Rates for Interstate Inmate Calling Services, 40682-40755 [2021-14730]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 86, Number 142 (Wednesday, July 28, 2021)]
[Rules and Regulations]
[Pages 40682-40755]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-14730]



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Vol. 86

Wednesday,

No. 142

July 28, 2021

Part II





 Federal Communications Commission





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47 CFR Part 64





Rates for Interstate Inmate Calling Services; Final Rule

Federal Register / Vol. 86 , No. 142 / Wednesday, July 28, 2021 / 
Rules and Regulations

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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 64

[WC Docket No. 12-375, FCC 21-60; FRS 35683]


Rates for Interstate Inmate Calling Services

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) reforms its rules for inmate calling services by taking 
the following steps. The Commission eliminates a separate rate cap for 
collect calling. The Commission lowers the interim interstate rate caps 
to $0.12 for prisons and $0.14 for jails with an average daily 
population of 1,000 or more incarcerated people. The Commission reforms 
the current treatment of site commission payments to permit recovery 
only of the portions of such payments related specifically to calling 
services and requires them to be separately listed on bills. Site 
commission payments that are legally mandated may be passed through to 
consumers, without any markup, and site commission payments that result 
from contractual obligations between facilities and providers are 
recoverable only up to $0.02 per minute for both prisons and jails with 
average daily populations of 1,000 incarcerated people or more. The 
Commission caps, for the first time, international calling rates at the 
applicable total interstate rate cap, plus the amount paid by the 
calling services provider to its underlying wholesale carriers for 
completing international calls. The Commission adopts a process for 
providers to follow when seeking waivers of the rate caps for 
interstate and international calling services; reforms the ancillary 
service third-party transaction fee caps for calls that are billed on a 
single per-call basis and charges for transferring or processing third-
party financial transactions; adopts a new mandatory data collection; 
and reaffirms providers' obligations regarding functionally equivalent 
access for incarcerated people with hearing and speech disabilities, 
delegating authority to its Consumer and Governmental Affairs Bureau 
(CGB) to undertake a separate data collection to help the Commission 
resolve critically important disability access issues.

DATES: This rule is effective October 26, 2021. Amendatory instructions 
5 and 6, concerning Sec. Sec.  64.6110 and 64.6120, respectively, are 
delayed indefinitely. The Federal Communications Commission will 
publish a document in the Federal Register announcing the effective 
date for the amendment to Sec.  64.6110 and the addition of Sec.  
64.6120.
    The delegations of authority to the Wireline Competition Bureau 
(WCB), the Office of Economics and Analytics (OEA), and CGB (see 
section III.H.3 of SUPPLEMENTARY INFORMATION) are effective on July 28, 
2021.

ADDRESSES: Federal Communications Commission, 45 L Street NE, 
Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Michael Scott, Disability Rights 
Office of the Consumer and Governmental Affairs Bureau, at (202) 418-
1264 or via email at [email protected] regarding portions of the 
Third Report and Order relating specifically to the provision of 
communications services to incarcerated people with hearing and speech 
disabilities and Simon Solemani, Pricing Policy Division of the 
Wireline Competition Bureau, at (202) 418-2270, or via email at 
[email protected] regarding other portions of the Report and 
Order.

SUPPLEMENTARY INFORMATION: The amendment to Sec.  64.6110 and the 
addition of Sec.  64.6120 are delayed pending OMB approval. The Federal 
Communications Commission will publish a document in the Federal 
Register announcing the effective date for these amendments.
    This is a summary of the Commission's Third Report and Order, FCC 
21-60, released May 24, 2021. This summary is based on the public 
redacted version of the document, the full text of which can be 
obtained from the following internet address: https://docs.fcc.gov/public/attachments/FCC-21-60A1.pdf.

Synopsis

I. Introduction

    1. Unlike virtually everyone else in the United States, 
incarcerated people have no choice in their telephone service provider. 
Instead, their only option typically is to use a service provider 
chosen by the correctional facility, and once chosen, that service 
provider typically operates on a monopoly basis. Egregiously high rates 
and charges and associated unreasonable practices for the most basic 
and essential communications capability--telephone service--impedes 
incarcerated peoples' ability to stay connected with family and loved 
ones, clergy, and counsel, and financially burdens incarcerated people 
and their loved ones. Never have such connections been as vital as they 
are now, as many correctional facilities have eliminated in-person 
visitation in response to the COVID-19 pandemic.
    2. In August 2020, the Commission unanimously adopted the Fourth 
Further Notice of Proposed Rulemaking (2020 ICS FNPRM) proposing to 
reduce interstate rates and, for the first time, to cap international 
rates. Today, the Commission moves forward as proposed, lowering 
interstate rates and charges for the vast majority of incarcerated 
people, limiting international rates for the first time, and making 
other reforms to its rules.
    3. Specifically, the Report and Order:
     Lowers the interstate interim rate caps of $0.21 per 
minute for debit and prepaid calls from prisons and jails with 1,000 or 
more incarcerated people to new lower interim caps of $0.12 per minute 
for prisons and $0.14 per minute for larger jails.
     Reforms the current treatment of site commission payments 
to permit recovery only of the portions of such payments related 
specifically to calling services and requires them to be separately 
listed on bills.
    [cir] Where site commission payments are mandated by federal, 
state, or local law, providers may pass these payments through to 
consumers, without any markup, as an additional component of the new 
interim interstate per-minute rate caps.
    [cir] Where site commission payments result from contractual 
obligations or negotiations with providers, providers may recover from 
consumers no more than the $0.02 per minute for prisons and $0.02 per 
minute for larger jails, as proposed in the 2020 ICS FNPRM.
    [cir] Therefore, consistent with the proposal in the 2020 ICS 
FNPRM, the maximum total interstate rate caps are $0.14 per minute for 
prisons and $0.16 per minute for jails with 1,000 or more incarcerated 
people.
     Eliminates the current interim interstate collect calling 
rate cap of $0.25 per minute resulting in a single uniform interim 
interstate maximum rate cap of $0.21 per minute for all calls for all 
facilities, consistent with the proposal in the 2020 ICS FNPRM.
     Caps, for the first time, international calling rates at 
the applicable total interstate rate cap, plus the amount paid by the 
calling services provider to its underlying wholesale carriers for 
completing international calls, consistent with the 2020 ICS FNPRM.
     Reforms the ancillary service third-party transaction fee 
caps for (1) calls that are billed on a single per-call basis, and (2) 
charges for transferring or

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processing third-party financial transactions, as proposed in the 2020 
ICS FNPRM.
     Adopts a new mandatory data collection to obtain more 
uniform cost data based on consistent prescribed allocation 
methodologies to determine reasonable permanent cost-based rate caps 
for facilities of all sizes, as suggested in the 2020 ICS FNPRM.
     Reaffirms providers' obligations regarding functionally 
equivalent access for incarcerated people with hearing and speech 
disabilities, consistent with the 2020 ICS FNPRM and federal law.
    4. The Commission expects today's actions to have immediate 
meaningful and positive impacts on the ability of incarcerated people 
and their loved ones to satisfy our universal, basic need to 
communicate. Although the Commission uses various terminology 
throughout this item to refer to the intended beneficiaries of the 
actions herein, unless context specifically indicates otherwise, these 
beneficiaries are broadly defined as the people placing and receiving 
inmate calling services (ICS) calls, whether they are incarcerated 
people, members of their family, or other loved ones and friends. The 
Commission also may refer to them, generally, as consumers.

II. Background

    5. Access to affordable communications services is critical for 
everyone in the United States, including incarcerated members of our 
society. Studies have long shown that incarcerated people who have 
regular contact with family members are more likely to succeed after 
release and have lower recidivism rates. Because correctional 
facilities generally grant exclusive rights to service providers, 
incarcerated people must purchase service from ``locational 
monopolies'' and subsequently face rates far higher than those charged 
to other Americans.

A. Statutory Background

    6. The Communications Act of 1934, as amended (Communications Act 
or Act) divides regulatory authority over interstate, intrastate, and 
international communications services between the Commission and the 
states. Section 2(a) of the Act empowers the Commission to regulate 
``interstate and foreign communication by wire or radio.'' This 
regulatory authority includes ensuring that ``[a]ll charges, practices, 
classifications, and regulations for and in connection with'' 
interstate or international communications services are ``just and 
reasonable'' in accordance with section 201(b) of the Act. Section 
201(b) also provides that ``[t]he Commission may prescribe such rules 
and regulations as may be necessary in the public interest to carry 
out'' these provisions.
    7. Section 2(b) of the Act 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 entering 
the field of intrastate communication service, which remains the 
province of the states.'' Stated differently, section 2(b) ``erects a 
presumption against the Commission's assertion of regulatory authority 
over intrastate communications.''
    8. Section 276 of the Act directs the Commission to prescribe 
regulations that ensure that payphone service providers, including 
inmate calling services providers, ``are fairly compensated for each 
and every completed intrastate and interstate call using their 
payphone.'' Although the Telecommunications Act of 1996 (1996 Act) 
amended the Act and ``chang[ed] the FCC's authority with respect to 
some intrastate activities,'' with respect to section 276, the U.S. 
Court of Appeals for the District of Columbia Circuit has held that 
``the strictures of [section 2(b)] remain in force.'' Accordingly, that 
court concluded that section 276 does not authorize the Commission to 
determine ``just and reasonable'' rates for intrastate calls, and that 
the Commission's authority under that provision to ensure that 
providers ``are fairly compensated'' both for intrastate and interstate 
calls does not extend to establishing rate caps on intrastate services.

B. History of Commission Proceedings Prior to 2020

    9. In 2003, Martha Wright and her fellow petitioners, current and 
former incarcerated people and their relatives and legal counsel 
(Wright Petitioners), filed a petition seeking a rulemaking to address 
``excessive'' inmate calling services rates. The petition sought to 
prohibit exclusive inmate calling services contracts and collect-call-
only restrictions in correctional facilities. In 2007, the Wright 
Petitioners filed an alternative petition for rulemaking in which they 
emphasized the urgency of the need for Commission action due to 
``exorbitant'' inmate calling services rates. The Wright Petitioners 
proposed benchmark rates for interstate long distance inmate calling 
services calls and reiterated their request that providers offer debit 
calling as an alternative option to collect calling. The Commission 
sought and received comment on both petitions.
    10. In 2012, the Commission commenced an inmate calling services 
rulemaking proceeding by releasing the 2012 ICS FNPRM seeking comment 
on, among other matters, the proposals in the Wright Petitioners' 
petitions and whether to establish rate caps for interstate inmate 
calling services calls.
    11. In the 2013 ICS Order, in light of record evidence that rates 
for calling services used by incarcerated people greatly exceeded the 
reasonable costs of providing those services, the Commission adopted 
interim interstate rate caps of $0.21 per minute for debit and prepaid 
calls and $0.25 per minute for collect calls. Under the Commission's 
rules, ``Debit Calling'' means ``a presubscription or comparable 
service which allows an Inmate, or someone acting on an Inmate's 
behalf, to fund an account set up [through] a Provider that can be used 
to pay for Inmate Calling Services calls originated by the Inmate.'' 
``Prepaid Calling'' means ``a presubscription or comparable service in 
which a Consumer, other than an Inmate, funds an account set up 
[through] a Provider of Inmate Calling Services. Funds from the account 
can then be used to pay for Inmate Calling Services, including calls 
that originate with an Inmate.'' ``Collect Calling'' means ``an 
arrangement whereby the called party takes affirmative action clearly 
indicating that it will pay the charges associated with a call 
originating from an Inmate Telephone.'' In the First Mandatory Data 
Collection, the Commission required all inmate calling services 
providers to submit data on their underlying costs so that the agency 
could develop permanent rate caps. In 2014, the Commission sought 
comment on reforming charges for services ancillary to the provision of 
inmate calling services and on establishing rate caps for both 
interstate and intrastate calls. Ancillary service charges are fees 
that providers assess on calling services used by incarcerated people 
that are not included in the per-minute rates assessed for individual 
calls.
    12. The Commission adopted a comprehensive framework for interstate 
and intrastate inmate calling services in the 2015 ICS Order, including 
limits on ancillary service charges and permanent rate caps for 
interstate and intrastate inmate calling services calls in light of 
``egregiously high'' rates for inmate calling services calls. Because 
of continued growth in the number and dollar amount of ancillary 
service charges that inflated the effective price paid for inmate 
calling services, the

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Commission limited permissible ancillary service charges to only five 
types and capped the charges for each: (1) Fees for Single-Call and 
Related Services--billing arrangements whereby an incarcerated person's 
collect calls are billed through a third party on a per-call basis, 
where the called party does not have an account with the inmate calling 
services provider or does not want to establish an account; (2) 
Automated Payment Fees--credit card payment, debit card payment, and 
bill processing fees, including fees for payments made by interactive 
voice response, web, or kiosk; (3) Third-Party Financial Transaction 
Fees--the exact fees, with no markup, that providers of calling 
services used by incarcerated people are charged by third parties to 
transfer money or process financial transactions to facilitate a 
consumer's ability to make account payments via a third party; (4) Live 
Agent Fees--fees associated with the optional use of a live operator to 
complete inmate calling services transactions; and (5) Paper Bill/
Statement Fees--fees associated with providing customers of inmate 
calling services an optional paper billing statement. The Commission 
relied on sections 201(b) and 276 of the Act to adopt rate caps for 
both interstate and intrastate inmate calling services. The Commission 
relied on sections 201(b) and 276 of the Act to adopt rate caps for 
both interstate and intrastate inmate calling services. The Commission 
set tiered rate caps of $0.11 per minute for prisons; $0.14 per minute 
for jails with average daily populations of 1,000 or more; $0.16 per 
minute for jails with average daily populations of 350 to 999; and 
$0.22 per minute for jails having average daily populations of less 
than 350. The Commission calculated these rate caps using industry-wide 
average costs based on data from the First Mandatory Data Collection 
and stated that this approach would allow providers to ``recover 
average costs at each and every tier.'' The Commission did not include 
site commission payments in its permanent rate caps, finding these 
payments were not costs reasonably related to the provision of inmate 
calling services. The Commission also readopted the interim interstate 
rate caps it had adopted in 2013, and extended them to intrastate 
calls, pending the effectiveness of the new rate caps, and sought 
comment on whether and how to reform rates for international inmate 
calling services calls. At the same time, the Commission adopted a 
Second Mandatory Data Collection to identify trends in the market and 
form the basis for further reform as well as an annual filing 
obligation requiring providers to report information on their current 
operations, including their interstate, intrastate, and international 
rates as well as their ancillary service charges.
    13. In the 2016 ICS Reconsideration Order, the Commission 
reconsidered its decision to entirely exclude site commission payments 
from its 2015 permanent rate caps. The Commission increased those 
permanent rate 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. The 
Commission set the revised rate caps at $0.13 per minute for prisons; 
$0.19 per minute for jails with average daily populations of 1,000 or 
more; $0.21 per minute for jails with average daily populations of 350 
to 999; and $0.31 per minute for jails with average daily populations 
of less than 350.

C. Judicial Actions

    14. In January 2014, in response to providers' petitions for review 
of the 2013 ICS Order, the D.C. Circuit stayed the application of 
certain portions of the 2013 ICS Order but allowed the Commission's 
interim rate caps to remain in effect. Later that year, the court held 
the petitions for review in abeyance while the Commission proceeded to 
set permanent rates. In March 2016, in response to providers' petitions 
for review of the 2015 ICS Order, the D.C. Circuit stayed the 
application of the 2015 ICS Order's permanent rate caps and ancillary 
service charge caps for Single Call Services while the appeal was 
pending. Single-Call Services mean ``billing arrangements whereby an 
Inmate's collect calls are billed through a third party on a per-call 
basis, where the called party does not have an account with the 
Provider of Inmate Calling Services or does not want to establish an 
account.'' Later that month, the court stayed the application of the 
Commission's interim rate caps to intrastate inmate calling services. 
In November 2016, the D.C. Circuit also stayed the 2016 ICS 
Reconsideration Order, pending the outcome of the challenge to the 2015 
ICS Order.
    15. In 2017, in GTL v. FCC, the D.C. Circuit vacated the permanent 
rate caps adopted in the 2015 ICS Order. First, the panel majority held 
that the Commission lacked the statutory authority to cap intrastate 
calling services rates. The court explained that the Commission's 
authority over intrastate calls is, except as otherwise provided by 
Congress, limited by section 2(b) of the Act and nothing in section 276 
of the Act overcomes this limitation. In particular, section 276 
``merely directs the Commission to `ensure that all providers [of 
calling services to incarcerated people] are fairly compensated' for 
their inter- and intrastate calls,'' and it ``is not a `general grant 
of jurisdiction' over intrastate ratemaking.'' The court noted that it 
``need not decide the precise parameters of the Commission's authority 
under Sec.  276.''
    16. Second, the D.C. Circuit concluded that the ``Commission's 
categorical exclusion of site commissions from the calculus used to set 
[inmate calling services] rate caps defie[d] reasoned decision making 
because site commissions obviously are costs of doing business incurred 
by [inmate calling services] providers.'' The court noted that some 
site commissions were ``mandated by state statute,'' while others were 
``required by state correctional institutions'' and were thus also a 
``condition of doing business.'' The court directed the Commission to 
``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 court did not reach the providers' 
remaining arguments ``that the exclusion of site commissions denies 
[them] fair compensation under [section] 276 and violates the Takings 
Clause of the Constitution because it forces providers to provide 
services below cost.'' Instead, the court stated that the Commission 
should address these issues on remand when revisiting the categorical 
exclusion of site commissions. Judge Pillard dissented from this view, 
noting that site commissions are not legitimate simply because a state 
demands them.
    17. Third, the D.C. Circuit held that the Commission's use of 
industry-wide averages in setting rate caps was arbitrary and 
capricious because it lacked justification in the record and was not 
supported by reasoned decision making. Judge Pillard also dissented on 
this point, noting that the Commission has ``wide discretion'' under 
section 201 of the Act to decide ``which costs to take into account and 
to use industry-wide averages that do not necessarily compensate `each 
and every' call.'' More specifically, the court found the Commission's 
use of a weighted average per-minute cost to be ``patently 
unreasonable'' given that such an approach made calls with above-
average costs unprofitable and thus did ``not fulfill the mandate of 
Sec.  276 that `each and every''' call be fairly compensated.

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Additionally, the court found that the 2015 ICS Order ``advance[d] an 
efficiency argument--that the larger providers can become profitable 
under the rate caps if they operate more efficiently--based on data 
from the two smallest firms,'' which ``represent[ed] less than one 
percent of the industry,'' and that the Order did not account for 
conflicting record data. The court therefore vacated this portion of 
the 2015 ICS Order.
    18. Finally, the court remanded the ancillary service charge caps. 
The D.C. Circuit held that ``the Order's imposition of ancillary fee 
caps in connection with interstate calls is justified'' given the 
Commission's ``plenary authority to regulate interstate rates under 
Sec.  201(b), including `practices . . . for and in connection with' 
interstate calls.'' The court held that the Commission ``had no 
authority to impose ancillary fee caps with respect to intrastate 
calls.'' Because the court could not ``discern from the record whether 
ancillary fees can be segregated between interstate and intrastate 
calls,'' it remanded the issue so the Commission could determine 
whether it could segregate ancillary fee caps on interstate calls 
(which are permissible) and on intrastate calls (which are 
impermissible). The court also vacated the video visitation annual 
reporting requirements adopted in the 2015 ICS Order.
    19. In December 2017, after it issued the GTL v. FCC opinion, the 
D.C. Circuit in Securus v. FCC ordered the 2016 ICS Reconsideration 
Order ``summarily vacated insofar as it purports to set rate caps on 
inmate calling service'' because the revised rate caps in that 2016 
Order were ``premised on the same legal framework and mathematical 
methodology'' rejected by the court in GTL v. FCC. The court remanded 
``the remaining provisions'' of that Order to the Commission ``for 
further consideration . . . in light of the disposition of this case 
and other related cases.'' As a result of the D.C. Circuit's decisions 
in GTL and Securus, the interim rate caps that the Commission adopted 
in 2013 ($0.21 per minute for debit/prepaid calls and $0.25 per minute 
for collect calls) remain in effect for interstate inmate calling 
services calls.

