contrast, the Court has
found that references to state ``laws or regulations'' preempt only
``positive enactments.'' Consistent with this precedent, we find that
the reference to ``state requirements'' in section 276(c) is broad
enough to reach state laws and regulations requiring or allowing the
payment of site commissions associated with IPCS.
319. The surrounding statutory framework also demonstrates that
preemption of laws and regulations requiring or allowing site
commissions is authorized by section 276(c). Section 276(b)(1)(A)
always has been clear that the Commission has authority to establish
compensation plans for ``intrastate and interstate'' payphone calls,
and as explained above, the Martha Wright-Reed Act amended that
provision to clearly establish the Commission's authority to ensure
just and reasonable rates for all communications now encompassed by
section 276(d). And as we have found, the regulations authorized under
section 276(b)(1)(A) to ``establish a compensation plan'' to achieve
the goals of fair compensation for providers and just and reasonable
rates and charges for consumers and providers requires more of the
Commission than the simple act of capping rates and charges. In
amending section 276, Congress left the express preemption provision in
section 276(c) unaltered, revealing Congress' understanding that
Commission regulations implementing the full scope of amended section
276(b)(1)(A) would be subject to that express preemption provision.
320. This point was further emphasized by the amendment of section
2(b) of the Communications Act to expressly exempt section 276 from the
preservation of state authority over intrastate communications under
that provision. In the Martha Wright-Reed Act, Congress expressly
considered the potential effect of that statute on other laws, and only
disclaimed the intent to ``modify or affect any'' state or local law
``to require telephone service or advanced communications services at a
State or local prison, jail, or detention facility or prohibit the
implementation of any safety and security measures related to such
services at such facilities.'' That narrow express preservation of
existing law--which is not implicated by our preemption here--came
against the backdrop of Commission and judicial grappling with the
interplay between site commission payments and IPCS rates and charges,
as well as longstanding Commission consideration of whether and when to
prohibit and preempt site commissions. The statutory context provided
by section 276 as a whole, coupled with the Martha Wright-Reed Act,
thus reinforces our understanding of the scope of preemption
encompassed by section 276(c).
321. Relatedly, we conclude that preemption is consistent with
section 4 of the Martha Wright-Reed Act, which states that nothing in
that Act ``shall be construed to modify or affect any Federal, State,
or local law to require telephone service or advanced communications
services at a State or local prison, jail, or detention facility or
prohibit the implementation of any safety and security measures related
to such services at such facilities.'' We preempt only those state laws
and regulations that require or permit the payment of monetary site
commissions or the provision of in-kind site commissions associated
with IPCS. To the extent federal, state, or local laws or regulations
require IPCS to be provided to incarcerated people at state or local
correctional facilities, such laws and regulations are not preempted by
our actions here. Similarly, we do not prohibit the implementation of
any safety and security measures related to IPCS at any state or local
correctional facility. As we explain above, section 4 of the Martha
Wright-Reed Act is ``not intended to interfere with any correctional
official's decision on whether to implement any type of safety and
security measure that the official desires in conjunction with audio or
video communications services.'' Consistent with that interpretation,
here we preempt state laws and regulations requiring or allowing the
payment of site commissions associated with IPCS, a pre-emption that we
conclude is necessary to achieve the statutory requirements of section
276(b)(1)(A) to ensure just and reasonable rates and charges for IPCS
consumers and fair compensation for providers. Correctional officials
remain free to implement desired safety and security measures.
322. The conflict between IPCS providers' payment of site
commissions and the ``just and reasonable'' mandate implicates the
Commission's oversight of interstate and international IPCS under
section 201(b), as well. The Supreme Court has explained that ``[e]ven
where Congress has not completely displaced state regulation in a
specific area, state law is nullified to the extent that it actually
conflicts with federal law.'' Such a conflict can arise when a law
``stands as an obstacle to the accomplishment and execution of the full
purposes and objectives of Congress.'' While there are no ``precise
guidelines'' governing when state law creates such an obstacle, the
Supreme Court has acknowledged that federal agencies ``have a unique
understanding of the statutes they administer and an attendant ability
to make informed determinations about how state requirements may pose''
such an obstacle. Additionally, the Supreme Court has found that the
inquiry into whether state law poses an obstacle sufficient to allow
preemption requires consideration of ``the relationship between state
and federal laws as they are interpreted and applied, not merely as
they are written.'' One situation in which the Supreme Court has
determined that state law can interfere with federal goals is when such
a law is at odds with Congress's intent to create a uniform system of
federal regulation.
323. Furthermore, a federal agency acting within the scope of its
authority may preempt state law. ``[I]n a situation
[[Page 77302]]
where state law is claimed to be pre-empted by federal regulation, a
`narrow focus on Congress' intent to supersede state law [is]
misdirected,' for `[a] pre-emptive regulation's force does not depend
on express congressional authorization to displace state law.' ''
Instead, the question is whether Congress has delegated the authority
to act in a sphere, and whether the agency has exercised that authority
in a manner that preempts state law. The Supreme Court also has
explained that ``an `assumption' of nonpre-emption [sic] is not
triggered when the State regulates in an area where there has been a
history of significant federal presence.''
324. The Commission undoubtedly has authority under section 201(b)
to ensure that rates and practices for and in connection with certain
interstate and international incarcerated people's communications
services are just and reasonable. The Commission's actions in this
regard also involve an area that has long been subject to extensive
federal regulation. Since the original enactment of the Communications
Act, section 2(a) has made clear that the Communications Act applies to
``all interstate and foreign communication by wire or radio,'' and
section 201(b) has directed the Commission to ensure that rates and
practices for and in connection with interstate and foreign
communication services are just and reasonable. We thus find that
section 201(b) provides us with independent authority, alternative to
section 276, to preempt laws and regulations allowing or requiring site
commissions associated with interstate and international
telecommunications for incarcerated people.
325. Preemption of Local Requirements. Our analysis of our
preemptive authority is somewhat different when it comes to local
requirements that may permit or require the payment of site commissions
because section 276(c) does not expressly reference ``local'' laws or
regulations. Nonetheless, we conclude that principles of conflict
preemption allow us to also preempt local laws and regulations
requiring or authorizing IPCS providers to pay site commissions
associated with IPCS. As an initial matter, we note that ``for purposes
of the Supremacy Clause, the constitutionality of local ordinances is
analyzed in the same way as that of statewide laws.'' Thus, relevant
precedent concerning state law is equally applicable to local law.
326. As a threshold matter, we find that local laws and regulations
requiring or authorizing site commissions stand as an obstacle to our
regulation of IPCS. We explained above the conflict that occurs as a
result of state requirements, and that conclusion is not altered if the
requirements originate instead at the local level. Consequently, under
sections 276(b)(1)(A) and 201(b)--coupled with standard conflict
preemption principles--we preempt local laws and regulations that
permit or require site commissions.
327. Our conflict preemption determination is bolstered by the
enactment of the Martha Wright-Reed Act, which modified the
Communications Act in a manner that we see as intended to establish a
uniform system of federal regulation for all IPCS under section
276(b)(1)(A). As explained above, the Martha Wright-Reed Act was
enacted against the regulatory backdrop of--and in response to--the GTL
v. FCC decision, where the D.C. Circuit found that the Commission had
unreasonably relied on the ``just and reasonable'' standard of section
201(b) when implementing the differently-worded language of section
276. Insofar as that left the Commission to rely on section 201(b) to
ensure IPCS rates and charges were not too high, it generally precluded
the Commission from addressing excessive intrastate IPCS rates. The
Martha Wright-Reed Act's amendment of section 276(b)(1)(A) gave the
Commission clear authority to ensure just and reasonable rates under
that provision, which always has encompassed both intrastate and
interstate services. Given the legal and regulatory backdrop, that
persuades us that Congress envisioned a uniform system of federal
regulation as far as IPCS rates and charges are concerned.
328. Scope of Preemption. At this time, our preemption extends only
to those state and local laws and regulations that permit or require
IPCS providers to pay site commissions associated with IPCS, and does
not extend to site commissions associated with other services or
activities insofar as the effect of those site commissions can be
segregated from the IPCS subject to Commission regulation. To the
extent there are laws and regulations that permit or require the
payment of site commissions associated with non-IPCS services,
including nonregulated services, we do not preempt those laws or
regulations, provided that neither the costs of such services nor any
site commissions associated with them are passed on to IPCS consumers
through IPCS rates or charges, and that the offering of non-IPCS
services is not a precondition to offering IPCS at a correctional
institution. Consistent with this policy, if there are state
requirements that encompass both IPCS and non-IPCS services, our
preemption actions extend only to the part of such requirements
implicating IPCS. At this time, we are not persuaded that site
commissions in those scenarios are likely to directly affect the
reasonableness of rates and charges and fairness of compensation for
the IPCS we regulate, either directly (through inflated IPCS rates and
charges) or indirectly (through competitive distortions in the IPCS
marketplace). Our approach flows from the conditions we adopt to ensure
that such site commissions do not implicate IPCS. And it also flows in
part from the broad scope of IPCS subject to our regulation, which, at
this time, leaves a much smaller universe of services or activity
potentially subject to site commissions, which we currently expect to
have minimal potential to distort the IPCS marketplace, particularly
given the segregation from IPCS that we adopt. Should circumstances
warrant, we can revisit this issue in the future.
329. Additionally, as explained above, today we adopt IPCS rate
caps that account for all used and useful IPCS costs, whether they are
incurred by providers or correctional facilities. To facilitate the
ability of correctional facilities to recover used and useful IPCS
costs they may incur, we permit IPCS providers to reimburse
correctional facilities for the used and useful costs they prudently
incur in the provision of IPCS, as calculated in accordance with the
standards set forth in the Report and Order. Such reimbursements fall
outside the scope of what we describe as ``site commissions'' under the
regulatory framework of the Report and Order. To the extent state laws
or regulations allow or require correctional facilities to obtain
reimbursement from providers for those costs that fall outside the
scope of our understanding of ``site commissions'' (whatever
terminology the state law or regulation might use), we do not preempt
such laws or regulations.
(b) Prohibiting IPCS Providers From Entering Into Contracts Allowing or
Requiring Them To Pay Site Commissions Associated With IPCS
330. As part of the prohibition against paying site commissions we
adopt today, we also prohibit providers from entering into contracts
allowing or requiring them to pay site commissions associated with
IPCS, consistent with 2021. We agree with the Wright Petitioners that
doing so is ``the simplest and most-wide ranging method to ensure IPCS
rates are just and reasonable and fairly compensate providers.'' As
discussed above, we
[[Page 77303]]
have concluded that the Martha Wright-Reed Act provides us with limited
authority to regulate IPCS providers' practices, classifications, and
regulations (collectively, ``practices'') associated with IPCS as a
necessary part of our obligation to establish a compensation plan to
ensure fair compensation to providers and just and reasonable rates and
charges for consumers. This authority derives from section
276(b)(1)(A)'s mandate that we establish a compensation plan addressing
IPCS and, in certain circumstances, we also exercise section 201(b)'s
grant of authority over practices associated with interstate and
international IPCS. We address these two sources of authority below.
331. In defining the contours of the prohibition on paying site
commissions, we mirror the carve-outs specified in the case of our
preemption of laws and regulations permitting or requiring site
commissions. In particular, IPCS providers remain free to contract for
the provision of non-IPCS services with correctional institutions
following our actions today. However, under no circumstances may
providers enter into a contract with a correctional facility for the
provision of IPCS where, as a condition precedent to providing IPCS,
the provider must agree to pay a site commission of any kind. To the
extent IPCS providers contract with correctional institutions for the
provision of non-IPCS services, neither the costs of those services nor
any site commissions associated with them may be passed on to consumers
through IPCS rates or charges. Such limitations are necessary to
protect IPCS consumers from unjust and unreasonable IPCS rates and to
ensure that providers receive fair compensation, consistent with
section 276(b)(1)(A) as amended by the Martha Wright-Reed Act, as well
as our obligation to ensure just and reasonable rates under section
201(b). Finally, consistent with our policy of allowing IPCS providers
to reimburse correctional facilities for their used and useful costs
consistent with the standards in the Report and Order, we do not bar
contractual provisions that require such reimbursement.
(i) Section 276(b)(1)(A)
332. We conclude that the practice of paying site commissions
undermines the Commission's ability to establish just and reasonable
rates for IPCS consumers and providers and ensure fair compensation for
providers. To best ensure fair compensation and just and reasonable
rates and charges for IPCS, we thus adopt a compensation plan under
section 276(b)(1)(A) that precludes IPCS providers from paying site
commissions associated with IPCS subject to that provision. As we
explain above, the section 276 requirement that the Commission
establish a compensation plan to ensure fair compensation for IPCS
providers and just and reasonable rates and charges for consumers
necessarily carries with it the authority to prescribe regulations
governing providers' practices to the extent those practices relate to
the rates and charges applied to consumers. This authority not only
allows us to preclude practices that work to undermine the rate and fee
caps we set but also allows us to adopt affirmative requirements that
help ensure that rates and charges as implemented are just and
reasonable as applied to consumers. Accordingly, in specifying a
compensation plan to implement section 276(b)(1)(A), as amended by the
Martha Wright-Reed Act, we find it necessary to preclude providers from
entering into contracts that require or allow them to pay site
commissions associated with IPCS.
333. Commenters highlight that the Commission ``has exercised
similar authority over telecommunications service providers by barring
their entry into contracts, or enforcing existing contracts, with
entities over whom the Commission has no direct jurisdiction in order
to promote the Commission's regulatory objectives.'' In the context of
multiple tenant environments, the Commission has long prohibited
providers of certain communications services from entering or enforcing
agreements with property owners that grant the provider exclusive
access and rights to provide service to the multiple tenant
environment. Multiple tenant environments are ``commercial or
residential premises such as apartment buildings, condominium
buildings, shopping malls, or cooperatives that are occupied by
multiple entities.'' The Commission has also adopted rules prohibiting
telecommunications carriers and multichannel video programming
distributors from entering into or enforcing certain types of revenue
sharing agreements with the owners or multiple tenant environments.
And, in the international settlements context, the Commission has
limited the settlement rates that U.S. carriers may pay foreign
carriers to terminate international traffic originating in the United
States. In each of these cases, the Commission's regulation of the
entities subject to its jurisdiction has affected entities over which
the Commission has no direct jurisdiction. More importantly, where
challenged by parties claiming that the Commission was impermissibly
regulating parties over which it has no jurisdiction, the D.C. Circuit
has upheld the Commission's actions.
334. While we prohibit IPCS providers from entering into contracts
requiring or allowing them to pay site commissions associated with
IPCS, we recognize that there are likely enforceable contracts that
currently require the payment of site commissions. In such
circumstances, we rely on contractual change of law provisions.
Commenters and the Commission have noted that IPCS contracts
``typically include change of law provisions.'' We expect that our site
commission reforms adopted in the Report and Order ``constitute
regulatory changes sufficient to trigger contractual change-in-law
provisions that will allow [IPCS] providers to void, modify or
renegotiate aspects of their existing contract to the extent necessary
to comply'' with our reforms today. As we explain, providers and
correctional authorities have long been on notice that the Commission
might act to prohibit site commissions. To the extent, however, that
providers ``have entered into contracts without change-of-law
provisions,'' those providers ``did so with full knowledge'' that the
Commission might act to prohibit site commissions, and have been on
notice that the Commission could act in this regard, particularly in
light of 2021. Thus, we believe that relevant change-of-law provisions
will enable parties to amend their contracts to the extent necessary
and we strongly encourage parties to work cooperatively to resolve any
issues. To the extent contractual disputes arise, including in
circumstances where contracts do not have change-of-law provisions,
parties may seek resolution of those disputes in court. We reject
NCIC's suggestion that our actions ``abrogate'' contracts. To the
contrary, even for contracts that lack change-of-law provisions, the
failure to pay a site commission required by a still-valid contract
term is an issue to be resolved through a breach of contract action in
court if the parties cannot negotiate a resolution on their own. In
addition, since 2013, the Commission has proceeded with IPCS reforms
notwithstanding the potential interplay with existing IPCS agreements.
Continuing to do so here is consistent with Commission precedent,
including our decision to defer to change-of-law provisions or
otherwise-applicable legal frameworks governing the enforcement of
existing contracts.
335. Praeses contends that section 276(b)(1)(A) does not give the
Commission authority over ``private contractual payments'' by IPCS
[[Page 77304]]
providers and correctional institutions. Praeses focuses on statements
from GTL v. FCC in which the D.C. Circuit explained that section 276
``merely'' directs the Commission ensure that providers are fairly
compensated. Praeses' comments, however, do not account for the
amendments to section 276(b)(1)(A) made by the Martha Wright-Reed Act.
Rather than focusing solely on fair compensation, the Martha Wright-
Reed Act added the requirement that the Commission ensure that all
rates and charges are just and reasonable. We find that the best way to
reconcile both requirements is to prohibit site commission payments as
part of our compensation plan implementing section 276(b)(1)(A). This
persuades us that we have authority to prohibit providers from entering
into contracts requiring or permitting the payment of site commissions.
Separately, however, we are unpersuaded by Praeses' argument given the
Commission's history, detailed above, of exercising similar authority
over providers in the past.
(ii) Section 201(b)
336. Separately, we conclude that paying site commissions is an
unjust and unreasonable practice pursuant to our authority under
section 201(b) and the impossibility exception. Section 201(b) of the
Communications Act provides an independent statutory basis for
regulating providers' practices for or in connection with the
interstate and international telecommunications services that are
within our section 201(b) authority. Acting pursuant to section 201(b)
of the Communications Act, the Commission has generally found carrier
practices unjust and unreasonable where necessary to protect
competition and consumers against carrier practices for which there was
either no cognizable justification or where the public interest in
banning the practice outweighed any countervailing policy concerns. As
explained above, allowing recovery of site commissions would lead to
unjust and unreasonable IPCS rates and charges given our finding that
the providers' site commission payments are expenditures that are not
used and useful in the provision of IPCS. Even beyond that, payment of
site commissions introduces competitive distortions in the bidding
market for IPCS. Although some commenters argue that site commissions
may enable correctional facilities to recover the costs they incur in
making IPCS available, as we have discussed above, these commenters
have not been able to precisely articulate these costs to the
Commission. Over the course of the many years that the Commission has
been examining this issue, commenters have failed to come forward with
meaningful data regarding the portions of providers' site commission
payments that may be used and useful. Under these circumstances, we
find no countervailing policy concerns or cognizable justification for
the practice of paying site commissions given their detrimental effects
on consumers and on the IPCS market in general. For these reasons, we
conclude that the practice of paying site commissions associated with
interstate and international telecommunications services is an unjust
and unreasonable practice and prohibit it.
337. Our section 201(b) authority also enables us to regulate
practices associated with other IPCS services within our section 276
authority to the extent those practices cannot be practicably separated
from practices applicable to services within our section 201(b)
authority, pursuant to the impossibility exception. For example, when
the Commission exercised its section 201(b) authority to prohibit
carriers from entering or enforcing exclusivity provisions in contracts
with residential building owners, the Commission applied that ban even
where agreements affected the viability of competitors offering bundles
of services--of which telecommunications services were only one part--
in order to fully address practices for or in connection with the
telecommunications services directly subject to section 201(b). Thus,
the Commission's section 201(b) authority extends to the full range of
``payphone service[s],'' as defined in section 276(d), to the extent
the practices for or in connection with the payphone services outside
of our separate section 201(b) authority cannot be separated from
practices for or in connection with the payphone services within this
authority.
338. The record contains no evidence that IPCS providers can
practicably separate the practice of paying site commissions in
connection with the interstate and international payphone services
within our section 201(b) authority from the practice of paying site
commissions for or in connection with the other payphone services
within the Commission's section 276(d) authority, including advanced
communications services, in order to isolate the harms of such
practices. As explained above, payment of site commissions undermines
just and reasonable rates not only when providers directly increase
IPCS rates to pass through site commission payments, but also through
the marketplace distortions that result. There is no evidence that the
marketplace distortions arising from the practice of paying site
commissions can practicably be separated into interstate, intrastate,
international or non-section 201(b) regulated services components.
Indeed, as the Wright Petitioners explain, ``IPCS providers cannot
practicably separate the general practices that may apply broadly to
IPCS providers, which all offer both interstate and intrastate
services, themselves into interstate and intrastate components.''
Further, we anticipate that enough aggregate revenues are potentially
at stake for those services outside of our direct authority under
section 201(b) that even allowing carriers' continued payments of site
commissions only associated with those services is likely to lead to
marketplace distortions that undermine our ability to ensure just and
reasonable interstate and international IPCS rates. Thus, consistent
with the precedent discussed above, we conclude that this
inseverability allows us to prohibit the practice of paying site
commissions in connection with intrastate, interstate, international,
jurisdictionally mixed, or jurisdictionally indeterminate audio or
video IPCS under section 201(b).
7. Safety and Security Costs
339. Historically, the Commission has recognized that
communications services for incarcerated people are different than
communications services offered to the general public due, in part, to
certain safety and security measures needed to adapt communications
services to the carceral context. The Martha Wright-Reed Act not only
requires that the Commission adopt a compensation plan ensuring that
IPCS rates and charges are just and reasonable, but also mandates that
in determining those rates the Commission ``shall consider costs
associated with any safety and security measures necessary to provide''
IPCS. We find that, in order to give effect to the requirements of the
Martha Wright-Reed Act, we must apply the Commission's traditional
ratemaking standard, the used and useful standard, to determine whether
any costs of safety and security measures are properly recoverable
through regulated rates. Based on the record and data submitted in
response to the 2023 Mandatory Data Collection, we determine that
safety and security costs related to compliance with CALEA, as well as
those incurred for communications security services, are generally
appropriate for recovery through regulated IPCS rates, consistent with
the Martha Wright-Reed Act. In the instructions to the 2023 Mandatory
Data
[[Page 77305]]
Collection, WCB and OEA divided potential safety and security measures
into seven categories and requested that providers submit data
allocating their safety and security costs among the categories. We
also find that other types of safety and security measures, including
law enforcement support services, communications recording services,
communications monitoring services, and voice biometrics services, are
generally not appropriate for recovery through regulated IPCS rates.
Finally, learning from the 2023 Mandatory Data Collection, we make
modest adjustments in our rate-setting process to ensure that the costs
of all safety and security measures that are properly included in
regulated IPCS rates are, in fact, recoverable.
a. Background
340. Prior to the 1984 breakup of AT&T, pricing for communications
for incarcerated people largely mirrored that of the broader market.
After the breakup, however, former safety and security service
providers began providing communications services, using ``their
security and surveillance services to carve out this niche micro-market
for themselves.'' As Worth Rises explains, since that time, ``the
corrections landscape [has seen] the widespread adoption of an
increasing array of security and surveillance services, with IPCS
consumers bearing the costs.'' As the 2023 Mandatory Data Collection
amply demonstrates, costs broadly understood as reflecting safety and
security measures now represent the largest single component of
reported costs in the IPCS industry.
(i) The Commission's Historical Consideration of Safety and Security
Measures
341. The Commission first began to assess the role safety and
security measures play in the provision of inmate calling services in
the 1990s. In a 1996 declaratory ruling, it determined the proper
regulatory treatment of certain safety and security measures such as
call blocking, restricting called parties, and call tracking under the
then-relevant regulatory framework. The then-relevant regulatory
framework, commonly known as the Computer II framework, distinguished
between two types of computer processing applications offered over
common carrier transmission facilities: ``basic services,'' which were
defined ``as the provision of `pure transmission capability over a
communications path that is virtually transparent in terms of its
interaction with customer supplied information''; and ``enhanced
services,'' which were defined as services that ``employ computer
processing applications that act on the format, content, code, protocol
or similar aspects of the subscriber's transmitted information; provide
the subscriber additional, different, or restructured information; or
involve subscriber interaction with stored information.'' In analyzing
these functionalities, the Commission framed such measures as services
that ``essentially help[ ] corrections officials to determine whether a
transmission path may be established.'' The Commission compared
``screening and blocking features employed by correctional officials to
monitor inmate telephone usage'' to ``services offered in the network
that help customers screen or pre-select callers for acceptance or
rejection do not go beyond providing a basic transmission channel and
facilitating the customer's use of that transmission channel.'' The
Commission viewed these services as contributing to the provision of
the underlying communications service. In that same timeframe, however,
the Commission began to raise concerns about the costs of safety and
security measures when it sought comment on whether it should implement
``rate caps, to remedy high charges to the billed party for collect
calls initiated by prison inmates.'' The Commission described possible
security measures as including call blocking, approved number lists,
call length limitations, and total calls permitted to specific
individuals. It contemplated that ``[p]risons may also need to be able
to monitor calls and even tape them.''
342. A few years later, in the 2002 Pay Telephone Order (67 FR
17009, April 9, 2002), the Commission began to address the increasing
number and type of safety and security measures available to
correctional facilities and their associated costs. While the
Commission considered traditional security measures, such as call
blocking, restrictions on three-way calling, and approved number lists,
the Commission addressed, for the first time, security services that
primarily served basic law enforcement functions such as providing
``detailed, customized reports for correctional facility officials.''
The record then before the Commission showed a shift from selective,
targeted surveillance services to requirements for ``listening and
recording capabilities for all calls.'' The Commission also addressed
the issue of the costs of these measures. While recognizing that ``the
provision of inmate calling services implicates important security
concerns and, therefore, involves costs unique to the prison
environment,'' the Commission nonetheless declined to raise rates
relating to inmate calling services based on safety and security costs,
expressing the hope that lower rates might lead to ``more cost-
effective security protections.'' Raising concerns about the imposition
of ``expensive security costs,'' the Commission sought comment on
``inmate calling service practices that may serve legitimate security
needs but have the unintended, and perhaps unnecessary, effect of
increasing the costs incurred by inmates and their families.'' The
Commission likewise sought comment on ``alternatives to collect calling
in the inmate environment that might result in lower rates for inmate
calls while continuing to satisfy security concerns.''
343. In the 2013 ICS Order, the Commission again acknowledged the
importance of security features in the provision of inmate calling
services, while emphasizing that ``ICS rate reform has not compromised
the security requirements of correctional facilities.'' In establishing
``conservative'' interim ICS rates, the Commission, on the record
before it, took into account ``security needs as part of the ICS rates
as well as the statutory commitment to fair compensation.'' These
interim rates were based on the requirement of fair compensation in the
language of section 276 at the time. Based on data in the record, the
interim rates ``demonstrate[d] the feasibility of providing ICS on an
on-going basis to hundreds of thousands of inmates without compromising
the levels of security.'' The record led the Commission to include in
the rates the costs of ``sophisticated security features--including
biometric caller verification based on voice analysis, and
sophisticated tracking tools for law enforcement.'' While traditional
security measures were still deployed virtually universally, the record
indicated that additional security features had become available and
were primarily designed to assist law enforcement in discharging its
core functions, including investigative work, gathering evidence,
storing call recordings for use in court proceedings, and preparing
reports for facilities. The Commission was cognizant of the ``critical
security needs of correctional facilities,'' particularly used to aid
law enforcement in the successful prosecution of ``hundreds'' of
crimes. The Commission nevertheless added the limiting principle that
security costs must have an appropriate nexus to the provision of ICS
to be recoverable through ICS rates. Such
[[Page 77306]]
costs likely included the costs of security features inherent in the
network, including ``the costs of recording and screening calls, as
well as the blocking mechanisms the ICS provider must employ to ensure
that inmates cannot call prohibited parties.'' The Commission also
referenced ``more sophisticated security features'' such as ``biometric
caller verification based on voice analysis and sophisticated tracking
tools for law enforcement.'' While the Commission ultimately included
the costs of advanced security features such as continuous voice
biometric identification in the interim rates it adopted, it did so on
the basis of limited data on industry costs since the Commission had
not yet conducted a data collection to obtain comprehensive industry
data. Contrary to what Securus claims, we do not improperly reverse
findings in the 2013 ICS Order regarding safety and security costs with
our actions today. Given the nature of the highly circumscribed record
at the time of the 2013 ICS Order, it does not follow--and the Martha
Wright-Reed Act does not say--that the Commission must include safety
and security costs it has previously included in the rates in the rate
caps it adopts today pursuant to the Martha Wright-Reed Act. In any
event, as set forth in the analysis that follows, the record now before
us, which is far more robust than the record that existed at the time
of the 2013 ICS Order, persuades us to reach a different conclusion
regarding certain safety and security measures than the Commission may
have reached previously.
344. By 2020, the Commission had begun to give increased scrutiny
to the role safety and security measures played in the provision of
IPCS and the extent to which cost recovery for the increasing array of
security and surveillance measures was appropriate through inmate
calling services rates. In the 2020 ICS Notice, the Commission sought
comment on whether ``safety and surveillance costs in connection with
inmate calling services should be recovered through inmate calling
service rates.'' It noted that ``[a]s public interest groups [had]
pointed out, correctional facilities did not pass on the costs of other
security measures, such as scrutinizing physical mail, to incarcerated
people and their families.''
345. In the 2021 ICS Order, the Commission observed that the record
provided in response to the 2020 ICS Notice did not allow it to
determine ``whether security and surveillance costs that correctional
facilities claim to incur in providing inmate calling services are
`legitimate' inmate calling services costs that should be
recoverable.'' Some commenters encouraged the Commission to exclude all
such costs, arguing that security services were ``not related to the
provision of communication service and provide[d] no benefit to
consumers'' and ``not related to [the] `communications functions' '' of
ICS. Certain providers and the National Sheriffs' Association called
for the opposite, arguing that ``correctional facilities incur
administrative and security costs to provide incarcerated people with
access to [inmate calling services]'' and that these costs should be
recovered through calling rates. The Commission found, however, that
the data provided in support of this position did not allow it to
``isolate legitimate telephone calling-related'' costs from ``general
security and surveillance costs in correctional facilities that would
exist regardless of inmate calling services.'' Based on the
unreliability of the data provided, the Commission found that it had no
``plausible method'' for determining recoverable security and
surveillance costs.
346. At the same time, in 2021, the Commission sought comment on
security and surveillance costs and specifically whether some security-
related costs should ``more appropriately be deemed to be general
security services that are added on to inmate calling services but not
actually necessary to the provision of the calling service itself.''
The Commission asked whether providers are in fact providing ``two
different services,'' including ``a communication service that enables
incarcerated people to make telephone calls'' and ``a separate security
service that aids the facility's general security efforts but would
more appropriately be paid for directly by the facility rather than by
the users of the communications service who receive no benefit from
these security features that are unnecessary to enable them to use the
calling service.'' The Commission also referenced a representation made
by one provider listing the basic security measures required to provide
service and acknowledging that ``anything more than this is not
required for secure calling and that additional products are `gold-
plated offerings.'' The provider suggested that ``a basic phone system
requires security related to identifying the incarcerated individual
placing a call, restricting who that individual can and cannot call,
providing the called party with the ability to accept, reject, or block
the caller, and providing the facility with the ability to monitor and
record calls.'' As a result, the Commission sought comment on
``legitimate'' security features, how to distinguish such features from
security relating to the facility as a whole, and how to isolate and
quantify such costs. In 2022, the Commission reiterated these requests
for comment and asked about the extent to which ``the security and
surveillance costs that providers [had] included'' in their responses
to the Third Mandatory Data Collection ``relate[d] to functions that
meet the used and useful standard.''
(ii) The Martha Wright-Reed Act and Safety and Security
347. Section 3(b)(2) of the Martha Wright-Reed Act requires that
the Commission, in implementing the Act including promulgating
regulations and determining just and reasonable rates, ``consider costs
associated with any safety and security measures necessary to provide''
IPCS. As a result, in 2023, the Commission sought comment on this
directive. It requested comment on how the term ``necessary'' should be
interpreted, particularly asking whether it should follow D.C. Circuit
precedent finding that ``necessary'' ``must be construed in a fashion
that is consistent with the ordinary and fair meaning of the word,
i.e., so as to limit `necessary' to that which is required to achieve a
desired goal.'' The Commission also asked for detailed, specific
comment on which safety and security measures are ``necessary,'' as
contemplated by the Act, to the provision of IPCS and why those
measures are ``necessary.'' Finally, it sought comment on whether it
``should interpret the Martha Wright-Reed Act's use of the term `safety
and security' as having the same or different meaning as the term
`security and surveillance' previously used in this proceeding.''
(iii) 2023 Mandatory Data Collection
348. Pursuant to a delegation of authority from the Commission, WCB
and OEA gathered data to attempt to understand what safety and security
measures were offered by IPCS providers, as well as their functions and
costs, among other purposes. The data collection required that the
providers isolate the costs they incur in providing safety and security
measures from their other costs, and then allocate their safety and
security measure costs into seven categories on a company-wide level,
with an accompanying narrative description of the services included in
each category. Providers were required ``to allocate the annual total
expenses they incurred in providing safety and security measures among
seven categories using the provider's best
[[Page 77307]]
estimate of the percentage of those expenses attributable to each
category.'' The providers were then required to allocate all reported
safety and security costs at the facility level. Additionally, they
were required to allocate the expenses in each category to four types
of services--audio IPCS, video IPCS, ancillary services, and other
products and services.
349. These seven categories were designed to ``provide a
comprehensive and workable framework for dividing safety and security
measure costs into reasonably homogenous groupings that `should capture
all [safety and] security costs,' particularly with the addition of
multiple examples of costs for each category.'' A catch-all category
for any costs that did not fit within the other categories was also
added to ensure completeness. The categories are: (1) CALEA compliance
measures, (2) law enforcement support services, (3) communications
security services, (4) communication recording services, (5)
communication monitoring services, (6) voice biometrics services, and
(7) other safety and security measures.
350. Providers were required to submit information regarding safety
and security measures in both cost data format and narrative responses
to an excel and word template. For purposes of the collection, ``safety
and security measures'' were defined as:
[A]ny safety or security surveillance system, product, or service,
including any such system, product, or service that helps the Facility
ensure that Incarcerated People do not communicate with persons they
are not allowed to communicate with; helps monitor and record on-going
communications; or inspects and analyzes recorded communications.
Safety and Security Measures also include other related systems,
products, and services, such as a voice biometrics system, a personal
identification number system, or a system concerning the administration
of subpoenas concerning communications. The classification of a system,
product, or service as a Safety and Security Measure does not mean that
it is part of a Provider's IPCS-Related Operations.
351. Providers were then instructed to provide a variety of
information, including whether safety and security measures differed
among facilities, contracts, audio/video services, or other factors.
Total annual expenses, billed revenues, company-wide financial
information, and service-specific financial information were requested,
as well as allocations of such data among the seven safety and security
categories. Providers were instructed ``to report in the Excel
template, for each category, the Company's best estimate of the
percentage of its total Annual Total Expenses for Safety and Security
Measures that is attributable to the measures within that category.''
Safety and security measures were to be identified and described based
on these categories.
352. Providers' responses give for the first time a comprehensive
picture of the dominant role that the costs of safety and security
measures now play in the IPCS industry's cost structure. Reported
safety and security measure costs now represent the single largest
category of reported costs. The industry reported total safety and
security costs of approximately {[REDACTED]{time} . The providers' data
show that those costs now represent approximately {[REDACTED]{time} of
all reported IPCS costs and that reported safety and security measure
costs significantly exceed the total costs of providing both audio and
video IPCS combined. Audio and video IPCS combined represent
approximately {[REDACTED]{time} of all reported IPCS costs, inclusive
of site commissions. On a total industry cost per-minute basis,
reported safety and security costs are {[REDACTED]{time} , while
reported costs of providing IPCS are {[REDACTED]{time} .
353. The reported data also indicate that different-sized providers
incur markedly different safety and security measure costs on a per-
minute basis. For example, the two largest providers reported incurring
{[REDACTED]{time} per minute in costs for safety and security
measures, whereas the range for the rest of the industry is between
$0.001 and $0.006 per minute for audio IPCS and between $0.0001 and
$0.024 per minute for video IPCS.
(b) Our Approach To Considering Safety and Security Costs Under Section
3(b)(2) of the Martha Wright-Reed Act
354. Before reaching our assessment of providers' separately
reported costs of safety and security measures, we address the
statutory interpretation underlying our consideration of these matters
under the Martha Wright-Reed Act and the Communications Act.
(i) The Directive To ``Consider'' Safety and Security Costs Under
Section 3(b)(2) of the Martha Wright-Reed Act
355. Pursuant to section 3(b)(2) of the Martha Wright-Reed Act, we
will evaluate as part of our ratemaking exercise under section
276(b)(1)(A) of the Communications Act ``costs associated with any
safety and security measures necessary to provide'' IPCS. This is a
familiar task of the sort the Commission has long undertaken when
seeking to ensure just and reasonable rates, where it has evaluated
costs and expenses of various kinds for which providers sought recovery
through regulated rates. The Commission likewise has historical
experience with similar assessments of safety and security measures
raised in the IPCS context specifically. Our conclusion that section
3(b)(2) of the Martha Wright-Reed Act simply informs how we approach
our traditional rate-setting function--rather than establishing some
kind of unique or anomalous approach specific to safety and security--
flows from the statutory text and context, along with the relevant
regulatory history that served as the backdrop to the Martha Wright-
Reed Act.
356. In 2023, the Commission sought comment on the meaning of
``shall consider'' as used in section 3(b)(2) of the Martha Wright-Reed
Act, and on what discretion, if any, that phrase gives the Commission
in its ratemaking determinations. We agree with Pay Tel that the word
``shall,'' is mandatory, not permissive, such that we ``must consider
costs associated with necessary safety and security measures in setting
just and reasonable rates.'' We conclude that the requirement that we
``consider'' the costs of safety and security measures means that we
must ``reach . . . express and reasoned conclusion[s]'' regarding such
costs--as relevant here, as part of the process of determining just and
reasonable rates for IPCS. Consistent with prior interpretations of
similar statutory language, we do not read section 3(b)(2) of the
Martha Wright-Reed Act as a directive mandating the recovery of the
costs of all safety and security measures identified by providers or
facilities; or as inherently requiring the Commission ``to give any
specific weight'' to such costs as a statutory matter. Instead, the
text of that provision merely requires us to examine available evidence
regarding ``costs associated with any safety and security measures
necessary to provide'' IPCS along with the various other cost claims we
review as part of our overall approach to ensuring just and reasonable
rates and charges for IPCS that also yield fair compensation for
providers. Contrary to the National Sheriffs' Association's
characterization of 2023, nowhere in that Notice did we interpret
``consider'' to mean that we are ``required to treat all safety and
security costs identified by providers . . . as costs recoverable
through rates for communications services for incarcerated people.''
Rather, the Commission sought comment on
[[Page 77308]]
whether such an interpretation would be appropriate, or whether
another, contrary interpretation would be correct.
357. Commenters generally support this interpretation. As the
Public Interest Parties explain, Congress did not say that the
Commission `must include' or `shall allow for the recovery of' the
safety and security costs claimed by IPCS providers. Instead, it
deferred to the Commission's expertise and discretion, requiring only
that it consider costs associated with safety and security measures
when developing rate caps. While the Commission must therefore consider
these costs, it is plainly not obligated to pass them through in the
rate caps ultimately adopted.
We agree with these views.
358. Our interpretation of section 3(b)(2) is reinforced by the
broader statutory context. In particular, section 4 of the Martha
Wright-Reed Act provides that nothing in that Act ``shall be construed
to . . . prohibit the implementation of any safety and security
measures related to [IPCS] services at [correctional] facilities.'' As
we explain above, when read together, section 3(b)(2) of the Martha
Wright-Reed Act is best understood as merely requiring the Commission
to evaluate such costs as part of its just and reasonable rate
analysis, while section 4 simply makes clear that, in directing the
Commission to develop a compensation plan to ensure just and reasonable
IPCS rates and charges, Congress did not intend to prohibit
correctional institutions from adopting policies that, in their
judgment, are needed to preserve safety and security.
359. Our understanding of section 3(b)(2) harmonizes it with the
broader regulatory history here, as well. Considering costs associated
with any safety and security measures necessary to provide IPCS as part
of our used and useful analysis reflects a continuation of the sort of
analyses the Commission has long undertaken in the IPCS context. And
even apart from that particular sort of evaluation, the Commission
otherwise also has long been involved in assessing the technological
relationship between communications service and safety and security
measures associated with IPCS. For example, in the 2013 ICS Order, the
Commission explained that it would ``likely'' find it appropriate to
include costs--including some safety and security costs--``that are
closely related to the provision of interstate ICS'' in setting rates.
And, in 2021, to help it determine the extent to which certain security
and surveillance costs may be recovered through calling services rates,
the Commission sought comment on the ``types of security and
surveillance functions, if any, [that] are appropriately and directly
related to inmate calling.'' Thus, the focus of the Commission's
inquiry has been to identify costs associated with safety and security
measures that have a sufficient nexus to IPCS to justify recovery of
the relevant costs or expenses through IPCS rates.
360. The Commission's evaluation of the nexus between safety and
security measures and the provision of IPCS evolved over time as the
industry's use of such measures increased. The Commission also has
grappled with limited data and record comment in attempting these
analyses. For instance, in setting interim rate caps in the 2021 ICS
Order, the Commission recognized that the record then before it made it
impossible to determine the extent to which security and surveillance
costs should be recovered through inmate calling services rates. The
Commission therefore sought comment in 2021 on the extent to which the
services that providers and facilities had identified as security-
related services should ``be deemed to be general security services
that are added onto inmate calling services but not actually necessary
to the provision of the calling service itself.'' The Commission also
sought comment in that Notice on methodologies that would help it
isolate and quantify ``calling-related security and surveillance costs
from general security and surveillance costs'' that providers and
facilities incur. In 2022 the Commission reiterated its requests for
comment that would help it identify, and quantify, the distinction
between safety and security measures directly related to the provision
of communications services in correctional institutions and the general
provision of safety and security in those institutions.
361. In sum, we read section 3(b)(2) simply to direct the
Commission to evaluate the evidence before it regarding the costs
associated with any safety and security measures necessary to provide
IPCS and make a reasoned judgment about whether and to what extent such
costs should be included in just and reasonable IPCS rates, consistent
with fair compensation for providers. This flows from the statutory
text and context, and represents a continuation of the ratemaking role
the Commission long has played in this context (and others).
362. In light of what we see as the best reading of section 3(b)(2)
of the Martha Wright-Reed Act, we are unpersuaded by arguments that, as
a statutory matter, we must allow recovery of all costs associated with
safety and security measures in IPCS rates. Some commenters
misunderstand section 3(b)(2) and argue that all safety and security
measures a facility identifies are automatically necessary and
recoverable through regulated rates by virtue of being selected by
``experts.'' The National Sheriffs' Association argues that ``[t]he
fact that a security or safety measure is implemented in connection
with IPCS service makes it a recoverable cost.'' We disagree with these
contentions. Although section 3(b)(2) requires the Commission to
``consider'' costs associated with safety and security measures
necessary in providing IPCS when determining just and reasonable rates,
commenters do not persuasively demonstrate that, as a textual matter,
this requires more than evaluating the available information in the
record and reaching a reasoned decision. Consequently, we reject
commenters' contrary interpretations insofar as they would, as a
statutory matter, necessarily require recovery through regulated IPCS
rates of all costs of safety and security measures ``necessary'' within
the meaning of section 3(b)(2), irrespective of the specific basis for
that ``necessary'' determination--whether giving preclusive weight to
correctional facilities' judgements, or some other level of weight, or
making the determination on other grounds. And as discussed above, our
reading of section 3(b)(2) best accords with the statutory context and
the relevant regulatory history. Indeed, contrary arguments would
require us to interpret section 3(b)(2) as establishing an anomalous
approach to ratemaking under the Communications Act that would, at
least with respect to the costs of safety and security measures,
effectively eliminate the role Congress intended the Commission to play
in determining just and reasonable rates and, instead, place that role
in the hands of the providers and facilities. While correctional
authorities certainly have expertise on safety and security as a
general matter, Congress has not vested the authority in them to decide
which safety and security costs should be recoverable in IPCS rates--
and a contrary reading of section 3(b)(2) that took the issue of safety
and security cost recovery through regulated IPCS rates out of the
Commission's hands and placed it in the control of providers and
facilities would raise private nondelegation concerns. The Constitution
limits the government's ability to empower a private entity ``to
regulate the affairs'' of other private parties. The Constitution
[[Page 77309]]
permits such an assignment of authority only if the entity
``function[s] subordinately'' to a federal agency and is subject to the
agency's ``authority and surveillance.'' Of course, correctional
authorities remain free to determine and implement whatever safety and
security measures they deem appropriate at the correctional facility.
Contrary to assertions made by FDC, nothing in the Report and Order
prevents facilities from implementing the safety and security measures
of their choice. But under the statutory scheme, it is for the
Commission to determine any extent to which the costs of such measures
are recoverable through regulated IPCS rates. We consequently reject
arguments that section 3(b)(2) of the Martha Wright-Reed Act requires
recovery of all costs associated with safety and security measures in
regulated IPCS rates.
(ii) The Scope of ``Safety and Security Measures'' Under Section
3(b)(2) of the Martha Wright-Reed Act
363. Section 3(b)(2) of the Martha Wright-Reed Act requires us to
consider costs ``associated with any safety and security measures
necessary to provide'' IPCS. In 2023, the Commission sought comment on
whether it ``should interpret the Martha Wright-Reed Act's use of the
term `safety and security' as having the same or different meaning as
the term `security and surveillance' previously used in this
proceeding.'' The Commission has at different times variously referred
to the universe of measures at issue as ``security measures,''
``security features,'' ``monitoring,'' ``security monitoring,'' and
``security and surveillance.'' The record before us is mixed. One
commenter suggests that ``safety and security'' differs from ``security
and surveillance'' such that ``it relieves the Commission of
considering surveillance measures at all.'' Others argue that ``[t]he
Commission should not interpret `safety and security' to mean something
different than the term `security and surveillance' previously used in
the Commission's IPCS proceedings.''
364. We find that the best interpretation of the two phrases is
that the ``security and surveillance'' measures of the sort that
historically have been the focus of this proceeding fall within the
scope of ``safety and security'' measures under section 3(b)(2), and
that we need not go further at this time to more precisely define
whether the two phrases are coextensive. The services previously at
issue in the Inmate Calling Services proceeding, such as call blocking,
recording, and monitoring, are now before us for consideration, and fit
within the scope of ``safety and security.'' Although there is no
express reference to ``surveillance'' measures in section 3(b)(2), the
Commission not only has considered such costs in the proceedings that
formed the backdrop for the Martha Wright-Reed Act, but at times
suggested that ``security and surveillance'' measures collectively
could be seen as involving ``security.'' Against that backdrop--and
absent more detailed textual arguments that the language ``safety and
security'' should not be read to encompass surveillance of the sort we
historically have considered--we find such surveillance measures fall
within the scope of ``safety and security measures'' under section
3(b)(2) of the Martha Wright-Reed Act. Because we do, in fact, consider
the relevant cost evidence in the record here that even arguably could
fall within the scope of costs of ``safety and security measures''
under section 3(b)(2), we find it unnecessary to more precisely define
the ultimate scope and contours of that statutory language at this
time.
(iii) Which ``Safety and Security Measures'' Are ``Necessary To
Provide'' IPCS Under Section 3(b)(2) of the Martha Wright-Reed Act
365. Section 3(b)(2) of the Martha Wright-Reed Act mandates that,
in ``promulgating regulations necessary to implement this Act and the
amendments made by this Act'' and ``determining just and reasonable
rates,'' the Commission ``shall consider costs associated with any
safety and security measures necessary to provide'' IPCS. In 2023, the
Commission requested comment on how it should interpret the term
``necessary.'' Consistent with judicial precedent interpreting other
statutory uses of the term ``necessary,'' we interpret the term
``necessary'' in section 3(b)(2) to mean ``that which is required to
achieve a desired goal.'' Commenters generally support this
interpretation. Commenters rely on both judicial precedent and
dictionary definitions of the term ``necessary.''
366. Securus points out that this interpretation of ``necessary''
``requires identification of a desired goal.'' We agree and find that
the Martha Wright-Reed Act identifies the ``desired goal.'' In
pertinent part, section 3(b) of the Martha Wright-Reed Act states that
in ``determining just and reasonable rates,'' the Commission ``shall
consider costs associated with any safety and security measures
necessary to provide'' IPCS. Those IPCS services, in turn, are
``telephone service and advanced communications services.'' Based on
this language, we conclude that, for a safety and security measure to
be necessary, it must be required ``for the provision of telephone
service and advanced communications services to incarcerated people.''
In other words, for a safety and security measure to be necessary, it
must be required for the provision of communications services in
correctional institutions.
367. Some commenters claim that the goal of safety and security
measures ``is to prevent communications services from being used to
commit or facilitate potential crimes, fraud, or other abuses.''
Commenters focusing on the relationship between safety and security
measures and the commission of crimes using IPCS fail to acknowledge
the benefits that increased communications have on the incarcerated
population and the resulting impact on facility safety. We do not
dispute, and indeed the Commission has long recognized, that
communications services for incarcerated people occur in a unique
context that ``implicate[] important security concerns.'' To that end,
the Commission has recognized that there are certain features that
ensure these communications services are available to incarcerated
people and can be used safely. The Martha Wright-Reed Act envisions
such an outcome by directing the Commission to consider safety and
security measures ``necessary to provide'' communications services ``in
correctional institutions.''
368. We part ways with ViaPath and other commenters who assert that
all safety and security measures are necessary to provide IPCS. The
Act's use of the limiting term ``necessary'' implies that Congress did
not intend all safety and security measures would be treated as
necessary but rather implicitly suggests some limitation on the scope
of measures the Commission is to consider. Thus, while we do not
dispute the notion that the general goal of safety and security
measures is to ensure that IPCS are used safely, it does not follow
that any and all safety and security measures are necessary to achieve
that goal as Securus and others would suggest. We find certain
commenters' invocation of ``contraband devices'' in connection with its
discussion of safety and security for IPCS to be inapt. The issue of
contraband devices in correctional institutions is the subject of a
separate proceeding at the Commission and is unrelated to our
implementation of the Martha Wright-Reed Act or the consideration of
the costs of necessary safety and security measures for inclusion in
just and reasonable rates for IPCS. Nevertheless, the record suggests
that one of reasons for the proliferation of contraband devices are the
high IPCS
[[Page 77310]]
rates that the families of incarcerated people cannot afford to pay. We
similarly find inapposite the National Sheriffs' Association's
contention that because ``security and safety measures protect inmates
by reducing crime within the facility,'' such services are necessarily
related to the provision of IPCS. Finally, we find inapposite some
providers' contentions that the Commission has rejected the protection
of the public as a permissible safety and security function. While
section 1 of the Communications Act makes clear that the Commission was
created to promote the public safety, among other purposes, those other
purposes include ``mak[ing] available, so far as possible . . .
communication service . . . at reasonable charges'' and promoting ``the
national defense.'' It does not follow that in mandating that we ensure
just and reasonable rates and charges for all incarcerated people's
communication services and that we promote the ``widespread deployment
of payphone services to the benefit of the general public,'' Congress
intended that IPCS consumers should finance any measure that generally
promotes public safety or the national defense. Instead, we think that
Congress intended a narrower focus, one in which we determine which
costs IPCS consumers can justly and reasonably be required to finance.
That type of determination is one well known to the Commission and
under which we must evaluate different types of capital costs and
expenses to determine which are recoverable through regulated rates.
369. Although commenters that address the interplay between the
``necessary'' standard and ``used and useful'' framework contend that
``necessary'' is more limited than ``used and useful,'' we need not
resolve that ultimate interplay here. Although we agree with commenters
that GTE Serv. Corp. is relevant precedent regarding the interpretation
of the term ``necessary'' in a statute, we are not persuaded that it
resolves the question of the interplay between ``necessary'' in section
3(b)(2) of the Martha Wright-Reed Act and the ``used and useful''
standard we employ when setting just and reasonable rates. We see no
indication on the face of that opinion that the Commission's use of the
terminology ``used or useful'' in assessing whether collocation
obligations should apply under section 251(c)(6) of the Communications
Act was intended to draw upon, or overlap with, the ``used and useful''
analysis historically employed in the ratemaking context.
Independently, the D.C. Circuit subsequently has read GTE Serv. Corp.
(as well as Iowa Util. Board) as fully consistent with the notion that
the statutory context is relevant when interpreting the term
``necessary.'' And without definitively resolving the interplay of
terms, we note that in a statutory context where Congress has directed
the Commission to merely ``consider'' certain costs when setting just
and reasonable rates, it would not be an absurd result for the universe
of costs subject to consideration to be broader than the universe of
costs ultimately allowed for recovery in regulated rates. Thus,
although we find GTE Serv. Corp. to be relevant to the interpretation
of ``necessary'' in a general way, we are not currently persuaded to
rely on it in the more specific manner that some commenters have
advocated. We disagree with Securus's claim that by not reaching a
determination on which safety and security costs are ``necessary'' to
the provision of IPCS, we have somehow ``render[ed] the entire
`necessary' provision found at section 3(b)(2) of the MWR Act
superfluous.'' As we have just explained, by considering all safety and
security costs, it necessarily follows that we have complied with the
Martha Wright-Reed Act's mandate that we ``consider costs associated
with any safety and security measures necessary to provide'' IPCS in
setting just and reasonable rates. Our mode of ``considering'' such
costs via the ``used and useful'' framework thus is distinct from the
identification of the universe costs to be considered in the first
instance--and our approach therefore does not conflate the terms
``necessary'' and ``used and useful'' as Securus contends. Consistent
with our conclusion in the prior section regarding the interpretation
of ``safety and security,'' we have no need to more precisely define
the ultimate scope and contours of the statutory language ``necessary''
at this time because we do, in fact, consider the relevant cost
evidence in the record here that even arguably could fall within the
scope of costs of safety and security measures required to be
considered as ``necessary'' under section 3(b)(2). Stated differently,
the cost of any safety and security measure that even arguably could be
viewed as necessary to the provision of IPCS--under any understanding
of ``necessary''--is a cost that we evaluate, and reach a reasoned
decision about, under the used and useful framework that we employ to
determine just and reasonable IPCS rates in the Report and Order.
Because we evaluate the costs of all safety and security measures that
could arguably fall within the scope of the term ``necessary,'' we do
not opine on the necessity of safety and security measures that
correctional facilities may implement.
(iv) Consideration of Safety and Security Costs Under the Used and
Useful Framework
370. While section 3(b)(2) of the Martha Wright-Reed Act requires
us to ``consider'' certain safety and security costs when determining
just and reasonable rates, as we explain above, we employ the ``used
and useful'' framework to determine what costs and expenses can be
recovered through just and reasonable IPCS rates. Consequently, our
consideration of safety and security costs as required by section
3(b)(2)--and with respect to other safety and security costs raised in
the record--occurs within the context of that ``used and useful''
analysis. In particular, we rely on the ``used and useful'' framework
and its associated prudent expenditure standard to assess which costs
should be included in the rate caps we adopt to determine just and
reasonable IPCS rates. In applying the used and useful standard, we
consider whether a cost ``promotes customer benefits, or is primarily
for the benefit of the carrier,'' as well as whether that cost was
prudently incurred. There are several elements of the Commission's used
and useful analysis. First, the Commission considers the need to
compensate providers ``for the use of their property and expenses
incurred in providing the regulated service.'' Second, the Commission
looks to the ``equitable principle that ratepayers should not be forced
to pay a return except on investments that can be shown to benefit
them.'' In this regard, the Commission considers ``whether the expense
was necessary to the provision of'' the services subject to the ``just
and reasonable'' standard. And third, the Commission considers
``whether a carrier's investments and expenses were prudent (rather
than excessive).'' We note that in considering whether expenses are
``necessary to the provision of'' the services subject to the ``just
and reasonable standard,'' the used and useful framework accords with
the Commission's prior analysis of safety and security measures which
sought to determine the extent to which those measures were ``directly
related to the provision of IPCS.''
371. Since 2002, the Commission has recognized the need to
``balance the laudable goal of making calling services available to
inmates at reasonable rates, so that they may contact their families
[[Page 77311]]
and attorneys, with necessary security measures and costs related to
those measures.'' Security measures that might have ``the unintended,
and perhaps unnecessary, effect of increasing the costs incurred by
inmates and their families'' have long concerned the Commission, as has
the lack of data to properly analyze these costs. For years,
stakeholders have debated whether various safety and security measures
are part of inmate calling services, as certain providers and the
National Sheriffs' Association contend, or are ``not related to the
provision of communication service'' and of ``no benefit to
consumers.'' Prior deficiencies in the record, including the absence of
any meaningful data on the costs incurred in providing safety and
security measures, have prevented the Commission from determining the
extent to which safety and security costs may be recovered through
inmate calling services rates.
372. We now have a sufficiently robust record to apply the used and
useful framework for the first time to the safety and security measures
that providers and the National Sheriffs' Association claim are part of
IPCS and to quantify, to the extent the data permit, the costs
providers and facilities incur in implementing those safety and
security measures. Though far from perfect, that record allows us to
establish zones of reasonableness that capture, for each rate cap tier,
the approximate range within which the providers' and facilities' used
and useful safety and security fall. The record provides discrete data
on the costs providers claim to incur in providing seven categories of
safety and security measures and allows us to make reasoned decisions
about whether the measures in each category are generally used and
useful in the provision of IPCS. And the record allows us to compensate
for the imprecisions in the data before us--regarding both providers'
and facilities' costs of providing used and useful safety and security
measures--in selecting ``just and reasonable'' rate caps from within
the zones of reasonableness. The record before us now thus provides far
greater detail on the nature and purposes of the safety and security
measures that providers deploy, the extent of that deployment, and the
measures' underlying costs than was previously available to the
Commission. Consistent with this expanded record, our analysis builds
upon and, in certain instances where appropriate, departs from the
Commission's prior analyses of safety and security measures in the
inmate calling services context.
373. As discussed below, application of the used and useful
framework to the safety and security costs that providers and the
National Sheriffs' Association claim are IPCS costs helps us balance
the need to ensure reasonable recovery of providers' investments and
expenses used in providing IPCS with the requirement that we provide
for recovery through regulated rates when the costs incurred are used
and useful to the provision of IPCS and therefore promote customer
benefits. Securus criticizes the Commission's application of the used
and useful framework to safety and security costs as being solely
focused on whether a given cost or expense benefits IPCS consumers. We
disagree. As previously explained, application of the used and useful
framework balances the need to ensure that IPCS providers receive
reasonable recovery of their investments and expenses in providing IPCS
with the need to ensure that ratepayers bear only the costs of
providing the regulated service to them. This is what we do here in
evaluating all of the safety and security costs IPCS providers have
reported and determining the extent to which tasks associated with
those costs provide a benefit to IPCS consumers such that they may be
recovered through regulated rates. In allowing, within the limits of
the record before us, only those investments and expenses which are
used and useful to be recovered from ratepayers, we ``ensure that
current ratepayers bear only legitimate costs of providing service to
them.'' As one commenter explains, ``[t]he Commission has applied the
used and useful standard for decades when considering whether a
provider can recover costs for an asset or service, or in this case,
necessary safety and security measures.'' This is particularly relevant
with regard to the safety and security measures that providers furnish
pursuant to their contracts with correctional institutions, the
purposes and scope of which have evolved from simply facilitating the
provision of voice communications in correctional institutions to
broader measures designed to detect potential criminal activity and
enforce the criminal laws, among other non-communications purposes. For
example, in responses to the 2023 Mandatory Data Collection, when asked
to describe various safety and security measures, providers explain how
these measures assist law enforcement in investigating potential
criminal activity and building cases, create reports for facilities and
law enforcement, analyze data, and store records for use in court.
Securus makes clear that its subpoena and warrant services respond to
requests by ``prosecutors, investigators, district attorneys, police
officers, [and] detectives.''
374. The record is replete with examples of costly services that
are unrelated (or only marginally related) to providing IPCS and thus
provide no (or only marginal) benefits to ratepayers in their capacity
as consumers of IPCS. Safety and security measures that do not
facilitate the provision of underlying communications services in
correctional institutions are not used and useful. While law
enforcement, correctional facilities, and the public at large may
benefit from these measures, the Martha Wright-Reed Act mandates that
we ensure just and reasonable IPCS rates for incarcerated people and
their loved ones. Allowing the costs of measures that are not used and
useful in the provision of IPCS to be recovered through IPCS rates
would be inconsistent with that mandate. Similarly, the costs of safety
and security measures that provide a dual purpose--that are both used
and useful in providing IPCS and in furthering another purpose--should
be borne by both ratepayers and facilities.
375. Although the Commission has historically recognized that
safety and security measures were, at least in some sense, inherent in
providing communications services for incarcerated people, it has been
clear from the outset that only certain safety and security costs
should be recovered through regulated rates. In the 2013 ICS Order, for
example, the Commission determined that recovery of the costs of safety
and security measures should be limited to ``costs that are reasonably
and directly related to the provision of ICS'' and indicated that such
recovery ``would likely include . . . costs associated with security
features relating to the provision of ICS,'' but that ``costs relating
to general security features of the correctional facility unrelated to
ICS'' would be excluded. This dichotomy has remained a staple of
Commission decisions attempting to ``balance[e] the unique security
needs related to providing telecommunications service in correctional
institutions,'' with the statutory requirements of fair compensation
for providers, and, to the extent interstate and international audio
services were involved, just and reasonable rates for consumers and
providers. The Commission did not then and has not since made a
determination of which safety and security measure
[[Page 77312]]
costs should be recoverable in IPCS rates. We therefore reject
Securus's suggestion that ``Commission precedent is crystal clear that
the costs of safety and security measures such as recording,
monitoring, biometrics, and related services are inherent in the
provision of communications services to the incarcerated.'' The mandate
in section 276(b)(1)(A) that we ensure just and reasonable rates for
consumers, in conjunction with the Martha Wright-Reed Act's
requirements that we consider safety and security costs ``necessary''
to the provision of IPCS, requires that we reevaluate this precedent at
any rate.
376. In arguing that all safety and security costs must be
recoverable through IPCS rates, some commenters ignore the context of
the Commission's prior discussion of safety and security measures.
Instead, they rely on the fact that the Commission has previously
recognized the relationship between safety and security measures and
IPCS, but ignore that this relationship was always predicated on a
direct link to the provision of the underlying communications service.
Thus, while the Commission has previously recognized that
communications services for incarcerated people ``implicate[ ]
important security concerns,'' and that ``costs associated with
security features relating to the provision of ICS'' may constitute
recoverable costs, the Commission has never concluded that the costs of
all--or even a substantial portion--of the safety and security measures
that providers often voluntarily choose to offer or correctional
facilities may choose to require should be recovered from consumers. On
the contrary, while the precise formulation for inclusion has varied,
Commission precedent establishes that only the costs of those safety
and security measures with a sufficient nexus to the provision of IPCS
should be recovered through inmate calling services rates. Allowing
recovery of the costs associated with all safety and security measures
that providers decide to offer or that facilities choose to deploy
would be inconsistent with that precedent and, more broadly, with the
requirement that our compensation plan for IPCS ensure ``just and
reasonable'' rates and charges.
377. We similarly find overbroad Securus's suggestion that we must
``include safety and security costs in IPCS rates absent a finding that
those costs bear no relation to the provision of telephone or video
services.'' As an initial matter, nothing in the statute suggests such
a presumption. In fact, the statute implies the opposite--while it
requires the Commission to consider these costs, in doing so, it gives
the Commission latitude to exercise its judgment regarding the ultimate
just and reasonable rate determination. Thus, we agree with Securus
that the Commission does not have ``unfettered discretion to reject
necessary costs.'' And we do not reject any necessary costs that also
satisfy the used and useful standard. As we explain above, we consider
all cost evidence in the record regarding any safety and security
measures that could be viewed as necessary to the provision of IPCS,
under any understanding of the term ``necessary.'' We evaluate those
costs under our traditional used and useful ratemaking standard to
determine the extent to which those costs are recoverable from IPCS
consumers through regulated rates. Securus's approach also incorrectly
presumes that any cost that a provider or a correctional institution
reports as having been incurred for safety and security measures must
automatically be included in our rate cap calculations. We find instead
that those calculations should reflect, to the extent the record
permits us to make such a determination, only those costs that we
affirmatively find are used and useful in the provision of IPCS. More
fundamentally, Securus's test would require IPCS consumers to bear the
full costs of safety and security measures that are not directly
related to the provision of IPCS, but rather are more related to the
costs of incarceration generally, or are used principally for broader
law enforcement or investigative purposes.
378. To the extent correctional facilities contract with IPCS
providers for safety and security measures that do not facilitate the
provision of communications services, the costs of those measures
should not be passed on to IPCS consumers. We find overbroad the
National Sheriffs' Association's argument that because jails generally
have statutory obligations that require safety and security measures,
that it necessarily follows that IPCS consumers must bear the cost of
such measures. For example, the National Sheriff's Association
concludes that because the Death in Custody Reporting Act requires
facilities to ``report on the circumstances surrounding the death of an
incarcerated person (such as whether the cause of death was mental
health related),'' and because monitoring IPCS may identify persons
having mental health crises that could lead to suicide, IPCS consumers
must therefore pay for all safety and security costs related to
monitoring. As discussed above, facilities' obligation to care for the
safety and wellbeing of incarcerated people, as well as comply with
statutes that are unrelated to the provision of communications, are the
responsibility of facilities--as are the costs associated with such
obligations. IPCS consumers are not required to shoulder the burden of
paying for each and every facility cost whether related to the
provision of communications or not. For similar reasons, we find
inapposite some commenters' argument that not allowing the recovery of
certain safety and security costs through IPCS rates would necessarily
lead to ``increased taxes or an unnecessary reallocation of general
funds.'' Aside from the speculative nature of this claim, we have
explained why IPCS consumers should not bear the cost of services that
are unrelated to the provision of IPCS, nor should they be responsible
for services whose purpose is to serve law enforcement. For example,
customized reports for correctional facilities, long term storage of
recordings of communications, creating searchable databases of these
recordings, and voice biometrics that are used for law enforcement
purposes are measures that facilitate law enforcement but are not
required to restrict communications to permitted individuals. If they
were unavailable, incarcerated people would still be able to place
telephone calls or use advanced communications because these safety and
security measures serve almost exclusively law enforcement functions.
As the United Church of Christ and Public Knowledge explain, ``[t]he
customer of carceral functions is the carceral institution. The
customers of the communication are the two people using a service to
communicate with each other.'' Services that serve predominately law
enforcement purposes provide only marginal benefits to incarcerated
people and their families in their use of IPCS, and only a small
portion of the costs of those services are used and useful in the
provision of IPCS. The bulk of those costs related to incarceration,
generally--like feeding and housing--and, like those costs, cannot
justly and reasonably be imposed on incarcerated persons and their
loved ones. Correctional facilities are free to adopt any safety and
security measures they deem appropriate, but may not rely on IPCS
ratepayers to defray all the costs providers and facilities incur in
providing those measures. Instead, only the used and useful portion of
those costs should be recovered through IPCS rates.