D. 2020 Rates and Charges Reform Efforts

    20. 2020 ICS Order on Remand and FNPRM. In February 2020, the 
Wireline Competition Bureau (Bureau or WCB) issued a public notice 
seeking to refresh the record on ancillary service charges in light of 
the D.C. Circuit's remand in GTL v. FCC. This Public Notice was 
published in the Federal Register. In the Ancillary Services Refresh 
Public Notice, the Bureau sought comment on ``whether each permitted 
[inmate calling services] ancillary service charge may be segregated 
between interstate and intrastate calls and, if so, how.'' The Bureau 
also sought comment on any steps the Commission should take to ensure, 
consistent with the D.C. Circuit's opinion, that providers of 
interstate inmate calling services do not circumvent or frustrate the 
Commission's ancillary service charge rules. The Bureau also defined 
jurisdictionally mixed services as `` `[s]ervices that are capable of 
communications both between intrastate end points and between 
interstate end points' '' and sought comment on, among other issues, 
how the Commission should proceed if any permitted ancillary service is 
``jurisdictionally mixed'' and cannot be segregated between interstate 
and intrastate calls.
    21. In August 2020, the Commission adopted the 2020 ICS Order on 
Remand and 2020 ICS FNPRM. The Commission responded to the court's 
remands and took action to comprehensively reform inmate calling 
services rates and charges. First, the Commission addressed the D.C. 
Circuit's directive that the Commission consider whether ancillary 
service charges--separate fees that are not included in the per-minute 
rates assessed for individual inmate calling services calls--can be 
segregated into interstate and intrastate components for the purpose of 
excluding the intrastate components from the reach of the Commission's 
rules. The Commission found that ancillary service charges generally 
are jurisdictionally mixed and cannot be practicably segregated between 
the interstate and intrastate jurisdictions 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 
clearly an intrastate call. As a result, the Commission concluded that 
inmate calling services providers are generally prohibited from 
imposing any ancillary service charges other than those permitted by 
the Commission's rules, and providers are generally prohibited from 
imposing charges in excess of the Commission's applicable ancillary 
service fee caps.
    22. Second, the Commission proposed rate reform of the inmate 
calling services within its jurisdiction. As a result of the D.C. 
Circuit's decisions, the interim interstate rate caps of $0.21 per 
minute for debit and prepaid calls and $0.25 per minute for collect 
calls that the Commission adopted in 2013 remain in effect today. 
Commission staff performed extensive analyses of the data it collected 
in the Second Mandatory Data Collection as well as the data in the 
April 1, 2020, annual reports. In the 2015 ICS Order, the Commission 
directed that the Second Mandatory Data Collection be conducted ``two 
years from publication of Office of Management and Budget (OMB) 
approval of the information collection.'' The Commission received OMB 
approval in January 2017, and Federal Register publication occurred on 
March 1, 2017. Accordingly, on March 1, 2019, inmate calling services 
providers submitted their responses to the Second Mandatory Data 
Collection. WCB and the Office of Economics and Analytics (OEA) 
undertook a comprehensive analysis of the Second Mandatory Data 
Collection responses, and conducted multiple follow-up discussions with 
providers to supplement and clarify their responses, in order to 
conduct the data analysis upon which the proposals in the August 2020 
ICS FNPRM are based. Based on that analysis, 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. In so doing, the Commission used a 
methodology that addresses the flaws underlying the Commission's 2015 
and 2016 rate caps (which used industry-wide averages to set rate caps) 
and that is consistent with the mandate in section 276 of the Act that 
inmate calling services providers be fairly compensated for each and 
every completed interstate call. The Commission's methodology included 
a proposed 10% reduction in GTL's costs to account, in part, for 
seemingly substantially overstated costs. The Commission also proposed 
to adopt a waiver process that would permit providers to seek waivers 
of the proposed rate caps on a facility-by-facility or contract basis 
if the rate caps would prevent a provider from recovering the costs of 
providing interstate inmate calling services at a facility or 
facilities covered by a contract. The 2020 ICS FNPRM also proposed ``to 
adopt a rate cap formula for international inmate calling services 
calls that permits a provider to charge a rate up to the sum of the 
inmate calling services provider's per-minute interstate rate cap for 
that correctional facility plus the amount that the provider must pay 
its underlying international service provider for that

[[Page 40686]]

call on a per-minute basis (without a markup).'' The Commission 
explained that this cap ``would enable inmate calling services 
providers to account for widely varying costs,'' be consistent with the 
``just and reasonable' standard in section 201(b) of the Act, and 
comport with the ``fair compensation'' provision of section 276 of the 
Act.
    23. In response to the 2020 ICS FNPRM, the Commission received over 
90 comments and reply comments and 9 economic studies. Filers included 
providers of calling services to incarcerated people, public interest 
groups and advocates for the incarcerated, telecommunications 
companies, organizations representing individuals who are deaf or hard 
of hearing, and providers of telecommunications relay service.
    24. Intrastate Rate Reform Efforts. By April 1 of each year, inmate 
calling services providers file annual reports with the Commission that 
include rates, ancillary service charges, and site commissions. In an 
effort to compare interstate inmate calling services rate levels with 
intrastate rate levels, Commission staff analyzed the intrastate rate 
data submitted as part of the providers' April 1, 2020, annual reports. 
Commission staff's review revealed that intrastate rates for debit or 
prepaid calls exceed interstate rates in 45 states, with 33 states 
allowing rates that are at least double the Commission's interstate cap 
and 27 states allowing ``first-minute'' charges that can be more than 
25 times that of the first minute of an interstate call. For example, 
one provider reported a first-minute intrastate rate of $5.34 and 
additional per-minute intrastate rates of $1.39 while reporting the 
per-minute interstate rate of $0.21 for the same correctional facility. 
Similarly, another provider reported a first-minute intrastate rate of 
$6.50 and an additional per-minute intrastate rate of $1.25 while 
reporting the per-minute interstate rate of $0.25 for the same 
correctional facility. Further, Commission staff identified instances 
in which a 15-minute intrastate debit or prepaid call costs as much as 
$24.80--almost seven times more than the maximum $3.15 that an 
interstate call of the same duration would cost.
    25. In light of these data, in September 2020, former Chairman Pai 
and Brandon Presley, then president of the National Association of 
Regulatory Utility Commissioners (NARUC), jointly sent a letter to the 
co-chairs of the National Governors Association urging state 
governments to take action to reduce intrastate rates and related fees. 
At least one state has enacted a law to reduce intrastate inmate 
calling services rates and fees, at least one state commenced a 
regulatory proceeding aimed at reducing intrastate inmate calling 
services rates and fees, and several states are considering 
legislation.

III. Third Report and Order

    26. In this Third Report and Order, the Commission takes several 
important steps to provide significant financial relief to incarcerated 
people and their families, all substantially consistent with the August 
2020 ICS FNPRM, except where the record evidence requires the 
Commission to take a more conservative approach. The Commission takes 
these actions now in light of the exigent circumstances facing 
incarcerated people as they continue to deal with hardships related to 
the COVID-19 pandemic. First, the Commission reforms per-minute inmate 
calling services rates on an interim basis, capping interstate rates at 
$0.12 per minute for prisons and $0.14 per minute for larger jails. 
Second, the Commission reforms the current treatment of site 
commissions by adopting two distinct interim site commission-related 
rate components reflecting the different types of site commissions: 
Site commission payments that providers are obligated to pay under 
formally codified laws or regulations; and payments that providers 
agree, by contract, to make. Third, the Commission caps international 
calling rates for the first time. These and other reforms adopted here 
will enable consumers--incarcerated people and their families--to 
obtain essential communications capability at just and reasonable rates 
while the Commission remains faithful to its obligations under section 
276 of the Act.
    27. The reforms the Commission adopts today reflect its findings, 
as detailed below, regarding the monopoly power that each calling 
service provider has over the individual correctional facilities it 
serves; the numerous negative impacts the providers' exercise of that 
market power has had on incarcerated people, their families and 
communities, and society as a whole; and the substantial record 
evidence of the need for at least interim reforms to the Commission's 
rate caps and related regulations. In these circumstances, to the 
extent the record permits, the Commission exercises its authority under 
section 201(b) of the Act to ``prescribe such rules and regulations as 
may be necessary'' to ensure that ``[a]ll charges [and] practices . . . 
for and in connection with [interstate and international] communication 
service'' by wire or radio are `just and reasonable.' '' This provision 
provides the Commission with ample authority to regulate the interstate 
and international rates and the practices of providers of calling 
services for incarcerated people, including setting interim rate caps 
for interstate and international calls given that providers have 
monopoly power in the facilities they serve. The Commission has 
previously exerted jurisdiction over rates where it found it necessary 
to constrain monopoly power exercised by competitive LECs.
    28. Although the record makes clear that the current interim rate 
caps for calling service to prisons and larger jails are unreasonably 
high, limitations in the reported data--arising in significant part 
from shortcomings in certain providers' responses to the Second 
Mandatory Data Collection--make the Commission wary of establishing 
permanent rate caps based on the current record. The Commission also 
declines to consider ICSolutions' proposal that the Commission forbear 
from the requirement that calling services providers contribute to the 
Universal Service Fund. The Commission has already addressed 
forbearance from universal service contribution obligations in the 
inmate calling services context in a separate proceeding, and the 
Commission declines to revisit that matter in this proceeding. Nor does 
the record allow the Commission to reasonably set permanent or even new 
interim interstate rate caps for jails with less than 1,000 average 
daily population, adjust its caps on ancillary service fees beyond the 
new cap on fees for single-call services and third-party financial 
transaction fees, or ensure that incarcerated people with disabilities 
have any greater access to functionally equivalent communications 
capabilities than they have today. The Commission therefore institutes 
a Mandatory Data Collection to provide the Commission and interested 
parties with more complete and accurate data regarding the costs of 
providing inmate calling services. The Commission anticipates that 
those data, in combination with the record developed in response to the 
attached Fifth Further Notice of Proposed Rulemaking (Fifth FNPRM), 
will enable the Commission to take these important steps in the near 
future. The Commission also delegates authority to the Consumer and 
Governmental Affairs Bureau (CGB) to undertake a separate data 
collection related to service providers' costs and other key aspects of 
their provision of telecommunications relay services

[[Page 40687]]

(TRS) and other assistive technologies if necessary to help the 
Commission resolve the critically important disability access issues 
the Commission explores in the Fifth FNPRM, published elsewhere in this 
issue of the Federal Register.

A. Unique Marketplace for Telephone Services Provided to Incarcerated 
People

    29. The Commission has previously determined that providers of 
telephone services to incarcerated people have monopoly power in the 
facilities they serve. The Commission reaffirms this long-established 
finding, one that applies equally not only to the rates and charges for 
calling services provided to incarcerated people, including ancillary 
services, but also to providers' practices associated with their 
provision of calling services. Indeed, ICSolutions requests that the 
Commission investigate providers' compliance with the interim rate 
caps, in addition to other instances of asserted noncompliance. While 
this rulemaking proceeding is the wrong vehicle to address ICSolution's 
first two concerns, the Commission welcomes suggestions on how to 
revise its rules to better detect noncompliance, which the Commission 
seeks as part of the Fifth FNPRM, published elsewhere in this issue of 
the Federal Register.
    30. The record demonstrates, as the Commission previously found and 
reiterated in the August 2020 ICS FNRPM, that incarcerated people have 
no choice in the selection of their calling services provider. For 
these consumers, the relevant market is the incarcerating facility. The 
authorities responsible for prisons or jails typically negotiate with 
the providers of inmate calling services and make their selection 
without input from the incarcerated people who will use the service. 
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. On the contrary, correctional authorities exercise 
near total control over how incarcerated people are able to communicate 
with the outside world. This control extends to control over visitation 
rights, the use of traditional mail and courier services, and the 
ability to use any form of electronic communication. Indeed, the only 
way an incarcerated person may legally communicate with the outside 
world is with the explicit permission of the correctional authority. 
Therefore, no competitive forces within the facility constrain 
providers from charging rates that far exceed the costs such providers 
incur in offering service.
    31. Some commenters argue the market for inmate calling services is 
competitive because providers of those services bid against each other 
to win contracts with correctional facilities. GTL, in particular, 
makes much of this claim. Because correctional officials typically 
allow only one provider to serve any given facility, however, there are 
no competitive constraints on a provider's rates once it has entered 
into a contract to serve a particular facility. Some experts 
representing inmate calling services providers recognize this to be the 
case. The Commission has observed that ``because the bidder who charges 
the highest rates can afford to offer the confinement facilities the 
largest location commissions, the competitive bidding process may 
result in higher 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

    32. The Commission has long recognized the far-ranging consequences 
that high calling rates inflict on incarcerated people, their families, 
and society as a whole. The record in this proceeding confirms that 
excessive telephone rates continue to impose an unreasonable burden on 
the ability of incarcerated people--one of the most economically 
disadvantaged segments of our population--to maintain vital connections 
with the outside world. And reduced prison visitation as a result of 
the COVID-19 pandemic has made these consequences even more dire, 
exacerbating the urgent need for inmate calling rate reform.
    33. A national survey identified the cost of phone calls as the 
primary barrier preventing incarcerated people from keeping in touch 
with loved ones. As one commenter sums it up: ``A sentence to jail or 
prison should not include the additional punishment of being cut off 
from family, friends, legal assistance, and community resources.'' 
Studies confirm that incarcerated people who have regular contact with 
family members are more likely to succeed after release and have lower 
recidivism rates because they are able to maintain vital support 
networks.
    34. The high cost of calling services causes damaging consequences 
not only for incarcerated people but also for their families. The 
record suggests that as many as 34% of families go into debt to keep in 
touch with an incarcerated family member. Some low-income families are 
forced ``to choose between calling an incarcerated family member and 
buying essential food and medicines.'' Rate reform will reduce these 
financial burdens and also promote increased communication which 
preserves essential family ties, allowing incarcerated people ``to 
parent their children and connect with their spouses, helping families 
stay intact,'' and decreasing the trauma suffered by children whose 
parents have been incarcerated.
    35. The benefits of lowering inmate calling services rates also 
ripple throughout communities and society in other tangible and 
intangible ways. For example, making communications less costly and 
easier to use for incarcerated people promotes their ability to plan 
for housing, employment, and successful integration into communities 
once released from prison. In financial terms, increased communication 
helps reduce repeated incarceration, which benefits society by saving 
millions of dollars in incarceration-related costs annually. 
Additionally, the record shows that the ability to communicate 
regularly with families ``reduces foster placement of children of 
incarcerated people, which result[s] in measurable savings to society 
of tens of millions of dollars per year.''
    36. The COVID-19 pandemic has intensified the need to reform inmate 
calling services rates. Even before the pandemic, it could be 
impractical, costly, and time-prohibitive for family members to make 
regular visits to those in prisons often located hundreds of miles 
away. But as a result of the pandemic, most jails and prisons have 
prohibited or severely limited in-person visitation. Thus, telephone 
calls have become even more of ``an essential lifeline for 
connection''--adding to the exigency and importance of the reforms that 
the Commission adopts today.

C. Interim Interstate Rate Cap Components

    37. In the 2020 ICS FNRPM, the Commission proposed to adopt 
permanent interstate rate caps of $0.14 per minute for all calls from 
prisons and $0.16 per minute for all calls from jails. These proposed 
caps included an allowance of $0.02 per minute added to provider-
related rate caps of $0.12 and $0.14 per minute, respectively, to 
account for the costs correctional facilities incur that are reasonably 
related to the provision of inmate

[[Page 40688]]

calling services. The proposed rate caps generated extensive debate in 
the record, with providers contending that the available data do not 
justify any reduction in the existing interstate rate caps of $0.21 per 
minute for debit and prepaid calls, and public interest groups 
suggesting even lower rates than those the Commission proposed. 
Although collect calls are subject to a separate rate cap of $0.25 per 
minute under the existing interim interstate caps, as discussed below, 
the Commission and the parties on record agree that there is no longer 
a need to maintain this distinction.
    38. After carefully considering the record, including data from the 
Second Mandatory Data Collection and commenting parties' analyses of 
those data, and refining its analysis based on record feedback, the 
Commission takes the following actions. First, as proposed in the 2020 
ICS FNRPM, the Commission eliminates a separate rate cap for all 
collect calls. Second, the Commission adopts new interim provider-
related interstate rate caps of $0.12 per minute for calling services 
provided to incarcerated people in prisons and $0.14 per minute for 
calling services provided to incarcerated people in larger jails, as 
proposed in the 2020 ICS FNPRM. As the Commission explains below, and 
in recognition of the concerns raised by various commenters, the 
Commission does not establish new interim rate caps for jails having 
average daily populations below 1,000. Those facilities remain subject 
to the maximum total per-minute rate cap of $0.21. The Commission 
refrains from adopting new interim rate caps for jails with average 
daily populations below 1,000, which remain subject to the interstate 
total per-minute rate cap of $0.21. Next, the Commission adopts new 
interim facility-related rate caps associated with site commission 
payments. Together, these rate cap components result in new lower total 
interstate rate caps that will remain interim in status, pending a 
further data collection which the Commission also adopts today in order 
to facilitate the Commission's adoption of permanent interstate rate 
caps.
    39. Consistent with the 2020 ICS FNPRM, the new interim interstate 
rate cap components will apply to all calls that a provider identifies 
as interstate as well as to all calls that the provider cannot 
definitively identify as intrastate, as determined through the 
application of the Commission's traditional end-to-end jurisdictional 
analysis. Securus asks that the Commission forbear from enforcing the 
end-to-end analysis reflected in the Enforcement Bureau's November 2020 
Enforcement Advisory to per-minute interstate rates. The Commission 
declines to do so at this time. As the Commission explains in the Order 
on Reconsideration published elsewhere in this issue of the Federal 
Register, the end-to-end analysis is, and has been, the generally 
applicable jurisdictional standard for determining the jurisdiction of 
a telephone call in the absence of an express Commission determination 
that some other method is permissible. As the Commission has never 
expressly permitted another method of jurisdictional classification for 
inmate calling services calls, the end-to-end analysis continues to 
apply to those calls. Under this analysis, the jurisdictional nature of 
a call ``depends on the physical location of the endpoints of the call 
and not on whether the area code or NXX prefix of the telephone number, 
or the billing address of the credit card associated with the account, 
are associated with a particular state.'' Thus, to the extent that a 
provider cannot determine that the physical endpoints of a call are 
within the same state, that provider must not exceed the Commission's 
new interim interstate rate caps for that call. The use of physical 
endpoints for determining the appropriate rate cap for a call, 
including related ancillary services charges, does not, however, 
preclude the use of telephone number or other proxies, where permitted 
by the Commission or state or local authorities, in determining the 
appropriate taxing jurisdiction for such calls. It similarly has no 
bearing on the use of permissible proxies or other good faith estimates 
for federal or state Universal Service Fund contributions or similar 
regulatory fees or assessments for jurisdictionally indeterminant 
calling services.
1. Eliminating Separate Rate Caps for Collect Calls
    40. Consistent with the proposal in the 2020 ICS FNPRM, the 
Commission eliminates the separate interim rate cap that has applied to 
interstate collect calls since 2013. The record overwhelmingly supports 
this action, which recognizes the limited role that collect calls play 
in today's inmate calling services marketplace and the relatively 
small, if any, difference in cost between collect and non-collect 
inmate calling services calls.
    41. Under the interim rate caps the Commission first adopted in 
2013, interstate debit and prepaid calls are capped at $0.21 per 
minute, while interstate collect calls are capped at $0.25 per minute. 
In the 2015 ICS Order, the Commission adopted a two-year phasedown for 
collect calls, after which rate caps for those calls were to be the 
same as those of debit and prepaid calls. The Commission found that the 
number of collect calls had dropped significantly over the preceding 
few years and predicted that the number of collect calls ``will most 
likely be at a nominal level in two years.'' Although this phasedown 
was vacated by the D.C. Circuit in GTL as part of that court's larger 
vacatur of the 2015 ICS Order, the court did not criticize the 
Commission's phasedown of collect calls.
    42. In the 2020 ICS FNPRM, the Commission proposed to eliminate the 
distinct rate cap for collect calls, given ``the absence of any data 
demonstrating a material difference in the costs of providing these 
different types of calls.'' Commenters overwhelmingly support this 
proposal, with both providers and public interest groups agreeing that 
there is no longer any need for a separate rate cap for collect calls. 
Both Securus and GTL point out that collect call volumes continue to 
decline. And commenters agree that there are no longer significant cost 
differences between collect calls and debit or prepaid calls. Indeed, 
the record provides no support for a separate rate cap for collect 
calls, and comments make clear that eliminating the ``collect-only'' 
rate cap will benefit all stakeholders by making it easier for 
providers to administer, and for consumers to understand, rate caps for 
interstate and international calls.
    43. The Commission finds that the lack of cost disparity in 
providing prepaid, debit, or collect calling services, coupled with the 
low and ever-diminishing demand for collect calls and the benefits to 
all stakeholders from having a single cap for all calls from a 
facility, support ending the distinction between prepaid, debit, and 
collect calling rates. The Commission therefore eliminates the separate 
interim cap for interstate collect calls for jails with average daily 
populations below 1,000 that remain subject to the 2013 interim rate 
caps. As a result of this change, all interstate calls from jails with 
average daily populations below 1,000 will be subject to a single, 
uniform, interim rate cap of $0.21 per minute. All interstate calls 
from prisons and larger jails will be subject to the new uniform 
interim rate caps the Commission adopts today for each type of 
facility, without regard to whether the interstate calls are collect, 
debit, or prepaid, as those terms are defined in its rules.
2. Setting a Threshold of 1,000 Average Daily Population for Larger 
Jails
    44. The Commission adopts an average daily population threshold of

[[Page 40689]]

1,000 or greater to differentiate larger jails from smaller jails and 
apply its new interim provider-related and facility-related rate caps 
to larger jails, while leaving jails with average daily populations 
below 1,000 subject to the existing total interim rate cap of $0.21 per 
minute for all interstate calls. This larger jail threshold is aligned 
with the approach the Commission adopted in 2015, when it likewise used 
an average daily population of 1,000 to distinguish between rate cap 
tiers. In the 2015 ICS Order, the Commission adopted 1,000 average 
daily population as the larger jail size threshold. As one commenter 
points out, many of the cost analyses in the record segment jails by 
reference to the same 1,000 average daily population figure, a fact 
that supports the Commission's decision to set the average daily 
population threshold at 1,000 here. Numerous commenters have advanced 
the 1,000 average daily population figure to segment their own data 
analyses and resultant proposals, and none have criticized this cutoff 
as irrational or unduly difficult to administer. Although some 
commenters have argued that turnover may provide a more accurate 
indicator of costs, the Commission has not received turnover rate data 
in the record and must work with the data provided. However, the 
Commission finds that the cost data available from jails with average 
daily populations less than 1,000, including turnover and admission 
rates, deserves further investigation, and specifically seek such data 
in the Fifth FNPRM the Commission issues today accompanying this Report 
and Order. Providers shall calculate average daily population in 
accordance with section 64.6000 of the Commission's rules, which 
specifies that average daily population means ``the sum of all inmates 
in a facility for each day of the preceding calendar year, divided by 
the number of days in the year.''
    45. The Commission's decision to exclude jails having average daily 
populations below 1,000 from the new interim caps is based on record 
evidence suggesting that providers incur higher costs per minute for 
jails with average daily populations below 1,000 than for larger jails. 
Securus asserts that ``small jails are more expensive to serve than 
larger jails.'' Securus points to its cost study showing ``a strong and 
consistent relationship between cost and facility size.'' Pay Tel also 
broadly argues that inmate calling services ``costs vary substantially 
based on facility size.'' More specifically, Pay Tel explains that its 
``experiences regarding its costs of providing ICS'' demonstrate that 
costs increase ``in terms of jail'' average daily population, providing 
further evidence that providers incur greater costs to serve smaller 
jails. The Commission agrees with these commenters that, based on the 
current record, providers appear to incur somewhat higher costs in 
serving jails with average daily populations less than 1,000 than 
larger jails and the Commission finds this evidence credible and 
sufficient to support a cutoff of 1,000 average daily population for 
distinguishing larger jails from those with average daily populations 
below 1,000 for purposes of applying the Commission's new interim rate 
caps.
    46. The data before the Commission preclude any specific 
determination of the extent to which the costs of providing calling 
services vary with jail size, and the Commission therefore disagrees 
with the Public Interest Parties' assertion that ``size does not impact 
costs,'' at least on the basis of this record. For example, the Second 
Mandatory Data Collection did not collect data on turnover rates so the 
Commission cannot determine how that variable affects providers' or 
facilities' costs. Given this, the Commission takes a bifurcated 
approach with regard to its new interim rate caps for jails. First, 
because the Commission is convinced that providers' costs of serving 
larger jails are likely below the industry average for all jails, the 
Commission uses the available data to set interim provider-related rate 
caps for larger jails. These interim caps are separate from those the 
Commission sets for prisons. Second, because the available data do not 
allow the Commission to quantify the extent to which providers' cost of 
serving jails with average daily populations below 1,000 exceed the 
industry average, the Commission defers further rate cap setting with 
respect to these jails until such time as the Commission is able to 
gather and analyze additional cost information. In the Fifth FNPRM, 
published elsewhere in this issue of the Federal Register, the 
Commission seeks detailed information on provider costs associated with 
serving jails with average daily populations below 1,000. On the record 
before the Commission, the Commission finds it reasonable and 
appropriate to exclude these jails from the new interim rate caps it 
adopts today for interstate calls. As explained in Part III.C.2 above, 
the Commission also uses the 1,000 average daily population threshold 
to distinguish larger jails for purposes of the facility-related rate 
component.
3. Accounting for Provider Costs
    47. Deciding to Adopt Separate Interim Interstate Provider-Related 
Rate Caps for Prisons and Larger Jails. In the 2020 ICS FNPRM, the 
Commission found that the reported data showed greater variations from 
mean costs for jails than for prisons (and therefore a greater standard 
deviation from the mean for jails than for prisons). A mean is the 
arithmetic average of numbers in a distribution. A standard deviation 
is a measure of dispersion calculated as the square root of the average 
of the squared differences from the mean. These greater variations from 
mean costs were one reason that led the Commission to propose a higher 
interstate rate cap for jails than for prisons. After analyzing the 
record, consistent with the proposal in the 2020 ICS FNPRM, the 
Commission adopts separate interim interstate provider-related rate 
caps for prisons and larger jails.
    48. As set forth in Appendix B, the Commission's refined analysis 
suggests that it costs service providers approximately 22% more to 
provide calling services in jails than in prisons. That analysis also 
shows greater variations from mean costs for jails. At least one 
commenter provides credible evidence that providers generally incur 
higher costs to serve jails than prisons and therefore ``support[s] the 
Commission's proposal to establish separate rate ceilings for prisons 
and jails.'' Pay Tel agrees that the evidence demonstrates greater 
costs per minute for jails than prisons, and explains that its 
examination of the reported costs of three of the six providers that 
serve both types of facilities shows that the costs of serving jails 
are roughly 40% higher. Securus also concludes that, for jails, costs 
per minute decrease as facility size increases, and that costs per 
minute for prisons are lower than for jails.
    49. Not all commenters agree with drawing a distinction between 
prisons and jails. The Public Interest Parties point out that some 
providers have argued that there are no real cost differences between 
serving prisons and jails and therefore there is no basis for a 
separate, higher cap for jails. They urge that the Commission moves 
towards a unitary rate structure that would ``eliminate the multi-tier 
rate structure for jails'' and create a ``unified rate cap for prisons 
and jails.'' Although the record indicates that some jails bear the 
characteristics the Commission otherwise associates with prisons, on 
this record the Commission is not persuaded that these situations are 
the norm, and it finds that, overall, the evidence suggests higher 
provider costs

[[Page 40690]]

at jails than prisons. At the same time, the Commission rejects the 
notion that it should delay any action until the Commission collects 
more detailed cost data. The Commission has sufficient record evidence 
now to set interim rate caps for prisons and larger jails, consistent 
with its obligations and authority under the Act. The Commission 
therefore finds it appropriate to set different interstate provider-
related rate caps for prisons than for jails on an interim basis. The 
Commission does not, however, distinguish between prisons and larger 
jails for purposes of its facility-related rate component designed to 
recover portions of contractually prescribed site commission payments. 
As explained in Part III.C.4 below, there is record support that the 
same facility-related allowance for prisons and larger jails is 
appropriate, and the Commission proceeds that way on an interim basis. 
To the extent that the record developed in response to the Fifth FNPRM, 
published elsewhere in this issue of the Federal Register, reveals that 
the Commission should distinguish between prisons and larger jails, the 
Commission will revisit that at such time as it develops permanent rate 
caps.
    50. Methodology. As with any exercise in cost-based ratemaking, 
setting reasonable interim interstate provider-related rate caps for 
inmate calling services requires a determination of the costs providers 
incur in providing those services. Traditionally, agencies have set 
regulated rates through company-specific cost-of-service studies that 
measure the regulated firms' total cost of providing the regulated 
service using the firms' accounting data. The costs of service include 
operating expenses (e.g., operating, maintenance and repair, and 
administrative expenses), depreciation expenses (the loss of value of 
the firm's assets over time due to wear and tear and obsolescence), 
cost of capital (the cost incurred to finance the firm's assets with 
debt and equity), and income and other tax expenses. Regulators often 
establish rules that specify how costs, including those arising from 
affiliate transactions, are to be accounted for, apportioned between 
the firms' regulated operations and nonregulated operations, and 
assigned to, or allocated among, different jurisdictions and services.
    51. The Commission's approach toward regulating inmate calling 
services rates has been less prescriptive. The Commission, to date, has 
not adopted accounting rules for calling service providers. Nor has it 
specified complex rules for directly assigning or allocating a 
provider's and its affiliates' costs between their calling services 
operations and nonregulated operations, or assigning or allocating a 
provider's calling services costs to or among the providers' contracts 
or facilities. And it did not require calling service providers to 
submit cost of service studies requiring each provider to show in 
detail each step of its costing process.
    52. Instead, the Commission has relied on data obtained through 
Mandatory Data Collections to set reasonable cost-based rate caps for 
inmate calling services. The Second Mandatory Data Collection, in 
particular, required every calling service provider to submit detailed 
information regarding its operations, costs, and revenues, including: 
(1) Lists of its inmate calling services contracts and the correctional 
facilities to which they apply; (2) the average daily populations, 
number of calls annually, and minutes of use annually at each of those 
facilities; (3) the direct costs of providing inmate calling services 
on a total company basis and at each of those facilities; and (4) the 
indirect costs of providing inmate calling services on a total company 
basis. Direct costs are costs that are ``completely attributable'' to a 
particular service such as inmate calling services. Indirect costs are 
all costs related to a service other than direct costs and include 
``overhead, depreciation, or other costs that are allocated among 
different products or services.'' Determining a company's indirect 
costs requires a calculation: Subtracting the company's indirect costs 
from its total costs. Providers were required to provide information 
about costs in several steps. First, providers had to identify which of 
their and their corporate affiliates' total costs were directly 
attributable to inmate calling services and which were directly 
attributable to other operations. Providers were then required to 
allocate the remainder of their costs and their affiliates' total 
costs--the costs identified as indirect costs or overhead--between 
inmate calling services and other, nonregulated, operations. Providers 
were then required to allocate the inmate calling services portion of 
their direct costs to specific facilities but were not required to 
allocate their indirect costs to specific facilities.
    53. In the 2020 ICS FNPRM, the Commission proposed to use data from 
the Second Mandatory Data Collection, as compiled into a database by 
Commission staff, to calculate the costs each provider incurs in 
providing inmate calling services under each of its contracts for 
prisons and jails separately. The Commission proposed to calculate the 
mean (or arithmetical average) of those costs, add one standard 
deviation to that mean, and use the resulting sum to determine the 
provider cost portions of the interstate rate caps. The Commission 
reasoned that this ``mean contract costs per minute . . . plus one 
standard deviation'' methodology would allow the vast majority of 
providers to recover at least their reported costs under each of their 
contracts.
    54. Reliance on Data from the Second Mandatory Data Collection. As 
proposed in the 2020 ICS FNPRM, the Commission's interim rate cap 
methodology begins with the calculation of mean contract costs paid per 
minute in the provision of calling services to incarcerated people. To 
perform this calculation, the Commission relies on the 2018 data 
submitted in response to the Second Mandatory Data Collection, as 
supplemented and clarified by the providers in response to follow-up 
discussions with Commission staff, as the Commission proposed in the 
2020 ICS FNPRM. This approach reflects both the robustness and the 
limitations of the data submitted in response to the Second Mandatory 
Data Collection. On the one hand, those data provide an unprecedented 
wealth of information about the inmate calling services industry and 
individual calling service providers. The reported information allows 
the Commission to perform sophisticated analyses that help the 
Commission estimate the providers' actual costs of providing interstate 
inmate calling services.
    55. On the other hand, as the Commission explained in the 2020 ICS 
FNPRM, the collected data have certain limitations. First, although the 
Commission had sought facility-level data in the Second Mandatory Data 
Collection, in many instances, providers reported data only at the 
contract level, reflecting the fact that ``many providers assess their 
inmate calling services operations on a contract-by-contract basis, 
although many contracts include multiple correctional facilities.'' 
Given the lack of facility-level data, the Commission proposed to 
analyze the information on a contract, rather than a facility, basis 
and sought comment on this approach. Second, the Commission recognized 
that some providers had interpreted different steps in the cost 
reporting instructions for the Second Mandatory Data Collection in 
different ways. The Commission sought comment on the submitted data and 
asked commenters to identify other data issues for consideration.

[[Page 40691]]

    56. The Public Interest Parties argue that the 2018 data ``provide 
more than sufficient evidence to support immediate rate reform.'' The 
Commission agrees. As the Public Interest Parties' expert asserts, 
variations in internal cost records among providers affect how costs 
are reported, not the overall level of costs. In other words, the lack 
of uniformity in cost data reporting need not result in further delay 
in the Commission's rate reform efforts. Further, as explained in 
Appendix A, providers' reports of call minutes and revenues are likely 
to be accurate down to the level of the contract. All providers bill on 
a per-minute basis, and revenue tracking, and thus reported revenues, 
are also likely to be reliable because providers are incentivized to 
accurately track them. Accordingly, the Commission finds the reported 
minutes of use and revenue data to be reliable and suitable for setting 
interim interstate rate caps.
    57. Certain providers argue that the 2018 cost data from the Second 
Mandatory Data Collection are unsuitable for setting new rate caps. 
Securus, for example, contends that the Commission should not rely on 
the 2018 data because providers did not report their costs using a 
consistent methodology. In particular, Securus emphasizes that because 
providers were not required to, and did not, disclose how they 
calculated their direct costs or how they allocated indirect costs 
between regulated and nonregulated services, ``each company's measure 
of `costs' is unique to itself and inconsistent with that of every 
other company.'' Pay Tel and its outside consultant highlight 
``numerous inconsistencies in the manner in which costs were reported'' 
which, they argue, make the data unsuitable for cost-based ratemaking. 
Pay Tel's outside consultant points to providers' differing 
understandings of how to report direct and indirect costs and the 
accuracy of reported direct costs based on the chosen allocator for 
those costs. For its part, GTL finds it unsurprising that ``there are 
differences in the data among [inmate calling services] providers given 
the different reporting methodolog[ies] because no uniform accounting 
is required or necessary.'' GTL also notes that calling service 
providers are not subject to Part 32 accounting rules or any other 
uniform system of accounts. The Commission does not find these concerns 
sufficient to justify abandoning any reforms at this time, and find 
that ``variations in internal cost records and lack of a common 
methodology'' do not preclude the Commission from lowering egregiously 
high interstate rates now on an interim basis while waiting to obtain 
more reliable and consistent cost data. In sum, the 2018 data from the 
Second Mandatory Data Collection are the best data available upon which 
the Commission may, and does, reasonably rely here.
    58. The limitations in the cost data identified in the record do, 
however, warrant a departure from the approach the Commission proposed 
in the 2020 ICS FNPRM. That approach was premised on the Commission's 
ability to calculate providers' collective mean contract costs of 
providing inmate calling services to prisons and jails with a high 
degree of accuracy. Based on that premise, the Commission proposed 
relying on single measures of the industry-mean costs of providing 
calling services to permanently cap the interstate rates for prisons 
and jails, respectively.
    59. After carefully considering the record, including providers' 
criticisms of the approach proposed in the 2020 ICS FNPRM, the 
Commission takes a different approach than the one the Commission 
originally proposed and rely on the costs providers reported in 
response to the Second Mandatory Data Collection to develop separate 
zones, or ranges, of cost-based rates for prisons and larger jails from 
which the Commission selects the respective interim interstate 
provider-related rate caps. First, the costs, as reported in response 
to the Second Mandatory Data Collection, allow the Commission to 
calculate ceilings--or upper bounds--above which any interstate rate 
caps for prisons and larger jails would be unreasonably high. Second, 
the Commission adjusts the reported data to correct for outliers and 
contracts with reported costs that are significantly higher than other 
providers. These adjusted data allow the Commission to calculate 
floors--or lower bounds--below which any interstate rate caps for 
prisons and larger jails could be perceived as unreasonably low on the 
current record. These upper and lower bounds thus establish zones of 
reasonableness from which the Commission selects the interim interstate 
provider-related rate caps.
    60. The approach the Commission takes here is fully consistent with 
judicial precedent and a logical outgrowth from the approach proposed 
in the 2020 ICS FNPRM. Courts widely recognize that an agency may 
reasonably rely on the best available data where perfect information is 
unavailable. Indeed, the Supreme Court has recognized that the 
available data may not always settle a particular issue and that in 
such cases an agency must use its judgment to move from the facts in 
the record to a policy conclusion. Here, the Commission applies its 
judgment to the record before it and reach results that rationally 
connect ``the facts found and the choice[s] made.'' Importantly, by 
setting lower bounds that adjust for anomalies in the reported data, 
the Commission minimizes its reliance on data that the Commission finds 
inaccurate or unreliable.
    61. The Commission recognizes, of course, that its reliance on 
imperfect data is not ideal, but a lack of perfect data is not fatal to 
agency action. The D.C. Circuit has held that an agency's decision 
should be upheld when from ``among alternatives all of which are to 
some extent infirm because of a lack of concrete data, [the agency] has 
gone to great lengths to assemble the available facts, reveal its own 
doubts, refine its approach, and reach a temporary conclusion.'' Here, 
the Commission has undertaken a robust analysis of all the data in the 
record and fully accounted for why the rate methodology it employs is 
reasonable, despite some providers' failure to meaningfully respond to 
Commission data requests and inaccuracies in their reported data. In 
the process, the Commission explains its misgivings about reliance on 
certain data and lays out its rationale for adopting these rate caps as 
an interim step, with a commitment going forward to collect further 
data to be used to set permanent rate caps.
    62. GTL and Pay Tel claim that the absence of the Commission's 
underlying work papers limits their ``ability to comment on the 
methodology'' proposed in the 2020 ICS FNPRM and prevents them from 
determining whether the adjustments to the data proposed in that FNPRM 
are appropriate. The Commission finds these assertions to be meritless. 
The record in this proceeding contradicts these views, as do the 
comments GTL and Pay Tel themselves offer concerning the Commission's 
methodology and treatment of data. Contrary to these providers' claims, 
the database on which the calculations in the 2020 ICS FNPRM relied was 
made available to interested parties in this proceeding, subject to the 
terms of a protective order; and the record reflects that at least two 
parties have been able to replicate the Commission's rate cap analysis 
on their own, on the basis of the data available to them. The 
Commission also refers to this inmate calling services database as the 
``dataset.'' The Commission made the

[[Page 40692]]

underlying data available and specified its analytical approach. The 
Commission is not required to do more.
    63. Allocation of Indirect Costs Based on Minutes of Use. 
Consistent with the approach proposed in the 2020 ICS FNPRM, the 
Commission's rate cap methodology relies on providers' collective mean 
contract costs per paid minute of use, plus one standard deviation. 
Because the instructions for the Second Mandatory Data Collection did 
not require providers to allocate their indirect costs (including their 
overhead costs) of providing inmate calling services among contracts, 
the Commission needs to adopt a mechanism for allocating those costs. 
These overheads include costs attributable to inmate calling services 
and to particular contracts, but not reported as such by the provider. 
In the 2020 ICS FNRPM, the Commission proposed allocating the 
providers' indirect costs of providing inmate calling services among 
contracts based solely on relative minutes of use, a method that 
apportions a provider's indirect costs among its individual calling 
services contracts in proportion with each contract's share of the 
total minutes of use reported by that provider. The Commission sought 
comment on this proposal and on whether a different allocator would 
more effectively capture how costs are caused. The Commission adopts 
the proposed minute of use method of allocation for its new interim 
rate caps as one of only two reasonable allocation methods based on the 
current record.
    64. Parties disagree whether minutes of use provides an appropriate 
method for allocating indirect costs, with some comments pointing out 
its shortcomings and others supporting its use. Although several 
parties argue that minutes of use does not provide an appropriate 
allocation method, its independent analysis shows that, while 
imperfect, minutes of use provides the most reasonable allocator given 
the data before the Commission. Specifically, after examining seven 
potential allocators--minutes of use, average daily population, number 
of calls, revenue, contracts, facilities, and direct costs--for 
allocating providers' indirect costs among contracts, the Commission 
finds minutes of use both reasonable and preferable to each potential 
alternative. Although none of these allocators fully capture the 
reasons for which providers incur inmate calling services costs, 
minutes of use constitutes the best available allocator under the 
circumstances because it produces plausible per-minute rates while 
ensuring that most calling services contracts would remain commercially 
viable, even assuming the accuracy of providers' reported costs.
    65. The Commission calculated the per-minute caps that would apply 
under each potential allocator to compare the allocators. The 
Commission refers to these per-minute caps as ``implied rate caps.'' 
The Commission's calculations employed the mean contract costs per 
minute plus one standard deviation methodology proposed in the 2020 ICS 
FNPRM. For simplicity, the Commission performed these calculations 
collectively for all facilities, rather than separately for different 
types or sizes of facilities. The Commission finds that only minutes of 
use ($0.149) and number of calls ($0.208) produce results below the 
current cap for prepaid and debit calls. In contrast, the implied per-
minute rate caps for the revenue ($0.333), direct costs ($2.417), 
average daily population ($11.114), facilities ($303.685), and 
contracts ($318.636) allocators all suggest that interstate inmate 
calling services rate caps are presently unreasonably low, a 
proposition that not even any of the providers has tried to argue. This 
disparity is one of the reasons the Commission finds that minutes of 
use and number of calls are the only plausible allocators among the 
available alternatives. The Commission recognizes, as Securus and Pay 
Tel point out, allocating indirect costs based on minutes of use 
results in relatively uniform costs per minute in comparison to the 
other allocation methods. The Commission also agrees that this relative 
uniformity will necessarily result in a lower standard deviation from 
the mean for a minutes of use allocator than for any alternative 
method. The standard deviation the Commission calculates for minutes of 
use ($0.056) is significantly lower than those for each of the other 
potential allocators. But the implied rate caps for revenue ($0.220 = 
$0164 + $0.056) and direct costs ($0.284 = $0228 + $0.0506) would 
exceed current interstate rate levels if the standard deviation for 
those allocators were reduced to $0.056, and the implied rate caps for 
average daily population ($0.789), facilities ($16.485), and contracts 
($18.499) would exceed those levels even without any standard deviation 
component.
    66. Understanding that there is an element of circularity in using 
a minutes-based cost allocator when setting per-minute rate caps, the 
Commission further evaluated whether each potential allocator produces 
per-minute costs that are consistent with the rates currently set by 
providers. Specifically, the Commission calculated the percentage of 
contracts for which the provider reported per-minute revenues that are 
greater than the per-minute costs allocated to each contract under each 
allocator. Minutes of use yielded a higher percentage of viable 
contracts than did any other cost allocator. Minutes of use yielded 
87.3% of contracts with per-minute provider revenues greater than their 
per-minute allocated costs. The next closest allocators are direct 
costs at 81.6% and number of calls at 81.3%. This confirms that minutes 
of use is the allocator that is most consistent with provider cost 
recovery, as it is illogical to assume that providers are entering into 
a significant number of contracts that are not commercially viable 
(i.e., that do not allow providers to recover their costs). The 
Commission therefore finds minutes of use preferable to number of calls 
and use it in its provider-related rate caps calculations. The 
comparison of its per-minute cap to per-minute revenues is not subject 
to the objection that using a per-minute allocator will produce 
relatively uniform costs per minute in comparison to the other 
allocation methods.
    67. The Commission recognizes that its choice of allocator is 
affected, in part, by its decision to continue to require providers to 
charge per-minute rates for inmate calling services. The Commission 
also rejects most of the cost allocators for additional reasons that 
are not subject to the objection that using a per-minute allocator will 
produce relatively uniform costs per minute in comparison to the other 
allocation methods. For example, use of the facility and direct cost 
allocator would require throwing out substantial amounts of data, while 
the remaining data would include egregious flaws, making any resulting 
cost allocation arbitrary. This critique applies to a more limited 
extent to average daily population, but it would still be a poor choice 
relative to the alternatives of call minutes or number of calls. 
Another example is the Commission's exclusion of the revenue allocator. 
But changing that rate structure would likely impose significant 
burdens on providers, and the Commission finds no basis for requiring 
such a change in connection with its adoption of new interim rate caps. 
The Commission also cannot meaningfully assess, on the record before 
it, how different rate structures would affect incarcerated persons and 
their families. The Commission therefore defers action on alternative 
rate structures--under which calling services consumers might be 
charged a predetermined monthly fee for