[[Page 77313]]
379. Some commenters raise concerns that the used and useful
standard is inappropriate specifically when applied to safety and
security measures. We disagree. We are not persuaded that the
application of the used and useful standard to safety and security
costs would prohibit facilities' implementation of safety and security
measures in violation of section 4 of the Martha Wright-Reed Act.
Rather, we find that this argument conflates our authority over what
the facility and its service providers may charge ratepayers with the
facilities' authority over what safety and security measures ``the
facility and its service providers may choose to employ at their own
expense.'' Although section 4 of the Martha Wright-Reed Act bars the
Commission from prohibiting safety and security measures related to
IPCS in correctional facilities, nothing in the Martha Wright-Reed Act
requires that IPCS consumers pay for such measures through IPCS rates.
To the contrary, section 3(b)(2) of that Act indicates otherwise by
obliging the Commission merely to ``consider'' such costs without
requiring a particular outcome. While our rate-making process may
result in changing how some of those measures are funded, our
application of the used and useful framework in discharging this
mandate simply does not prohibit correctional officials, law
enforcement officials, or IPCS providers from implementing any safety
and security measures at any correctional facility. Correctional
facilities remain free to implement any safety and security measures of
their choosing; they just cannot expect the IPCS consumer to bear the
cost of all of those choices. The National Sheriffs' Association, in
its arguments against relying on the used and useful standard, suggests
that instead, ``the principle of cost causation, which states that
those who cause costs should pay for them'' should be used. The
National Sheriffs' Association argues that, for example, if a crime is
committed using IPCS, the incarcerated person should pay for all
related safety and security costs because without IPCS, the crime could
not have been committed. The Commission has previously rejected such
unpersuasive ``but for'' arguments, most recently in the Open Internet
proceeding. The National Sheriffs' Association's logic is flawed.
Simply because a crime occurred using a phone call does not mean that
the phone call was the cause of the crime, nor that IPCS consumers are
responsible for the associated safety and security costs. Law
enforcement activities are the responsibility of law enforcement. As
such, the costs associated with those activities are appropriately
borne by correctional facilities, not IPCS consumers. The used and
useful framework and cost causation principles both aim at ensuring
that ratepayers do not bear costs that were not incurred for the
ratepayers' benefit. Since the sole purpose of many of these safety and
security measures is to benefit law enforcement, we would allocate the
costs of these measures to the providers' non-IPCS operations even if
we were to employ a cost causation approach.
380. The ``Customer'' Under the Used and Useful Framework. In
applying the used and useful framework, ``the Commission considers
whether the investment or expense `promotes customer benefits, or is
primarily for the benefit of the carrier.' '' In applying that
framework to IPCS, we make clear that the ``customers'' referred to
under this analysis are the IPCS ratepayers in their status as
consumers of communications services in correctional institutions.
Securus encourages a broader interpretation of ``customer'' that would
include correctional facilities, as well as ratepayers, because
correctional facilities are ``necessary part[ies]'' to IPCS. Under this
logic, the providers themselves would also be included as beneficiaries
in the used and useful test. It suggests that the Commission has a
``general responsibility'' to protect the general public and ``ensure a
safe environment'' for accessing communications services. Pay Tel
mischaracterizes our rejection of Securus's overbroad interpretation of
``customer'' as a more general rejection of the need to provide
appropriate safety and security measures as part of the provision of
IPCS. As discussed above, and consistent with section 1 of the
Communications Act, the Commission has long embraced the inclusion of
safety and security measures as an integral part of the provision of
IPCS and incorporated the relevant costs in its approach to rates for
these services. These arguments do not overcome our responsibility here
where incarcerated people or their loved ones are the ones paying for
and using IPCS subject to Commission-specified rate regulations.
Although correctional institutions contract with providers for the
provision of IPCS, such services are used, and paid for, by
incarcerated people and their loved ones. As Worth Rises explains, the
``Commission's duty is to protect IPCS ratepayers and ensure reasonable
compensation for providers, not to protect the interests and demands of
non-ratepaying stakeholders.'' We rely on the used and useful framework
because it balances the ``equitable principle that the ratepayers may
not fairly be forced to pay a return except on investment which can be
shown directly to benefit them,'' with ensuring fair compensation for
providers. It therefore would be inappropriate--and, ultimately
inconsistent with our mandate to ensure just and reasonable IPCS
rates--to evaluate safety and security costs under a framework that
characterized correctional institutions as the customers. There are
indeed scenarios where the facility or governmental body may be the
customer in jurisdictions where free calling for incarcerated persons
has been implemented. That is not the scenario we are addressing in
this Order. Although Securus is correct that the used and useful
framework is flexible, it is not all encompassing, and we decline to
expand that framework to include non-ratepayers. Rather, we rely on
this flexibility to ensure that IPCS consumers ``bear only legitimate
costs of providing service to them.''
381. Our focus on incarcerated people and their loved ones as the
customers of IPCS has several cross-cutting implications for our
application of the used and useful standard to safety and security
measures broadly. For one, safety and security measures that serve
predominantly law enforcement functions do not yield sufficient (if
any) benefit to IPCS customers to warrant more than a marginal (or any)
recovery through just and reasonable IPCS rates. In this vein, in the
case of safety and security measures that are not universally or nearly
universally employed by IPCS providers, we are not persuaded that they
meet the used and useful standard for cost recovery through IPCS rates.
As explained by the Public Interest Parties, ``safety and security
features that are not universally used across facilities suggests that
they cannot be `necessary,' as some providers do offer IPCS without
needing to use such features.'' Safety and security measures cannot be
both required to provide IPCS and elective. The National Sheriffs'
Association unwittingly makes this point by explaining that ``different
facilities have different security requirements.'' While we agree with
the National Sheriffs' Association that correctional institutions that
have relatively large proportions of ``violent offenders'' generally
impose more extensive safety and security measures that other
correctional institutions, the record contains no information tying
those measures specifically to the provision of IPCS. Absent such
information, we conclude that those
[[Page 77314]]
measures are part of the correctional institutions' overall safety and
security operations, rather than an essential element of the provision
of communications services in a correctional environment. Such a focus
on safety and security measures shown to be deployed on a widespread
basis makes most sense when setting IPCS rate caps, rather than
prejudging whether and to what extent less commonly-employed measures
ultimately might someday be proven of sufficient necessity--and benefit
to IPCS customers--to warrant recovery in regulated IPCS rates and
charges. Independently, we conclude that those atypical costs or
expenses are excessive, and thus imprudent under the ``used and
useful'' framework, and thus not appropriate for inclusion in regulated
IPCS rates.
382. We also find that safety and security features offered solely
or chiefly to win contracts do not warrant recovery through regulated
IPCS rates. It is not uncommon for providers responding to requests for
proposals to offer enhanced safety and security measures that are not
specifically demanded by the correctional authority. Measures that
correctional institutions accept for free or in lieu of monetary site
commissions payments do not become a benefit to IPCS ratepayers by
virtue of that correctional facility's acceptance. Features not
included in requests for bids were clearly not considered critical to
IPCS by the correctional institutions themselves. We find persuasive
Worth Rises' reasoning that ``[t]he broad spectrum of elective safety
and security measures that IPCS providers offer'' have ``no
demonstrated, or at times even articulated, public benefit. These other
elective measures are nice-to-haves for corrections agencies, law
enforcement, and prosecutors and vary from agency to agency.'' Indeed,
we find that the costs of ``safety and security [that] are for the
benefit of `investigators, correctional administrators, prosecutors,
and other law enforcement officers''' are not appropriately borne by
IPCS ratepayers. We note that such features are also not used and
useful. Our evaluation of the 2023 Mandatory Data Collection responses
also supports assertions in the record that offering advanced safety
and security measures has become a chief means by which the largest
providers dominate the process correctional institutions use to select
IPCS providers. Indeed, while certain safety and security measures are
undoubtedly both used and useful in, and necessary for, the provision
of IPCS, the data raise questions whether and to what extent many of
the advanced safety and security measures may be more reflective of the
broken nature of competition in the dysfunctional IPCS marketplace and
tools certain providers use to gain advantages in winning contracts.
c. Assessing the Costs of Safety and Security Measures
383. Applying the standards described above, we reach reasoned
conclusions regarding the safety and security measures that primarily
benefit consumers and appropriately are included in regulated rates
under our used and useful analysis. Measures that serve only a law
enforcement function or provide no benefit to IPCS consumers are not
used and useful in the provision of IPCS. Costs that are used and
useful are used to calculate just and reasonable IPCS rate caps. Thus,
we do not exclude all safety and security costs from our ratemaking
calculus.
(i) Application of the Used and Useful Framework
384. We evaluate whether the costs of the seven categories of
safety and security measures set forth in the 2023 Mandatory Data
Collection should be included in IPCS rates by applying the used and
useful framework. As an initial matter, we reiterate that the used and
useful framework is flexible. Although the Commission has identified
``general principles regarding what constitutes `used and useful'
investment,'' it ``has recognized `that these guidelines are general
and subject to modification, addition, or deletion.'' The Commission
emphasized that ``[t]he particular facts of each case must be
ascertained in order to determine what part of a utility's investment
is used and useful.' '' The Commission ``may, in its reasonable
discretion, fashion an appropriate resolution that is tailored to the
specific circumstances before it.'' Moreover, courts typically defer to
the Commission's discretion on rate-related determinations. Pay Tel
overlooks this flexibility in arguing we have applied a ``newly-minted
`user benefit' standard'' in our application of the used and useful
framework to safety and security measures. As we have explained, the
used and useful framework, as applied for decades by the Commission in
its familiar ratemaking functions, is an equitable principle that
prevents ratepayers from having to pay for costs that are primarily
incurred for the benefit of the provider, while allowing regulated
entities to be compensated for providing service. We do not, as Pay Tel
suggests, depart from these core ratemaking principles in evaluating
safety and security measures under the used and useful framework here.
385. Additionally, to account for the facts that the categories of
safety and security costs in the 2023 Mandatory Data Collection are
imprecise, and that providers' allocations of their safety and security
costs are at times inexact among these categories, we evaluate
categories based on the nature of the preponderance of tasks or
functions within each category. If the predominant use of tasks and
functions within a category are not used and useful, the entire
category will be treated as not used and useful and excluded from the
lower bound of our zone of reasonableness. In addition to relying on
this procedure only for setting the lower bound for our range of
reasonable rates, we also note that we are adopting a waiver process to
accommodate providers in atypical circumstances that can demonstrate
grounds for recovery beyond that provided by our rate caps. We
acknowledge that the nature of safety and security measures is evolving
such that some measures that we determine are not generally used and
useful may be ``second or third generation implementations of the same
measures'' the Commission has found to be used and useful. As we
explain below, however, our conclusions in this regard are part of the
larger task of setting IPCS rate caps that are just and reasonable for
consumers and providers and that afford fair compensation to providers.
This task necessarily requires us to arrive at a reasonable end result
based on the record before us. And due to the imprecise nature of the
categories of safety and security measures and providers' reporting of
those costs, we find that, based on the record and core ratemaking
precedent, some costs of safety and security measures are not generally
used and useful. This is particularly true in situations where
providers allege that additional safety and security measures are
necessary to ensure that the safety and security measures we conclude
are used and useful function properly. We are skeptical of such claims.
For example, while certain providers claim that voice biometrics
services can be used to prevent fraud or the circumvention of calling
restrictions, the record does not indicate that voice biometrics
services primarily ensure the proper functioning of providers'
communications security services.
386. We find two categories of safety and security costs to be
generally used and useful--Category 1: CALEA compliance measures; and
Category 3: communications security services. We
[[Page 77315]]
conclude that the remaining five categories of safety and security
measures should not be treated as used and useful in setting a lower
bound on the range of reasonable rates. Specifically, categories 2 (law
enforcement support services); 4 (communication recording services); 5
(communication monitoring services); 6 (voice biometrics services); and
7 (other safety and security measures). In particular, in setting IPCS
rate caps, we include the costs of all safety and security categories
in the upper bounds of our zones of reasonableness, but include only
the costs of the two categories found to be generally used and useful
in the lower bounds of our zones of reasonableness.
387. We also adjust our rate setting within the zones of
reasonableness to develop overall rate caps that recognize the
imprecision of both the seven defined safety and security categories in
the 2023 Mandatory Data Collection, and the inconsistencies in the
narrative descriptions and varied allocations made in provider
responses. Securus overlooks this fact in complaining that the
Commission relies on the seven defined safety and security categories
in the 2023 Mandatory Data Collection. To the extent Securus's issue is
with the seven categories of safety and security measures from the 2023
Mandatory Data Collection, Securus and other interested parties were
free at any time, but particularly in response to the Commission's
Public Notice seeking comment on the 2023 Mandatory Data Collection, to
propose another method of collecting cost data regarding safety and
security measures. But Securus did not do so and actually conceded that
the cost categories the Commission proposed were ``similar to
categories employed in the Third Mandatory Data Collection.'' To the
extent IPCS providers did not allocate costs to those seven categories
(despite being instructed to perform allocations using their best
estimate), they did so with full knowledge that the Commission would
use the results of the data collection as a critical part of its
efforts to fulfill its obligations under the Martha Wright-Reed Act.
For example, IPCS providers' narrative responses to our request for
CALEA compliance information revealed confusion regarding which safety
and security measures were related to CALEA compliance, and few
providers identified any associated costs. CALEA requires that
telecommunications carriers and manufacturers of telecommunications
equipment design their equipment, facilities, and services to ensure
that they have the necessary surveillance capabilities to comply with
legal requests for information. Telecommunications carriers must
``ensure that [they] are capable of accommodating simultaneously the
number of interceptions, pen registers, and trap and trace devices'' as
requested by the Attorney General. The Commission has found that
interconnected VoIP providers also must comply with CALEA requirements.
However, it appears that some providers have allocated certain
functions, such as portions of call monitoring and recording, to other
categories, i.e., Category 4 (communications recording services) and
Category 5 (communications monitoring services), that likely should
have been allocated to the CALEA category insofar as they facilitate
the type of electronic surveillance required by CALEA. As referenced
above, CALEA was designed to ensure that law enforcement could conduct
electronic surveillance by requiring telecommunications carriers and
manufacturers of telecommunications equipment to ensure they have the
necessary surveillance capabilities. Because we are unable to
disaggregate the costs reported to these other categories to identify
precisely which portions of call monitoring and recording costs should
have been appropriately included in the CALEA category, we account for
these under-reported CALEA costs in setting our overall rate caps,
which have been adjusted accordingly. The same is true for safety and
security measures that providers have described as ``inherent'' or
built into their systems such that they do not have separate costs to
allocate. Because our upper and lower bounds include the costs of
safety and security measures that are inherent in IPCS providers'
platforms and which serve both IPCS-related and other purposes, we make
adjustments in setting our rate caps to reasonably attempt to ensure
that those caps do not over-recover or under-recover the costs of
safety and security measures.
388. In sum, we find that this three-step process--including all
reported safety and security measure costs in our upper bounds,
including only a portion of those costs in our lower bounds, and taking
the imprecision of those bounds into account in setting rate caps--
reasonably applies the used and useful framework to the record before
us. The resulting rate caps--the ``end result'' of our ratemaking--
reflect a balance that recognizes both the merits and shortcomings of
the commenters' positions on whether the costs of safety and security
measures should be recovered through IPCS rates. At one end of the
spectrum, some commenters urge us to set rate caps at levels that would
allow providers and facilities to recover all (or virtually all) the
costs they incur in providing safety and security measures. These
commenters correctly recognize that, for the most part, the safety and
security measures on which we need to make a judgment contribute toward
the provision of ``inmate telephone services and advanced
communications services'' in correctional institutions. But these
commenters fail to recognize that many of these measures also
contribute toward other purposes, including law enforcement and
investigative purposes that are only circumstantially related to the
provision of IPCS. At the other end of the spectrum, other commenters
would exclude virtually all safety and security measure costs from our
ratemaking calculus. These commenters focus on the law enforcement and
investigative purposes served by the safety and security measures
before us, while deemphasizing or ignoring the contributions the
measures make toward the safe provision of IPCS.
389. We do not adopt either extreme position. Instead, we apply the
used and useful standard, as articulated in core ratemaking precedent,
to evaluate all of the arguably recoverable costs in the record,
including costs associated with safety and security measures, to
distinguish those costs that should be included in our ratemaking
calculus from those that should not. In doing so, we arrive at a middle
ground that properly balances the ``equitable principle that public
utilities must be compensated for the use of their property in
providing service to the public'' with the ``[e]qually central . . .
equitable principle that the ratepayers may not fairly be forced to pay
a return except on investment which can be shown directly to benefit
them.''
390. Contrary to the characterizations of some commenters, our
actions today, and in particular our actions regarding safety and
security measures, are about fulfilling our obligation under the Martha
Wright-Reed Act to adopt a compensation plan for IPCS that ensures just
and reasonable rates and charges for IPCS consumers and providers and
fair compensation for IPCS providers. Our actions are not about
questioning or overriding the judgment of correctional officials or
``evaluat[ing] the credibility of [correctional officials'] decisions
regarding safety and security of [their] institutions.'' Nor do our
actions bar correctional authorities from
[[Page 77316]]
implementing any safety and security measures they deem necessary. Our
task is a narrow one: to determine the extent to which claimed IPCS
costs can be recovered through regulated rates charged to consumers.
And that is exactly what we do in applying bedrock ratemaking precedent
to evaluate all of the claimed IPCS costs and expenses in the record
before us to determine the extent to which consumers should bear those
costs. We reject as unsupported and speculative suggestions that our
approach to safety and security measures will result in less security
of IPCS communications generally and will facilitate criminal activity
using IPCS. We next discuss the application of the used and useful
standard to each category of safety and security costs.
391. Category 1: CALEA Compliance Measures. The instructions for
the 2023 Mandatory Data Collection directed providers to identify and
describe each of the safety and security measures that they took to
comply with CALEA. CALEA mandates that certain communications services
providers ``ensure that [their] equipment, facilities, or services that
provide a customer or subscriber with the ability to originate,
terminate, or direct communications are capable of'' intercepting
communications, providing the Federal government with access call-
identifying information, and delivering intercepted communications and
call-identifying information to the Federal government. Although we are
not persuaded that the functionalities associated with CALEA compliance
generally would directly benefit IPCS users, under the current
regulatory status quo we nonetheless find that the costs related to
CALEA compliance measures are used and useful in the provision of IPCS.
Pay Tel takes issue with the Commission's determination that costs
associated with CALEA compliance measures are used and useful while
indicating that these measures generally may not directly benefit IPCS
consumers. As we note above, however, the used and useful standard is a
flexible standard, allowing the Commission to ``fashion an appropriate
resolution that is tailored to the specific circumstances before it.''
Here, given the legal obligations associated with CALEA, we determine
that such costs are used and useful in the provision of IPCS. Pay Tel
further argues that in the same way CALEA is a legal requirement, IPCS
providers ``are also required by the facilities which they seek to
serve to employ a range of safety and security measures.'' This
argument is unavailing. A requirement imposed by a law passed by
Congress is quite different from a contractual ``requirement'' that
results from the commercial negotiations between parties to a contract.
First, without CALEA compliance, IPCS providers could not offer their
audio or certain advanced communications services. CALEA requires that
telecommunications carriers and manufacturers of telecommunications
equipment design their equipment, facilities, and services to ensure
that they have the necessary surveillance capabilities to comply with
legal requests for information. The Commission has found that
interconnected VoIP providers also must comply with CALEA requirements.
We thus disagree that IPCS providers, to the extent they provide
telecommunications services and VoIP services, are exempt from CALEA
compliance. When the Commission considered payphone providers,
generally, as exempt from CALEA, the Commission was not intending to
sweep in those same payphone providers to the extent they were also
telecommunications services providers or VoIP providers. Contrary to
Securus's claim that we have departed from Commission precedent without
proper notice, we are not modifying such precedent. To the extent that
IPCS providers offer both payphone services and audio communications
services, including telecommunications services and VoIP, they have
been, and remain, subject to CALEA requirements. This includes the
ability to enable the government to monitor and record communications
``pursuant to a court order or other lawful authorization.'' We note
that the monitoring and recording requirements associated with CALEA
are significantly more limited than those services included in
Categories 4 and 5. We find the costs of those limited monitoring or
recording services to be used and useful in the provision of IPCS. This
is in stark contrast to the constant and pervasive communications
recording and monitoring within correctional facilities for all
communications--services that far exceed the requirements of CALEA. As
Worth Rises explains, ``CALEA compliance is required of all
telecommunications carriers and providers of interconnected voice over
internet protocol services, not just providers of IPCS.''
392. Second, under the regulatory status quo the Commission
previously has held that CALEA compliance costs appropriately can be
recovered through user charges. In particular, the Commission has
previously held that telecommunications carriers and interconnected
VoIP providers ``may absorb the costs of CALEA compliance as a
necessary cost of doing business, or, where appropriate, recover some
portion of their CALEA . . . implementation costs from their
subscribers'' for compliance measures taken after January 1, 1995. To
the extent IPCS providers obtain transmission services from third
parties, the rates they pay likely include charges for those third
parties' CALEA compliance costs.
393. IPCS providers also may be required to perform discrete tasks
to comply with CALEA. Any such tasks also facilitate the provision of
IPCS because IPCS providers must comply with CALEA as a precondition to
offering audio services and certain advanced communications. We,
therefore, conclude, based on the record, that costs providers incur as
a result of CALEA compliance are used and useful in the provision of
IPCS. Securus argues that the Commission's conclusion that CALEA costs
are used and useful ``adds nothing to the rate caps'' because providers
allocated relatively small amounts of such costs to CALEA in the 2023
Mandatory Data Collection. Simply because providers did not allocate
significant amounts to CALEA compliance is not a basis on which to
conclude that such costs are irrelevant to our ratemaking. As noted
above, we evaluate all safety and security cost data in the record
before us. For the same reasons, we also conclude that costs IPCS
providers incur in complying with CALEA are prudently incurred.
394. Category 2: Law Enforcement Support Services. The instructions
for the 2023 Mandatory Data Collection directed providers to identify
and describe each of their safety and security measures that they
classified as a law enforcement support service. These ``services
include, but are not limited to, the administration of subpoenas, the
administration of crime tip lines, the administration of informant
lines, and the maintenance of data repositories for use by law
enforcement personnel.'' In their responses to the 2023 Mandatory Data
Collection, providers identified certain law enforcement support
services. We find that law enforcement support services are generally
not used and useful in the provision of IPCS because they do not
facilitate the provision of IPCS. Rather, as the record makes clear,
these services are primarily intended to serve law enforcement
purposes. Providers' own descriptions of their law
[[Page 77317]]
enforcement support services support this conclusion. For example, the
record shows that such services include tasks such as ``search warrant
processing'' and ``Freedom of Information Act (FOIA) request
processing.'' Also included in this category are call transcription
services, which are primarily used to create databases for law
enforcement to conduct investigations and assist with case building.
Some commenters claim these services assist in minimizing crime and
identifying potential violators, functions that primarily serve law
enforcement purposes and do not facilitate or enable the provision of
IPCS. We recognize that some functions within this category may provide
a benefit to incarcerated people, such as the administration of
tiplines to anonymously report crimes and connect incarcerated people
with Prison Rape Elimination Act (PREA) report centers; however, they
do not facilitate the provision of IPCS and are therefore not used and
useful in the provision of IPCS. In other words, communications
services for incarcerated people are able to take place without these
services and we generally do not find that these functions benefit IPCS
users in their use of IPCS in a way that makes it equitable for them to
bear the costs of these functions in regulated IPCS rates.
395. Category 3: Communications Security Services. The instructions
for the 2023 Mandatory Data Collection directed providers to identify
and describe each of their safety and security measures that they
classified as a communications security service. These ``services
include, but are not limited to, implementing measures that allow an
Incarcerated Person to call only certain individuals or numbers;
implementing measures that limit the individuals or numbers an
incarcerated person may call; providing personal identification numbers
(PINs) to incarcerated people; providing disclaimers to called parties
regarding communication origination; implementing communication-
acceptance procedures; preventing three-way communications; preventing
chain communications; dual-tone multifrequency detection; manual call
control for the Facility; tracking frequently called numbers;
implementing incoming communication restrictions; and fraud
management.'' In their 2023 Mandatory Data Collection responses,
providers identified certain communications security services. Based on
the record, we find that the functions included in the communications
security services category are generally used and useful in the
provision of IPCS. Most of the functions that providers classify as
communications security services are safety and security measures that
the Commission has traditionally found to be ``inherent'' in
communications services for incarcerated people. Such functions include
the development of pre-approved ``allow'' lists, preventing three-way
communications, and fraud management. These basic functions are
directly related to the underlying communications service and do not go
beyond that required to enable or appropriately limit the customer's
use of the underlying communications service in a correctional
institution. These basic safety and security functions prevent witness
tampering and violations of no-contact orders, and protect consumer
accounts from being used unlawfully. They also benefit consumers of
IPCS by ensuring that communications services can be safely and
securely offered in an incarceration setting. Contrary to Securus's
claim that we ignore the benefits of such safety and security measures
to ``incarcerated people and their friends and family,'' we recognize
that the ``establishment of PIN numbers, limiting calls to certain
preapproved numbers, and preventing call forwarding or three-way
calling'' are used and useful to the provision of IPCS and are
recoverable in our rate caps. We find that costs associated with this
category of basic safety and security measures are generally used and
useful. At the same time, the record does not provide a reason to
question the communications security services costs reported in the
2023 Mandatory Data Collection or otherwise determine them imprudent.
396. The Commission has long held that there are legitimate reasons
for certain safety and security measures that facilitate or enable the
provision of communications services in the correctional environment.
Services in this category appear to be universally offered by IPCS
providers and are a standard part of all IPCS offerings. Based on the
record before us, and consistent with the Commission's previous
discussions, we find that these communications security services are
inherent in the provision of IPCS and are the key factors
distinguishing IPCS communications from those communications of the
general public, which do not require such services. For example,
measures such as pre-approved numbers lists, blocking three-way
communications, and the use of PIN numbers to help ensure that the
incarcerated individual associated with the account is initiating the
communication facilitate the provision of communications services in
correctional institutions by preventing calls to inappropriate parties
such as judges or witnesses and protecting against fraud. These
functions are distinguished however from other duplicative and
expensive functions that go way beyond what is necessary to accomplish
these objectives and that we consider not used and useful.
397. One commenter argues that communications security services are
not used and useful ``as they are designed and intended to restrict the
access that incarcerated people and their loved ones have to
communications.'' While we agree that call blocking functionalities
impose restrictions on who incarcerated people can communicate with,
such measures are required to facilitate the provision of
communications services in the carceral setting. As the Commission
explained in the 2013 ICS Order, ``a disproportionately large
percentage of ICS-enabled crimes target and victimize vulnerable
populations consisting of victims, witnesses, jurors, inmates, and
family members of these individuals.'' We find that the safety and
security measures included in the communications security services
category, such as blocking mechanisms and call allow lists, ensure the
safety and security of IPCS by appropriately balancing the need to
protect public safety against ensuring that incarcerated people can
stay connected with their loved ones.
398. Category 4: Communications Recording Services. The
instructions for the 2023 Mandatory Data Collection directed providers
to identify and describe each of their safety and security measures
that they classified as a communications recording service. These
category 4 services ``include, but are not limited to, providing a
disclaimer regarding recording of communications, recording of
communications, and storage of recorded communications.'' In their 2023
Mandatory Data Collection responses, providers identified a number of
specific communications recording services. We find that communications
recording services included in this category generally are not used and
useful in the provision of IPCS. These services are primarily used to
police the contents of all communications or to gather information for
law enforcement purposes. Providers describe these services as
including functions such as storing recorded communications,
transcribing such recordings, and converting recordings into digital
[[Page 77318]]
formats to support investigation and litigation activities. None of
these services actually facilitate the provision of IPCS. Further,
certain providers' communications recordings services
{[REDACTED]{time} and create downloadable recordings of all IPCS in a
variety of digital formats. These latter functions are wholly avoidable
to the provision of communications services in correctional
institutions and are therefore not used and useful.
399. Some commenters explain that the cost of storing these
recordings is ever increasing, particularly for video communications.
Although the Commission suggested in the 2013 ICS Order that it would
``likely find the costs of the storage of inmate call recordings''
recoverable in the context of those recordings being used in court
proceedings, the Commission subsequently questioned that position based
on several factors reflecting the significant evolution of the industry
since that time. First, the Commission could not have predicted that
audio recordings would be stored for years or in perpetuity and the
cost of that storage would be rolled into IPCS consumer rates. Also,
video communications were not even within the scope of the Commission's
inmate calling services regulations; nor was the use of video
communications as prevalent as it is today. Finally, the Commission has
a considerably more developed perspective on the industry given the
current, more extensive record, including its recent mandatory data
collections. With this more complete record and exercising our full
authority over video communications services consistent with the Martha
Wright-Reed Act, we are not persuaded that the costs of storing
communications recordings for which we are not generally including the
costs of the recordings in the first place, are generally used and
useful in the provision of IPCS. Similarly, we share Worth Rises's
concerns that the high cost of storage could incentivize providers to
``artificially cause calls to drop, which allows them to collect the
full cost of a video call and save on the storage that full video call
recording would cost them.'' Nor do we conclude that the rising costs
of these features justify including them in the rates paid by the IPCS
consumers.
400. Next, some providers argue that communications recording
services facilitate the provision of IPCS. For example, one provider
explains that it uses ``call recording analysis'' to ensure that
incarcerated people are not using its communications services to
intimidate judges and witnesses. Other providers use call recordings to
verify that the incarcerated person participating in a communication
was the person whose PIN was used to originate the communication and to
resolve complaints regarding the charges for specific communications.
While such uses of communication recording services may be generally
beneficial, the record contains no evidence to suggest that these
services actually facilitate the provision of IPCS and are not just
redundant features to the blocking and PIN number administration
purposes that we do recognize as recoverable costs. On balance, then,
we conclude that for the most part these functions suit general law
enforcement needs rather than providing capabilities necessary or
beneficial to IPCS ratepayers in their capacity as IPCS users.
Consequently, we conclude this category generally fails to meet the
used and useful test. As an independent, alternative basis for our
decision, to the extent that these features are supplemental ways of
addressing concerns already addressed by safety and security measures
the costs of which we have found used and useful above, we conclude
that incurring these additional costs to serve the same ends are
excessive as far as IPCS is concerned, and thus imprudent.
401. Category 5: Communications Monitoring Services. The
instructions for the 2023 Mandatory Data Collection directed providers
to identify and describe each of their safety and security measures
that they classified as a communications monitoring service. These
services ``include, but are not limited to, live or real-time
monitoring of communications; automatic word detection; communication
transcription; and analysis of recordings, which may also include
keyword searches.'' In their 2023 Mandatory Data Collection responses,
providers identified a number of specific communications monitoring
services. We find that communications monitoring services generally are
not used and useful in the provision of IPCS because they primarily
serve a law enforcement purpose, not a communications purpose, and they
generally do not benefit ratepayers in their capacity as consumers of
IPCS. As the record makes clear, communications monitoring costs are
``part of carceral functions, not communications functions.'' Indeed,
IPCS providers ``advertise their surveillance add-ons as
`investigative' tools `designed to identify potential criminal
activity.' '' And, despite claiming that ``surveillance fits
comfortably within the rubric of safety and security measures,'' the
National Sheriffs' Association acknowledges that ``surveillance is not
necessarily conducted expressly or solely for safety or security
purposes.''
402. One commenter notes that the Commission has previously
recognized that `` `security features such as call recording and
monitoring' . . . `advance[ ] the safety and security of the general
public.' '' The National Sheriffs' Association argues that
``surveillance fits comfortably within the rubric of safety and
security measures.'' We find the National Sheriffs' Association's
reliance on the Second Circuit's decision in Amen to be misplaced. That
court's finding, after considering the Fourth Amendment, that there is
a legitimate security concern linked to call monitoring is distinct
from whether the IPCS consumers must pay for call monitoring costs
through IPCS rates. For the same reason, we find unpersuasive FDC's
reliance on other judicial precedent and Florida law for the same
reason. While we accept as true that the Florida legislature has
granted FDC jurisdiction over all matters related to correctional
institutions in Florida, nothing in these cases or Florida law requires
that IPCS consumers bear the costs of any particular safety and
security measure that facilities choose to implement. The Commission
has also described the monitoring of frequently called numbers to
prevent incarcerated people from ``evad[ing] calling restrictions via
call-forwarding or three-way calling'' as being part of inmate calling
services. We are not persuaded by these arguments because these
statements were based on the record at the time they were made and do
not reflect the evolution of the industry and the proliferation of such
services during the course of this proceeding.
403. The current record, including data and information submitted
by IPCS providers, reveals that call monitoring has evolved and
expanded significantly and is now predominantly ``used to aid
investigations related to detention facilities,'' ``aid corrections
agencies and law enforcement in `investigation and litigation
activities,' '' and ``provide[ ] for skilled investigators.'' One
provider describes its audio monitoring services as including an alert
system ``mostly configured before the incarcerated person has been
prosecuted and evidence is still being gathered.'' Not surprisingly,
the data submitted by IPCS providers demonstrate that communications
monitoring services have become a significant profit center for at
least some providers. While communications monitoring services are
argued to be a tool for keeping
[[Page 77319]]
incarcerated people from calling blocked numbers and from engaging in
three-way calling, enabling the full recovery of costs for these
monitoring services would amount to significant over-recovery for
providers, given that we already include the recovery for the costs of
providing the call blocking and limitation on three-way calling
capabilities in our rate caps. We find, on balance, that call
monitoring services, for the most part, are primarily used for law
enforcement or investigative purposes, and therefore are generally not
used and useful in the provision of IPCS. As an independent,
alternative basis for our decision, to the extent that call monitoring
services are, in part, used to supplement measures like call blocking
and limitation on three-way calling capabilities for which we already
allow recovery, we conclude that incurring these additional costs to
serve the same ends are excessive as far as IPCS is concerned, and thus
imprudent.
404. Category 6: Voice Biometrics Services. The instructions for
the 2023 Mandatory Data Collection directed providers to identify and
describe each of their safety and security measures that they
classified as a voice biometrics service. These category 6 services
``include, but are not limited to, voice printing, voice
identification, continuous voice verification, and voice databasing. In
their 2023 Mandatory Data Collection responses, providers identified a
number of specific voice biometrics services. We next conclude that
voice biometrics services are elective safety and security measures
used predominantly for general law enforcement purposes that do not
facilitate the provision of IPCS. Inmate calling services pre-date the
availability of Voice Biometrics. Voice biometrics services are
likewise not used, or even offered, universally, in many cases being an
elective feature only. As such, they generally are not used and useful
in the provision of IPCS. This treatment of voice biometrics services
is also supported by several commenters that expressly oppose recovery
of the costs of voice biometrics services through our rate caps.
405. Certain providers claim that their voice biometrics services
are used and useful in the provision of IPCS in that they help prevent
fraud and the circumvention of calling restrictions by preventing
incarcerated people from passing a call to another person, and they
help validate that the ``rightful owner of [a] PIN'' is placing the
call. Some of those same providers, however, also describe using these
services as furthering more general law enforcement purposes, including
``generati[ng] targeted investigative leads,'' ``help[ing]
investigators find correlations among calls,'' and {[REDACTED]{time} .
Voice biometrics recordings also are subject to being rolled up into
voice print databases and marketed as a broader investigative tool for
general law enforcement and surveillance purposes.
406. As Securus explains, ``[e]arly IPCS was typically provided by
on-site operators that would handle the approval and connection of
collect calls placed by incarcerated persons.'' Over time, the market
for safety and security measures has evolved with one of those
``advances'' being the development of voice biometrics. The fact that
IPCS has historically been offered without capabilities like voice
biometrics undercuts the notion that these capabilities are required
for the provision of IPCS. And, as Securus notes, demand for features
like voice biometrics ``has largely been driven by facilities,''
suggesting that these measures are elective and do not actually prevent
consumers from using IPCS if they are not available or used. For these
reasons, we find that voice biometrics services as a category generally
are not used and useful in the provision of IPCS. As an independent,
alternative basis for our decision, to the extent that voice biometrics
services are, in part, used to supplement fraud prevention and calling
restriction measures for which we already allow recovery, we conclude
that incurring these additional costs to serve the same ends are
excessive as far as IPCS is concerned, and thus imprudent.
407. Category 7: Other Safety and Security Measures. The
instructions for the 2023 Mandatory Data Collection directed providers
to identify and describe each of their safety and security measures
that were not included in any of the prior six categories. These
services ``include, but are not limited to, reporting obligations,
acquisition of patents to support safety and security technologies, and
research and development of new safety and security technologies.'' In
their 2023 Mandatory Data Collection responses, providers identified a
number of specific safety and security measures. We find that other
safety and security measures as a category are generally not used and
useful in the provision of IPCS. The instructions to the 2023 Mandatory
Data Collection established this category as a catch-all category for
providers to allocate the costs of safety and security measures that
did not fit into the other categories and to ensure that providers
reported the costs of all their safety and security measures. As a
result, the tasks or functions reported in this category are varied and
diverse. However, few, if any, of the safety and security measures
reported in this category serve even a nominal communications function.
For example, one provider includes access to a free law library, while
another reports that it provides ``a postal mail scanning service in
some facilities.'' These services also ``help[ ] correctional agencies
generate targeted investigative leads . . . create `actionable
intelligence' for federal law enforcement . . . [and] flag calls in
which incarcerated people discussed contacting media about cover-ups of
COVID-19 outbreaks.'' Based on the record, we are persuaded that the
safety and security measures included in this category either largely
serve a law enforcement function or, to the extent they do not serve a
law enforcement function, also do not facilitate the provision of IPCS.
As a result, we conclude that the safety and security measures included
in this category generally are not used and useful.
8. Ancillary Service Charges
408. We eliminate all separately assessed ancillary service charges
for IPCS and, instead, allow for the recovery of the costs of ancillary
services as reported by providers through the rate caps we adopt today.
In 2022, the Commission sought comment on whether some or all ancillary
services are inherently part of inmate calling services and, if so,
whether it should include the costs of those services in its rate cap
calculations and preclude providers from imposing separate charges in
connection with those services. Based on the record, we conclude that
the best means of discharging our mandate to establish a compensation
plan that ensures both just and reasonable IPCS rates and charges, as
well as fair compensation for providers is to allow recovery of the
costs of ancillary services within our overall IPCS rate caps. In doing
so, we eliminate a source of consumer confusion and detrimental
provider practices while ensuring that providers have the opportunity
to recover their used and useful costs of providing ancillary services.
a. The Commission's Prior Treatment of Ancillary Service Charges
409. The Commission has long recognized the economic burden that
unreasonably high ancillary service charges impose on incarcerated
people and their loved ones. Those charges have been a continuous
source of confusion and gamesmanship, significantly increasing the
costs of IPCS
[[Page 77320]]
``because incarcerated people and their families must either incur them
when making a call or forego contact with their loved ones.'' As one
commenter explains, ancillary service charges ``can increase the cost
of staying in touch with loved ones by 40%.'' Deposits consumers make
in their accounts can be ``consumed'' by ancillary service charges,
which can dramatically reduce the amount of call time available to
consumers for a given amount of account funds.
410. The Commission's prior reform efforts limited the ancillary
services for which providers could assess separate charges and capped
those ``permissible'' charges, in an effort to foreclose providers'
``incentive and ability to continue to extract unjust and unreasonable
ancillary service charges.'' The Commission permitted five types of
ancillary service charges--automated payment fees, third-party
financial transaction fees, live agent fees, paper bill/statement fees,
and single-call and related services fees. As examples, under the 2015
ICS Order, the cap for single-call and related services was ``the exact
transaction fee charged by the third-party provider, with no markup,
plus the adopted per-minute rate,'' and the capped third-party
financial transaction fee was ``the exact fees, with no markup that
result from the transaction.'' The Commission cautioned that it was
``mindful of and concerned about the potential for continued abuse of
ancillary service charges, and [would] monitor the implementation of
these caps and determine if additional reforms are necessary in the
future.''
411. In the 2021 ICS Order, in response to allegations of inmate
calling service provider abuses, the Commission responded to the need
for further ancillary service charge reform specifically for the third-
party fees for single-call and related services and third-party
financial transactions. The Commission reasoned that fixed, interim
caps of ``$6.95 per transaction'' were necessary to discourage
providers from seeking out, as part of revenue-sharing schemes,
artificially high rates for these services from third parties. In 2021,
the Commission highlighted record evidence concerning the assessment of
duplicate ancillary service charges for individual transactions and
sought comment on whether providers were assessing both automated
payment fees and third-party transaction fees for individual credit
card or debit card transactions. The Commission expressed concern that
providers were exploiting ambiguities in the rules to engage in such
``double dipping,'' and sought comment on whether the Commission's
rules were sufficiently clear in prohibiting providers from assessing
multiple ancillary service charges per transaction or should be amended
to implement such a prohibition.
412. In the 2022 ICS Order, in response to further allegations of
harmful provider practices associated with third-party fees, the
Commission set $3.00 as the maximum amount that providers could pass
through to consumers for single-call and related services and any
third-party financial transactions where the transaction involves the
use of an automated payment system, and set $5.95 as the maximum pass-
through amount where the transaction involves the use of a live agent.
In setting these caps, the Commission sought to address concerns raised
by commenters that the caps on third-party fees adopted in 2021
``simply encourage[d] some carriers to steer customers toward
unnecessarily expensive calling options.''
413. In 2022, the Commission sought comment on whether it should
eliminate ancillary service charges as separate fees and instead
include the costs of those services in its overall rate cap
calculations. The Commission also sought comment on how it might use
data from the Third Mandatory Data Collection to set reasonable
ancillary service caps in the event it decided to continue to allow
separate ancillary service charges. The Commission asked, in
particular, whether the data providers had submitted in response to the
Third Mandatory Data Collection ``provide[d] a reasonable allocation of
costs between inmate calling services and various ancillary services''
that would allow it to set reasonable cost-based ancillary service
caps. Finally, the Commission asked how it should revise its rules to
prevent detrimental practices, such as ``double dipping,'' associated
with any ancillary service charges that it continued to permit. In
2023, the Commission reiterated these requests for comment in light of
enactment of the Martha Wright-Reed Act, and sought comment on whether
ancillary service charge caps should apply uniformly to all audio and
video incarcerated people's communications services.
b. Eliminating All Separate Ancillary Service Charges
414. We conclude that our compensation plan for IPCS should allow
providers to recover their costs of providing ancillary services
through per-minute rate caps, rather than through separate ancillary
service charges. We therefore eliminate all separately assessed
ancillary service charges for IPCS, including any ancillary service
charges associated with intrastate IPCS. To the extent that providers
assess ancillary services charges for their own services or on behalf
of facilities, such fees are now prohibited. For example, in Arizona,
``[a]ll adult visitors applying for in-person/phone, and video visits
must pay a one time, non-refundable, $25.00 background check fee.'' To
process this Visitation Application, some providers charge additional
ancillary service fees. To ensure that providers have an opportunity to
recover their costs of providing ancillary services, we include
providers' reported ancillary service costs from the 2023 Mandatory
Data Collection in the used and useful IPCS costs that we use to set
the rate caps we adopt in the Report and Order.
415. Recognizing that Ancillary Services Are Inherently Part of
IPCS. These actions reflect four independently sufficient findings.
These findings apply equally to audio and video IPCS because, as
certain commenters explain, the utility and costs of providing
ancillary services do not vary between types of services. First, we
find that all ancillary services associated with IPCS, including the
five types of ancillary services for which our inmate calling services
rules presently permit separate charges, are inherent in the provision
of IPCS. In 2022, the Commission sought comment on whether ``some or
all'' of the permissible ancillary services are ``an inherent part of
providing inmate calling services,'' such that the Commission should
continue to ``include those costs in [the] per-minute rate cap
calculations and eliminate some or all charges for ancillary
services.'' To a large extent, the permissible ancillary services
reflect routine internal business functions, such as internal computer
processing and other back office, in-house functions inherent in
providing a consumer-facing service. For example, automated payment
fees are, by definition, fees for IPCS providers' internal ``credit
card payment, debit card payment, and bill processing'' that are basic
back office functions that are a routine part of providing a
communications service. Given the historical backdrop of problems that
have arisen from separately-imposed ancillary service charges in this
context, we find that providers should not be allowed to treat payment
for IPCS as a service--separate and apart from IPCS service itself--for
which a separate charge is assessed.
416. The other permissible ancillary services--third-party
financial
[[Page 77321]]
transaction fees, live agent fees, paper bill/statement fees, and
single-call and related services fees--relate primarily to how
consumers are billed for and pay for IPCS, and thus also are inherently
part of IPCS. Although these ancillary services may have qualified as a
``convenience'' in 2015 when the Commission first identified them in
its rules, the record indicates that they are now the predominant means
by which consumers gain access to IPCS. While alternative methods of
funding an account remain available (e.g., by check or money order),
automated payment or money transmitter services are ``an intrinsic
part'' of accessing and using IPCS, as is the case with most other
services in the 21st-century economy. Indeed, one provider has pointed
to the decreased usage of collect calls, and its alternative payment
mechanisms, in support of its proposal that the Commission eliminate
the fee for paper statements. In short, ``incarcerated people and their
families must either incur [these charges] when making a call or forego
contact with their loved ones.''
417. We recognize, of course, that an IPCS user may contact a live
agent, request a paper bill, or otherwise interact with an IPCS
provider regarding matters other than routine billing and collection.
For instance, an IPCS account holder may wish to speak with a live
agent to complain about the service quality on video communications, to
learn about the provider's alternate pricing plans, or to obtain a
refund of money from an inactive account. We find that these other non-
billing and collection interactions also are inherent in the provision
of IPCS, in much the same way that similar interactions are inherent in
products and services provided outside the IPCS context. As such, we
conclude that the costs of these interactions should be recovered
through IPCS rates, rather than ancillary service charges that have
been an ongoing source of harm in the IPCS context.
418. Eliminating Incentives for Abuses. Second, we find that
continuing to allow providers to impose separate ancillary service
charges would create an incentive for providers to continue to engage
in practices that unreasonably burden consumers and effectively raise
the cost of IPCS. Although the Commission has previously restricted the
type and amount of ancillary service charges, providers are still
``motivated to exploit every available opportunity to continue deriving
unreasonable profits from such fees.'' A rate structure that eliminates
all separate ancillary service charges while still allowing providers
to recover the costs of these functions will eliminate the incentive
and ability for providers to charge multiple fees for the same
transaction, as a way of exacting revenue from consumers that far
exceeds their actual costs of completing the transaction, a problem
that is well-documented in the record. The record reflects substantial
debate or confusion as to whether--and if so, under what
circumstances--multiple fees can be charged for a single transaction,
and more generally, what activity the payment-related fees were
intended to encompass. Because we eliminate all ancillary service
charges associated with IPCS, we find it unnecessary to resolve this
dispute in this rulemaking. By including providers' reported costs of
all ancillary services into our rate caps and eliminating providers'
ability to charge for them separately, we also remove the incentive for
providers to ``double dip'' in this manner, mooting related concerns in
regard to our existing rules and eliminating consumer confusion arising
from these practices.
419. We similarly eliminate the ability of providers to engage in
other rent-seeking activity described in the record, including concerns
that providers may ``steer'' consumers to a more expensive single-call
option for an incarcerated person's initial call after incarceration in
an effort to artificially inflate revenues through single-call fees.
Commenters describe circumstances where providers charged multiple
single-call fees when calls were disconnected and reconnected, or where
a provider ``charge[d] a billing statement fee as a matter of course
without offering an option of providing a free electronic copy,'' and
several other rent-seeking practices. These practices undermine the
intent of our rules and merely inflate providers' revenues well beyond
costs at the expense of consumers while providing no additional
consumer value.
420. Recognizing the Limitations of Providers' Ancillary Services
Cost Data. Third, we find that the limitations inherent in providers'
reported ancillary service charge data preclude our setting reasonable,
cost-based caps on individual ancillary service charges. In the 2021
ICS Order, the Commission found that the data before it provided ``no
reliable way to exclude ancillary service costs'' from the calculations
for the provider-related rate cap component, resulting in interim rate
caps that included the costs that consumers were also paying through
ancillary service fees. The Commission was unable to ``isolate with any
degree of accuracy'' the costs of providing ancillary services because
the instructions for the Second Mandatory Data Collection required
providers to report certain ancillary service revenues separately, but
did not require providers to report their ancillary service costs
separately from other inmate calling services costs. Further, those
instructions did not require providers to separately report costs
relating to any specific ancillary service, and no commenter suggested
a way of identifying the providers' ancillary service costs. To correct
for this problem, in the 2023 Mandatory Data Collection, providers were
required to follow detailed instructions in allocating their costs to,
and among, their permissible ancillary services. In contrast to the
Second Mandatory Data Collection, the instructions for the 2023
Mandatory Data Collection required providers to report their costs of
each ancillary service separately. But, as made clear in a technical
appendix, providers failed to reliably or consistently allocate their
costs among the various ancillary services. This makes it impossible
for us to assess reliable costs for each individual ancillary service.
Incorporating all of these reported costs into our rate cap
calculations avoids the risk of setting individual caps for each
ancillary service charge that fail to reflect providers' actual costs,
while still ensuring the providers are able to recover their costs
through our rates. By incorporating providers' reported ancillary
service charge costs into our rate cap calculations, we ensure they
have an opportunity to recover, but not double recover, their actual
costs of providing ancillary services. Additionally, by including
providers' costs of providing ancillary services in our rate caps, we
effectively exclude from our rate cap calculations the amount by which
providers' revenues from ancillary service charges unreasonably
exceeded their costs.
421. Additional Benefits. Fourth, we find that incorporating
providers' ancillary service costs into our rate cap calculations will
benefit both consumers and providers. As an initial matter, that
approach will result in a rate structure that will be easier for
consumers to understand and for providers to administer, while still
allowing providers to recover any used and useful costs they incur in
providing ancillary services. It will simplify providers' record
keeping and billing processes, easing the administrative burdens on
providers and reducing the burdens on consumers as they seek to
[[Page 77322]]
understand any charges to their IPCS accounts.
422. We likewise find that incorporating ancillary service costs
into our rate cap calculations will align rates and charges more fairly
with actual user activity. Commenters point out the seeming
unreasonableness and disproportionality of imposing a $3.00 fee for
automated single call and related services for a call that may be of
short duration, or passing through similar fees for smaller deposits,
causing consumers to ``lose a significant amount'' of their account
deposits through such fees. Incorporating ancillary service costs into
our rate caps spreads those costs across all calls and communications,
ensuring that the cost of any particular communication for any IPCS
consumer is more proportionate to its duration.
423. Even beyond those direct effects on IPCS rates and charges, we
also eliminate certain incentives for consumer behavior that our
current fee structure would perpetuate, such as avoiding a live agent
or transferring funds to relatives less frequently in an effort to
avoid such charges. Our actions today reduce these barriers to
communication, resulting in a compensation plan ensuring just and
reasonable rates and charges--and fair compensation for providers--in a
way that best benefits the general public. Our actions also better
align with similar services in the non-carceral communications context.
As one commenter explains, ``[m]ost telephone corporations and other
utilities provide customer services for free, including services such
as speaking with a live agent to set up an account, adding money to an
account, or assisting with making a call.'' Similarly, by incorporating
the reported costs of paper bills into our rate cap calculations, we
align IPCS billing practices more closely with telecommunications
billing practices outside of the carceral context, where separate
charges typically are not assessed for paper bills.
424. Finally, we find that incorporating ancillary service costs
into our rate cap calculations aligns our rate and fee structure more
effectively with broader patterns in the IPCS industry while
recognizing the diminishing usage of certain ancillary services. As the
Commission has previously observed, several states have already banned
ancillary service charges, either piecemeal or outright. For example,
several providers assert they rarely charge a paper bill fee as few
consumers require paper bills, even proposing that this fee be
eliminated. At least one provider no longer charges a live agent fee,
having switched to an automated system during the pandemic. Meanwhile,
some providers have shifted from offering single-call services through
third parties (as defined in our rules) to instead provide these
services themselves. Other commenters propose eliminating the single-
call fee entirely. The record further suggests that the single-call
service, which ostensibly offers the convenience of completing initial
contact without setting up an account, may in practice offer little
benefit to consumers, as the called parties still have to enter their
payment card information to accept the call. Our actions are consistent
with our recent initiative requiring cable and direct broadcasting
satellite operators to offer ``all-in'' prices to consumers so that
consumers have a transparent and accurate reflection of the total cost
of services, inclusive of all additional fees.
425. Some commenters object to the approach of incorporating
ancillary service costs into our rate cap calculations. Those
commenters argue that this methodology ``does not reflect the manner in
which costs are caused by users of the service,'' and ``would impose
costs for payment processing on all consumers, rather than just those
consumers directly responsible for the cost.'' We are unpersuaded. We
find that most of these functions have become ``an intrinsic part of
providing'' IPCS because they provide IPCS consumers the means to
obtain IPCS, such that consumers typically ``must either incur [these
charges] when making a call or forego contact with their loved ones.''
For the same reason, we are not persuaded by Securus's implicit
argument that the current ancillary fees are offered ``as a convenience
to incarcerated persons or their friends and family and are not
intrinsic to the provision of ICS.'' Certain ancillary service charges,
for example those for automated payment services, are costs that are
either universally or near universally incurred by consumers. But it is
not necessary that these services be used by ``all consumers''; the
fact that these services can operate as a threshold, coupled with the
factors identified above that support ancillary service cost recovery
through per-minute IPCS rate caps, will ensure that our approach
provides for just and reasonable rates for consumers and providers,
while also providing appropriate cost recovery for providers. In the
2015 ICS Order, the Commission found that single-call services were not
``reasonably and directly related to the provision of ICS'' because
they ``inflate the effective price end users pay for ICS and result in
excessive compensation to providers.'' We find that this pattern has
been ameliorated, in part, by the changes to single-call fees adopted
in the 2021 ICS Order and 2022 ICS Order; we also recognize that
providers incur some amount of legitimate costs for providing this
service, which for at least some consumers may offer a crucial means of
completing an IPCS communication. At the same time, we find that the
continuing abuse of this fee described in the comment record, supports
elimination of the single-call fee as an independent charge.
426. Further, commenters opposing the elimination of separate
ancillary service charges ignore the other factors that make it the
best means of ensuring just and reasonable IPCS rates and charges. As
discussed above, each of the other factors supporting our approach--the
need to eliminate incentives for providers to assess unreasonable
ancillary service charges, the impossibility of setting reasonable
ancillary service charge caps given the limitations on the data on
ancillary service costs providers reported in response to the 2023
Mandatory Data Collection, and the additional public interest benefits
our approach will produce--fully and independently support our approach
both individually, and in any combination.
9. Alternate Pricing Plans
a. Introduction
427. The Commission has traditionally required IPCS providers to
charge for interstate and international audio IPCS on a per-minute
basis principally to safeguard consumers from potentially unreasonable
rates and practices. The Commission's rules have long prohibited
providers from using ``flat-rate calling'' that would require consumers
to pay a flat rate per call regardless of the length of the call. By
comparison, in recent years many telecommunications service plans in
non-carceral settings have transitioned to flat-rate pricing for a
specific quantity of, or an unlimited number of, minutes. At the same
time, IPCS marketplace developments have also led to ``emerging pay
models'' that more closely track the ``modern marketplace.'' In
recognition of these developments and the pro-consumer benefits of
allowing more flexible pricing programs, today we permit IPCS providers
to offer incarcerated people and their friends and family IPCS via
optional ``alternate pricing plans,'' subject to clearly defined
safeguards to ensure that IPCS consumers are protected. The Commission
previously
[[Page 77323]]
referred to these programs as ``pilot programs.'' These optional
programs could, for example, consist of blocks of audio calls or video
communications, or an unlimited quantity of either service, at a set
monthly or weekly price.
428. The record reflects that alternate pricing plans can provide
meaningful benefits to IPCS consumers, including, but not limited to,
increased utilization of IPCS, with all of its attendant benefits for
reducing recidivism, and greater budgetary certainty for IPCS
consumers. Nevertheless, we are mindful that alternate pricing plans
may not be a good fit for every consumer and therefore include
guardrails to protect against potential ``abuse and higher prices.'' We
find that, on balance, the potential advantages of these plans are
significant. We therefore permit IPCS providers to offer alternate
pricing plans subject to rules and conditions to ensure that consumers
that elect these plans have the information needed to make informed
choices and are protected from unjust and unreasonable rates and
charges. As explained above, the Martha Wright-Reed Act requires just
and reasonable rates and charges, and provides us with limited
authority to regulate IPCS providers' practices, classifications, and
regulations that relate to IPCS rates and charges. Alternate pricing
plans may include the full range of IPCS now subject to the
Commission's authority, including intrastate IPCS and advanced
communications services now included in the statutory definition of
``payphone service'' in carceral facilities.
b. Background
429. The Commission has previously invited comment on how its
regulation of IPCS ``should evolve in light of marketplace developments
to better accommodate the needs of incarcerated people,'' including
through the use of ``alternative rate structures.'' In the 2020 ICS
Notice, the Commission sought comment about ``alternative rate
structures'' and whether it should change its rules ``to recognize
industry innovations'' including new pay models. At that time, some
commenters voiced support for such changes. Later, in 2021, the
Commission asked whether it should consider ``alternative rate
structures, such as one under which an incarcerated person would have a
specified--or unlimited--number of monthly minutes of use for a
predetermined monthly charge.'' Some commenters expressed support for
``alternative rate structures'' while acknowledging the need to ensure
incarcerated people and their loved ones are protected from unjust and
unreasonable rates and charges. At that time, the Prison Policy
Initiative asserted that alternate pricing plans were premature as a
matter of law and fact, and requested that the Commission ensure that
the alternate pricing plans be ``fair to consumers.''
430. Shortly after seeking comment in 2021, Securus filed a
Petition for Waiver of the Commission's rules so it and ``other
providers'' could offer flat-rate calling packages for interstate audio
IPCS. Securus had been offering subscription plans for intrastate audio
service since December 2020. Under its subscription plans, Securus
charged a flat rate for a fixed number of calls for a period of, for
example, one month. In addition to the flat rate, Securus charged a
``site commission[ ] (if applicable), plus $3.00 automated payment
fee.'' Also, the plans were ``[d]esigned to be used only to call
specific numbers from a specific facility.'' Calls made to other
numbers that were not using Securus's subscription plan were charged at
Securus's per-minute rates. The Bureau sought comment on the Securus
Waiver Petition. While commenters did not object to alternate pricing
plans in general, the responses were mixed, with some urging the
Commission to grant the Securus Waiver Petition, and others expressing
concern and suggesting that the Commission proceed slowly and adopt
consumer protection measures applicable to such plans. Securus
terminated its subscription plans later in 2021 due to its inability to
determine the jurisdictional nature of the calls included in the plans.
431. In 2022, and again in 2023, the Commission sought further
comment on alternate pricing plans, conditions that may be placed on
the plans, and consumer disclosures to ensure that providers accurately
disclose the details of any alternate pricing plans. The record in
response generally supports the agency permitting these alternate
pricing plans but many commenters focused on requirements and
protective measures related to these plans. ViaPath asks the Commission
to refrain from adopting ``excessive and unnecessary conditions''
applicable to the plans. Securus requests flexibility in selecting the
form of the plans, and recognizes that ``reasonable conditions'' will
be necessary. The Public Interest Parties suggest that the Commission
permit the plans subject to a number of conditions concerning, for
example, rates and consumer information, to ensure that consumers are
protected. Based on the foregoing suggestions, Pay Tel observes that
the plans may have benefits ``in some settings for some customers.''
Stephen Raher requests a robust system of consumer disclosures.
Subsequent ex parte filings provide additional detail on Securus's
experience offering alternate pricing plans and discuss possible
conditions on these plans.
c. Discussion
432. We find that the record supports allowing IPCS providers to
offer alternatives to per-minute pricing for IPCS subject to the rules
and conditions adopted in the Report and Order. We therefore allow IPCS
providers flexibility to offer pricing structures other than per-minute
pricing as options for consumers in addition to offering standard per-
minute pricing plans. In reply comments to 2022, the Public Interest
Parties request the Commission to defer consideration of alternate
pricing plans due to the enactment of the Martha Wright-Reed Act in
January 2023, and the circulation of the draft 2023 IPCS NPRM (which
was released Mar. 17, 2023). Parties have had more than three years and
several opportunities to comment on alternate pricing plans, including
in response to further questions about such plans raised in connection
with the Commission's implementation of the Martha Wright-Reed Act in
2023. Given the potential benefits discussed herein, we see no reason
to wait any longer to allow such plans. The record indicates both
provider and consumer interest in such plans, and we find that these
plans offer benefits that consumers want. For example, Securus's plans
were ``developed as a direct result of consultations between Securus
leadership and justice-involved families.'' After Securus terminated
its subscription plans, consumers asked it to reinstate the plans, and
emphasized their benefits. Former subscribers explained that Securus's
subscription plans helped them be able to talk to loved ones, helped
stabilize their mental health, and enabled an incarcerated person to
help their children with their homework. The Director of Facility
Operations at one carceral facility describes Securus's plan as ``the
most economical option for communication [between incarcerated people
and] their wives and children.'' Securus remarks that a ``key benefit''
to the individuals enrolled in its subscription plans ``was being able
to better budget for calls by knowing in advance how much would be
spent on calls during a given period.'' Demand for flat-rate monthly
plans also was expressed in the California PUC's hearings on Regulating
Telecommunications Services Used by Incarcerated People. Consumers
mentioned the flat-rate monthly plans for cell phone usage, and
streaming
[[Page 77324]]
services like Disney and Netflix, and asked whether flat-rate monthly
plans could be provided for telephone calls with incarcerated people.
To support its argument that fixed-rate pricing helps consumers budget
for calls, Securus points to Connecticut, where the Department of
Corrections (DOC) now pays for calls, thereby making the calls free to
the consumers. Securus asserts that it charges the DOC for Securus's
services on a per-incarcerated-person basis (rather than using per-
minute rates) to enable DOC to better budget for Securus's services.
433. Additionally, data provided by Securus indicate that consumers
experienced longer and less costly calls under its subscription plans.
According to Securus, the average cost per call was $0.65 under its
subscription plans (with an average call length of 14.51 minutes)
compared to an average cost per call of $1.62 using Securus's per-
minute rates (with an average call length of 9.19 minutes). Securus
explains that ``[c]osts decreased [an] average of 61% per call and 74%
on a per-minute basis.'' ViaPath also predicts that alternate pricing
plans ``will promote increased calling while reducing costs.''
434. Nevertheless, other commenters urge caution regarding
alternate pricing plans. For example, Pay Tel expresses concern that if
a consumer does not use all of the minutes in a plan, the cost they pay
for a plan would be greater than they would have paid at the per-minute
rates offered by that provider. The Accessibility Advocacy and Research
Organizations ask the Commission to take a ``cautious approach designed
to ensure [alternate pricing plans] serve incarcerated people with
disabilities' interests first, and not those of ICS providers looking
for ways to circumvent their pricing obligations.'' Worth Rises points
out that ``IPCS providers have a record of exploiting incarcerated
people and their loved ones.'' Although Securus points out that
``[s]ubscribers saved money at low levels of utilization: [15 to
30%,]'' the data do not tell the complete story. The Public Interest
Parties point out that a ``substantial number of participants'' (i.e.,
from 10% to 34% of the consumers) in Securus's nine subscription plans
had low usage and as a result, paid more using the subscription plans
than they would have paid under per-minute rates. The Public Interest
Parties, and Securus's spreadsheet, reference the breakeven point for
Securus's subscription plans. The breakeven point refers to the amount
of usage required for a consumer to realize a rate that equals the
provider's per-minute rate. Specifically, the ``breakeven point'' is
the usage amount: (a) below which a consumer would pay more for the
subscription plan than they would have paid under the provider's per-
minute rates, and (b) at or above which the cost of the subscription
plan would be less than or equal to what the consumer would pay under
the provider's per-minute rates. For example, Securus shows that 76% of
its subscribers were above the breakeven point at one facility. In
other words, 76% of the subscribers had usage high enough to justify
the cost of the subscription plan whereas the remaining 24% of
subscribers effectively paid more for the subscription plan than they
would have paid if they had paid for the service at Securus's per-
minute rates.
435. Given the apparent demand from consumers and the potential
savings and increased communications that can result from alternate
pricing plans, we will permit IPCS providers to offer such plans.
However, to help make sure that consumers who enroll in the plans
benefit from them and that IPCS providers do not use such plans to
otherwise evade the Commission's IPCS rules, we require that these
plans comply with the general rules applicable to all IPCS, and adopt
specific consumer protection and disclosure rules for these plans. We
expect the rules we adopt today will provide sufficient consumer
protections, and in any event, the alternate pricing plans are optional
for both providers and consumers.
436. We acknowledge that our decision today represents an evolution
in the Commission's thinking concerning permitted rate structures. We
emphasize that IPCS alternate pricing plans are optional to consumers,
and IPCS providers that offer such plans are still required to offer a
per-minute pricing option to the consumers they serve. This ensures
that consumers will always have the option of selecting per-minute
pricing if traditional per-minute pricing offers greater value. In
facilities where alternate pricing plans are offered, consumers will
now have the ability to select the pricing models that best meet their
needs and their budgets, similar to the flexibility afforded to
consumers outside the carceral setting.
(i) General Parameters of Alternate Pricing Plans
437. We allow IPCS providers the option to offer alternate pricing
plans. We first define an ``alternate pricing plan'' as the offering of
IPCS to consumers using a pricing structure other than per-minute
pricing. An IPCS provider may determine whether to offer such a plan,
which services to include, which format (i.e., the rates (subject to
the applicable rate caps) and the number of minutes, calls or
communications for example, included (or an unlimited number of
minutes, calls or communications)), and where to offer the plan, as
discussed below. We require IPCS providers that offer alternate pricing
plans to comply with the rules specific to alternate pricing plans, as
well as other rules applicable to all IPCS, to help ensure just and
reasonable rates and charges. For example, the prohibitions and
limitations on per-call, per-connection, and per-communication charges,
site commissions, ancillary service charges, and taxes and fees as
provided for in our rule revisions, also apply to alternate pricing
plans.
438. Optional to Consumers and to IPCS Providers. As a threshold
matter, a consumer may enroll in an alternate pricing plan at their
discretion. IPCS providers must not require a consumer to enroll in an
alternate pricing plan. In 2021 and 2022, the Commission asked whether
providers should be permitted to offer optional pricing structures as
long as consumers would still have the ability to purchase service on a
per-minute basis. In response, the Public Interest Parties and ViaPath
agree that participation in an alternate pricing plan should be
voluntary for the consumer. No commenter suggests that enrollment in a
plan should be mandatory for a consumer.
439. Similarly, we do not require IPCS providers to offer alternate
pricing plans. An IPCS provider's decision to offer an alternate
pricing plan is voluntary. Consistent with the record and to ensure the
optional nature of alternate pricing plans particularly for consumers,
we require providers offering alternate pricing plans to also continue
offering per-minute pricing. We adopt revisions to section 64.6010(a)
of our rules to incorporate this requirement. Consumers therefore will
still have the option of paying for IPCS on a per-minute basis. As
Worth Rises points out, ``[p]er minute pricing structures . . . protect
ratepayers who may only make a few calls and do not want to be locked
into paying for extended time periods.'' No commenter requested that
the Commission mandate the offering of alternate pricing plans, or
eliminate the per-minute option. Worth Rises asks the Commission to
obtain more data before permitting providers to offer alternate pricing
plans, but our requirements that alternate pricing plans to be optional
for consumers, and that the plans comply with the other rules and
conditions we adopt here
[[Page 77325]]
generally for IPCS, should resolve Worth Rises's concerns.
440. Format. An IPCS provider may employ any format for its
alternate pricing plans that complies with the Commission's generally
applicable IPCS rules and the safeguards we adopt in the Report and
Order, which, together, are designed to protect consumers from unjust
and unreasonable rates and charges, consistent with the Martha Wright-
Reed Act. IPCS providers will have the flexibility to determine the
format of their alternate pricing plans and may offer plans based on
pricing by minutes of use, calls or communications made, or any other
format. In 2022 and 2021, the Commission asked about plans that would
offer a specific, or unlimited, number of minutes of use for audio
services at a monthly charge, and the merits of different pricing
structures and their impact on consumers and providers. Our decision to
permit IPCS providers to offer alternate pricing plans based on a fixed
or unlimited number of minutes, calls or communications seems to be
inconsistent with the Commission's prior implication, in the 2022 ICS
Order, that per-minute rates are preferable to per-call rates. But in
the 2022 ICS Order, the Commission cited to a discussion in the 2021
ICS Order concerning cost allocators, not rate setting. Thus, because
our decision here is about rate setting, not cost allocation, that
passage in the 2022 ICS Order does not apply. Some commenters oppose
plans based on a specified number of calls due to concerns about
dropped calls, which we address below. One commenter argues that the
Commission's prohibition on flat-rate calling and per-call charges
prohibits alternate pricing plans. As discussed below, we remove the
rule prohibiting flat-rate calling, making this concern moot. In
addition, the prohibition on per-call charges does not prohibit the
provision of alternate pricing plans based on a specific number, or
unlimited number of, calls or communications; the prohibition on per-
call charges just prohibits charges that are assessed in addition to
the base rates for calls. As discussed above, we retain and amend the
prohibition on per-call charges. Thus, the commenter's concern about
per-call charges is misplaced. Because we now have authority to
regulate rates for certain advanced communications services, including
video services, alternate pricing plans may include advanced
communications services, which likewise may be offered for a fixed
number of or an unlimited number of minutes or communications, for a
service period of a week or a month, among other formats.
441. When determining the format of an alternate pricing plan, IPCS
providers must consider the type and characteristics of the facilities
they serve, including: (a) any limits on the number of and length of
calls or communications imposed by the facility; (b) the availability
of correctional staff to manage the use of the service; and (c)
equipment availability for the calls or communications. The amount of
communications equipment per facility varies but, as an example, the
Public Interest Parties suggest that in 2023, the California Department
of Corrections and Rehabilitation Facilities had an average of 1
telephone for every 22 incarcerated people. Additionally, in the
Genessee County Jail, ``[e]ach jail pod has only two video kiosks for
roughly 60 to 70 people, and it is common for only one of the kiosks to
be working at any given time.'' A provider's consideration of these
factors will help ensure that consumers are reasonably able to make
enough calls to reach the breakeven point for the specific plan as
discussed below. We want to avoid IPCS providers, offering alternate
pricing plans of, for example, 200 calls per month when because of
equipment limitations or call length and frequency limitations the
incarcerated individual could not possibly make 200 calls a month at
their facility.
442. Service Period. In 2022, the Commission asked parties to
comment on the appropriate service period for alternate pricing plans.
The Public Interest Parties and Securus suggest that ``consumers should
not be required to sign up for long term commitments.'' PPI notes that
in prisons, ``residents have a longer and more predictable length of
stay (as compared to jails), allowing them to more effectively budget
for recurring expenses like phone calls,'' whereas in jails,
``populations are more transient and financial planning is more
difficult.'' NCIC suggests that bulk packages for video could be
offered as an option at longer-term facilities, but that ``per-minute
billing would be the most cost-effective solution for short-term and
county jails that may house incarcerated persons for an evening or
weekend.'' Although these statements appear to assume that the consumer
is the incarcerated person, the concern about the length of stay likely
would similarly apply to the friends and family of the incarcerated
person, if they are the consumers. We agree and therefore limit the
service period IPCS providers may offer an alternate pricing plan to no
longer than one month. When Securus offered its subscription plans, the
services were offered for no more than one month at a time before
renewal was required. One month is the length of a standard billing
cycle used by IPCS providers in carceral facilities and
telecommunications companies in non-carceral settings. Limiting
alternate pricing plans to service periods of at most one month limits
consumers' potential financial liability and permits flexibility for
any changed circumstances. At the end of a service period, a consumer
who is participating in the alternate pricing plan will need to renew
their enrollment if they want to continue participating in the plan
(unless the consumer previously has opted in to automatic renewals, if
offered by the provider).
443. Services Included. An alternate pricing plan may consist of:
(a) a single service that is defined as IPCS (e.g., an audio or video
communications service) or (b) any bundle of services for which each
service is defined as IPCS. Our use of the word ``bundle'' in the
context of alternate pricing plans refers only to a combination of
services; it does not imply a discount. We also note that ``bundling''
is mentioned in the record in the context of services offered by a
provider to a contracting authority. By comparison, ``bundling'' in
alternate pricing plans concerns services offered by a provider to
consumers.
Most comments in the record focus on the provision of interstate
audio IPCS, because most of the comments were filed before the
enactment of the Martha Wright-Reed Act, which expanded the
Commission's regulatory authority to include all audio and video
communications services in carceral facilities. In the absence of
regulation, we recognize that some providers have priced video services
at flat rates, and others have priced video services by the minute. In
2023, the Commission asked whether it should ``allow voice and video
services to be offered as bundles.'' While not advocating for alternate
pricing plans that would consist of combinations of services with
prices based on broadband usage, Worth Rises previously suggested that
the Commission consider such approaches and determine if they would
protect consumers. In response, Securus urges the Commission to ``make
clear'' that providers ``may bundle voice, video and other services''
in alternate pricing plans, and that the Commission could ``exercise
oversight'' through reporting requirements. Additionally, the
California Public Utilities Commission states that bundles should not
be allowed ``unless the provider provides
[[Page 77326]]
transparency on the cost or what the rate entails.'' Our rate,
reporting and other alternate pricing plan requirements should resolve
these concerns.
444. We recognize that services offered in combination under an
alternate pricing plan may not be subject to the same rate caps.
Nevertheless, services offered under an alternate pricing plan remain
subject to the general IPCS rules, including the applicable rate caps
for both audio and video services and the prohibition for levying
separate ancillary service charges. To the extent a consumer purchasing
services under an alternate pricing plan believes that the charge
assessed for the bundled services resulted in the effective rate
exceeding the applicable rate caps established in the Report and Order,
the consumer would first need to show that their usage of each service
in the bundle meets or exceeds the usages required to meet the
specified breakeven point(s), and then the IPCS provider would bear the
burden of demonstrating that the rate charged to that consumer under
its alternate pricing plan is less than or equal to the applicable IPCS
per-minute rate cap. The breakeven point refers to the amount of usage
required for a consumer to realize a rate that equals the provider's
applicable per-minute rate at the facility. Specifically, the
``breakeven point'' is the usage amount: (a) below which a consumer
would pay more for the subscription plan than they would have paid
under the provider's per-minute rates, and (b) at or above which the
cost of the subscription plan would be less than or equal to what the
consumer would pay under the provider's per-minute rates.
445. We do not permit alternate pricing plans that combine IPCS
with non-regulated services, as requested by some IPCS providers.
Several providers suggest that the Commission should permit bundling of
non-IPCS with IPCS. NCIC explains that its accounting system is set up
to support just subscription plans or just per-minute plans. Thus, if
subscription plans include audio but not messaging, then a consumer
would need to have two accounts with NCIC if they want both services--
and NCIC would need to modify its accounting platform to support the
two accounts. NCIC is the only commenter that expresses concern about
the cost of establishing subscription plans, and NCIC does not quantify
that cost. However, NCIC does point out that other IPCS providers have
separate accounts for separate services, and charge their customers
varying fees for each of those accounts. NCIC is concerned that the FCC
would ``mandate a subscription plan.'' Because we are making
subscription plans optional to the provider, NCIC can choose to not
offer such plans. As the Public Interest Parties observe, alternate
pricing plans should not include non-IPCS ``which lack visibility and
transparency in their pricing.'' A key premise in our decision to allow
alternate pricing plans is the ability of IPCS users to make informed
decisions about whether to choose such optional plans. Where the plans
are limited to IPCS, users can make comparisons to the rate-regulated
per-minute plans capped by Commission rules. By contrast, if non-
regulated services are included in alternate pricing plans, we are not
confident that IPCS users consistently will have the same type of
visibility and transparency in the pricing for those non-regulated
services sufficient to make an informed decision whether to elect an
alternate pricing plan.
446. Facilities. Alternate pricing plans may be offered at any
carceral facilities served by the IPCS provider, such as jails and
prisons, where the relevant correctional authorities permit. Securus
offered its subscription plans in eight jails and one prison. One of
those facilities was a short-term detention facility where Securus
offered a plan of just 25 calls per week, but that facility had low
utilization. Securus consequently posits that ``[i]t may be that
subscription plans are not optimal for short term facilities.'' By not
specifying the types of facilities in which IPCS providers may offer
alternate pricing plans, we allow providers the flexibility to
determine where these plans would be most beneficial.
(ii) Rules and Conditions Specific to Alternate Pricing Plans
447. Alternate pricing plans must comply with the rules generally
applicable to IPCS, as well as specific rules and conditions designed
to ensure that consumers that choose these pricing plans are protected.
Requiring compliance with these comprehensive rules will serve to
protect consumers and ensure just and reasonable rates and charges as
required by the Communications Act and the Martha Wright-Reed Act.
a. Using a Consumer's Comparable Per-Minute Rate
448. In 2021, the Commission asked about the appropriate rate of
IPCS offered via an alternate pricing plan. In 2022, the Commission
asked how to protect consumers from ``unreasonably high interstate and
international rates in connection with pilot programs.'' Today, we
require that any IPCS alternate pricing plan be offered at a rate that
has a breakeven point equal to or less than the applicable rate cap. In
2022, the Commission also asked whether it should require providers to
offer consumers a discount compared to what they would pay for the same
usage under the rate caps. Securus objects to being required to offer a
discount because ``there [would be] little or no incentive to price
these plans at a substantial price discount.'' We do not require that
alternate pricing plans be offered at a discount from the Commission's
per-minute rate caps. Providers can determine the details of their
alternate pricing plans, subject to our rules and what the market will
bear. The rates of alternate pricing plans that satisfy this
requirement will be presumed lawful. We therefore ensure that providers
cannot use alternate pricing plans to circumvent our rate caps, as
commenters have cautioned.
449. For purposes of demonstrating compliance with our rules in the
event of a consumer complaint or investigation, an alternate pricing
plan, whether offering bundled IPCS or a stand-alone service, must have
a breakeven point that, when calculated on a per-minute basis, is less
than or equal to the applicable rate caps. The IPCS provider bears the
burden of demonstrating compliance with this condition if its alternate
pricing plan is the subject of a complaint or an investigation by the
Commission. Commenters agree that the providers should bear the burden
of demonstrating their compliance with the Commission's rate caps and
ancillary services caps, because ``IPCS providers . . . are in the best
position to provide this information about usage to the Commission.'' A
consumer complaint about the provider's alternate pricing plan rates
will not be entertained under the alternate pricing plan rule in Sec.
64.6140 unless the consumer's usage meets or exceeds the breakeven
point(s) for the alternate pricing plan. This limitation does not
restrict non-rate-related complaints about providers' alternate pricing
plans, for example about dropped calls or billing issues, while it does
strike a balance by limiting the number of rate complaints that can be
brought to the Commission to those brought by consumers whose usage met
the breakeven point.
450. In 2022, the Commission also sought comment on whether a
consumer's actual usage should be taken into account when determining
whether
[[Page 77327]]
an alternate pricing plan is consistent with the rate caps. One
commenter suggests that a plan's effective rate be calculated based on
the usage data for a specific consumer. Other commenters propose using
alternative methods such as a ``reasonable utilization'' of the
allotted minutes, ``a reasonable assumption of usage,'' and an
``average level of usage.'' Securus also suggests that no plan ``should
be offered if its effective per-minute rate at full utilization is not
below the applicable per-minute cap.'' Calculating a comparable per-
minute rate at full utilization assumes that a ``consumer will use
every call and minute available,'' an assumption that defies the
purpose of our requirement to calculate the consumer's effective rate.
None of these commenters explain how these alternative methods would be
implemented in practice. We find that comparing the amount of usage to
meet the breakeven point to the consumer's actual usage of the
alternate pricing plan will result in a more meaningful and accurate
assessment than using the alternate methods proposed by commenters.
451. Our rule requiring comparison of a consumer's actual usage to
the alternate pricing plan's breakeven point makes the determination of
whether a plan results in just and reasonable rates for a specific
consumer straightforward. In the event of a challenge, the IPCS
provider would need to use only the number of minutes used by the
consumer challenging the lawfulness of the alternate pricing plan,
without needing to analyze other consumers' usage to determine an
``average'' or ``reasonable'' amount of usage. Securus cautions that
the Commission ``be mindful . . . of not imposing excessive burdens on
providers'' as it considers the calculation of a consumer's effective
rate, but Securus does not explain what it thinks the ``burden'' may
be. We find that requiring that a consumer's actual usage be used to
determine the comparable per-minute rate for that consumer is less of a
burden than Securus's suggestions that providers use a ``reasonable''
or ``average'' amount of usage.
(b) Complaints of Dropped Calls or Communications
452. When using an alternate pricing plan based on a specific
number of calls or communications, an IPCS consumer may be charged for
more than one call or communication if an original call is dropped and
the consumer is forced to reinitiate the call or communication to
finish a conversation. We, therefore, address the issue of refunds or
credits for such calls or communications when consumers are effectively
charged for more than one call when a call is dropped. In the case of
plans that charge on a per-call or per-communication basis, we expect
refunds or credits to be provided in particular circumstances for
dropped calls, and also require specific consumer disclosures to ensure
that consumers are aware of the ability to request those refunds or
credits.
453. Complaints of dropped calls, and the attendant lost funds
associated with those calls, have been a constant refrain since the
beginning of the Commission's regulatory efforts to reform
communications services for incarcerated persons. Then, in the 2015 ICS
Order, the Commission prohibited per-call (and per-connection) charges,
in part, due to the `` `assessment of multiple per-call charges for
what was, in effect, a single conversation' '' that was interrupted
when the call was dropped. Unfortunately, dropped calls continue to be
a problem and are not limited to audio IPCS. In 2021, the Commission
asked about preventing providers from assessing duplicative ancillary
service charges when a call is dropped. In 2022, the Commission sought
comment on adopting a requirement to provide credits or other remedies
for dropped calls in the context of alternate pricing plans. At the
October 27, 2023, and February 1, 2024, IPCS Listening Sessions, IPCS
consumers also discussed the issue and the difficulty of having calls
dropped.
454. There are several possible reasons for an audio call or a
video communication to drop. On the one hand, there could be a
technical reason such as faulty equipment in the carceral facility, a
problem in the IPCS provider's network, in the transmission network
between the IPCS provider and the called party, or in the called
party's network, in which instances we expect providers to take steps
to provide appropriate refunds or credits. On the other hand, calls or
communications can be intentionally disconnected for non-technical
reasons related to security, such as stopping attempts to initiate a
three-way call, for which refunds or credits would not be appropriate.
For example, when it offered its subscription plan, Securus made
refunds available upon request and acknowledged that refunds may be
available ``for verified performance problems such as poor quality or
outages caused by Securus systems.'' Upon receipt of a dropped call
complaint, we similarly expect IPCS providers to investigate these
claims in good faith and resolve them swiftly so as not to delay giving
a refund or credit to the IPCS consumer when warranted. The record
indicates that Securus monitored the incidences of dropped calls in its
subscription plans, thereby suggesting that this task will not be
overly burdensome for IPCS providers. Regardless, we will vigilantly
monitor complaints about inappropriately dropped communications, and,
if necessary, will adopt specific rules requiring refunds or credits in
the instance of dropped calls or communications. We seek comment on
call or communication service quality and the issue of dropped calls
due to service quality in the accompanying document.
455. We next require IPCS providers to clearly describe their
policies regarding dropped calls or communications in plain language in
their consumer disclosures, including explaining the types of dropped
calls and communications for which a consumer can seek a refund or
credit. The provider also must explain how the refund or credit for a
dropped call or communication will be calculated. For example, if an
alternate pricing plan is based on the number of calls or
communications, then the IPCS provider could give a credit of at least
one call or communication, if there is enough time left in the service
period for the consumer to use that credit; otherwise, a pro-rated
refund may be appropriate. If the alternate pricing plan consists of a
fixed number of minutes, we suggest that the IPCS provider give the
consumer a refund for the minutes used by the call or communication
that was dropped. Finally, if the alternate pricing plan consists of
unlimited calls or communications, or unlimited minutes, then no credit
or refund would be needed. In its consumer disclosures, the IPCS
provider must also clearly explain the method the consumer must use to
make a complaint and request a refund or credit for a dropped call or
communication, and that method must be easy for the consumer to
complete. ViaPath suggests that complaints could be filed at the
Commission. However, clearly informing consumers of a provider's
policies regarding dropped calls or communications and providing an
easy-to-use method for requesting a refund or credit will be a good
first step toward resolving issues with dropped calls and
communications.
(c) Automatic Renewals
456. To protect consumers from being billed for additional service
periods without their consent, we permit IPCS providers to offer
automatic renewals of any alternate pricing plan but only on an opt-in
basis, and subject to other
[[Page 77328]]
requirements discussed below. In 2022, the Commission sought comment on
whether consumers should be able to opt out of automatic renewals for
alternate pricing plans, citing concerns that without such protections,
alternate pricing plans may default to renewals consumers do not intend
to purchase or no longer need. In response, some commenters expressed
similar concerns and even suggested prohibiting automatic renewals.
Alternatively, Securus asserts that ``the consumer should have a
readily accessible means to decline or cancel any renewal option.''
During Securus's subscription plans, when a consumer signed up using
its website, Securus gave the choice between manual renewal and
automatic renewal. PPI notes that Securus apparently did not give
advance notice when a renewal occurred for its subscription plan;
Securus notified customers only ``after their renewal payments have
been processed.'' PPI also points out that although Securus stated that
customers could receive a refund within 14 days of an unwanted and
unused automatic renewal, Securus's contracts did not include these
terms.
457. We adopt rules to ensure that consumers are informed about
their renewal options. These rules are intended to give consumers the
option to select automatic renewal, and also an easy method and
sufficient opportunity for consumers to cancel the service before a
plan renews. We are guided by the record, and many other situations
where the Commission has required service providers to educate their
consumers and allow them to opt into or out of a service. These rules
apply to all IPCS offered through an alternate pricing plan.
458. We also require that IPCS providers offering automatic
renewals for alternate pricing plans explain, in plain language, the
terms and conditions of the automatic renewal both at the time that it
initially offers the automatic renewal option to a consumer, and before
any automatic renewal is about to occur by whatever method the IPCS
provider has established for other consumer notifications. The notices
must explain that if a consumer who requested automatic renewals does
not later want the alternate pricing plan to be renewed, the consumer
may cancel their participation within a reasonable grace period
identified by the provider at the time service is initiated.
459. The IPCS provider must give notice to the consumer of an
upcoming renewal with sufficient time before the renewal date to ensure
the consumer can cancel their enrollment in the alternate pricing plan
prior to its renewal. The Prison Policy Initiative suggests that a
notification two to three ``business days prior to renewal would help
customers avoid potential overdraft fees and remind them to cancel
their subscription if they have been meaning to do so but forgot.'' No
other commenter mentions the notices to be provided before automatic
renewals. We agree that this requirement will ensure that consumers
have sufficient notice. Therefore, we require that providers give
notice directly to consumers no later than three business days prior to
the renewal date, and, to ensure receipt of the notice, we require
providers use, at a minimum, the method of communication that consumers
agreed to at the time they enrolled in the alternate pricing plan. For
example, Securus used email to remind consumers when they were reaching
the call limit of its subscription plans. PPI commends Securus for
providing an online option for cancelling enrollment (although they
suggest that the related terms and conditions were confusing).
(d) Cancellation by the Consumer
460. A consumer must be able to cancel their enrollment in an
alternate pricing plan at any time and revert to per-minute pricing.
Refunds or credits must be made available to consumers in the
circumstances detailed below. Providers should process the cancellation
by the next business day after the cancellation request. In its
consumer disclosures, the provider must clearly explain the process for
requesting plan cancellation, which must include the ability to use the
method the consumer used to enroll in the plan. Securus provided an
online cancellation option but, according to PPI, did not tell
consumers that procedure was available. The disclosures also must
include an explanation of the option to request a specific termination
date if different from the date that the provider processes the
cancellation. For example, the consumer may want to request a
cancellation because an incarcerated person is going to be transferred,
and the consumer would want the plan to terminate after the date of
transfer. The consumer disclosures also must include an explanation of
the amount of the refund that will be provided in situations where the
IPCS provider does give refunds under the circumstances surrounding
cancellation. The provider must clearly explain that once the alternate
pricing plan terminates, and where applicable, the provider will bill
for its service(s) at the provider's per-minute rates for the
service(s) by the first day after the termination date. For example, if
the plan is cancelled due to the incarcerated person being released,
then the ability for the incarcerated person to call their friends and
family would no longer be needed. By comparison, if the cancellation is
not due to one of the special circumstances, then the incarcerated
person may still need to use the service of the provider and would pay
for that service using the provider's per-minute rates. We do not
require providers to roll over unused minutes, calls or communications.
461. When Cancellation Is Allowed. IPCS providers must allow
consumers to cancel their participation in an alternate pricing plan at
any time during the service period and revert to per-minute pricing.
This requirement applies regardless of whether the consumer has elected
to permit the provider to automatically renew their participation in
the plan. In 2022, the Commission sought comment on whether consumers
should be permitted to cancel their enrollment in an alternate pricing
plan before the end of their enrollment period. NCIC noted that people
who are incarcerated for only a short period of time or are moved to
another facility may not be able to ``receive the full benefit of the
subscription plan.'' The Public Interest Parties assert that
``[c]onsumers should . . . not be bound by any long-term commitments
and should be free to switch to a per-minute structure upon request.''
The record also indicates that a consumer may want to cancel their
enrollment if they have not used the service since the beginning of the
service period or if their incarceration status has changed. There may
also be ``special circumstances'' such as release or transfer under
which a consumer may need to cancel their participation in an alternate
pricing plan. Securus repeatedly states that consumers should be
permitted to cancel at any time, and refers to easy cancellations as
the ``ultimate consumer protection.'' We agree. Regardless of when a
consumer wants to cancel their enrollment, the IPCS provider's
procedures for cancelling the service must be easy to follow and use
the same method to effectuate cancellation that the consumer used to
enroll in the plan. As Securus points out, the method for cancelling
service should be ``readily accessible.''
462. Refunds Upon Cancellation. In the 2022 ICS Further Notice, the
Commission asked whether IPCS providers should be required to offer
refunds when consumers cancel an alternate pricing plan before the end
of the ``subscription period.'' Securus
[[Page 77329]]
explains that under its subscription plan, ``refunds [were] available
upon request,'' and suggests that refund options should be limited to
special circumstances such as the transfer or release of the
incarcerated person. Securus argues that requiring providers to
otherwise give refunds to consumers who cancel during a service period
``would deprive providers of the benefit of the bargain--low rates in
exchange for a predictable revenue stream.'' We agree. Therefore,
although consumers may cancel their enrollment in an alternate pricing
plan at any time, IPCS providers are not required to refund the balance
of the subscription amount except in the case of special circumstances.
The special circumstances recognized by the IPCS provider shall include
situations where the incarcerated person: (a) is released; (b) is
transferred to another facility; or (c) is not permitted to make calls
or communications for a substantial portion (for example 50% or more)
of the subscription period of the alternate pricing plan. Under such
circumstances, the consumer would not be able to make use of the
alternate pricing plan, and thus not be able to receive the benefit of
the services they paid for. The IPCS provider may also establish other
special circumstances for which it will provide a refund when a
consumer requests cancellation.
463. Any refund provided due to special circumstances shall be no
less than the pro-rated amount that corresponds to the unused portion
of the service period remaining under the alternate pricing plan. For
example, if a consumer is enrolled in an alternate pricing plan and has
used 200 minutes of an allotted 600 minutes when the consumer cancels
due to special circumstances, the consumer would have 400 minutes (=
600 minutes-200 minutes) unused at the time of cancellation. The
provider would give a refund of at least \2/3\ (= 400 minutes/600
minutes) of the amount the consumer paid for the plan. These limited
refund requirements strike the appropriate balance between protecting
consumers in the case of changed circumstances while still making the
plans attractive for IPCS providers. Although we do not require an IPCS
provider to give a refund for the unused portion of the alternate
pricing plan when a cancellation occurs in situations other than the
special circumstances detailed here, an IPCS provider may offer a
refund at the provider's option in other situations.
464. No Required Rollovers. We do not require providers to roll
over unused minutes, calls, or communications from one service period
under an alternate pricing plan to another service period. One
commenter observes that Securus's subscription plan did not allow for
the rollover of unused minutes, thereby increasing the consumer's
effective rate. Securus opposes a requirement for consumers to be able
to roll over unused minutes because rollovers would convert alternate
pricing plans into ``repackaged per-minute rate plans and prevent
consumers from enjoying lower prices.'' Indeed, in Securus's
subscription plan, Securus did not roll over unused calls. We agree
that a rollover requirement may undermine IPCS providers' incentives to
offer alternate pricing plans, and therefore refrain from requiring
providers to roll over unused minutes, calls, or communications.
d. Other Issues
(i) Flat-Rate Calling
465. Because we permit IPCS providers to offer alternate pricing
plans at flat rates (e.g., $Y per month or $Y per week), we remove
Sec. 64.6090 of the Commission's rules which prohibits the offering of
IPCS via flat rates. That prohibition on ``flat-rate calling'' was
adopted by the Commission in the 2015 ICS Order when some providers
required consumers to pay for a 15-minute call even if the call ended
prior to the expiration of the 15 minutes. The Commission concluded
that flat-rate prices for such short calls were ``disproportionately
high'' and therefore prohibited flat-rate calling. Today, IPCS
providers offer their IPCS at per-minute pricing, and we permit them to
offer flat-rated alternate pricing plans as an option to the per-minute
pricing. Consequently, we no longer need to prohibit flat-rate calling
to protect consumers. One commenter opposes flat-rate charges for IPCS
video calling, providing examples where the flat-rate charges are the
only way to pay for video calling. Because today we adopt per-minute
rate caps for IPCS video calling and permit flat-rate charges for video
calling only within the context of an optional alternate pricing plan,
these concerns are mitigated. If a provider offers a flat rate option
for IPCS, they would be offering an alternate pricing plan, and would
be subject to our general IPCS rules as well as the alternate pricing
plan rules which will serve to protect consumers.
(ii) Disability Access via Alternate Pricing Plans
466. IPCS providers that offer alternate pricing plans must ensure
that they comply with our rules concerning TRS and related
communication services. In 2022 and 2023, the Commission sought comment
regarding the features or attributes that should be included in
alternate pricing plans, and what conditions it would need to impose to
ensure just and reasonable rates for audio and video communications
services relevant here. In 2023, the Commission also sought comment on
the extent to which the Martha Wright-Reed Act expands its ability to
ensure that any audio and video communications services used by
incarcerated people are accessible to and usable by people with
disabilities. The Accessibility Advocacy and Research Organizations
urge the Commission to ``be proactive and aggressive in preventing''
providers from using alternate pricing plans to circumvent ``the
prohibition on charges for certain TRS calls'' as well as providers'
``pricing obligations.''
467. In the 2022 ICS Order, the Commission amended Sec. 64.6040 of
its rules to improve access to TRS and related communications services,
and clarified and expanded the restrictions on charges for TRS calls.
In the Report and Order, we amend Sec. 14.10 to reflect the Martha
Wright-Reed Act's expansion of the Communications Act's definition of
advanced communications service, making clear the obligations of IPCS
providers to ensure their video and voice communications services are
accessible to and usable by incarcerated people with disabilities, and
we amend Sec. 64.611 to facilitate the provision of IP CTS to
incarcerated people with disabilities. Here, we amend Sec. 64.6040 to
clarify how calls or communications using TRS and related
communications services shall be treated under an alternate pricing
plan.
468. An IPCS provider that offers an alternate pricing plan must
treat the calls or communications made to use TRS and related
communications services in accordance with new Sec. 64.6040(e). The
requirements in new Sec. 64.6040(e) mirror the restrictions on charges
for IPCS in Sec. 64.6040(d). If an alternate pricing plan offers an
unlimited number of minutes or calls, then eligible TRS users must be
allowed unlimited TRS, text-telephone-to-text-telephone (TTY-to-TTY),
and point-to-point American Sign Language (ASL) video calls under the
same plan. If an alternate pricing plan limits the number of calls or
minutes that are allowed during a billing period, then: (1) Video Relay
Service (VRS), internet Protocol Relay Service (IP Relay), and Speech-
to-Speech Relay Service (STS) calls or minutes shall not be counted for
[[Page 77330]]
purposes of such limits; (2) each internet Protocol Captioned Telephone
Service (IP CTS) and Captioned Telephone Service (CTS) call or minute
shall be counted as equal to a non-TRS audio call or minute; and (3)
TTY-to-TTY calls (which under a per-minute rate plan must not be
charged at more than 25% of the per-minute rate) shall be counted as
single calls (under a plan that limits the number of calls) or counted
at one fourth the number of minutes used (if the plan limits the number
of minutes). Also, each point-to-point video call shall be counted as
equal to an audio call. Regardless of the format of an alternate
pricing plan, there shall be no charge or fee for any equipment used to
access TRS and related communication services, and no charge or fee for
the internet or data portion of an IP CTS or CTS call, or for any
additional internet or other connections needed for services covered by
Sec. 64.6040. For example, with CTS and IP CTS, a second telephone
line or an internet connection--separate from the voice connection--is
often used to connect the user's device with the IP CTS provider to
enable the provision of captions. If an alternate pricing plan offers a
fixed number of minutes for voice service, for example, then in
applying such a limit to a CTS or IP CTS user, only the minutes handled
by the voice service line may be counted. These rules will prevent IPCS
providers that offer alternate pricing plans, from circumventing the
requirements adopted in the 2022 ICS Order. The rules also will satisfy
requests in the record, and our statutory duties to ensure that
communications services are accessible to and usable by persons with
disabilities.
(iii) Consistency With the Martha Wright-Reed Act
469. We find that allowing alternate pricing plans subject to the
requirements and rules we adopt today is consistent with the Martha
Wright-Reed Act. In 2023, the Commission asked whether the Martha
Wright-Reed Act precludes the Commission from permitting alternate
pricing plans for audio or video communications. Only one commenter
addressed this issue, asserting that nothing in the Martha Wright-Reed
Act ``bars use of different pricing structures.'' Previously, in
response to 2021, the Prison Policy Initiative argued that the
effective rates of alternate pricing plans and the consumer disclosures
provided at that time could violate the Commission's statutory duties
under sections 201(b) and 276(b)(1)(A).Act. We find, however, the
conditions we impose today on the offering of alternate pricing plans
sufficiently address the fundamental concerns raised in the record.
Because we limit the rates that may be charged for IPCS when offered
through alternate pricing plans to the just and reasonable rate caps we
adopt today on a per-minute basis--rate caps that ensure fair
compensation to providers--alternate pricing plan rates and charges
will also be just and reasonable and provide fair compensation
consistent with the Martha Wright-Reed Act. While we find that the per-
minute rate caps we adopt today will ensure that IPCS providers are
``fairly compensated,'' in accordance with section 276(b)(1)(A) of the
Communications Act, an IPCS provider that chooses to offer an alternate
pricing plan will bear the responsibility for ensuring that the plan
will adequately compensate it for its services on a companywide basis.
(iv) Start Date and End Date
470. Consistent with the voluntary nature of any IPCS alternate
pricing plan, an IPCS provider that elects to offer an alternate
pricing plan may choose when to offer the plan once the rules
permitting such plans are effective. The Commission previously asked
about possibly allowing alternate pricing plans on a temporary or pilot
program basis only. We decline to limit providers' ability to offer
these plans given that no IPCS user must choose such a plan, and given
the other protections we adopt. Worth Rises suggests that the
Commission permit a pilot program pursuant to a waiver for no longer
than three months so that the Commission may collect data to ensure
compliance with the rate caps before permitting the plan to continue.
Conversely, Securus asserts that the Commission should not limit the
length of time the plan can be offered and argues that ``[a]rtificially
ending programs that may be providing substantial benefits would harm
the very consumers the Commission wishes to protect.'' We also do not
limit the time frame during which an alternate pricing plan may be
offered due, in part, to the potential consumer benefits of these plans
and to our adoption of rules and conditions that will ensure such
benefits. However, we caution providers that if we see evidence of
gamesmanship or that providers are otherwise taking advantage of
consumers through these alternate pricing plans, we will not hesitate
to revisit allowing IPCS providers to offer such plans.
471. Just as we permit providers to determine when to offer an
alternate pricing plan without prior approval from or notification to
the Commission, we similarly permit providers to terminate a plan at
their discretion, provided that sufficient notice is given to their
consumers. We permit providers to determine what is reasonable notice
of termination, and require notification to consumers in accordance
with applicable consumer disclosure rules. For example, given that
alternate pricing plans are limited to one month service periods, IPCS
provider notification to affected consumers two weeks prior to it no
longer offering a monthly plan exemplifies reasonable notice.
10. International Rate Caps
472. In the 2021 ICS Order, the Commission first adopted interim
rate caps on international audio IPCS communications comprised of the
applicable interstate rate cap component for that facility plus an
international termination component. The record and the data before us
demonstrate that providers continue to incur termination charges for
completing international audio communications. We therefore decline to
disturb the rules for international calls on the record before us, and
maintain our existing international rate cap structure for audio IPCS.
473. In 2021, the Commission sought comment on whether and how it
should further reform international rates, a request echoed in
subsequent requests for comment. In response, certain commenters raised
concerns with the formula for calculating international rates set forth
in our rules, arguing that tracking multiple ``floating rates'' raises
surveillance costs for providers and reduces predictability for
consumers. We are unpersuaded. As an initial matter, we decline to
establish a uniform safe harbor under which the termination component
that would apply to all of a provider's international audio calls (or
alternatively to all of the provider's international audio calls under
a particular contract) would equal the average of the provider's
international termination charges for the previous calendar year (or
alternatively the average of such charges under the particular
contract), as one commenter suggests. Because international termination
charges vary significantly depending on the calls' destinations, any
such approach would result in IPCS consumers being charged unreasonably
high rates for calls to international destinations having relatively
low termination charges. It is also hard to understand how
predictability could decline when the international termination fees
themselves change frequently, and the commenters have
[[Page 77331]]
not substantiated their claims of compliance difficulties with cost
data. No commenter raises other concerns with the current international
rate cap formula. At the same time, providers' submitted data are
remarkably devoid of any data on the cost of providing international
IPCS, with only one provider reporting such costs. We therefore find
that both the data and the record are, at present, insufficient to
support revisions to our rules, or to develop alternative approaches to
international rate caps.
474. We recognize that differences between audio IPCS and video
IPCS may limit the applicability of these rules to video IPCS. Unlike
audio IPCS, we have no record evidence that video communications
services incur international termination charges. In fact, the data
from the 2023 Mandatory Data Collection do not indicate that providers
routinely or ordinarily incur termination charges for completing
international video communications. In the absence of any record
supporting the need for international video communications rate caps,
we decline to adopt an international termination component for video
IPCS at this time. In the absence of such a separate component for
video IPCS, international video communications will be subject to the
interstate video cap in effect for the relevant facility.
E. Waivers
475. We adopt with modifications the waiver process previously
adopted by the Commission in the 2021 ICS Order. The modifications
reflect our full jurisdiction under the Martha Wright-Reed Act to
include intrastate services and various advanced communications
services, including video services and providers that offer them, in
addition to the interstate and international services that previously
were the focus of our IPCS rules. The modifications also reflect the
Act's direction that the Commission may use a provider's average costs
in determining just and reasonable IPCS rates. The waiver process we
adopt will ensure that providers that may face unusually high costs to
serve a particular facility or set of facilities covered by a contract
will have the opportunity to demonstrate that those costs are, indeed,
used and useful costs in their provision of IPCS and are therefore
recoverable. As discussed above, we interpret and apply section
276(b)(1)(A) in a manner that harmonizes the ``just and reasonable''
and ``fairly compensated'' criteria. Consequently, the used and useful
analysis we employ will involve that harmonization of the ``just and
reasonable'' and ``fairly compensated'' standards.
476. The Commission's previous waiver process permitted an inmate
calling service provider to file a petition for a waiver of our interim
inmate calling services rate caps if the provider makes certain
showings that it cannot recover its allowable costs under the
Commission's interim inmate calling services rate caps. The portions of
the 2015 ICS Order regarding the waiver process were unaltered by the
GTL v. FCC court's 2017 vacatur. We modify that process to take into
account the Commission's full authority under the Martha Wright-Reed
Act to include intrastate services and advanced communications
services. In addition, the Commission will evaluate waiver petitions in
light of the Act's elimination of the section 276 requirements that
providers be compensated on a ``per-call'' basis, and compensated for
``each and every call,'' and in light of the addition of the
requirement that the Commission ensure IPCS rates are just and
reasonable while ensuring that providers are fairly compensated.
477. To be granted a waiver under the rules adopted in 2021,
providers are required to show that they faced ``unusually high costs
in providing interstate or international inmate calling services at a
particular facility or under a particular contract that are otherwise
not recoverable through the per-minute charges for those services and
through ancillary service fees associated with those services.'' When
adopted, the Commission noted that various providers argued that
reductions in inmate calling services rates would threaten their
financial viability, imperiling their ability to provide service, and
risk degrading or lowering their quality of service. It determined that
those claims were best addressed on a case-by-case basis through a
waiver process that focused on the costs the provider incurred in
providing interstate and international inmate calling services, and any
associated ancillary services, at an individual facility or under a
specific contract.
478. In 2023, the Commission sought comment on ``any other matters
that may be relevant to our implementation of the Martha Wright-Reed
Act to adopt just and reasonable rates and charges for incarcerated
people's audio and video communications services.'' In the context of
analyzing providers' site commission payments, it also asked for
comment on the showing it should require to evaluate waivers seeking to
recover the portion of those payments that compensate facilities for
their used and useful costs of providing IPCS. Based on the record, we
retain our current waiver process framework with modifications to
reflect the provisions of the Martha Wright-Reed Act, including our new
authority thereunder. We decline at this time to extend our waiver
process to include pilot programs or to impose requirements on state
rate-setting processes. State rate-setting processes (in contrast to
site commission payment requirements) are not governed by our current
IPCS rules, to the extent they do not result in state rates or charges
exceeding our rate caps, and thus cannot be addressed by waiver in any
case. And we decline to depart from our rules governing alternate
pricing plans via waiver because we believe those rules already provide
for appropriate flexibility, and adhering to that regulatory framework
provides certainty regarding the parameters for any such
experimentation that will occur, thereby facilitating appropriate
Commission oversight and managing what IPCS users will be expected to
understand about such plans, and the protections they will have under
them.
479. The IPCS rate cap methodology we adopt herein comprehensively
accounts for providers' reported costs of providing IPCS as
contemplated by the Act, and we therefore anticipate that instances
where providers cannot recover their cost of service should be
exceptional. To the extent such instances occur, however, we adopt a
process that allows providers to seek waivers of our rate caps to
ensure recovery of the used and useful costs of providing IPCS. We also
expand the scope of our previous waiver process to allow providers to
seek waivers related to the provision of advanced communications
services, including video, as well as with respect to our overall IPCS
rate caps which will now apply to international, interstate and
intrastate services. Additionally, we remove any reference to ancillary
services in our waiver rules because, as explained above, separately-
identified ancillary service fees have been prohibited, and the costs
of providing ancillary services have instead been included in the
overall rate caps. As was the case with our previous IPCS waiver
process, providers may seek a waiver either on a facility basis or
contract basis. We disagree with Securus that we should allow company-
wide waivers given that company-wide waivers would likely be too
complex and time-consuming to provide adequate and timely relief for
providers.
480. Consistent with the Commission's previous waiver process and
with its waiver processes generally,
[[Page 77332]]
petitioners will continue to bear the burden of proof to show that good
cause exists to support waiver requests, but all waiver requests must
now include a showing that the request will not result in unjust and
unreasonable IPCS rates and charges. An IPCS provider filing a petition
for waiver must clearly demonstrate that good cause exists for waiving
our rate caps or other rules at a given facility or group of
facilities, or under a particular contract, and that strict compliance
with these caps would be inconsistent with the public interest. For any
waiver request based on a particular facility or group of facilities,
the provider must show that the costs of the entirety of its contract
are not recoverable under the applicable rate caps, not merely the
costs at an individual facility or group of facilities that are part of
an otherwise profitable contract. As the Commission explained in the
2021 ICS Order, conclusory assertions that the reductions in rates will
harm the provider or make it difficult for the provider to expand its
service offerings will not be sufficient to obtain a waiver. Providers
requesting a waiver of our IPCS rules will continue to be required to
provide a detailed explanation of their claims, including all relevant
financial and operational data as referenced in our rules. In order to
evaluate waivers, we also require a provider to submit its total
company IPCS costs and revenues and other financial data and
information, including justification for deviating from ``the average
costs of service of a communications service provider'' to assess the
merits of a petition. Failure to provide such information will prevent
us from making a determination regarding the waiver request and will be
grounds for dismissal without prejudice. Furthermore, the petitioner
must provide any additional information requested by Commission staff
to evaluate the waiver request during the course of its review.
481. We caution petitioners that we will continue to evaluate
waiver petitions thoroughly and waivers will not be routinely granted.
The Commission previously delegated authority to the Bureau to review
and rule on petitions for waivers, and we reaffirm that delegation of
authority today. Waiver petitions will be placed on public requests for
comment, and interested parties will be provided an opportunity for
comment.
F. Communications Services for Incarcerated People With Disabilities
482. We amend our rules to improve communications services for
incarcerated people with disabilities. First, in response to comments
on 2023, we amend our Part 14 rules as appropriate to reflect the
Martha Wright-Reed Act's expansion of the Communications Act's
definition of ``advanced communication service.'' Next, in response to
comments on 2022, we amend our Part 64 TRS rules to allow a form of
enterprise registration for the use of internet Protocol Captioned
Telephone Service (IP CTS) in carceral facilities. We also amend the
Part 64 IPCS rules to require that IPCS providers provide billing and
other information regarding their services in accessible formats. We
clarify that internet-based IPCS providers may provide access to
traditional (TTY-based) TRS via real-time text. We defer action on
setting a timeline to expand the scope of our IPCS rules on access to
TRS and related services, pending the collection of further information
on implementation of the current rules.
1. Part 14 Changes
483. Advanced Communications Services Definition. We adopt the
Commission's proposal, in 2023, to amend the definition of ``advanced
communications services'' in our Part 14 rules to incorporate the
amended statutory definition. Prior to the Martha Wright-Reed Act, the
Communications Act (and Part 14 of our rules) defined ``advanced
communications services'' to be: (1) interconnected VoIP service; (2)
non-interconnected VoIP service; (3) electronic messaging service; and
(4) interoperable video conferencing service. In light of the lengthy
pendency of unsettled questions regarding the application of Part 14 to
video conferencing, the Commission extended until September 3, 2024,
the deadline for providers of such services to comply with the Part 14
accessibility rules for advanced communications services. The Martha
Wright-Reed Act amended this definition to add a fifth category: ``any
audio or video communications services used by inmates for the purposes
of communicating with individuals outside the correctional institution
where the inmate is held, regardless of technology used.'' We now amend
the definition of ``advanced communications services'' in our Part 14
rules to include that category as well, aligning the definition in our
rules with the amended statutory definition. One commenter agrees that
the Commission should simply incorporate section 3's definition of ACS,
as amended by the Martha Wright-Reed Act, into Part 14. No other
commenters directly address the issue.
484. Statutory Accessibility Requirements. Pursuant to section 716
of the Communications Act, providers of advanced communications
services and manufacturers of equipment used for such services
(including end user equipment, network equipment, and software) must
ensure that such services, equipment, and software are accessible to
and usable by individuals with disabilities, unless doing so is ``not
achievable.'' The term ``achievable'' means with reasonable effort or
expense, as determined by the Commission. Section 716 of the
Communications Act specifies that, in determining whether the
requirements of a provision are achievable, the Commission shall
consider the following factors: (1) the nature and cost of the steps
needed to meet the requirements of this section with respect to the
specific equipment or service in question; (2) the technical and
economic impact on the operation of the manufacturer or provider and on
the operation of the specific equipment or service in question,
including on the development and deployment of new communications
technologies; (3) the type of operations of the manufacturer or
provider; and (4) the extent to which the service provider or
manufacturer in question offers accessible services or equipment
containing varying degrees of functionality and features, and offered
at differing price points. Whenever those requirements are not
achievable a manufacturer or provider must ensure that its equipment or
service is compatible with existing peripheral devices or specialized
customer premises equipment commonly used by individuals with
disabilities to achieve access, unless such compatibility is not
achievable. Providers of advanced communications services are also
prohibited from installing network features, functions, or capabilities
that impede accessibility or usability. The Commission has implemented
section 716 by adopting performance objectives to ensure the
accessibility, usability, and compatibility of advanced communications
services and the associated equipment, recordkeeping requirements, and
the consumer dispute assistance and informal and formal complaint
processes. ``Manufacturers and service providers must consider [these
performance objectives] at the design stage as early as possible and
must implement such performance objectives, to the extent that they are
achievable.'' In addition, ``[m]anufacturers and service providers must
identify barriers to accessibility and usability as part of such
evaluation.'' Covered service providers
[[Page 77333]]
and equipment manufacturers also must file certificates of compliance
with applicable recordkeeping requirements, including contact
information for persons authorized to resolve complaints regarding
alleged violations of accessibility requirements.
485. Effect of the Martha Wright-Reed Act on the Scope of Rules. In
2023, the Commission sought comment on the extent to which the Martha
Wright-Reed Act expands its ability to ensure that any audio and video
communications services used by incarcerated people are accessible to
and usable by people with disabilities. As a number of commenters
recognize, prior to enactment of that legislation, voice services
offered by IPCS providers were already subject to the requirements of
section 716 or the related requirements of section 255 of the
Communications Act. Section 255 imposes similar accessibility
obligations on providers of telecommunications services and
manufacturers of telecommunications equipment, and the Commission's
regulations implementing section 255, 47 CFR part 6, also apply to
providers of interconnected VoIP service. Accessibility of voicemail
equipment and services are addressed in 47 CFR part 7. Overlap between
sections 255 and 716 is avoided because section 716 provides that it
does not apply to ``any equipment or services, including interconnected
VoIP service, that [were] subject to the requirements of section 255''
of the Communications Act prior to the enactment of section 716.
Accessibility of voicemail equipment and services are addressed in 47
CFR part 7. Overlap between sections 255 and 716 is avoided because
section 716 provides that it does not apply to ``any equipment or
services, including interconnected VoIP service, that [were] subject to
the requirements of section 255'' of the Communications Act prior to
the enactment of section 716. Such services and equipment ``shall
remain subject to the requirements of section 255'' of the
Communications Act. However, the recordkeeping, certificate of
compliance, consumer dispute assistance, and enforcement requirements
of Part 14 apply to manufacturers and service providers covered by
section 255 as well as those covered by section 716. Similarly,
electronic messaging services and interoperable video conferencing
services offered by IPCS providers were also subject to section 716 and
the Part 14 rules. The record does not indicate to what extent, if at
all, there are other audio and video communication services offered by
IPCS providers that were not previously included in the definitions of
``telecommunications service'' or ``advanced communications services,''
and that, accordingly, are newly subject to accessibility requirements
under section 716 of the Communications Act and Part 14 of our rules.
However, to the extent that any IPCS provider may have been uncertain
whether accessibility requirements apply to a particular voice or video
communication service that it provides for the use of incarcerated
persons in communicating with non-incarcerated persons, the Martha
Wright-Reed Act makes clear that the accessibility requirements of the
Commission's rules apply to such services.
486. Part 14 Performance Objectives. The 2023 IPCS NPRM also sought
comment on whether the Commission should add or modify any performance
objectives or recordkeeping requirements for application in the
correctional facility context. At this time, we do not see a need to
create new or different performance objectives for IPCS providers. As
noted above, communications services offered by IPCS providers were
already covered by section 255 or 716 of the Communications Act, and
the record does not indicate that any audio and video communications
services used by incarcerated people were not previously included in
the statutory definitions of telecommunications services and advanced
communications services. Further, while the communication challenges
experienced by incarcerated people with disabilities may be more acute,
the record does not indicate that they are different in kind from those
of non-incarcerated people with disabilities. For example, to be
accessible to a blind person, whether incarcerated or not, an advanced
communications service should ``[p]rovide at least one mode that does
not require user vision.''
487. We decline, at this time, to impose a limitation on the use of
automatic speech recognition (ASR) technology alone in the provision of
IP CTS in carceral facilities. The Commission previously found the use
of ASR-only captioning in the provision of IP CTS to be comparable in
accuracy to CA-assisted IP CTS. While we continue to encourage
providers to make CA-assisted IP CTS available, there is not a
sufficient record in this proceeding to suggest that provision of ASR-
only IP CTS would discriminate against for example, people who speak
dialects, have accented speech, or speech impediments, nor a record to
suggest that CA-assisted IP CTS would cure or otherwise prevent such
discrimination. The Commission will continue to collect data and
information annually from IPCS providers and it has open dockets
concerning advanced communications services and IP CTS where a record
on the raised concerns may be developed to be addressed. In the
interim, we proceed with ensuring the Commission's current
accessibility rules are appropriately applied in the correctional
facilities context.
488. We are also not persuaded that it is necessary to modify Part
14 performance objectives to address ``the unique challenges of
offering internet-based IPCS and consistent with the Commission's
existing IPCS accessibility rules,'' as recommended by Ameelio, a
provider of internet-based IPCS. To the extent that security issues or
other factors may affect the achievability of specific performance
objectives, such concerns can be addressed consistently with the
current Part 14 rules, as Part 14 obligations are expressly subject to
the proviso ``unless the requirements of this [subsection/paragraph]
are not achievable.'' We also note that some of the concerns raised by
Ameelio appear to be based on a misunderstanding of the Commission's
video conferencing proposals. For example, the Commission has proposed
to modify the TRS ``privacy screen'' rule (redesignated 47 CFR
64.604(d)(5)) to allow VRS providers to be compensated for providing
VRS in a video conference in which some participants turn off their
video cameras. However, nothing in the Commission's proposal suggests
that the proposed rule would affect the ability of a video conferencing
service provider or host to require participants to leave their cameras
on, for security or other reasons.
2. Enterprise Registration for IP CTS and IP Relay
489. Background. To prevent waste, fraud, and abuse and allow the
collection of data on TRS usage, our rules generally condition TRS Fund
support for VRS, IP CTS, and IP Relay on eligible users of these
services being registered with a service provider. Certain personal
data, as well as a self-certification of eligibility to use TRS, must
be collected from each TRS user and--for VRS and IP CTS users--entered
in the TRS User Registration Database (User Database), a central
registry maintained by a Commission-designated administrator. The User
Database has not yet been activated for IP CTS. Pending its activation,
however, registration data and a self-certification of eligibility must
be collected and maintained by the IP CTS provider. For VRS, however,
the rules provide an alternative to individual registration for
[[Page 77334]]
videophones maintained by businesses, organizations, government
agencies, or other entities and made available to their employees or
clients as ``enterprise videophones.'' This ``enterprise registration''
alternative is not currently authorized for IP CTS or IP Relay. The
Commission has previously granted a waiver of the TRS registration rule
to allow TRS providers to provide IP CTS and IP Relay to federal
government employees and on-premises contractors through a registration
process similar to the VRS enterprise registration process.
490. In the 2022 ICS Order, the Commission modified its
registration rules for incarcerated people eligible to use TRS,
simplifying the registration data that must be collected in that
context to account for differences in the availability and source of
registration information. IPCS providers are required to assist TRS
providers in collecting registration information and documentation from
incarcerated users and correctional authorities. The Commission also
authorized a modified form of enterprise registration for VRS use in
correctional facilities. In lieu of registering each videophone, the
amended enterprise rule allows a VRS provider to assign a pool of
telephone numbers to a correctional authority. The numbers may be used
interchangeably with any videophone or other user device made available
for the use of VRS within the correctional facility. In 2022, the
Commission sought comment on whether to adopt a comparable form of
enterprise registration for IP CTS in the incarceration context. All
commenters addressing the issue support such a rule change. In
addition, Securus urges that enterprise registration also be allowed
for IP Relay in the carceral context, noting that ``the same logistical
issues at the correction facility for individual registration of IP
CTS'' extend to IP Relay.
491. To further expedite access to TRS by incarcerated people, we
amend our rules to allow enterprise registration for IP CTS and IP
Relay in the incarceration context. The record indicates that the
individual registration process can pose significant challenges for
incarcerated people attempting to use IP CTS or IP Relay. When a person
is initially confined and seeks to notify a family member or attorney
of their situation, the need for individual registration may delay
access to IP CTS or IP Relay for hours or days, with potentially
serious consequences for the newly incarcerated person. For example,
some of the required registration information and documentation may not
be readily available at the time of initial incarceration, and
assistance in collecting or preparing such information and
documentation may not always be available from correctional
authorities. Further, incarcerated persons, particularly those newly
incarcerated, are often transferred between facilities. If a transferee
must re-register (e.g., because the new facility is operated by a
different correctional authority or a different TRS provider is
providing a particular relay service), or if there is a delay in
confirming an existing registration (e.g., because the TRS provider is
not promptly informed of the transfer) access to TRS could be
interrupted or even terminated. Additional registration issues may
arise in juvenile detention facilities, where a parent or guardian
would need to register on behalf of a minor who has been incarcerated.
492. The record confirms that allowing enterprise registration for
IP CTS and IP Relay in the carceral setting would not significantly
increase the risk of TRS waste, fraud, or abuse. In the 2022 ICS Order,
the Commission found that the security measures routinely applied to
telephone service in correctional facilities limit any risk of waste,
fraud, and abuse associated with enterprise registration for VRS, and
those same security measures would tend to limit such risks in the case
of IP CTS and IP Relay. Further, by allowing the assessment of charges
for IP CTS that do not exceed those for an equivalent voice telephone
call, we have limited the potential incentive of incarcerated people
who do not need the service to seek to use it in lieu of ordinary voice
service. Conversely, the limitation of IP CTS charges to those for an
equivalent voice call limits any incentive for correctional authorities
to allow or promote the use of IP CTS by incarcerated people with no
need for the service. In IP Relay, no charges are permitted. However,
with IP Relay, unlike IP CTS, the communications assistant mediates
communication in both directions. As a result, IP Relay conversations
tend to be substantially slower than the equivalent voice
conversations, and there is accordingly less incentive for incarcerated
people to request use of the service if they do not need it for
functionally equivalent communication.
493. The enterprise registration rule we adopt for IP CTS and IP
Relay in the carceral context parallels the VRS enterprise registration
rule, as modified for the carceral context. To make it easier to find
the applicable requirements, we combine the existing requirements for
carceral enterprise registration for VRS with the new requirements for
such registration for IP CTS and IP Relay in a single new paragraph (l)
of Sec. 64.611. For enterprise registration of a correctional facility
or correctional authority, a TRS provider must transmit to the TRS User
Registration Database administrator the following information: the TRS
provider's name, the telephone numbers or other unique identifiers
assigned to the correctional authority, the name and address of the
correctional facility or correctional authority, the date of initiation
of service to the correctional authority, and the name of the
individual responsible for the device(s) used to access VRS, IP Relay,
or IP CTS at the correctional facility or facilities involved. The
existing rule for VRS allows enterprise registration of a single pool
of telephone numbers for use by a correctional authority in all of its
facilities. We allow the same flexibility for IP CTS. Such numbers may
be assigned either by the IPCS provider or the TRS provider. As with
the existing rule for VRS, the address may be the main or
administrative address of the correctional authority. This individual
may be an employee of either the correctional authority or the IPCS
provider. When a TRS provider ceases providing relay service to a
correctional authority via enterprise registration, the provider shall
transmit the date of termination of such service.
494. The TRS provider also must obtain a signed certification from
the responsible individual attesting that he or she understands the
functions of the devices used to access TRS and that the cost of TRS is
financed by the federally regulated Interstate TRS Fund. The
certification also must state that the correctional authority or IPCS
provider will make reasonable efforts to ensure that for VRS and IP
Relay only persons with a hearing or speech disability are permitted to
access the service, and that for IP CTS only persons with hearing loss
that necessitates the use of IP CTS to communicate by telephone are
permitted to access IP CTS. A VRS or IP CTS provider must also obtain
the responsible individual's consent to transmit this information to
the TRS User Registration Database. At this time, the TRS rules do not
require that IP Relay registration data be entered in the User
Registration Database. Before obtaining such consent, the TRS provider
must describe, using clear, easily understood language, the specific
information being transmitted, that the information is being
transmitted to the TRS User Registration Database to ensure proper
administration of the TRS program, and that failure to provide consent
will require individual
[[Page 77335]]
registration and self-certification by incarcerated persons. A TRS
provider shall maintain the confidentiality of any registration and
certification information obtained by the TRS provider, and shall not
disclose such registration and certification information, or the
content of such registration and certification information, except as
required by law or regulation.
3. Other Issues
495. Accessible Billing Formats. As also proposed in 2022, we amend
our rules to require that any charges for IPCS be disclosed in
accessible formats to incarcerated people with disabilities. The record
in this proceeding generally supports this proposal. We do not agree
with ViaPath that amendment of the Part 64 rules in this respect is
unnecessary. Although our Part 6, 7, and 14 rules include requirements
that information and documentation provided to customers regarding
covered services be accessible to individuals with disabilities, those
rules are subject to an achievability condition--which is not
applicable to our Part 64 IPCS rules. Given the special importance of
communication to incarcerated people with disabilities and the history
of egregious telephone charges imposed on incarcerated people and their
families, we decline to impose an achievability condition on access to
billing information in the carceral setting.
496. Charges for TRS-Related Services. As discussed above, we amend
Sec. 64.6040 of our rules to clarify the treatment of TRS and related
services under alternate pricing plans. We do not otherwise alter the
provisions of Sec. 64.6040 regarding charges for TRS and related
services. In particular, we decline Securus's request for modification
of Sec. 64.6040(d)(3), which caps the permitted charges for point-to-
point video service used by incarcerated persons with disabilities who
can use ASL, limiting such charges to the equivalent rate for an
equivalent voice call. Securus recommends that, ``[n]ow that the
Commission has set rate caps for video IPCS charges for video IPCS,''
the benchmark for point-to-point ASL video charges should be the
charges for equivalent non-ASL video calls. We deny this request.
Although ASL point-to-point video service is not relay service per se,
it serves the same statutory purpose--``to provide the ability for an
individual who is deaf, hard of hearing, deaf-blind, or who has a
speech disability to engage in communication by wire or radio in a
manner that is functionally equivalent to the ability of a hearing
individual . . . to communicate using voice communication services.''
Therefore, access to this service is mandated for any facility covered
by Sec. 64.6040(b)(2)(ii), even if video communication is not
otherwise made available at such facility. Accordingly, in 2022, the
Commission appropriately benchmarked the charges for the use of point-
to-point video to communicate in ASL at the charges for an equivalent
voice call. Permitting the assessment of a higher video rate for such
calls, instead of the equivalent voice rate at any correctional
institution, would be inconsistent with the underlying statutory
purpose--to make available communication that is functionally
equivalent to voice communication.
497. Analog TRS. In response to reply comments by Ameelio, an
internet-based video IPCS provider, we clarify the application to such
providers of the IPCS rules mandating the availability of traditional
(TTY-based) TRS and STS. Noting that the internet does not support
analog services, Ameelio ``proposes that the Commission update its IPCS
accessibility rules to accommodate advanced communications services
that . . . do not rely on the Public Switched Telephone Network (PSTN),
by clarifying that app-based IPCS providers may comply with the IPCS
accessibility rules by providing functional equivalents to the
traditional accessibility services that rely on the legacy telephone
network.'' As the Commission explained in the 2022 ICS Order, while TTY
technology is incompatible with the IP protocol, TTY-based TRS and STS
continue to be essential for ensuring that all segments of the TRS-
eligible population have access to functionally equivalent
communications. In addition, U.S. Department of Justice regulations
implementing Title II of the American with Disabilities Act currently
require correctional authorities to furnish auxiliary aids and
services, which are defined to include voice, text, and video-based
telecommunications products and systems, including TTYs, videophones,
and captioned telephones or equally effective telecommunications
devices. However, rules the Commission adopted in 2016 allow mobile
service providers to comply with TTY-related requirements by supporting
real-time text, an IP-based protocol, as an alternative to TTY
connection. We amend our codified IPCS rules to make clear that,
similarly, IPCS providers may provide access to traditional TRS via
real-time text, as an alternative to TTY transmissions, if real-time
text transmission is supported by the available devices and reliable
service can be provided by this method. Additionally, for IPCS
providers to meet their requirement to provide access to traditional
TTY-based TRS and STS, they need only ensure that incarcerated
individuals eligible to use TRS can access at least one certified
provider of each form of TRS. If an IPCS provider does not interconnect
with the PSTN, it could rely on contracting or other arrangements with
a correctional facility to ensure that TTY-based TRS and STS are made
available.
498. We also do not address at this time the Commission's proposal
to expand the scope of coverage of the TRS Access Rule to include
correctional facilities in jurisdictions with an ADP of fewer than 50
incarcerated people. We recognize that the Communications Act directs
us to ensure that TRS are available to all eligible persons in the
United States, to the extent possible, and we reaffirm the Commission's
belief that, to ensure the availability of TRS and point-to-point ASL
video communication to the fullest extent possible, the TRS-related
access obligations of incarcerated people's communications service
providers should be at least coextensive with those of correctional
authorities under federal disability rights law--which are not subject
to any population size limitation. However, given that the current rule
has been effective for less than a year, we believe that our
determination of an appropriate timeline for the expansion of TRS
access to those facilities not covered by the current rule may benefit
from experience gained regarding the first year of implementation.
Therefore, we will keep the record open for additional input on this
matter.
G. Reform of Consumer Protection Rules
499. In light of the expansion of our authority under the Martha
Wright-Reed Act, we next revise our existing consumer protection rules
to improve consumer disclosure requirements and to protect the funds of
IPCS account-holders to ensure IPCS consumers fully benefit from the
various reforms we adopt in the Report and Order. The Commission's
consumer disclosure rules currently require providers to disclose their
rates, ancillary service charges, and charges for terminating
international calls to account holders and specify how certain charges
should be displayed on billing statements. The existing inactive
account rules bar providers, on an interim basis, from converting
unused funds in inactive ICS
[[Page 77336]]
accounts to their own use and require them to make reasonable efforts
to refund those funds. Based on the record, we expand these consumer
protection rules to apply to the full scope of IPCS now subject to our
ratemaking authority.
500. We also address certain limitations in our existing rules
which the record shows lack sufficient scope, clarity, and specificity
to enable IPCS consumers--and the public--to make fully informed
decisions regarding the rates, charges, and practices associated with
providers' offerings. Some commenters also contend that the current
rules are inadequate to ensure that IPCS consumers receive the
information they need to verify charges to their accounts. Similarly,
the record makes clear a need to revise and strengthen the interim
inactive account rules to ensure that IPCS consumers are able to
receive timely refunds of unused funds in IPCS accounts deemed to be
inactive. In light of this, we decline to simply apply our existing
consumer protection rules to the expanded list of services--video IPCS
and other audio and video advanced communications services, including
intrastate services--over which we now have jurisdiction under section
276. Instead, we revise and strengthen those rules and apply them to
all IPCS as set forth below.
501. Section 276(b)(1)(A) of the Communications Act, as amended by
the Martha Wright-Reed Act, requires that we develop a compensation
plan ensuring just and reasonable rates and charges for consumers and
providers, while providing fair compensation to providers. As set forth
above, we interpret this requirement as giving us authority over
providers' practices associated with IPCS to the extent they may affect
our ability to ensure just and reasonable audio and video IPCS rates
and charges and fair compensation for all IPCS. We exercise that
authority to adopt rules requiring IPCS providers to timely and
effectively disclose the information that IPCS consumers will need to
make informed decisions in setting up and using their IPCS accounts as
well as rules to facilitate refunds of funds remaining in accounts that
have been deemed inactive.