[[Page 40693]]

unlimited calls, for example--pending the development of a more 
complete record in response to the Fifth FNPRM, published elsewhere in 
this issue of the Federal Register. This reasoning again is not subject 
to the objection that using a per-minute allocator will produce 
relatively uniform costs per minute in comparison to the other 
allocation methods.
    68. Some commenters contend that the available data preclude the 
Commission from allocating providers' costs with sufficient precision 
to support any changes in interstate rate caps. Pay Tel emphasizes that 
``the observed inability of many [inmate calling services] providers to 
track and assign direct costs'' results in high levels of indirect 
costs to be allocated, which makes providers' costs appear more 
``homogenous'' across locations and contracts than is actually the 
case. The Commission agrees there is some merit in these observations, 
particularly that the collected data appears to obscure cost 
differences between prisons and jails. Securus's outside experts are 
particularly critical of using minutes of use as the only allocator, 
arguing that ``the majority of [providers'] costs, which include 
connectivity to the facilities, developing and implementing the call 
platform, on-site equipment and SG&A [(selling, general, and 
administrative expenses)], do not vary by the number of minutes.''
    69. The Commission finds that such issues do not require it to 
postpone reforming its interstate rate caps pending the availability of 
better data that might allow the Commission to allocate providers' 
indirect costs in a more cost-causative manner. The Commission is not 
required to pursue ``the perfect at the expense of the achievable.'' 
The Commission finds that the better course is to adopt interim 
interstate provider-related rate caps for prisons and larger jails now, 
using the available data, while requiring that providers submit more 
accurate, consistent, and disaggregated data that will allow the 
Commission to set permanent interstate provider-related rate caps for 
all correctional facilities that more closely reflect providers' costs 
of serving individual correctional facilities. As the D.C. Circuit has 
explained, ``[w]here existing methodology or research in a new area of 
regulation is deficient, the agency necessarily enjoys broad discretion 
to attempt to formulate a solution to the best of its ability on the 
basis of available information.'' Consistent with this principle, the 
Commission chooses ``to use the best available data, and to make 
whatever adjustments appear[ ] necessary and feasible'' to ensure that 
interstate inmate calling services rates are just and reasonable.
    70. The Commission independently rejects the ``use of direct costs 
to allocate indirect costs'' and related approaches at this time. 
Pointing to its own cost-tracking processes, Pay Tel argues that 
allocating indirect costs based on directly attributable costs would be 
``not only reasonable and consistent with prior Commission 
conclusions'' but also ``consistent with how [inmate calling services] 
providers incur costs.'' Although the Commission agrees that allocating 
indirect costs based on directly attributable costs could yield 
reasonable results when providers have properly identified their 
directly attributable costs, the data from many of the providers fall 
far short of that mark. Indeed, allocation by direct costs would 
require the Commission to ignore all data submitted by the two 
providers that reported no direct costs. The providers that did not 
report direct costs are [REDACTED]. Similarly, this approach also would 
allocate essentially all of GTL's costs on the basis of bad debt, a 
measure that bears little, if any, relationship to the reasons GTL 
incurs costs in its provision of inmate calling services. Alone among 
providers, GTL reported a bad debt expense as their only identifiable 
direct cost. The evidence supports no relationship between bad debt 
expense and cost causation, and the bad debt expense amounts only to 
[REDACTED], making any related assumptions even more speculative. 
Accordingly, the Commission finds allocating indirect costs based on 
direct costs would provide less reliable results than allocating 
indirect costs based on minutes of use. The Commission likewise rejects 
the use of facilities to allocate costs, as providers often failed to 
report costs for individual facilities where multiple facilities were 
supplied under a single contract. In light of the drawbacks to these 
approaches, the Commission has a higher degree of confidence in 
providers' reported minutes of use by contract.
    71. The Commission similarly declines at this time to divide 
indirect costs into ``shared costs'' and ``common costs'' and develop 
separate allocators for each set of costs, as Securus suggests, because 
the available data do not allow the Commission to make such granular 
distinctions. The available data do not allow the Commission to analyze 
or allocate costs on the basis that Securus suggests. What Securus 
identifies as ``common costs'' most closely tracks the ``indirect 
costs'' reported in the Second Mandatory Data Collection. The 
Commission likewise rejects any allocation key based on percentages of 
total company revenue. The Commission has long disclaimed this 
allocation methodology because it fails to provide a reliable method 
for determining costs, given that ``revenues measure only the ability 
of an activity to bear costs, and not the amount of resources used by 
the activity.''
    72. Accurate Analysis Compels Adjustments to GTL's Reported Cost 
Data. As the Commission recognized in the 2020 ICS FNPRM, the critical 
question posed by its reliance on the available data is how to address 
the various issues reflected in the cost data reported by GTL, the 
largest provider of inmate calling services, with an estimated market 
share approaching 50%. One estimate from 2017 placed GTL's market share 
between 46% and 52.9% before it acquired Telmate, a company whose 
market share was between 1.9% and 3.1%. The Commission's internal 
analysis suggests GTL's share is around [REDACTED]. The Commission 
finds that GTL's cost data does not reflect its actual costs of 
providing inmate calling services and may overstate those costs. Given 
GTL's market share, including GTL's cost data as reported in the 
Commission's calculations for the entire industry, significantly 
affects the results. The Commission concludes that it must make certain 
adjustments to GTL's reported data if the Commission is to arrive at a 
more accurate estimate of industry costs. Courts have upheld the 
Commission's exclusion or substitution of flawed or inadequate data 
when the Commission has explained the evidence and demonstrated a 
rational connection between the facts found and the choice made, as the 
Commission does here.
    73. On a company-wide basis, GTL's reported unit costs, which do 
not rely on cost allocation, are higher than those of all but one (much 
smaller) provider, and are nearly [REDACTED] the average of all the 
other providers excluding GTL. Unit costs are measured as the quotient 
of reported total costs and reported minutes. This remains true for 
GTL's allocated costs per minute for prisons or larger jails--both are 
higher than nearly all other providers' allocated costs, regardless of 
facility type. Despite being the largest provider, and commanding a 
disproportionate share of the larger contracts, GTL reports an average 
contract per-minute cost of [REDACTED], approximately [REDACTED] times 
larger than its nearest peers in size, Securus and CenturyLink, and 
more than [REDACTED] times larger than the average contract per-minute 
costs of the

[[Page 40694]]

next largest provider, ICSolutions. These results are inconsistent with 
the record evidence establishing that providers are able to achieve 
significant economies of scale. As the largest inmate calling services 
provider, GTL should be better enabled to spread its fixed costs over a 
relatively large portfolio of contracts relative to other providers, 
especially because GTL serves a higher proportion of larger facilities 
than other providers. Instead, taking GTL's reported costs at face 
value would imply that it does not achieve economies of scale. The 
record does not provide any explanation why GTL might incur higher 
inmate calling services costs than the rest of the industry. GTL's unit 
costs are also high when compared with the providers that are most like 
it. GTL's unit costs are nearly [REDACTED] times those of Securus, the 
second-largest provider, nearly [REDACTED] times those of CenturyLink, 
and nearly [REDACTED] times those of ICSolutions. Securus's reported 
unit costs are [REDACTED]; CenturyLink's reported unit costs are 
[REDACTED]; and ICSolutions' reported unit costs are [REDACTED]. Of 
equal concern, GTL uniquely reports large losses across all inmate 
calling services operations, totaling nearly [REDACTED] of GTL's 
reported costs. GTL's total revenues are [REDACTED] less than its 
reported costs, suggesting that GTL operates these facilities at a 
cumulative loss--a result contradicted by GTL's longevity in the market 
and the depth of its market presence. GTL is the only provider which 
records making a loss.
    74. GTL's accounting practices also require adjustment to its data. 
Unlike every other provider, GTL reported ``bad debt expense'' as its 
only cost directly related to the provision of inmate calling services, 
though it almost certainly incurs other costs that are causally related 
to providing inmate calling services. As Pay Tel's expert explains, 
GTL's reported direct costs ``represent only 0.01% of its Total [inmate 
calling services] costs, effectively reporting a cost structure that is 
0% direct and 100% indirect.'' Compounding this problem, GTL allocated 
its indirect costs between its inmate calling services operations and 
its other operations based on the percentages of total company revenue 
each operation generated, which fails to reflect the purposes for which 
GTL incurs costs.
    75. Considering the impact that this cost data provided by the 
market's largest provider would have on its analysis, the Commission 
has repeatedly tried to obtain more accurate and complete data from 
GTL. These efforts began with several calls between staff and GTL 
representatives that sought to obtain a fuller explanation of the 
composition of the data provided by GTL in response to the Second 
Mandatory Data Collection. Following from these efforts, on July 15, 
2020, before the release of the 2020 ICS Order on Remand, the Wireline 
Competition Bureau directed GTL to provide ``additional documents and 
information regarding GTL's operations, costs, revenues, and cost 
allocation procedures'' to supplement GTL's previously filed 
submissions, and to enable the Commission ``to make a full and 
meaningful evaluation of GTL's cost data and methodology.'' This 
directive encompassed 14 separate categories of additional information. 
GTL's response, however, provided little additional information that 
would enable the Commission to determine the costs it actually incurs 
in providing calling services to incarcerated people. Instead, GTL 
objected to the requests on multiple grounds, routinely asserting that 
the Bureau sought information that GTL cannot provide and arguing that 
it does not maintain records that would allow it to respond. These 
objections included, inter alia, that the Bureau's requests lacked 
relevance, placed an undue burden on GTL, and were overbroad. Without 
the requested information, and in light of the issues the Commission 
describes above, the Commission is unable to take GTL's reported costs 
at face value in its analyses. Two commenters share its concerns and 
urge that the Commission adjust GTL's data. Although the Commission 
recognizes that GTL has not been required to keep, or indeed kept, 
accounting records that would enable it to isolate the costs it incurs 
in providing calling services to incarcerated individuals, those facts 
do not require that the Commission accepts GTL's reported costs at face 
value. The Commission therefore adjusts GTL's reported cost data with 
data that more accurately reflect the underlying characteristics of the 
prisons and larger jails that GTL serves. Specifically, as the 
Commission explains below, in establishing the lower bounds of its 
zones of reasonableness the Commission uses a generally accepted 
statistical tool--the k-nearest neighbor method--to replace the data 
reported for each prison and larger jail contract served by GTL with 
the weighted average of the data for the three most comparable (i.e., 
nearest neighbor) contracts served by other providers. The Commission 
describes this method in greater detail and show its application to 
GTL's data in Appendix C, below.
    76. Ancillary Service Costs. In the 2020 ICS FNPRM, the Commission 
observed that its proposed rate cap calculations did not account for 
revenues earned from certain ancillary services even though providers 
reported the costs of these services as inmate calling services costs 
in their responses to the Mandatory Data Collection. The Commission 
sought comment on whether it should exclude the costs of these services 
from its rate cap calculations.
    77. Based on the record before it, the Commission finds that there 
is no reliable way to exclude ancillary service costs from its 
provider-related rate cap calculations at this time. Accordingly, those 
costs will remain as a part of the industry costs that the Commission 
uses in its calculations of those interim rate caps. The instructions 
for the Second Mandatory Data Collection required certain ancillary 
service revenues to be reported separately, but providers were not 
required to report their ancillary service costs separately from other 
inmate calling services costs. Further, providers were not required to 
separately report costs relating to any specific ancillary service, and 
no commenter has suggested a way of identifying the providers' 
ancillary service costs. The Public Interest Parties argue that the 
Commission should deduct all revenues from ancillary services from the 
costs that go into its per-minute rate cap calculations. The Commission 
declines to take this step because doing so would lower the rate caps 
equally for all providers and therefore disproportionately affect those 
providers having the lowest ancillary service revenues. As a result, 
the Commission cannot isolate with any degree of accuracy the costs 
providers incur in providing ancillary services from their overall cost 
data.
    78. The Commission recognizes that this approach will result in 
interim interstate rate caps that allow for the recovery of costs 
incurred in the provision of ancillary services that calling services 
consumers already pay for through separate charges and fees, a result 
that substantially increases the likelihood that the Commission's 
interim caps are too high. The Commission intends to collect detailed 
data on ancillary services costs from each inmate calling services 
provider in its next data collection and to use those data to set 
permanent provider-related rate caps that eliminate this problem.
    79. Implementing the Zone of Reasonableness Approach. The 
Commission determines the levels of the

[[Page 40695]]

interim interstate provider-related rate caps using a zone of 
reasonableness approach. In the 2020 ICS FNPRM, the Commission proposed 
to set separate caps for prisons and all jails at the mean contract 
costs per paid minute plus one standard deviation, as calculated 
separately for each of those two categories of facilities. After 
considering the record, including comments that make clear that 
limitations in the available data make it impossible for it to estimate 
true mean contract costs per paid minute with any degree of precision, 
the Commission finds that a zone of reasonableness approach is 
particularly well-suited to its task because it will allow the 
Commission to use different measures of mean contract costs per paid 
minute to establish separate ranges of rates--one for prisons and 
another for larger jails--from which the Commission can select just and 
reasonable interim provider-related rate caps. As a result of its new 
approach, which differs from the approach proposed in the 2020 ICS 
FNPRM, the Commission finds that comments critical of the data 
analysis, including proposed adjustments to data, underlying the rate 
caps proposed in the 2020 ICS FNPRM are now moot.
    80. It is well-established that rates are lawful if they fall 
within a zone of reasonableness. Precedent also teaches that the 
Commission is ``free, within the limitations imposed by pertinent 
constitutional and statutory commands, to devise methods of regulation 
capable of equitably reconciling diverse and competing interests.'' A 
zone of reasonableness approach allows the Commission to reconcile, to 
the extent possible on the record before the Commission, the providers' 
and their customers' competing concerns regarding the rates 
incarcerated people and those they call pay to communicate. The 
Commission therefore relies on a zone of reasonableness approach to set 
rates in this instance, which helps avoid giving undue weight to the 
assumptions that would lead to either unduly high or unduly low per-
minute rate caps.
    81. Given the available data, any upper and lower bounds based on 
those data are necessarily estimates. The Commission finds it likely 
that its estimates overstate providers' inmate calling services costs. 
All providers have an incentive to overstate their costs in their 
responses to the Commission's data collections, as this would lead to 
higher interstate rate caps, thus resulting in both higher revenues and 
higher profits. In addition, imprecisions in the instructions for the 
Second Mandatory Data Collection regarding fundamental steps in the 
costing process, such as how providers should make sure that their 
costs of providing inmate calling services exclude all costs properly 
assignable to their non-inmate calling services operations, enabled 
providers to inflate their reported costs. The Commission finds that 
this combination of incentives and reporting latitude almost certainly 
resulted in some overstatement of the providers' costs of providing 
inmate calling services. Additionally, because the instructions for the 
Second Mandatory Data Collection did not require providers to separate 
the costs they incur in providing ancillary services from their total 
inmate calling services costs, the Commission's bounds include 
ancillary services costs for which providers separately recover fees 
and charges under its rules. Each of these factors skews the cost data 
upwards, resulting in upper and lower bounds that are likely higher 
than any bounds based on more accurate data.
    82. The Commission's zone of reasonableness approach involves three 
distinct steps. The Commission begins by using data that providers 
submitted in response to the Second Mandatory Data Collection to 
establish upper bounds of potentially reasonable interstate provider-
related rate caps for prisons and larger jails, respectively. Because 
the data the Commission uses in setting the upper bounds significantly 
overstate the providers' actual mean contract costs per minute of 
providing inmate calling services beyond the general factors the 
Commission has just discussed, the Commission then makes reasonable, 
conservative adjustments to the reported data and use those data to 
establish the lower bounds of its zones of reasonableness. The 
Commission describes these adjustments fully in Appendix C, below. 
Finally, the Commission relies on its analysis of the record evidence 
and on its agency expertise to pick, from within those zones, 
reasonable interim interstate provider-related rate caps for prisons 
and larger jails. The Commission reiterates that while its zone of 
reasonableness methodology relies on contract-level data, the 
Commission applies its interim rate caps to individual prisons and 
jails having average daily populations of 1,000 or more. For these 
jails, the data derived from a contract-level analysis likely 
overestimates actual costs. This is because the analysis incorporates 
jails having average daily populations lower than 1,000 (which the 
Commission would expect to have higher per-minute costs than larger 
jails) when such facilities are encompassed by the same contract. The 
Commission is comfortable with this approach for purposes of 
determining an interim rate cap for jails having average daily 
populations of 1,000 or more as it errs on the side of being 
conservative, while also being consistent with providers' understanding 
that the average daily population threshold is applied on a per-
facility basis.
    83. Determining Upper Bounds for the Zones of Reasonableness. The 
Commission finds that the method proposed in the 2020 ICS FNPRM, taking 
the sum of the mean contract costs per minute plus one standard 
deviation relative to that mean, provides a reasonable method for 
determining the upper bounds of the zones of reasonableness for prisons 
and for larger jails. One standard deviation from the mean of a normal 
distribution accounts for approximately 68% of the data, with half of 
the remaining 32% being above the mean and half below the mean, thus 
creating an additional buffer that makes it more likely that a provider 
will be able to recover its costs for any particular contract or 
facility. Under this approach, using the data submitted by all 12 
providers, the mean contract cost per minute for prisons is $0.092, and 
the standard deviation relative to this mean is $0.041 per minute, 
resulting in a mean plus one standard deviation of $0.133 per minute. 
The Commission calculates these statistics for prisons after removing 
the cost-per-minute outlier related to GTL's contract for [REDACTED]. 
By comparison, the mean cost per minute for prisons based on the data 
for the 12 responding providers including this outlier is $0.149, and 
the standard deviation is $0.658 per minute, resulting in the mean plus 
one standard deviation being $0.807 per minute. Appendix A explains why 
the Commission excludes the [REDACTED] contract. Similarly, the mean 
contract cost per minute for larger jails is $0.100, and the standard 
deviation from that mean is $0.118 per minute, making the mean plus one 
standard deviation $0.218 per minute.
    84. The Commission finds that these upper bounds overstate, by a 
wide margin, the providers' actual costs of providing interstate inmate 
calling services for two reasons beyond the general effects it 
recounted above. First, at least two providers, GTL and Securus, 
calculated the return component of their costs using the prices their 
current owners paid to purchase the companies, rather than the amounts 
that they and the prior owners had invested in property used to provide 
interstate inmate calling services. Under rate-of-return ratemaking, a 
company's cost of