1. Consumer Disclosure Rules
c. Disclosure of Rates, Charges, and Practices
502. We revise and expand our consumer disclosure rules so all IPCS
users and, where appropriate, the general public will have sufficient
information to evaluate providers' IPCS rates, charges, terms and
conditions. Expanding these rules will offer increased transparency and
protection for consumers beyond those afforded by the Commission's
existing rules, facilitating the monitoring and enforcement of our
rules to ensure just and reasonable IPCS rates and charges. We expand
the scope of our rules to include all IPCS providers subject to our
expanded jurisdiction under the Martha Wright-Reed Act, including video
IPCS and other advanced communications services. We also expand the
scope of our rules to apply to the different stages of consumers'
interaction with IPCS providers, from prior to the opening of an IPCS
account to the closing of an inactive account. We conclude pursuant to
our authority under section 276(b)(1)(A) of the Communications Act, as
amended by the Martha Wright-Reed Act and, to the extent interstate or
international telecommunications services are involved, pursuant to
section 201(b) of the Communications Act, that the increased
transparency we require is necessary to ensure just and reasonable IPCS
rates and charges, and fair compensation as the Martha Wright-Reed Act
mandates.
503. Background. In the 2015 ICS Order, the Commission first
required ICS providers to ``clearly, accurately, and conspicuously''
disclose their interstate, intrastate, and international rates and
ancillary service charges to consumers ``on their websites or in
another reasonable manner readily available to consumers.'' This rule
is now codified at 47 CFR 64.6110(a). The Commission also stated that
ICS providers that are non-dominant interexchange carriers must make
their current rates, terms, and conditions available to the public via
their company websites. In the 2021 ICS Order, the Commission required
providers to separately disclose any charges for terminating
international calls, and to ``clearly label'' as ``separate line
item[s] on [c]onsumer bills'' any amounts charged consumers for site
commissions and international calling.
504. In 2022, the Commission sought comment on expanding the
``breadth and scope'' of the existing consumer disclosure requirements
to reach more ICS consumers and increase transparency regarding the
rates and charges they pay for IPCS. In 2023, the Commission sought
``renewed comment'' on these matters and asked what additional specific
rule changes would be needed to implement the Martha Wright-Reed Act.
505. Scope of Disclosure Requirements. We first expand the scope of
our disclosure requirements to apply to all IPCS providers that provide
any audio IPCS or video IPCS subject to our jurisdiction under the
Martha Wright-Reed Act. This essential step in our implementation of
the Act will ensure that all IPCS consumers will have the same
transparency into their providers' rates, charges and practices
regardless of the type of IPCS they use.
506. Public website Disclosure. Section 64.6110 of our rules
requires ICS providers to disclose certain information on their
websites or in another reasonable manner readily available to IPCS
consumers. The record suggests that this rule, as currently written,
does not allow for adequate information for the public. Some providers
suggest that they have already taken steps to make such information
generally available. Therefore, to promote transparency regarding IPCS
offerings, we revise our rules to require IPCS providers to disclose
their IPCS rates, charges, and associated practices in an easily
accessible manner on their publicly available websites. We note that
the disclosure requirements we impose on publicly-available websites
apply equally to IPCS providers that offer their IPCS services through
web-based applications. This information must be available to all
members of the public, including our state regulatory partners, and not
just to consumers with a preexisting IPCS account with the provider at
any particular facility. Providers must not require that website
visitors open an account with the provider as a precondition to
obtaining website access to the provider's rates and charges. This
disclosure requirement will enable any consumer with internet access to
make informed decisions regarding the provider's IPCS offerings both
prior to opening an account and on an ongoing basis once an account has
been created. It will also allow the Commission, our state
counterparts, and the public to evaluate whether providers' rates,
charges, and associated practices comply with the rules we adopt in the
Report and Order. The Martha Wright-Reed Act makes clear our authority
over intrastate IPCS, but such required public disclosure will allow us
to benefit from the experience of our state regulatory partners. We
anticipate that the additional public awareness will help consumers
make informed choices and generally promote compliance with our IPCS
rules.
507. Building upon the Commission's previous efforts to ensure
transparency of ICS rates and charges, providers are required to post
on their public websites complete information about their IPCS
offerings, including information on rates, charges, and associated
practices. One commenter expressed concern that provider websites
contain ``misleading
[[Page 77337]]
information'' that can cause consumers to select ``high priced
service[s].'' Therefore, we amend our current rules to include
information that will assist consumers in making informed decisions
regarding IPCS. Specifically, we find that providers must include, on
their publicly available websites, information on how to manage an
account, fund accounts, close accounts, and how to obtain refunds of
unused balances. The public website disclosures must also contain
sufficient information to enable IPCS users ``to understand the cost of
a call before picking up the phone.''
508. Methods of Disclosure. To ensure consumers receive the
information necessary to make informed decisions, IPCS providers must
make consumer disclosures available: (a) via the provider's website in
a form generally accessible to the public without needing to have an
account with the provider; (b) via the provider's online and mobile
application, if consumers use that application to enroll; and (c) on
paper, upon request of the consumer. In doing so, we respond to the
record which suggests that information about providers' service plans
may already be provided this way. Likewise, by requiring different
methods of disclosure, we recognize that consumers access these
disclosures in different ways. For example, many incarcerated people
may lack access to the internet, and therefore may have no way of
learning of a provider's rates and charges where availability of these
disclosures is limited to a website or online application. To ensure
these consumers are able to access providers' disclosures, we require
IPCS providers to make their disclosures available on paper if
requested by a consumer, thereby ``devising a framework to ensure that
all IPCS carriers provide such information in a concise, portable, and
easy-to understand format.'' As one commenter explains, a 2022 study
found that ``consumers comprehended and retained financial disclosures
better when they read them on paper than on a computer screen; and
study participants showed even worse retention and comprehension rates
when they read the disclosures on smartphones.'' We anticipate that
requiring these methods of making the necessary disclosures will be
minimally burdensome to providers and relatively straightforward to
implement, while also being familiar to IPCS users based on their
experiences to date.
509. Billing Statements and Statements of Accounts. Based on the
record, we require providers to make available billing statements and
statements of account to all IPCS account holders on a monthly basis,
via the provider's website, or via the provider's mobile or online
application, and in any event, via paper statements upon request. As
demonstrated by the record, however, this is not occurring. Our new
requirement will ensure that consumers receive the necessary
disclosures. Our rules do not presently require providers to make
billing statements and statements of account available to ICS users. In
2022, the Commission proposed to modify the consumer disclosure rules
to ensure consumers receive bills or statements of account from their
providers. The record reveals a lack of consistency as to how IPCS
providers disseminate information regarding their rates and charges to
consumers. Securus contends that consumers and the general public have
access to information on funding fees and taxes and the ``rates
applicable to any facility that Securus serves.'' NCIC contends that
online account access allows ICS providers to reduce customer service
costs; consumers and family members no longer need to call customer
service representatives or ask facility staff for ICS account
information. Most providers offer rate and charge information online
without providing periodic bills or statements of account, although a
few, such as Pay Tel, issue monthly electronic statements to account
holders via online accounts and mobile applications. We conclude that a
consistently applied and transparent requirement is appropriate, and
that all providers must make account-related disclosures to account
holders monthly, which will foster consumer education and consumer
protection.
510. Receiving monthly billing statements or statements of account
will place IPCS account holders on the same footing as consumers
generally, who typically receive monthly bills or statements of account
(either online or via paper statements). Indeed, this is even more
crucial for incarcerated individuals because many do not have the
freedom to check their accounts at regular intervals. We rely in
particular on one commenter's assertion that information on websites or
web applications ``of varying detail and salience'' is not a substitute
for statements in concise, easy-to-read formats. Stephen Raher also
proposes a model statement of account that would provide customized
information based on a consumer's activity. We do not require this type
of statement at this time. In addition, Mr. Raher proposes a working
group for consumer disclosures and billing statements. We do not
believe this is necessary, given our updates to the consumer disclosure
requirements. Given that IPCS providers routinely track and maintain
information on consumers' accounts, they should be able to generate
monthly updates to consumers without undue burden as other
communications service providers routinely do. Given concerns that
certain consumers may not have access to the internet or may have
accessibility issues, we also require providers to issue paper bills or
statements of account upon request by a consumer. In fact, many
providers already make paper statements available upon request. We find
inapposite Pay Tel's opposition to providing paper billing statements
or disclosures based on facility imposed ``restrictions or limits on
paper usage, due to the cost of processing the resulting waste.'' Our
billing statement and disclosure rules govern provider methods of
dissemination; facility practices over paper use are irrelevant.
511. Each IPCS provider is required to make available to account
holders the information they will need to understand any transactions
affecting their accounts. We do not dictate the format of the bills or
statements of account, but require them to include the amount of any
deposits to the account, the duration of any calls and communications
charged to the account on a per-minute basis, the rates and charges
applied to each call and communication for which a charge is assessed,
and the balance remaining in the account after the deduction of those
charges. We recognize that, in light of action we take in the Report
and Order, site commission information does not have to be included.
Whether a provider issues paper statements or online statements, the
disclosures must include this same vital information.
512. Billing Statements and Statements of Account for Alternate
Pricing Plans. We find that additional information must be provided in
billing statements and statements of account for alternate pricing
plans. The billing statement or statement of account must provide for
each service period: (a) call details, including the duration of each
call, and the total minutes used for that service period, and the total
charge including taxes and fees, with explanations of each tax or fee;
(b) the total charges that would have been assessed using the
provider's per-minute rate; (c) the calculated per-minute rate for the
service period, calculated as the charge for the service period divided
by the total minutes used by that consumer, with an
[[Page 77338]]
explanation of that rate; and (d) the breakeven point, with an
explanation of the breakeven point. Also, as discussed above for
billing statements and statements of account for services rendered on a
per-minute basis, the billing statements and statements of account for
an alternate pricing plan must provide information about deposits made
to the consumer's account and the account balance.
513. Repeal of Site Commission Disclosure Requirement. In light of
our action today prohibiting the payment of site commissions related to
IPCS, we repeal Sec. 64.6110(b) of the rules, which requires that
providers ``clearly label'' as ``a separate line item on [c]onsumer
bills'' any amounts charged consumers for facility costs included in
the providers' site commission payments. Given our prohibition against
IPCS providers paying site commissions of any kind associated with
intrastate, interstate, international, jurisdictionally mixed, or
jurisdictionally indeterminate audio and video IPCS, including all
monetary and in-kind site commissions, we find that this rule is no
longer needed. Similarly, given our elimination of ancillary service
charges elsewhere in the Report and Order, we also repeal the portion
of Sec. 64.6110(a) that requires providers to disclose those charges
to consumers.
b. Effective Consumer Disclosures
514. Just as we have required all prior consumer disclosures to be
clear, accurate and conspicuous, we now conclude that all required IPCS
provider disclosures, including those implementing our inactive account
and alternate pricing plan rules, must be clear, accurate, and
conspicuous--the same standard our current rules set for disclosure of
audio rates and ancillary service charges. Adherence to these standards
will allow a reasonable person to readily understand IPCS audio and
video rates and charges. For example, a provider should price its
products in dollars per minute, rather than in dollars per megabyte as
one provider does and which would be confusing to consumers. In this
manner, incarcerated people and their loved ones will be able to
understand the rates and charges they are, or will be, assessed and the
terms and conditions that will apply to a provider's IPCS offerings.
This, in turn, will help them make informed decisions about which
services to purchase and whether an alternate pricing plan would be
beneficial.
515. We expect that the requirement that disclosures be ``clear,
accurate, and conspicuous'' and the other disclosure requirements we
adopt in the Report and Order will ensure IPCS users and the public
will timely receive clear and transparent information about providers'
rates, charges, and practices. We therefore find that our revised
disclosure rules give providers ``clear guidance'' regarding the
information providers must disclose and how it must be disclosed, as
certain commenters urge. These requirements will reduce consumer
confusion when accessing provider websites which, while technically
providing the information required by our rules, continue to be
difficult for consumers to navigate. For example, as one commenter
explains, one provider's ``terms and conditions and privacy policy
collectively total almost 18,000 words,'' with ``the sheer volume and
complexity of this information . . . not reasonably accommodate[ing]
the actual needs of the average consumer.'' This same providers lists
its rates and charges under a page called ``Tariffs.'' Securus's web
page for ``Rates'' does not, in fact, include any rate information,
instead merely stating that its ``rates are in compliance with
applicable state and federal regulations.'' In order to find pricing
information, consumers must navigate to a page labeled ``Tariffs''
which links to each individual state or federal tariff. Thus, the
requested information is on its website, but we find it doubtful that
consumers as a whole would understand what a tariff is and that that is
the place in which they should look for pricing information. Another
provider's rates and charges are included in a page labelled ``Legal
and Privacy,'' giving no indication to consumers that this is the
location of such information. Given these practices, we find that it is
necessary to amend our current rules to ensure that consumers can
easily understand and access such information by requiring that
providers make their rates, charges, and associated practices available
on their websites in a manner in which consumers can easily find the
information. We also find that the disclosures we require with regard
to alternate pricing plans ``should provide sufficient information to
enable consumers to assess the value to them of the [alternate pricing]
plan versus using standard per-minute rate plans.'' In view of these
findings, we decline to adopt a specific ``IPCS label'' for billing
statements and statements of account, as was proposed in the record.
The Public Interest Parties assert that the Commission should adopt a
version of the consumer broadband label adopted in the 2022 Broadband
Label Order so that consumers can make informed decisions before making
a call. They contend that the Commission should tailor a similar label
for IPCS, ``and require . . . providers to make information about their
rates, terms, and conditions of service, including information about
site commissions and international rate components, available generally
to the public in an easily accessed manner.'' We find such an approach
overly prescriptive and unnecessary. To minimize unnecessary burdens on
providers and to allow flexibility, we decline to prescribe a
particular format for disclosures.
c. Accessible Formats for Consumer Disclosures
516. All disclosures concerning IPCS, including disclosures
pertaining to inactive accounts and alternate pricing plans, must be
accessible to people with disabilities. In 2022, the Commission sought
comment on the effectiveness of its rules in providing information
regarding rates, charges, and fees to people who are deaf, hard of
hearing, deaf-blind, or have a speech disability. The Commission
proposed that all disclosures, including those regarding reporting
requirements and charges, be made in an accessible format for
incarcerated persons with disabilities, and invited comment on what
steps it should take to implement that proposal.
517. Based on the record, we revise our consumer disclosure rules
to specify that consumer disclosures must be in accessible formats for
people with disabilities. We agree with commenters that any website
disclosures, billing statements, and statements of account must be in
accessible formats. We do not prescribe specific mechanisms, but afford
providers flexibility to respond to specific requests and make
reasonable accommodations.
d. Alternate Pricing Plan Consumer Disclosure Requirements
518. We adopt consumer disclosure requirements specific to
alternate pricing plans, including disclosures prior to enrollment and
on billing statements and statements of account. In 2022, the
Commission asked ``[w]hat type of consumer outreach or education would
be needed to ensure that consumers are able to choose the [alternate
pricing plan] that best meets their needs.'' The Commission also asked
``what information consumers would need about providers' pilot programs
to help them make informed choices between a pilot program and
traditional per-minute pricing,'' and whether it should require
providers to inform consumers ``how a pilot
[[Page 77339]]
program's prices translate on a per-minute basis, to enable consumers
to make an informed decision between the program and the traditional
per-minute pricing model.'' These rules are in addition to the
disclosure requirements generally applicable to IPCS.
519. Several commenters discuss the benefits of enhanced consumer
disclosure for alternate pricing plans. The Public Interest Parties
assert that ``[e]nsuring that all fees are disclosed should help
protect consumers against junk fees, hidden-fees pricing, and negative-
option subscriptions.'' PPI suggests that such information would allow
consumers to ``consider their likely phone usage and compare
subscription costs to what they would pay under per-minute pricing.''
The Leadership Conference requests the Commission to ``ensure that
consumers are fully informed about alternative pricing structures so
that they can make informed decisions about their choices.'' Securus
suggests that the Commission ``[r]equire baseline disclosures so [the]
consumer can make an informed choice,'' and that the disclosures
include the ``offered terms, (e.g., X number of calls per month for
$X).'' We agree that consumers need some essential information to
assess whether a particular alternate pricing plan best meets their
needs. For example, IPCS consumers should know the format of and
charges for the alternate pricing plan prior to enrollment. Providers
also should ensure that consumers know the terms, conditions and
procedures for renewals, cancellations, and reporting dropped calls, so
they will be in control of the length of time they are enrolled in the
plan and know how to report dropped calls; the option to obtain service
on a per-minute basis, so they are aware that enrollment in the plan is
not the only option available to them; the breakeven point for the
plan, so they will know what their usage level needs to be to benefit
from the plan; and the availability of their usage and billing data
upon request, so they can analyze their past usage and make decisions
about their future enrollment in the plan. The disclosure of the
breakeven point will especially be needed if a provider offers an
alternate pricing plan that is designed for heavy users. A light user
of IPCS, being told what the breakeven point is for such an alternate
pricing plan, and being given an explanation of the breakeven point,
would have information that could be used in deciding whether the plan
makes sense for their circumstances. Accordingly, we find that
providers offering alternate pricing plans must disclose the following
information: (We are listing these items together here to give one list
encompassing the details of alternate pricing plan disclosures.)
--The rates and any added taxes or fees, a detailed explanation of the
taxes and fees, total charge, quantity of minutes, calls or
communications included in the plan, the service period, and the
beginning and end dates of the service period;
--Terms and conditions, including those concerning dropped calls and
communications, automatic renewals and cancellations;
--An explanation that per-minute rates are always available as an
option to an alternate pricing plan and that per-minute rates apply if
the consumer exceeds the calls/communications allotted in the plan;
--The breakeven point, and an explanation in plain language that the
breakeven point is the amount of plan usage the consumer must make to
start to save money compared to the provider's applicable per-minute
rate for the same type and amount of service; and
--The ability to obtain usage and billing data, upon request, for each
of the most recent three service periods (where feasible), including
total usage and total charges including taxes and fees. If the consumer
had not been a customer of the provider during one or more of the three
previous service periods, the provider must give the usage and billing
data for whatever service periods the consumer did use the provider's
services and for which the provider has retained the information. If
the consumer has never been a customer of the provider, then this
requirement does not apply. These disclosure requirements resolve
Leadership Conference's concerns that consumers be informed about costs
and refunds.
520. ViaPath opposes the adoption of consumer disclosure rules
specific to alternate pricing plans, arguing that the Commission's
rules ``already facilitate significant transparency,'' and that
``[c]onsumers are in the best position to determine whether alternative
pricing arrangements meet their needs.'' ViaPath also asserts that
expanded disclosures are not needed because ``[t]here is no record
evidence that prior alternative pricing trials have resulted in
anything other than satisfied customers.'' The evidence ViaPath refers
to is testimony provided by Securus from a small subset of its
customers--meaning we do not have information about how satisfied the
remaining customers were, including the customers whose usage did not
meet the breakeven points in Securus's plans. In particular, ViaPath
cites to Sec. 64.710 of the Commission's rules which requires audible
information about the cost of a call prior to call connection. However,
Sec. 64.710 applies to interstate calls made from correctional
facilities and therefore does not apply to intrastate IPCS calls over
which the Commission now has jurisdiction. Because Sec. 64.710 was
adopted over two decades ago, it does not require providers to give all
the terms and conditions of alternate pricing plans. The other rule
sections referenced by ViaPath--Sec. Sec. 42.10, 42.11, 64.2401 and
64.6110--fare no better. Sections 42.10 and 42.11 of the Commission's
rules do not apply to intrastate services. Also, Sec. 42.10 requires
rate information to be publicly available at one physical location,
which at a minimum, would not be useful to incarcerated people; and
Sec. 42.11 requires the information to be available for submission to
the Commission and state regulatory commissions, not the public or
consumers. Section 64.2401 applies to telephone bills, not to
disclosures at other times, such as when someone is trying to determine
whether to enroll in an alternate pricing plan. Finally, ViaPath
suggests that Sec. 64.6110, the section we are amending here, is
sufficient. Section 64.6110 of the Commission's rules requires, among
other things, that IPCS providers disclose their rates and fees on
their websites or ``in another reasonable manner readily available to
consumers.'' Compliance with this requirement appears less than ideal.
For example, Securus has a website with an obscure URL, and which
provides only rates, not taxes and fees. Another Securus website,
accessed from a link at the bottom of securustech.net, apparently
requires a user to have an account in order to view the rates.
Additionally, despite ViaPath's contention that it is focused on
transparency, simplification and clarity for consumers, an internet
user would not find rates at https://www.viapath.com/ or http://gtl.com/. Links to rates are given at https://www.gtl.net/. From there,
interstate rates are found via a link to a page entitled ``Federal
Tariffs and Price Lists,'' which directs the user to a tariff-like
document for ViaPath--which the average consumer could readily decide
is too difficult to understand. Section 64.6110 currently does not
apply to intrastate or video service for example, or the terms and
conditions associated with alternate pricing plans which we are
permitting for the first time. Taken together, the rule sections listed
by
[[Page 77340]]
ViaPath do not require the disclosure of all of the terms and
conditions for alternate pricing plans for intrastate, interstate, and
international audio and video IPCS, with the consumer being either an
incarcerated person or a friend or family member, with the disclosure
being made before, during or after enrollment in a plan, and with the
disclosure being made to the public, including the Commission. ViaPath
also cites to sections 208 and 403 of the Communications Act, and Sec.
1.711 of the Commission's rules. However, those sections concern the
Commission's authority to address a provider's actions after the fact.
They do not require disclosures to consumers. Thus, even if IPCS
providers perfectly comply with the rule sections listed by ViaPath,
the rules are insufficient to ensure consumers receive the kind of
information needed to make well-informed decisions about participation
in alternate pricing plans generally, and to inform the public so they
may analyze the provider's compliance with our regulations. We find
that the consumer disclosure requirements specific to alternate pricing
plans that we adopt here are necessary to educate and protect
consumers. PPI suggests that providers reveal information such as a
requirement that the consumer has to pay money regardless of whether
the incarcerated caller is allowed to make calls, or pointing out that
subscriptions are not comparable to wireless plans which allow callers
to communicate with anyone of their choosing. We find our consumer
disclosure requirements sufficiently robust to enable consumers to
determine whether a provider's alternate pricing plan is the right
choice for them. Of course, IPCS providers readily may add additional
information that is truthful and useful to consumers to the information
that they are required to provide, at any time they interact with the
consumers, and on website postings that are available to the public.
521. Timing and Manner of Disclosures. In 2022, the Commission
asked whether it should adopt rules ``governing how providers should
disclose to consumers the rates, terms, and conditions associated with
any'' alternate pricing plan. After reviewing the record, we adopt such
requirements here, and conclude that an IPCS provider must make the
alternate pricing plan disclosures identified above available: (a)
before a consumer enrolls in the program (pre-enrollment); (b) upon
request, at any time after enrollment; (c) with a billing statement or
statement of account, and any related consumer communications; and (d)
at the beginning of each call or communication.
522. Pre-Enrollment Disclosures. Before a consumer first enrolls in
an alternate pricing plan, the provider must ensure that the consumer
is fully informed about the plan and the disclosure must provide all
plan details. For example, if the plan consists of 60 calls per month
for $30.00 plus permissible taxes and fees totaling $2.50, the
disclosure must provide the total dollar amount of $32.50, and the
amount of taxes and fees in detail. The terms and conditions also must
give the total dollar amount that will be charged, in this example
$32.50. The provider also must specify and explain the plan's
``breakeven point,'' discussed above. Prior to the consumer's
enrollment, the IPCS provider also must inform the consumer that usage
and billing data will be available upon request before they enroll and
after they enroll in the alternate pricing plan. These disclosures will
enable a consumer to consider their own IPCS needs and the likelihood
that their usage would reach the breakeven point before making a
decision to enroll in the alternate pricing plan and give them comfort
that they will continue to have access to the information they need
over time to decide whether to remain enrolled in that alternate
pricing plan.
523. Disclosures Upon Request at Any Time. In addition to the
disclosures being crucial to a consumer's decision about whether to
enroll in a plan, having access to the disclosures also is important
while a consumer is enrolled in the plan, and after enrollment has
ended. During enrollment in a plan, a consumer may want to check the
provider's procedures for handling dropped calls, for example, or
compare a billing statement to the terms of the plan. After enrollment,
a consumer may want to check their billing statements against the terms
of the plan to ensure the charges were correct or use the information
to determine if they want to enroll in an alternate pricing plan again.
524. Providers must also make available the number of remaining
minutes, calls or communications under the consumer's alternate pricing
plan without the consumer having to initiate a call or communication
that counts toward the minutes, calls or communications allotted in the
plan. This can be achieved via the consumer's account on the provider's
website or via the provider's mobile or online application, for
example. For those without internet access a provider can give this
information via its customer service line, or by whatever mechanism is
permitted by the facility. This disclosure requirement will allow
consumers to monitor their alternate pricing plan usage without
deducting a minute, call, or communication from their plan. The record
indicates that Securus offered this information to consumers of its
subscription plan, suggesting this requirement will not be burdensome
to providers. Therefore, we include this requirement in our alternate
pricing plan consumer disclosure rules.
525. Disclosures with a Billing Statement or Statement of Account.
Each billing statement or statement of account should explain how the
consumer may access the disclosures. The methods for obtaining the
disclosures must include the ability to request a paper copy. The other
methods could include a link to a website or a toll-free telephone
number, or perhaps a complete copy of the disclosures that would be
included with the billing statement or statement of account. With such
access to the disclosures, consumers will be able to confirm the
charges on the billing statement or statement of account, and make
decisions about their continued use of the alternate pricing plan.
526. Disclosures at the Beginning of a Call or Communication. In
addition to disclosing all of the terms and conditions at other times
and upon request, providers must make available, upon request of the
consumer, specific disclosures at the beginning of a call made via an
alternate pricing plan. For example, a provider could offer the option
of this detailed information if a consumer were to ``press two'' at the
beginning of a call. For example, the availability of the alternate
pricing plan disclosures could be announced as part of the information
at the beginning of a call, and the consumer could be told they can
``press 2'' to hear how to obtain the disclosure information online, or
``press 3'' to hear the disclosures read to them. This is similar to
Pay Tel's use of voice prompts, such as by saying: ``For rate
information, press 1 now.'' The IPCS provider must disclose the number
of minutes, calls or communications remaining for the service period
(for plans that have a finite number of minutes, calls, or
communications). This will ensure that IPCS users have the information
they need to determine whether to tailor their usage of IPCS in a given
instance based on the details of the alternate pricing plan they are
enrolled in. The requirement to provide disclosures at the beginning of
a call is currently in Sec. 64.710 of the Commission's rules. Section
64.710 as currently written, however, is insufficient to provide IPCS
consumers
[[Page 77341]]
with adequate information to make an educated decision prior to making
a call. For example, Sec. 64.710 applies to interstate calls made from
correctional facilities, not intrastate calls, and that section
necessarily does not require the provider to offer the disclosure of
all the terms and conditions of alternate pricing plans which are
permitted for the first time in the Report and Order. Therefore, we add
to our rules disclosure requirements at the beginning of the call or
communication which are specific to alternate pricing plans. Securus
states that, for its subscription plans, consumers were informed of the
number of calls remaining at the beginning of each call. Our rule
amendments require providers to give specific information about the
status of the alternate pricing plan, and are broader than Securus's
practice, to ensure that consumers are fully informed about the status
of their use of the plan.
527. Billing and Usage Data. The alternate pricing plan
disclosures--which primarily focus on the alternate pricing plan
itself--also must inform consumers that their own prior usage and
billing data (whether under per-minute pricing or an alternate pricing
plan) are available upon request. This information will further assist
a consumer in deciding whether to enroll in an alternate pricing plan.
The availability of that information upon request while the consumer is
enrolled in a plan will, in turn, enable IPCS consumers to evaluate
whether to remain enrolled in that alternate pricing plan. It also will
ensure that information is available in a manner that is timely for
IPCS users--i.e., when they otherwise are in a position to make such
evaluations, in the event that they have not retained such information
when it otherwise is made available to them. Because we require
disclosures of key information regarding alternate pricing plans in
other circumstances, we anticipate that in many instances IPCS
consumers already will have the information they need, and will not
find it necessary to avail themselves of this option. That said,
because the limited experience of IPCS consumers with such plans, IPCS
consumers may not know what information they will want to have in order
to make an assessment of whether to remain on an alternate pricing
plan, they might not automatically have retained that particular
information. As a result, we expect a consumer's ability to obtain this
information upon request will provide an important backstop that will
not unduly burden IPCS providers above and beyond the alternate pricing
plan disclosures we otherwise require.
528. The usage and billing data must show what the provider charged
for each of the past three service periods (where feasible), including:
(a) the minutes of use for each of the calls or communications made and
the applicable per-minute rate that was charged (where applicable); (b)
the total number of minutes; and (c) the totals charged including the
details of any taxes and fees. The requirement applies only for those
service periods for which the consumer was a customer of the provider.
A service period could be, for example, a month or a week. If a
consumer had been enrolled in an alternate pricing plan, the data must
include the breakeven point for the alternate pricing plan(s), an
explanation of the breakeven point in plain language, and the total
that would have been due for each service period if the provider's per-
minute rate had been used. The consumer's prior usage and billing data
could be made available when the consumer logs into their account on
the provider's website and the provider's online and mobile
applications, but must also be made available on paper upon request of
the consumer, and be made available at any time, whether before,
during, or after a consumer's enrollment in an alternate pricing plan.
As discussed above, we require disclosures to be available on paper so
that they are accessible to people who do not have internet access.
529. These requirements respond to a record suggestion that ``a
monthly accounting comparing the costs under a pilot program and the
applicable per-minute rate would help IPCS consumers understand whether
they will benefit or are benefitting from an alternative pricing
structure.'' While one commenter advocates for disclosures of a
consumer's historical IPCS usage and expenditures ``over a long
period'' to ``account[ ] for periodic variations in usage,'' we limit
the data IPCS providers must provide to the calling records for the
most recent three service periods (where feasible) so as not to
overwhelm consumers with large quantities of data, or create an overly
burdensome requirement on providers. Although Securus stated that it
made monthly statements of account available for 90 days for services
outside of its subscription plan, we require data for at least the most
recent three ``service periods'' so that the consumer can see their
usage during three similar periods of time, and see the complete
charges and taxes and fees for those service periods. The use of
``three service periods'' also would be a more reasonable request for
alternate pricing plans offered on a weekly basis, rather than
requiring a provider deliver up to 90 days of data (equivalent to
approximately 12 weeks of data) which may be overwhelming to the
consumer and may be onerous for the provider. For an alternate pricing
plan with a service period of one month, the data provided would be for
three months--i.e., approximately 90 days. For an alternate pricing
plan with a service period of one week, the data provided would be for
three weeks--i.e., 21 days.
2. Treatment of Unused Balances in IPCS Accounts
a. Adoption of Permanent Rules
530. We next adopt permanent rules addressing the treatment of
unused funds in IPCS accounts that build upon the interim rules that
the Commission adopted in the 2022 ICS Order. We now update our interim
rules to reflect our expanded authority over IPCS, and adopt permanent
rules to provide IPCS account holders with informational, procedural,
and financial protections that help ensure that IPCS account holders
are able to maintain control over the funds in their accounts and
receive refunds of any unused funds in a timely manner. Collectively,
these measures, consistent with several providers' affirmative
statements that refunds are always available, remove obstacles that, as
a practical matter, have largely prevented account holders from
receiving refunds of unused funds.
531. We take these actions pursuant to our authority under section
276(b)(1)(A) of the Communications Act, as amended by the Martha
Wright-Reed Act, and, to the extent the underlying accounts can be used
for interstate or international telecommunications services, pursuant
to section 201(b) of the Communications Act. We conclude that any
action (whether by a provider, a provider's affiliate, or an entity
acting on the provider's or the affiliate's behalf) inconsistent with
our revised rules for unused IPCS account funds would unreasonably
impede our ability to ensure just and reasonable IPCS rates and
charges, as required by section 276(b)(1)(A), and to the extent
interstate or international telecommunications services are involved,
would constitute an unreasonable practice within the meaning of section
201(b) of the Communications Act. We recognize that the 2022 ICS Order
characterized the Commission's interim rules governing unused balances
as guarding against ``unjust and unreasonable practice[s] within the
meaning of section 201(b) of the [Communications] Act.'' Because
[[Page 77342]]
section 201(b) broadly addresses just and reasonable charges and
practices for or in connection with interstate and international common
carrier services, the Commission had no cause at that time to parse
more closely the precise relationship between those rules and ensuring
just and reasonable rates and charges for IPCS. Examining that issue
more closely now, we conclude that rules addressing the treatment of
unused funds in IPCS accounts bear on the effective rates or charges
that IPCS users pay to establish and maintain an account and use IPCS
services. In particular, we find that the risk that an IPCS user will
lose funds they contributed to an IPCS account effectively increases
the overall cost of IPCS by reducing the IPCS usage they can count on
receiving for a given amount of funds in an IPCS account. We therefore
conclude that these regulations--designed to mitigate that risk--
appropriately are part of a compensation plan designed to ensure just
and reasonable rates and charges for IPCS within the meaning of section
276(b)(1)(A). Notably, no commenter disputes the Commission's legal
authority in this regard.
b. Background
532. In the 2022 ICS Order, in response to allegations of abusive
provider practices, the Commission adopted interim rules that prohibit
providers from seizing or otherwise disposing of funds in inactive
inmate calling services accounts until the accounts have been
continuously inactive for at least 180 calendar days. The record at the
time showed how providers would confiscate, for their own use, funds in
accounts they deemed ``inactive'' after a certain period of time,
resulting in significant windfalls. The Commission was concerned that
by taking possession of unused funds in customers' accounts, providers
were ``depriv[ing] consumers of money that is rightfully theirs.''
Under the interim rules, once the 180-day period has run, providers
must make reasonable efforts to refund all funds in the accounts to the
account holders and, if those efforts are unsuccessful, treat those
funds in accordance with any controlling judicial or administrative
mandate or applicable state law requirements. The Commission found, on
an interim basis, that all funds deposited into any account that can be
used to pay for interstate or international inmate calling services
remain the property of the account holder unless or until they are
either: (a) used to pay for products or services purchased by the
account holder or the incarcerated person for whose benefit the account
was established; or (b) disposed of in accordance with a controlling
judicial or administrative mandate or applicable state law
requirements, including, but not limited to, requirements governing
unclaimed property. The Commission used its authority under section
201(b) of the Communications Act to prohibit unjust and unreasonable
practices, explaining that its ``actions extend to commingled accounts
that can be used to pay for both interstate and international calling
services and nonregulated services such as tablets and commissary
services.''
533. In the 2022 ICS Further Notice, the Commission sought comment
on whether the Commission should adopt additional requirements
regarding inactive accounts to protect consumers as it adopts final
rules. Specifically, the Commission sought comment on the length of the
time before an account could be deemed inactive, and the actions that
would be sufficient to demonstrate activity. It also sought comment on
other issues, including whether to require providers to issue refunds
within a specified period of time once an account has been deemed
inactive, whether providers should be required to collect contact
information from and provide notice to account holders, and what types
of mechanisms providers should use to refund amounts to consumers.
c. Discussion
(i) Consumers' Right to Funds
534. The Commission's interim inactive account rules provide that
``funds deposited into a debit calling or prepaid calling account . . .
shall remain the property of the account holder unless or until the
funds are'' used or disposed of in accordance with our rules, including
as required by controlling adjudicatory decisions or state law.
Building on that general foundation, the permanent rules for inactive
accounts we adopt today are designed to safeguard the funds consumers
deposit in IPCS accounts, thereby ensuring that the effective costs of
IPCS are not unduly increased in a manner that is at odds with our
mandate to ensure just and reasonable rates and charges for IPCS. Our
permanent rules also reaffirm the Commission's interim rules that bar
IPCS providers from improperly ``seiz[ing] or otherwise dispos[ing] of
unused funds'' in inactive accounts,'' and require providers to
undertake ``reasonable efforts'' to refund unused funds.
(ii) Scope of the Inactive Account Rules
535. We now extend our rules to all accounts that can be used to
pay an IPCS-related rate or charge, to the extent the provider or its
affiliate controls the disposition of the funds in the accounts. The
interim rules for inactive accounts apply to ``all funds deposited into
a debit calling or prepaid calling account,'' as those terms are
defined in the Commission's rules. While for all practical purposes our
rules do not distinguish between debit and prepaid calling accounts,
given the prevalence of the use of these terms in the industry, our
rules continue to reference these terms in our definition of ``IPCS
Account.'' We now conclude that our permanent rules for the treatment
of balances in inactive IPCS accounts apply to any type of account,
that can be used to pay for IPCS, to the extent the provider or its
affiliate controls the disposition of the funds in the account. In
other words, we find that our rules are applicable to all IPCS accounts
generally to the extent they are controlled by providers or their
affiliates. Our rules do not generally extend to payment mechanisms
other than accounts. To the extent a provider offers only one payment
mechanism to pay for IPCS rates and charges at a facility, that payment
mechanism is subject to the inactive account requirements even if that
mechanism is not an ``account.'' For example, NCIC asserts that
``[s]ome companies sell virtual calling cards with `no refund'
policies.' '' While we do not generally include prepaid calling cards
for the payment of IPCS in our definition of an IPCS account, we
nonetheless conclude that providers that do not offer consumers an
alternative means of paying ongoing charges other than a prepaid
calling card are nonetheless subject to the inactive account
requirements we impose here.
536. Our definition of ``IPCS account,'' and hence the
applicability of our inactive accounts rules, extends to all accounts
administered by, or directly or indirectly controlled by a provider or
an affiliate, that can be used to pay IPCS rates or charges, including
accounts where the incarcerated person is the account holder,
regardless of whether those accounts can also be used to pay for
nonregulated products or services such as tablets and commissary
services. These accounts are used for ``debit calling'' under our
current rules. This treatment is consistent with the Commission's
decision, in the 2022 ICS Order, to extend its interim inactive account
rules to commingled accounts that could be used to pay for regulated
[[Page 77343]]
and nonregulated charges if providers administered or controlled those
accounts. Consistent with the Commission's analysis in the 2022 ICS
Order, we conclude that where we have authority under section 201(b)
and/or section 276 of the Communications Act to regulate the rates,
charges, or practices associated with communications services, our
authority extends to the nonregulated portion of a mixed service where
it is impossible or impractical to separate the service's regulated and
nonregulated components. Because the 2022 ICS Order was adopted before
the enactment of the Martha Wright-Reed Act, the Commission's decision
was based on section 201(b) of the Communications Act. The now-revised
section 276 of the Communications Act provides additional authority for
our decision here.
537. In the 2020 ICS Order on Remand, the Commission found that
ancillary service charges ``generally cannot be practically segregated
between the interstate and intrastate jurisdiction'' except in a
limited number of cases where the ancillary service charge clearly
applies to an intrastate-only call. Applying the impossibility
exception, the Commission concluded that providers generally may not
impose any ancillary service charges other than those specified in the
Commission's rules and are generally prohibited from imposing charges
in excess of the ancillary service fee caps. Similarly, commingled
accounts offered by providers contain funds that can be used to pay
IPCS rates and charges, over which the Commission has jurisdiction, as
well as charges for nonregulated products and services. Because we
cannot practically segregate the portion of the funds in providers'
commingled accounts that may be used to pay IPCS-related rates and
charges from the portion that may be used to pay nonregulated charges,
we conclude that commingled accounts should be subject to our permanent
rules regarding the treatment of unused funds in inactive accounts. In
the 2020 ICS Order on Remand, the Commission distinguished between
automated payments made to fund an account before calls are completed
and fees are incurred, from automated payments made after a call is
made and therefore the jurisdiction has been determined. The funds at
issue here are akin to the former situation where the funds cannot be
separated by jurisdiction, so the Commission applied the inactive
accounts rules to the corresponding automated payment fees.
(iii) Inactive Period
538. We retain the requirement that 180 consecutive calendar days
must pass before a provider may initiate the process of determining
that an IPCS account has become inactive, except where state law
affirmatively sets a shorter alternative period, or the incarcerated
person for whom the account was established is released from
confinement or transferred to another correctional institution. In
2022, the Commission invited comment on whether the 180-day timeframe
specified in our interim rules is the appropriate time frame before an
IPCS provider may deem an account to be inactive and therefore begin
the process of making reasonable efforts to refund the funds to the
account holder. Consistent with the position of several commenters, we
find that a 180-day time frame offers account holders an adequate
window during which they may exert custody or control before their
account is deemed inactive, without imposing unwarranted burdens on
providers. In contrast, the 364-day inactive period proposed by one
commenter, or any longer alternative period set by state law, would
unnecessarily delay the refund to consumers of unused funds from
accounts deemed inactive while imposing increased burdens on providers.
539. In 2022, the Commission asked for comment on the release and
transfer process ``to better understand the need for rules addressing
those areas.'' Based on the record, we find that if a provider becomes
aware that an incarcerated person has been released or transferred, the
180 days of inactivity will presumptively be deemed to have run,
requiring a provider to begin processing a refund in accordance with
the requirements we adopt in the Report and Order subject to
countervailing direction from the account holder. We agree with Securus
that in situations where accounts ``are not specific to any facility or
incarcerated person and may be used for calls from multiple
facilities,'' the account holder ``may very reasonably wish to keep
funds deposited in their . . . account to continue communicating with
other individuals.'' To ensure that the account holder's preference is
implemented in situations where the provider becomes aware that an
incarcerated person has been released or transferred, we require that
the provider contact the account holder prior to closing the account
and refunding the remaining balance, to determine whether the account
holder wishes to continue using the account, or to close it and obtain
a refund from the provider in accordance with our requirements. If the
account holder so requests, the account will be deemed inactive under
our rules, and the provider must issue a refund in accordance with our
requirements.
540. Consistent with the 2022 ICS Order, our rules do not disturb
the ability of account holders to obtain a refund upon request during
the 180-day period of inactivity. Under no circumstances other than
those described above, however, can a provider dispose of the funds in
an IPCS account prior to 180 days of continuous inactivity without the
account holder's affirmative consent. And, once the account holder
provides that consent, the provider must refund any remaining funds in
accordance with the requirements set forth below. Together, these steps
will help ensure that account holders are not deprived of funds that
are rightfully theirs, thereby effectively saddling account holders
with unjust and unreasonable rates.
541. The interim rules for inactive accounts required that the
inactivity period be continuous and specified the actions by the
account holder or the incarcerated person for whom the account had been
established that would be sufficient to restart the inactivity period--
for example, adding or withdrawing funds from the account, expressing
an interest in retaining the account, or otherwise exerting or
attempting to exert control over the account. In 2022, the Commission
invited comment on whether it should refine these rules and, in
particular, on whether other actions by the account holder or the
incarcerated person should restart the inactivity period. We retain the
requirement that the inactivity period be continuous, as well as the
requirement that the inactivity period restart when the account holder
or the incarcerated person for whom the account is maintained: (a)
deposits, credits, or otherwise adds funds to the account; (b)
withdraws, spends, debits, transfers, or otherwise removes funds from
an account; (c) expresses an interest to the IPCS Provider in
retaining, receiving, or transferring the funds in an account; or (d)
otherwise attempts to exert or exerts ownership or control over the
account or the funds held in the account.
542. We also clarify that an account holder may use any reasonable
means to convey to a provider its interest in retaining, receiving, or
transferring funds in an account, including by calling, emailing, or
writing to the provider, or by affirmatively responding to a provider
inquiry asking whether the
[[Page 77344]]
account should remain open. A means of communication is ``reasonable''
for this purpose if it is a means of communication between the provider
and account holder otherwise used in other situations, or if the
service agreement provides for it as an additional means of
communication in the specific scenario of such communications. This
will guard against the risk that mere difficulty in communicating with
the provider would result in an account qualifying as inactive under
our rules, triggering the need for the account holder to go back
through the steps of (re)establishing an account and risking the
inability to engage in IPCS communications in the meantime. At the same
time, it only holds the provider accountable for using the means of
communications with the account holder that they otherwise are using
already, along with any additional means specified for these purposes
in their service agreement.
543. In addition, the record makes clear that providers often lack
the information they will need to complete the refund process. To
eliminate this potential roadblock, we urge providers to allow the
account holder to specify an individual to which a refund should go to
the extent the provider's existing systems can accommodate such a
change. In the Further Notice, we invite comment on whether we should
require that all providers follow this ``best practice.''
(iv) Required Refunds
544. We now adopt permanent rules that reaffirm the requirement
that, once an IPCS account is deemed inactive, providers must take
proactive steps to issue a refund to the account holder in accordance
with the requirements set forth below. The record makes clear that both
a refund mandate and rules implementing that mandate are needed to keep
providers from continuing to retain the funds in inactive accounts and
appropriating them to their own uses, which increases the effective
cost of IPCS to consumers contrary to our statutory mandate to adopt a
compensation plan for IPCS that ensures just and reasonable rates and
charges. The requirement to initiate a refund for inactive accounts is
consistent with and in addition to the underlying obligation of
providers to refund accounts generally upon request by an account
holder.
545. Both the refund mandate and our implementing rules will apply
to all accounts within our definition of ``IPCS account.'' We find
unavailing Securus's argument that we should not require refunds from
accounts held by incarcerated people because the funds in them are not
considered abandoned while the account holder remains incarcerated and
``are routinely refunded upon transfer or release.'' We commend
correctional institutions and certain providers for having procedures
in place to ensure that all funds in an IPCS account are refunded once
an incarcerated person is released or transferred. And, as Securus
recognizes, providers typically rely on correctional institutions to
advise them when an incarcerated person is released or transferred.
Since correctional institutions do not always share that information
with providers, Securus's argument underscores the need for providers
to take proactive steps to ensure that account holders are aware that
refunds are available once their accounts are deemed inactive. As we do
in circumstances where a provider becomes aware that an incarcerated
person has been transferred or released, we similarly require that when
a refund otherwise becomes due under our rules at the expiration of the
180-day inactivity period, the provider must contact the account holder
prior to closing the account and refunding the remaining balance, to
determine whether the account holder wishes to continue using the
account, or to close it and obtain a refund from the provider in
accordance with our requirements.
546. We disagree with certain commenters' assertions that we should
not require refunds from accounts that ``are never deemed inactive'' or
``never expire.'' While such accounts in theory preserve the value of
consumers' deposits, the longevity of these accounts is of no practical
use to account holders if they are not aware that refunds are
available. And even in situations where account holders are aware of
the availability of refunds, the rules we adopt today ensure that they
have a mechanism enabling them to have the amounts in those accounts
returned to them. Thus, regardless of how providers may characterize
IPCS accounts, under the rules we make permanent today, an account that
can be used to pay for IPCS rates and charges becomes inactive after
180 consecutive calendar days unless certain conditions are met.
547. We conclude that, for purposes of the Commission's inactive
account rules, regardless of whether an account remains open in
perpetuity, the provider must take proactive steps to refund the entire
balance of the account once it is deemed inactive within the meaning of
our rules. The amount refunded must include the entire balance of the
account, and, consistent with our elimination of ancillary service
charges generally, the provider shall not impose fees or charges in
order to process the refund. Additionally, in calculating the refund
balance, the record supports requiring that the provider include in the
refund any deductions it may have made in anticipation of taxes or
other charges that it assessed when funds were deposited and that were
not actually incurred. This will prevent providers from profiting from
practices such as assessing taxes or fees upfront on deposited funds,
rather than at the time of the account holder's actual payment for
service.
(a) Timing of Refunds
548. In 2022, the Commission invited comment on whether it should
adopt a time frame for refunds to be issued and the length of time
needed to process refunds. The Commission also asked for comment on
reasonable time frames to issue refunds in response to requests for
refunds received before an account became inactive, and how much time
was needed to process such requests. Based on the record, we find that,
as part of providers' duty to make reasonable efforts to refund
balances in accounts deemed inactive, refunds must be issued within 30
calendar days of an account being deemed inactive or within 30 calendar
days of a request from an account holder. We find suggestions in the
record that requests for refunds should be issued within five to seven
business days to likely be too short a time period for providers to
process refunds. We therefore find it reasonable instead to allow 30
days for the completion of the refund process. While one commenter
urges us to leave this time period open ended, because we now require
that refunds be issued automatically once an account becomes inactive
and the provider has contacted the account holder to determine whether
the account holder prefers to keep the account active or receive a
refund in accordance with our rules, it is reasonable to expect that
refund issuances will be completed within 30 calendar days. Likewise,
we find that our new requirements that providers gather contact
information and the means of issuing refunds when an account is opened
will streamline the refund process such that a longer, or
indeterminate, time period is not reasonable. We note that a provider's
duty to conduct a timely refund process is not contingent on an
affirmative request by the account holder for a refund. The provider
must make reasonable efforts in the prescribed timeframe, as described
below, to give account holders a reasonable
[[Page 77345]]
opportunity to receive the refund or affirmatively request that the
account be deemed active.
549. Our rules require that ``[a]fter 180 days of continuous
account inactivity have passed, or at the end of any alternative period
set by state law, the provider must make reasonable efforts to refund
the balance in the account to the account holder. In response to
several commenters' suggestions, we take the opportunity to clarify
that ``reasonable efforts'' include, but are not limited to: (a)
notification to the account holder that the account has been deemed
inactive; (b) the collection of contact information needed to process
the refund; and (c) timely responses to account holders' inquiries
regarding the refund process. It is self-evident that taking no steps
to effectuate refunds is not reasonable.
550. We agree with commenters that account balances should be
automatically refunded once accounts have been deemed inactive. We find
that requiring the account holder to affirmatively request a refund is
inconsistent with the fact that the funds in the account are the
account holder's property. As the Commission has recognized, providers
``have strong incentives to retain these funds for themselves.'' Given
these incentives, we find it appropriate to require providers to
initiate and follow through on the refund process, including refunding
all remaining money, once an account becomes inactive.
551. We reject certain providers' suggestions that it is
``impossible'' or overly burdensome for providers to make automatic
refunds. These arguments are based on assertions that some providers
presently lack the information needed to generate automatic refunds or
have not yet established procedures to process automatic refunds. Those
arguments are unavailing. We strongly disagree that ``mandating routine
inactivity refunds rather than refunds upon release or transfer will
impose costs and burdens that far outweigh any demonstrated benefit.''
The record of the abuses by providers retaining account holders' funds
for their own use is extensive. Retention of those funds has functioned
as an additional charge on consumers that, if continued, would
undermine our efforts to establish a compensation plan that ensures
just and reasonable IPCS rates and charges for consumers. While the
benefits of automatic refunds may seem slight to some providers, the
record makes clear the importance consumers place on receiving this
money. In contrast to that substantial evidence of the benefits of such
a requirement, providers have failed to adequately quantify the claimed
burdens of compliance, let alone demonstrate outright impossibility of
complying. To the extent that providers already issue refunds upon
release or transfer, nothing in our rules prevents this practice from
continuing and we support any efforts taken by providers to ensure
refunds are promptly issued. Indeed, the fact that providers have
demonstrated the ability to promptly issue refunds based on certain
triggering events--such as release or transfer--gives us confidence
that it will be reasonably feasible for them to establish the processes
(if not already in place) in order to promptly issue refunds based on
the triggering event of an account's inactivity under our rules. We
thus require providers to collect whatever information and establish
any procedures they will need to process refunds expeditiously as
required by our new rules.
552. We do, however, acknowledge commenters' concerns regarding the
administrative burden of providing automatic refunds for inactive
account balances that are below the cost of issuing the refund. As
Securus explains, ``[i]ssuing refunds on small account balances will
result in the ICS provider incurring costs to administer those funds
exceeding the value of the amount refunded.'' The record contains
relatively little quantitative data regarding the point at which
issuing a refund would cost more than the balance in the account. Pay
Tel suggests that an account balance of $1.00 might be a sufficient
cutoff point, while Securus suggests that the Commission adopt a $1.50
de minimis threshold. Additionally, the record suggests that there may
be circumstances in which providers might effectuate refunds through
third parties such as Western Union and that ``those third parties will
charge for their role in issuing refunds.'' Given these choices, we
adopt the more conservative of the two options provided to us in the
record and therefore do not require automatic refunds where the balance
in an inactive account is $1.50 or less. This de minimis threshold
applies in the absence of ``a consumer's specific request'' for a
refund. Thus, if an account holder requests a refund, providers must
comply with such a request regardless of the amount of money remaining
in the account. And, consistent with our rules, to the extent providers
are unable to issue a refund, the provider shall treat such balances
consistent with appliable state law, including applicable state
unclaimed property law.
(b) Refund Mechanisms
553. The record suggests that there are a variety of methods
available to providers to refund the balances in inactive accounts.
Rather than prescribe a specific mechanism, we suggest several options
which providers may offer to account holders that are supported by the
record. As a general matter, Securus asserts that it ``will tailor its
refund method to the method used by the account holder to fund the
account,'' which suggests that providers are able to offer different
refund mechanisms. Indeed, Securus indicates that if an account is
funded via a payment card, it will ``initiate a refund using the
payment card information on file.'' For accounts funded using a check
or money order, Securus indicates that it ``will issue a paper check
that will be sent via postal mail using the address information on
file.'' Other commenters similarly suggest that ``[r]efunds should be
issued either to the account holder's original form of payment or to a
credit or debit card provided by the account holder at the time of the
request'' or through an electronic fund transfer to a bank account.
Given record evidence of the availability of a variety of refund
mechanisms, we find that providers must issue refunds in the original
form of payment, an electronic transfer to a bank account, a check, or
a debit card. We find that offering multiple refund mechanisms will
ensure that barriers created by certain methods are avoided. While
providers appear to use refund mechanisms that offer similar
optionality to consumers, we emphasize that any refund mechanism that
requires that an account holder affirmatively request a refund after
the account has been inactive for 180 days would violate our rules.
Such requirements may be appropriate when an account holder seeks a
refund while an account is active, but cannot be a barrier to receiving
a refund once an account is deemed inactive.
(v) Required Notices
554. We conclude that additional requirements are needed to ensure
that account holders maintain control over IPCS accounts and receive
refunds in a timely manner. As discussed above, we impose certain
disclosure requirements on providers, including requiring the posting
of their terms and conditions of service on their publicly available
websites, the posting of their obligation to refund unused balances
upon request, and other more detailed disclosure requirements related
to their inactive
[[Page 77346]]
account balance procedures. We now also require providers to provide
account holders, through their billing statements and statements of
account, notice of the status of IPCS accounts prior to their being
deemed inactive. This notice shall initially be provided at least 60
days prior to an account being deemed inactive. It shall be included in
each billing statement, or statement of account, the provider sends, or
makes available to, the account holder until either some action by the
account holder results in the inactivity period being restarted or the
account is deemed inactive. We agree with ViaPath that notices should
be provided to the account holder only. This notice must describe how
the account holder can keep the account active, as well as how the
account holder may update the refund information associated with the
account. We emphasize that providers may supplement their compliance
with these requirements with any additional measures they deem
appropriate to keep account holders informed of the status of their
accounts and how to update their account information.
(vi) Controlling Judicial or Administrative Mandate
555. We also adopt an exception to our permanent rules regarding
the disposition of funds in inactive accounts that allows a provider to
dispose of funds in inactive accounts in compliance with a controlling
judicial or administrative mandate. Our interim rules included an
identical exception, which the Commission proposed to retain in 2022,
and was supported in the record. We also update the definition of
``controlling judicial or administrative mandate'' from the interim
rules to make clear that this exception to our rules regarding the
disposition of funds in inactive accounts applies to all incarcerated
people's communications services now subject to our authority. This
revised definition encompasses any final court order that requires an
incarcerated person to pay restitution, any fine imposed as part of a
criminal sentence, and any fee imposed in connection with a criminal
conviction to the extent that these payments are required to be made
from an account that could be used to pay IPCS rates or charges. The
revised definition also includes applicable state law requirements,
including, but not limited to, requirements concerning unclaimed
property in such accounts. Finally, the definition excludes from the
scope of our final rules acts taken pursuant to a final court or
administrative agency order adjudicating a valid contract between an
IPCS provider and an IPCS account holder, entered into prior to the
release date of the Report and Order, that allows or requires the
provider to act in a manner that would otherwise violate our rules
regarding the disposition of funds in inactive accounts.
556. In 2022, we invited comment on ``the ultimate disposition of
unclaimed funds in a debit calling or prepaid calling account in
circumstances where a provider's refund efforts fail and state law does
not affirmatively require any particular disposition.'' We conclude
that the provider's inability to refund money remaining in an inactive
account does not alter the account holder's entitlement to use them or
ultimately have them refunded as a matter of our rules. Consequently,
the account holder's preexisting entitlement to those funds would be
altered only where controlling judicial or administrative mandate or
state law affirmatively requires otherwise. Therefore, as advocated by
some commenters, we find that if reasonable efforts by providers to
refund the funds in inactive accounts fail, the ``provider should be
required to treat remaining funds consistent with applicable state
law,'' including applicable state unclaimed property laws. While some
commenters urge us to adopt specific unclaimed property requirements to
be applied at the state level, we find compliance with state law to be
presumptively reasonable. We note, however, concerns raised in the
record that providers will forum shop for favorable unclaimed property
laws outside of the location where the account holder resides. We find
instead that providers will be subject to the standards the courts have
articulated for resolving choice-of-law questions generally and rely on
courts to address abuse by providers regarding choice-of-law matters.
H. Other Matters
1. Rule Revisions
557. In the Report and Order, we revise our rules pursuant to the
direction of the Martha Wright-Reed Act. In particular, we amend our
rules to make consistent use of the terms ``incarcerated people's
communications services,'' ``IPCS,'' and ``incarcerated people,'' as
opposed to ``inmate calling services,'' ``ICS,'' and ``inmates,'' terms
previously used in this proceeding. In 2023, the Commission proposed to
revise its rules to use the term ``incarcerated people's communications
services'' or ``IPCS'' instead of ``inmate calling services'' or
``ICS'' to refer to ``the broader range of communications services
subject to the Commission's jurisdiction as a result of the [Martha
Wright-Reed] Act.'' The Commission also proposed to ``change[ ]
references to `inmates' to `incarcerated people,' '' as public interest
advocates urge. Nearly all commenters addressing the subject support
these revisions. Indeed, several commenters use the term ``IPCS'' in
place of ``ICS'' in their comments, following the Commission's proposed
approach. Additionally, we note that these changes are consistent with
and advance the Commission's goal of digital equity for all.
558. Securus argues that the ``the replacement of `calling
services' with the broader, and [in Securus's view] somewhat ambiguous
term `communications services' '' may ``engender confusion.'' Securus's
concern appears to focus on ``retaining the distinction'' between audio
communications and video communications, ``to avoid any suggestion that
they may be subject to the same regulatory framework when in fact they
are quite different services.'' Securus therefore suggests that we
adopt the terms ``incarcerated calling services'' and ``incarcerated
video services'' to refer to these respective types of communications
services. We are not convinced that incorporating the term
``incarcerated people's communications services'' into our rules would
have this effect. First, the Act explicitly contemplates a unified
regulatory framework for these services by granting the Commission
authority over ``any audio or video communications service used by
inmates.'' The language of section 276, as modified by the Act, also
refers to these types of services collectively. Second, these
respective services share, to a substantial extent, similar operating
conditions as well as being commonly subject to critical aspects of our
regulatory framework (consistent with the Act), which warrants the use
of a single term that encompasses all services under our jurisdiction.
To the extent that the treatment of these two types of services differ
under our regulatory framework, this distinction is effectively
encapsulated by our use of the terms ``audio IPCS'' and ``video IPCS.''
Accordingly, we revise our rules to change all references to ``inmate
calling services'' or ``ICS'' to instead refer to ``incarcerated
people's communications services'' or ``IPCS,'' respectively, and to
change all references to ``inmates'' to ``incarcerated people.'' We
will, however, continue to use the term ``inmate calling services'' or
``ICS'' to refer to historic Commission actions in WC Docket No. 12-
375. We encourage
[[Page 77347]]
commenters and other participants in this proceeding to adopt these
changes in their submissions going forward.
559. We also revise our rules to incorporate terms used in the
Martha Wright-Reed Act and to implement our actions in this Order.
These revisions include changes to certain definitions in Sec. 64.6000
of our rules, and reflect the extension of the application of our rules
to intrastate IPCS, the addition of new rules addressing alternate
pricing plans, and changes to our disability access, rate cap,
ancillary service charge, annual report and certification, inactive
account, and consumer rules.
2. Definitions of Prison and Jail
560. In 2022, the Commission sought comment on modifying the
definitions of ``Jail'' and ``Prison'' in its rules ``to ensure that
they capture the full universe of confinement facilities'' such as
civil commitment, residential, group and nursing facilities. Two
commenters, the Accessibility Coalition and UCC Media Justice, filed ex
partes agreeing that the Commission should expand the definitions of
``Prison'' and ``Jail'' as suggested. In addition, the Commission
sought comment on its authority to apply the inmate calling services
rules, including those addressing communications access for people with
disabilities, to these facilities. In addition, the Commission asked
commenters to address whether residents of such facilities are able to
access voice and other communications services through providers of
their own choice, as opposed to being limited to the providers selected
by third parties. In 2023, the Commission again invited comment about
whether to expand the definitions of ``Jail'' and ``Prison'' to include
these facilities, or any additional facilities, as part of the
definitions of ``Jail,'' ``Prison,'' or ``Correctional Facility.''
561. Numerous commenters support expanding the definition of
``Jail'' to cover ``civil commitment facilities, residential
facilities, group facilities, and nursing facilities in which people
with disabilities, substance abuse problems, or other conditions are
routinely detained.'' One commenter urges the Commission to continue to
``expand protections for vulnerable populations subject to various
forms of detention.'' Another asserts that ``[j]ust as incarcerated
people with disabilities in prisons and jails, as currently defined in
the Commission's rules, face inequitable access to communications
services, so too do those confined to civil commitment facilities.''
Two commenters raise concerns that the definition of ``Jail,'' as
amended in the 2022 ICS Order, ``did not fully capture the Commission's
intent to include every type of facility where individuals can be
incarcerated or detained,'' in particular immigrations detention
facilities. Specifically, they point out that, although the Commission
incorporated into its definition of ``Jail'' ``facilities used to
detain individuals, operated directly by the Federal Bureau of Prisons
or U.S. Immigration and Customs Enforcement, or pursuant to a contract
with those agencies,'' it failed to include similar facilities operated
by Customs and Border Protection (CBP) or the U.S. Marshals Service
(USMS). Given the similar nature of these agencies and their
corresponding facilities, theses commenters urge us to add detention
facilities operated by, or pursuant to a contract with, CBP or USMS to
the definition of ``Jail'' in our rules.
562. Other commenters oppose expanding our definition of ``Jail''
as proposed. The National Sheriffs' Association questions whether the
types of facilities the Commission sought comment on including in its
definition of ``Jail'' fall within the scope of section 276 of the Act
which applies to ``the provision of inmate telephone service in
correctional institutions.'' One provider argues that our IPCS
regulations ``should apply only to facilities that contract with ICS
providers to install and maintain secure, corrections-type
communications systems.'' The National Sheriffs' Association also
contends that ``it is unlikely that calling services in [civil
commitment, residential, group, and nursing] facilities have the same
cost characteristics of providing calling services in jails and
prisons.''
563. Consistent with the Commission's intention in the 2022 ICS
Order, we modify the definition of ``Jail'' to cover all immigration
detention facilities. This definition therefore encompasses every
immigration detention facility operated by, or pursuant to a contract
with, ICE, CBP, USMS, or any other federal, state, city, county, or
regional authority. This modification to the definition of ``Jail''
addresses this unintended gap in our rules and also follows the Martha
Wright-Reed Act's directive that we ensure ``just and reasonable
charges for telephone and advanced communications services in
correctional and detention facilities.''
564. We decline at this time to make further modifications to the
definitions of ``Prison'' and ``Jail'' in our rules. While we agree
with certain commenters that individuals in certain other facilities
should benefit from the protections of the IPCS rate caps and other
rules we adopt here, based on the current record, we find we lack
sufficient information and data to address the issues raised in the
record. Given our lack of data, particularly on the costs providers
incur in providing service in these types of facilities, we do not find
we have sufficient confidence at this time that the rate caps we adopt
herein would fairly compensate providers for providing service to such
facilities. We seek additional comment on these issues in the attached
Notice.
3. Annual Reporting and Certification Requirement
565. Since 2013, the Commission has required providers of
communications service to incarcerated people to file certain pricing
and related data and information annually to promote transparency and
heighten providers' accountability. These annual reports enable the
Commission and the public to monitor pricing practices and trends in
the IPCS marketplace generally. Pursuant to our rules, ICS providers
must file annual reports and certifications by April 1 of each year.
The reports contain information and data about the services provided
for the preceding calendar year, and an officer or director of the
provider must certify that the information and data are accurate and
complete. We now modify the scope and content of our annual reports to
reflect the Martha Wright-Reed Act's expansion of Commission
jurisdiction over other communications services in carceral facilities,
including video IPCS and other advanced communications services, as
well as intrastate IPCS, and the providers that offer these services.
a. Background
566. The Commission's annual reporting requirements for providers
of communications services to incarcerated people have changed over
time reflecting the Commission's evolving perspective on the need for
marketplace data. The Commission first adopted annual reporting and
certification requirements for providers in its 2013 ICS Order. The
information and data required in the reports included interstate and
intrastate ICS rates, ancillary service charges, and the number of
disconnected calls. An officer or director was required to certify to
the accuracy of the data and information, ``including the requirement
that ICS providers may not levy or collect an additional charge for any
form of TRS call, and the requirement that ancillary charges be cost-
based.'' The Commission found that the certification requirement would
facilitate
[[Page 77348]]
enforcement and ensure that ICS providers' rates and practices were
just, reasonable, and fair, and in compliance with that Order. The
Commission subsequently included additional reporting requirements
relevant to industry oversight in 2015, and further amended its rules
in 2022 to require data concerning various services for individuals
with disabilities. The Commission added requirements to report data on:
(a) site commissions; (b) the number of TTY-based ICS calls, the number
of those calls that were dropped, and the number of complaints related
to ICS made by TTY and TRS users; and (c) the usage, rates and
ancillary service charges for video visitation services. In 2017, the
D.C. Circuit vacated the reporting requirement for video visitation
services, considering the requirement ``too attenuated to the
Commission's statutory authority.'' In the 2020 ICS Order, the
Commission removed Sec. 64.6060(a)(4)--the paragraph that had required
ICS providers to submit data on video visitation services. The
Commission required providers to report the number of calls and number
of dropped calls for TTY-to-TTY ICS, for direct video calls placed or
received by ASL users, and for each TRS available at a facility, as
well as the number of complaints about dropped calls and poor call
quality for these services. Additionally, the Commission determined
that it was no longer necessary to collect data on dropped calls, so it
adopted the proposed Sec. 64.6060(a)(5) to (6) without the requirement
to report on dropped calls, and made a conforming modification to Sec.