[[Page 40696]]

service equals a return component (i.e., allowed rate of return times 
the company's rate base) plus the expenses the company incurs in 
providing the regulated service. The use of the sale prices of a 
company as what amounts to its rate base absent a showing specifically 
justifying that practice is inconsistent with fundamental ratemaking 
principles. Use of those purchase prices to calculate GTL's and 
Securus's costs is inconsistent with the well-established principle 
that the purchase prices of companies that possess market power ``are 
not a reliable or reasonable basis for ratemaking.'' Instead, the 
return component of GTL's and Securus's costs is properly calculated 
using the original cost of the property they use to provide inmate 
calling services at the point that property was first dedicated to 
public use through its use in the provision of inmate calling services. 
And, contrary to GTL's argument, the Commission has long held that 
payphone calling providers, including inmate calling services 
providers, possess monopoly power when (as is the case with GTL and 
Securus) they have obtained the exclusive right to provide calling 
services to correctional facilities. The Commission reiterates that 
finding and, to eliminate any possible doubt, apply it to the purchase 
prices that GTL and Securus used in calculating the return component of 
their costs.
    85. Second, and more significantly, these upper bounds incorporate 
GTL's costs as reported, even though (1) GTL admits that it lacks the 
accounting records that it would need to determine its actual costs of 
providing inmate calling services and (2) GTL's reported costs far 
exceed those reported by other providers serving comparable facilities. 
Despite these shortcomings, the data from the providers' Second 
Mandatory Data Collection responses provide the best available data for 
determining the upper bounds of the zones of reasonableness. The 
Commission therefore uses $0.133 per minute as the upper bound for 
determining a reasonable interstate provider-related rate cap for 
prisons and $0.218 per minute as the upper bound for determining a 
reasonable interstate provider-related rate cap for larger jails. In 
establishing these upper bounds, the Commission is well aware that the 
industry's actual mean contract costs of providing inmate calling 
services plus one standard deviation are significantly lower.
    86. Determining Lower Bounds for the Zones of Reasonableness. The 
Commission finds the approach it uses to determine the upper bounds of 
the zones of reasonableness--relying on data from the Second Mandatory 
Data Collection and calculating the mean cost per minute plus one 
standard deviation relative to that mean separately for prisons and 
larger jails--provides an appropriate starting point for determining 
the lower bounds of the zones. Because of the shortcomings in the 
providers' reported data, the Commission adjusts those data using 
generally accepted statistical tools to remove outlier contracts and to 
replace GTL's reported data with data derived from contracts comparable 
to those GTL serves. The related assumptions and adjustments are 
described at greater length below, and in Appendix C, below. Under this 
approach, the mean cost per minute for prisons is $0.052, the standard 
deviation relative to that mean is $0.012, and the mean plus one 
standard deviation is $0.064 per minute. Similarly, the mean cost per 
minute for larger jails is $0.065, the standard deviation from that 
mean is $0.015, and the mean plus one standard deviation is $0.080 per 
minute. These numbers--$0.064 per minute and $0.080 per minute--
constitute the lower bounds of the Commission's zones of reasonableness 
for prisons and larger jails, respectively.
    87. The construction of the lower bound begins by removing three 
outlying observations that skew the data and that would otherwise 
render the mean and standard deviation to be less precise measures of 
the data's central tendency. The central tendency of a distribution 
refers to the degree to which data is clustered around a central value, 
frequently measured by the mean, median, or mode. In general, the 
data's dispersion (as measured by the standard deviation) and central 
tendency are the main properties defining a distribution. These three 
outlier contracts report costs of [REDACTED] per minute for larger 
jails in Williamson, Texas, San Luis, Arizona, and West Texas, Texas, 
respectively. The outliers the Commission addresses here were 
identified using the Grubbs method, a statistical approach the 
Commission describes at length in Appendix C, below. To put these cost 
levels in context, [REDACTED] per minute is the highest cost per minute 
for any contract regardless of facility type or size, and [REDACTED] 
and [REDACTED] per minute are approximately three times and twice as 
large as the cost per minute for the next highest larger jail contract. 
Excluding these three outliers, costs per minute for larger jail 
contracts range from $0.03 to $0.17. As the Commission describes in 
Appendix A, a single observation from a prison contract reports a cost 
per minute of [REDACTED], which the Commission concludes is clearly 
erroneous and omit in entirety. Nothing in the record supports using 
such extreme costs to set provider-related rate caps. Further, these 
contracts would remain outliers, even under alternative methods of 
outlier identification proposed in the record.
    88. Next, the Commission substitutes reasonable surrogates for 
GTL's reported cost data to address significant and unresolved issues 
with those data, as identified in the 2020 ICS FNPRM and discussed more 
fully in this Report and Order. As recounted above, GTL's only reported 
direct costs for inmate calling services are bad debt costs, although 
it certainly incurs other direct costs that are causally related to 
providing inmate calling services. Additionally, GTL's reported total 
costs per minute are much higher than most other providers' reported 
total costs per minute, contrary to the Commission's expectation of 
economies of scale. In fact, GTL's total revenues per minute from 
prisons are less than its allocated costs per minute, the only provider 
for which this is true. These issues remain unresolved--and incurable 
on the record before the Commission--because GTL failed to provide 
meaningful cost data in its Second Mandatory Data Collection response 
or in its response to the Bureau's July 15, 2020, Letter, or to suggest 
any alternative means of assisting the Commission in its efforts to 
estimate GTL's costs of providing inmate calling services. The 
Commission finds that the best way to address this situation is to 
adjust GTL's reported contract-level cost data using the k-nearest 
neighbor method. The Commission describes this method in greater detail 
and show its application to GTL's data in Appendix C, below. 
Specifically, the Commission replaces the cost-per-paid-minute data 
reported for each prison and larger jail contract served by GTL with 
the weighted average of the data for the three most comparable (i.e., 
nearest neighbor) contracts served by other providers. To determine a 
contract's ``neighbors,'' the Commission compares its average daily 
population, total inmate calling services minutes, total commissions 
paid, and facility type to all other contracts in its dataset. This 
approach reasonably preserves the non-cost information GTL reported for 
the prisons and larger jails it serves, while reducing the likelihood 
that the cost data for those facilities are overstated to a significant 
extent. The Commission finds that this approach, in

[[Page 40697]]

combination with the removal of outlier observations as described 
above, provides a reasonable method for determining the lower bounds of 
the zones of reasonableness.
    89. In the 2020 ICS FNPRM, the Commission proposed to reduce GTL's 
reported costs by 10% in order to address its data reporting issues, an 
approach the Commission now abandons in light of convincing opposition 
in the record. Commenters addressing this proposal were nearly 
unanimous in rejecting it. Some commenters observe that a 10% decrease 
would fail to resolve all of the issues presented by GTL's reported 
data, while others argue this approach suffers fundamental 
methodological flaws of its own. Instead, the Commission relies on the 
k-nearest neighbor method, rather than alternative methods for 
addressing the deficiencies in GTL's reported data, because the 
Commission finds it provides the best approach for setting the lower 
bounds of the zones of reasonableness. In particular, although the 
Winsor method also would provide a reasonable method for replacing 
GTL's data with surrogate data, that method would simply replace GTL's 
outlier data with the next-highest observation, as opposed to the 
multifactor comparison provided by the Commission's adopted approach. 
In other words, the Winsor method would adjust costs downward to the 
next-highest observation without consideration of whether the contract 
with the next highest costs is similar in any other dimensions, such as 
minutes of use or average daily population. The Commission finds the k-
nearest neighbor method's reliance on three comparable contracts makes 
it a superior tool for addressing the dataset before the Commission 
because it identifies a greater degree of similarity between 
observations.
    90. The Commission also considered removing all of GTL's data from 
its lower bound calculations, an approach on which the Commission 
sought comment in the 2020 ICS FNPRM. The Commission finds this 
approach too sweeping, however, because it would exclude all of GTL's 
prisons and larger jails from its analysis. GTL's Second Mandatory Data 
Collection response includes extensive non-cost information on these 
facilities, regarding matters such as average daily population and paid 
minutes of use, that depict the inmate calling services operations of 
roughly [REDACTED] of all prisons and larger jails, or roughly 
[REDACTED] of the reported average daily population for those 
facilities. Excluding this information from its analysis would create a 
significantly incomplete picture of the industry, resulting in 
considerably less accurate estimates of industrywide mean contract 
costs. Additionally, the remaining contract information from GTL's data 
provides necessary distinguishing characteristics that informed the 
Commission's selection of the nearest neighboring contracts.
    91. Determining Interim Interstate Provider-Related Rate Caps for 
Prisons and Larger Jails. The upper bound of the zone of reasonableness 
for the provider-related rate cap for prisons is $0.133 per minute and 
the lower bound is $0.0643 per minute. For larger jails, the upper 
bound is $0.218 per minute and the lower bound is $0.0802 per minute. 
Based on its analysis of the available information, the Commission 
finds that $0.12 per minute will provide a reasonable interim 
interstate provider-related rate cap for prisons and that $0.14 per 
minute will provide a reasonable interim interstate provider-related 
rate cap for larger jails. Significantly, its analysis confirms that 
these interim interstate rate caps will allow most, if not all, 
providers to recover their costs (as reported in their responses to the 
Second Mandatory Data Collection and allocated among their contracts as 
described above) of providing interstate calling services to 
incarcerated people. And, because those fully distributed costs likely 
overstate the actual costs of providing inmate calling services under 
any particular contract, the Commission finds it unlikely that any 
provider will be unable to recover its actual costs of providing 
interstate inmate calling services under any contract. To the extent 
that there are some small number of situations where a provider cannot 
recover its actual costs of providing interstate inmate calling 
services under the Commission's interim caps, the Commission adopts a 
waiver process that will allow it to grant relief from those caps if 
the Commission finds such relief is warranted based on its analysis of 
data that allows it to more accurately and precisely identify that 
provider's cost of providing interstate inmate calling services than 
can be achieved using the data currently before the Commission.
    92. A provider-related rate cap component of $0.12 per minute for 
prisons is $0.02 above the midpoint between the upper and lower bounds 
of the zone of reasonableness (approximately $0.10). The providers' 
incentives to overstate costs provide a compelling reason to set the 
rate cap significantly below that upper bound. The Commission finds 
that removal of outliers as reflected in the lower bound number based 
on its statistical approach to be appropriate as a general matter, 
given the need to measure the central tendency of the data as 
accurately as possible. The Commission is reluctant to give this 
adjustment too much weight at this time, however, because the 
Commission does not know the precise reason why these outlier estimates 
are so high. Although the Commission also finds the adjustment to GTL's 
costs to be fully justified, the Commission is reluctant to place too 
much weight on this adjustment because this is an empirical 
approximation relying on the consistency and validity of the contract 
data reported by all other firms. After closely examining the imperfect 
data reported by providers that have an incentive to overstate their 
costs, and after developing the calculation of both of the upper and 
lower bounds, the Commission finds that an interim provider-related 
rate component of $0.12 per minute for prisons will allow providers to 
recover their actual costs of providing inmate calling services at 
those facilities, a conservative choice thereby ensuring that the 
providers will receive reasonable compensation for their services.
    93. Likewise, the Commission finds that an interim rate cap of 
$0.14 per minute for larger jails will enable providers to recover 
their costs of providing interstate inmate calling services. In 
selecting this value, the Commission assigns significant weight to the 
result from the cost study conducted by Securus's outside consultant. 
This estimate, suggesting that Securus's cost of serving larger jails 
is at most [REDACTED] per minute, is based on highly disaggregated cost 
data and a relatively sophisticated set of cost allocation procedures 
tailored specifically to the business of providing inmate calling 
services and appears to be consistent with cost-causation principles. 
This number is the maximum per-minute cost estimate among the estimates 
Securus's consultant developed for Securus's larger jails, and the 
Commission finds that it provides a cushion large enough for providers 
to earn at least a normal risk-adjusted rate of return. Further, 
because there are relatively few providers for larger jails, as 
compared to the larger number of both large and small providers that 
serve jails with average daily populations less than 1,000, the 
Commission would expect a small variance in the true per-minute costs 
of providing inmate calling services at larger jails, relative to the 
overall variance. A rate cap of $0.14 per minute provides an even 
larger cushion,

[[Page 40698]]

further ensuring that providers will have the opportunity to recover 
actual costs.
    94. A provider-related rate cap component of $0.14 per minute for 
larger jails is just below the midpoint between the upper and lower 
bounds of the zone of reasonableness (approximately $0.15), but still 
well above the lower bound of approximately $0.08. As with prisons, the 
providers' incentives to overstate their costs provide a compelling 
reason to set a rate cap significantly below the upper bound. The 
Commission again is reluctant to place too much weight on the GTL data 
adjustment for the reasons discussed regarding prisons. After closely 
examining the data, the Commission finds that an interim provider-
related rate component of $0.14 per minute for larger jails will enable 
the majority of providers to recover their actual costs of providing 
inmate calling services at those facilities. Further, the Commission 
notes that this $0.02 differential between the rates the Commission 
selects for prisons and larger jails approximates the 22% cost 
differential shown in the record.
    95. As the Commission describes in Appendix A, the Commission finds 
that setting the provider-related rate component at these levels for 
prisons and larger jails will allow providers at substantially all 
facilities to recover their reported costs. Analysis of contract 
revenues and underlying contract characteristics also suggests a 
significant majority of these contracts would be viable at the 
Commission's proposed caps. The responses to the Second Mandatory Data 
Collection provide data for 129 prisons and 182 larger jails. Following 
the process outlined in Appendix A, the Commission finds that 66 
prisons and 15 larger jails reported per-minute costs above the 
respective interim provider-related rate caps. Looking at these 
outliers more closely, however, reveals that all but three of these 
facilities (66 prisons and 12 larger jails) are served by GTL, which 
lacked the records to accurately determine its costs of providing 
calling services to incarcerated people. This alone creates doubt as to 
whether these facilities should be viewed as legitimate outliers, 
rather than simply illustrations of the issues the Commission observes 
throughout GTL's reported data. Repeating this analysis after adjusting 
GTL's cost data using the k-nearest neighbor approach used to set the 
lower bound shows that all of GTL's facilities would have per-minute 
costs below the interim interstate provider-related rate caps. The 
remaining facilities (three larger jails) all exhibit per-minute costs 
that exceed their per-minute revenues, suggesting that the actual costs 
of providing inmate calling services to them are lower than the 
Commission's estimates. Finally, the Commission reiterates that to the 
extent the actual costs of serving a facility exceed the applicable 
interim rate cap, a provider may request a waiver using the process set 
forth in this Report and Order. As indicated in the 2020 ICS FNPRM, 
``the Commission has permitted inmate calling services providers to 
file a petition for a waiver if it believed it could not recover its 
costs under the Commission-adopted rate caps.'' The Commission refines 
its waiver procedure today.
    96. The record supports these interim rate cap choices. The cost 
study presented by Securus's outside consultant estimates that Securus 
incurs maximum per-minute costs of [REDACTED] to serve prisons and 
[REDACTED] to serve larger jails, exclusive of site commissions. 
Although the Commission finds that these figures are overstated to the 
extent they calculate the return component of Securus's costs using the 
prices its current owners paid to purchase the company, the study's 
cost estimates suggest that interim provider-related rates caps of 
$0.12 for prisons and $0.14 for larger jails will provide a cushion 
large enough for the providers at those facilities to earn at least a 
normal risk-adjusted rate of return on their capital investment in 
providing inmate calling services. As the [REDACTED] per minute cost 
has been specifically developed for providers at these largest jails, 
and there are relatively few of these providers, the Commission would 
not expect there to be a big variance in the true per-minute costs of 
providing inmate calling services at these jails. Although the 
Commission does not agree with every aspect of this study, the 
Commission finds that a number of factors support its credibility and 
that it therefore provides valuable supporting evidence that the rate 
caps the Commission chooses here provide an adequate interim allowance 
for differences among providers and markets, relative to the average 
inmate calling services costs reflected in the data filed in response 
to the Second Mandatory Data Collection.
    97. The Commission's analysis of the mean per-minute revenues from 
prisons and larger jails further corroborates its choices. As discussed 
in Appendix A, its revenue analysis indicates that it will be 
commercially viable for providers to serve the vast majority of prisons 
and larger jails under the provider-related rate caps the Commission 
adopts today. For example, as the Appendix illustrates, approximately 
74% of prisons and 65% of larger jails have reported per-minute 
revenues net of site commissions under those interim caps. Revenues net 
of site commissions are reported revenues minus reported site 
commission payments. Because profit-maximizing firms are unlikely to 
bid for contracts at which they will operate at a loss, this suggests 
the interim interstate caps will not undermine providers' 
profitability. The Commission expects these revenues to cover costs of 
service below $0.12 per-minute for prisons and $0.14 per minute for 
larger jails, because higher costs would make such contracts 
unprofitable, and providers would have no reason to voluntarily accept 
such terms. And a large portion of the remaining prisons and larger 
jails--those with per-minute revenues that are higher than $0.12 and 
$0.14 per minute, respectively--have allocated per-minute costs less 
than the applicable interim provider-elated rate caps, which likewise 
suggests they will remain profitable under those caps. In total, 
therefore, the Commission's interim rate caps will allow approximately 
81% of all prison contracts and approximately 96% of all larger jail 
contracts to cover the costs the providers reported in response to the 
Second Mandatory Data Collection. These percentages would be even 
higher if the Commission were to exclude the providers' costs of 
providing ancillary services and otherwise rely on the providers' 
actual, rather than reported, costs. These percentages are also higher 
if the Commission allows for the increased call minutes that will 
likely result because its new interim caps will, by lowering prices, 
increase call volumes. And these cost recovery figures ignore that all 
costs are likely overstated, such that there is further reason to 
believe these percentages would be even higher in practice.
4. Accounting for Correctional Facility Costs
    98. Based on the record, the Commission adopts additional new 
interim rate cap components (the facility-related rate components) 
reflecting two different types of site commission payments--those 
required under codified law or regulations and those payments 
prescribed under negotiated contracts--made to correctional facilities. 
At the outset, and as explained in greater detail in this section, the 
Commission emphasizes that the facility-related rate components are 
interim reforms reflecting the limitations of the record before the

[[Page 40699]]

Commission and the current regulatory backdrop. Site commission 
payments are payments made by calling services providers to 
correctional facilities and broadly encompass 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. The 2020 ICS FNPRM 
proposed to permit providers to recover an additional $0.02 per minute 
for all types and sizes of facilities to account for the costs 
correctional facilities incur that are directly related to the 
provision of inmate calling services. The Commission adopts a modified 
version of that proposal based on record evidence that $0.02 per minute 
for every facility may not permit recovery of all legitimate facility 
costs related to inmate calling services, and may not be required at 
others. For the time being, the Commission declines to adopt defined 
facility-related rate components for jails with average daily 
populations below 1,000. Instead, for prisons and larger jails only, 
the Commission adopts two distinct interim site commission-related rate 
components reflecting different types of site commissions: Site 
commission payments that providers are obligated to pay under laws or 
regulations and payments that providers agree, by contract, to make. In 
referring to ``law or regulation'' the Commission means state statutes 
and laws and regulations that are adopted pursuant to state 
administrative procedure statutes where there is notice and an 
opportunity for public comment such as by a state public utility 
commission or similar regulatory body with jurisdiction to establish 
inmate calling rates, terms and conditions. The Commission specifically 
does not intend to include ``regulations'' for which no formal 
administrative process occurred prior to adoption, and the Commission 
also does not intend to include contractual negotiations that are 
merely approved or endorsed by state or local law. This approach to 
defining what are, by default, laws or regulations requiring site 
commission payments guards against the risk of abuse from a broader 
definition, given evidence that state and local correctional facilities 
might themselves be able to create so-called `rules' or `regulations' 
outside of formal process--simply by exercising their discretion 
regarding site commission payments in a different manner--and thereby 
evade the analytical differences underlying this distinction in the 
Commission's interim rules. To the extent that a scenario arises that 
falls outside the Commission's definition that a provider or 
correctional institution believes should be treated as a qualifying law 
or regulation, it is free to seek a waiver where the Commission can 
conduct a careful case-by-case review to ensure no evasion or abuse is 
occurring.
    99. First, with regard to the former type of site commission, the 
Commission adopts an interim legally mandated facility rate component 
that reflects payments that providers make to correctional facilities 
pursuant to law or regulation that operates independently of the 
contracting process between correctional institutions and providers. 
These mandatory payments take varied forms, including per-call charges 
or prescribed revenue percentages, and may be imposed on calling 
service providers by state governments through statutes or regulations. 
Securus argues that this statute is a ``general fee provision'' that 
should be treated as a mandatory tax or fee rather than a site 
commission subject to the Commission's interim reforms here. As 
explained above, providers are free to seek a waiver if they believe 
that a law or regulation should not be treated as a legally mandated 
site commission but the Commission does not have sufficient information 
to make particular factual determinations in this Report and Order 
about any particular state mandated payment. The Commission confirms 
that its interim rate reforms do not include Mandatory Taxes or Fees as 
defined in the Commission's rules. Given the ``mandatory'' nature of 
these payments, for the purpose of the interim actions the Commission 
takes herein and based solely on the current record, the Commission 
recognizes them as a cost that providers must incur to provide calling 
services, consistent with section 276's fair compensation provision. 
For now, providers may recover the costs of these payments, without any 
markup, as a separate component of the total permissible interstate and 
international rate caps the Commission adopts today. In no event, 
however, can the total rate cap exceed $0.21 per minute.
    100. As with other reforms in this Report and Order, the Commission 
emphasizes that its adoption of a legally mandated facility rate 
component is an interim reform that is aimed to balance the need to 
achieve immediate rate relief in light of the history of this 
proceeding, the record before it, and the exigent circumstances 
presented by the COVID-19 pandemic, consistent with the strictures of 
the D.C. Circuit's decision in GTL v. FCC. The Commission concludes, 
for purposes of this interim reform, that adopting a legally mandated 
facility rate component is consistent with the fair compensation 
mandate of section 276. The Commission lacks the evidence, however, to 
determine on a permanent basis whether and what portion of these 
payments are ``legitimately'' related to the cost of providing the 
service. The Commission leaves such determinations to its forthcoming 
action on the Fifth FNPRM, published elsewhere in this issue of the 
Federal Register.
    101. Next, the Commission adopts a contractually prescribed 
facility rate component that permits providers to recover, as a 
component of their total per-minute interstate and international 
calling rates for prisons and larger jails, that portion of such site 
commission payments that the Commission determines for the purpose of 
this interim action is reasonably related to the facility's cost of 
enabling inmate calling services at that facility. Site commission 
payments prescribed under negotiated contracts impose contractual 
obligations on the provider and, in the Commission's judgment, on the 
current record, reflect not only correctional officials' discretion as 
to whether to request site commission payments as part of requests for 
proposals, and if so in what form and amount, 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 fact that a state law specifically permits certain 
correctional facilities to recover site commissions from providers but 
does not mandate such payments does not change the nature of these 
discretionary payments. Providers may recover up to $0.02 per minute to 
account for these facility costs. Where a law or regulation merely 
allows a correctional facility to collect site commissions, requires a 
correctional facility to collect some amount of site commission payment 
but does not prescribe any specific amount, or is not subject to state 
administrative procedural requirements, site commissions would also 
fall into the category of a site commission payment prescribed by 
contract, because the correctional facilities and providers can 
negotiate, in their discretion, regarding how much the providers will 
pay in site commissions.
    102. To promote increased transparency regarding the total rates 
charged to consumers of inmate calling services, the Commission 
requires providers to clearly label a legally mandated facility rate 
component or a

[[Page 40700]]

contractually prescribed facility rate component, as applicable, in the 
rates and charges portion of a calling services consumer's bill, 
including disclosing the source of such provider's obligation to pay 
that facility-related rate component. Providers that make no site 
commission payments (and thus are not permitted to pass any facility-
related rate component on to consumers) are not required to include a 
facility-related rate component line item on end user bills.
    103. Finally, to avoid any confusion, the Commission reiterates 
that nothing in this section, or any other section of this Report and 
Order, is intended to result in a higher permissible total rate cap for 
any interstate call from any size facility than the $0.21 that existed 
for interstate debit and prepaid calls before today and that continues 
to apply to all providers for all types of calls from jail facilities 
with average daily populations below 1,000. During the eight-year 
period that providers have been subject to the $0.21 rate cap for all 
facilities, they have had the ability to avail themselves of a waiver 
process if they deemed that rate cap to be insufficient to enable them 
to recover their inmate calling services costs. With the exception of a 
single temporary waiver request relating specifically to the interim 
rate caps dating back to 2014, no other provider has sought a waiver of 
the $0.21 interstate rate cap claiming that cap fails to permit 
recovery of that provider's costs at any size facility. The Commission 
notes that Securus filed a general ``me too'' waiver request in 2014 
asking the Commission to extend Pay Tel's limited waiver to all other 
providers serving the same size jails. The Commission denied Securus's 
waiver request without prejudice as Securus failed to make an adequate 
showing for a waiver to be granted, and also failed to provide 
sufficient, or any, cost and revenue data to support its claims. In 
addition, a handful of other waiver requests relating to other sections 
of the inmate calling services rules have also been filed but these 
waivers typically related to timeframes within which new regulations 
associated with ancillary services reforms became effective. The 
absence of further waiver requests over the past eight years leads the 
Commission to conclude that $0.21 is sufficient for providers to 
recover their costs, including any costs related to site commission 
payments. Thus, no provider may assess a provider-related rate 
component and facility-related rate component that, added together, 
results in a total interstate rate for any interstate call from any 
size facility of more than $0.21. Operationally, providers remain free 
to impose the legally mandated facility rate component at the level 
specified by the relevant statute or rule. If the resulting cumulative 
total rate exceeds $0.21 per minute, providers would need to charge a 
lower provider-related rate. Based on its understanding and awareness 
of the various state statutes or rules that underlie legally mandated 
facility rate components, the Commission does not expect this to occur, 
however. Nevertheless, providers that cannot cover their inmate calling 
services costs under the $0.21 per minute total maximum rate cap may 
seek a waiver of the Commission's interim rate caps.
    104. As with the provider-related rate caps the Commission adopts 
today, its decision to allow a $0.02 additive for contractual site 
commissions and the full pass-through of legally mandated site 
commissions pursuant to section 276 up to the $0.21 cap are interim 
steps that the Commission adopts in light of the history of this 
proceeding, the available record, and the exigent circumstances caused 
by the COVID-19 pandemic, including the related decision by many 
prisons and jails to prohibit in-person visitation. Nothing in today's 
decision limits its ability, on a more complete record and with 
sufficient notice, to reconsider this treatment of site commission 
payments, and indeed the Commission seeks detailed comment in the Fifth 
FNPRM on site commissions, including what portion of all site 
commission payments, if any, actually represent ``legitimate costs'' 
connected to inmate calling services.
    105. Background. The Commission has historically described site 
commission payments as ``a division of locational monopoly profit.'' 
Over the past five years, however, the Commission has recognized that 
site commissions may not always exclusively compensate correctional 
facilities ``for the transfer of their market power over inmate calling 
services to the inmate calling services provider;'' in some instances, 
site commission payments may serve in part to compensate correctional 
facilities for costs that the facilities ``reasonably incur in the 
provision of inmate calling services.'' Although the Commission and the 
D.C. Circuit each have recognized the distinction between portions of 
these payments, the Commission agrees with commenters, particularly on 
this record, that it is ``difficult to disentangle which part of the 
site commission payment goes towards reasonable costs and which portion 
is due to the transfer of market power.''
    106. Although the Commission declined to permit the recovery of any 
portion of site commission payments to account for facility-related 
costs in the 2015 ICS Order, the Commission explained that record 
evidence suggested that if ``facilities incurred any legitimate costs 
in connection with [inmate calling services], those costs would likely 
amount to no more than one or two cents per billable minute.'' In 2016, 
when the Commission reconsidered its decision to categorically exclude 
site commissions in the 2015 ICS Order, it concluded that some 
facilities likely incur costs directly related to the provision of 
inmate calling services that may amount to more than one or two cents a 
minute. The Commission therefore increased the rate caps it had adopted 
in the 2015 ICS Order to ``better ensure that providers are able to 
receive fair compensation for their services'' by adopting an additive 
to the 2015 rate caps that differed among facility size. The data and 
other evidence supporting the 2016 facility-cost additives suggested 
that per-minute facility costs associated with inmate calling services 
were higher in smaller facilities than in larger ones, so the 
Commission adopted a tiered framework for site commission payments 
based on facilities' average daily populations. These rate tiers 
mirrored the tiers the Commission had used to establish the permanent 
rate caps adopted in the 2015 ICS Order.
    107. The D.C. Circuit's 2017 vacatur of the 2015 ICS Order rate 
caps in GTL v. FCC, based in part on the finding that the Commission's 
decision to categorically exclude site commission payments from those 
rate caps was arbitrary and capricious, led the Commission to ask 
questions in the 2020 ICS FNPRM aimed at determining ``which portions 
of site commissions might be directly related to the provision of 
inmate calling services and therefore legitimate, and which are not.'' 
Because the revised rate caps adopted on reconsideration in 2016 to 
provide for the recovery of site commission costs were based on the 
same methodology the court had vacated in GTL v. FCC, the D.C. Circuit 
also vacated and remanded the 2016 ICS Reconsideration Order. The 2020 
ICS FNPRM proposed a $0.02 per minute additive based on staff 
``analysis of the costs correctional facilities incur that are directly 
related to providing inmate calling services and that the facilities 
recover from calling service providers as reflected by comparing 
provider cost data for facilities with and without site

[[Page 40701]]

commissions.'' The Commission sought comment on its analysis, including 
whether it should vary the allowance for site commission payments based 
on a facility's average daily population. It also sought comment on 
whether a $0.02 per minute allowance would be adequate to cover the 
costs that jails with average daily populations less than 1,000 incur 
in connection with the provision of interstate and international inmate 
calling services. The Commission asked correctional facilities to 
``provide detailed information concerning the specific costs they incur 
in connection with the provision of inmate calling services.''
    108. Full Recovery of Site Commissions Is Not Required. Some 
providers argue that the Commission must allow for full recovery of all 
site commission payments because inmate calling services providers 
``are required to pay site commissions and have no say in the 
elimination or substantial reduction of such commissions.'' The 
Commission disagrees.
    109. The D.C. Circuit held 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 reasonably ``categorically 
exclude[] site commissions and then set the 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 to determine ``which portions of site commissions might be 
directly related to the provision of ICS and therefore legitimate, and 
which are not.''
    110. Under section 201(b), the Commission has a duty to ensure that 
``charges'' and ``practices'' ``for and in connection with'' interstate 
and international telecommunications services--including inmate calling 
services--are not ``unjust or unreasonable.'' As explained, 
incarcerated people and the people they call have no choice in their 
telephone service provider. Instead, each correctional facility has a 
single provider of inmate calling services that operates as a 
monopolist within that facility. And very often, correctional 
authorities award the monopoly franchise for inmate calling services 
based in part on what portion of inmate calling services revenues a 
provider has offered to share with the facility. Without effective 
regulation, providers bidding for a facility's monopoly franchise 
compete to offer the highest site commission payments, which they then 
recover through correspondingly higher rates charged to incarcerated 
people and their families.
    111. As discussed in greater detail below, in view of these market 
dynamics, and based on the record, the Commission rejects the claim 
that any and all site commission payments that a provider might elect 
to offer a correctional facility in the course of contract negotiations 
for the facility's monopoly franchise are ``real, required costs 
[forced] on [inmate calling services] providers as a condition 
precedent to the providers' ability to offer [inmate calling 
services].'' That claim is at odds with well-established principles of 
ratemaking. And the providers' position has no limiting principle. 
Under their logic, incarcerated people and the people with whom they 
communicate by telephone may be forced to pay rates for the calling 
services they use that cover items wholly unrelated to those services. 
This 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. The 
claim that any and all site commission payments are costs reasonably 
related to the provision of interstate and international inmate calling 
services is particularly implausible with respect to future contracts. 
At least where site commissions are not required under formally 
codified laws or regulations, providers of inmate calling services 
cannot reasonably contend that they are bound to offer, or agree to 
pay, site commissions that are uneconomical for them on a going forward 
basis. The record before the Commission suggests that if, in the wake 
of this Report and Order, providers of inmate calling services should 
offer to pay site commissions at levels higher than they can recover 
through interstate and international inmate calling services rates, 
that is because they expect to profit from obtaining the franchise at a 
given facility in other ways (e.g., by recovering the cost of the site 
commission payments they offer through intrastate inmate calling 
services rates or through revenue generated by providing other, 
nonregulated services). Even with respect to existing contracts, the 
Commission disagrees that any and all site commissions that a provider 
has agreed to pay are costs reasonably related to the provision of 
interstate and international inmate calling services. As it discusses 
above, the Commission's proceeding on how to regulate rates for 
interstate inmate calling services has been underway for many years. 
Throughout this period, providers have understood that the Commission 
might seek to bar the recovery of some or all site commissions through 
interstate rates. Under the circumstances, whatever the providers 
offered to pay, they offered at their own risk.
    112. Neither GTL v. FCC nor section 276 of the Act compels a 
different conclusion. As the Commission has observed, and as the court 
acknowledged in GTL v. FCC, the Commission is entitled ``to 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.'' Due to the D.C. Circuit's remand on the issue of 
site commissions, the Commission declines NCIC's recommendation that 
the Commission simply ``not disturb site commissions.'' To leave the 
issue of site commissions untouched by the Commission's actions today 
would be contrary to the Commission's mandate to ensure just and 
reasonable rates under section 201(b) of the Act. And ``fair'' 
compensation for providers of inmate calling services, under section 
276, does not mean that providers must be able to recover, through 
rates for interstate and international inmate calling services, 
revenue-sharing payments that they agree voluntarily to make to 
encourage a correctional facility to select them as the monopoly 
franchise holder for inmate calling services (both interstate/
international and intrastate) and often other nonregulated services, 
too.
    113. On the present record, the Commission cannot conclude that 
Commission precedent requires, at least based on current law and 
policy, that the Commission treat all site commissions solely as a 
division of locational monopoly profits none of which are recoverable 
through rates, as the United Church of Christ and Public Knowledge 
urge. The United Church of Christ and Public Knowledge rely on the 
Commission's conclusion in the 1999 Pay Telephone Order that site 
commissions ``should be treated as a form of profit rather than a 
cost.'' As explained above, while the Commission has historically 
viewed site commissions as a division of monopoly profits, it took a 
different view in later decisions. UCC and Public Knowledge also argue 
that the Commission cannot ``treat the costs of communications 
providers for incarcerated people differently from the costs of 
communications providers via payphones when the economic

[[Page 40702]]

incentives and factual circumstances are nearly identical and both are 
governed by the same statute.'' As the Commission has recognized since 
2002, however, calling services for the incarcerated are ``are 
economically different than other payphone services.'' The Commission's 
actions here reflect a reasonable approach to responding to GTL v. FCC 
and Commission precedent in the inmate calling services context in 
light of the current record. For example, in the 1999 Pay Telephone 
Order the Commission reasoned that site commission payments are not 
costs because the ability to offer a site commission payment occurs 
``only when a particular payphone location generates a number of calls 
that exceeds the break-even number of calls'' thereby producing 
``additional profit'' that can be paid to the location owner. The 1999 
Pay Telephone Order also expressed confidence that providers reasonably 
could expect there to be locations where they would be allowed to 
operate payphones without paying locational rent. On the current 
record, the Commission is not persuaded that the Commission can apply 
those conclusions regarding locational rents from the traditional 
payphone context at the time of the 1999 Pay Telephone Order to site 
commission payments in the inmate calling service context today given 
their tension with the Commission's views regarding the recoverability 
of certain correctional facility costs in the 2016 ICS Reconsideration 
Order, as well as the D.C. Circuit's rejection of the categorical 
exclusion of site commission payments from recovery in inmate calling 
service rates at issue in GTL v. FCC. Thus, while the Commission 
concludes that full recovery of site commissions is not required, the 
Commission cannot conclude on the current record, and in light of the 
current legal treatment of site commissions, that no recovery of site 
commissions is justified. For this reason, and on the record before it, 
the Commission disagrees with the Public Interest Parties insofar as 
they suggest that it may be reasonable to fully exclude site commission 
payments.
    114. Legally Mandated vs. Contractually Prescribed Site Commission 
Requirements. On the record now before it and in light of section 276, 
the Commission sees a meaningful difference between site commission 
payments in an amount that is prescribed under formally codified laws 
or regulations and other site commission payments that ultimately are 
embodied in contracts with correctional facilities or systems.
    115. In GTL v. FCC, the D.C. Circuit rejected the FCC's categorical 
exclusion of site commission payments from costs to be recovered 
through inmate calling services rates in the regulations under review. 
In significant part, the D.C. Circuit reasoned:

    The FCC's suggestion that site commissions ``have nothing to do 
with the provision of [inmate calling services],'' Order, 30 FCC 
Rcd. at 12822 (internal quotation marks omitted), makes no sense in 
light of the undisputed record in this case. In some instances, 
commissions are mandated by state statute, Rates for Interstate 
Inmate Calling Services, 27 FCC Rcd. 16629, 16643 (2012), and in 
other instances commissions are required by state correctional 
institutions as a condition of doing business with [inmate calling 
services] providers, 17 FCC Rcd. at 3252-53. ``If agreeing to pay 
site commissions is a condition precedent to [inmate calling 
services] providers offering their services, those commissions are 
`related to the provision of [inmate calling services].''' Joint Br. 
for Pet'rs at 21. And it does not matter that the states may use the 
commissions for purposes unrelated to the activities of correctional 
facilities. The [inmate calling services] providers who are required 
to pay the site commissions as a condition of doing business have no 
control over the funds once they are paid. None of the other reasons 
offered by the Commission to justify the categorical exclusion of 
site commissions passes muster.

As the Commission has already discussed when explaining why the 
Commission is not required under GTL to allow the full recovery of any 
and all site commissions, as some providers contend, the court's 
statements rejecting ``the categorical exclusion of site commissions'' 
from the rate analysis in the 2015 ICS Order must be interpreted in the 
context of the court's express recognition that it is ``[up] to the 
Commission to 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.'' In light of that 
recognition, the Commission reads the analysis excerpted above as 
turning on the particularities of the 2015 ICS Order and its underlying 
record. The Commission now revisits and revises both its understanding 
and expectations regarding the operation of the inmate calling services 
marketplace and its approach to evaluating what nexus to interstate and 
international inmate calling services is required for a cost to warrant 
recovery through the rates for those services. The predicates for the 
Commission's actions regarding site commission payments in this Report 
and Order thus differ materially from the predicates underlying the 
D.C. Circuit's analysis in GTL v. FCC.
    116. More Nuanced Understanding of the Inmate Calling Services 
Marketplace. With respect to the inmate calling services marketplace, 
rather than the two basic scenarios of site commission payments 
identified by the D.C. Circuit in GTL v. FCC based on prior Commission 
decisions, the Commission identifies three conceptual scenarios where 
site commission payments can arise.
    117. First, site commission payments at a specified level sometimes 
are mandated by state statute or regulation that operate independently 
of the inmate calling contracting process. As discussed above, some 
laws permit--but do not require--correctional institutions to collect 
site commissions, and others require site commission payments but do 
not specify any particular level. The Commission does not consider 
those to fall within category one--instead, they fall within category 
two and/or three (depending on how the correctional institution 
approaches the request for proposal process). Although some parties 
have advocated that the Commission preempt or otherwise prohibit the 
payment of site commissions mandated by state law, the Commission has 
not yet taken that step. Consequently, as the law stands today and 
consistent with section 276, it is reasonable to conclude that neither 
correctional institutions nor providers can avoid the need for site 
commission payments in this scenario. As explained above, on the 
current record and based on current law, the Commission only finds that 
such site commissions satisfy the requirement for fair compensation to 
providers under section 276 and leave for another day a complete 
analysis under section 201.
    118. 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. While facilities may 
include a site commission component in the request for proposal's 
description along with other bid ``requirements,'' the Commission 
understands that most, if not all, requests for proposals include some 
form of an ``exception'' provision that enables bidding providers to 
explain why they are deviating from the request for proposal's bidding 
specifications or requirements, and that gives the issuer the 
discretion to accept such bids nonetheless. In this scenario, unlike in 
scenario one, a correctional institution is under no legal compulsion 
to insist upon receiving site commission payments, or payments at a 
particular level. If no provider accedes to the institution's request 
for such payments, the institution will be constrained to

[[Page 40703]]

entertain noncompliant offers if it wants the individuals in its 
custody to have access to interstate and international calling 
services. Given the well-documented benefits, for communities and 
correctional institutions alike, in allowing incarcerated people access 
to calling services, the Commission does not anticipate that 
correctional facilities would forgo making such calling services 
available merely because providers decline to pay site commissions at 
the facilities' desired levels. Such restrictions or denials based on a 
lack of site commission payments above and beyond the level needed for 
correctional institutions to recover any costs they incur in making 
inmate calling services available also could have legal implications 
that make them unlikely. The Commission therefore anticipates that 
correctional institutions will not formally insist on site commission 
payments above the level required to cover the institutions' own costs 
if the alternative is to go without inmate calling services (and all 
the other services typically offered by providers) at the facility. To 
the extent that providers nonetheless offer site commissions above that 
level, the Commission regards that as a marketplace choice different in 
kind from the scenario where site commissions at a given level are 
required by a statute or rule. Thus, if providers offer site 
commissions at levels that are not recoverable under the Commission's 
interstate and international rate caps, the Commission believes that 
they do so as a matter of their own business judgment. Consequently, 
the Commission does not regard site commissions under the second 
scenario as a condition precedent of doing business at correctional 
institutions.
    119. Third, in other situations, no state law 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). On the current 
record, the Commission concludes that whether a provider would have ``a 
realistic chance of winning a contract'' without a site commission 
payment turns not on any inherent feature of the provision of inmate 
calling services, but on competing bidders' discretionary business 
decisions informed by a range of regulatory and marketplace 
considerations that could affect those entities' judgments about which 
strategies will prove more or less profitable. Indeed, it is 
increasingly clear 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. For one, Securus reports that ``it has made 
commission-free offers a standard offering and attempted to renegotiate 
contracts with many of its correctional facility partners.'' In 
addition, a number of jurisdictions have limited or entirely eliminated 
site commission payments. This undercuts the view that, from the 
correctional institution's perspective, site commission payments are 
inherently necessary to allow a provider access to its facilities. 
Indeed, in San Francisco, incarcerated people and their loved ones pay 
nothing for their telephone calls--including for site commissions--
while the city and GTL have agreed that payment under the contract will 
not exceed $1,590,616 for the initial term of three years. As one 
commenter has explained, the ``innovative cost structure'' embodied in 
this contract ``better reflects the cost of service paid by the vendor 
to provide access to phones in all county jails.'' While the Commission 
does not know whether there is some portion of the overall contract 
that goes to facility costs, the limitation on the overall payment 
under the contract undercuts the notion that correctional facilities 
view site commissions as required in all circumstances. Further, and 
most importantly, the fact that incarcerated people in San Francisco 
still have access to calling services strongly suggests that facilities 
do not require these types of payments to continue to allow calling 
services.
    120. Accordingly, with respect to scenarios two and three, the 
Commission rejects any claim that site commission payments are somehow 
`required' or determined by the correctional institution: The 
Commission finds on this record that providers offer such payments 
voluntarily, in their own business judgment. Whereas some commenters 
attempt to analogize site commissions of this kind to payments that 
landowners demand in exchange for granting access to rights-of-way or 
the like, the Commission concludes that, at most, inmate calling 
providers appear concerned about 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. A 
collective action problem of that kind is not sufficient to require 
that the Commission allow full recovery of site commission payments 
through end-user rates.
    121. Interim Revisions in the Approach to Evaluating Cost Recovery. 
In light of GTL v. FCC and the record before it, the Commission 
considers which costs reflected in site commission payments are so 
related to the provision of inmate calling services that they should be 
recoverable at the present time and on the current record in light of 
section 276 under relevant precedent. As the Commission explains below, 
the section 276 requirement for fair compensation does not mean a 
provider is entitled to recover the total ``cost'' it claims it incurs 
in connection with each and every separate inmate calling services 
call. The Commission thus rejects as inapposite attempts to rely by 
analogy on what the Commission has done in other contexts under 
different statutory schemes. Modifying the Commission's approach to 
cost recovery in this manner on this interim basis accounts for the GTL 
v. FCC decision and the legal approach the Commission set out in the 
2020 ICS FNPRM.
    122. Prior to the GTL v. FCC decision, the Commission evaluated 
cost recovery in a manner that sought to effectuate its theory of legal 
authority, which relied on the combination of sections 201(b) and 
276(b)(1) of the Act. The Commission described its general approach to 
inmate calling services cost recovery in the 2013 ICS Order, which 
``conclude[d] that only costs that are reasonably and directly related 
to the provision of [inmate calling services], including a reasonable 
share of common costs, are recoverable through [inmate calling 
services] rates consistent with sections 201(b) and 276(b)(1).'' Beyond 
discussing illustrative examples, the Commission did not otherwise 
elaborate on the framework for evaluating what costs would or would not 
be recoverable. Applying that approach in the order under review in GTL 
v. FCC, the Commission concluded that ``the site commissions [inmate 
calling services] providers pay to some correctional facilities are not 
reasonably related to the provision of [inmate calling services] and 
should not be considered in determining fair compensation for [inmate 
calling services] calls,'' going on to quote one party as stating 
``that site commissions often `have nothing to do with the provision' 
of [inmate calling services].''
    123. In light of the GTL v. FCC decision, it is necessary to update 
and more thoroughly explain the