64.6060(a)(7) which requires reports about complaints from TTY and TRS
users. The changes to the three paragraphs, Sec. 64.6060(a)(5) to (7),
have not yet gone into effect.
567. In the 2023 IPCS Order, the Commission reaffirmed and updated
its prior delegation of authority to WCB and Consumer and Governmental
Affairs Bureau (CGB) ``to modify, supplement, and update [the annual
reporting] instructions and . . . template as appropriate to supplement
the information [it would] be receiving in response to the Mandatory
Data Collection.'' The Word and Excel templates are FCC Form 2301(a),
and the certification is FCC Form 2301(b). The Commission also
``delegate[d] to WCB and CGB the authority to conduct the requisite
Paperwork Reduction Act analysis for any changes to the annual report
requirements that were implemented pursuant to [the 2023 IPCS Order].''
In the accompanying 2023 IPCS NPRM, the Commission asked what rule
changes or new rules would be necessary to effectuate the Martha
Wright-Reed Act. No commenter addresses possible changes to the annual
reporting and certification requirement.
568. In the Aug. 3, 2023 IPCS Public Notice, WCB and CGB proposed
revisions to the instructions and templates for the annual reports and
annual certifications to implement the Martha Wright-Reed Act and
reflect the changes that were adopted in the 2022 ICS Order. Commenters
generally supported the Commission's efforts to track trends in the
IPCS marketplace as long as the reporting requirements were not unduly
burdensome. However, one commenter argued that it was premature to
require reports on video and the expanded TRS obligations, because the
Commission had not adopted video IPCS regulations, and the expanded TRS
regulations had not yet gone into effect. In response, the Commission
refrained from adopting any changes to the annual reporting
requirements prior to this Order. The Apr. 1, 2024 annual reports and
certifications used the same forms as were used previously.
b. Discussion
569. We now modify our annual reporting and certification
requirements, consistent with the Commission's expanded authority under
the Martha Wright-Reed Act, to include the full scope of IPCS and all
providers of IPCS. These modifications will provide greater visibility
into the IPCS marketplace and provide an objective foundation for
future Commission action to ensure IPCS rates are just and reasonable
and IPCS providers are fairly compensated. We also provide WCB and CGB
the flexibility to propose, seek comment on, and adopt further revised
requirements in response to this Order and future IPCS marketplace
developments in a timely fashion. Collectively, these modifications to
our annual reporting requirements and our delegation of authority to
WCB and CGB to implement these changes will enable the Commission to
better ensure it meets its statutory directives.
570. First, we make several modifications to the annual reporting
and certification rule. Specifically, we revise Sec. 64.6060(a) so the
annual reporting requirement now applies to IPCS providers, rather than
ICS providers. Consistent with the revised definition of IPCS, this
change makes providers of video IPCS and advanced communications
services not previously covered by our IPCS rules subject to the annual
reporting and certification rule. We also remove Sec. 64.6060(a)(2) to
(3) which referred to ancillary service charges and site commissions to
reflect the prohibition on those charges adopted in this Order. We
retain the reporting requirements concerning TRS and related
communications services in Sec. 64.6060(a)(5) to (7), but renumber
them as Sec. 64.6060(2) to (4). These requirements were originally
adopted in the 2022 ICS Order but have not yet gone into effect. When
these paragraphs were adopted, the Commission found that the annual
reports would provide ``valuable data showing to what extent the [TRS-
related] rules adopted [in that order] are successfully implemented.''
These requirements will allow us to monitor incarcerated peoples'
access to TRS and related communications services. Finally, we modify
the certification requirement in Sec. 64.6060(b) to now include
examples of several executives of the provider that may make the
certification, and for consistency. The current Annual Reporting and
Certification Instructions, Word Template, Excel Template and
Certification Form were adopted by WCB pursuant to authority delegated
by the Commission and after public requests for comment and comment.
571. Next, we give WCB and CGB flexibility in revising and updating
the annual reports, as necessary to provide useful transparency into
industry practices and guide Commission efforts to regulate the
industry. We direct that WCB pay particular attention to how best to
capture developments in the rapidly changing, but nascent video IPCS
marketplace in updating the requirements for the annual reports. We
also direct CGB to pay attention to not only the availability of TRS,
but growth of both the user base and the use of TRS, capturing data on
the number of individuals with disabilities who are requesting access
to the additional forms of TRS in carceral facilities, changes in the
monthly minutes of use for each type of TRS, and other useful metrics.
WCB and CGB therefore will be able to respond to regulatory and
marketplace conditions more readily than if every specific annual
report change needed to be adopted first by the Commission. We direct
WCB and CGB to seek comment on and adopt all necessary revisions to
annual report instructions, templates and certifications consistent
with past practices. For example, on December 15, 2021, WCB released a
Public Notice proposing to revise the annual reports to reflect rule
amendments adopted in the 2021 ICS Order. After considering the
comments and replies submitted in
[[Page 77349]]
response to the Public Notice, WCB adopted an order that revised the
instructions, reporting templates, and certification. The instructions,
reporting template, and certification were made available online.
572. We also reaffirm and update the Commission's prior delegation
of authority to WCB and CGB to revise the annual reports. Accordingly,
WCB and CGB can modify, supplement, and update the required contents of
the annual reports and the manner in which they are to be submitted,
including all necessary instructions, templates and the required
certification form, to ensure the reports reflect the Commission's
expanded authority under the Martha Wright-Reed Act and the other
actions taken in this Order. For example, this delegation includes
authority to WCB and CGB to modify the annual reports to include data
and information regarding the provision of TRS and related
communications services to reflect the expanded requirements adopted in
the 2022 ICS Order, and our removal of Sec. 64.6060(a)(5) to (7) in
this Order. We further delegate authority to WCB and CGB, independently
or collectively, to require IPCS providers to submit information
related to their IPCS offerings and practices upon request, to provide
WCB and CGB flexibility to monitor compliance with our rules in a
timely manner. Such requests for information could result from
complaints being filed by providers or by consumers, or on the
Commission's or WCB's own motion. In delegating authority to WCB and
CGB in this regard, we do not directly or indirectly limit or modify
the otherwise-existing authority delegated to the Enforcement Bureau.
We find that this delegation is necessary because it is difficult in
advance to determine what information will be needed on a case-by-case
basis by the Commission to decide whether providers are in compliance
with our rules. Our delegations of authority to WCB and CGB will be
effective upon publication of this Order in the Federal Register,
enabling WCB and CGB to move expeditiously in modifying, supplementing,
and updating the annual reports and certification for the next
reporting period and thereafter, to facilitate the Commission's
implementation of the Martha Wright-Reed Act and this Order. We also
direct the Bureaus to conduct and submit the requisite Paperwork
Reduction Act analysis for any changes to the annual report and
certification requirements that are implemented pursuant to this Order.
4. Reporting and Recordkeeping
573. Additional Data Collection. We adopt an additional data
collection obligation to collect the data and other information we will
need to set permanent rate caps for video IPCS, reevaluate our rate
caps for audio IPCS if necessary, and learn more about service quality,
particularly the prevalence of dropped calls or communications. As the
Commission explained in the 2023 IPCS Order, the Martha Wright-Reed Act
contemplates, among other things, the collection and analysis of
advanced communications services' costs and related data, including for
video communications, among other information. The Commission therefore
directed WCB and OEA to initiate an additional data collection--the
2023 Mandatory Data Collection--to obtain the data and other
information needed to implement the statute. Also, the record in this
proceeding indicates that poor IPCS quality of service is a recurring
issue. Therefore, in the accompanying Notice, we seek comment on
adopting IPCS quality of service standards. Collecting more-detailed
information about service quality, for example the frequency of dropped
calls or communications, responds to concerns in the record and will
help inform any future action the Commission may take regarding IPCS
quality of service. We conclude that an additional data collection will
be needed to set permanent rate caps for video IPCS and to update audio
IPCS rate caps if necessary, including, as applicable, for the smallest
size tier of jails. We therefore delegate to WCB and OEA the authority
to conduct this data collection and direct them to structure an
additional data collection as appropriate to enable us to accomplish
these tasks.
574. In designing and structuring this additional data collection,
WCB and OEA should consider how best and when to collect data that
demonstrate the evolving nature of the video IPCS marketplace. As our
rate cap analysis recognizes, the video IPCS data from the 2023
Mandatory Data Collection reflect conditions typical of a nascent
market, including relatively high initial investment costs and
relatively low initial demand. We anticipate that, as the video IPCS
marketplace evolves, per-unit costs of providing video IPCS will fall
significantly--a factor that we take into account in setting our
interim rate caps for video IPCS. Given the importance of ensuring that
the rate caps for video IPCS are just and reasonable and fairly
compensatory over the longer term, WCB and OEA should collect not just
updated data on video IPCS costs and demand, but also (to the extent
practicable) how those costs and demand might change over time. In the
2023 Mandatory Data Collection the Commission sought information on the
``number of complaints regarding problems experienced with disability-
related calls.'' We now give WCB and OEA the flexibility to add more
generally applicable questions regarding IPCS quality of service to the
next data collection.
575. Consistent with the above, we reaffirm the Commission's prior
delegation of data collection authority to WCB and OEA to conduct an
additional data collection to collect detailed data and other
information, at the provider, contract and facility level, on audio and
video IPCS from all providers subject to our expanded authority under
the Martha Wright-Reed Act and the Communications Act. As part of their
review of the providers' submissions in response to the additional
collection, WCB and OEA should evaluate whether our permanent rate caps
for audio IPCS remain just and reasonable and fairly compensatory. To
allow for consistent data reporting, we direct WCB and OEA to make any
appropriate modifications to the template and instructions for the 2023
Mandatory Data Collection. We also grant WCB and OEA authority to
determine the timing and scope of the data collection, provided that
such collection shall be conducted as soon as practicable understanding
the need to ensure that the Commission obtains data representative of a
more mature video IPCS marketplace and an audio IPCS marketplace that
has fully adapted to our actions in this Order. As part of their review
of providers' submissions, WCB and OEA may require any provider to
clarify and supplement its response to the data collection where
appropriate to enable a full and meaningful evaluation of the
providers' cost, demand, and revenue data and costing methodology.
576. No Recurring Data Collection. We decline, at this time, to
adopt a recurring data submission obligation for IPCS providers, as
suggested in 2020 and 2021. The Commission invited comment on whether
it should conduct data collections on a more routine, periodic basis,
as opposed to relying on ad hoc data collections. While we agree with
several commenters that a recurring data collection would potentially
aid us in ensuring that IPCS rates and charges remain just and
reasonable and fairly compensatory, we find that the burdens of a
recurring data collection on providers would exceed any potential
benefits. We also find that
[[Page 77350]]
the information we will obtain from our additional data collection,
coupled with the information to be provided in the IPCS Annual Reports
as revised pursuant to this Order, will allow us to respond to any
changes in the IPCS marketplace in a timely manner without unduly
burdening IPCS providers. We therefore conclude that, on balance, a
recurring collection is not warranted at this time.
577. No Accounting Requirements. We also decline, at this time, to
impose accounting requirements on IPCS providers, as suggested in 2021.
In that Notice, the Commission sought comment on specific types of
accounting requirements that may be useful if it were to adopt a
recurring data collection. Given that we decide not to adopt recurring
data collections, we also conclude that we should refrain from imposing
accounting requirements on IPCS providers at this time.
5. Payphones Outside the Incarceration Context
578. We decline, at this time, to adopt new rules applicable to the
provision of payphones outside the incarceration context. In 2023, the
Commission observed that certain amendments that the Martha Wright-Reed
Act made to section 276 of the Communications Act apply to payphones
generally, including traditional payphones used outside the
incarceration context. The Commission invited comment on whether
section 3(a) of the Martha Wright-Reed Act required the adoption of new
regulations applicable to traditional payphone services. In response,
one commenter stated that the Commission did not need to address its
traditional payphone compensation rules in this proceeding, but urged
us to revisit our traditional payphone rules generally in a separate
proceeding. We find that no modifications to our traditional payphone
rules are necessary to implement the Martha Wright-Reed Act and its
amendments to the Communications Act, and therefore decline to address
those regulations in this proceeding.
6. Cost Benefit Analysis of Revised Interstate and Intrastate Rate Caps
579. We perform an analysis of the relative costs and benefits of
establishing revised, final rate caps for audio IPCS and new interim
rate caps for video IPCS, and find that the benefits of our actions
greatly exceed their cost. As in the 2021 ICS Order, we proceed by
outlining the non-quantifiable but significant benefits to incarcerated
persons and their families, the quantifiable benefits of expanded audio
and video communications, and the likely implementation costs of our
actions.
580. Expected Non-Quantifiable Benefits. In the 2021 ICS Order, the
Commission detailed the vast, but difficult-to-quantify, benefits of
expanded incarcerated people's calling at lower IPCS rates, including
maintaining incarcerated people's mental health, facilitating reentry,
and improving the health and well-being of incarcerated people's
families. We enlarge and extend all of these benefits as we again lower
rate caps for interstate calls and mandate new, lower rate caps for
intrastate and international calls, as well as video calls across all
jurisdictions. Although we do not alter the termination component that
can be added to the interstate rate cap in the case of international
calls, because we are lowering the interstate rate cap that serves as
the foundation for international rates, we anticipate an effective
reduction in international rates as a result. Although we make no
change to our rule allowing providers to add an amount to the rate caps
to defray the costs of terminating international calls, because we are
lowering the interstate rate caps that serve as the foundation for the
international rate caps, we anticipate an effective reduction in
international audio rates.
581. Expected Quantitative Benefits of Expanded Call and Video
Volumes. In the 2021 ICS Order, staff used available empirical evidence
to estimate the responsiveness of incarcerated people's calling volumes
to changes in inmate calling services rates, known as the price
elasticity of demand for calling services. The available estimates led
the Commission to conclude, conservatively, that inmate calling
services have a demand elasticity of at least 0.3. No commenter
disputed our elasticity estimate or the methodology underlying it. For
the sake of consistency and simplicity, we continue to rely on this
demand elasticity estimate and apply the same demand elasticity to
audio and video incarcerated people's communications service. By the
same token, we continue to rely on the conclusion drawn in the 2021 ICS
Order that the incremental per-unit cost of audio IPCS is likely less
than $0.01, and may be de minimis. A similar principle applies to video
IPCS, where many of its direct costs are also ``independent of the need
to carry additional call minutes,'' especially given its proportionally
greater share of capital expenses versus operating expenses. Thus,
although video IPCS exhibits greater costs per minute than audio IPCS,
the incremental per-unit costs of both services should be less than
their average costs--such that the increased demand driven by a
reduction in prices should, holding other factors equal, reduce
providers' average costs for both audio and video IPCS.
582. The new, lower IPCS rate caps fall across two broad categories
of call traffic--audio and video. The new rates for audio are: $0.06
per minute for prisons, $0.06 per minute for large jails, $0.07 per
minute for medium-size jails, $0.09 per minute for small jails, and
$0.12 per minute for very small jails. The new rates for video are:
$0.16 per minute for prisons, $0.11 per minute for large jails, $0.12
per minute for medium-size jails, $0.14 per minute for small jails, and
$0.25 per minute for very small jails. Our benefit estimation
methodology for the new rate caps differs slightly from that used in
the 2021 ICS Order. Previously, staff estimated welfare gains using the
difference between the previous interim interstate rate caps and the
then new, lower interim, interstate rate caps. The current rate
structure in the IPCS industry is more complex. Some interstate IPCS
traffic subject to the rate caps is priced below the caps, while the
price of intrastate, international, and video IPCS call traffic that
was previously beyond the reach of our rate caps can vary widely. To
capture this complexity, we measure the welfare gains from increased
call volumes using the difference between existing weighted average
revenue per unit (ARPU) for the different call-traffic categories and
the new rate caps. Staff computed the average revenues per unit (ARPUs)
by dividing the total billed revenue for each type of traffic at each
size facility by total billed minutes to yield average revenue per
minute for intrastate audio calls for prisons, average revenue per
minute for intrastate calls at large jails, and so on, enabling the
compilation of a complete list of rate categories by traffic and
facility type. Staff then computed percentage changes in price and
quantity for each rate category using the differences between the ARPUs
and the rate caps and our price elasticity. The net welfare gain (loss)
is the gain (loss) in IPCS consumer surplus not captured by IPCS
service providers. We divide 2022 billed revenues by billed minutes to
determine the effective rate for IPCS, or ARPU. We then compare this
effective rate to the new rate cap for IPCS to determine the change in
price, because going forward billed customers will be billed a rate
equal to this rate cap (assuming the provider sets its rate at the
cap). We assume site commissions
[[Page 77351]]
are only paid to the extent they do not result in rates that exceed our
caps. With this methodological change, we estimate a total net welfare
gain to incarcerated persons and their friends, families, and legal
teams of about $386 million. Of this, $362 million is a transfer from
correctional facilities and providers, leaving $24 million as a welfare
gain from which implementation costs must be subtracted.
Unsurprisingly, the largest contribution of $12.5 million is from
intrastate audio calls (5.6 billion minutes), not currently subject to
rate caps, followed by: $7.8 million from interstate audio (4.8 billion
minutes); $2.9 million from video (407 million minutes); and $0.5
million from international audio (54 million minutes). We do not
separately estimate welfare gains for video IPCS by jurisdiction
because providers do not have a way to reliably record the jurisdiction
associated with a video communication. Further, nothing in the record
suggests providers charge video IPCS rates that vary by jurisdiction.
As a matter of practice, providers charge a single rate without regard
to the communication endpoint. The present value of a five-year stream
of $24-million worth of benefits at a two percent discount rate exceeds
$113 million.
583. Benefits Weighted By Income Strata. Weighting according to OMB
guidelines greatly increases the welfare gain. OMB Circular A-4 enables
us to weight the benefits distributed to incarcerated persons by the
ratio of median incarcerated people's income to the U.S. median income,
raised to the negative power of the absolute value of the elasticity of
income. To account for the diminishing marginal utility of goods and
income, the revised circular suggests that agencies apply weights to
the benefits and costs accruing to different groups when estimating
aggregate net benefits. To determine the weights, OMB recommends a
constant elasticity for subgroups defined by income. The weight for
each group is: [Omega]i = (Ii/IUS)-[gamma] where [Omega]i is the weight
for subgroup i, Ii is the median income for subgroup i, IUS is the U.S.
median income, and [gamma] is the absolute value of the elasticity of
marginal utility. Based on an average gleaned from the empirical
literature, OMB recommends a constant elasticity of marginal utility of
1.4. The impact of this could be large. Analyzing Bureau of Justice
Statistics 2014 survey data for the month just prior to incarceration,
researchers for the Prison Policy Initiative estimated a 2014 median
annual income of $19,185 for incarcerated persons. U.S. median
individual income for 2014 was $28,760. The resulting weight for
incarcerated people's welfare gains is 1.76 (= ($19,185/
$28,760)-1.4), meaning that every dollar in welfare gain
directly attributable to incarcerated people was worth $1.76 in 2014.
If incarcerated people share equally in the total estimated net welfare
gain, then about $12 million, or half, of the estimated $24 million is
directly attributable to them, as opposed to friends and families. At
the same time, if the average income of families and friends of
incarcerated persons was that of the average American, then, under
these assumptions, the net welfare gain is effectively worth about $33
million (= ($12 million * 1.76) + $12 million = $21 million + $12
million). This is likely an underestimate, as the average income of the
families and friends of incarcerated persons is likely below the
national average, but we do not know what this average is.
584. Other Quantitative Benefits. In the 2021 ICS Order, the
Commission estimated that expanded inmate calling services call volumes
at the lowered interstate rate caps would help curtail recidivism,
saving the U.S. economy $23 million over ten years and reducing costly
foster-child placements. While we are certain that lowering IPCS rate
caps further will increase these cost savings, we elect not to proffer
precise estimates here, partly to avoid double-counting previous
estimates.
585. Costs of Reducing Rates for Interstate, Intrastate, and
International Incarcerated People's Communications Services. In the
2021 ICS Order, the Commission estimated that the cost of contract
revisions needed to implement reduced interstate inmate calling
services rates would total approximately $6 million. Adjusting for
inflation, the industry cost for the same set of contract revisions--
simultaneously lowering interstate, intrastate, and international
incarcerated people's communications services rates--would be about $7
million as of April 2024. Lowering video calling rates, which we
conservatively assume are contracted separately, would entail another
$7 million in costs. We, therefore, estimate total implementation costs
of $14 million.
586. Comparison of Benefits and Costs. The benefits of lowering
IPCS interstate rate caps and extending IPCS rate caps to intrastate
and international audio and video call traffic far exceed the
accompanying costs. Without either weighting by income strata or
summing and discounting future benefits, readily quantifiable benefits
exceed costs by $10 million (= $24-$14) in the inaugural year.
Weighting by income strata and summing and discounting future benefits
further increase the value of benefits relative to costs.
Table 1--Audio and Video Call Traffic
--------------------------------------------------------------------------------------------------------------------------------------------------------
Intrastate Interstate International
Rate cap -----------------------------------------------------------------------------------------------------------------
Minutes ARPU Gain Minutes ARPU Gain Minutes ARPU Gain
--------------------------------------------------------------------------------------------------------------------------------------------------------
Audio Call Traffic
--------------------------------------------------------------------------------------------------------------------------------------------------------
Prisons, $0.06........................ 3,095,089,972 $0.060 $884 3,179,735,362 $0.070 $704,910 34,290,298 $0.147 $266,659
Large Jails, $0.06.................... 878,094,584 0.099 1,990,573 686,852,024 0.102 1,761,431 4,767,832 0.174 53,188
Medium Jails, $0.07................... 850,607,843 0.154 5,798,496 640,947,740 0.144 3,635,531 10,718,912 0.158 79,202
Small Jails, $0.09.................... 587,159,107 0.182 4,094,384 243,197,254 0.173 1,461,041 3,373,724 0.250 51,747
Very Small Jails, $0.12............... 207,201,790 0.180 628,327 72,774,874 0.180 217,658 743,867 0.264 8,743
-----------------------------------------------------------------------------------------------------------------
Total............................. 5,618,153,296 ........ 12,512,663 4,823,507,254 ........ 7,780,571 53,894,633 ........ 459,539
--------------------------------------------------------------------------------------------------------------------------------------------------------
Video Call Traffic
---------------------------------------
Prisons, $0.16........................ 85,787,195 0.257 471,462
Large Jails, $0.11.................... 60,592,954 0.230 567,352
Medium Jails, $0.12................... 123,936,702 0.273 1,597,262
Small Jails, $0.14.................... 105,461,580 0.292 1,257,099
Very Small Jails, $0.25............... 31,454,733 0.294 30,692
----------------------------------------
[[Page 77352]]
Total............................. 407,233,163 ........ 2,885,053
--------------------------------------------------------------------------------------------------------------------------------------------------------
7. Effective Dates and Compliance Dates
587. Our reforms eliminating site commissions and our new permanent
audio and interim video rate caps will take effect 60 days after notice
of them is published in the Federal Register, but compliance with those
reforms will be required on a staggered basis, as set forth below:
January 1, 2025 for all prisons and for jails with average
daily populations of 1,000 or more incarcerated people, and April 1,
2025 for jails with average daily populations of less than 1,000
incarcerated people, subject to the following special provisions:
Where a contract existing as of June 27, 2024 includes
terms and conditions that would require material alteration through
renegotiation due to a conflict with our new rules involving rates,
contractually prescribed site commissions, or passthrough charges
included in the rates, and the contract expires on or after January 1,
2025 for prisons and for jails with average daily populations of 1,000
or more incarcerated people, or on or after April 1, 2025 for jails
with average daily populations of less than 1,000 incarcerated people,
the compliance dates will be the earlier of the contract expiration
date or January 1, 2026 for prisons and for jails with average daily
populations of 1,000 or more incarcerated people, or the earlier of the
contract expiration date or April 1, 2026 for jails with average daily
populations of less than 1,000 incarcerated people. We choose a date
certain, which is the date of public draft of the Report and Order. The
public draft version set forth the Commission's new IPCS rate caps and
site commission reforms, none of which have changed since that time.
For purposes of the Report and Order, a contract expires after the
expiration of its initial term in the contract without regard to any
automatic extensions that might extend its validity.
Where a contract existing as of June 27, 2024 includes
terms and conditions that would require renegotiation due to a
provision incorporating legally mandated site commission payments and
the contract expires on or after July 1, 2025 for any size facility,
the compliance date will be the earlier of the contract expiration date
or April 1, 2026. To the extent any contract referenced here includes
provisions that trigger automatic changes to contract terms in response
to changes in the regulatory environment or, more specifically, changes
in the Commission's rules such that renegotiation of contract terms
would not be required, the compliance date extensions referenced in
this paragraph do not apply.
588. These timeframes recognize that, as a general matter, IPCS
providers, governmental officials, and correctional officials may need
additional time beyond January 1, 2025 or April 1, 2025 (depending on
the type of facility and the terms of the contract) to renegotiate
contracts in response to our actions today. They also recognize that
jails with average daily populations below 1,000 may need more time
than prisons and larger jails to implement the Commission's new IPCS
rate caps and to transition away from site commission payments,
particularly since the smaller facilities were largely not impacted by
the Commission's 2021 interim rate cap reforms. The reforms applicable
to jails with average daily populations of less than 1,000 adopted in
the 2021 ICS Order were relatively modest, with ``the only rate cap
change'' being a reduction of per-minute charges for collect calls from
$0.25 to $0.21 per minute. In addition, by delaying the compliance date
of our site commission and rate caps reforms at those correctional
facilities where providers currently pay legally mandated site
commissions, we recognize that more time may be needed to accommodate
the legislative process to amend state or local laws and regulations
that currently require site commission payments.
589. We conclude that the compliance dates we adopt for our new
audio and video rate caps and site commission reforms ``strike[ ] a
reasonable balance between [ ] competing interests.'' On the one hand,
we recognize the need to ``help alleviate the burden of unreasonably
high . . . rates on incarcerated people and those they [communicate
with].'' On the other hand, and as the Commission has previously
recognized, IPCS providers and correctional officials ``will need more
than 30 days to execute any contractual amendments necessary to
implement the new . . . rate caps and otherwise adapt to those caps.''
And smaller facilities likely need more time than larger facilities to
implement rate cap and other changes. Furthermore, we recognize that
those facilities where IPCS providers currently pay legally mandated
site commissions may likely need additional time to come into
compliance with our reforms. Thus, requiring compliance with the
Commission's rate cap and site commission reforms on a staggered basis
properly balances the need for expedited reform contemplated by the
Martha Wright-Reed Act with the need to allow IPCS providers and
correctional facilities sufficient time to adapt to our rules.
590. Except for those facilities where IPCS providers pay legally
mandated site commissions, for prisons and jails with ADPs of 1,000 or
more, we find that there will be ample time between adoption of this
Order and January 1, 2025 for such prisons and jails with existing
contracts expiring before the end of this year to comply with today's
reforms and that the possible extension of this compliance date to
January 1, 2026 as outlined above will be more than sufficient to
accommodate the contract renegotiation process. In the 2021 ICS Order,
the Commission established a 90-day transition period following Federal
Register publication for all facilities. The Commission also adopted a
90-day transition period for prisons in connection with implementing
the reforms in the 2015 ICS Order. One provider supports adopting a 90-
day transition period. Here, given the comprehensive nature of the
reforms we adopt to rate caps and site commissions, we adopt a
transition period of slightly more than five months from the adoption
date of the Report and Order and we permit additional time based on the
extent there are existing contracts as of June 27, 2024 that require
renegotiation due to a conflict with our new rules. This will allow
providers and facilities significantly longer than the 30-day timeframe
the Commission has previously recognized would be necessary to amend
IPCS contracts.
591. We also find that delaying the compliance date of our rate
caps and site commission reforms for jails with ADPs below 1,000 except
at those
[[Page 77353]]
correctional facilities where IPCS providers pay legally mandated site
commissions until April 1, 2025 or, in the alternative, until April 1,
2026 as described above, will afford IPCS providers and correctional
officials sufficient extra time to adapt to these new rules. In the
IPCS context, the Commission's use of the term ``smaller'' is focused
on average daily population, and ``is not meant to imply'' that such
facilities ``are small in any absolute sense.'' Here, we delay the
compliance date of our rate cap and site commission reforms for
correctional facilities with average daily populations below 1,000
except at those correctional facilities where IPCS providers pay
legally mandated site commissions by slightly more than eight months
from the date of adoption of the Report and Order, which, to the extent
there are existing contracts as of June 27, 2024 that require
renegotiation due to a conflict with our new rules, can be extended.
These timeframes will be more than sufficient to ensure that IPCS
providers and correctional facilities are able to amend their contracts
to account for our reforms today.
592. Recent experience at the state level suggests that IPCS
providers and correctional facilities should be able to adapt to
regulatory changes in the allotted timeframes. For example,
Massachusetts recently made IPCS free to consumers, and in doing so the
state gave the industry and the state's prisons and jails less than
five months to implement those changes--from July 31, 2023 to December
1, 2023--to account for budgetary impacts. On July 31, 2023, the
Massachusetts legislature enacted a bill requiring unlimited free phone
calls to incarcerated people retroactive to July 1, 2023, as part of
the state's appropriations bill for Fiscal Year 2024. The free calling
bill, H.4052, was enacted as sections 50, 85, and 111 of the
appropriations bill, H.4040. The governor returned portions of the
appropriations bill, including the portions relating to free calling
for incarcerated people noting that making those provisions retroactive
to July 1 ``pos[ed] serious implementation challenges'' and were also
``underfunded by $20M in the budget.'' The governor thereafter proposed
that the effective date be delayed to December 1, 2023, which would
avoid ``the need for retroactive reimbursements, provide[ ] time for
the Department of Corrections and the Sheriff's Departments to manage
vendor contracts more effectively, and address[ ] fiscal challenges
while also ensuring that families will be able to connect with their
incarcerated loved ones during the holiday season.'' The Massachusetts
legislature eventually reenacted the free calling bill with a December
1, 2023 effective date and the governor signed it on November 15, 2023.
While one commenter advocates for a phase-out of site commission
payments, partially in recognition of the fact many local governments
continue to rely on site commission revenues, other commenters argue
that implementing changes ``should be a relatively easy and
straightforward process'' such that a more immediate compliance date
might be appropriate. We find, on balance, that the record supports a
longer transition period for smaller jails. The timeframe we adopt for
smaller facilities is more generous than the timeframes the Commission
has adopted for such facilities previously. Insofar as the transition
we adopt for smaller jails today is longer than previous transitions
the Commission has adopted, we are persuaded that this additional time
is necessary but sufficient for both IPCS providers and correctional
officials to adapt to our rules while also ensuring the most
expeditious relief possible for incarcerated people and their loved
ones, consistent with the Martha Wright-Reed Act.
593. For all correctional facilities where IPCS providers currently
pay legally mandated site commissions, we conclude that a longer
transition period is justified such that compliance with our site
commission reforms and our new rate caps will be required by July 1,
2025 unless a contract existing as of June 27, 2024 includes terms and
conditions that would require renegotiation due to a provision
incorporating legally mandated site commission payments and the
contract expires on or after July 1, 2025, in which case the compliance
date will be the earlier of the contract expiration date or April 1,
2026. For such facilities, in addition to any additional time necessary
to facilitate contract renegotiation where applicable, additional time
is also necessary to accommodate states' and localities' legislative
and budgetary processes to make the adjustments necessary to comply
with the Report and Order, including by amending or repealing relevant
laws pursuant to state or local statutes or other formal legal
processes. Because such processes may involve more than amending IPCS
contracts, we expect that July 1, 2025 or, if applicable, April 1,
2026, will afford sufficient time for all parties involved to make the
necessary legislative and contractual arrangements sufficient to
implement our reforms. This determination is distinct from the actions
we take today in preempting state and local laws or regulations that
require or allow site commission payments. We provide this extra time
for state and local authorities to comply with legal or administrative
processes that may be required to repeal existing laws or regulations.
The lack of such a process does not negate our preemption actions in
connection with site commission payments.
594. We disagree that we should delay our compliance dates for site
commission reform, in particular, beyond the timeframes established
herein. We note that PPI's comments were made prior to the enactment of
the Martha Wright-Reed Act, which gave the Commission authority over
intrastate communications. Given that development and the fact that our
reforms today sweep broadly to apply to all communications over which
we now have jurisdiction, including intrastate communications, we
conclude that the opportunities for the kind of arbitrage identified by
PPI to be greatly reduced. IPCS providers and correctional authorities
have been on notice since at least the 2014 ICS Notice that the
Commission might eliminate site commissions. Against that regulatory
backdrop, to the extent IPCS providers and correctional authorities
have continued to rely on revenues from site commissions, they have
done so at their own risk. In addition, as discussed above, a number of
jurisdictions have eliminated site commissions, which presumably
triggered state budgetary processes to account for the lost revenues.
Our extended implementation deadlines here attempt to account for these
state and local budgetary processes to the extent possible. Any further
delays in requiring compliance with our rate cap and site commission
reforms risks perpetuating unjust and unreasonable rates and charges
for IPCS consumers or yielding unfair compensation for IPCS providers,
contrary to the directives of the Martha Wright-Reed Act. Section
276(b)(1)(A) of the Communications Act, as amended by the Martha
Wright-Reed Act, directs the Commission to establish a compensation
plan to ensure IPCS providers are ``fairly compensated'' and that ``all
rates and charges are just and reasonable.''
595. Other Deadlines. Except for rules and requirements subject to
OMB review under the Paperwork Reduction Act, all other rules and
requirements adopted in this Order also will take effect 60 days after
notice is published in the Federal Register, except the removal of
Sec. 64.6090, which will not
[[Page 77354]]
take effect until other rules requiring OMB review take effect. These
timeframes are consistent with the terms of the Martha Wright-Reed Act,
which requires the Commission to promulgate regulations necessary to
implement the Act not earlier than 18 months and not later than 24
months after the date of enactment. Martha Wright-Reed Act Sec. 3(a).
Section 64.6090 prohibits flat-rate calling and will be removed to
permit the offering of alternate pricing plans. With regard to reforms
other than those related to our new rate caps and site commission
prohibition that are not subject to the PRA, such as our rules
pertaining to the seizing of balances in inactive accounts by
providers, we find that making these changes effective 60 days after
notice is published in the Federal Register best balances the need to
bring these important, pro-consumer rules into effect expeditiously
while affording IPCS providers sufficient time to implement any changes
necessary to comply with our rules. Unlike our rate cap and site
commission reforms, which may take longer to implement due to the need
for contractual amendments or municipal budget adjustments, we do not
view these other reforms as involving similar complexities such that a
longer effective date period is necessary.
596. Our delegations of authority to WCB and CGB to revise the
annual reports will be effective upon publication of the Report and
Order in the Federal Register, as will our delegations of authority to
WCB and OEA to conduct an additional data collection.
8. Enforcement
597. We will be vigilant in monitoring compliance with the reforms
we adopt today and will take action to vigorously enforce our rules
where appropriate. Compliance with the Commission's IPCS rules is
essential to ensuring that incarcerated people and their loved ones
receive the full range of benefits resulting from today's reforms. As
NCIC illustrates, certain providers took advantage of our prior
regulatory regime to engage in practices or other behavior in
contravention of our rules. Robust enforcement is therefore necessary.
To that end, we direct the Enforcement Bureau to work with CGB to
develop a new IPCS complaint category, in addition to the existing
informal consumer complaint process, within its existing intake system
to ensure that IPCS industry providers, watchdogs, and other
stakeholders have a mechanism for CGB to immediately bring any
potential rule violations to the Enforcement Bureau's attention for
investigation. We clarify that informal IPCS-related consumer inquiries
and complaints should continue to be made to CGB, using established
practices and procedures. Should the Commission observe or be made
aware of practices, conduct, or other behavior that evades or is
designed to evade our rules, we will not hesitate to take appropriate
remedial action up to and including enforcement action, which may
subject IPCS providers to, among other penalties, the imposition of
monetary forfeitures. Thus, practices such as price gouging through,
for example, charging rates above our rate caps, imposing ancillary
service charges, or attempting to recover costs associated with the
payment of site commissions, whether monetary or in-kind, through
regulated rates may subject IPCS providers to investigation by the
Commission's Enforcement Bureau and enforcement action. Similarly,
practices that deprive consumers of funds in their IPCS accounts,
circumvent the safeguards we adopt today governing alternate pricing
plans or the Commission's disability access rules pertaining to IPCS
may also subject IPCS providers to investigation and enforcement action
by the Enforcement Bureau. At the same time, IPCS providers and other
stakeholders are encouraged to provide the Commission with information
at any time, whether through an informal complaint or otherwise,
regarding attempts to skirt our rules or possible violations of our
rules. In addition, the Commission will monitor providers' annual
reports, which are due April 1 each year, for developments that may
suggest noncompliance with our rules. Close scrutiny of these and other
practices and behaviors, including through enforcement action where
appropriate, will ensure that the reforms we adopt today are fully
implemented.
I. Severability
598. The rules and policies adopted in this Order are designed to
ensure that the rates and charges for IPCS are both just and reasonable
for consumers and provide fair compensation for providers, in
accordance with section 276, as amended by the Martha Wright-Reed Act,
along with section 201(b) of the Communications Act. Other rules and
policies seek to improve communications services for incarcerated
people with disabilities. Each of the separate reforms we undertake
here serves a particular function towards these goals. Therefore, it is
our intent that each of the rules and policies adopted herein shall be
severable. If any of the rules or policies is declared invalid or
unenforceable for any reason, the unaffected rules shall remain in full
force and effect. We find premature ViaPath's request that we make
clear that the rules and policies we adopt that are ``related to IPCS
rates and charges'' are not severable from each other. In the unlikely
event any of those rules or policies is declared invalid or
unenforceable, interested parties are free to bring the matter to our
attention or raise such arguments in court, as appropriate.
IV. Procedural Matters
599. Final Regulatory Flexibility Analysis. As required by the
Regulatory Flexibility Act of 1980, as amended (RFA), the Commission
has prepared a Final Regulatory Flexibility Analysis (FRFA) relating to
the Report and Order and this Order on Reconsideration, Clarification
and Waiver. The FRFA is set forth in below.
600. Congressional Review Act. The Commission has determined, and
the Administrator of the Office of Information and Regulatory Affairs,
Office of Management and Budget, concurs that this rule is ``major''
under the Congressional Review Act, 5 U.S.C. 804(2). The Commission
will send a copy of this 2024 IPCS Order and 2024 IPCS Notice to
Congress and the Government Accountability Office pursuant to 5 U.S.C.
801(a)(1)(A).
601. Paperwork Reduction Act Analysis. The 2024 IPCS Order may
contain new or modified information collection requirements subject to
the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. All such
requirements 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 will be invited to comment on any
new or modified information collection requirements contained in this
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(c)(4), we previously sought specific comment on how the Commission
might further reduce the information collection burden for small
business concerns with fewer than 25 employees.
602. In this present document, we have assessed the effects of the
information collection burdens imposed on small businesses and, in
particular, businesses with fewer than 25 employees as a result of the
Report and Order. Those requirements include consumer disclosure and
inactive account requirements. We find that those requirements,
including the posting of certain information on
[[Page 77355]]
publicly available websites, do not impose undue burdens on smaller
businesses. We also find that obligations to collect and maintain
consumer information in order to refund inactive account balances are
commensurate with the number of customers served and therefore impose
proportionate burdens on smaller businesses given the scale of their
operations.
603. Providing Accountability Through Transparency Act. Consistent
with the Providing Accountability Through Transparency Act, Public Law
118-9, a summary of the 2024 IPCS Order will be available on https://www.fcc.gov/proposed-rulemakings.
604. OPEN Government Data Act. The OPEN Government Data Act,
requires agencies to make ``public data assets'' available under an
open license and as ``open Government data assets,'' i.e., in machine-
readable, open format, unencumbered by use restrictions other than
intellectual property rights, and based on an open standard that is
maintained by a standards organization. Congress enacted the OPEN
Government Data Act as Title II of the Foundations for Evidence-Based
Policymaking Act of 2018. This requirement is to be implemented ``in
accordance with guidance by the Director'' of the OMB. OMB has not yet
issued final guidance. The term ``public data asset'' means ``a data
asset, or part thereof, maintained by the Federal Government that has
been, or may be, released to the public, including any data asset, or
part thereof, subject to disclosure under [the Freedom of Information
Act (FOIA)].'' A ``data asset'' is ``a collection of data elements or
data sets that may be grouped together,'' and ``data'' is ``recorded
information, regardless of form or the media on which the data is
recorded.'' We delegate authority to the Wireline Competition Bureau,
in consultation with the agency's Chief Data and Analytics Officer and
after seeking public comment to the extent it deems appropriate, to
determine whether any data assets maintained or created by the
Commission pursuant to the rules adopted in the 2024 IPCS Order are
``public data assets'' and if so, to determine when and to what extent
such information should be published as ``open Government data
assets.'' In doing so, WCB shall take into account the extent to which
such data assets should not be made publicly available because they are
not subject to disclosure under the Freedom of Information Act. See,
e.g., 5 U.S.C. 552(b)(4), (6) to (7) (exemptions concerning
confidential commercial information, personal privacy, and information
compiled for law enforcement purposes, respectively). We also seek
comment in the 2024 IPCS Notice on whether any of the information
proposed to be collected in the Notice would constitute ``data assets''
for purposes of the OPEN Government Data Act and, if so, whether such
information should be published as ``open Government data assets.''
605. People with Disabilities. To request materials in accessible
formats for people with disabilities (Braille, large print, electronic
files, audio format), send an email to [email protected] or call the
Consumer and Governmental Affairs Bureau at 202-418-0530.
606. Availability of Documents. Comments, reply comments, and ex
parte submissions will be publicly available online via ECFS.
607. Further Information. For further information, contact Stephen
Meil, at (202) 418-7233 or [email protected] or [email protected].
V. Final Regulatory Flexibility Analysis
608. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), Initial Regulatory Flexibility Analyses (IRFAs) were
incorporated in the Incarcerated People's Communications Services;
Implementation of the Martha Wright-Reed Act; Rates for Interstate
Inmate Calling Services, Notice of Proposed Rulemaking (Notice) in WC
Docket Nos. 23-62 and 12-375 (released in March 2023), in the Sixth
Further Notice of Proposed Rulemaking in WC Docket No. 12-375 (released
in September 2022), and in the Fifth Further Notice of Proposed
Rulemaking in WC Docket No. 12-375 (released in May 2021). The Federal
Communications Commission (Commission) sought written public comment on
the proposals in those Notices, including comment on the IRFAs. No
comments were filed addressing the IRFA. This present Final Regulatory
Flexibility Analysis (FRFA), relating to the Report and Order and the
Order on Reconsideration, Clarification and Waiver (collectively,
Report and Order), conforms to the RFA.
A. Need for, and Objectives of, the Report and Order
609. The Report and Order implements the expanded authority granted
to the Commission by the Martha Wright-Reed Act to establish a
compensation plan that ensures both just and reasonable rates and
charges for incarcerated people's audio and video communications
services and fair compensation for incarcerated people's communication
services (IPCS) providers. The Report and Order fundamentally reforms
the regulation of IPCS in all correctional facilities, regardless of
the technology used to deliver these services, and significantly lowers
the IPCS rates that incarcerated people and their loved ones will pay.
610. The reforms adopted by the Report and Order: (1) utilize the
expanded authority granted the Commission, in conjunction with the
Commission's preexisting statutory authority, to adopt just and
reasonable IPCS rates and charges for all intrastate, interstate, and
international audio and video IPCS, including video visitation
services, that ensure fair compensation for providers; (2) lower
existing per-minute rate caps for audio IPCS, based on industry-wide
cost data submitted by IPCS providers, while permitting states to
maintain IPCS rates lower than the Commission's rate caps; (3) lower
the overall prices consumers pay for IPCS and simplify the pricing
structure by incorporating the costs of ancillary services in the rate
caps and prohibiting providers from imposing any separate ancillary
service charges on IPCS consumers; (4) prohibit IPCS providers from
making site commission payments for IPCS and preempt state and local
laws and regulations requiring such commissions; (5) limit the costs
associated with safety and security measures that can be recovered in
the per-minute rates to only those costs that the Commission finds used
and useful in the provision of IPCS; (6) allow, subject to conditions,
IPCS providers to offer alternate pricing plans for IPCS that comply
with the rate caps we establish; (7) revise and strengthen
accessibility requirements for IPCS for incarcerated people with
disabilities; (8) revise and strengthen existing consumer disclosure
and inactive account requirements; and (9) revise the existing annual
reporting and certification requirements. The Report and Order also
addresses petitions for reconsideration, clarification and waiver
pending in this proceeding.
B. Summary of Significant Issues Raised by Public Comments in Response
to the IRFA
611. There were no comments filed that specifically addressed the
proposed rules and policies presented in the IRFA.
C. Response to Comments by the Chief Counsel for Advocacy of the Small
Business Administration
612. Pursuant to the Small Business Jobs Act of 2010, which amended
the RFA, the Commission is required to respond to any comments filed by
the Chief Counsel for Advocacy of the Small
[[Page 77356]]
Business Administration (SBA), and to provide a detailed statement of
any change made to the proposed rules as a result of those comments.
The Chief Counsel did not file any comments in response to the proposed
rules in this proceeding.
D. Description and Estimate of the Number of Small Entities to Which
Rules Will Apply
613. The RFA directs agencies to provide a description of, and,
where feasible, an estimate of, the number of small entities that may
be affected by the rules they adopt. The RFA generally defines the term
``small entity'' as having the same meaning as the terms ``small
business,'' ``small organization,'' and ``small governmental
jurisdiction.'' In addition, the term ``small business'' has the same
meaning as the term ``small business concern'' under the Small Business
Act. A ``small business concern'' is one which: (1) is independently
owned and operated; (2) is not dominant in its field of operation; and
(3) satisfies any additional criteria established by the Small Business
Administration (SBA).
614. Small Businesses, Small Organizations, Small Governmental
Jurisdictions. Our actions, over time, may affect small entities that
are not easily categorized at present. We therefore describe, at the
outset, three broad groups of small entities that could be directly
affected herein. First, while there are industry specific size
standards for small businesses that are used in the regulatory
flexibility analysis, according to data from the Small Business
Administration's (SBA) Office of Advocacy, in general a small business
is an independent business having fewer than 500 employees. These types
of small businesses represent 99.9% of all businesses in the United
States, which translates to 33.2 million businesses.
615. Next, the type of small entity described as a ``small
organization'' is generally ``any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field.''
The Internal Revenue Service (IRS) uses a revenue benchmark of $50,000
or less to delineate its annual electronic filing requirements for
small exempt organizations. Nationwide, for tax year 2022, there were
approximately 530,109 small exempt organizations in the U.S. reporting
revenues of $50,000 or less according to the registration and tax data
for exempt organizations available from the IRS.
616. Finally, the small entity described as a ``small governmental
jurisdiction'' is defined generally as ``governments of cities,
counties, towns, townships, villages, school districts, or special
districts, with a population of less than fifty thousand.'' U.S. Census
Bureau data from the 2022 Census of Governments indicate there were
90,837 local governmental jurisdictions consisting of general purpose
governments and special purpose governments in the United States. Of
this number, there were 36,845 general purpose governments (county,
municipal, and town or township) with populations of less than 50,000
and 11,879 special purpose governments (independent school districts)
with enrollment populations of less than 50,000. Accordingly, based on
the 2022 U.S. Census of Governments data, we estimate that at least
48,724 entities fall into the category of ``small governmental
jurisdictions.''
617. Wired Telecommunications Carriers. The U.S. Census Bureau
defines this industry as establishments primarily engaged in operating
and/or providing access to transmission facilities and infrastructure
that they own and/or lease for the transmission of voice, data, text,
sound, and video using wired communications networks. Transmission
facilities may be based on a single technology or a combination of
technologies. Establishments in this industry use the wired
telecommunications network facilities that they operate to provide a
variety of services, such as wired telephony services, including VoIP
services, wired (cable) audio and video programming distribution, and
wired broadband internet services. By exception, establishments
providing satellite television distribution services using facilities
and infrastructure that they operate are included in this industry.
Wired Telecommunications Carriers are also referred to as wireline
carriers or fixed local service providers.
618. The SBA small business size standard for Wired
Telecommunications Carriers classifies firms having 1,500 or fewer
employees as small. U.S. Census Bureau data for 2017 show that there
were 3,054 firms that operated in this industry for the entire year. Of
this number, 2,964 firms operated with fewer than 250 employees.
Additionally, based on Commission data in the 2022 Universal Service
Monitoring Report, as of December 31, 2021, there were 4,590 providers
that reported they were engaged in the provision of fixed local
services. Of these providers, the Commission estimates that 4,146
providers have 1,500 or fewer employees. Consequently, using the SBA's
small business size standard, most of these providers can be considered
small entities.
619. Local Exchange Carriers (LECs). Neither the Commission nor the
SBA has developed a size standard for small businesses specifically
applicable to local exchange services. Providers of these services
include both incumbent and competitive local exchange service
providers. Wired Telecommunications Carriers is the closest industry
with an SBA small business size standard. Wired Telecommunications
Carriers are also referred to as wireline carriers or fixed local
service providers. The SBA small business size standard for Wired
Telecommunications Carriers classifies firms having 1,500 or fewer
employees as small. U.S. Census Bureau data for 2017 show that there
were 3,054 firms that operated in this industry for the entire year. Of
this number, 2,964 firms operated with fewer than 250 employees.
Additionally, based on Commission data in the 2022 Universal Service
Monitoring Report, as of December 31, 2021, there were 4,590 providers
that reported they were fixed local exchange service providers. Of
these providers, the Commission estimates that 4,146 providers have
1,500 or fewer employees. Consequently, using the SBA's small business
size standard, most of these providers can be considered small
entities.
620. Incumbent Local Exchange Carriers (Incumbent LECs). Neither
the Commission nor the SBA have developed a small business size
standard specifically for incumbent local exchange carriers. Wired
Telecommunications Carriers is the closest industry with an SBA small
business size standard. The SBA small business size standard for Wired
Telecommunications Carriers classifies firms having 1,500 or fewer
employees as small. U.S. Census Bureau data for 2017 show that there
were 3,054 firms in this industry that operated for the entire year. Of
this number, 2,964 firms operated with fewer than 250 employees.
Additionally, based on Commission data in the 2022 Universal Service
Monitoring Report, as of December 31, 2021, there were 1,212 providers
that reported they were incumbent local exchange service providers. Of
these providers, the Commission estimates that 916 providers have 1,500
or fewer employees. Consequently, using the SBA's small business size
standard, the Commission estimates that the majority of incumbent local
exchange carriers can be considered small entities.
621. Competitive Local Exchange Carriers (CLECs). Neither the
[[Page 77357]]
Commission nor the SBA has developed a size standard for small
businesses specifically applicable to local exchange services.
Providers of these services include several types of competitive local
exchange service providers. Wired Telecommunications Carriers is the
closest industry with a SBA small business size standard. The SBA small
business size standard for Wired Telecommunications Carriers classifies
firms having 1,500 or fewer employees as small. U.S. Census Bureau data
for 2017 show that there were 3,054 firms that operated in this
industry for the entire year. Of this number, 2,964 firms operated with
fewer than 250 employees. Additionally, based on Commission data in the
2022 Universal Service Monitoring Report, as of December 31, 2021,
there were 3,378 providers that reported they were competitive local
service providers. Of these providers, the Commission estimates that
3,230 providers have 1,500 or fewer employees. Consequently, using the
SBA's small business size standard, most of these providers can be
considered small entities.
622. Interexchange Carriers (IXCs). Neither the Commission nor the
SBA have developed a small business size standard specifically for
Interexchange Carriers. Wired Telecommunications Carriers is the
closest industry with a SBA small business size standard. The SBA small
business size standard for Wired Telecommunications Carriers classifies
firms having 1,500 or fewer employees as small. U.S. Census Bureau data
for 2017 show that there were 3,054 firms that operated in this
industry for the entire year. Of this number, 2,964 firms operated with
fewer than 250 employees. Additionally, based on Commission data in the
2022 Universal Service Monitoring Report, as of December 31, 2021,
there were 127 providers that reported they were engaged in the
provision of interexchange services. Of these providers, the Commission
estimates that 109 providers have 1,500 or fewer employees.
Consequently, using the SBA's small business size standard, the
Commission estimates that the majority of providers in this industry
can be considered small entities.
623. Local Resellers. Neither the Commission nor the SBA have
developed a small business size standard specifically for Local
Resellers. Telecommunications Resellers is the closest industry with a
SBA small business size standard. The Telecommunications Resellers
industry comprises establishments engaged in purchasing access and
network capacity from owners and operators of telecommunications
networks and reselling wired and wireless telecommunications services
(except satellite) to businesses and households. Establishments in this
industry resell telecommunications; they do not operate transmission
facilities and infrastructure. Mobile virtual network operators (MVNOs)
are included in this industry. The SBA small business size standard for
Telecommunications Resellers classifies a business as small if it has
1,500 or fewer employees. U.S. Census Bureau data for 2017 show that
1,386 firms in this industry provided resale services for the entire
year. Of that number, 1,375 firms operated with fewer than 250
employees. Additionally, based on Commission data in the 2022 Universal
Service Monitoring Report, as of December 31, 2021, there were 207
providers that reported they were engaged in the provision of local
resale services. Of these providers, the Commission estimates that 202
providers have 1,500 or fewer employees. Consequently, using the SBA's
small business size standard, most of these providers can be considered
small entities.
624. Toll Resellers. Neither the Commission nor the SBA have
developed a small business size standard specifically for Toll
Resellers. Telecommunications Resellers is the closest industry with a
SBA small business size standard. The Telecommunications Resellers
industry comprises establishments engaged in purchasing access and
network capacity from owners and operators of telecommunications
networks and reselling wired and wireless telecommunications services
(except satellite) to businesses and households. Establishments in this
industry resell telecommunications; they do not operate transmission
facilities and infrastructure. Mobile virtual network operators (MVNOs)
are included in this industry. The SBA small business size standard for
Telecommunications Resellers classifies a business as small if it has
1,500 or fewer employees. U.S. Census Bureau data for 2017 show that
1,386 firms in this industry provided resale services for the entire
year. Of that number, 1,375 firms operated with fewer than 250
employees. Additionally, based on Commission data in the 2022 Universal
Service Monitoring Report, as of December 31, 2021, there were 457
providers that reported they were engaged in the provision of toll
services. Of these providers, the Commission estimates that 438
providers have 1,500 or fewer employees. Consequently, using the SBA's
small business size standard, most of these providers can be considered
small entities.
625. Other Toll Carriers. Neither the Commission nor the SBA has
developed a definition 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. Wired Telecommunications Carriers is the closest
industry with a SBA small business size standard. The SBA small
business size standard for Wired Telecommunications Carriers classifies
firms having 1,500 or fewer employees as small. U.S. Census Bureau data
for 2017 show that there were 3,054 firms in this industry that
operated for the entire year. Of this number, 2,964 firms operated with
fewer than 250 employees. Additionally, based on Commission data in the
2022 Universal Service Monitoring Report, as of December 31, 2021,
there were 90 providers that reported they were engaged in the
provision of other toll services. Of these providers, the Commission
estimates that 87 providers have 1,500 or fewer employees.
Consequently, using the SBA's small business size standard, most of
these providers can be considered small entities.
626. Payphone Service Providers (PSPs). Neither the Commission nor
the SBA have developed a small business size standard specifically for
payphone service providers, a group that includes incarcerated people's
services providers. Telecommunications Resellers is the closest
industry with a SBA small business size standard. The
Telecommunications Resellers industry comprises establishments engaged
in purchasing access and network capacity from owners and operators of
telecommunications networks and reselling wired and wireless
telecommunications services (except satellite) to businesses and
households. Establishments in this industry resell telecommunications;
they do not operate transmission facilities and infrastructure. Mobile
virtual network operators (MVNOs) are included in this industry. The
SBA small business size standard for Telecommunications Resellers
classifies a business as small if it has 1,500 or fewer employees. U.S.
Census Bureau data for 2017 show that 1,386 firms in this industry
provided resale services for the entire year. Of that number, 1,375
firms operated with fewer than 250 employees.
[[Page 77358]]
Additionally, based on Commission data in the 2022 Universal Service
Monitoring Report, as of December 31, 2021, there were 36 providers
that reported they were engaged in the provision of payphone services.
Of these providers, the Commission estimates that 32 providers have
1,500 or fewer employees. Consequently, using the SBA's small business
size standard, most of these providers can be considered small
entities.
627. Telecommunications Relay Service (TRS) Providers.
Telecommunications relay services enable individuals who are deaf, hard
of hearing, deafblind, or who have a speech disability to communicate
by telephone in a manner that is functionally equivalent to using voice
communication services. Internet-based TRS connects an individual with
a hearing or a speech disability to a TRS communications assistant
using an internet Protocol-enabled device via the internet, rather than
the public switched telephone network. Video Relay Service (VRS) one
form of internet-based TRS, enables people with hearing or speech
disabilities who use sign language to communicate with voice telephone
users over a broadband connection using a video communication device.
Internet Protocol Captioned Telephone Service (IP CTS) another form of
internet-based TRS, permits a person with hearing loss to have a
telephone conversation while reading captions of what the other party
is saying on an internet-connected device. A third form of internet-
based TRS, Internet Protocol Relay Service (IP Relay), permits an
individual with a hearing or a speech disability to communicate in text
using an Internet Protocol-enabled device via the internet, rather than
using a text telephone (TTY) and the public switched telephone network.
Providers must be certified by the Commission to provide VRS and IP CTS
and to receive compensation from the TRS Fund for TRS provided in
accordance with applicable rules. Analog forms of TRS, text telephone
(TTY), Speech-to-Speech Relay Service, and Captioned Telephone Service,
are provided through state TRS programs, which also must be certified
by the Commission.
628. Neither the Commission nor the SBA have developed a small
business size standard specifically for TRS Providers. All Other
Telecommunications is the closest industry with a SBA small business
size standard. Internet Service Providers (ISPs) and Voice over
Internet Protocol (VoIP) services, via client-supplied
telecommunications connections are included in this industry. The SBA
small business size standard for this industry classifies firms with
annual receipts of $35 million or less as small. U.S. Census Bureau
data for 2017 show that there were 1,079 firms in this industry that
operated for the entire year. Of those firms, 1,039 had revenue of less
than $25 million. Based on Commission data there are 14 certified
internet-based TRS providers and two analog forms of TRS providers. The
Commission however does not compile financial information for these
providers. Nevertheless, based on available information, the Commission
estimates that most providers in this industry are small entities.
629. All Other Telecommunications. This industry is comprised of
establishments primarily engaged in providing specialized
telecommunications services, such as satellite tracking, communications
telemetry, and radar station operation. This industry also includes
establishments primarily engaged in providing satellite terminal
stations and associated facilities connected with one or more
terrestrial systems and capable of transmitting telecommunications to,
and receiving telecommunications from, satellite systems. Providers of
internet services (e.g., dial-up ISPs) or Voice over Internet Protocol
(VoIP) services, via client-supplied telecommunications connections are
also included in this industry. The SBA small business size standard
for this industry classifies firms with annual receipts of $40 million
or less as small. U.S. Census Bureau data for 2017 show that there were
1,079 firms in this industry that operated for the entire year. Of
those firms, 1,039 had revenue of less than $25 million. Based on this
data, the Commission estimates that the majority of ``All Other
Telecommunications'' firms can be considered small.
E. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements for Small Entities
630. IPCS providers, including any that may be small entities, will
need to change their operations, recordkeeping, and reporting to comply
with the requirements of the Report and Order. These requirements
include compliance with the rate caps the Report and Order establishes
for IPCS. While the new rate cap structure is lower than the
preexisting per-minute rate caps, given that the rate caps are based on
cost data provided by IPCS providers, including smaller providers,
small entities are likely to be able to recover their costs in the same
manner as larger providers. Additionally, because the rate caps apply
to both interstate and intrastate IPCS, the new rate cap structure
reduces the recordkeeping and reporting burdens of complying with the
Commission's rules with regards to audio IPCS because providers will no
longer need to determine the jurisdictional nature of each call. The
Report and Order's requirements also include a prohibition on the
assessment of ancillary service charges associated with IPCS, which
will greatly reduce the recordkeeping burdens on providers and simplify
their billing operations.
631. The Report and Order prohibits IPCS providers from paying site
commissions of any kind associated with IPCS and eliminates the
requirement under the Commission's rules for providers to label, and
disclose the source of, those payments on consumers' bills. The Report
and Order requires that, where facilities claim to incur costs related
to IPCS, providers are to determine whether those costs are in fact
used and useful in the provision of IPCS and are, therefore,
reimbursable under the Commission's rules. These changes will reduce
the burdens of the Commission's billing rules, while requiring that
IPCS providers make determinations regarding whether cost claims
submitted to them by facilities are consistent with Commission
requirements.
632. The Report and Order allows providers the option to offer
alternate pricing plans in addition to providing IPCS at per-minute
rates. IPCS providers may elect whether to offer such plans, and should
they elect to do so, they may determine the format of such plans,
provided that these plans comply with the Commission's generally
applicable IPCS rules, certain specified limitations, and other
safeguards adopted in the Report and Order. The Report and Order
establishes additional requirements for alternative pricing plans
regarding dropped communications, automatic renewals, and consumer
cancellation.
633. The Report and Order adopts consumer disclosure requirements
applicable to all IPCS, including requirements that providers disclose
their IPCS rates, charges, and associated practices on their publicly
available websites in a manner that is easily accessible and available
to all members of the public. Providers must also make these
disclosures available via their online and mobile applications, if
consumers use such applications to enroll, and on paper, upon a
consumer's request. The Report and Order further requires providers to
make available billing statements and statements of account to account
holders on a monthly basis, and details regarding the timing, manner,
and content
[[Page 77359]]
requirements for these and other disclosure documents for alternate
pricing plans. The Report and Order also ensures that the consumer
disclosure rules, as amended, apply to all IPCS providers subject to
the Commission's expanded jurisdiction under the Martha Wright-Reed
Act.
634. The Report and Order extends the Commission's rules regarding
inactive accounts to apply to all accounts that can be used to pay an
IPCS-related rate or charge, to the extent they are controlled by IPCS
providers or their affiliates. The Report and Order reaffirms that
providers are barred from improperly disposing of unused funds in
inactive accounts (which includes disposing of such funds before 180
calendar days of continuous account inactivity has passed), and are
required to undertake reasonable efforts to refund unused funds. The
Report and Order expands upon these rules, including by requiring
providers to (1) contact the relevant account holder if and when they
become aware that an incarcerated person has been released or
transferred or upon the expiration of the 180-day inactivity period,
(2) issue refunds within 30 calendar days of a request from an account
holder, or of an account being deemed inactive (even in the absence of
such a request), and (3) notify account holders of the status of IPCS
accounts prior to their being deemed inactive. However, the Report and
Order limits the requirement for automatic refunds (i.e., in the
absence of a consumer's specific request) to account balances of
greater than $1.50. The Report and Order also clarifies what
``reasonable efforts'' entail, the procedures to follow if ``reasonable
efforts'' to refund inactive accounts fail, and which refund mechanisms
providers may use. Additionally, the Report and Order reaffirms and
clarifies the exception to these rules that allows a provider to
dispose of funds in inactive accounts in compliance with a controlling
judicial or administrative mandate.
635. The Report and Order modifies the scope and content of the
annual reporting requirements, to reflect the Commission's expanded
jurisdiction under the Martha Wright-Reed Act, to include the full
scope of IPCS and all providers of IPCS, and to reflect the changes to
the Commission's rules adopted in the Report and Order. The Report and
Order also amends the Commission's Part 14 rules as appropriate to
reflect the Martha Wright-Reed Act's expansion of the Communications
Act's definition of ``advanced communication service.'' It also
modifies the Commission's rules to allow a form of enterprise
registration for the use of Internet Protocol Captioned Telephone
Service (IP CTS) in carceral facilities and clarifies that internet-
based IPCS providers may provide access to traditional (TTY-based) TRS
via real-time text. The Report and Order on Reconsideration also amends
the Commission's rules to require that VRS and IP CTS providers update
an incarcerated person's registration information within 30 days of
receiving written notification from such person, the correctional
authority, or IPCS provider of an incarcerated person's release or
transfer.
F. Steps Taken To Minimize the Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
636. The RFA requires an agency to provide, ``a description of the
steps the agency has taken to minimize the significant economic impact
on small entities . . . including a statement of the factual, policy,
and legal reasons for selecting the alternative adopted in the final
rule and why each one of the other significant alternatives to the rule
considered by the agency which affect the impact on small entities was
rejected.''
637. In the Report and Order, the Commission adopts a new, more
comprehensive set of rate caps that differentiate between prisons and
jails, and between four different sizes of jails--large, medium, small
and very small--based on average daily population (ADP). The use of
four different size tiers is supported in the record and accounts for
differences in costs incurred by providers serving these different
facility sizes. The Commission conducts a cost analysis specific to
each size tier using data submitted by IPCS providers and adopts new
rate caps for each of these facility size and type categories for both
audio and video IPCS. The Commission believes that these actions
properly recognize that some jails may be more costly for providers to
serve than prisons, and similarly that jails with smaller ADPs may be
more costly for providers to serve than those with larger ADPs.
638. Compliance with the Commission's new audio and video rate caps
and its rules eliminating site commission payments will be required by
January 1, 2025 for prisons and for jails with ADPs of 1,000 or above
incarcerated persons where no site commissions mandated by law are
currently paid; by April 1, 2025 for jails with ADPs less than 1,000
where no site commissions mandated by law are currently paid; and by
July 1, 2025 for all size facilities where site commissions mandated by
law are currently paid. The Commission extended the compliance deadline
for providers serving smaller jails to account for the additional time
that these facilities, and the providers that serve them, may need to
adapt to the changes adopted in the Report and Order.
639. The Commission recognizes that it cannot foreclose the
possibility that in certain limited instances, certain providers,
possibly smaller providers with less ability to spread their costs over
a larger number of facilities or minutes of use, may not be able to
recover their costs of providing IPCS under the rate caps adopted in
the Report and Order. To minimize the burden on such providers, the
Commission retains, with modifications, its waiver process, which
allows providers to seek relief from its rules at the facility or
contract level if they can demonstrate that they are unable to recover
their used and useful IPCS-related costs at that facility or for that
contract. The Commission modifies this process to reflect the
provisions of the Martha Wright-Reed Act, including its new authority
thereunder. The waiver process will allow the Commission to review
individual providers' data and potentially allow these providers to
charge rates that enable them to recover their costs of providing IPCS
at that facility or under that contract. This waiver process should
benefit any IPCS providers that may be small businesses unable to
recover their costs under the new rate caps.
640. In the Report and Order, the Commission prohibits providers
from assessing ancillary service charges in addition to per-minute
rates for IPCS. The Commission incorporates the costs of providing
ancillary services in its rate caps to allow providers the opportunity
to recover their average costs of providing these ancillary services,
while eliminating the burden of administering independent billing
processes for each of these services. At the same time, eliminating all
separately assessed ancillary service charges prevents providers from
engaging in rent-seeking activity in their application of these
charges, helping to ensure that IPCS rates and charges are just and
reasonable.
641. The Commission revises its rules to make clear that IPCS
providers may meet the requirement to provide access to traditional TRS
via real-time text, as an alternative to TTY transmissions, if real-
time text transmission is supported by the available devices and
reliable
[[Page 77360]]
service can be provided by this method. Permitting this alternative
affords providers further flexibility in conducting their operations,
and accommodates the needs of smaller providers that may have
insufficient resources to expand or otherwise adjust their service
format and infrastructure to enable TTY transmission.
642. The Commission revises its rules to permit providers to
implement alternate pricing plans, other than per-minute pricing,
subject to rules and conditions to protect IPCS consumers. Any provider
that adopts these plans must offer them as a voluntary alternative to
per-minute pricing. Providers are not required to offer such plans, but
should they elect to do so, they will have the flexibility to determine
the format of the plans they offer. Permitting this additional means of
providing IPCS affords providers, including smaller providers, further
flexibility in conducting their operations.
643. The Commission's rate caps incorporate the costs of only a
subset of the safety and security measures reported by providers. The
rate caps incorporate the costs of the two categories that the
Commission finds to be both used and useful in the provision of IPCS:
Communications Assistance for Law Enforcement Act (CALEA) compliance
measures and communications security services. Because cost recovery
through the rate caps is only accommodated for a more limited set of
such measures, providers, particularly smaller providers, may not need
to be capable of offering more sophisticated safety and security
services in order to successfully compete for IPCS contracts.
G. Report to Congress
644. The Commission will send a copy of the Report and Order,
including this FRFA, in a report to be sent to Congress pursuant to the
Congressional Review Act. In addition, the Commission will send a copy
of the Report and Order, including this FRFA, to the Chief Counsel for
Advocacy of the SBA. A copy of the Report and Order and FRFA (or
summaries thereof) will also be published in the Federal Register.
VI. Ordering Clauses
645. Accordingly, it is ordered that, pursuant to the authority
contained in sections 1, 2, 4(i) to (j), 201(b), 218, 220, 225, 255,
276, 403, and 716 of the Communications Act of 1934, as amended, 47
U.S.C. 151, 152, 154(i) to (j), 201(b), 218, 220, 225, 255, 276, 403,
and 617, and the Martha Wright-Reed Just and Reasonable Communications
Act of 2022, Public Law 117-338, 136 Stat 6156 (2022), the Report and
Order, Order on Reconsideration, Clarification and Waiver, and Further
Notice of Proposed Rulemaking are adopted.
646. It is further ordered that, pursuant to the authority
contained in sections 1, 2, 4(i) to (j), 201(b), 218, 220, 225, 255,
276, 403, and 716, of the Communications Act of 1934, as amended, 47
U.S.C. 151, 152, 154(i) to (j), 201(b), 218, 220, 225, 255, 276, 403,
and 617, and the Martha Wright-Reed Just and Reasonable Communications
Act of 2022, Public Law 117-338, 136 Stat 6156 (2022), the Report and
Order shall be effective sixty (60) days after publication of a summary
of it in the Federal Register, except as stated below. Amendments to
sections 64.611(l)(2), (3), (5), (6); 64.6040(f); 64.6060; 64.6110;
64.6120; 64.6130(d), (e), (f), (h) to (k); 64.6140(c), (d), (e)(2) to
(4), (f)(2), and (f)(4) will not become effective until the Office of
Management and Budget (OMB) completes any review that the Wireline
Competition Bureau or the Consumer and Governmental Affairs Bureau
determine is required under the Paperwork Reduction Act (PRA). The
removal of Sec. 64.6090 will not become effective until after OMB
completes any review of Sec. 64.6140. The Commission directs the
Wireline Competition Bureau and Consumer and Governmental Affairs
Bureau to announce effective dates for these sections by publication in
the Federal Register and by subsequent Public Notice.
647. It is further ordered that, pursuant to the authority
contained in sections 1, 2, 4(i) to (j), 201(b), 218, 220, 225, 255,
276, 403, and 716, of the Communications Act of 1934, as amended, 47
U.S.C. 151, 152, 154(i) to (j), 201(b), 218, 220, 225, 255, 276, 403,
and 617, and the Martha Wright-Reed Just and Reasonable Communications
Act of 2022, Public Law 117-338, 136 Stat 6156 (2022), the delegations
of authority to the Wireline Competition Bureau, Office of Economics
and Analytics, and the Consumer and Governmental Affairs Bureau shall
be effective upon publication in the Federal Register.
648. It is further ordered that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, shall send a
copy of the Report and Order and Further Notice of Proposed Rulemaking,
including the Initial Regulatory Flexibility Analysis and the Final
Regulatory Flexibility Analyses, to the Chief Counsel for Advocacy of
the Small Business Administration.
649. It is further ordered that the Office of the Managing
Director, Performance Evaluation and Records Management, shall send a
copy of the Report and Order and Further Notice of Proposed Rulemaking
in a report to be sent to Congress and the Government Accountability
Officer pursuant to the Congressional Review Act, 5 U.S.C.
801(a)(1)(A).
List of Subjects in 47 CFR Parts 14 and 64
Advanced Services, Communications, Communications common carriers,
Communications equipment, Computer technology, Individuals with
disabilities, Prisoners, Reporting and recordkeeping requirements,
Security measures, Telecommunications, Telephone, Video, Waivers.
Federal Communications Commission.
Marlene Dortch,
Secretary.
Final Rules
For the reasons set forth above, the Federal Communications
Commission amends parts 14 and 64 of Title 47 of the Code of Federal
Regulations as follows:
PART 14--ACCESS TO ADVANCED COMMUNICATIONS SERVICES AND EQUIPMENT
BY PEOPLE WITH DISABILITIES
0
1. The authority citation for part 14 continues to read as follows:
Authority: 47 U.S.C. 151-154, 255, 303, 403, 503, 617, 618, 619
unless otherwise noted.
0
2. Amend Sec. 14.10 by revising paragraph (c) to read as follows:
* * * * *
(c) The term advanced communications services means:
(1) Interconnected VoIP service, as that term is defined in
paragraph (l) of this section;
(2) Non-interconnected VoIP service, as that term is defined in
paragraph (q) of this section;
(3) Electronic messaging service, as that term is defined in
paragraph (i) of this section;
(4) Interoperable video conferencing service, as that term is
defined in paragraph (m) of this section; and
(5) Any audio or video communications services used by inmates for
the purposes of communicating with individuals outside the correctional
institution where the inmate is held, regardless of technology used.
* * * * *
[[Page 77361]]
PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS
0
3. The authority citation for part 64 is revised to read as follows:
Authority: 47 U.S.C. 151, 152, 154, 201, 202, 217, 218, 220,
222, 225, 226, 227, 227b, 228, 251(a), 251(e), 254(k), 255, 262,
276, 403(b)(2)(B), (c), 616, 620, 716, 1401-1473, unless otherwise
noted; Pub. L. 115-141, Div. P, sec. 503, 132 Stat. 348, 1091; Pub.
L. 117-338, 136 Stat. 6156.
0
4. The authority citation for subpart F is revised to read as follows:
Authority: 47 U.S.C. 151-154, 225, 255, 303(r), 616, and 620;
Pub. L. 117-338, 136 Stat. 6156.
0
5. Amend section 64.601 by redesignating paragraphs (a)(21) through
(a)(56) as paragraphs (a)(23) through (a)(58) and adding paragraphs
(a)(21) and (a)(22) to read as follows:
* * * * *
(a) * * *
(21) Incarcerated People's Communications Service or IPCS. The term
``Incarcerated People's Communications Service'' or ``IPCS'' has the
meaning given such term under Sec. 64.6000.
(22) Incarcerated Person or Incarcerated People. The term
``Incarcerated Person'' or ``Incarcerated People'' has the meaning
given such term under Sec. 64.6000.
* * * * *
0
6. Amend section 64.611 by revising paragraph (k) and adding paragraph
(l) to read as follows:
Sec. 64.611 Internet-based TRS registration.
* * * * *
(k) Individual registration for use of TRS in correctional
facilities--(1) Registration information and documentation. If an
individual eligible to use TRS registers with an internet-based TRS
provider while incarcerated, the provider shall collect and transmit to
the TRS User Registration Database the information and documentation
required by the applicable provisions of this section, except that:
(i) The residential address specified for such Incarcerated Person
shall be the name of the correctional authority with custody of that
person along with the main or administrative address of such authority;
(ii) A Registered Location need not be provided; and
(iii) If an Incarcerated Person has no Social Security number or
Tribal Identification number, an identification number assigned by the
correctional authority along with the facility identification number,
if there is one, may be provided in lieu of the last four digits of a
Social Security number or a Tribal Identification number.
(2) Verification of VRS and IP CTS registration data. An
Incarcerated Person's identity and address may be verified pursuant to
Sec. 64.615(a)(6) of this chapter, for purposes of VRS or IP CTS
registration, based on documentation, such as a letter or statement,
provided by an official of a correctional authority that states the
name of the person; the person's identification number assigned by the
correctional authority; the name of the correctional authority; and the
address of the correctional facility. The VRS or IP CTS provider shall
transmit such documentation to the TRS User Registration Database
administrator.
(3) Release or transfer of an Incarcerated Person. Upon release (or
transfer to a different correction authority) of an Incarcerated Person
who has registered for VRS or IP CTS, the VRS or IP CTS provider with
which such person has registered shall update the person's registration
information within 30 days of receiving written notification from such
person or the correctional authority of such release or transfer. Such
updated information shall include, in the case of release, the
individual's full residential address, Registered Location (if required
by this section or part 9 of this chapter), and any other registration
information required by this section and not previously provided, and
in the case of transfer shall include the information required by
paragraph (k)(2) of this section.
(4) Dial-around calls for VRS. VRS providers shall not allow dial-
around calls by Incarcerated People.
(l) Enterprise registration for the use of TRS in correctional
facilities.
(1) Notwithstanding the other provisions of this section, a TRS
provider may provide VRS, IP Relay, or IP CTS to an Incarcerated
Person, without individual user registration, if the TRS provider has
completed enterprise registration of the correctional facility or
correctional authority for which service will be provided.
(2) [Reserved]
(3) [Reserved]
(4) Confidentiality. The TRS provider shall maintain the
confidentiality of any registration and certification information
obtained by the TRS provider, and shall not disclose such registration
and certification information, or the content of such registration and
certification information, except as required by law or regulation.
0
7. Delayed indefinitely, amend Sec. 64.611 by adding paragraphs
(l)(2), (3), (5) and (6) to read as follows:
Sec. 64.611 Internet-based TRS registration.
* * * * *
(l) * * *
(2) Signed certification--(i) VRS and IP Relay. For enterprise
registration to use VRS or IP Relay, the TRS provider shall obtain a
signed certification from the individual responsible for the devices
used to access VRS or IP Relay (who may be an employee of the
correctional authority or a provider of Incarcerated People's
Communications Services), attesting that:
(A) The individual understands the functions of the devices used to
access the service and that the cost of this relay service is financed
by the federally regulated Interstate TRS Fund; and
(B) The correctional authority (or the provider of Incarcerated
People's Communications Services, if the individual is employed by such
a provider) will make reasonable efforts to ensure that only persons
with a hearing or speech disability are permitted to use the service.
(ii) IP CTS. For enterprise registration to use IP CTS, the TRS
provider shall obtain a signed certification from the individual
responsible for the devices used to access IP CTS (who may be an
employee of the correctional authority or of a provider of Incarcerated
People's Communications Services), attesting that:
(A) The individual understands the functions of IP CTS and that the
cost of IP CTS is supported by the federally regulated Interstate TRS
Fund; and
(B) The correctional authority (or the provider of Incarcerated
People's Communications Services, if the individual is employed by such
a provider) will make reasonable efforts to ensure that only persons
with hearing loss that necessitates the use of IP CTS to communicate by
telephone are permitted to use IP CTS.
(iii) Electronic signatures. The certification required by
paragraph (l)(2) of this section shall be made on a form separate from
any other agreement or form, and must include a separate signature
specific to the certification. For the purposes of this paragraph
(l)(2)(iii), an electronic signature, defined by the Electronic
Signatures in Global and National Commerce Act as an electronic sound,
symbol, or process, attached to or logically associated with a contract
or other record and executed or adopted by a person with the intent to
sign the record, has the same legal effect as a written signature. For
the purposes of this paragraph (l)(2)(iii), an
[[Page 77362]]
electronic record, defined by the Electronic Signatures in Global and
National Commerce Act as a contract or other record created, generated,
sent, communicated, received, or stored by electronic means,
constitutes a record.
(3) Consent for transmission of registration information. A VRS or
IP CTS provider shall obtain consent from the individual making the
certification described in paragraph (l)(2) of this section to transmit
the information required by this section to the TRS User Registration
Database. Before obtaining such consent, the TRS provider shall
describe, using clear, easily understood language, the specific
information being transmitted, that the information is being
transmitted to the TRS User Registration Database to ensure proper
administration of the TRS program, and that failure to provide consent
will result in denial of service. The TRS provider shall obtain and
keep a record of affirmative acknowledgment of such consent.
* * * * *
(5) Registration data. To complete enterprise registration, a VRS
or IP CTS provider shall collect and transmit to the TRS User
Registration Database, in a format prescribed by the Database
administrator:
(i) The TRS provider's name;
(ii) The telephone numbers or unique identifiers assigned to the
relevant TRS device(s) at the correctional facility or correctional
authority;
(iii) The name and address of the affected correctional facility or
correctional authority;
(iv) The date of initiation of service and;
(v) The name of the individual executing the certification required
by paragraph (l)(2) of this section, and the date the certification was
obtained.
(6) When a VRS or IP CTS provider ceases providing relay service to
a correctional authority via enterprise registration, the provider
shall transmit the date of termination of such service to the TRS User
Registration Database Administrator.
0
8. Revise the heading to subpart FF to read as follows:
Subpart FF--Incarcerated People's Communications Services
0
9. Revise Sec. 64.6000 to read as follows:
Sec. 64.6000 Definitions.
As used in this subpart:
Alternate Pricing Plan or Plan means the offering of Incarcerated
People's Communications Services to Consumers using a pricing structure
other than per-minute pricing.
Ancillary Service Charge means any charge to Consumers associated
with the provision or use of Incarcerated People's Communications
Services that is not:
(1) Included in the per-minute charges assessed, in accordance with
Sec. Sec. 64.6010 and 64.6030, for individual Incarcerated People's
Communications Services;
(2) Included in the charges assessed, in accordance with Sec.
64.6140, in connection with an Alternate Pricing Plan; or
(3) An Authorized Fee, a Mandatory Fee, or a Mandatory Tax.
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 for or in connection with intrastate,
interstate, or international Incarcerated People's Communications
Services. An Authorized Fee may not include a markup, unless the markup
is specifically authorized by a federal, state, or local statute, rule,
or regulation.
Average Daily Population or ADP means the sum of all Incarcerated
People in a Correctional Facility for each day of the preceding
calendar year divided by the number of days in that year, calculated
each year on or before April 30.
Billing Statement or Statement of Account means the vehicle by
which IPCS Account information is provided to the Consumer on a monthly
basis, regardless of IPCS Account type, including: (a) the amount of
any deposits in the IPCS Account; (b) the duration of any call(s) or
communication(s) for which a charge is assessed; and (c) the balance
remaining in the IPCS Account after deduction of those charges.
Breakeven Point means, for purposes of an Alternate Pricing Plan,
the usage amount:
(1) Below which a Consumer would pay more under the Alternate
Pricing Plan than the Consumer would have paid under the Provider's
per-minute rates, and
(2) At or above which the cost of the Alternate Pricing Plan would
be less than or equal to what the Consumer would pay under the
Provider's per-minute rates.
Collect Calling means an arrangement whereby the called party takes
affirmative action clearly indicating that it will pay the charges
associated with a communication originating from an Incarcerated
Person's Communications Device.
Consumer means the party paying a Provider of Incarcerated People's
Communications Services.
Controlling Judicial or Administrative Mandate means:
(1) A final court order requiring an Incarcerated Person to pay
restitution;
(2) A fine imposed as part of a criminal sentence;
(3) A fee imposed in connection with a criminal conviction; or
(4) A final court or administrative agency order adjudicating a
valid contract between the Provider and the IPCS Account holder,
entered into prior to July 22, 2024 that allows or requires that a
Provider of Incarcerated People's Communications Services act in a
manner that would otherwise violate Sec. 64.6130.
Correctional Facility, Facility, or Correctional Institution means
a Jail or a Prison.
Debit Calling means a presubscription or comparable service which
allows an Incarcerated Person, or someone acting on an Incarcerated
Person's behalf, to fund an IPCS Account set up through a Provider that
can be used to pay for Incarcerated People's Communications Services
originated by the Incarcerated Person.
Facility-Related Rate Component means either the Legally Mandated
Facility Rate Component or the Contractually Prescribed Facility Rate
Component identified in Sec. 64.6030(d).
Incarcerated Person or Incarcerated People means a person or
persons detained at a Jail or Prison, regardless of the duration of the
detention.
Incarcerated People's Communications Service or IPCS means the
provision of telephone service; interconnected VoIP service; non-
interconnected VoIP service; interoperable video conferencing service;
and any audio or video communications service used by Incarcerated
People for the purpose of communicating with individuals outside the
Facility where the Incarcerated Person is held, regardless of the
technology used and regardless of interstate, intrastate or
international jurisdiction.
Incarcerated People's Communications Service Account or IPCS
Account means any type of account administered, or directly or
indirectly controlled by a Provider or an affiliate of a Provider that
can be used to pay IPCS rates and charges, including accounts where the
Incarcerated Person is the account holder.
Incarcerated Person's Communications Device means a telephone
instrument or other device capable of initiating communications, set
aside by authorities of a Correctional Facility for use by one or more
Incarcerated People.
[[Page 77363]]
Interconnected Voice over Internet Protocol or Interconnected VoIP
means a service that:
(1) Enables real-time, two-way voice communications;
(2) Requires a broadband connection from the user's location;
(3) Requires internet protocol-compatible customer premises
equipment; and
(4) permits users generally to receive calls that originate on the
public switched telephone network and to terminate calls to the public
switched telephone network.
Interoperable Video Conferencing Service means a service that
provides real-time video communications, including audio, to enable
users to share information of the user's choosing.
International Communications means communications that originate in
the United States and terminate outside the United States.
International Destination means the rate zone in which an
International Communication terminates. For countries that have a
single rate zone, International Destination means the country in which
an International Communication terminates.
Inmate means a person detained at a Jail or Prison, regardless of
the duration of the detention;
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;
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;
Jail means a Facility of a local, state, or federal law enforcement
agency that is used to primarily hold individuals who are:
(1) Awaiting adjudication of criminal charges;
(2) Post-conviction and committed to confinement 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 Incarcerated People; immigration detention
facilities operated by, or pursuant to contracts with, federal, state,
city, county, or regional agencies; juvenile detention centers; and
secure mental health facilities.
Jurisdiction means:
(1) The state, city, county, or territory where a law enforcement
authority is operating or contracting for the operation of a
Correctional Facility; or
(2) The United States for a Correctional Facility operated by or
under the contracting authority of a Federal law enforcement agency.
Jurisdictionally Mixed Charge means any charge Consumers may be
assessed for use of Incarcerated People's Communications Services that
is not included in the per-minute charges assessed for individual
communications and that are assessed for, or in connection with, uses
of Incarcerated People's Communications Service to make such
communications that have interstate or international and intrastate
components that are unable to be segregated at the time the charge is
incurred.
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. A Mandatory Tax or Mandatory Fee that is
passed through to a Consumer for, or in connection with, Incarcerated
People's Communications Services may not include a markup, unless the
markup is specifically authorized by a federal, state, or local
statute, rule, or regulation.
Non-interconnected VoIP means a service, other than an
Interconnected VoIP service, that enables real-time voice
communications that originate from, or terminate to, the end-user's
location using Internet Protocol or any successor protocol and that
requires Internet Protocol compatible customer premises equipment.
Per-Call, Per-Connection, or Per-Communication Charge means a one-
time fee charged to a Consumer of IPCS at call or communication
initiation.
Prepaid Calling means a presubscription or comparable service in
which a Consumer, other than an Incarcerated Person, funds an account
set up through a Provider of Incarcerated People's Communications
Services. Funds from the account can then be used to pay for
Incarcerated People's Communications Services that originate with the
same Incarcerated Person.
Prepaid Collect Calling means a calling arrangement that allows an
Incarcerated Person to initiate an Incarcerated People's Communications
Services communication without having a pre-established billing
arrangement and also provides a means, within that communication, for
the called party to establish an arrangement to be billed directly by
the Provider of Incarcerated People's Communications Services for
future communications from the same Incarcerated Person.
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
Incarcerated People are post-conviction and are committed to
confinement for sentences of longer than one year.
Provider of Incarcerated People's Communications Services or
Provider means any communications service provider that provides
Incarcerated People's Communications Services, regardless of the
technology used.
Provider-Related Rate Component means the interim per-minute rate
specified in either Sec. 64.6030(b) or (c) that Providers at Jails
with Average Daily Populations of 1,000 or more Incarcerated People and
all Prisons may charge for interstate Collect Calling, Debit Calling,
Prepaid Calling, or Prepaid Collect Calling.
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 Incarcerated People's
Communications Services or affiliate of a Provider of Incarcerated
People's Communications Services may pay, give, donate, or otherwise
provide to an entity that operates a Correctional Institution, an
entity with which the Provider of Incarcerated People's Communications
Services enter into an agreement to provide Incarcerated People's
Communications Services, a governmental agency that oversees a
Correctional Facility, the city, county, or state where a Facility is
located, or an agent of any such Facility.
0
10. Add Sec. 64.6010 to read as follows:
Sec. 64.6010 Incarcerated People's Communications Services rate caps.
(a) A Provider must offer each Incarcerated People's Communications
Service it provides at a per-minute rate. A Provider may also offer an
Incarcerated People's Communications Service under one or more
Alternate Pricing Plans, pursuant to Sec. 64.6140.
(b) A Provider must not charge a per-minute rate for intrastate or
interstate audio Incarcerated People's Communications Services in
excess of the following rate caps on or after the dates specified
below:
[[Page 77364]]
(1) $0.06 per minute for each Prison;
(2) $0.06 per minute for each Jail having an Average Daily
Population of 1,000 or more Incarcerated People;
(3) $0.07 per minute for each Jail having an Average Daily
Population of between and including 350 and 999 Incarcerated People;
(4) $0.09 per minute for each Jail having an Average Daily
Population of between and including 100 and 349 Incarcerated People;
and
(5) $0.12 per minute for each Jail having an Average Daily
Population of below 100 Incarcerated People.
(c) A Provider must not charge a per-minute rate for video
Incarcerated People's Communications Services in excess of the
following interim rate caps except as set forth in paragraph (d) of
this section:
(1) $0.16 per minute for each Prison;
(2) $0.11 per minute for each Jail having an Average Daily
Population of 1,000 or more Incarcerated People;
(3) $0.12 per minute for each Jail having an Average Daily
Population of between and including 350 and 999 Incarcerated People;
(4) $0.14 per minute for each Jail having an Average Daily
Population of between and including 100 and 349 Incarcerated People;
and
(5) $0.25 per minute for each Jail having an Average Daily
Population of below 100 Incarcerated People.
(d) A Provider must charge the rate caps described in paragraphs
(b) and (c) of this section beginning January 1, 2025 for all Prisons
and for Jails with Average Daily Populations of 1,000 or more
Incarcerated People, and April 1, 2025 for Jails with Average Daily
Populations of less than 1,000 Incarcerated People, subject to the
following special provisions.
(1) Where a contract existing as of June 27, 2024 includes terms
and conditions that would require material alteration through
renegotiation due to a conflict with our new rules involving rates,
contractually-negotiated Site Commission payments or passthrough
charges included in the rates, and the contract expires on or after
January 1, 2025 for Prisons and for Jails with Average Daily
Populations of 1,000 or more Incarcerated People, or on or after April
1, 2025 for Jails with Average Daily Populations of less than 1,000
Incarcerated People, the compliance dates for the rate caps set forth
in paragraphs (b) and (c) of this section and the Site Commission rules
set forth in Sec. 64.6015 will be the earlier of the contract
expiration date or January 1, 2026 for Prisons and for Jails with
Average Daily Populations of 1,000 or more Incarcerated People, or the
earlier of the contract expiration date or April 1, 2026 for Jails with
Average Daily Populations of less than 1,000 Incarcerated People.
(2) Where a contract existing as of June 27, 2024 includes terms
and conditions that would require renegotiation due to a provision
incorporating legally-mandated Site Commission payments and the
contract expires on or after July 1, 2025 for any size Facility, the
compliance date for paragraphs (b) and (c) of this section and the Site
Commission rules set forth in Sec. 64.6015 will be the earlier of the
contract expiration date or April 1, 2026.
(e) A Provider must not charge a per-minute rate for international
audio Incarcerated People's Communications Services in each Prison or
Jail it serves in excess of the applicable interstate and intrastate
cap set forth in paragraph (b) of this section plus the average amount
that the Provider paid its underlying international service providers
for audio communications to the International Destination of that
communication, on a per-minute basis. A Provider shall determine the
average amount paid for communications to each International
Destination for each calendar quarter and shall adjust its maximum
rates based on such determination within one month of the end of each
calendar quarter.
0
11. Add Sec. 64.6015 to read as follows:
Sec. 64.6015 Prohibition against Site Commissions.
A Provider must not pay any Site Commissions associated with its
provision of Incarcerated People's Communications Services on or after
the dates specified below:
(a) Providers must comply with this section beginning January 1,
2025 for all Prisons and for Jails with Average Daily Populations of
1,000 or more Incarcerated People, and April 1, 2025 for Jails with
Average Daily Populations of less than 1,000 Incarcerated People,
subject to the special provisions in paragraphs (b) and (c) of this
section.
(b) Where a contract existing as of June 27, 2024 includes terms
and conditions that would require material alteration through
renegotiation due to a conflict with our new rules involving rates,
contractually-negotiated Site Commission payments or pass-through
charges included in the rates, and the contract expires on or after
January 1, 2025 for Prisons and for Jails with Average Daily
Populations of 1,000 or more Incarcerated People, or on or after April
1, 2025 for Jails with Average Daily Populations of less than 1,000
Incarcerated People, the compliance dates for this section will be the
earlier of the contract expiration date or January 1, 2026 for Prisons
and for Jails with Average Daily Populations of 1,000 or more
Incarcerated People, or the earlier of the contract expiration date or
April 1, 2026 for Jails with Average Daily Populations of less than
1,000 Incarcerated People.
(c) Where a contract existing as of June 27, 2024 includes terms
and conditions that would require renegotiation due to a provision
incorporating legally-mandated Site Commission payments and the
contract expires on or after July 1, 2025 for any size Facility, the
compliance date for this section will be the earlier of the contract
expiration date or April 1, 2026.
0
12. Revise Sec. 64.6020 to read as follows:
Sec. 64.6020 Ancillary Service Charges.
A Provider of Incarcerated People's Communications Services must
not charge any Ancillary Service Charge, as defined in Sec. 64.6000 of
this chapter.
0
13. Revise Sec. 64.6030 by adding paragraph (f) to read as follows:
Sec. 64.6030 Inmate Calling Services interim rate caps.
* * * * *
(f) Paragraphs (a) through (e) of this section shall cease to be
effective upon the individual compliance dates prescribed in the
revisions to Sec. 64.6010 and the addition of Sec. 64.6015 for the
Providers serving the Facilities subject to each such date.
0
14. Amend Sec. 64.6040 by revising paragraph (b)(1) and adding
paragraph (e) to read as follows:
Sec. 64.6040 Communications access for Incarcerated People with
disabilities.
* * * * *
(b)(1) A Provider shall provide access for Incarcerated People with
hearing or speech disabilities to Traditional (TTY-Based) TRS and STS.
As an alternative to supporting transmissions from a TTY device, where
broadband internet access service is available, an IPCS Provider may
provide access to Traditional TRS via real-time text, in accordance
with 47 CFR part 67, if real-time text is supported by the available
devices and reliable access to a provider of traditional TRS service
can be provided by this method.
* * * * *
(e)(1) Paragraphs (a) through (c) of this section apply to services
offered pursuant to an Alternate Pricing Plan, as defined in Sec.
64.6000.
(2) Except as provided in this paragraph (e) of this section, in
the
[[Page 77365]]
context of a Provider offering an Alternate Pricing Plan, the Provider
shall not levy or collect any charge or fee, or count any minute(s) of
use, or call(s) or communication(s), toward the amount included in an
Alternate Pricing Plan, on or from any party to a TRS call to or from
an Incarcerated Person, or any charge for the use of a device or
transmission service when used to access TRS from a Correctional
Facility, or any charge for the internet or other connections needed
for services covered by this section.
(3) When providing access to IP CTS or CTS within the context of a
Provider offering an Alternate Pricing Plan:
(i) If the Alternate Pricing Plan consists of a fixed number of
calls or communications, the IP CTS or CTS call shall count as one call
or communication.
(ii) If the Alternate Pricing Plan offers a fixed number of
minutes, the IP CTS or CTS call shall count as the number of minutes
used for the voice portion of the IP CTS or CTS call.
(iii) If the Alternate Pricing Plan offers an unlimited number of
minutes, calls or communications, the IP CTS or CTS call shall be
counted as part of the unlimited number of minutes, calls or
communications.
(iv) There shall be no charge or fee for any internet or data
portion of an IP CTS or CTS call.
(4) When providing access to a point-to-point video service, as
defined in Sec. 64.601(a), within the context of a Provider offering
an Alternate Pricing Plan for Incarcerated People with hearing or
speech disabilities who can use ASL:
(i) If the Alternate Pricing Plan consists of a fixed number of
calls or communications, the point-to-point call shall be counted as
one video communication (if only video is included in the Alternate
Pricing Plan), or one audio call (if audio is included in the Alternate
Pricing Plan).
(ii) If the Alternate Pricing Plan offers a fixed number of
minutes, then the point-to-point call shall count as the number of
minutes used and shall apply to the minutes provided for video, if only
video is including in the Alternate Pricing Plan, or shall apply to the
minutes provided for audio, if audio is included in the Alternate
Pricing Plan.
(iii) If the Alternate Pricing Plan offers an unlimited number of
minutes, calls or communications, the point-to-point call shall count
as a video communication (if only video is provided as part of the
Alternate Pricing Plan) or as an audio call (if audio is provided as
part of the Alternate Pricing Plan).
(iv) Regardless of the format of the Alternate Pricing Plan, there
shall be no charge or fee for the use of the equipment.
(5) When providing access for TTY-to-TTY use within the context of
a Provider offering an Alternate Pricing Plan that includes audio
service:
(i) If the Plan consists of a fixed number of calls, the TTY-to-TTY
call shall count as one call;
(ii) If the Plan offers a fixed number of minutes, then the TTY-to-
TTY call shall count as no more than one-fourth of the minutes used;
and
(iii) If the Plan offers an unlimited number of minutes, or calls,
the TTY-to-TTY call shall count as an audio call.
0
15. Delayed indefinitely, amend Sec. 64.6040 by adding paragraph (f)
to read as follows:
Sec. 64.6040 Communications access for Incarcerated People with
disabilities.
* * * * *
(f)(1) A Provider shall ensure that the information and
documentation that it provides to current or potential Consumers of
Incarcerated People's Communications Services is accessible. Such
information and documentation includes, but is not limited to,
disclosures of charges, user guides, bills, installation guides for end
user devices, and product support communications.
(2) The term ``accessible'' has the same meaning given such term
under Sec. 14.10 of this chapter, as such section may be amended from
time to time.
(3) The requirement to ensure the information is accessible also
includes ensuring access, at no extra cost, to call centers and
customer support regarding the products and services for current or
potential Consumers of Incarcerated People's Communications Services.
0
16. Revise Sec. 64.6050 to read as follows:
Sec. 64.6050 Billing-related call blocking.
No Provider shall prohibit or prevent completion of a Collect
Calling IPCS communication or decline to establish or otherwise degrade
any Collect Calling IPCS communication solely for the reason that it
lacks a billing relationship with the called party's communications
service provider unless the Provider offers Debit Calling, Prepaid
Calling, or Prepaid Collect Calling for IPCS communications.
0
17. Delayed indefinitely, revise Sec. 64.6060 to read as follows:
Sec. 64.6060 Annual reporting and certification requirement.
(a) Each Provider must submit a report to the Commission, by April
1 of each year, regarding intrastate, interstate and international
audio and video IPCS for the prior calendar year. The report shall be
categorized both by service type and Facility type and size and shall
contain:
(1) Current intrastate, interstate, and international rates for
Incarcerated People's Communications Services.
(2) For each Facility served, the kinds of TRS that may be accessed
from the Facility.
(3) For each Facility served, the number of calls completed during
the reporting period in each of the following categories:
(i) TTY-to-TTY calls;
(ii) Point-to-point video calls placed or received by ASL users as
those terms are defined in Sec. 64.601(a) of this chapter; and
(iii) TRS calls, broken down by each form of TRS that can be
accessed from the Facility.
(4) For each Facility served, the number of complaints that the
reporting Provider received in each of the categories set forth in
paragraph (a)(3) of this section.
(5) Such other information as the Consumer and Governmental Affairs
Bureau or the Wireline Competition Bureau may require.
(b) The Chief Executive Officer, Chief Financial Officer, or other
senior executive of the reporting Provider, with first-hand knowledge
of the truthfulness, accuracy, and completeness of the information
provided pursuant to paragraph (a) of this section, must certify that
the reported information and data are true, accurate and complete to
the best of his or her knowledge, information, and belief.
0
18. Revise Sec. 64.6070 to read as follows:
Sec. 64.6070 Taxes and fees.
(a) A Provider must not charge a Consumer any tax or fee associated
with Incarcerated People's Communications Services other than a
Mandatory Tax, a Mandatory Fee, or an Authorized Fee, as defined in
Sec. 64.6000 of this chapter.
0
19. Revise Sec. 64.6080 to read as follows:
Sec. 64.6080 Per-Call, Per-Connection or Per-Communication Charges.
A Provider must not impose a Per-Call, Per-Connection, or Per-
Communication Charge on a Consumer for any Incarcerated People's
Communications Services communication.
Sec. 64.6090 [Removed and reserved].
0
20. Delayed indefinitely, remove and reserve Sec. 64.6090.
[[Page 77366]]
0
21. Revise Sec. 64.6100 to read as follows:
Sec. 64.6100 Minimum and maximum Prepaid Calling and Debit Calling
account balances.
(a) No Provider shall institute a minimum balance requirement for a
Consumer to use Debit or Prepaid Calling for Incarcerated People's
Communications Services.
(b) No Provider shall prohibit a Consumer from depositing at least
$50 per transaction to fund a Debit or Prepaid Calling account that can
be used for Incarcerated People's Communications Services.
0
22. Delayed indefinitely, revise and republish Sec. 64.6110 to read
as follows:
Sec. 64.6110 Consumer Disclosure of Incarcerated People's
Communications Services Rates.
(a) Providers must clearly, accurately, and conspicuously disclose
their intrastate, interstate, and international Incarcerated People's
Communications Services rates, charges and associated practices on
their publicly available websites. In connection with international
rates, Providers shall also separately disclose the rate component for
terminating calls to each International Destination where that Provider
terminates International Communications.
(1) In addition to the information required in paragraph (a) of
this section, the Provider must disclose information on:
(i) How to manage an IPCS Account;
(ii) How to fund an IPCS Account;
(iii) How to close an IPCS Account and how to obtain a refund of
any unused balance in that account; and
(iv) How to obtain a refund of any unused balance in inactive
accounts pursuant to Sec. 64.6130 of this chapter.
(b) Providers must clearly label the Facility-Related Rate
Component (either the Legally Mandated Facility Rate Component or the
Contractually Prescribed Facility Rate Component) identified in Sec.
64.6030(d) as a separate line item on Consumer bills for the recovery
of permissible facility-related costs contained in Site Commission
payments. To be clearly labeled, the Facility-Related Rate Component
shall:
(1) Identify the Provider's obligation to pay a Site Commission as
either imposed by state statutes or laws or regulations that are
adopted pursuant to state administrative procedure statutes where there
is notice and an opportunity for public comment that operates
independently of the contracting process between Correctional
Institutions and Providers or subject to a contract with the
Correctional Facility;
(2) Where the Site Commission is imposed by state statute, or law
or regulation adopted pursuant to state administrative procedure
statutes where there is notice and an opportunity for public comment
and that operates independently of the contracting process between
Correctional Institutions and Providers, specify the relevant statute,
law, or regulation.
(3) Identify the amount of the Site Commission payment, expressed
as a per-minute or per-call charge, a percentage of revenue, or a flat
fee; and
(4) Identify the amount charged to the Consumer for the call or
calls on the bill.
(c) Providers must clearly label all charges for International
Communications in Sec. 64.6010(d) of this chapter as a separate line
item on Consumer Billing Statements and Statements of Account. To be
clearly labeled, Providers must identify the amount charged to the
Consumer for the International Communication, including the costs paid
by the provider to its underlying international providers to terminate
the International Communication to the International Destination of the
call.
(d) Providers shall make disclosures pursuant to this section
available:
(1) Via the Provider's website in a form generally accessible to
the public without needing to have an IPCS Account with the Provider;
(2) Via the Provider's online or mobile application, if Consumers
use that application to create an IPCS Account with the Provider; and
(3) On paper, upon request of the Consumer.
(e) Billing Statements and Statements of Account:
(1) Providers must make available Billing Statements and Statements
of Account to all IPCS Account holders on a monthly basis via:
(i) The Provider's website;
(ii) The Provider's online or mobile application; or
(iii) On paper, upon request of the Consumer.
(2) Billing Statements and Statements of Account shall include:
(i) The amount of any deposits to the account;
(ii) The duration of any calls and communications for which a
charge is assessed; and
(iii) The balance remaining in the IPCS Account after the deduction
of those charges.
(f) All disclosures made pursuant to this section, and Sec. Sec.
64.6130 and 64.6140 shall be clear, accurate, and conspicuous, and
shall be available in accessible formats for people with disabilities.
(g) Paragraph (b) of this section shall cease to be effective upon
the individual compliance dates prescribed in the revisions to Sec.
64.6010 and the addition of Sec. 64.6015.
23. Delayed indefinitely, revise Sec. 64.6120 to read as follows:
Sec. 64.6120 Waiver process.
(a) A Provider may seek a waiver of the rate caps established in
Sec. 64.6010 on a Correctional Facility or contract basis if the
applicable rate caps prevent the Provider from recovering the costs of
providing Incarcerated People's Communications Services at a
Correctional Facility or at the Correctional Facilities covered by a
contract.
(b) At a minimum, a Provider seeking such a waiver must submit:
(1) The Provider's total company costs, including the nonrecurring
costs of the assets it uses to provide Incarcerated People's
Communications Services, and its recurring operating expenses for these
services at the Correctional Facility or under the contract;
(2) The methods the Provider used to identify its direct costs of
providing Incarcerated People's Communications Services, to allocate
its indirect costs between its Incarcerated People's Communications
Services and other operations, and to assign its direct costs to and
allocate its indirect costs among its Incarcerated People's
Communications Services contracts and Correctional Facilities;
(3) The Provider's demand for Incarcerated People's Communications
Services at the Correctional Facility or at each Correctional Facility
covered by the contract;
(4) The revenue or other compensation the Provider receives from
the provision of Incarcerated People's Communications Services at the
Correctional Facility or at each Correctional Facility covered by the
contract;
(5) A complete and unredacted copy of the contract for the
Correctional Facility or Correctional Facilities, and any amendments to
such contract;
(6) Copies of the initial request for proposals and any amendments
thereto, the Provider's bid in response to that request, and responses
to any amendments (or a statement that the Provider no longer has
access to those documents because they were executed prior to the
effective date of this rule);
(7) A written explanation of how and why the circumstances
associated with that Correctional Facility or contract differ from the
circumstances at similar Correctional Facilities the Provider
[[Page 77367]]
serves, and from other Correctional Facilities covered by the same
contract, if applicable; and
(8) An attestation from a company officer with knowledge of the
underlying information that all of the information the Provider submits
in support of its waiver request is complete and correct.
(c) A Provider seeking a waiver pursuant to section 64.6120(a) must
provide any additional information requested by the Commission during
the course of its review.
24. In Sec. 64.6130 revise paragraphs (a) through (c) to read as
follows:
Sec. 64.6130 Interim protections of consumer funds in inactive
accounts
(a) All funds deposited into an IPCS Account shall remain the
property of the account holder unless or until the funds are either:
(1) Used to pay for products or services purchased by the account
holder or the Incarcerated Person for whose benefit the account was
established;
(2) Disposed of in accordance with a Controlling Judicial or
Administrative Mandate; or
(3) Disposed of in accordance with applicable state law, including,
but not limited to, laws governing unclaimed property.
(b) No Provider may dispose of unused funds in an IPCS Account
until at least 180 calendar days of continuous account inactivity have
passed, or at the end of any longer, alternative period set by state
law, except as provided in paragraphs (a) and (d) of this section or
through a refund to the IPCS Account holder or such other individual as
the account holder may have designated to receive a refund.
(c) The 180-day period, or any longer alternative period set by
state law, must be continuous. Any of the following actions by the IPCS
Account holder or the Incarcerated Person for whose benefit the account
was established ends the period of inactivity and restarts the 180-day
period:
(1) Depositing, crediting, or otherwise adding funds to an IPCS
Account;
(2) Withdrawing, spending, debiting, transferring, or otherwise
removing funds from an IPCS Account; or
(3) Expressing an interest in retaining, receiving, or transferring
the funds in an IPCS Account, or otherwise attempting to exert or
exerting ownership or control over the account or the funds held within
the IPCS Account.
* * * * *
0
25. Delayed indefinitely, revise and republish Sec. 64.6130 to read as
follows:
Sec. 64.6130 Protection of consumer funds in inactive accounts.
(a) All funds deposited into an IPCS Account shall remain the
property of the account holder unless or until the funds are either:
(1) Used to pay for products or services purchased by the account
holder or the Incarcerated Person for whose benefit the account was
established;
(2) Disposed of in accordance with a Controlling Judicial or
Administrative Mandate; or
(3) Disposed of in accordance with applicable state law, including,
but not limited to, laws governing unclaimed property.
(b) No Provider may dispose of unused funds in an IPCS Account
until at least 180 calendar days of continuous account inactivity have
passed, or at the end of any longer, alternative period set by state
law, except as provided in paragraphs (a) and (d) of this section or
through a refund to the IPCS Account holder or such other individual as
the account holder may have designated to receive a refund.
(c) The 180-day period, or any longer alternative period set by
state law, must be continuous. Any of the following actions by the IPCS
Account holder or the Incarcerated Person for whose benefit the account
was established ends the period of inactivity and restarts the 180-day
period:
(1) Depositing, crediting, or otherwise adding funds to an IPCS
Account;
(2) Withdrawing, spending, debiting, transferring, or otherwise
removing funds from an IPCS Account; or
(3) Expressing an interest in retaining, receiving, or transferring
the funds in an IPCS Account, or otherwise attempting to exert or
exerting ownership or control over the account or the funds held within
the IPCS Account.
(d) After 180 days of continuous account inactivity have passed, or
at the end of any longer alternative period set by state law, the
Provider must:
(1) Contact the account holder prior to closing the account and
refunding the remaining balance to determine whether the account holder
wishes to continue using the IPCS Account, or to close it and obtain a
refund; and
(2) Make reasonable efforts to refund the balance in the IPCS
Account to the account holder or such other person as the account
holder has specified. Reasonable efforts include, but are not limited
to:
(i) Notification to the account holder that the account has been
deemed inactive;
(ii) The collection of contact information needed to process the
refund; and
(iii) Timely responses to inquiries from an account holder.
(e) If a Provider's reasonable efforts to refund the balance of the
IPCS Account fail, the Provider must dispose of remaining funds in
accordance with applicable state consumer protection law concerning
unclaimed funds or the disposition of such accounts.
(f) If a Provider becomes aware that an Incarcerated Person has
been released or transferred, the 180-day inactivity period shall be
deemed to have run and the Provider shall begin processing a refund in
accordance with this section. The Provider shall contact the account
holder prior to closing the IPCS Account and refunding the remaining
balance in the IPCS Account, to determine whether the account holder
wishes to continue using the IPCS Account, or to close it and obtain a
refund from the Provider.
(g) Any refund made pursuant to this section must include the
entire balance of the IPCS Account, including any deductions the
Provider may have made in anticipation of taxes or other charges that
it assessed when funds were deposited and that were not actually
incurred. The Provider shall not impose any fees or charges for
processing the refund.
(h) Any refund made pursuant to this section shall be issued within
30 calendar days of the IPCS Account being deemed inactive or within 30
calendar days of a request for a refund from an account holder or other
such individual as the account holder may have specified to receive a
refund.
(i) In the absence of a Consumer's request for a refund, the
requirement to provide a refund in accordance with this section shall
not apply where the balance in an inactive IPCS Account is $1.50 or
less. To the extent a Provider is unable to issue a refund requested by
a Consumer, the Provider shall treat such balances consistent with
applicable state consumer protection law concerning unclaimed funds or
the disposition of such accounts.
(j) Providers shall issue refunds required pursuant to this section
through:
(1) The IPCS Account holder's original form of payment;
(2) An electronic transfer to a bank account;
(3) A check; or
(4) A debit card.
(k) Providers shall clearly, accurately, and conspicuously disclose
to IPCS Account holders, through their Billing Statements or Statements
of Account,
[[Page 77368]]
notice of the status of IPCS Accounts prior to their being deemed
inactive.
(1) This notice shall initially be provided at least 60 calendar
days prior to an IPCS Account being deemed inactive.
(2) The notice shall be included in each Billing Statement or
Statement of Account the Provider sends, or makes available to, the
account holder until the IPCS Account holder takes one of the actions
sufficient to restart the 180-day period in paragraph (c) of this
section or the IPCS Account becomes inactive pursuant to this section.
(3) All notices provided pursuant to this paragraph shall describe
how the IPCS Account holder can keep the IPCS Account active and how
the IPCS Account holder may update the refund information associated
with the IPCS Account.
0
26. Add Sec. 64.6140 to read as follows:
Sec. 64.6140 Alternate Pricing Plans.
(a) General Parameters. (1) A Provider offering IPCS via an
Alternate Pricing Plan must comply with this section as well as Sec.
64.710 and this subpart FF.
(2) Enrollment in an Alternate Pricing Plan must be optional for
the Consumer.
(3) A service period for an Alternate Pricing Plan shall be no
longer than one month.
(4) When determining the format of an Alternate Pricing Plan,
Providers must consider:
(i) Any limits on the number of and length of calls or
communications imposed by the Correctional Facility;
(ii) The availability of correctional staff to manage the use of
IPCS at the Correctional Facility; and
(iii) Equipment availability for the calls or communications at the
Correctional Facility.
(b) Alternate Pricing Plan Rates. (1) An Alternate Pricing Plan
must be offered at a rate such that the Breakeven Point is at or below
the applicable rate cap(s).
(i) A consumer complaint about an IPCS Provider's Alternate Pricing
Plan rates will not be entertained under the rules in this section
unless the consumer's usage meets or exceeds the Breakeven Point(s) for
the Alternate Pricing Plan.
(2) If a Consumer believes that the rates under an Alternate
Pricing Plan exceed the applicable per-minute rates for that
Correctional Facility, the Consumer must show that their usage meets or
exceeds the Breakeven Point for the Alternate Pricing Plan. It is the
Provider's burden to demonstrate that the rate charged to that Consumer
under its Alternate Pricing Plan is less than or equal to the
applicable rate cap.
(3) After a Consumer uses all of the minutes, calls, or
communications available during a service period of an Alternate
Pricing Plan, the charge for subsequent minutes, calls, or
communications during the remaining part of the service period shall
not exceed the Provider's per-minute rate for the corresponding
service.
(c) [Reserved]
(d) [Reserved]
(e) Automatic Renewals and Related Consumer Disclosures. (1) If a
Provider of an Alternate Pricing Plan offers automatic renewals, the
automatic renewals must be optional to the Consumer.
(2) [Reserved]
(f) Cancellation by the Consumer and Related Consumer Disclosures.
(1) A Provider must allow a Consumer using an Alternate Pricing Plan to
cancel their participation in the Alternate Pricing Plan at any time
during the relevant service period and revert to per-minute pricing.
The Consumer may end their participation in the Alternate Pricing Plan
on the date of their choosing. The process for cancelling an Alternate
Pricing Plan must be readily accessible to the Consumer and must
include the method that the Consumer used to enroll in the Alternate
Pricing Plan.
(2) [Reserved]
(3) The refund amount provided to the Consumer upon the Consumer's
cancellation of an Alternate Pricing Plan for the special circumstances
provided in paragraph (f)(2) of this section must be at least the pro-
rated amount that corresponds to the unused portion of the service
period.
(g) Application to Telecommunications Relay Service (TRS) and
Related Communications Services. A Provider that offers an Alternate
Pricing Plan shall make TRS and related communications services
available via the Alternate Pricing Plan, pursuant to Sec. 64.6040 of
this chapter.
0
27. Delayed indefinitely, amend Sec. 64.6140 by adding paragraphs (c),
(d), (e)(2) through (4), (f)(2) and (f)(4) to read as follows:
Sec. 64.6140 Alternate Pricing Plans.
* * * * *
(c) Consumer Disclosures. (1) A Provider offering an Alternate
Pricing Plan must comply with the consumer disclosure requirements in
Sec. 64.6110 as well as the requirements in this section.
(2) Before a Consumer enrolls in an Alternate Pricing Plan; upon
request, at any time after Alternate Pricing Plan enrollment; with a
Billing Statement or Statement of Account, and any related
communications; and at the beginning of each call or communication, the
Provider also must make disclosures that include the following
information for each Alternate Pricing Plan offered by the Provider:
(i) The rates and any added Mandatory Taxes or Mandatory Fees, a
detailed explanation of the Mandatory Taxes and Mandatory Fees, total
charge, quantity of minutes, calls or communications included in the
Plan, the service period, and the beginning and end dates of the
service period;
(ii) Terms and conditions, including those concerning dropped calls
and communications in paragraph (d) of this section, automatic renewals
in paragraph (e) of this section and cancellations in paragraph (f) of
this section;
(iii) An explanation that per-minute rates are always available as
an option to an Alternate Pricing Plan and that per-minute rates apply
if the Consumer exceeds the calls/communications allotted in the Plan;
(iv) The Breakeven Point indicating at the amount of Alternate
Pricing Plan usage above which the Consumer will save money compared to
the Provider's applicable per-minute rate for the same type and amount
of service at the Correctional Facility; and
(v) The ability to obtain prior usage and billing data, upon
request, for each of the most recent three service periods (where
feasible), including total usage and total charges including taxes and
fees.
(3) The Provider must make the disclosures for Alternate Pricing
Plans pursuant to this paragraph (c) of this section available: to the
public on the Provider's website; on the Provider's online or mobile
application, if Consumers use the application to enroll in the Plan;
via paper upon request; and via the methods for general IPCS
disclosures pursuant to Sec. 64.6110 before, during, and after a
Consumer's enrollment in a Plan.
(4) In every communication between the Provider and a Consumer (or
the Incarcerated Person, if they are not the Consumer) concerning the
Alternate Pricing Plan, the Provider must either include the
disclosures for Alternate Pricing Plans pursuant to paragraph (c) of
this section, or provide clear, easy to follow, instructions for how
the consumer (or Incarcerated Person, if not the Consumer) may
immediately obtain access to those disclosures.
(5) Before a Consumer enrolls in a Plan, and at any time upon
Consumer request, the Provider must also provide to the Consumer:
(i) The rates, Breakeven Point, and total cost including any
Mandatory
[[Page 77369]]
Taxes or Mandatory Fees associated with the Plan; and
(ii) An explanation that the Consumer's prior usage and billing
data is available upon request through a readily accessible means and
must include:
(A) For the Provider's most recent three service periods (where
feasible): the minutes of use for each of the calls or communications
made by the Consumer and the applicable per-minute rate that was
charged; the total number of minutes; and the totals charged for each
service period including the details of any Mandatory Taxes and
Mandatory Fees; and
(B) This prior usage and billing data must be made available to the
Consumer via the Provider's website or online or mobile application or
via paper upon request of the Consumer.
(6) After the Consumer enrolls in a Plan, the Provider must provide
Billing Statements and Statements of Account for the Plan via the same
method the Consumer used to sign up for the Plan, and via paper upon
Consumer request. The Billing Statements and Statements of Account must
include information specific to the Alternate Pricing Plan for the
service period but the Consumer must be able to receive, upon request,
information for the past three service periods (where feasible). The
Billing Statement or Statement of Account must include for each service
period:
(i) Call details, including the duration of each call made, and the
total minutes used for that service period, and the total charge
including Mandatory Taxes and Mandatory Fees, with explanations of each
Mandatory Tax or Mandatory Fee;
(ii) The charges that would have been assessed for each call using
the Provider's per-minute rate, and the total of those charges;
(iii) The calculated per-minute rate for the service period under
the Alternate Pricing Plan, calculated as the charge for the service
period divided by the total minutes used by that Consumer, with an
explanation of that rate;
(iv) The Breakeven Point with an explanation of the Breakeven
Point; and
(v) Information about deposits made to the Consumer's IPCS Account
and the IPCS Account balance.
(7) The Provider must make available the number of minutes, calls,
or communications remaining under a Consumer's Alternate Pricing Plan
for the service period without the Consumer having to initiate a call
or communication that would count toward a fixed allotment of minutes,
calls, or communications in an Alternate Pricing Plan.
(d) Dropped Calls or Communications and Related Consumer
Disclosures. (1) A Provider offering an Alternate Pricing Plan must
explain its policies regarding dropped calls or communications in plain
language in its consumer disclosures.
(2) The consumer disclosures must include:
(i) The types of dropped calls and communications that a Consumer
can seek a credit or refund for;
(ii) How the Provider will calculate a credit or refund for a
dropped call or communication; and
(iii) The method the Consumer must use to request a credit or
refund for a dropped call or communication, and that method must be
easy for the Consumer to complete.
(e) * * *
(2) A Provider offering an Alternate Pricing Plan must explain the
terms and conditions of the automatic renewal in plain language in its
consumer disclosures when it initially offers the automatic renewal
option and before any automatic renewal is about to occur by whatever
method the Provider has established for consumer notifications to the
Consumer.
(3) The consumer disclosures must include an explanation that if a
Consumer who requested automatic renewals does not later want the
Alternate Pricing Plan to be renewed, the Consumer may cancel their
participation in the Alternate Pricing Plan.
(4) The Provider must give notice of an upcoming renewal for an
Alternative Pricing Plan directly to the Consumer no later than three
business days prior to the renewal date. Along with providing the
notice, the Provider must explain, in plain language, the terms and
conditions of the automatic renewal using, at a minimum, the method of
communication the Consumer agreed to at the time they enrolled in the
Alternate Pricing Plan.
(f) * * *
(2) A Provider must issue a refund for the remaining balance on an
Alternate Pricing Plan if:
(i) The Incarcerated Person is released;
(ii) The Incarcerated Person is transferred to another Correctional
Facility; or
(iii) The Incarcerated Person is not permitted to make calls or
communications for a substantial portion of the subscription period.
* * * * *
(4) Consumer disclosures related to Consumer cancellation of an
Alternate Pricing Plan must include:
(i) An explanation that a Consumer enrolled in an Alternate Pricing
Plan may cancel at any time and where applicable, the Provider will
begin billing the Consumer at the Provider's per-minute rates by the
first day after the termination date;
(ii) An explanation of the process for requesting cancellation of
the Alternate Pricing Plan;
(iii) An explanation that the Consumer can end the Alternate
Pricing Plan on a specific termination date of their choosing; and
(iv) The special circumstances for which a Consumer who has
cancelled their enrollment shall receive a refund and how that refund
will be calculated.
* * * * *
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendix D: Data Collection
1. This appendix and the other technical appendices that follow
outline the data compilation and analysis that the Commission staff
(staff) conducted using the 2023 Mandatory Data Collection as part
of the Commission's efforts to determine just and reasonable and
fairly compensatory rate caps for incarcerated people's
communications services (IPCS). Collectively, the appendices
provide: a description of the database compilation (Appendix A); a
description of methods (Appendix B); summary statistics (Appendix
C); a least absolute shrinkage and selection operator (Lasso)
analysis to determine what characteristics of IPCS provision have a
meaningful association with providers' reported per-minute expenses
(Appendix D); our upper bound analysis (Appendix E); our lower bound
analysis, including validation analyses (Appendix F); and a
validation analysis of the rate caps adopted in the Order (Appendix
G).
2. Description of Data Collection. On July 26, 2023, the
Wireline Competition Bureau and the Office of Economics and
Analytics released an Order implementing the 2023 Mandatory Data
Collection regarding IPCS. All providers of IPCS were required to
respond to the data request by October 31, 2023. For the purposes of
the 2023 Mandatory Data Collection, a provider is defined as any
contractor or subcontractor that provides IPCS, regardless of
whether that entity has a contract directly with the facility or
with another provider. The aim of this collection was to acquire
IPCS providers financial and operating data as part of the
Commission's efforts to set just and reasonable and fairly
compensatory rate caps. Generally, the data collection required IPCS
providers to report, for 2022, billed and unbilled demand (minutes
and communications) and billed revenues for audio and video IPCS and
ancillary services; monetary and in-kind site commission payments,
both legally mandated and contractually prescribed; and investments
and expenses for audio and video IPCS, safety and security measure
services,
[[Page 77370]]
ancillary services, and all other products and services. Throughout
Appendices D through J, we use terms defined in the 2023 Mandatory
Data Collection. Unless otherwise specified, we observe the
following conventions: ``minutes'' refers to Billed and Unbilled
Minutes sometimes also written ``billed and unbilled minutes'';
``IPCS minutes'' refers to the sum of Audio IPCS Billed and Unbilled
Minutes and Video IPCS Billed and Unbilled Minutes; ``audio IPCS
services'' is typically shortened to ``audio services''; ``video
IPCS services'' is typically shortened to ``video services'';
``audio minutes'' refer to Audio IPCS Billed and Unbilled Minutes;
``video minutes'' refer to Video IPCS Billed and Unbilled Minutes;
the same conventions for minutes apply to communications, which
generally can be thought of as calls; ``revenues'' refer to Billed
Revenues; ``safety and security measure services'' are typically
shortened to ``safety and security services''; and ancillary
services refer to the five types of services defined in the data
collection as ``Permissible Ancillary Services,'' for which the
Commission's rules allowed providers to assess charges: (i)
automated payment services, (ii) live agent services, (iii) paper
bill/statement services, (iv) single-call and related services, and
(v) third-party financial transaction services (all other ancillary
services are defined as ``Other Ancillary Services''). To minimize
the burden of the collection, we required providers to supply
information based on their internal accounts, while remaining
consistent with their financial reports and GAAP.
3. The data collection requested information from providers at
company-wide and facility levels, as well as by various categories
of investments and expenses. We required reports at the company
level for two reasons: such reports may be compared with company
financial statements and doing so constrains the investments and
expenses to be allocated among IPCS and IPCS-related services and
non-IPCS. We required reports at the facility level to give us
insight into how costs might vary with facility size and type. Staff
also prepared a detailed set of instructions for providers, which
required providers to allocate their reported investments and
expenses among IPCS and IPCS-related services and other products and
services and to further allocate the IPCS investments and expenses
among facilities. Specifically, we required providers to allocate
their investments and expenses, to the extent possible, in the
following order: direct assignment; direct attribution based on
factors that cause a particular business activity and thus
investments or expenses to increase or decrease; indirect
attribution in proportion to related categories of investments or
expenses that are directly assigned or directly attributed; or
allocation based on the share of the total of all investments or
expenses already directly assigned or attributed.
4. Structure of the Collection. To collect these financial and
operating data, and to help the Commission understand the data at
different levels and across different categories, staff developed an
Excel template and a Word template, which we required providers to
populate. Providers were required to report information at the
company-wide level (worksheets C1-C2), including total company
investments, capital expenses, operating expenses, and revenues.
Investments (capital assets) categories include: tangible assets;
capitalized research and development; purchased software; internally
developed software; trademarks; capitalized site commissions; other
identifiable intangible assets; and goodwill. Gross investment,
accumulated depreciation or amortization, and net investment are
reported separately for each of these categories of assets. The
remaining investment categories are: accumulated deferred federal
income taxes, accumulated deferred state income taxes, customer
prepayments or deposits, cash working capital, and net capital
stock. None of these categories is specific to any category of
capital assets. The Excel template calculates net capital stock--
gross investment in assets, net of accumulated depreciation and
amortization, accumulated deferred federal and state income taxes,
and customer prepayments or deposits, plus an allowance for cash
working capital. Capital expenses categories include: depreciation--
tangible assets; amortization--capitalized research and development;
amortization--purchased software; amortization--internally developed
software; amortization--trademarks; amortization--capitalized site
commissions (includes amortization recognized as an offset against
gross revenues); amortization--other identifiable intangible assets;
amortization--goodwill; return; interest other than interest paid on
customer prepayments or deposits; interest paid on customer
prepayments or deposits; federal income tax; state income tax. The
Excel template calculates return by multiplying net capital stock by
the provider's claimed weighted average cost of capital or the
default after-tax rate of return of 9.75%. Federal and state income
taxes are not allocated. The Excel template uses the provider's
reported federal and state income tax rates and tax-deductible
interest expense to calculate the federal and state income tax
income taxes that correspond to the taxable fraction of the return.
Operating expenses categories are: maintenance, repair, and
engineering of site plant, equipment, and facilities; payments to
telecommunications carriers or other entities for interstate,
international, or intrastate communications other than extra
payments to telecommunications carriers or other entities for
international communications; extra payments to telecommunications
carriers or other entities for international communications; field
services; network operations; call center; data center and storage;
payment of site commissions recognized as an expense or an offset
against gross revenues when paid or when the commissions-related
transaction occurred; billing, collection, client management, and
customer care; sales and marketing; general and administrative;
other overhead; taxes other than income taxes; transactions related
to mergers and acquisitions; and bad debt. Annual total expenses is
the sum of annual operating expenses and annual capital expenses
(including a return on net capital stock to cover the cost of
capital). Providers were also required to allocate their data across
ten (10) categories of services: audio IPCS, video IPCS, safety and
security measures, permissible ancillary services (automated payment
services, live agent services, paper bill/statement services,
single-call and related services, and third-party financial
transaction services), other ancillary services, and other products
and services. Site commissions are reported only for the entire
company; they are not allocated among services or facilities.
Ancillary service reports are not split out as between audio and
video. Providers also were required to report their revenues from
each of the 10 service categories.
5. Providers were further required to allocate their company-
wide investments and expenses to the facility level for audio and
video IPCS costs, respectively (worksheet D1). These data are
providers' allocations of the annual expenses they incurred to
supply IPCS to each facility. Providers were also required to report
revenues and demand for audio IPCS, video IPCS, and ancillary
services at the facility level, by reporting billed revenues and
total billed and unbilled minutes of use for each facility. For
audio and video IPCS, providers reported billed, unbilled, and the
total of billed and unbilled communications and minutes and billed
revenues for each facility. In addition to the billed totals, billed
communications, minutes, and revenues are reported separately for
interstate, international, and intrastate communications for each
facility. For ancillary services, providers reported billed demand
separately for automated payment service (number of uses), live
agent service (uses), paper bill/statement service (uses), single-
call and related services (number of transactions), and third-party
financial transaction service (transactions), and billed revenues
separately for each these services for each facility. Providers were
required to report company-wide annual safety and security expenses
among seven different safety and security categories: (i) the
Communications Assistance for Law Enforcement Act (CALEA) compliance
measures; (ii) law enforcement support services; (iii) communication
security services; (iv) communication recording services; (v)
communication monitoring services; (vi) voice biometrics services;
and (vii) other safety and security measures (worksheet C3). Safety
and security expenses were allocated across four different service
categories: (a) audio IPCS; (b) video IPCS; (c) ancillary services;
and (d) other products and services. The company-wide safety and
security expenses for audio and video IPCS were then allocated among
facilities as well (worksheet D2.c). Providers were directed simply
to use estimates to allocate their safety and security expenses.
6. Providers also were required to report site commissions
attributable to all company products and services. They were further
required to report company-wide ``IPCS and associated ancillary
services,'' to report site commissions as either legally-mandated or
contractually-prescribed, and were further required to sub-
categorize these commissions as monetary, in-kind, fixed, upfront,
and
[[Page 77371]]
variable site commissions (worksheet C3). Throughout Appendices D-J,
the term ``site commissions'' without further modification means all
site commissions of all forms. These company-wide site commission
figures were also required to be allocated among facilities
(worksheet D2.b). There was no requirement to allocate site
commissions between audio IPCS, and video IPCS and associated
ancillary services separately.
7. Providers were required to identify any affiliates or third
parties they used to provide ancillary services, to report any
payments to third parties for ancillary services, and to quantify
any third-party fees they paid for ancillary services that they
passed through to their customers (worksheet C3). Providers were
also required to report any IPCS or ancillary services revenues
passed through to their affiliates and any payments made to their
affiliates to complete international communications. Similarly,
providers were required to supply these responses at a facility
level (worksheet D2.e).