[[Page 40704]]

Commission's approach to evaluating cost recovery for purposes of these 
interim reforms. In the 2020 ICS FNPRM, the Commission did not propose 
revisiting whether section 276(b)(1) represented a grant of regulatory 
authority for the Commission to prevent excessive inmate calling 
services rates. Rather, the Commission properly proceeded based on its 
authority under section 201(b). In the specific context of whether and 
to what extent site commission payments should be recoverable costs in 
interstate and international inmate calling services rates, the 
Commission sought comment on whether particular approaches would 
``result in unjust and unreasonably high rates for incarcerated people 
and their loved ones to stay connected,'' consistent with the ``just 
and reasonable'' standard in section 201(b) of the Act.
    124. Given the focus in the 2020 ICS FNPRM on applying the 
Commission's section 201(b) authority, it makes sense to evaluate cost 
recovery--otherwise described as an evaluation of whether the costs are 
directly and reasonably related to the provision of inmate calling 
services--under the longstanding principles the Commission has relied 
upon when implementing section 201(b) in the past. To be clear, the 
Commission relies on both sections 201 and 276 for its authority to 
regulate site commissions. As the D.C. Circuit explained in GTL v. FCC, 
these two sections serve different purposes, with section 201 directing 
the Commission to ensure that interstate rates are just and reasonable 
and section 276 directing the Commission to ensure providers are fairly 
compensated. These statutory provisions, while not coterminous, permit 
the Commission to regulate site commission payments by examining 
whether such payments are prudently incurred under section 201 and 
whether such payments provide fair compensation. Under this framework, 
just and reasonable rates are focused on recovering prudently incurred 
investments and expenses that are ``used and useful'' in the provision 
of the regulated service for which rates are being set. In applying 
this framework, the Commission considers whether the investment or 
expense ``promotes customer benefits, or is primarily for the benefit 
of the carrier.'' The Commission not only has applied this in the 
context of carriers operating under rate-of-return regulation, but 
rates set on that basis also were used as the foundation for price 
caps.
    125. Contractually Prescribed Site Commission Payments. Given the 
regulatory backdrop and the state of the record here, the Commission 
recognizes that contractually prescribed site commission payments that 
simply compensate a correctional institution for the costs (if any) an 
institution incurs to enable interstate and international inmate 
calling services to be made available to its incarcerated people, can, 
on an interim basis and in light of the current regulatory backdrop, be 
considered a prudent expense the provider incurs, at least as long as 
the Commission continues to permit providers of interstate and 
international inmate calling services to continue to make site 
commission payments. In GTL the court faulted the Commission's 
``categorical exclusion of site commissions from the calculus used to 
set [inmate calling services] rate caps,'' and even the 2016 ICS 
Reconsideration Order found that ``it is reasonable for [correctional] 
facilities to expect providers to compensate them for those costs[ ]'' 
the facilities incur to enable the provision of inmate calling 
services. Against that backdrop, the record here does not persuade the 
Commission to reach a contrary conclusion in its analysis under section 
201(b). In light of the regulatory backdrop and current state of the 
record, the Commission likewise finds that contractually prescribed 
site commission payments that simply compensate a correctional 
institution for costs an institution incurs to enable access for 
incarcerated people to interstate and international inmate calling 
services can, at least at this time, be considered used and useful in 
the provision of interstate and international inmate calling services. 
In the 2016 ICS Reconsideration Order the Commission found that ``some 
facilities likely incur costs that are directly related to the 
provision of [inmate calling services],'' and determined that ``it is 
reasonable for those facilities to expect [inmate calling services] 
providers to compensate them for those costs . . . [as] a legitimate 
cost of [inmate calling services] that should be accounted for in [the] 
rate cap calculations.'' The current record here again does not 
persuade the Commission to reach a contrary conclusion in its analysis 
under section 201(b). While a different record might persuade it to 
reach a different conclusion in the future, under this record the 
Commission will treat such payments as prudently incurred expenses used 
and useful in the provision of interstate and international inmate 
calling services.
    126. By contrast, the Commission finds that contractually 
prescribed site commission payments do not warrant recovery insofar as 
they exceed the level needed to compensate a correctional institution 
for the costs (if any) an institution incurs to enable interstate and 
international inmate calling services to be made available to its 
incarcerated people. First, the Commission concludes that such expenses 
are not prudently incurred. Under Commission precedent, expenses are 
imprudent if they are excessive. The Commission finds that to be the 
case here. As demonstrated by its marketplace analysis above, the 
Commission is not persuaded that a correctional institution would 
decline to make inmate calling services available to its incarcerated 
people absent contractually prescribed site commission payments above 
and beyond any amount necessary to recover the institution's costs to 
enable inmate calling services to be provided to its incarcerated 
people. That alone persuades the Commission that such payments are 
excessive. Separately, the Commission also concludes that the 
imprudence of such expenses is confirmed by the ongoing regulatory 
scrutiny and questions about recovery through interstate inmate calling 
services rates that have surrounded site commission payments since the 
2012 ICS FNPRM. This further bolsters the Commission's conclusion that 
such site commission payments are imprudent.
    127. As an independent, alternative basis for rejecting recovery 
through interstate and international inmate calling services rates, the 
Commission finds that contractually prescribed site commission 
payments, insofar as they exceed the level needed to compensate a 
correctional institution for the costs (if any) an institution incurs 
to enable interstate and international inmate calling services to be 
made available to its incarcerated people, are not used and useful in 
the provision of interstate and international inmate calling services. 
The used and useful concept is designed, in part, based on the 
principle that regulated entities ``must be compensated for the use of 
their property in providing service to the public.'' The Commission 
does not view site commission payments--whatever their origin--as 
involving the use of provider property and investment in a manner 
analogous to the circumstances addressed in the Commission's provider-
based rate caps. As a result, even for those site commission payments 
that the Commission finds recoverable through interstate and 
international inmate calling services rate caps under its interim 
rules, the Commission is not persuaded that it should allow more than a 
pass-through

[[Page 40705]]

and instead should go further and provide for providers to make a 
profit on those site commission payments. Viewed one way, the site 
commission payments that the Commission finds permissible to recover 
are akin to exogenous costs--``costs that are triggered by 
administrative, legislative or judicial action beyond the control of 
the carriers''--which, in the event of cost increases, result in upward 
adjustment of price caps without guaranteeing carriers profit on those 
exogenous costs. The Commission's permitted recovery of certain site 
commission payments through interstate and international inmate calling 
services charges could be viewed as an analogous adjustment to the rate 
cap the Commission sets for the provider-specific costs. Independently 
of that precedent, the Commission separately justifies its decision as 
a matter of the flexibility provided by the ``just and reasonable'' 
framework of section 201(b) of the Act under the particular 
circumstances here. Specifically, the Commission finds it likely that 
setting providers' interstate and international rates in a manner that 
provides for a profit on the providers' site commission payments is 
likely to exacerbate the already-perverse incentives of providers and 
correctional institutions (as well as state or local governments 
mandating site commission payments at specified levels) to increase the 
magnitude of site commission payments to the ultimate detriment of 
customers of interstate and international inmate calling services. By 
contrast, the Commission is not persuaded that allowing more than a 
pass-through of the site commission expenses that the Commission finds 
prudently incurred and used and useful here is necessary to ensure the 
continued economic viability of the provision of interstate and 
international inmate calling services. Thus, the Commission concludes 
that its approach adequately accounts for the use of providers' 
property in the provision of interstate and international inmate 
calling services balanced with the equitable interest of customers of 
interstate and international inmate calling services. ``Equally central 
to the used and useful concept, however, is 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.'' And it is 
that element of the used and useful analysis that the Commission finds 
dispositive here. Under the Commission's marketplace analysis of 
contractually prescribed site commission payments, the Commission is 
unpersuaded that site commission payments above the level needed to 
compensate a correctional institution for costs the institution 
reasonably incurs to make interstate and international inmate calling 
services available are required to ensure that incarcerated people have 
access to those services. Instead, the Commission concludes that such 
payments are a means (sometimes the sole or at least primary means) by 
which a given provider seeks to overcome its competitors to become the 
exclusive provider of multiple services, including nonregulated 
services, at a correctional facility. And the record does not reveal 
that correctional institutions, in contracting with providers that 
offer comparatively higher contractually prescribed site commission 
payments, are somehow benefitting customers of interstate and 
international inmate calling services as compared to the selection of 
some other provider. Rather, the Commission concludes here that given 
the anomalous nature of the inmate calling services marketplace, the 
primary benefits flow to the chosen provider--which overcame its 
competitors and now has the exclusive ability to serve the correctional 
facility--and the correctional facility itself (or the state or local 
government more generally), which can avail itself of the revenue 
stream such site commission payments provide, all to the detriment of 
interstate and international inmate calling services customers.
    128. Where site commissions of a particular level are not required 
under formally codified laws or rules external to the contracting 
process, providers of inmate calling services cannot reasonably contend 
that they are bound to offer, or agree to pay, site commissions above 
the level for which recovery is permitted going forward under the 
Commission's rules. In this way, to the extent providers' concerns stem 
from a collective action problem in the marketplace, the Commission's 
rules could help address that issue. The record before the Commission 
further suggests that if, in the wake of this Report and Order, 
providers of inmate calling services should offer to pay site 
commissions at levels higher than they can recover through interstate 
and international inmate calling services rates, that is because they 
expect to profit from obtaining the franchise at a given facility in 
other ways--e.g., by recovering the cost of the site commission 
payments they offer through intrastate inmate calling services rates or 
through revenue generated by providing other, nonregulated services. 
While the Commission's analysis might have particular force in the case 
of newly entered or renewed contracts, even with respect to existing 
contracts the analysis above justifies the Commission's refusal to set 
rates in a way designed to recover contractually prescribed site 
commission payments above the level needed for a correctional 
institution to recover its costs of making inmate calling services 
available to its incarcerated people.
    129. Legally Mandated Site Commission Payments. The Commission next 
conducts the cost recovery analysis for scenario one (referred to for 
convenience as ``legally mandated site commission payments''). The 
Commission's analysis begins the same as for contractually prescribed 
site commission payments. For the same reasons explained above in that 
context and given the regulatory backdrop, the Commission assumes on 
the record here and for purposes of this interim reform that legally 
mandated site commission payments simply compensate a correctional 
institution for the actual costs (if any) an institution incurs to 
enable interstate and international inmate calling services to be made 
available to its incarcerated people and are at least plausibly a 
prudent expense that is used and useful in the provision of interstate 
and international inmate calling services.
    130. The Commission's analyses of contractually prescribed and 
legally mandated site commission payments part ways, on the record 
before the Commission, when it comes to site commission payments 
insofar as they exceed the level that simply compensates a correctional 
institution for any costs the institution incurs to enable interstate 
and international inmate calling services to be made available to its 
incarcerated people--at least up to the level of the site commission 
payment specified by law or rule. The Commission is not aware of 
situations where a statute or regulation external to the contracting 
process requires a specific site commission and the provider 
nonetheless pays a site commission even higher than such level. Should 
such a situation occur, the Commission would find such expenses both 
imprudent and not used and useful for the same reasons discussed in 
connection with contractually prescribed site commission payments, 
discussed above. The Commission assumes on this record that making 
legally mandated site commission payments at the level required by the 
relevant statute or regulation is a

[[Page 40706]]

prudent expense, as the Commission sees 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. The Commission does not determine at this time to what extent this 
expense may impact its ability to ensure just and reasonable interstate 
rates under the section 201 analysis as a whole, as evaluated based on 
a different record in the future. And the Commission has not 
determined, even on this record, that this expense reflects the actual 
costs associated with the provision of inmate calling services, 
separate and apart from the legal compulsion for facilities to collect 
it.
    131. For purposes of the interim reforms it makes today, the 
Commission finds legally mandated site commission payments 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 of 
interstate and international inmate calling services to continue to 
make these site commission payments. The Commission emphasizes that 
this is a close question, however, and reiterate that the record the 
Commission develops in response to today's Fifth FNPRM may persuade it 
to reach a different conclusion when the Commission addresses site 
commissions on a permanent basis. In a state that has codified a 
requirement that providers of inmate calling services pay site 
commissions at a specified level, as allowed by current federal policy 
but an open question in the attached Fifth FNPRM, facilities have no 
immediate ability to entertain offers from providers that wish to 
supply a facility without paying the site commission demanded. And 
absent further legislative process to amend the governing statute, 
facilities would appear to have to forgo making interstate and 
international inmate calling services available if they cannot collect 
the legally mandated site commission payments. Additionally, by 
agreeing to pay site commissions that are required by statute, 
providers do not obtain any benefit or leverage over competing 
providers. For this reason, too, legally mandated site commissions do 
not, in the Commission's judgment, reflect the independent business 
judgment of service providers, based on the current treatment of site 
commissions. While formally distinct from the Commission's prudence and 
used and useful analysis, the Commission takes comfort that its 
conclusion today with respect to legally mandated site commission 
payments is unlikely to cause long-term harm. For one, the Commission 
only adopts interim rules here, and if subsequent events or additional 
arguments or evidence come forward justifying a different outcome, the 
Commission can revisit its decision at that time. In addition, on 
balance the Commission finds legally mandated site commission payments 
less pernicious than contractually prescribed site commission payments. 
The legislative process is transparent, and laws are enacted by elected 
officials who are accountable to their constituents. At least as an 
interim matter, while the Commission collect additional information on 
this subject in the Fifth FNPRM, published elsewhere in this issue of 
the Federal Register, the Commission takes comfort in the legislative 
process as a potential check on the ability of providers and 
governmental authorities to impose unjust and unreasonable rates for 
interstate and international inmate calling services. For these 
reasons, taking into account the court's vacatur in GTL, the Commission 
permits providers of inmate calling services to recover through 
interstate and international rates--as a line item distinct from the 
generally applicable interim interstate and international provider-
related rate cap component--any site commissions that they pay pursuant 
to formally codified law or regulation so long as the total per-minute 
rate that users pay does not exceed the $0.21 cap, which remains, as it 
has since 2013, the highest permissible rate for interstate debit and 
prepaid calls, and by this Report and Order, the highest permissible 
rate for collect calls too. Operationally, providers remain free to 
impose a legally mandated site commission facility charge at the level 
specified by the relevant statute or regulation, consistent with the 
analysis above. If their resulting cumulative rate otherwise would 
exceed the current $0.21 per minute rate cap, they would need to charge 
a lower provider-related rate to stay within that rate cap under the 
Commission's rules. As explained above, providers have been operating 
under the $0.21 per minute rate cap since 2013, and despite the 
opportunity to justify a waiver of that cap, no provider has done so. 
Consequently, the Commission declines to presume, for purposes of 
establishing new rules, that aggregate interstate and international 
inmate calling services charges above that level will be justified, 
although, as before, a waiver process is available if a provider seeks 
to make that case.
    132. Determining the Appropriate Contractually Prescribed Facility 
Rate Component. The Commission permits providers of prisons and larger 
jails to recover no more than $0.02 per minute over and above the 
otherwise applicable provider-related rate cap to account for site 
commissions actually paid but not required by formally codified law or 
regulation. The total rate charged for interstate inmate calling 
services is also bound by the overall upper limit of $0.21 per minute 
that has been effective since 2013.
    133. The Commission reaches its decision to adopt a $0.02 per-
minute facility-related rate component for prisons and larger jails on 
two separate and independent bases. First, this allowance is based on 
estimates of the portion of site commissions that are legitimately 
related to inmate calling services based on the methodology first 
described in Appendix H of the 2020 ICS FNPRM but since updated with 
corrected cost data consistent with the record. The Commission 
continues to rely on this methodology because it most conservatively 
estimates the site commission allowance by rounding up and applying the 
same rate to jails and prisons to ``ensure [the Commission] do[es] not 
harm unusual prison contracts.'' The Public Interest Parties' expert 
replicated the Commission's initial analysis and concluded the proposed 
$0.02 facility-cost allowance estimate is ``reasonable'' given the 
difficulty of disaggregating the portion of site commission payments 
directly attributable to inmate calling services from the portion that 
is due to the transfer of market power. Because the Commission's 
initial analysis, like its updated analysis, continues to be based on 
imperfect cost data that are not sufficiently disaggregated so as to 
reflect potential differences in costs for smaller jail facilities as 
commenters claim, the Commission limits its actions here to only 
prisons and larger jails as well. As the Public Interest Parties' 
expert suggests, that methodology reflects the Commission's 
``reasonable attempt'' in light of ``data limitations on site 
commissions'' to compare per-minute costs for facilities that are paid 
site commissions and those that are not as a way to ``isolate the gap 
in costs that could be covered by site commission payments.'' This 
methodology, derived from cost and site commission data that providers 
reported in response to the Second Mandatory Data Collection, 
incorporated no correctional facility-provided cost data. Thus, the 
Commission's proposed methodology

[[Page 40707]]