8. Breadth of the Collection. Twenty-one providers submitted
responses to the 2023 Mandatory Data Collection. The list of filers
with associated short names or acronyms used for these providers in
appendices D through J: Ameelio, Inc. (Ameelio); ATN, Inc. (ATN);
City Tele-Coin Co. (City Tele-Coin); Correct Solutions, LLC
(Correct); Combined Public Communications (CPC); Crown Correctional
Telephone, Inc. (Crown); Consolidated Telecom, Inc. (Consolidated);
Custom Teleconnect (Custom); Encartele, Inc. (Encartele); Global
Tel*Link Corporation d/b/a ViaPath (ViaPath); HomeWAV, LLC
(HomeWAV); ICSolutions, LLC (ICSolutions); iWebVisit.com, LLC
(iWeb); NCIC Inmate Communications (NCIC); Pay Tel Communications,
Inc. (Pay Tel); Prodigy Solutions, Inc. (Prodigy); Reliance
Telephone of Grand Forks, Incorporated (Reliance); Securus
Technologies, LLC (Securus); Smart Communications (Smart); Talton
Communications, Inc. (Talton); and TKC Telecom, LLC (TKC). Of this
group, twelve provided data, or revisions to their data, before May
1, 2024, which, as explained below, we were able to process and
include in our provider database: ATN, City Tele-Coin, CPC,
ICSolutions, HomeWAV, NCIC, Pay Tel, Prodigy, Securus, Smart, TKC,
and ViaPath. Staff made the IPCS database available to Reviewing
Parties in accordance with the relevant Protective Orders and Public
Notice. The resulting IPCS database covers 2,750 contracts and 4,537
facilities, accounting for an average daily population of 2,112,042
incarcerated people and 11.3 billion billed and unbilled minutes of
audio and 563 million billed and unbilled minutes of video. Unless
otherwise indicated, our analyses and tables that follow are derived
from this database.
9. The IPCS database provides a helpful depiction of the IPCS
industry. The database's twelve providers represent the vast
majority of the IPCS industry, and their worksheets, though not
audited, are broadly consistent with their submitted financial
accounts. For seven providers beyond these twelve, staff were able
to capture data such as minutes and/or revenues, though not the same
data from each. The additional seven are from Ameelio, Correct,
Crown, Consolidated, Custom, iWeb, and Talton. For the remaining two
providers, {[REDACTED]{time} . Incorporating these data shows that
the database of twelve providers covers approximately 84% of
reported facilities, and approximately 87% of incarcerated persons.
Table 1 reports shares of minutes, communications (the number of
audio or video calls), and revenues covered by the twelve providers
included in the database alongside the shares of the seven providers
we excluded to the extent those seven providers provided processable
data (the data from {[REDACTED]{time} were either missing or
unreliable). As described above, our database includes twelve
providers: ATN, CPC, City Tele-Coin, HomeWAV, ICSolutions, NCIC, Pay
Tel, Prodigy, Securus, Smart, TKC, and ViaPath. There are another
seven providers reflected in this table's second row whose data we
could process in part, but who were ultimately excluded from the
database for the reasons discussed below: Ameelio, Correct, Crown,
Consolidated, Custom, iWeb, and Talton. Finally, staff could not
process the submissions of Encartele and Reliance. The table
marginally overstates the relative marketplace significance of the
providers included in the database, though the impact is de minimis.
The overstatement arises for several reasons: some of
{[REDACTED]{time} ; and some very small providers did not file. It
is staff's view that if data were available for all these providers,
the impact on our conclusions would amount to no more than a
rounding error.
[GRAPHIC] [TIFF OMITTED] TR20SE24.000
A. Description of Initial Data Processing, Data Cleaning, and
Database Compilation
10. This subsection reviews the steps we took to process, clean,
and combine the collected 2023 Mandatory Data Collection data into a
database.
11. Data Combination. Staff created variable names for each row
of data in the Excel templates. Staff combined the processed twelve
provider submissions into a database, segmented by tabs organized by
worksheet from the submissions. Since the same facilities appear in
multiple worksheets, staff took care to ensure the
[[Page 77372]]
database linked the same facilities across all worksheets.
12. Data Review. Staff reviewed each submission, including the
narratives supplied in the Word template, and checked for errors to
evaluate whether the submitted data complied with the Excel template
parameters. To minimize data submission errors, the Excel template
included formulas to check for consistency between provider's
company-wide and facility-specific entries. In all cases, staff
communicated issues identified in our review, and allowed providers
to resubmit corrected data. This resulted in some form of extended
interaction between staff and providers in all cases except
Consolidated, Custom, and Talton. In these communications, staff
answered provider questions about the data collection requirements
and/or explained the data collection process to aid submission. We
received 14 refilings as a result of our error check process. The
following providers refiled: Ameelio, CPC, Correct, City Tele-Coin,
HomeWAV, ICSolutions, NCIC, Prodigy, Securus, Smart, TKC, ViaPath,
and Pay Tel on two occasions. The conversations which staff had with
these providers to prompt their refiling illustrates that the
Commission ``made inquiries to providers during the data-collection
process regarding ``questionable'' cost data.''
13. Removing Invalid or Incomplete Data. Despite these efforts,
staff concluded that we could not incorporate into the database
worksheets submitted by nine providers: Ameelio, Correct, Crown,
Consolidated, Custom, Encartele, iWeb, Reliance, and Talton. Staff
would have removed {[REDACTED]{time} . Most commonly, filings could
not be incorporated because providers' reports of expense, revenue,
or demand data were wholly or partially omitted. For example, among
other problems, {[REDACTED]{time} did not provide costs at the
facility level. Thus, their data could not be used to analyze how
per-minute expenses vary by facility type, a matter which is central
to the analysis. Similarly, among other problems, {[REDACTED]{time}
did not provide IPCS minutes, making analysis of per-minute
expenses, which is the basis for capping rates, impossible. In other
cases, the provider failed to fully allocate investments or
expenses, failed to identify the relevant subcontractor, or failed
to report video expenses at a facility level, among other problems.
For example, {[REDACTED]{time} did not allocate investments or
expenses to the other products and services category (though it
supplies other services, e.g., electronic incarcerated person
messaging services and management services) overstating
{[REDACTED]{time} IPCS expenses. {[REDACTED]{time} also did not
identify the name of the subcontractor, address, and facility
geographic coordinates for all facilities making it impossible to
match {[REDACTED]{time} expense reports with those of its
subcontractors, making analysis of {[REDACTED]{time} facilities
impossible. {[REDACTED]{time} did not allocate IPCS costs between
audio IPCS and video IPCS (though it provides both services).
{[REDACTED]{time} provided no financial statements, providing no
means of cross-checking their expense reports. Without such cross
checks staff and outside parties cannot even determine whether
{[REDACTED]{time} reports are internally consistent.
{[REDACTED]{time} also left the company-wide investment and
expenses and facility video worksheets blank (though it sells
video), making analysis of its expenses, and of video services
impossible. In contrast to claims in the record, no provider was
excluded from the database based on the provider's costs relative to
industry costs.
14. Excluding an Anomalous Provider. {[REDACTED]{time}
15. Excluding Federally Managed Facilities. Staff also excluded
from the database facilities subject to the Immigration and Customs
Enforcement (ICE) and the Bureau of Prisons (BOP) contracts because
these facilities are not comparable to other correctional
facilities. Significant portions of incarcerated people's
communications services in these institutions are managed by a
federal incarceration authority rather than the reporting provider.
As was the case in the 2021 ICS Order, {[REDACTED]{time} .
{[REDACTED]{time} under those subcontracts from the database. Staff
removed all BOP contracts they were able to identify. In 2021 ICS
Order, staff allocated the shared costs to the BOP contract before
dropping it, but that is not necessary for this data collection as
it required providers to allocate all their costs down to the
facility, {[REDACTED]{time} .
16. Data Corrections. For the 12 filings reflected in the
database, staff made corrections where necessary and feasible. In
cases where unique facility identifiers were not identical across
worksheets due to misspellings, abbreviations, or other mistakes
(e.g., ``Couny'' versus ``County''), staff corrected these. In cases
where the provider did not identify the facility as a jail or
prison, and staff was able to do so, staff inserted the relevant
facility type. Twenty-four entries could not be identified as a jail
or prison, and were removed. Of these 24 facilities,
{[REDACTED]{time} entries given at the contract level that could
not be matched to a facility. Two more entries do not correspond to
a specific facility, and are instead attributed to `No Specific
Contract' and `Other Non IPCS Facility Sites.' The last is an
{[REDACTED]{time} . ViaPath submitted average daily population (ADP)
and site commissions data at the contract level, so staff allocated
ADP from contracts to facilities in proportion to ViaPath's total
audio and video IPCS communications. Communications were chosen as
the allocator variable as it correlates strongly with ADP in
ViaPath's single-facility contracts. Communications was chosen over
minutes as the allocator as the Pearson correlation coefficient was
higher between ADP and communications than ADP and minutes. However,
the impact of this choice is small. The difference in methodologies
influences the industry per-minute IPCS expenses by no more than
$0.0046 and by no more than 2.22% in any size-bracket, audio or
video. This largest difference can be found in video IPCS per-minute
expenses for very small jails, where the minutes-weighted
methodology is $0.0046 lower than the calls-weighted methodology.
Additionally, for some facilities reported total (billed + unbilled)
minutes of use did not match the sum of billed and unbilled minutes
of use. To fix these discrepancies, for both audio and video, total
minutes of use were recalculated by summing billed and unbilled
minutes of use.
17. Treatment of Subcontractors. At certain facilities, IPCS is
provided by a contractor and a subcontractor. In some cases, both
the contractor and subcontractor submitted cost or demand data for a
single facility, because each incurred some part of costs or bills
for service. To account for this, staff matched or removed
facilities across contractor/subcontractor pairs to avoid double
counting the same facility. As facility IDs are not consistent among
providers, staff performed many matches by examining information on
address, counterparty, building, type, latitude, and longitude.
Table 2 below depicts the attempted and successful matches:
[[Page 77373]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.001
18. In cases where the contractor and subcontractor both
submitted data that could be incorporated into the dataset, multiple
entries for a single facility were merged into one. For non-numeric
descriptive data and numeric data that could not easily aggregate
across entries, such as max call duration, average daily population,
or tax rates, staff used the values given by the contractor for the
merged entry if available. Staff summed numeric data that would not
be duplicated across entries, such as revenue, cost, and minute
information. In total, staff merged 82 subcontractor entries with 81
contractor entries. In one case, a facility is reported by three
providers, with {[REDACTED]{time} both acting as subcontractors. In
the three instances where a match was attempted but could not be
made, staff removed the facilities, as identified. Additionally,
{[REDACTED]{time} remain in the dataset, but staff removed the
video information. In other cases, where the subcontractor was not
incorporated into the dataset, either because it never filed or was
excluded, staff removed those facility entries. This accounts for
the removal of 354 facility entries, which, in addition to the other
steps, leaves 4,537 facility entries in the dataset.
19. Geocoding. The providers were asked to provide address and
coordinate information for each facility. However, many facilities
lacked coordinate information. Staff used address information, where
given, to geocode the dataset to generate coordinate information. As
many providers' coordinates were incomplete, inaccurate, had low
precision, or were different from staff-geocoded coordinates by a
large distance, staff-geocoded coordinates were used where possible.
To identify facilities as urban or rural, staff used Census-block
data published by the US Census Bureau. The US Census identifies
urban census tracts with five-digit UACE codes. Using UACE codes
provided in the 2020 Census, staff identified 2,474 urban and 1,975
rural facilities, for a total of 4,449 identified facilities. 98% of
included facilities across all providers could be identified as
urban or rural using provider coordinates or geocoded addresses.
This is used in the Lasso Analysis in Appendix D.
Appendix E: Rate Cap Methodology
1. This appendix describes the method staff used to analyze the
2023 Mandatory Data Collection data and estimate the upper and lower
bounds of our zones of reasonableness for incarcerated people's
communications services (IPCS) per-minute expenses. The structure of
the data collection allows staff to determine the fully distributed
cost of providing IPCS for each provider and the entire industry.
Providers were required to directly assign, attribute, or allocate
all of their investments and expenses among audio IPCS, video IPCS,
safety and security measures, ancillary services, and other products
and services. Our measure of the fully distributed cost of providing
a service, annual total expenses, sums the provider's operating
expenses and capital expenses, including an allowance for recovery
of its cost of capital. As described in Appendix A above, annual
total expenses accounts for all of a provider's expenses, including
maintenance, repair, and engineering and 14 other categories of
operating expenses, depreciation and amortization expenses, federal
and state income taxes, and the provider's cost of capital. Annual
total expenses were reported for audio IPCS, video IPCS, safety and
security measures, and ancillary services at the company level and
separately for audio IPCS and video IPCS at each facility. Company-
wide annual total expenses of providing safety and security were
allocated among seven different safety and security categories
separately for audio IPCS, video IPCS, ancillary services, and other
products and services. Audio IPCS and video IPCS safety and security
expenses were further allocated by category among facilities. We
determine our lower and upper bounds described in this Order by
dividing allowable amounts of the reported expenses for various IPCS
components by billed and unbilled minutes separately for prisons and
different jail sizes. In this appendix, we outline the critical
components of this analysis necessary to set just and reasonable
rate caps for the provision of IPCS.
2. Unit of Analysis. As discussed in the data collection
description section, the 2023 Mandatory Data Collection required
providers to report audio IPCS and video IPCS investments and
expenses at two levels: that of the provider (company-wide) and that
of individual facilities the provider serves. Our analysis of
providers' costs is performed primarily at the level of the
individual facility. This is in contrast to the 2021 ICS Order where
staff analyzed provider data at the level of the contract, which was
necessary because, in the ordinary course of business, many filers
did not maintain requested cost data at the facility level. Relying
on multi-facility contracts encompassing facilities of varying
sizes, and in particular contracts that included facilities with
less than 1,000 ADP, likely led to an overestimate of interim rate
caps. The rate-setting methodology staff employ in this rulemaking
relies on reported facility-level data, and thus avoids this
problem. The structure of the 2023 Mandatory Data Collection,
delineated by a detailed set of instructions requiring providers to
assign, attribute, or allocate reported audio IPCS and video IPCS
investments and expenses among facilities, allows for a more
granular facility-level analysis. This ensures that the analysis is
fully consistent with our rate-setting approach, which establishes
rate caps for facilities rather than for contracts.
3. Separation into Tiers. Staff separate facility observations
into prisons versus jails and into jail size tiers based on average
daily population (ADP), analyzing provider IPCS investments and
expenses separately within each tier. Staff establish the following
tiers for the purposes of rate setting: prisons; large jails (ADP >=
1,000); medium jails (350 <= ADP < 1,000); small jails (100 <= ADP <
350); and very small jails (ADP < 100). This approach is largely
consistent with the approach taken in the 2021 ICS Order and is
similarly consistent with record evidence of the cost differences
among facilities of different sizes. However, whereas the 2021 ICS
Order did not adopt rate caps for jails with ADP less than 1,000,
the 2023 Mandatory Data Collection enables us to address IPCS
facilities of all sizes. As such, staff must establish additional
jail size tiers for the purposes of rate setting. Staff analysis of
the variation in IPCS costs across jails of different sizes showed
that significant cost differences exist among facilities served.
These cost differences reflect progressively greater costs for jails
with smaller ADPs, which warrants a more granular tiering
[[Page 77374]]
structure for jails than that adopted in previous orders, comprising
four tiers based on jail size. Staff examined per-minute costs both
graphically and using simple regressions. While there were no
sharply obvious break points, per-minute costs increased at an
increasingly steep rate as facility ADP fell. This suggested use of
the tiers adopted in the Rates for Inmate Calling Services, WC
Docket No. 12-375, Second Report and Order and Third Further Notice
of Proposed Rulemaking, 30 FCC Rcd 12763 (2015) with the small jails
tier split into two tiers, now called small jails and very small
jails. Grouping facilities into the tiers outlined above is
necessary to ensure that our rate caps reflect underlying
differences in the cost of IPCS provision across different types and
sizes of facilities. Prisons and jails are distinguished under our
rules largely by their respective confinement periods, with prisons
used to confine individuals ``sentenced to terms in excess of one
year'' and jails used to confine those with shorter sentences. This
definitional difference entails a meaningful difference in average
confinement periods and turnover rates, which drives part of the
difference in costs between the two types of facilities. Thus, by
accounting for facility type, our rate caps account for the impact
of turnover on costs. We examine the impact of other factors in the
Lasso analysis below.
4. Unit of Sale. Our rate setting methodology relies on the sum
of billed and unbilled minutes of audio or video IPCS as the unit of
sale. That is, we divide annual total expenses by billed and
unbilled minutes to determine separate per-minute rate caps for
audio and video IPCS for each facility tier. Use of a per-minute
rate structure is consistent with past Commission action, reflects
the predominant industry pricing strategy for IPCS, and is
consistent with existing Commission rules covering interstate and
international audio IPCS, which require providers to charge for
service on a per-minute basis. While this rulemaking allows
alternate pricing plans, such as monthly plans for a set number of
calls or minutes, subject to certain specified conditions, all
providers still must offer per-minute pricing for audio and video
IPCS. The use of both billed and unbilled minutes is an improvement
from the 2021 ICS Order, which divided expenses by paid minutes, and
better reflects the cost of actual minutes. This approach helps
ensure all incarcerated persons are charged no more than the cost of
their calls, and treats all minutes equally, regardless of a
facility's or a provider's policy decisions on whether and how to
provide free minutes. We disagree with commenters who argue that,
similar to the 2021 ICS Order, we should have calculated per-minute
costs on the basis of billed minutes rather than the sum of billed
and unbilled minutes. The ratio of billed minutes to unbilled
minutes varies across facilities, and rate caps based on the average
cost of a billed minute would allow over recovery of costs, and
therefore unreasonably high rates, in facilities that had a lower
ratio than the average facility in 2022, while allowing under-
recovery in other facilities. As a result, such an approach would
also mean the Commission was effectively requiring incarcerated
people who receive relatively few free minutes to subsidize other
users. Further, if the relative proportions of billed to unbilled
minutes were to shift in the future, a rate cap based on the amount
of billed minutes would become outdated. It is true that many ``IPCS
providers--particularly those serving jails--are required to provide
certain calls (e.g., calls for booking and calls to public
defenders) free of charge.'' The Report and Order does not prevent
or in any way discourage this. Just as correctional authorities may
pay providers to offer calling plans that (from the incarcerated
person's perspective) are free, correctional authorities may enter
into arrangements with providers that allow incarcerated people to
make certain types, or a certain number, of free calls. Correctional
authorities remain free to decide whether and how providers should
offer unbilled minutes. We further note that there is no strict
parallel between ``Paid Minutes,'' as used in the 2021 ICS Order,
and ``Billed Minutes'' as used in the 2023 Mandatory Data
Collection. Billed minutes do not equal paid minutes to the extent
minutes are billed for, but not paid. The instructions for the 2023
Mandatory Data Collection define billed minutes as the number of
audio or video IPCS minutes supplied for which payment is demanded,
and define unbilled minutes as the number of audio or video IPCS
minutes supplied for which payment is not demanded. Thus, billed
minutes reported in response to the 2023 Mandatory Data Collection
are intended to include minutes billed to the caller, called party,
incarcerated authority, or any other third party whether or not
these bills were actually paid. By contrast, paid minutes reported
in response to the Second Mandatory Data Collection were intended to
exclude minutes which were billed, but for which the bills were not
actually paid. (Our measure of expenses reflected in the rate caps
includes an allowance for bad debt expense to recognize unpaid bills
that are no longer expected to be collected due to customer
default.)
5. Industry Average Costs. The Martha Wright-Reed Act expressly
granted the Commission authority to use industry-wide average costs
to set IPCS rate caps. Our rate-setting approach relies on this new
statutory authority. As such, our analysis of provider investments
and expenses calculates the minute-weighted average expense of IPCS
provision, separately for audio and video IPCS and within each rate
tier. If staff were confident of three things: That the providers'
cost allocations reasonably reflect cost-causation; there was no
underlying cost variation within each of our five facility
categories when looking at audio and video separately; and there was
no overstatement of costs--then rate caps based on the industry
average would be far too high from an efficiency perspective. For
example, our analysis showed no material variation from facility to
facility in local market conditions. However, it is unlikely that
any of these three things are true, so instead staff use the minute-
weighted industry average to account for potential variation in
costs within our categories, and discount certain costs using a zone
of reasonableness analysis, to account for potentially misallocated
or cost variation otherwise not controlled for. Specifically, our
analysis calculates the minute-weighted average expense of providing
IPCS, separately for audio and video IPCS for each facility tier
(prisons, and jails of differing sizes). Staff calculate minute-
weighted average costs as annual total expense divided by total
billed and unbilled minutes, separately for audio and video IPCS and
within each rate tier. Staff reliance on industry average costs is
further supported by the Brattle Group's analysis of the 2023
Mandatory Data Collection data. Brattle finds considerable variation
in costs among IPCS providers and the facilities they serve,
particularly in the provision of video IPCS, and ultimately drop all
facility observations with costs above $0.25 per minute in their
analysis of per-minute expenses. We have concerns with such an
approach, as dropping observations creates a delta between company-
wide expenses and those reported across providers' facilities. In
addition, any threshold relied upon for pruning outliers must either
be untenably high or would potentially drop valid data points.
However, given that Brattle relies on simple, rather than weighted,
averages of facility-level per-minute expenses, pruning of outliers
needs to take place to obtain meaningful results. Staff's use of
weighted industry average expenses per minute avoids this concern,
allowing even significant outlier observations to be included in the
calculation of rate caps while ensuring that such observations do
not have a disproportionate impact on the results. We disagree with
commenters who argue that the use of the industry average to develop
our caps is ``confiscatory.''
6. Staff consider that the industry minute-weighted averages,
controlling for audio or video service, and whether the facility is
a prison or a jail of a particular size, are good, if high,
estimates of efficient costs for the following reasons. First,
providers differ in their cost accounting practices, and use
different and necessarily imperfect cost allocators. These cost
allocation variations create cost differences across facilities that
are not related to the efficient cost of service delivery. However,
by definition, these cost allocation problems cancel out across each
provider--that is, if costs are overallocated to one facility, they
must be under allocated to another. This conclusion does not apply,
of course, to costs that are improperly allocated to IPCS rather
than to nonregulated services. If these inappropriate cost
allocations are relatively random across all facilities, and there
is no evidence to the contrary, then the use of the per-minute
weighted mean would, as a good approximation, net these differences
out. The Commission could only take a different action if there was
a known correctable cost allocation bias. Second, given providers'
incentives, costs are likely overstated, biasing the industry mean
toward overstating efficient costs. That {[REDACTED]{time} reported
company-wide IPCS revenues that were respectively about 15%, 15%,
and 25% below their reported IPCS costs plus site commissions is
evidence of cost overstatement. There are many ways that costs could
be overstated which we cannot audit on the record before us and, to
the
[[Page 77375]]
extent additional information would help us resolve the matter,
within the timeframe the Martha Wright-Reed Act sets for Commission
action. Securus argues that ``the assumption that costs must be
inflated is contrary to the draft's conclusion that the cost
information is reliable.'' We disagree. Third, to the extent that
providers' cost reports are not overstated in the sense that they
reflect actual costs, many providers appear to be inefficient,
implying that the industry mean is further biased toward overstating
efficient costs. For example, there is substantial variation in
provider costs that quality or scale differences do not readily
explain. While the largest providers, {[REDACTED]{time} . These
disparities are not likely explained by quality differences, since,
for example, the large providers tend to offer more features than
smaller ones, suggesting they should have higher per-minute costs.
Fourth, while there may be some variation in efficient costs, after
controlling for audio or video service, and whether the facility is
a prison or a jail of a particular size, the cost variation that can
be attributed to any given factor is relatively small compared with
the preceding two sources of difference. The record suggests the key
drivers of audio cost are facility-type and size, which are already
controlled for in our rate-setting approach. The Lasso analysis
shows the relationship between costs and other variables, apart from
provider identity and state, to be largely statistically
insignificant. Although our Lasso analysis points to provider
identity and state as the dominant predictors of costs, we find that
these variables are not appropriate for incorporation into our rate
caps. In summary, when taking the industry mean, the variation due
to the first of these points likely cancels out; the variation due
to the second and third points likely results in substantial
overstatement of efficient per-minute expenses; and the true cost
variation of the fourth point is small. Thus, the industry minute-
weighted mean likely lies above efficient costs. This is further
supported by analysis of facility per-minute revenues.
7. Overview of Our Zones of Reasonableness. Staff establish
zones of reasonableness, separately for audio and video IPCS and for
each facility tier, and determine final audio and interim video IPCS
rate caps from within these zones. A zone of reasonableness approach
helps avoid giving undue weight to imprecise and likely overstated
provider cost data, as well as to data assumptions and adjustments
that could lead to unduly high or low per-minute rate caps.
8. Staff begin by using data that providers submitted in
response to the 2023 Mandatory Data Collection to establish upper
bounds. Staff make no adjustments to provider reported expenses
beyond the data cleaning, processing, and corrections discussed in
the data collection appendix, and supplement these data with
estimates of the costs incurred by facilities to provide access to
IPCS and by providers to provide TRS. As discussed above, we find
that, in light of the Martha Wright-Reed Act's elimination of the
requirement that ``each and every'' completed communication be
fairly compensated, it is appropriate to set our upper and lower
bounds based on industry-wide average costs at each tier of
facilities, without the need to consider one standard deviation or
any other measure of deviance from the average. Staff then make
reasonable, conservative adjustments to the reported data and use
those data to establish the lower bounds of our zones of
reasonableness. Finally, we select rates from within each zone of
reasonableness to establish final audio and interim video IPCS rate
caps for each facility rate tier.
9. Components of Our Upper Bounds. Our upper bounds incorporate
five distinct components of expenses for audio and video IPCS: (i)
audio/video IPCS expenses; (ii) audio/video IPCS safety and security
expenses; (iii) ancillary service expenses; (iv) correctional
facility expense component; and (v) TRS allowance. Staff discuss and
explain each of these components in the upper bounds appendix.
10. Components of Our Lower Bounds. As indicated, staff
establish our lower bounds by making reasoned disallowances and
adjustments to reported provider cost data. The lower bounds
appendix explains the need for these steps. After the disallowances
and adjustments, the lower bounds incorporates the following
components of industry average costs: (i) audio/video IPCS expenses
after adjustments to certain expense categories; (ii) audio/video
IPCS safety and security expenses after certain disallowances and
adjustments to expense categories; (iii) ancillary service expenses
after adjustments to certain expense categories; and (iv) unadjusted
TRS allowance. The impact of the expense adjustments on ancillary
service expenses is trivial, shaving $0.001 off the lower bounds.
Appendix F: Summary Statistics
1. The database, developed as described in Appendix A, is the
primary data source for our analysis. This appendix provides summary
statistics and associated analysis for that database. The database
used in our analyses contains data for 4,537 facilities supplied by
12 providers, referred to throughout as the industry. The following
discussion summarizes key aspects of audio and video incarcerated
people's communications services (IPCS) provision, including
industry demand, revenue, and expenses as reported in the database.
2. As mentioned in previous sections, the data used for this
analysis comes from two levels of data: company-wide and facility-
specific. It is important to note that the estimates from company-
wide and facility-specific do not always perfectly match one
another. Therefore, estimates using company-wide data may vary
slightly from facility-specific data.
A. Industry Fundamentals
3. Table 1 provides an overview of the size and composition of
audio and video supply and of the nature of audio and video
expenses. In 2022, IPCS audio was the predominate form of
communication, and IPCS audio usage outweighed IPCS video. There
were 11,266 million audio IPCS minutes, and 558 million video IPCS
minutes. Thus, audio minutes comprised approximately 95% of industry
minutes--see Table 1. Similarly, audio communications comprised
approximately 97% (1.82 billion/1.878 billion) of industry
communications. This difference was less marked in terms of
facilities: 2,092 facilities had video calls, or about half as many
2,092, was about half as many as had audio, 4,151. This suggests
that in 2022 video had barely taken off as a service, and it is
highly likely that video share today is much higher than in 2022,
and likely will continue to grow. It is best to first focus on audio
given the lopsided share of audio data and, as evidenced below, the
odd results for video, which are likely attributable to the nascent
nature of video supply in 2022. Either in terms of minutes or
average daily population (ADP) the two largest IPCS providers by far
were {[REDACTED]{time} .
4. [REDACTED]. Video is also different from audio in other ways.
{[REDACTED]{time} .
BILLING CODE 6712-01-P
[[Page 77376]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.002
[[Page 77377]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.003
[[Page 77378]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.004
5. Table 1 also illustrates that per-minute audio expenses vary
significantly across carriers. Focusing first on audio, while
{[REDACTED]{time} .
6. Per-minute video expenses vary much more than audio. The
industry standard deviation across providers is 210.7 for audio and
1,187.5 for video. And again there are surprises. For example,
despite being a relatively low-cost audio provider,
{[REDACTED]{time} . This wide variation could arise from accounting
differences, including choices on how to depreciate assets over
time, quality differences, and providers being at different points
in their video deployment. For example, some providers may be
further down the ``learning by doing'' cost curve, and/or have
incurred costs without yet achieving the sales volumes they are
capable of.
7. Finally, Table 2 shows providers' shares of audio minutes can
be quite different from their share of audio communications,
implying that the average length of an audio communication varies
across providers. This is directly shown in Table 2, and is also
true for video. Table 2 also shows that the average video
communication lasts about 18.3 minutes, more than double the average
audio communication length of 7.3 minutes. Yet, {[REDACTED]{time} .
Video communication lengths are also considerably more varied than
those of audio. Audio communications lengths vary by about nine
minutes, from 4.3 to 12.9, while video communications lengths vary
by about twenty-one minutes, from 3.6 to 25.1 minutes. The industry
standard deviation across providers is 2.3 for audio and 6.8 for
video.
[[Page 77379]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.005
BILLING CODE 6712-01-C
[[Page 77380]]
B. Expenses, Revenues, and Margins
8. Expenses. Table 3 shows provider-reported expenses, as
allocated between five categories: audio, video, safety and security
services, site commissions, and ancillary services. Throughout
Appendices D through J, the term ``site commissions'' refers to the
sum of all forms of monetary payment, in-kind payment, gift,
exchange of services or goods, fee, technology allowance, or product
that a provider or affiliate of a provider may pay, give, donate, or
otherwise provide to an entity that operates a facility, an entity
with which the provider enters into an agreement to provide IPCS, a
governmental agency that oversees a facility, the city, the county,
or state where a facility is located, or an agent of any such
facility. In-kind site commissions amount to less than one percent
of all site commissions. Site commissions are not IPCS costs.
Ancillary services refer to the five types of services defined in
the data collection as ``Permissible Ancillary Services,'' which our
rules allowed providers to charge: (i) automated payment services,
(ii) live agent services, (iii) paper bill/statement services, (iv)
single-call and related services, and (v) third-party financial
transaction services (all other ancillary services are defined as
``Other Ancillary Services''). As expected, {[REDACTED]{time} .
Safety and security expenses are the largest source of industry
expenses, accounting for more than a third of the sum of reports for
the five listed expenses. Yet, there is a sharp difference between
{[REDACTED]{time} , a matter we will turn to when discussing Table
4.
9. After safety and security, site commissions account for the
second largest fraction of industry expenses--over one fourth.
(Percent of Site Commissions of All Related Expenses = (Legally
Mandated Site Commissions + Contractually Prescribed Site
Commissions)/Total Expenses = ($29,017,010 + $403,577,600)/
$1,555,228,234 = 27.8%.) By comparison, audio expenses account for
about one fifth of industry expenses, and ancillary services for
about one tenth. A distant last place, video expenses only account
for less than five percent of this total, again likely reflecting
that video was a new service in 2022.
BILLING CODE 6712-01-P
[[Page 77381]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.011
10. Using facility-specific data from providers, we also analyze
expenses and revenues separately for prisons and jails, and for
different jail sizes. We categorize jails based on average daily
population (ADP). A large jail is defined as a jail with an ADP
[[Page 77382]]
equal to or greater than 1,000. A medium jail is a jail with an ADP
of or greater than 350 and less than 1,000. A small jail has an ADP
of or greater than 100 and less than 350. Lastly, a very small jail
has an ADP of less than 100. As demonstrated in the tables below, a
large majority of facilities are jails as opposed to prisons and, of
all jails, about half classify as very small, with ADPs of less than
100.
11. Table 4 reports first audio expenses, excluding safety and
security expenses, per billed and unbilled audio minute by facility
type for each provider and the industry average, and then the same
thing for video. Focusing first on audio, it shows that audio
expenses per billed and unbilled minute tend to be lower for prisons
compared to jails for the entire industry, with an industry average
of about $0.02 for prisons and between $0.02 and $0.09 across the
different jail sizes. However, for the three providers that serve
prisons, the difference between prisons and jails is minimal.
Similarly, smaller jails tend to have higher per-minute expenses for
audio compared to larger jails. Industry audio expenses per billed
and unbilled minute are about $0.02, $0.04, $0.06, and $0.09 for
large, medium, small, and very small jails, respectively. Again, the
data for video contain anomalies. Video per-minute expenses for
prisons were $0.156, greater than that for jails of all sizes except
very small jails, reversing the same comparison for audio. And the
per-minute expenses of the three providers of prisons are very
different, with an order of magnitude range of {[REDACTED]{time} .
With only ten providers reporting video expenses, industry video
expenses per billed and unbilled minute are about $0.09, $0.09,
$0.12, and $0.21 for large, medium, small, and very small jails,
respectively. Table 4 also shows the outsized impact of
{[REDACTED]{time} .
[[Page 77383]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.012
[[Page 77384]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.013
12. Safety and Security Expenses. Table 5 presents per-minute
audio and per-minute video IPCS safety and security expenses for
facility types. It shows that {[REDACTED]{time} .
[[Page 77385]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.014
[[Page 77386]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.015
BILLING CODE 6712-01-C
13. International Audio Termination Expenses. Staff examine the
providers' reported international termination expenses to determine
the feasibility of establishing a
[[Page 77387]]
separate rate cap to recover those expenses. Under the Commission's
current rules, a provider can charge a per-minute rate for
international audio communications that does not exceed the
applicable interstate rate cap plus the average per-minute amount
the provider paid its international service providers for
communications to a particular international destination. Under
these rules, a provider is also required to determine the average
amount paid for communications to each international destination for
each calendar quarter and to adjust its maximum rates based on this
determination within one month of the end of each calendar quarter.
Providers were required to report extra payments to
telecommunications carriers or other entities for international
communications as an operating expense on row 75 on the C1-C2.
Company-Wide Information worksheet. {[REDACTED]{time}
{[REDACTED]{time} . As these extra payments are for termination of
audio communications to international destinations, and providers
can impose a separate charge on international minutes to recover
these expenses under our rules, staff divide {[REDACTED]{time} .
Logically, if none of the extra payments to telecommunications
carriers or other entities for international communications were
allocated to video IPCS, then the portion of the extra payments
allocated to safety and security measures would be attributed to
audio IPCS provision. Table 6 below details this calculation.
[GRAPHIC] [TIFF OMITTED] TR20SE24.016
14. {[REDACTED]{time} . In addition, nothing in the record
suggests a need to create a separate charge for video analogous to
the separate charge for termination of international audio
communications.
15. Staff note that annual total expenses, as developed on the
Excel template, excludes extra payments to telecommunications
carriers or other entities for international communications.
{[REDACTED]{time} other providers make payments for termination of
international communications. They likely report these as expenses
on a different row than the row designated for reporting these extra
payments in the Excel template. For example, providers may have
reported the extra payments for international communications not as
extra payments but instead as part of payments to telecommunications
carriers or other entities for interstate, international, or
intrastate communications other than extra payments to
telecommunications carriers or other entities for international
communications. In other words, they may have reported the extra
payments on row 74 on the C1-C2. Company-Wide Information worksheet
and row 85 on the D1. Facility Audio IPCS Costs and D1. Facility
Video IPCS Costs worksheets. To the extent that these other
providers report these extra payments as expenses on any other row,
these expenses are reflected in annual total expenses and thus in
the upper and lower bounds of our audio rate caps. Consequently, the
upper and lower bounds for our audio rate caps are likely overstated
because providers can still impose a separate charge for termination
of international audio communications, consistent with the
Commission's existing rules.
16. Revenues. Turning to the other side of the ledger, Table 7
depicts IPCS billed revenues, inclusive of the portion of those
revenues used to pay monetary site commissions (revenues hereafter),
by category for each provider and the overall industry. Table 7
shows that the overwhelming majority of IPCS revenue is audio
revenue, roughly 77%. {[REDACTED]{time} We conclude that generally
safety and security measures are not priced separately. Our
instructions specified that only revenues derived from safety and
security measures that are priced separately were to be reported
separately.
BILLING CODE 6712-01-P
[[Page 77388]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.017
17. The top of Table 8 shows the audio revenues per billed and
unbilled audio minutes among the different facility types for each
provider and for the industry average. Looking at the industry;
revenues, per billed and unbilled minutes, are lowest for prisons,
increasing by about 50% for large jails, by 50% again for medium
jails, and finally by about 20% for small jails, with no change for
very small jails. However, this pattern is largely driven by
{[REDACTED]{time} . Many of the smaller providers' per-minute
revenues fall for some jail size declines, and often their per-
minute revenues are quite close across the jail types they serve.
The latter half of Table 8 reveals less variation across facility
types for video than for audio revenues per billed and unbilled
minutes, but directionally the effects are similar.
[[Page 77389]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.018
[[Page 77390]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.019
18. Margins. Provider's reported margins, the difference between
their reported revenues and expenses, including site commission
payments, are remarkable--see Table 9. Half of the 12 companies in
the database, including the largest three,
[[Page 77391]]
{[REDACTED]{time} . And five of these companies {[REDACTED]{time} .
The reported losses are so large that they result in an industry
loss of about $219 million, more than 16% of industry revenue.
{[REDACTED]{time}
[GRAPHIC] [TIFF OMITTED] TR20SE24.020
BILLING CODE 6712-01-C
19. A firm's revenues from the sale of services over the long
run must cover the expenses it incurs to provide these services,
including its cost of capital. Otherwise, a firm will cease to
operate as it will be unable to pay its employees, suppliers, or
creditors, or compensate its owners with a normal rate of return for
use of their money. A normal rate of return is a rate of return
equal to what the firm's owners could expect to earn if they
invested in their next best alternative, holding other things, most
notably risk, constant. There is no evidence that a current IPCS
provider is failing to recover enough to justify long-run ongoing
service. While recent press reports suggest Securus may be
considering filing for bankruptcy, {[REDACTED]{time} . As such, a
useful benchmark to gauge the suitability of the providers' reported
expenses for setting rate caps is whether their revenues cover their
expenses. Some providers produce services other than and in addition
to IPCS. IPCS is a key business segment for all providers and this
segment would be expected to operate as a profit center. Thus, a
narrower comparison between IPCS revenues and expenses is a useful
benchmark for the business segment.
20. Thus, the reported losses of at least the six companies,
{[REDACTED]{time} are difficult to reconcile with a reasonable
expectation of these providers' economic profits--their capacity to
recover the least cost of their operations, including a return on
capital commensurate with efficient risk bearing--rather than
accounting losses relevant for tax purposes, or to investors who may
have overpaid for the company or debtors who may have
underappreciated the risks associated with their loans.
{[REDACTED]{time} are large and sophisticated, with many years of
experience in the provision of IPCS. Indeed, the smaller companies
reporting losses also have many years of experience in this
industry. All these companies routinely and voluntarily bid on
contracts in an environment they understand. They know what services
correctional authorities are interested in and what is necessary to
offer them. They have a deep knowledge of the characteristics of
their customers and the regulatory and political environment, and
thus of what protections are needed in their contracts. There is
nothing in the record that suggests 2022 was a year in which any of
these providers faced unusual economic difficulties, or to suggest
that these providers' operations are not going concerns. 2022 was
unusual due to the ongoing impacts of
[[Page 77392]]
COVID, which led correctional facilities to request changes in
contract terms, for example, so as to provide more free calling.
However, these were voluntary, and subject to the original terms of
the existing contracts. There is no evidence that these changes
created financial hardship for any providers.
21. It is therefore implausible that {[REDACTED]{time} . Such
deficits call into question the suitability of these four providers'
reported expenses for setting rate caps. In sum, these figures
suggest that, at a high level, reported costs are overstated. In
either case, use of the providers' reported expenses without
adjustment to set rate caps or without considering other record
evidence or recognizing that this deficit is simply a snapshot in
time that does not reflect long run expectations may produce rate
caps that are too high, thereby enabling even an inefficient
provider to earn more than a normal rate of return.
C. Video Versus Audio IPCS Investment and Expense Data
22. We compare key net investment and expense categories
reported industry-wide for video IPCS, a relatively new service,
with the same categories reported for audio IPCS, a service that has
been provided for many years. Staff observe large differences
between the video IPCS and audio IPCS net investment and expense
data across the various categories. This analysis excludes
consideration of safety and security investments and expenses as
providers were not required to further allocate the various
investment and expense categories for safety and security measures
between audio and video. Rather, providers more simply allocated
annual total expenses, our measure of the fully distributed costs of
providing IPCS, between audio and video. Table 10 below shows each
of these categories of net investment and expense and billed
revenues, depicted in absolute dollar amounts, and billed and
unbilled minutes. Investment and expense data are from the C1-C2.
Company-Wide Information worksheet. Revenue and minutes data are
from the D1. Facility Demand and Revenue worksheet.
BILLING CODE 6712-01-P
[GRAPHIC] [TIFF OMITTED] TR20SE24.021
[[Page 77393]]
BILLING CODE 6712-01-C
23. Table 10 shows that the dollar amount for each of these
categories is much smaller for video relative to audio. For example,
the ratios of video to audio dollars for net investment in tangible
assets, total net investment, depreciation and amortization
expenses, total operating expenses, billed revenues, and billed and
unbilled minutes are respectively about 0.49, 0.18, 0.37, 0.17,
0.11, and 0.05. In short, video has yet to achieve anywhere near the
scale of operations as audio. This is not surprising, given that
audio is an established industry, while video is still emerging.
These facts demonstrate relative size but not relative efficiency
between video and audio operations.
24. One current difficulty in establishing permanent video rate
caps stems from relative cost inefficiencies reflected in the video
net investment and expense data. To enable a comparison between the
provision of audio and video, staff must provide a measure of
efficiency and adjust for scale. Staff first divide the absolute
dollar amount reported for each of the net investment and expense
categories by billed and unbilled minutes separately for video and
audio. A service is provided more efficiently if it requires fewer
dollars of investments or expenses to produce a unit of output
(e.g., a minute of audio or video). We then divide the resulting
per-minute video net investment and expense numbers by the analogous
audio numbers to compare the efficiency of providing video and
audio. The last column of Table 10 shows that the resulting video to
audio ratios for all of the net investment and expense categories
are well above one, and as high as ten. As video and audio are
different services, we would expect the video to audio per-minute
ratios for the various net investment and expense categories to
differ somewhat from one, even after video matures, though not
nearly to this same extent. Overall, these results demonstrate that
provision of video is far less efficient than that of audio. We note
that the ratio of video to audio billed revenue per billed and
unbilled minute is also set out in the last column of Tbl. 10. This
ratio is greater than two, meaning that average revenue per minute
for video is more than twice that average for audio.
25. Most notably, the highest ratios of video to audio per-
minute net investments and expenses are for tangible assets net
investment (about 10) and depreciation and amortization expenses
(about 7). While video may have greater capital requirements than
audio, we would not expect the ratios of video to audio per minute
for tangible assets net investment and depreciation and amortization
expenses to be nearly as high as video usage grows significantly
over time. These high ratios may reflect providers' large capital
outlays for purchasing and installing long-term assets necessary for
the roll out and delivery of video, as would be expected for a new
service that requires significant investment in fixed assets during
its early phases. At the same time, limited customer awareness of
and experience with a new service such as video may limit initial
customer demand over which the capital outlays for these assets may
be spread. Depreciation and amortization allocate the initial
capital outlay for a long-term asset over its useful life as a
periodic expense for accounting or tax purposes. (While depreciation
and amortization are conceptually the same, tangible assets are said
to be depreciated over time whereas definite-life intangible assets
are said to be amortized over time.) We can reasonably expect video
to experience considerable growth in the future. As this growth
occurs, we can expect video to be provided far more efficiently and
therefore at a much lower cost per-minute than the current video
investment and expense data suggest. Consequently, we hesitate to
establish permanent cost-based rate caps for video at this time
given the likelihood that these caps will soon be considerably above
cost.
D. Ancillary Services
26. Table 13 shows expenses, by provider and for the industry,
per billed and unbilled audio and video minutes for each of the
ancillary services for which providers may assess separate
interstate charges under the Commission's rules. Per-minute expenses
for these ancillary services collectively range from less than
{[REDACTED]{time} , with an industry average of $0.011. Eight
providers reported automated payment services expenses, and these
expenses account for most of the ancillary services expenses.
Automated payment services per-minute expenses range from
{[REDACTED]{time} , with an industry average of about $0.01.
Industry expenses per minute for the other ancillary services are no
higher than one tenth of a cent. Seven providers reported live agent
expenses; of these providers, these per-minute expenses are as large
as {[REDACTED]{time} . Only four, three, and two providers reported
expenses for third-party financial services, paper bill/statement
services, and single-call and related services, respectively. As
Table 11 demonstrates, providers failed to reliably or consistently
allocate their costs among the various ancillary services.
BILLING CODE 6712-01-P
[[Page 77394]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.022
[[Page 77395]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.023
BILLING CODE 6712-01-C
E. Site Commissions
27. Table 12 shows site commissions, by provider and industry.
Site commissions are equal to the sum of legally mandated and
contractually prescribed site commissions, and are only attributable
to audio, video, safety and security measures, and ancillary
services, not other products and services. Over 93% ($403.6 million/
$432.6 million) of site commissions are contractually prescribed as
opposed to legally mandated. Only two providers, {[REDACTED]{time} ,
reported legally mandated site commissions. The total site
commissions figure understates the overall industry cost for site
commissions, as it omits the excluded providers, whose collective
submissions comprise less than 1% of reported billed and unbilled
minutes in the 2023 Mandatory Data Collection, and total an
additional $13,433,691 in reported site commissions, or 3% of the
industry total of $446,038,302.
BILLING CODE 6712-01-p
[GRAPHIC] [TIFF OMITTED] TR20SE24.024
[[Page 77396]]
28. Table 13 shows that legally mandated and contractually
prescribed site commissions, expressed per billed and unbilled
minute, range from{[REDACTED]{time} {[REDACTED]{time} with an
industry average of $0.036. {[REDACTED]{time}
[GRAPHIC] [TIFF OMITTED] TR20SE24.025
29. Table 14 presents site commissions per billed and unbilled
minute, by facility type for each provider and the overall industry.
Similar to other expenses and revenues, site commissions per minute
are typically lower among prisons and higher among medium and
smaller-sized jails.
[[Page 77397]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.026
[[Page 77398]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.027
F. Supplemental Data Tables
30. Detailed Tables Showing Industry Shares for Minutes,
Communications, and Facilities. Tables 15 and 16 provide detailed
breakdowns of provider shares, first by minutes and communications,
and then by facilities and ADP.
[[Page 77399]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.028
[[Page 77400]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.029
[[Page 77401]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.030
31. Safety and Security Expenses--Detailed Tables. Tables 17-
through 19 provide detailed breakdowns of safety and security
expenses.
[[Page 77402]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.031
[[Page 77403]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.032
[[Page 77404]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.033
[[Page 77405]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.034
[[Page 77406]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.035
[[Page 77407]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.036
BILLING CODE 6712-01-C
Appendix G: Lasso Analysis
1. In this appendix, staff analyze incarcerated people's
communications services (IPCS) providers' responses to the 2023
Mandatory Data Collection to determine what characteristics of IPCS
provision have a meaningful association with providers' reported
per-minute expenses. The Commission performed a similar analysis in
Appendix F of the 2021 ICS Order, Appendix F of the 2020 ICS Order
on Remand, and in the 2020 ICS Notice of Proposed Rulemaking (NPRM)
(85 FR 67480, October 23, 2020). Those analyses found that provider
identity and the state a facility is in to be the most important
predictors of a contract's per-minute audio costs. Staff update that
analysis here, using the 2023 Mandatory Data Collection data and
looking at both audio and video facility-level costs. Staff consider
characteristics such as the average daily population (ADP) of the
facility, the type of facility served (prison or jail), and the
rurality of the facility. If these variables are associated with
statistically significant variation in provider costs, then our
analysis would support a rate-setting approach that has audio and
video rate caps that vary along these dimensions.
2. As before, staff use the statistical method called Lasso
(least absolute shrinkage and selection operator). This method
identifies predictors of an outcome variable--in our case, the
logarithm of either audio or video costs per minute--by trading off
goodness of fit against the complexity of the model, as measured by
the number of predictors. Lasso is especially useful in situations
where many variables, and interactions among those variables, can
predict an outcome of interest. Given that we are interested in
determining the potential cost effects of many categorical variables
as well as their interactions with one another, the overall number
of potential variables is extremely large: our baseline Lasso
specifications consider 490 variables for audio, and 381 for video.
Estimating the effects all these variables have on costs via more
traditional methods (such as linear regression) is infeasible. The
results of our Lasso analysis indicate that the main predictors of
provider costs per minute at the facilities they serve, for both
audio and video, are provider identity and the state where the
facility is located. We also find that whether the facility is a
prison or jail is a predictor of costs per minute, although the
effect is weaker than provider identity and state. A wide range of
other variables have less or essentially no predictive power for
either audio or video expenses.
3. We use the upper bound processed dataset with the facility
operated by a provider as the unit of observation for our analysis.
For both audio and video communications, we use the logarithm of
per-minute costs as the dependent variable. Log transformation of
the dependent variable has two benefits: (i) it can reduce the
impact of outliers; and (ii) it can reduce skewness of the
underlying per-minute cost data and make the distribution of the
dependent variable more normal, which can improve model fit and help
to ensure that residuals are normally distributed. Among the
variables that we are interested in are monetary and in-kind site
commission payments by providers at facilities they serve.
Providers, however, did not allocate site commissions between audio
and video. Therefore, for some of our models we will rely on the
logarithm of the sum of audio and video per-minute costs as the
dependent variable. To avoid having the Lasso biased by misreported
and outlier data, we conservatively drop facilities with per-minute
audio costs above $1, per-minute video costs above $5, or for which
per-minute audio or video costs are reported as negative. Standard
regression analysis is vulnerable to distortion from outliers. The
simplest regression of the dependent variable on an independent
variable fits a line by minimizing the sum of the squared
differences between each observation and that line. Points on the
line are the model's ``prediction,'' and can be thought of as the
expected values of the dependent variable for the values of the
independent variable. Outlier observations are farther from the
prediction line and squaring those differences has a
disproportionate effect on the sum of squared differences, pulling
the prediction line towards those outliers. The same logic applies
for a multivariate regression except that the prediction line is a
``hyperplane'' across the multidimensional space of all the
independent variables. The Lasso model, like standard linear
regression, minimizes the sum of squared differences and is
therefore also sensitive to outliers. In the case of the 2023
Mandatory Data Collection, there are some extreme outliers, e.g.,
per-minute expense reports in excess of $1,000 for audio and
$100,000 for video. We also drop facilities for which negative
commission payments were reported. The predictor variables that we
considered in our analysis are as follows:
The identity of the incarcerated people's
communications service provider;
The state(s) in which the correctional facilities are
located;
The type of facility (prison or jail);
An indicator for joint contracts (i.e., contracts for
which an IPCS service provider subcontracts with another
incarcerated people's communications service provider);
An indicator for whether the facility receives a site
commission;
Contract average daily population (ADP);
Five indicators for whether a facility meets one of the
five following criteria: it is a jail with average daily population
<=100; it is a jail with average daily population between 100 and
350; it is a jail with average daily population between 350 and
1,000; it is a jail with average daily population >1,000; or it is a
prison;
Log of safety and security expenses;
Rurality of the facilities covered by the contract
(urban if the facility is located in an area designated by the Urban
Area Census (UACE20) as urban);
Various combinations (i.e., multiplicative
interactions) among the above variables.
4. Lasso and Costs per Minute. The Lasso results indicate
significant differences in costs per minute across different
providers and states. The baseline Lasso models, when all variables,
including multiplicative interactions, are included, explain
approximately 62% of the variation in audio costs across facilities,
and 67% of the variation in video costs across facilities. In
addition to provider and state variables, these baseline models also
select variables for facility type (i.e., prison versus jail), and
whether or not a site commission was collected. For both our audio
and video baseline models, facility type is selected by the Lasso
almost exclusively for its interaction effect with state dummy
variables. However, the explanatory power of variables other than
provider and state is small.
5. To establish the incremental explanatory power of state and
provider, staff consider
[[Page 77408]]
audio and video Lasso models where only provider and state variables
are included and compare them with models that included all
variables except for provider and state. Staff find the provider and
state variables explain far more than what all the other variables
are able to explain. When only provider and state variables are
included, the Lasso models explain approximately 52% of the
variation in audio costs across contracts, and 56% of the variation
in video costs. This is a difference of about 10% as compared with
the full model. By contrast, for models that include all variables
except for provider and state, Lasso explains just 23% of variation
in audio costs across contracts, and 20% of the variation in video
costs, a difference of about 40% as compared with the full model.
6. The differences in costs across providers identified by the
Lasso may reflect systematic differences in underlying costs of IPCS
provision but may also point to differences in the way providers
allocated their company-wide investment and expenses to the
facility-level. The cost variation attributed to the state variable
may reflect state-level differences in costs arising from different
regulatory frameworks, including state-specific price caps that may
be correlated with provider decisions to bid on contracts (allowing
only the most efficient providers to operate in certain states), or
to underlying cost differences due to other state-specific factors.
Given concerns that the Lasso model may be placing undue weight on
the provider and state variables due to cost allocation approaches
that are unrelated to the underlying cost of IPCS provision, and
given that we have substantial record evidence indicating that
facility type and size are important dimensions along which costs of
IPCS vary, it would not be appropriate to consider the Lasso model
results as suggesting that rate caps be established by directly
taking into account the IPCS provider or location of a facility.
Rather, the Lasso results confirm that there are certain data
deficiencies at the facility-level, likely due to differences in
cost allocation approaches across providers as well as instances of
cost misallocation, and provide additional support for the industry
average cost approach to rate-setting, as such an approach is less
impacted by individual provider decisions on cost allocation and
cost-allocation anomalies that create outlier facility cost
observations.
7. While the provider and state variables were most significant
in explaining the variation in audio and video costs in our Lasso
models, facility type was also selected by the Lasso as an important
predictor of per-minute costs. Given the results from the Lasso
models, and the strong record support for jails being more costly to
service than prisons and smaller jails being more costly to serve
than larger ones, we explored whether a cost difference between
jails and prisons, and between jails of different sizes, existed
using a double-selection Lasso model. Unlike regular Lasso, which
selects predictors but does not allow for standard statistical
inference (e.g., confidence intervals, t-statistics), double-
selection Lasso allows for statistical inference to be performed on
a subset of variables of interest. In double-selection Lasso, the
researcher selects a subset of predictor variables as the variables
of interest. Two Lasso models are then run. In the first, a Lasso is
run regressing the variables of interest on all other predictor
variables. In the second, a Lasso is run regressing the dependent
variable (in our case, the per-minute cost of service) on all the
predictor variables except for the variables of interest. The
researcher then takes all of the predictor variables that were
selected by the two Lasso models and runs a regression of the
dependent variable on that subset of predictor variables and the
variables of interest. This process allows for statistical inference
on the variables of interest.
8. For audio communications, the results of the double selection
Lasso model indicated that--all other things equal--the costs of
providing audio services are approximately 113% greater in jails
than in prisons, and the costs of providing video services were
approximately nine percent greater in jails than in prisons. The
audio result was statistically significant at the 99% confidence
level, whereas the video result was not significant (z-score of
0.31). The lack of statistical significance in the difference
between video costs in jails and prisons may be further evidence
that the 2022 video data is unreliable; for example, it could be the
result of certain providers in the data making significant upfront
capital expenditures in video provision, without yet realizing high
video usage. When audio and video costs were combined, the per-
minute costs of providing audio and video service were approximately
33% higher in jails than in prisons, with the cost difference
between jails and prisons statistically significant at the 90%
level, but not 95% confidence level (z-score of 1.90).
9. Lastly, we test whether providers that pay legally mandated
or contractually prescribed site commissions at their facilities
have significantly lower per-minute expenses than providers who do
not pay site commissions. If our results showed this, it would be
consistent with there being cost shifting between the provider and
the correctional facility (i.e., the facility is receiving a
commission in exchange for covering some costs of IPCS provision).
With respect to audio communications, however, we find that
facilities for which providers pay site commissions--all else
equal--have higher per-minute costs, with the result being
significant at the 99% confidence level. This is not consistent with
cost-shifting between the provider and the incarceration authority
receiving the site commission. Instead, it may reflect how different
providers allocated their costs and site commissions, or something
else. For video communications, we find no statistically significant
difference in costs between facilities that do and do not collect a
site commission. Recognizing the aforementioned issues with our per-
minute video cost data, we also consider the sum of per-minute video
and audio costs. We find no statistically significant difference
between costs in facilities that do and do not pay site commissions.
Altogether, our double-selection Lasso results do not support the
premise that site commissions represent cost-shifting between the
provider and the correctional facility.
Appendix H: Upper Bound Analysis
1. The following appendix explains how staff determined the
upper bounds of our zones of reasonableness for incarcerated
people's communications services (IPCS) per-minute expenses
(hereafter ``upper bound(s)''), using the providers' reported
expenses and billed and unbilled minutes without adjustment. The
data used consist of the database as described in Appendix A. Staff
reviewed providers' data for compliance with the basic parameters of
the Incarcerated People's Communications Services 2023 Mandatory
Data Collection Instructions, WC Docket Nos. 23-62 and 12-375, at
29, https://www.fcc.gov/files/2023-ipcs-mandatory-data-collection-instructions, including a comparison with their financial
statements, and shared that review with providers. In response,
providers revised and resubmitted their data, also providing a
narrative to address these compliance issues. The expenses of the
unadjusted dataset are likely too high. These upper bounds reflect
the allocation methods that providers chose following our
instructions. Providers allocated their reported company-wide
investment and expenses among audio IPCS, video IPCS, safety and
security measures, automated payment services, live agent services,
paper bill/statement services, single-call and related services,
third-party financial transaction services, other ancillary
services, and other products and services. Providers further
allocated audio IPCS, video IPCS, and safety and security
investments and expenses among individual facilities. The providers
chose the basis for allocation, or allocators, as necessary to
allocate their investments and expenses among the above services and
facilities. Staff calculated ten upper bounds--five for audio IPCS
and five for video IPCS, for prisons, large jails, medium-size
jails, small jails, and very small jails. Staff did this to control,
albeit imperfectly, for the effect of facility type and size on
expense per minute. The average per-minute expense for each category
measures the central tendency of the data for similar facilities.
2. The respective upper bounds for audio and video services for
the five facility types are the sum of five per-minute expense
components: (i) audio IPCS or video IPCS; (ii) audio or video IPCS
safety and security measures (hereafter ``safety and security
measures''); (iii) ancillary services; (iv) Telecommunications Relay
Services (TRS) compliance; and (v) correctional facilities'
expenses. We discuss these in turn.
3. Audio and Video Expenses. Audio and video IPCS, safety and
security, and ancillary services expenses per minute are calculated
in the same way as per-minute expenses in the summary statistics
section above. Audio IPCS and video IPCS expenses per minute,
respectively, are calculated by taking the sum of, respectively, the
reported audio IPCS and video IPCS expenses and audio IPCS and video
IPCS billed and unbilled minutes across all providers, and dividing
the expenses by the minutes. Safety and security expenses per
minute, respectively, sum the
[[Page 77409]]
reported safety and security expenses and audio IPCS and video IPCS
billed and unbilled minutes across all providers and divides the
expenses by the minutes. Ancillary services expenses per minute sums
the reported ancillary services expenses and billed and unbilled
audio and video minutes across all providers that reported ancillary
services expenses and divides the expenses by the minutes. The
ancillary services are automated payment services, live agent
services, paper bill/statement services, single-call and related
services, and third-party financial transaction services. Staff
calculated safety and security expenses per minute for all seven
safety and security measure categories combined. The seven safety
and security measures are: (i) the Communications Assistance for Law
Enforcement Act (CALEA), 47 U.S.C. 1001 et seq., 47 CFR 1.20000 et
seq., Compliance Measures; (ii) law enforcement support services;
(iii) communication security services; (iv) communication recording
services; (v) communication monitoring services; (vi) voice
biometrics services; and (vii) other safety and security measures.
This ensures our upper bounds reflect all safety and security
expenses reported by providers without consideration as to whether
they are used and useful in the provision of audio or video IPCS.
4. Ancillary Services. Prior to this Order, ancillary services
were billed separately, but going forward will be recovered under
our caps. To incorporate ancillary service expenses into the upper
bounds, staff divide the sum of ancillary expenses by the sum of
audio and video minutes for providers reporting said expenses and
add this quotient, $0.011, to each of our ten caps. Staff do this
because ancillary service expenses are not reported separately for
audio and video. This also is a reasonable way to allocate these
costs for three reasons: billing and collection services cover both
audio and video IPCS; both sets of charges would generally appear on
the same bill; and it is not obvious billing and collection services
for audio would be more expensive than for video or vice versa.
Indeed, commenters asserted that the costs of ancillary services
were not distinguishable for audio versus video IPCS.
5. TRS Expenses. The 2023 Mandatory Data Collection invited
providers to estimate the incremental expense of complying with the
TRS requirements adopted in the 2022 ICS Order, to the extent those
expenses are not reflected in their data for 2022. Those rules
require that IPCS providers must provide access for incarcerated
people with communications disabilities to all relay services
eligible for TRS Fund support in any correctional facility where
broadband is available and where the average daily population
incarcerated in that jurisdiction totals 50 or more persons. They
also require that where incarcerated people's communication services
providers are required to provide access to all forms of TRS, they
also must allow American Sign Language direct, or point-to-point,
video communication. The Commission clarified and expanded the scope
of the restrictions on incarcerated people's communications service
providers assessing charges for TRS calls, expanded the scope of the
required Annual Reports to reflect the above changes, and modified
TRS user registration requirements to facilitate the use of TRS by
eligible incarcerated persons. One provider, {[REDACTED]{time}
submitted an incremental expense estimate, providing the only data
from which we extrapolated these costs for the industry. The upper-
bound TRS compliance expense per minute component divides
{[REDACTED]{time} . The resulting figure, rounded to $0.002, is used
as an estimate for the industry, as no other provider submitted an
incremental TRS expense estimate. It is added to each of the ten
upper bound calculations.
6. Correctional Facilities' Expenses. The 2023 Mandatory Data
Collection recognized that, in some cases, the authorities that
operate prisons or jails may incur costs attributable to providing
IPCS. Specifically, the 2023 Mandatory Data Collection directed
providers to report any verifiable, reliable, and accurate
information about the costs incurred by facilities that the
providers served in 2022 to offer safety and security measures or
other functions regarding the provision of IPCS. None of the
providers submitted these cost data. Hence, staff develop the
facilities component of the upper bounds by again relying on the
$0.02 expense additive adopted as part of the interim rate caps in
the 2021 ICS Order (86 FR 40682, July 28, 2021). Staff add this
amount to each upper bound rate cap tier for both audio and video
IPCS. Including this amount likely overstates facilities' IPCS
costs.
7. Table 22 shows the upper bound industry average components
for prisons and the four jail sizes, depicting audio and video IPCS
and IPCS safety and security, excepting the ancillary services, TRS,
and facility components, and the sum of these components plus $0.011
for ancillary services, $0.002 for TRS, and $0.02 for facility
expenses. Columns (1A) and (2A) summarize the industry average
components of the upper bounds of our zones of reasonableness for
audio IPCS and safety and security expenses, separately for each
rate tier. Staff adds a flat per-minute allowance for ancillary
services ($0.011), TRS ($0.002), and facility expenses ($0.02) to
calculate the upper bounds for audio IPCS rate caps in the third
column.
[[Page 77410]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.037
8. Columns (1B) and (2B) show the industry average components of
the upper bounds of our zones of reasonableness for video IPCS and
safety and security expenses. Staff adds a flat per-minute allowance
for ancillary services ($0.011), TRS ($0.002), and facility expenses
($0.02) to calculate the upper bounds for video IPCS rate caps in
the final column of Table 1.
9. The upper bound results for audio IPCS and video IPCS are
driven by the two largest providers, {[REDACTED]{time} which supply
a majority of IPCS minutes. As a result, {[REDACTED]{time} ,
discussed in the summary statistics above, likely distort our video
upper bounds. Tables 2 and 3 present the upper bound results, for
audio and video respectively, for each individual provider to permit
comparisons across and between providers' per-minute expenses and
the industry average per-minute expense. The fixed add-ons for
ancillary services, TRS, and facility expenses are excluded.
10. Table 23 suggests that the upper bounds for audio IPCS rate
caps do not disadvantage smaller providers that appear to operate
efficiently in their provision of audio IPCS compared to the
industry average. Setting an audio IPCS zone of reasonableness upper
bounds at the industry average implies four carriers,
{[REDACTED]{time} , have average per-minute expenses that are either
less than the upper bounds or within five percent of them for all
facility types. This is also true for {[REDACTED]{time} . That
leaves five providers with average per-minute expenses that are more
than five percent above the cap for a majority, but not always for
all of the facility types: {[REDACTED]{time} . While, to some
degree, these results support the view that larger providers have
lower unit costs, {[REDACTED]{time} are small providers who report
costs largely or entirely under, or close to, the upper bounds. In
fact, for small and very small jails, {[REDACTED]{time} . Thus,
though {[REDACTED]{time} appear to benefit from scale economies,
there is no clear indication that the rest of the industry is
systematically disadvantaged in its ability to provide audio IPCS at
rates below our upper bounds. That being said, efficient costs are
the least costs of provision, and there is no onus on the Commission
to set rate caps that support inefficient business models, even if a
provider is inefficient due to its scale.
BILLING CODE 6712-01-P
[[Page 77411]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.038
11. Table 24 shows that using the industry average to determine
the five upper bounds for video IPCS expenses leaves only
{[REDACTED]{time} with per-minute expenses that exceed the industry
average by more than five percent for a majority of facility types.
However, this result is largely driven by one provider.
{[REDACTED]{time} per-minute expenses substantially raise the
average, ranging from nearly twice to more than seven times as high
as the next highest provider. It is also not clear that reported
per-minute video expenses represent long run expenses, because video
calling is a nascent market. Thus, providers may still be making
large expenditures to improve their platforms, while supply may be
constrained and demand is still growing. These effects would
overstate per-minute video expenses relative to a future steady
state, as current expenses are higher than those in a future steady
state, while demand is lower.
[[Page 77412]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.039
{[REDACTED]{time}
BILLING CODE 6712-01-C
Appendix I: Lower Bound Analysis
1. The following appendix explains how staff estimated the lower
bounds of our zones of reasonableness for incarcerated people's
communications services (IPCS) per-minute expenses (hereafter
``lower bounds''). The first section explains a range of adjustments
made to the upper bounds, to produce our lower bounds, while the
second section brings these together, producing ten lower bounds,
being the five for each facility type for both audio and video. The
final section uses three independent sources to validate our lower
bounds.
A. Lower Bound Analysis and Adjustments
2. This section develops the lower bounds for audio and video
IPCS per-minute rate caps for each rate cap tier by making the
following adjustments to the upper bounds: bringing the WACCs
reported by {[REDACTED]{time} down to 9.75%; removing the
allowances for expenses incurred by correctional facilities;
removing categories of safety and security expenses that are not
generally used and useful in the provision of IPCS; adjusting the
ancillary service expenses to reflect the WACC changes; and
adjusting for anomalies in {[REDACTED]{time} The section also
explains our concerns with providers' reports of goodwill, but that
we decline to make goodwill adjustments due to a lack of data. While
at least one commenter has argued that the lower bounds are
``unreasonably low,'' we disagree. As set out herein, we reach those
bounds based on a reasonable, logical analysis of the collected
data. In making these adjustments, staff rely on the providers' data
reports, financials, and Word templates.
1. WACC Analysis and Adjustments
3. The weighted average cost of capital, or WACC, is the sum of
a company's cost of equity, cost of preferred stock, and cost of
debt, each expressed as an annual percentage rate and weighted by
its proportion in the capital structure. It represents the average
rate-of-return that debt, preferred stock, and equity investors
require to provide a company with the capital it uses to finance its
assets and operations. Mathematically, WACC = [(Equity/(Debt +
Equity + Preferred Stock)) * Cost of Equity] + [(Debt/(Debt + Equity
+ Preferred Stock)) * Cost of Debt] + [(Preferred Stock/(Debt +
Equity + Preferred Stock)) * Cost of Preferred Stock]. Staff
programmed the Excel template to multiply the WACC by net capital
stock to determine the return component of the provider's annual
total expenses. Net capital stock means gross investment in assets,
net of accumulated depreciation and amortization, accumulated
deferred federal and state income taxes, and customer prepayments or
deposits, plus an allowance for cash working capital. Annual total
expenses is the sum of annual operating expenses and annual capital
expenses. Return is the allowance for
[[Page 77413]]
recovery of the cost of capital and is therefore a component of
capital expenses.
4. The instructions directed providers to use either a default
WACC of 9.75% or an alternative WACC. {[REDACTED]{time} . All other
providers used the default WACC. If the provider claimed a WACC
greater than 9.75%, the instructions for the 2023 Mandatory Data
Collection required the provider to fully document, explain, and
justify how it developed that alternative WACC. Specifically, the
instructions required that the provider ``fully document . . . by
submitting data, formulas, cost of equity analyses[,] . . .
calculations, and worksheets, and explain and justify the
development of'' its claimed cost of capital, as well as its claimed
cost of debt, its claimed cost of equity, and the other components
of its claimed capital structure. The instructions warned providers
that a failure to do so may result in reversion to the default WACC.
We note that, despite an opportunity for comment, neither Securus
nor ViaPath (nor any other party) objected to the use of 9.75% as
the default WACC during the pleading cycle leading to its adoption.
5. The default 9.75% WACC is equal to the Commission's currently
authorized rate of return for local exchange carrier services
subject to rate of return on rate base regulation. The Commission
adopted this rate of return as part of a formal rulemaking
proceeding and it reflects rigorous analyses of the costs of debt
and equity, capital structure, and the WACC, as the authorized rate
of return is designed to compensate these carriers for their cost of
capital. The Commission's determination was informed by comments,
data and other information entered into the record by interested
parties and the analyses reflected in this prescription underwent
peer review.
6. While we accept the claimed WACC of both Securus and ViaPath
to establish the upper bounds, we decline to do so for the purpose
of establishing the lower bounds. As explained below, neither
Securus nor ViaPath sufficiently justifies its claimed WACC. Given
this lack of justification and the limited information otherwise
available to the Commission to develop its own estimate, we also
decline to develop an alternative WACC for either of these two
providers. Estimates of the true WACC can vary over a wide range
under different sets of reasonable assumptions. A firm's cost of
equity, in particular, must be estimated because it reflects both
current and future investors' constantly changing expectations of
that firm's future profits. Cost of equity estimates are necessarily
developed from imperfect models such as the Capital Asset Pricing
Model or Discounted Cash Flow Model. Where a firm does not issue
publicly traded stock, as is the case for Securus and ViaPath, one
must apply these (or other) models to a sufficiently comparable
proxy group of firms that issue publicly traded stock. Identifying a
proxy group of comparable and publicly traded firms can be a
difficult and imprecise exercise and using different proxies can
produce significantly different estimates. Consequently, cost of
equity estimates developed from models and using proxy groups are
often susceptible to large errors and the cost of equity is often
impossible to measure precisely. Given this, if the Commission were
to attempt to estimate Securus's or ViaPath's costs of capital, the
estimates would come with wide error ranges that would encompass the
9.75% default. We therefore find that adopting our default WACC
provides a reasonable lower bound assumption.
7. Cost of Debt. Of the three estimates needed to estimate the
WACC (i.e., cost of debt, cost of equity, and capital structure
estimates), the cost of debt estimate typically is the least
complicated. Yet, both Securus and ViaPath make mistakes in how they
estimate their costs of debt.
8. {[REDACTED]{time} .
9. {[REDACTED]{time} .
10. Capital Structure. Capital structure refers to the shares of
equity, preferred stock, and debt capital that a firm uses to
finance its operations and assets. Each capital structure component
is equal to: value of a capital component/(value of debt + value of
preferred stock + value of equity). Each share is used to weight its
respective capital cost to estimate the weighted average cost of
capital. Financial theory requires use of market value weights to
estimate the WACC. Financial theory also specifies that a firm's
target capital structure should be used to estimate the WACC.
Regulators, including the Commission, typically use book value
weights to estimate the WACC, though under the Commission's
represcription rules, market value weights can be used if use of
book value weights would produce unreasonable results. Under the
Commission's rules for represcribing the authorized rate of return
for local exchange carriers regulated on a rate-of-return basis, the
results of book value capital structure calculations are to be used
unless their use would be unreasonable. In fact, the Commission's
current authorized rate of return for local exchange carriers
regulated on a rate-of-return basis, 9.75%, reflects the use of
market value weights.
11. {[REDACTED]{time} .
12. {[REDACTED]{time} .
13. {[REDACTED]{time} .
Table 1: {[REDACTED]{time}
14. {[REDACTED]{time} .
15. {[REDACTED]{time} .
16. {[REDACTED]{time} .
17. {[REDACTED]{time} .
18. {[REDACTED]{time} .
19. {[REDACTED]{time} .
20. {[REDACTED]{time} .
21. {[REDACTED]{time} .
22. {[REDACTED]{time} .
23. {[REDACTED]{time} .
24. {[REDACTED]{time} . Total beta is equal to the standard
deviation of a security's expected returns divided by the market's
expected return. Alternatively, total beta equals the CAPM beta
estimate divided by the square root of the coefficient of
determination for the regression equation used to estimate beta.
{[REDACTED]{time}
25. The use of total beta to develop cost of equity estimates
for a private business is not broadly accepted. For example, Pratt
and Grabowski argue: ``This interpretation of beta as the risk
measure in estimating total returns is based on the premise that
most owners of private businesses are completely undiversified and,
therefore, the cost of equity capital of the private business should
include that extra amount due to the owner being undiversified. This
leads to the unreasonable position that there are at least two costs
of capital for a business--the cost of capital for investors who are
the pool of likely buyers who are likely to be diversified (for whom
in theory only market or beta risk matters) and the cost of equity
capital to the current owner who is completely undiversified (for
whom both market risk and unsystematic risk matter).''
26. Moreover, Securus is not an undiversified investor. Securus
is a subsidiary of Aventiv Technologies, which in turn is owned by
the private equity firm Platinum Equity. On its website, Platinum
Equity explains that it has been in business for more than 28 years,
made more than 450 acquisitions, and manages over $48 billion in
assets. It further explains that it ``generate[s] returns by
investing in companies across a wide range of industries that need
financial and operational support.'' Securus cannot credibly argue
that its owner, Platinum Equity (or Platinum Equity's investors
collectively), is an undiversified owner, and it therefore fails to
justify its company specific risk premium adjustment.
27. {[REDACTED]{time} .
28. {[REDACTED]{time} .
29. {[REDACTED]{time} .
30. {[REDACTED]{time} .
31. {[REDACTED]{time} .
32. {[REDACTED]{time} .
33. {[REDACTED]{time} . While CAPM is widely used among
practitioners and is featured prominently in most finance textbooks,
CAPM is not perfect, as no model can be. For this reason, in
addition to reasons we set out above, we are reluctant to rely on
the results of a single model, adjusted or not. When the Commission
last prescribed the rate of return for local exchange carriers, for
example, it relied on CAPM and the Discounted Cash Flow Model,
recognizing that neither model is perfect. That would have been our
preferred approach here as well. However, we do not have access to
data that would allow us to develop a Discounted Cash Flow Model for
either provider.
34. In summary, a substantial range of Securus's and ViaPath's
assumptions in developing their WACCs are not fully documented and/
or appear inappropriate. Consequently, we cannot rely on their
estimates. Given there is insufficient evidence in the record to
allow the Commission to develop robust estimates of our own, we
revert to our default WACC of 9.75%.
35. WACC Adjustment Mechanics. Staff replace Securus's and
ViaPath's claimed WACC figures with the default WACC of 9.75% on
their Excel templates to adjust their reported annual total
expenses. Staff also replace the tax-deductible interest expense
{[REDACTED]{time} Section 163(j) limits the interest expense
deduction to the sum of (i) the taxpayer's business interest income;
(ii) 30% of the taxpayer's adjusted taxable income; and (iii) the
taxpayer's floor plan financing interest expense for the taxable
year. Business interest income is not a cost
[[Page 77414]]
of providing IPCS and is not reported on the Excel template or
relevant to the development of rate caps. Under section 163(j),
floor plan financing interest expense is interest on debt used to
finance the acquisition of motor vehicles held for sale or lease
where the debt is secured by the acquired inventory. Floor plan
financing interest expense is not reported separately on the Excel
template and neither {[REDACTED]{time} nor any other IPCS provider
is likely to incur this type of expense. Staff add this formula even
though {[REDACTED]{time} approach likely understates tax-deductible
interest expense, leading to a larger income tax allowance and
larger annual total expenses than otherwise. Under section 163(j),
adjusted taxable income aligns with earnings before (subtracting)
interest expense and taxes. Return on the Excel template is
generally a smaller number than adjusted taxable income under
section 163(j) because return is equivalent to earnings after
interest expense and taxes with the interest expense added back to
this calculation of earnings. The portion of return subject to taxes
must be ``grossed up'' by dividing it by one minus the tax rate, and
then added to the portion of the return that is not subject to taxes
to calculate the pre-tax return (including interest expense).
{[REDACTED]{time} . Lastly, staff reduce the safety and security
expenses these providers report at the facility level by the same
percentage as these expenses are reduced by at the company-wide
level as a result of the WACC and tax-deductible interest expense
adjustments. Securus argues against this adjustment by noting that
by reducing Securus's and ViaPath's costs of capital, ``the draft
cut {[REDACTED]{time} for [sic] the industries' total safety and
security expenses.'' We find this effect is a natural consequence of
the adjustment, given the fact that capital expenses constitute a
significant portion of safety and security measure costs, and do not
find this a compelling reason to avoid making said adjustment.
36. We reject the argument that the Commission's default 9.75%
WACC ``bears no resemblance to rate of return for companies like
Securus that are primarily technology and IT service providers.'' We
recognize that IPCS is a communication service, yet not necessarily
the same as local exchange carrier service. This distinction is why
the 2023 Mandatory Data Collection instructions directed providers
to use either the default WACC of 9.75% or an alternative WACC, with
providers bearing the burden to fully document, explain, and justify
how they developed any alternative WACC. While the Commission's
9.75% rate-of-return prescription dates back to 2016, that
prescription was conservative. The Commission found that an overall
range for reasonable WACC estimates for rate-of-return-regulated
local exchange carriers is 7.12% to 9.01%, based on WACC estimates
derived from CAPM and a discounted cash flow model. It expanded the
upper end of the rate of return zone of reasonableness beyond these
WACC estimates based on policy considerations and adopted the rate
of return from the upper end of this zone. Specifically, the
Commission expanded the zone of reasonableness to provide an
additional cushion for rate-of-return incumbent LECs that may have
relatively high costs of capital. It also added a cushion to account
for regulatory lag between recognition of the need to prescribe a
different rate of return, as capital markets change significantly
over time, and actually prescribing a new rate of return. It
therefore added about three-quarters of a percentage point to the
top of the WACC range developed from the cost of equity models,
expanding the overall zone of reasonableness for rate of return
estimates to 7.12% to 9.75%, and then prescribed a 9.75% rate of
return. Neither Securus nor any other party objected to the use of
9.75% as the default WACC during the pleading cycle leading to its
adoption.
37. As discussed elsewhere, Securus relies on a number of
aggressive and insufficiently justified assumptions to develop its
WACC estimate. For example, CAPM assumes that investors are able to
diversify away exposure to non-systematic risk such as company-
specific risk. Securus, however, adds a company-specific risk
premium {[REDACTED]{time} to its CAPM cost of equity estimate, even
though its owner, Platinum Equity (or Platinum Equity's investors
collectively), is able to diversify away exposure to non-systematic
risk such as company-specific risk. For these and the other reasons
discussed, we therefore find it reasonable to use the default WACC
for Securus to develop lower bounds for our rate caps.
2. Aggressive Assumptions on Facilities Additive
38. Expenses Incurred by Correctional Facilities. To the extent
correctional facilities bear some IPCS expenses and recover these
through site commissions, our rate caps should allow for the
reimbursement of the legitimately recoverable expenses facilities
incur. In our upper bound analysis, relying on record claims, we add
$0.02 for such expenses. We do not make this addition in our lower
bound analysis because our dataset provides no evidence that site
commissions lower providers' expenses.
39. If site commissions were in some instances associated with
facilities bearing some of the expenses of IPCS provision, then we
would expect to see that providers' expenses in facilities where
site commissions are paid would, on average, be lower than in
facilities where they are not. In fact, the presence of site
commissions tends to raise, rather than lower, providers' audio and
video IPCS and safety and security expenses--see Table 2. For four
of the five facility types, the average expenses per minute rise by
between $0.021 and $0.012 per minute, only declining by $0.006 for
small jails. We therefore disagree with those commenters that urge
the Commission to include a $0.02 additive to account for facility
costs in the lower bounds. Commenters have not provided sufficient
data on either the costs or type of facility costs to contradict the
analysis we perform here. Nor have they provided any data or other
information that might independently justify a $0.02 additive, or
indeed any other additive, to the lower bounds.
[[Page 77415]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.040
40. To the extent that a correctional facility incurs IPCS
expenses (e.g., a broadband connection or safety and security
measure), its corresponding provider would face fewer expenses than
otherwise. Further, one would expect this to be reflected in higher
site commission payments, holding other things constant. However,
the payment of site commissions is not associated with a reduction
of providers' audio and video IPCS and safety and security expenses.
Providers' mean per billed and unbilled minute IPCS expenses at
facilities with no site commissions is $0.070, which is less than
the $0.085 IPCS per-minute expenses where site commissions are paid.
This difference is not statistically significant: there is an
approximately 50% chance of the observed difference randomly
occurring if the means were in fact identical. Based on a linear
regression of expenses per minute on an indicator variable for when
site commissions are zero versus when site commissions are greater
than zero, the p-value for the coefficient of the indicator variable
is 0.488. (The regression model is of the form: Expense Per Minute =
A + B * Site Commission Dummy (0,1)). In contrast, the conventional
default for statistical significance requires a p-value of less than
0.05, that is, less than a one in twenty chance that the observed
difference occurred by chance. Finally, the results of our Lasso
analysis are also consistent with the conclusion that provider
expenses are not offset by the payment of site commissions to the
correctional facilities they serve. In fact, the Lasso model finds
that facilities at which site commissions are paid have higher per-
minute expenses than facilities at which site commissions are not
paid.
3. Lower Bound TRS Additive
41. We add to the lower bounds of our zones of reasonableness
the same per-minute estimate of TRS expenses, $0.002, that we added
to the upper bound zones. This estimate, as explained above in the
upper bound analysis, is derived from {[REDACTED]{time} study of
the incremental expense of TRS compliance. {[REDACTED]{time} study
reasonably adheres to our instructions for developing the
incremental expense of TRS compliance. At the same time, no other
provider submitted an estimate of these expenses. As there is
nothing in the record to support a lower estimate, we use the same
estimate for both the upper and the lower bounds of our zones of
reasonableness.
4. Goodwill Analysis
42. Four providers report goodwill as an investment, and this
section discusses these investments and their implication for the
development of rate caps. In particular, we find that we lack the
necessary information to determine the appropriate amount of
goodwill assigned to regulated services and whether the resulting
amount should be reflected in the development of our rate caps. We
conclude that the best way forward is to accept goodwill as reported
in the development of our upper and lower bounds, but to take
account of this uncertainty in choosing how we set our rate caps
within those bounds.
43. The section begins by defining goodwill. Next, it provides
information on each of the four providers' reported goodwill,
including a description of the relative importance of goodwill as
reflected in their overall investment and expenses. It then
discusses regulatory approaches to goodwill and describes our
concerns with these providers' reported goodwill. Finally, it
explains our approach to goodwill in this proceeding.
44. Goodwill is a balance sheet item that is recorded when one
company acquires another company, being the difference between the
purchase price and the sum of the fair value of the assets acquired,
net of the sum of the fair value of the liabilities assumed.
Goodwill recognizes that the present value of the expected future
return of the going concern is greater than what would be necessary
to compensate the original owners for the value of their assets net
of their debts. Like other long-lived assets measured at carrying
value on a company's financial statements, goodwill is impaired if
the carrying value is not recoverable. The goodwill impairment test
is a test of whether the aggregate carrying value of the assets of a
business including the value of the goodwill is recoverable.
Goodwill impairment testing assesses whether a business acquisition
is successful and holds management accountable for the acquisition.
For example, if after an acquisition the hoped for synergies fail to
materialize, then this should be recognized through impairment
testing. If the impairment testing so indicates, the carrying value
of the goodwill is written down or reduced on the balance sheet, and
the amount of the reduction is recorded as a loss on the income
statement.
45. Four IPCS providers, {[REDACTED]{time} , report goodwill on
the Excel template. Providers were required to report goodwill gross
investment, accumulated amortization, net investment, and
amortization expense on rows 36, 37, 38, and 55 on the C1-C2.
Company-Wide Information worksheet and on rows 47, 48, 49, and 66 on
the D1. Facility Audio IPCS Costs and D1. Facility Video IPCS Costs
worksheets, respectively. The goodwill data reported on the Company-
Wide Information worksheet are used for the analysis in this
section. Table 3 below shows the dollar amount of each provider's
reported goodwill net investment (or more simply goodwill) and the
percentage of the accounting entity total each provider reported for
regulated services and nonregulated services. For purposes of our
discussion of goodwill, regulated services are audio IPCS, video
IPCS, safety and security measures, automated payment services, live
agent services, paper bill/statement services, single-call and
related services, and third-party financial transaction services.
Nonregulated services are other ancillary services and other
products and services. These four providers attribute 100% of their
safety and security investments and expenses to audio IPCS and video
IPCS and thus none to ancillary services or other products and
services on the C3. Safety & Security Measures worksheet.
[[Page 77416]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.041
46. These four providers collectively report goodwill of
approximately $1.2 billion for regulated services, about 94% of the
accounting entity total, as compared to approximately $79 million
for nonregulated services, about six percent of that total.
47. A provider's reported annual total expenses increase as the
amount of reported goodwill increases. Goodwill reported on the
Excel template is a component of net capital stock. The Excel
template multiplies each provider's net capital stock by its claimed
WACC or the default WACC of 9.75% to calculate return. The Excel
template also calculates the federal and state income taxes on this
return, net of tax-deductible interest expense, using the provider's
reported federal and state tax income tax rates. The return and
income taxes are components of annual total expenses, and these
expenses are reflected in our rate cap calculations. A private firm
under GAAP may elect to amortize goodwill on a straight-line basis
over a period of 10 years or less. {[REDACTED]{time} .
48. Net investment is the building block for net capital stock.
Net capital stock equals net investment in assets minus accumulated
deferred federal income taxes, minus accumulated deferred state
income taxes, minus customer prepayments or deposits, plus cash
working capital. Net capital stock is not developed on the Excel
template for nonregulated services. To get a sense of the relative
magnitude of each of these providers' reported goodwill, Table 4
below shows their reported goodwill net investment, total net
investment including goodwill, and goodwill's share of total net
investment separately for regulated and nonregulated services. Total
net investment includes net investment in tangible assets,
capitalized research and development, purchased software, internally
developed software, trademarks, other identifiable intangible
assets, and goodwill. It excludes capitalized site commissions.
49. The four providers collectively report total net investment
of {[REDACTED]{time} for regulated services, and of this total
goodwill accounts for about {[REDACTED]{time} . Thus, for these four
providers, goodwill accounts for over half the return and related
income tax allowances that are reflected in our rate caps for the
industry. In contrast, the four providers collectively report total
net investment of approximately {[REDACTED]{time} for nonregulated
services, and of this total, goodwill accounts for only about
{[REDACTED]{time} . There is no ``net capital stock'' for these
nonregulated services upon which a return is ``allowed'' to be
earned or reflected in rate caps.
[[Page 77417]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.042
50. Table 29 shows the impact of removing goodwill on each
provider's annual total expenses. Annual total expenses are the sum
of reported capital expenses, including a return on net capital
stock, and operating expenses and is the key component to the upper
and lower bounds of our zones of reasonableness. Removing goodwill
from each provider's reported annual total expenses reduces the four
providers' expenses collectively by approximately $141 million, or
about 15%. Staff assume a 9.75% return on net capital stock to
determine this impact. For {[REDACTED]{time} , the reduction to
annual total expenses reflects removal of the remaining unamortized
value of capitalized goodwill from net capital stock and removal of
amortization expense.
[GRAPHIC] [TIFF OMITTED] TR20SE24.043
51. Regulators often exclude goodwill from the base on which a
return is allowed, absent a showing by the regulated firm that its
rate payers stand to benefit from the sale that gives rise to the
goodwill. Otherwise, a firm that is sold for more than the original
cost, fair value, or other regulator-specified valuation of its
assets would be able to earn a return that exceeds what that same
firm was entitled to earn immediately prior to the sale for no
reason other than the exchange of ownership for money. Methods of
asset valuation imposed on regulated firms vary among regulators.
The 2023 Mandatory Data Collection simply requires that IPCS
providers report values for the components of net capital stock
consistent with GAAP. The burden typically is on the acquiring firm
to
[[Page 77418]]
demonstrate to the satisfaction of the regulator that the
acquisition will, for example, create efficiencies that lower the
firm's operating expenses or lead to superior service quality or
more innovative services, and thus benefit rate payers. Otherwise,
the regulator may exclude the goodwill arising from the acquisition
from the base upon which the regulator allows a return to be earned.
52. For the reasons stated above, regulators are skeptical of
allowing goodwill to be included in net capital stock. While these
four firms assign large dollar amounts of goodwill to regulated
services relative to nonregulated services, they do not explain the
basis for these assignments. We looked for justification of these
providers' goodwill claims in their financial statements and in
their Word templates. What we found only further increased our
skepticism. For example, {[REDACTED]{time} .
53. We are also skeptical of {[REDACTED]{time} reported
goodwill. {[REDACTED]{time} . Finally, we have no information that
would allow us to determine whether the four providers' reported
goodwill reflects value to the incarcerated persons that the prior
owner was unable to deliver. Absent a demonstration of that value,
goodwill typically would not be allowed to earn a return or
recovered as an expense.
54. In summary, the four providers that report goodwill have not
justified the amount of their claimed goodwill, nor the assignments
they make to regulated and nonregulated services. A proper
assignment of goodwill to regulated services and nonregulated
services would reflect a comparison between the fair values of these
services to the fair value of their assets, net of liabilities.
Among other complexities, determining the fair value of these
services would require an estimate of the present worth of their
future cash flows. Staff lack the type of detailed and comprehensive
financial information and the insight into the operations of these
services that would be needed to develop our own present worth
estimates and thus have no accurate and feasible way to re-assign or
make targeted disallowances to the goodwill these providers' report
on their Excel templates. Further, we lack sufficient information to
estimate the goodwill recorded on the balance sheet at time of the
acquisition, to conduct impairment tests, or to determine the source
of the goodwill, and hence to determine whether it should be allowed
to earn a return or recovered as an expense. We therefore make no
reassignment of or disallowance to the providers' claimed goodwill.
Instead, we consider the possibility of misassignment or
overstatement of goodwill when choosing rate caps from within our
zones of reasonableness.
5. Safety and Security Expenses
55. Safety and security expenses as reported in the data
collection are divided into seven categories: the Communications
Assistance for Law Enforcement Act (CALEA) compliance measures and
communication security services, law enforcement support,
communication recording services, communication monitoring services,
voice biometric services, and other safety and security measures. Of
the providers included in our dataset, 11 providers reported expense
data and additional information regarding their delivery of safety
and security measures. Of those 11 providers, all reported offering
some mix of safety and security measures and allocated their
expenses by category. Table 6 shows these expenses by category and
facility type, after the WACC and tax-deductible interest expense
adjustments.
BILLING CODE 6712-01-P
[[Page 77419]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.044
[[Page 77420]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.045
BILLING CODE 6712-01-C
56. Because these expenses were exclusively reported at the
level of these seven categories and each category contains more than
one safety and security measure, it is not possible to isolate the
expenses incurred to provide each individual safety and security
measure within each category, much less the portion of the expenses
within each category that are used and useful in the provision of
IPCS. The instructions for the 2023 Mandatory Data Collection
required providers to allocate safety and security expenses among
the seven categories at the facility level, and gave providers the
option to further allocate these expenses among individual services
within each category, notwithstanding NCIC's claim to the contrary.
Providers, including NCIC, declined to allocate costs among
individual services, precluding the Commission from identifying
those expenses on a more granular basis. While our upper bounds
include all expenses reported for each of the seven categories, the
lower bounds include only the expenses reported for the two of these
categories that consist of safety and security measures that we find
are generally used and useful in the provision of IPCS: CALEA
compliance measures and communication security services. Providers'
narrative responses also indicate that the suite of safety and
security measures they provide are often offered as a default
package at the time of contract, however some providers also offer
optional add-on services. The fact that these services are optional
belies the claim that they are necessary for the provision of IPCS.
For example, {[REDACTED]{time} . Together, CALEA compliance measures
and communication security services capture 34.1% of reported audio
and 36.9% of reported video safety and security measure expenses
after the WACC and tax-deductible interest expense adjustments.
57. Table 7 compares per-minute audio and video IPCS safety and
security expenses after the WACC and tax-deductible interest expense
adjustments, with and without the category adjustment. Across the
industry, the adjustment for the lower bounds decreases audio safety
and security expenses by $0.028 per billed audio minute and video
safety and security expenses by $0.054 per billed video minute. The
percent decrease from the unadjusted to adjusted total is similar
across all facility types within audio and video.
[[Page 77421]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.046
6. Ancillary Services Cost Analysis
58. Ancillary services are billing and collection services for
both audio and video IPCS, and consequently are not reported
separately. The reported expenses for these services are included in
the upper bounds of our zones of reasonableness for audio and video
IPCS by dividing them by the sum of audio and video minutes and
adding this quotient to the separate audio and video caps. This
upper bound adjustment adds a flat per-minute allowance, $0.011, for
ancillary services, for all five size-type facilities. This is
computed as industry ancillary services expenses, $125.2 million,
divided by the sum of the audio and video IPCS minutes of the
providers that reported ancillary services expenses, 11,585.9
million (a smaller number than the industry total number of
minutes).
59. The lower bounds reflect reductions in ancillary services
expenses for {[REDACTED]{time} due to restatements (lowering) of
their WACCs, with an accompanying adjustment to {[REDACTED]{time}
reported tax-deductible interest expense. The result is an industry
ancillary service expense of $0.010 per minute. Industry ancillary
services expense for the five services, $125.2 million, is reduced
by WACC and interest expense adjustments for {[REDACTED]{time} . The
minutes for providers who report these expenses are 11,585.9
million. Like the $0.011 ancillary expense added to the upper
bounds, this lower figure is added to the lower bounds as a flat
per-minute allowance for all five size-type facilities.
7. Video Expense Adjustment(s)
60. {[REDACTED]{time} Video IPCS Adjustment. {[REDACTED]{time}
reports extremely high costs for the provision of video IPCS. Their
video IPCS per-minute expenses are a substantial outlier vis-a-vis
their closest competitors and the industry as a whole, and their
resulting reported per-minute video IPCS expenses significantly skew
the industry average. They are three times higher than the industry
average and about {[REDACTED]{time} . Staff did not adjust
{[REDACTED]{time} per-minute expenses in establishing the upper
bounds of our zones of reasonableness but find it appropriate to
adjust these expenses in establishing the lower bounds. While staff
cannot fully determine why {[REDACTED]{time} reported expenses are
so different to everyone else's, they are not indicative of
efficient operations. For example, it is likely {[REDACTED]{time}
future demand will rise to at least proportionately match that of
{[REDACTED]{time} , and that may result in spreading
{[REDACTED]{time} capital expenditures over significantly more
video minutes.
61. Staff make a conservative adjustment to {[REDACTED]{time}
video IPCS expenses to align them more closely with the rest of the
industry by recalculating their expenses based on the industry
average costs per minute. More specifically, we calculate the
weighted average video IPCS cost per minute of all providers,
excluding {[REDACTED]{time} . This estimate is multiplied by
{[REDACTED]{time} total billed and unbilled video IPCS minutes to
estimate {[REDACTED]{time} video expenses as if they were
equivalent to the rest of the industry. {[REDACTED]{time} adjusted
expenses are then divided by their original expenses and subtracted
from one to calculate the percent reduction to {[REDACTED]{time}
video expenses. With an industry cost per minute for video IPCS of
0.076 when {[REDACTED]{time} is excluded, the reduction to
{[REDACTED]{time} expenses is 78.5%. We apply this reduction to
video IPCS expenses separately to each of {[REDACTED]{time}
facility tiers and divide by total minutes for each tier to arrive
at per-minute estimates. This approach is conservative as a more
appropriate adjustment of {[REDACTED]{time} video expenses would
weigh more heavily towards {[REDACTED]{time} video expenses, given
their comparable sizes and market positions. Such a reduction would
bring {[REDACTED]{time} video per-minute costs even lower, as
{[REDACTED]{time} is a relatively low-cost provider of video IPCS.
62. Table 8 shows the unadjusted and adjusted video IPCS
expenses for {[REDACTED]{time} as well as the industry average,
which includes {[REDACTED]{time} , for each facility type. The
adjusted video IPCS expense per minute for {[REDACTED]{time} across
all facilities does not equal that of the industry average because
the reduction applied to the video expenses for {[REDACTED]{time}
is calculated using all observations while the industry average
expense per minute estimates presented in Tbl. 8 must exclude
facilities that do not report ADP so that facilities can be grouped
by tier. All other adjustments made to the
[[Page 77422]]
lower bounds are applied to both scenarios presented in the table.
When compared to the industry average, which includes
{[REDACTED]{time} , {[REDACTED]{time} cost per minute across each
facility type is roughly three or more times higher, with the
exception of small jails, which are still twice that of the industry
average. Once the adjustment is made to {[REDACTED]{time} video
IPCS expenses, {[REDACTED]{time} video cost per minute for each
facility type is much more comparable to the industry average for
each corresponding facility type. However, when including safety and
security we find that {[REDACTED]{time} total IPCS video expenses
are still substantially above the industry average, both overall and
for each corresponding facility type. Despite what is likely a
similar overinvestment in video safety and security relative to
competitors, we do not adjust {[REDACTED]{time} safety and security
expenses for video IPCS provision.
BILLING CODE 6712-01-P
[GRAPHIC] [TIFF OMITTED] TR20SE24.047
63. {[REDACTED]{time} Tablet Deployment. We examine
{[REDACTED]{time} deployment of tablets relative to its competitors
to determine whether {[REDACTED]{time} has over-invested in
tablets, and whether tablet deployment costs have an outsized impact
on {[REDACTED]{time} video IPCS expenses. Table 9 shows tablet
deployment per ADP across providers and facility tiers.
{[REDACTED]{time} deployed the most tablets per ADP for each jail
tier, and has the same per-ADP deployment as {[REDACTED]{time} in
prisons.
[[Page 77423]]
For medium jails, {[REDACTED]{time} tablets exceed the incarcerated
person population by 21%. In total, as seen further down in Table 10
below, {[REDACTED]{time} has deployed nearly twice as many tablets
as {[REDACTED]{time} .
[GRAPHIC] [TIFF OMITTED] TR20SE24.048
[[Page 77424]]
64. {[REDACTED]{time} reports a $400 million gross investment
in tablets. {[REDACTED]{time} tablet deployment should be reflected
in higher investment in tangible assets in the 2023 Mandatory Data
Collection data. Table 10 shows industry net tangible asset
attribution between regulated and nonregulated business segments.
While {[REDACTED]{time} has a significant investment in net
tangible assets, possibly due to its investment in tablets, it
attributes the lowest percentage of net tangible assets to regulated
services among all providers {[REDACTED]{time} . As such, despite
{[REDACTED]{time} tablet deployment being out of line with
{[REDACTED]{time} and the rest of the industry, the large majority
of {[REDACTED]{time} tangible asset net investment is not reflected
in its net capital stock for regulated IPCS services. As such, we
refrain from making any adjustments with respect to
{[REDACTED]{time} video investments or expenses on the basis of
tablet deployment.
[[Page 77425]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.049
[[Page 77426]]
B. Audio and Video IPCS Lower Bounds
65. Incorporating the adjustments discussed above, staff have
calculated ten lower bounds--five for audio IPCS and five for video
IPCS, in each case for prisons, large jails, medium-size jails,
small jails, and very small jails. As with the upper bounds, our
rate-setting approach controls for the effect of facility type and
size on expense per minute.
66. The respective lower bounds for audio and video services for
the five facility types are the sum of four per-minute expense
components: (i) audio IPCS or video IPCS; (ii) audio or video IPCS
safety and security measures; (iii) ancillary services; and (iv) the
TRS additive.
67. Table 11 summarizes the industry average components of the
lower bounds of our zones of reasonableness for audio and video IPCS
expenses, separately for audio and video, and for each rate tier.
Column (1) shows the industry average for per-minute audio IPCS
expenses by facility type, column (2) shows the industry average for
per-minute safety and security expenses by facility type, and column
(3) shows the final lower bound estimates for audio IPCS, including
the ancillary service and TRS additives. Columns (4), (5), and (6)
report the corresponding estimates for video IPCS expenses per
minute.
[GRAPHIC] [TIFF OMITTED] TR20SE24.050
BILLING CODE 6712-01-C
C. Validation of Lower Bounds
68. This section uses three different sources to validate our
lower bounds. The first examines evidence submitted by the Brattle
Group as to reasonable per-minute audio and video expenses and find
that to be consistent with, if somewhat lower, than our lower bounds
for audio. The second shows that large fractions of facilities in
all likelihood would be viable at rates that are less than our lower
bounds, validating that our lower bounds are not set too low. Staff
demonstrate this for many facilities--presumably those with the most
efficient operations after controlling for facility type. The third
compares counties in the region of Dallas and Denton in Texas and
finds that per-minute audio rates of {[REDACTED]{time} . Because we
set each of our rate caps somewhat above the respective lower
bounds, but in each case closer to the lower bounds than the upper
bounds, these sources also offer support for the rate caps that we
adopt.
1. Brattle Analysis
69. In reviewing the record, we find the Brattle Group's model
carrier analysis provides external validation for our lower bounds.
The Brattle Group's analysis estimates per-minute costs for audio
and video calls in small, medium, and large facilities, drawing on
market data and data from the 2023 Mandatory Data Collection. The
initial model was filed on July 12, 2023, and a revised model was
filed on February 9, 2024. Comments were filed on the Brattle model
carrier analysis.
70. The Commission finds the model carrier approach useful to
evaluate the analysis of reported industry investments and expenses
undertaken by staff to establish the lower bounds of our zones of
reasonableness. Brattle's model carrier analysis aggregates
estimates of the costs of the various components that comprise IPCS,
including a markup on expenses to cover overhead. Its aim is to
estimate IPCS costs based on publicly available prices that are
constrained by market forces capturing industry standards for
efficiency, cost, and performance. As explained below, we find that,
by and large, Brattle has produced a credible and transparent model
of industry costs.
71. The advantages of Brattle's model carrier approach include
its transparency and
[[Page 77427]]
that market forces ``audit'' the relied-upon price data, in contrast
to the inability of the Commission and other stakeholders to audit
providers' expense reports. The disadvantages are that there are
aspects of IPCS for which there are limited market data, notably
many safety and security measures (which the Brattle Group does not
model), that it is not clear how to add up piece parts from
different wholesale markets to ensure the sum of the parts is a good
estimate of the whole, and that it may be difficult for a model
carrier approach to capture cost variation along relevant cost-
causative dimensions, notably the distinction between prisons and
jails, and across jail sizes. The Brattle Group address this
difficulty by using wholesale prices, which already include markups
for overheads, and then apply further markups for overheads to the
sum of these component estimates. Arguably, economies of scope and
scale in IPCS supply may be missed by such an approach, resulting in
cost overestimation. The Brattle Group seek to capture these
differences by choosing component cost models that, in their
analysis, likely overstate costs.
72. Brattle filed an initial model carrier approach, and then in
the light of comments, a revised approach. We focus on the latter.
Brattle created its model carrier by identifying five modules of
costs, populating the modules with data taken from, where available,
publicly available prices, the sources for which they document in
their report; the Commission's data collection from IPCS providers;
and other market estimates. The five cost modules are described in
Table 12.
[GRAPHIC] [TIFF OMITTED] TR20SE24.051
73. Brattle's revised model carrier analysis makes several
adjustments to the Telecom and Facilities cost modules in response
to critiques in the record. These adjustments include the following
four responsive adjustments. First, Brattle made an upward revision
in VoIP call cost by eliminating zero-cost providers from the set
used to calculate an average price. This revision responded to Mr.
Wood's critique that the model picked the lowest prices. FTI argues
even this high rate is too low, but offers no alternative. Second,
Brattle made an upward adjustment to the price of a video call with
a rate from Microsoft Azure at $0.0004 per minute. This revision
responded to Mr. Wood's critique that the model picked the lowest
prices. FTI argues even this higher rate is too low but offers no
alternative. Third, Brattle made an upward adjustment to the number
of necessary T-1 lines based on high-definition video call quality
for 60 minutes. Fourth, Brattle shortened the useful life of
equipment and relied on a wider array of equipment pricing to
respond to Mr. Wood's critique that providers make tradeoffs between
maintenance and replacement of assets.
74. The model carrier analysis assumes all video calls are made
over kiosks, which Brattle explains are more expensive than tablets.
Brattle does not use tablets because tablets can be used for
nonregulated services like books and movies, which creates a cost
allocation issue. FTI's comments argue that in fact tablets are
widely used, sometimes in conjunction with kiosks. This may be so,
but may reflect a transition from kiosks to tablets, with such
duplication being inherently inefficient. Without record evidence,
staff do not consider it appropriate to add both kiosk and tablet
costs together for the purposes of the model carrier model. Further,
even a partial transition from kiosks to tablets would imply that
Brattle's revised model may overestimate the number of kiosks but
underestimate the cost of tablets, with the net impact on
recoverable expenses arguably being an over, rather than an
underestimate.
75. In its revised model carrier analysis, Brattle also lowers
the video to audio minutes ratio from 1:2 to 1:4, which raises video
per-minute costs. The more video minutes in the model, the lower the
per-minute cost would be, because a large fraction of costs are
fixed. Video IPCS is still developing, and the Commission's data
collection does not provide a robust basis for
[[Page 77428]]
establishing a ratio based on long-run relative demand for audio vs.
video IPCS. In developing our lower bounds, the Commission
implicitly assumes an audio to video ratio as given by the industry
average, excluding Securus. {[REDACTED]{time} If, as is likely, the
ratio of video to audio calls were to increase substantially, then
our per video minute lower bounds would be much too high. Outside of
the IPCS context, video calls are increasingly popular, and it is
likely we will see a similar trajectory for the provision of video
IPCS going forward. For example, Juniper Research predicts a
continued decline in revenues from voice service for mobile network
operators, despite investments in 5G and growing subscriber numbers,
because the quality of over-the-top services like video conferencing
applications are improving. To the degree that happens, the Brattle
model and our own projections would overstate long-run video
expenses. It is uncertainty about long run video expenses that leads
us to set interim, rather than permanent, rate caps for video IPCS.
76. Site commissions are not included the model carrier,
something Wood criticizes. However, the exclusion of site
commissions as an expense is consistent with the used and useful
analysis in our Order. Consequently, excluding those costs from the
data analysis accords with the legal determinations we make.
77. Table 13 shows costs for audio and video calls when applying
the model carrier for small, medium, and large facilities in
Brattle's revised model. {[REDACTED]{time}
[GRAPHIC] [TIFF OMITTED] TR20SE24.052
78. The Model Carrier Analysis Is Largely Consistent with Our
Lower Bounds for Audio IPCS. Brattle Group's revised model carrier
analysis makes several reasoned adjustments in response to record
criticism of its original submission, resulting in the per-minute
estimates in Table 13 above. For audio, these estimates generally
align with the lower bound audio IPCS component of expenses that
staff derived through an examination of industry average costs based
on provider 2023 Mandatory Data Collection data ($0.021 per minute
for prisons and $0.022 for large jails). While the model's estimated
video IPCS expenses, excluding safety and security, are about
{[REDACTED]{time} than those established in our lower bounds, this
disparity can be, at least in part, attributed to the market for
video being less established than audio, as reflected by
{[REDACTED]{time} .
79. Staff acknowledge that the model carrier is not a substitute
for a fully distributed cost analysis of provider investments and
expenses because it is unable to capture all sources of cost
variation in the provision of IPCS, most notably cost differences
between facilities of different types and sizes, and because a model
that aggregates piece-parts of service provision to create an
efficient provider by definition does not reflect the real world
investment, operating, and other decisions of IPCS providers.
However, staff are encouraged that the benchmark audio IPCS rates
estimated by the revised model align closely with the lower bounds
we have established, which helps to validate both our lower bound
estimates and the rate caps that we ultimately adopt.
2. Reported Facilities Earning Per-Minute Revenues Below Our Lower
Bounds
80. Comparing Per-Minute Audio Revenues with Our Lower Bounds.
This section examines the facilities in which the per-minute audio
revenue, less site commissions, that is, the per-minute revenues
providers keep at a given facility, is less than our lower bounds
for that facility type. We do not perform a similar analysis for
video because the video data is unreliable and likely reflects a
nascent market with significant up-front expenses and low demand.
This means that both per-minute video revenues and per-minute video
expenses (relied upon to establish the lower bounds) are distorted,
and a comparison of the two would not yield meaningful results in
terms of validating our interim video lower bounds.
{[REDACTED]{time} These facilities demonstrate that our lower
bounds may be too high (and so provide further validation for
setting our rate caps closer to the lower bounds). Such facilities
are prima facie profitable at prices that approximate their per-
minute audio revenue rates, otherwise providers would be seeking to
exit these contracts, thus showing their per-minute audio costs, net
of site commissions, to be below our lower bounds. This result
applies most strongly for prisons and large jails, where nearly two
thirds and nearly one half of facilities, respectively, have per-
minute audio revenues net of site commissions that lie below their
respective lower bounds. For medium, small and very small jails this
share is between more than a fifth and more than a third of
facilities. We also find that the share of providers with per-minute
audio revenues less site commissions that are less than our lower
bounds is not significantly impacted by whether the provider is in a
rural or urban area.
81. In undertaking the analysis, staff's first step is to
calculate, for each facility, the sum of IPCS audio, safety and
security and ancillary service revenues net of site commissions and
divide this amount by the sum of the facility's billed and unbilled
minutes. Safety and security revenues are allocated to facilities
using safety and security expenses, as the two are likely
correlated. {[REDACTED]{time} . Site commissions at the facility
level are allocated between audio video using revenue weights, since
site commissions are in many cases proportional to revenues. To make
an apples-to-apples comparison between the resulting revenue per
minute for a facility and its corresponding lower bound, staff
subtract from the lower bound the $0.002 allowance for TRS costs and
add back in the safety and security expenses removed from the lower
bounds. The safety and security expenses added back in are: law
enforcement support, communication recording services, communication
monitoring services, voice biometric services, and other safety and
security measures. CALEA compliance measures and communication
security services are included in the lower bounds. The TRS
allowance is subtracted because in 2022 TRS was largely not
provided, and so TRS costs did not need to be recovered. Staff add
back in the safety and security expenses that were removed to create
the lower bounds, because revenue reported in 2022 was for services
that included these safety and security expenses. The last row of
Table 14 shows the net impact of these two adjustments on the lower
bound. Thus, staff compare the revenue per-minute calculation for
each facility with the lower bound appropriate to that facility,
thereby identifying facilities for which the per-minute revenue is
less than the lower bound.
BILLING CODE 6712-01-P
[[Page 77429]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.053
[[Page 77430]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.054
82. Table 15 shows the facilities depicted in Table 14
categorized by whether they are located in an urban area, as
classified by the Census (locations that we could not geocode were
unassigned). It suggests that geography does not have a material
impact on whether facilities have per-minute revenues less than
their lower bounds as calculated. The last row shows that non-urban
facilities are 75% less common than urban facilities. This ratio is
also true for facilities that could be identified as urban or rural
with the per-
[[Page 77431]]
minute revenues as described being less than the adjusted lower
bounds, suggesting geography has no impact on the likelihood that a
facility's per-minute rates being lower than the lower bounds as
calculated here.
[[Page 77432]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.055
[[Page 77433]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.056
BILLING CODE 6712-01-C
83. In summary, our lower bounds do not appear too low. Nearly
42% of facilities operate at imputed per-minute rates, after netting
of site commissions, that lie below our caps, yet there are no signs
that these contracts are not viable. Thus, it is likely per-minute
costs for at least the vast bulk of these contracts are less than
our lower bounds.
3. Low-Priced Contracts Analysis
84. A Comparison Across 13 Contiguous Texas Counties. This
section shows two things. First, that our lower bounds may be
excessive for the region of Dallas-Fort Worth and surrounding
counties, which provide a broad range of conditions, from urban to
rural. And staff have no reason to think there is something special
about this region. Second, that despite there being no obvious
reasons why costs would vary significantly across comparable
counties within this region, the per-minute revenues kept by
providers, that is, per-minute revenues net of site commissions,
vary widely. This suggests in most instances where one sees high
per-minute revenues, net of site commissions, these do not reflect
costs.
85. {[REDACTED]{time} We then reviewed the publicly available
contracts we were able to find to better determine if these low
prices were driven by unusual factors (aside from having limited
site commissions). {[REDACTED]{time} Consequently, staff examined
the cluster of 13 counties contiguous to Dallas, Tarrant (Fort
Worth), and Denton in Texas--Figure 1, {[REDACTED]{time} . The twin
cities of Dallas and Fort Worth (Tarrant) are natural comparators.
Collin and Denton are also natural comparators. They are neighbors
of similar geographic size, each lies above a major urban
agglomeration, and has a population of about one million people.
Collin had a population of 1,064,465, and Denton of 906,422. Ellis,
Hunt, Grayson, Johnson, Parker are all of geographically similar
sizes with populations ranging from about 100,000 to about 200,000.
Their respective 2020 Census population estimates were: Ellis:
192,455; Grayson: 135,543; Hunt: 99,956; Johnson: 179,927; Kaufman:
145,310; and Parker: 148,222. Rockwall's population is 107,819, very
similar to Hunt's, but Rockwall is geographically much smaller than
all the counties considered here. That leaves Cooke and Wise, which
are of similar geographic size to all the other counties, except
Rockwall. Cooke and Wise have the two smallest populations,
respectively of 41,668 and 8,632.
Figure 1: The Counties of, and Surrounding, Dallas-Fort Worth and
Denton, Texas, Sorted According to Their Reported IPCS Audio Rates
{[ REDACTED ]{time}
Source: Rates are as found in the providers' 2022 Annual Reports
(covering 2021).
86. Of the 13 counties just outlined, staff were able to
identify all but {[REDACTED]{time} in the 2023 Mandatory Data
Collection--see Table 16. {[REDACTED]{time}
BILLING CODE 6712-01-P
[[Page 77434]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.057
87. {[REDACTED]{time}
88. Given the disparity in reported per-minute revenues, net of
site commissions, staff sought further information on each of these
counties. Staff could identify no factors that would justify cost
differences substantially above the implied costs for the counties
with low prices.
89. Staff first checked providers' 2023 Annual Reports for 2022
for consistency with their 2023 Mandatory Data Collection reports.
Each county's IPCS audio rates are listed in Table 17, along with
whether the county receives any site commissions. This data was
largely consistent with the reports in the 2023 Mandatory Data
Collection.
[[Page 77435]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.058
BILLING CODE 6712-01-C
90. Summary of Contract Analysis. Commission staff then analyzed
the five contracts they were able to find for these 13 counties,
those of Dallas, Denton, Grayson, Tarrant and Wise. Comparing the
twin cities of Dallas and Fort Worth (Tarrant) shows that Securus's
per minute revenues, net of site commissions, were about $0.015 per
audio minute in Dallas, much less than in Tarrant, which were $0.133
per audio minute, for no reasons staff could identify. Thus, staff
concludes the costs of supplying populated suburban counties like
Dallas and Tarrant are around or less than $0.016 per minute. This
is well below our lower bound.
91. {[REDACTED]{time}
92. Staff examination of the Grayson contract showed it only
provides fairly basic features. {[REDACTED]{time} In turn, this
suggests that our rate caps should be set closer to our lower
bounds.
93. Dallas and Tarrant Contracts. The Dallas contract shows
nothing that would suggest it is for facilities with unusually low
costs. {[REDACTED]{time} the Dallas contract was with Securus,
involved no site commissions, and included free community tablets
and included hosted video visitation services. Per-minute domestic
audio and video visitation rates were respectively $0.0119 and
$0.13, with the only other charges being $0.24 to send an email, and
$5 per month for a personal tablet and charges for games, video and
audio content.
94. Given their proximity, and extent of interaction, Dallas and
Tarrant likely face similar cost conditions. {[REDACTED]{time} They
showed audio rates were set on to $0.16 per minute on November 16,
2021, with two sources of site commissions: Tarrant received $0.02
per minute, and $59,420 per month, which previously came from per-
minute site commissions. Staff could not calculate Tarrant's
effective per-minute site commission from the contract. In
comparison, Securus received $0.0119 per IPCS minute in the Dallas
contract. There is nothing in the contracts to suggest that IPCS
provision in Tarrant is more expensive than IPCS provision in
Dallas.
95. Denton contract. Staff next compared the ``sister'' counties
Denton and Collin. {[REDACTED]{time} Staff only had the Denton
contract to examine. It specifies call prices of $0.02 per minute
with a 95% site commission payment. {[REDACTED]{time}
96. Grayson and Wise Contracts. The only other contracts staff
were able to find were for the relatively small and rural Grayson
and Wise Counties. Both contracts are with Correct. In Grayson,
Correct sets the following per-minute rates: interstate prepaid and
debit, $0.21, interstate collect, $0.25, international, $1.00,
intrastate, $0.30, and video visitation $0.50. The contract's
domestic rates are consistent with the 2022 annual report Correct
made to the Commission for calendar year 2001. There is a $3.00
credit card transaction fee, a $1 for debit calling moving fee, a
$5.95 live operator fee, a $0.50 message or email fee, and $0.99 per
hour for tablet use, though prisoners are allowed 15 minutes of free
tablet use every four hours. Correct installs and maintains
equipment, including kiosks and tablets, and undertakes certain
services, such as contraband and remote mail scanning. Under the
contract, Correct pays an 82% site commission on all but interstate
calls and 10% on video visitation, suggesting Correct collects $0.21
per minute on interstate calls, and $0.06 (= (1-0.82) * $0.30) on
intrastate calls. {[REDACTED]{time}
97. Wise County contracted with Correct effective October 1,
2018, to provide audio IPCS setting the following rates: interstate
prepaid, $0.21, interstate collect, $0.25, international, $0.50,
intrastate, $0.50, kiosk transactions, $3.00, and live operator
transactions, $5.95. {[REDACTED]{time} Under
[[Page 77436]]
the contract, Correct was to provide what appear to be relatively
basic services: the equipment and platform required for IPCS and
voicemail services. Wise County was also to receive 75% of calling
revenue ``with the exception of interstate calls with regard to the
FCC rule,'' and 100% of voicemail revenues. Staff understand the
exception to be the same as for Grayson, that no commission is paid
on interstate calls. The contract was amended three times, numbered
one through three, and still appears to be in place. One of those
amendments is relevant here. In that, Correct agrees to increase the
services it requires, in particular to provide 100 tablets, two
correctional grade kiosks, chargers and similar and certain services
such as electronic messaging, law library, and medical scheduling.
There was also a memorandum of understanding which states that due
to an ``excessive increase in cost of business'' Correct will now
``impose a five percent reduction in the number of minutes on which
the commission is calculated.''
98. {[REDACTED]{time}
Appendix J: Rate Cap Validation
1. Selection of Rate Caps from Within Zones of Reasonableness.
We establish our final audio IPCS and our interim video IPCS rate
caps from within our zones of reasonableness. Table 1 presents the
rate caps for audio and video IPCS.
[GRAPHIC] [TIFF OMITTED] TR20SE24.059
2. Validity Check on the Audio Rate Caps. This appendix counts
the facilities where the per-minute audio revenue, less site
commissions, is less than our rate cap for that facility type. On
the revenue side, for each facility, we calculate the sum of IPCS
audio, safety and security, and ancillary service revenues, net of
site commissions, and divide this amount by the sum of the
facility's billed and unbilled minutes. Safety and security revenues
are allocated to facilities using safety and security expenses, as
the two are likely correlated. {[REDACTED]{time} Site commissions
at the facility are allocated between audio and video using revenue
weights, since site commissions are in many cases proportional to
revenues. To ensure apples-to-apples comparisons, staff subtracts
the TRS addon of $0.002 from our rate cap and adds back those safety
and security expenses which were removed from the lower bounds. We
do not perform a similar analysis for video because the video data
is comparatively unreliable and likely reflects a nascent market
with significant up-front expenses and low demand. We agree that
``[v]ideo calling is a relatively new service compared to audio
calling'' and that providers ``will gradually enhance their
efficiency in providing this service over time.'' In sum, a
comparison of per-minute video revenues and per-minute video
expenses using data from the 2023 Mandatory Data Collection, which
are for calendar year 2022, would not meaningfully validate our
interim video rate caps. About half of facilities meet this
condition, as shown in Table 2. It is likely that our audio caps
will have little impact on these facilities, for those facilities
which collect revenues per minute which lie below our caps will not
need to adjust their pricing, things otherwise constant. This result
applies most strongly for prisons and large jails, where about three
quarters and more than half of facilities, respectively, collected
per-minute audio revenues below their respective rate caps. Shares
of medium, small, and very small jails facilities with per-minute
revenues below the rate caps are about 42%, 29%, and 39%
respectively.
BILLING CODE 6712-01-P
[[Page 77437]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.060
[[Page 77438]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.061
BILLING CODE 6712-01-C
3. A large fraction of facilities of all types demonstrate
profitability at rates consistent with our rate caps. While certain
providers claim otherwise and argue that our rate caps will prevent
many providers from recovering costs, we reject these claims as
explained herein. Many facilities appear to have per-minute revenues
net of site commissions that exceed plausible estimates of costs.
For example, 1,294, or over 30% of facilities, report per-minute
audio revenue, less site commissions, that exceed our highest upper
bound, $0.152, which is for very small jails. Of these, 627, or 15%
of, facilities have reported per-minute audio revenues, net of site
commissions, that exceed $0.21, our highest interim cap, but there
are no credible claims that per-minute costs come close to this
level. In fact, the highest per-minute average cost for audio,
including safety and security costs, any provider reported in the
current collection, was {[REDACTED]{time} . Our upper bound analysis
suggests it is unlikely that these per-minute revenues are cost-
reflective. Per-minute expenses, net of site commissions, also vary
widely within the same facility tier. Given there were facilities
where providers' per-minute revenues less site commissions exceeded
our rate caps, this suggests that their revenues per-minute either
exceed costs per-minute, or some providers' costs are inefficiently
high.
[[Page 77439]]
4. In an efficient market for the same service, all providers'
per-minute revenues (net of site commissions) would be similar, as
would providers' per-minute expenses net of site commissions. After
controlling for facility type, we do not see this similarity. There
is no suggestion in the record that we are missing key sources of
cost variation that could explain the substantial differences we
observe. In fact, our Lasso analysis shows providers' identities are
more correlated with costs than any other variable, reinforcing the
conclusion that reported per-minute revenues do not reflect
efficient costs. The Lasso analysis shows that provider identity and
state are primarily correlated with per-minute expenses. Facility
type and whether or not a site commission is collected also matter,
but far less than provider identity and state. Consequently, our
caps will put market pressure on providers with inefficient per-
minute costs. Because so many facilities, after controlling for
facility type, have per-minute revenues below our rate caps, we find
it likely that efficient per-minute costs are below our caps as
well. Thus, our caps incentivize firms with particularly inefficient
costs to reduce their costs through increased efficiencies.
5. Comparing revenues under our rate caps to reported expenses
shows that a range of providers, both big and small, are expected to
recover their costs, again supporting our finding that our rate caps
will allow efficient providers to meet demand for IPCS. Inefficient
firms may well face market pressure as a result, but we are not
persuaded by such claims. Table 3 shows the revenues a provider
would receive if their reported respective audio minutes and video
minutes for each facility were multiplied by the respective audio
and video rate caps. It also shows the sum of audio IPCS, video
IPCS, and CALEA and Communication Security expenses. The difference
between these understates the expected margin since call volumes
would rise with lower prices, but, due to economies of scale, costs
would rise less quickly. We likewise reiterate that we believe
reported costs are inflated, particularly given that total industry
reported costs exceed total industry reported revenues by such a
wide margin. Of the 4,441 facilities, 3,202 have revenues at the
rate caps that match or exceed their costs, accounting for 72% of
facilities. Eight of the twelve providers in our database have
implied revenues under the caps that exceed their reported costs.
The eight providers are {[REDACTED]{time} This is also true for
revenues calculated as the product of reported minutes and the lower
of our rate caps and existing prices. We do not find that the other
four providers would not recover their costs, only that they would
not recover revenues as calculated here. We therefore disagree that
many providers would not be ``fairly compensated.'' These providers,
{[REDACTED]{time} , cover about 85% of all facilities.
{[REDACTED]{time}
BILLING CODE 6712-01-P
[GRAPHIC] [TIFF OMITTED] TR20SE24.062
[[Page 77440]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.063
Contrary to some claims, which argue that our rate caps impact
smaller providers and thus smaller facilities, provider size is no
predictor of the choice to serve very small jails. We disagree with
such claims. As we explain, the eight providers which already have
revenues less site commissions beneath our caps serve an
overwhelming number of small and very small facilities, as well as
medium and large facilities. As illustrated in Table 4, all eight of
the providers discussed above serve very small jails.
{[REDACTED]{time} Thus, it is implausible that our caps will
prevent supply in small jails. Even if we take all providers'
reported costs at face value, which we do not, we would not be
setting just and reasonable rates if we allowed any provider to
recover its reported costs-of-service where these exceed those of an
efficient provider. As articulated therein, we find the reasons that
reported costs are overstated to be compelling, and disagree that
such a finding is ``erroneous[ ].'' Equally, we must ensure
providers are fairly compensated. To that end, we have chosen to set
rate caps that likely exceed efficient costs, even if they are lower
than some providers' reported costs.
[[Page 77441]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.064
BILLING CODE 6712-01-C
7. We reject claims that our actions could harm competition.
Competition should not be mistaken for the number of competitors.
Competition delivers lower prices, adjusted for quality, and
competition may sometimes drive out inefficient competitors.
Competition also leads inefficient competitors to become more
efficient. Setting rate caps to enable inefficient competitors to
survive would not be pro-competitive, and would not result in just
and reasonable prices. It would also allow providers to be
overcompensated, rather than to receive fair compensation. Nor would
an inefficient provider's exit from the market indicate a reduction
of competition as some commenters allege. This commenter would do
well to mind the age-old antitrust maxim: the law protects
competition, not competitors. We agree with those commenters that
observe that ``the Commission is not obligated to set rates to cover
an inefficient business model.''
8. We also disagree with claims that inflation and concomitant
regulatory obligations are ``plausible explanations'' for why
industry reported costs are exceeding IPCS revenues. Commercial
contracts commonly include clauses addressing inflation and changes
of law, and here, contract renegotiation seems common; in any year,
a material fraction of contracts are won, renewed and renegotiated.
Without any evidence in the record, we decline to assume that half
of providers, including Securus, would broadly renew unviable
contracts, place bids at non-viable prices, or would not seek to
renegotiate contracts in the face of unanticipated inflation.
Neither Securus nor any other party has shown that IPCS expenses
have grown sufficiently fast since 2022, after accounting for
industry productivity, to render 2022 expenses too low for the
purpose of setting our rate caps. In fact, over the past decade,
telecommunications industry inflation has been significantly lower
than broader measures of inflation. The Telecommunications PPI over
the last ten years averaged 0.7% annually, as opposed to 2.6%
average annual increases in the GDP deflator over the same period.
Likewise, we are unconvinced that regulation compliance costs made
IPCS unviable in 2022. In 2022, roughly half of all audio call
minutes were for intrastate calls, which were not subject to
Commission pricing regulation at that time. Further, our 2022 rate
caps were set substantially above our current upper bounds, which
take providers' 2022 reported costs at face value, so they too
cannot have held rates below costs. Nor are we convinced that
regulation at the state level adequately explains the disparity
between industry-wide costs and revenues. For example, Securus
points to Pay Tel's exit from California, but IPCS continued to be
supplied at the correctional facility in question, just by a
different, and presumably more efficient provider. In sum, we do not
find it credible that inflation could have caused the apparent
losses providers reported in 2022, nor is it the Commission's
responsibility to cure contracts that fail to anticipate common
exigencies.
9. We are likewise unpersuaded that the difference between
industry contract revenues and IPCS expenses is explained by
providers use of profits from other non-IPCS services to cross-
subsidize the price of IPCS. The record presents no substantive
evidence of cross-subsidization, or of its extent, let alone
establish that the practice was
[[Page 77442]]
widespread and led to material reductions of IPCS revenues below
costs. Cross-subsidization, while potentially making an otherwise
unprofitable business segment profitable for the overall contract,
can also obscure inefficiencies within the regulated business and
misalign incentives. For example, providers may be disincentivized
to reduce costs and efficiently provide IPCS if they only use it to
generate other business within the same contract. In Securus' own
words, ``regulated rates must enable companies to earn a positive
return specifically from the service being regulated.'' Given the
distortionary effects of cross-subsidization, we find the most
direct way to assess viability of IPCS provision at a facility is to
compare IPCS revenues with IPCS costs.
10. In validating our caps, we do not place significant weight
on analysis of facility-level per-minute audio expenses as that
would be misleading for at least the following reasons: different
providers allocate costs differently, no provider's cost allocations
are likely to be particularly accurate at the level of the facility,
and the likelihood of reporting errors at the facility. There are
also corner cases, for example, where costs are incurred at the
start of a contract, but few or no minutes are supplied. Tables 5
and 6 illustrate the difficulties with facility-level data. These
tables show provider-reported per-minute expenses vary widely within
a single provider's data, often over implausible ranges. However,
because providers allocate all their costs down to their facilities,
a focus at the level of the provider avoids cost allocation
problems. Similarly, viewing an aggregation of facilities, including
at the level of the provider, or across providers, tends to smooth
out reporting errors and corner cases. This is not the case when
considering a provider's higher cost facilities, since, by
definition, one is choosing the facilities to which more costs were
allocated and ignoring those to which fewer costs were allocated.
Thus, Pay Tel's argument that one third of its facilities will be
loss-making under our rate caps requires belief that its cost
allocations accurately reflect underlying costs. That seems
improbable for at least some of its facilities given its per-minute
cost estimates for very small jails range from {[REDACTED]{time} .
If it is true that Pay Tel overall could not operate profitably
under our rate caps, we find that to be because Pay Tel's costs
exceed efficient costs. We reject, for the same reasons, a similar
claim made by Securus. Securus argues that a substantial number of
facilities will be ``underwater at the lower bound cost level given
the proposed rate caps,'' and that certain ``providers' lower bound
per minute costs exceed the rate cap[s].'' We find this analysis
implausible, unsupported, and, given the fact that Securus did not
submit the calculations in the record, we are unable to analyze or
otherwise replicate their results. As an initial matter, Securus
fails to separately identify audio and video profitability, leaving
the differences between these services obscure. Further, we find
Securus's analysis misleading. By ``excluding {[REDACTED]{time} ''
from the analysis, Securus removes the substantial majority of
facilities and cost data from its analysis, and uses a sample size
of less than 20% of the industry to support its conclusions. Such a
limited picture is particularly inappropriate for developing rate
caps based on industry average costs, an approach which is expressly
permitted by the statute. For example, given that our upper bounds
reflect all costs as submitted, we find it unlikely that certain
providers have ``lower bound costs [that] exceed rate caps by
{[REDACTED]{time} '' as Securus claims, because costs which lie
{[REDACTED]{time} above the rate caps would also lie above the
upper bounds for all jail size tiers.
BILLING CODE 6712-01-P
[GRAPHIC] [TIFF OMITTED] TR20SE24.065
[[Page 77443]]
[GRAPHIC] [TIFF OMITTED] TR20SE24.066
[FR Doc. 2024-19037 Filed 9-18-24; 8:45 am]
BILLING CODE 6712-01-C