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 Public Interest 
Parties agree that the proposed $0.02 allowance for all facilities 
``strikes an appropriate balance between the statutory mandates that 
[inmate calling services] providers receive fair compensation and that 
[inmate calling services] rates are just, reasonable and promote access 
to [inmate calling services] by incarcerated people and their families 
and support networks.'' They explain that the site commission allowance 
is not designed to necessarily compensate providers for the entirety of 
all site commission payments, pointing out that would be inconsistent 
with the GTL decision, which recognized as ``legitimate'' only those 
site commissions that are ``directly related to the provision of 
[inmate calling services].''
    134. The Commission's updated site commission analysis in Appendix 
D reflects even lower potential estimates for legitimate facility costs 
related to inmate calling services. As explained above, the record 
convinces the Commission that adjustments and corrections to the cost 
data underlying the 2020 ICS FNPRM proposals were necessary for 
determining the provider-related rate component, and the Commission 
updated its site commission analysis using these revised cost data. 
This updated analysis supports a facility-related rate component of 
less than the $0.02 allowance the Commission originally calculated. 
Indeed, these updated data show that prison contracts without site 
commissions had per-minute allocated costs which were on average $0.008 
higher than prison contracts that required the payment of site 
commissions, whereas the gap for jails was $0.004. However, the 
Commission is unwilling to reduce the $0.02 allowance at this time, 
especially on an interim basis, given record opposition to that 
allowance on the basis that it is too low, was not based on facility-
provided cost data, and relied on cost data aggregated for the most 
part at the contract level rather than facility level where size 
variations would likely be reflected. And, as discussed below, the 
Commission has independent record data that supports the $0.02 
allowance.
    135. Several commenters oppose the $0.02 allowance as too low for 
two primary reasons. First, providers criticize the Commission's 
methodology for estimating reasonable facility costs in the 2020 ICS 
FNPRM insofar as this methodology ``fails to consider whether any 
characteristics other than facility costs might affect whether a 
particular contract pays a site commission.'' Second, the National 
Sheriffs' Association and others argue that $0.02 per minute is 
inappropriate for smaller jails, and claim that adopting a uniform 
$0.02 per-minute allowance for all facilities conflicts with the 
approach the Commission took in the 2016 ICS Order, which adopted 
additive amounts to the rate caps to account for site commissions based 
on facility size.
    136. The Commission agrees that the 2020 ICS FNPRM methodology 
resulted in a proposed facility-related rate component that does not 
distinguish between different types of site commission payments and 
that may not sufficiently reflect that smaller correctional facilities 
might face higher facility costs related to inmate calling services 
than the initially calculated $0.02. The Commission therefore departs 
from its initial proposal to apply a specific uniform facility cost 
allowance cap to all facilities for all types of site commissions in 
two ways to address these criticisms.
    137. First, the Commission distinguishes between the two distinct 
types of site commission payments and permit providers, when serving 
prisons and larger jails, to recover each in a distinct manner. For 
payments required under codified law or regulation, as explained above, 
the Commission permits recovery of the full commission amount, without 
markup, provided that the total interstate rate charged for interstate 
inmate calling services at those facilities does not exceed the $0.21 
per-minute rate that represents the highest interstate rate cap 
currently in effect for debit and prepaid calls for any size 
correctional facilities. Second, for contractually prescribed site 
commission payments, the Commission adopts a $0.02 cap on recovery 
through interstate rates but limit its applicability solely to prisons 
and larger jails.
    138. The Commission limits the applicability of the $0.02 cap for 
recovery of contractually prescribed site commission payments to 
prisons and larger jails, in response to criticism that this value 
would not be sufficient to recover the alleged higher facility-related 
costs incurred by jails with average daily populations below 1,000. 
Likewise, the Commission does not adopt a separate legally mandated 
rate component for these facilities. Instead, inmate calling services 
for jails with average daily populations below 1,000 will remain 
subject only to the single, aggregate $0.21 per-minute total rate cap. 
The Commission agrees that the cost data methodology underlying the 
calculation of the contractually prescribed facility rate component may 
have masked facility size cost variations due to the aggregated nature 
of those data. Given that these data obscure cost differences at the 
level of provider contracts, it is likely to be even harder to identify 
the variation, among jail contracts of different sizes, in costs that 
are in some cases incurred by providers and in other cases incurred by 
incarceration authorities. Thus, the Commission's decision to limit 
adopting a facility-related rate component to only prisons and larger 
jails on this interim basis, as the Commission does for the provider-
related rate component, and to refrain from changing the current 
interim rate cap of $0.21 for jails with average daily populations less 
than 1,000, should address the concern raised in the record about 
facility size variations in facility-related costs for jails with 
average daily populations less than 1,000.
    139. In addition to comparing providers' cost data with and without 
site commissions to determine a conservative estimate of facilities 
cost from data that was provided solely by providers and not 
facilities, the second and separate basis for reaching a decision to 
adopt $0.02, as the contractually prescribed facility-related rate 
component for contractually prescribed site commissions applicable in 
prisons and larger jails, is record data and information reintroduced 
by Pay Tel and the National Sheriffs' Association that independently 
supports a $0.02 allowance for correctional facility costs at these 
size facilities. The Commission has previously relied on these data, 
and thus the Commission concludes they are largely credible insofar as 
they come from the National Sheriffs' Association, ``which, as an 
organization representing sheriffs, is well situated to understand and 
estimate the costs that facilities face to provide [inmate calling 
services].'' Indeed, in the 2015 ICS Order, while declining to 
establish any additional rate component to reflect facility costs 
related to inmate calling services, the Commission, in referring to 
record evidence at that time that included this same National Sheriffs' 
Association data, stated ``[w]e note, however, that evidence submitted 
. . . indicates that if facilities incurred any legitimate costs in 
connection with [inmate calling services], those costs would likely 
amount to no more than one or two cents per billable minute.''
    140. Some commenters contend that the numbers contained in these 
data support a $0.02 allowance for prisons and larger jail facilities, 
while also

[[Page 40708]]

lending support for the argument advanced by other commenters that 
facility-related inmate calling services costs are higher for jails 
with fewer incarcerated people and that such costs decrease with an 
increase in facility size. According to these data, facilities with 
average daily populations of 1,000 and more can have site commission 
costs as low as $0.003 per minute, which is up to 85% less than the 
$0.02 allowance the Commission adopts here. One reason commenters 
assert that jails with average daily populations of less than 1,000 may 
have higher site commission costs is that they have higher weekly 
inmate-turnover rates and shorter lengths of stay than larger jails. 
This higher turnover causes such jails to incur much greater costs, 
including costs related to ``setting up an account, funding an account, 
closing an account . . . administering account funds after an inmate's 
release'' or ``enrolling inmates for voice biometrics.'' ``On average, 
jails with an [average daily population] of 2,500 or more inmates held 
inmates about twice as long (34 days) as jails with an [average daily 
population] of less than 100 inmates (15 days).'' Further, the record 
suggests that this trend continues as jail size falls even further; 
e.g., jails with average daily populations below 50 have an ``average 
time in jail of 11.2 days.'' Other commenters have found similar cost 
differentials between larger jails and jails with fewer incarcerated 
people, regardless of the data sets they rely upon. Some of this cost 
difference can likewise be attributed to ``differences in officer, 
supervisor and other employee hours spent on various duties; the 
compensation rates for officers, supervisors and other employees; and 
differences in minutes of use.'' In the Fifth FNPRM published elsewhere 
in this issue of the Federal Register, the Commission seeks comment on 
the effect of turnover on facility costs. While the Commission 
recognizes that the data in the National Sheriffs' Association survey 
are more than five years old, they are the best data available from 
correctional facility representatives regarding their estimated costs 
related to inmate calling services that correctional facilities incur. 
Although the Commission asked correctional facilities to provide 
detailed information about their specific costs, nothing more current 
was submitted. Nevertheless, the Commission finds the survey results 
for facilities with average daily populations greater than or equal to 
1,000 largely sufficient to support its interim $0.02 allowance for 
prisons and larger jail facilities in the absence of more current data.
    141. The Commission is concerned, however, that some of the 
facilities included in the National Sheriffs' Association survey report 
an exceedingly high number of hours of correctional facility officials' 
time compared to most other reporting facilities. For example, one 
facility with an average daily population of approximately 1,500 
reports approximately 694 total hours per week on inmate calling 
services-related activities, roughly 400 hours more than the next 
highest facility with an equal or lower average daily population. Given 
a total of 168 hours in a week (seven days per week x 24 hours per 
day), this equates to more than 17 full-time 40-hours-a-week 
correctional facility personnel (or four full-time personnel working 24 
hours a day every day) devoting all their time to inmate calling 
services. The Commission does 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. For example, 
more than 80% of the larger jails having the same or less average daily 
populations as the facility reporting 694 hours report total hours 
spent on inmate calling services at fewer than 250 total hours a week 
and, of those facilities, roughly half spend fewer than 100 hours a 
week on inmate calling services-related activities. The remaining 
facilities of the same or smaller average daily populations report 
total hours less than 300, well less than half the amount of time 
claimed by the facility reporting 694 hours. Indeed the majority of 
facilities between 1,000 and 1,500 average daily population report 
average total costs per minute less than $0.02. Nevertheless, in the 
absence of any other facility-provided data for purposes of the 
Commission's interim rate caps, the Commission concludes that reliance 
on these data best balances its 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 concludes that a $0.02 allowance for the contractually 
prescribed facility rate component is reasonable for this interim step 
based on this record until more updated facility-related data are 
submitted into the record.
    142. In adopting the $0.02 allowance, the Commission declines the 
Public Interest Parties' suggestion that the Commission round the $0.02 
figure down to $0.01 based on the analysis done for the 2020 ICS FNPRM. 
The Public Interest Parties' experts argue that the rounding adjustment 
is appropriate given typical rounding conventions. In the 2020 ICS 
FNPRM, the Commission calculated the difference in mean costs per 
minute for contracts with and without site commissions, which came out 
to $0.013. The Commission explained that it rounded this figure upward 
``to allow for individual contracts for which this matters more than 
the average contract.'' The Commission's revised calculations reflect 
even lower numbers as it has noted, yet the Commission sees no reason 
to adjust its proposed conservative approach here for this interim 
solution, particularly in light of the reintroduction of the National 
Sheriffs' Association facility-related data. To the extent that there 
are contracts covered by the new interim rate caps that the Commission 
adopts today where the facility-related costs to provide inmate calling 
services are higher than its even lower revised calculations or the 
previously calculated $0.013, particularly in light of the fact that 
National Sheriffs' Association prefers a higher rate for larger jails, 
the Commission maintains the more conservative $0.02 rate cap component 
as its interim contractually prescribed facility rate component at this 
time.
    143. The Public Interest Parties also raise concerns about ``double 
counting costs'' in both the provider-related and facility-related rate 
cap components. As they explain, ``[t]he base rate (i.e., the mean plus 
one standard deviation) is calculated based on the full data set which 
includes observations of contracts that pay commissions and those that 
do not.'' Facilities that do not require site commissions ``already 
incorporate the unobserved or unreported costs that this adjustment is 
intended to account for.'' Site commission payments have been removed 
from the calculation to determine the new lower provider-related 
interim rates the Commission adopts today. Unlike the Commission's 
proposal in the 2020 ICS FNPRM where all providers would have been able 
to recover the $0.02 rate component for all facilities regardless of 
whether site commissions were actually paid, under the Commission's 
rules adopted today providers that do not pay site commission payments 
may not assess the separate facility-related rate components on inmate 
calling services customers. The Commission finds that this addresses 
the potential double-counting concern raised by the Public Interest 
Parties. The Commission also rejects the arguments of Prisoners' Legal 
Services of Massachusetts that ``[t]here

[[Page 40709]]

is no need or justification for a two cent markup on telephone rates.'' 
These commenters highlight that ``[i]n three of six recently negotiated 
Massachusetts county contracts, the sheriffs voluntarily eliminated 
their commissions.'' While eliminating site commission payments related 
to interstate and international inmate calling services altogether may 
be a laudable objective, on the record before the Commission and taking 
into account the DC Circuit's decision in GTL, the Commission declines 
to do so at this time.
    144. The Commission also rejects the National Sheriffs' 
Association's request that the Commission establish a rate component of 
$0.05 for facilities having average daily populations between 350 and 
2,499. The National Sheriffs' Association's proposal covers a much 
greater range of jail facilities than the Commission has determined the 
Commission can reasonably address based on the current record; 
accordingly, the Commission declines to adopt its proposal. The 
Commission is not confident that the data it currently has can 
reasonably estimate legitimate facility-related costs for smaller 
facilities. And the Commission's interim rate components will cover 
facilities with average daily populations of 1,000 or more--i.e., 
facilities that the National Sheriffs' Association's survey data 
suggest can accommodate less than the $0.02 per minute the Commission 
adopts as an interim measure.
    145. Some providers oppose the Commission's calculated $0.02 number 
because it is lower than their average site commission payments across 
all their contracts. The Commission finds their arguments unpersuasive 
and contrary to law. For example, GTL argues that its site commissions 
average is [REDACTED] per minute and that the site commissions for 
[REDACTED] of its jail contracts exceed the Commission's proposed rate 
cap. Securus explains that in 2018 and 2019, the company incurred 
approximately [REDACTED] million in site commission expenses, of which 
roughly [REDACTED] was associated with inmate calling services. Securus 
also highlights that site commissions paid over the same period 
increased with facility size, ranging from [REDACTED] per minute for 
the facilities with the fewest incarcerated people to [REDACTED] per 
minute for the largest facilities. Securus's figures run counter to the 
claims of other commenters and correctional facility evidence showing 
that facility costs per calling minute tend to decrease as facility 
size increases. The problem with both GTL's and Securus's claims is 
that their figures are based on total site commissions paid, and fail 
to isolate or otherwise account for only those portions of payments 
related to reasonable facility-related costs of providing inmate 
calling services. In other words, their calculations vastly overstate 
legitimate facility-related costs because they include the full site 
commission payments, under the mistaken view that they should be 
permitted to recover the entire amount of site commission payments from 
incarcerated people or the loved ones they call. The Commission agrees 
with the Public Interest Parties that such analysis ``includes site 
commission payments that compensate correctional facilities for the 
transfer of market power from the facility to the [inmate calling 
services] provider that should not reasonably be included in the cost 
base.'' Given the failure to isolate inmate calling services-related 
costs from the site commission figures provided by GTL and Securus, the 
Commission is not persuaded that they represent reasonable allowances 
for inmate calling services-related facility costs. Furthermore, these 
figures include site commission payments that would fall into the 
category of the legally mandated facility rate component that the 
Commission separately adopts today that permits providers to recover 
these site commission payments in a manner other than through the $0.02 
contractually prescribed facility-related rate component. To rely on 
the Securus or GTL averages to arrive at a facility-related rate 
component for prisons and larger jails would necessarily result in 
double recovery with respect to many of these payments.
    146. Security and Surveillance Costs. The Commission cannot 
determine, based on the current record, 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 through interstate and 
international calling rates. The 2020 ICS FNPRM sought comment on this 
issue, and the record is mixed. Several commenters support the 
exclusion of security and surveillance costs from the base of 
recoverable inmate calling services costs under section 276, arguing 
that these tasks are ``not related to the provision of communication 
service and provide no benefit to consumers.'' As Worth Rises explains, 
security and surveillance services ``used in a prison or jail reflect 
policy decisions made by administrators that differ dramatically from 
one state or county to another and even one facility to another'' and 
are ``generally not responsive to any local, state, or federal law 
requirements, and are thus incredibly varied.'' And the United Church 
of Christ and Public Knowledge argue that costs associated with 
monitoring, call blocking, and enrolling incarcerated people in voice 
biometrics systems are security costs not related to ``communications 
functions.'' GTL and the National Sheriffs' Association argue 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 
data provided by the National Sheriffs' Association suggest that 
correctional facilities do include security and surveillance costs that 
they assert could reasonably be related to providing calling services. 
These data and descriptions also suggest a troubling and apparent 
duplication of some of the same security functions claimed by providers 
in their costs. The National Sheriffs' Association also asserts that 
the data suggest that it is possible to arrive at a per-minute cost to 
perform these duties.
    147. The Commission is skeptical of these data given the wide 
unexplained variations that appear across some of the facilities. At 
the same time, the Commission recognizes that the data upon which the 
National Sheriffs' Association relies are self-reported costs 
purportedly incurred in relation to inmate calling services. Those data 
do not suggest a methodology that would permit the Commission to verify 
or otherwise isolate legitimate telephone calling-related security and 
surveillance costs, such as costs associated with court-ordered 
wiretapping activity, from general security and surveillance costs in 
correctional facilities that would exist regardless of inmate calling 
services. As Worth Rises emphasizes, isolating and thus being able to 
quantify calling-related security and surveillance costs is an 
important step in determining how, if at all, such costs should be 
recovered through rates.
    148. On the present record, however, commenters have not provided 
the Commission with any plausible method for doing so, much less a 
methodology for determining recoverable security and surveillance 
costs, if any, versus non-recoverable costs. In the absence of an 
ability to distinguish or quantify security cost duplication at this 
time, the Commission seeks comment on this issue in the Fifth FNPRM, 
published elsewhere in this issue of the Federal Register, so the 
Commission can continue to evaluate whether and, if so, how to exclude 
these costs from

[[Page 40710]]

interstate and international inmate calling services rates.
    149. Takings. In GTL v. FCC, the DC Circuit directed that the 
Commission address on remand whether ``the exclusion of site 
commissions . . . violates the Takings Clause of the Constitution 
because it forces providers to provide services below cost.'' 
Consistent with that directive, the 2020 ICS FNPRM sought comment on 
the takings issue with respect to site commission payment cost 
recovery. The Commission indicated it did not believe that there were 
any potential taking concerns arising from the rate cap proposals in 
the 2020 ICS FNPRM. The Commission finds that the Takings Clause is not 
implicated by the actions it takes today in adopting separate and 
distinct facility-related rate components that providers may recover.
    150. As an initial matter, the interim rate cap reforms the 
Commission adopts in this Report and Order with respect to site 
commission payments are based on a cautious, data-driven approach to 
lowering total interstate rate caps, carefully balancing the needs of 
providers to receive fair compensation while ensuring just and 
reasonable rates and practices. The D.C. Circuit's concern about 
takings due to the categorical exclusion of any portion of site 
commission payments in the 2015 ICS Order is obviated by the 
Commission's two-part facility-related rate component mechanism.
    151. As the Supreme Court has recognized, the ``guiding principle 
has been that the Constitution protects utilities from being limited to 
a charge for their properly serving the public which is so `unjust' as 
to be confiscatory.'' As a general matter, ``[r]ates which enable [a] 
company to operate successfully, to maintain its financial integrity, 
to attract capital, and to compensate its investors for the risk 
assumed certainly cannot be condemned as invalid, even though they 
might produce only a meager return on the so called `fair value' rate 
base.'' In making this evaluation, ``it is not theory but the impact of 
the rate order which counts. If the total effect of the rate order 
cannot be said to be unreasonable, judicial inquiry . . . is at an end. 
The fact that the method employed to reach that result may contain 
infirmities is not then important.'' Whether a given rate is 
confiscatory ``will depend to some extent on what is a fair rate of 
return given the risks under a particular rate-setting system, and on 
the amount of capital upon which the investors are entitled to earn 
that return.'' In evaluating the ``total effect'' of a rate on a 
company, courts do not consider the profitability of a company's 
nonregulated lines of business. Carriers face a ``heavy burden'' to 
prevail on a takings claim and must demonstrate that a rate ``threatens 
[the carrier's] financial integrity or otherwise impedes [its] ability 
to attract capital.''
    152. Considered in their totality, the Commission's interim per-
minute provider-related rate caps and allowances for site commissions 
do not threaten providers' financial integrity such that they could be 
considered confiscatory. The rate caps and site commission allowances 
are based on data supplied by providers and, as applicable to site 
commissions, correctional facilities. Neither correctional facilities 
nor providers have incentives to understate their costs in the context 
of a rate proceeding, lest the Commission adopts rates that are below 
cost. Indeed, the manner in which these cost data were collected gave 
``providers every incentive to represent their [inmate calling 
services] costs fully, and possibly, in some instances, even to 
overstate these costs.'' Thus, there is no reason to believe that the 
data understate the actual costs of providing interstate and 
international inmate calling services.
    153. Further, as the Commission observed in 2015, ``[t]he offering 
of [inmate calling services] is voluntary on the part of the [inmate 
calling services] providers, who are in the best position to decide 
whether to bid to offer service subject to the contours of the request 
for proposal. There is no obligation on the part of the [inmate calling 
services] provider 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.'' And unlike the rate caps adopted in 2015, the 
Commission's new interim rate framework includes an explicit allowance 
for site commission payments. Considering these circumstances, the 
Commission concludes that the ``total effect'' of its interim rate 
regime is not confiscatory and reject arguments that the reforms 
adopted here will result in unconstitutional takings.
    154. The Commission's actions also do not constitute a per se 
taking as they do not involve the permanent condemnation of physical 
property. Nor do the Commission's actions represent a regulatory 
taking. The Supreme Court has stated that in evaluating regulatory 
takings, three factors are particularly significant: (1) The economic 
impact of the government action on the property owner; (2) the degree 
of interference with the property owner's investment-backed 
expectations; and (3) the ``character'' of the government action. None 
of these factors suggest a regulatory taking here.
    155. First, the interim steps the Commission takes with respect to 
inmate calling services rates including site commission payments are 
unlikely to have adverse economic impacts on providers. Providers have 
a waiver mechanism available to them should they find that in limited 
instances, the rate cap components do not cover the legitimate costs of 
providing inmate calling services. And, as explained above, the Supreme 
Court has long recognized, when a regulated entity's rates ``enable the 
company to operate successfully, to maintain its financial integrity, 
to attract capital, and to compensate its investors for the risks 
assumed,'' the company has no valid claim to compensation under the 
Takings Clause, even if the current scheme of regulated rates yields 
``only a meager return'' compared to alternative rate-setting 
approaches.
    156. Second, these interim actions do not improperly impinge on 
providers' reasonable investment-backed expectations. The Commission 
has long been examining how to address inmate calling services rates 
and charges and has taken incremental steps to address areas of concern 
as they arise. Various proposals, especially those targeting rate 
reform, have been raised and extensively debated in the record. Given 
this background, the Commission is not persuaded that any reasonable 
investment-backed expectations can be viewed as having been upset or 
impinged by its actions here.
    157. Third, the Commission's actions today substantially advance 
the legitimate governmental interest in protecting incarcerated people, 
and the familial and other support systems upon which they rely through 
telephone service, from unjust and unreasonable interstate and 
international inmate calling services rates and charges. This is an 
interest that Congress has required the Commission to protect. Thus, 
the Commission's actions do not compel a physical invasion of 
providers' property, but merely ``adjust[ ] the benefits and burdens of 
economic life to promote the common good'' by ensuring that providers 
are fairly compensated while also directly protecting the interests of 
ratepayers and, indirectly, the broader public.
    158. Recovering Facility-Related Rate Components on Consumers' 
Bills. Having adopted the two aforementioned distinct facility-related 
rate components today to account for payments required under codified 
law and the Commission's reasonable estimate of

[[Page 40711]]

legitimate correctional facility costs, the Commission also finds it 
necessary to ensure increased transparency in the rates and charges 
imposed upon incarcerated people and their loved ones for interstate 
and international inmate calling services. Under its interim rules, the 
Commission adopts different caps on the facility-related rate component 
of interstate and international inmate calling services depending on 
the circumstances that led to the site commission payment. In contrast 
to someone's status as an inmate of a prison versus a jail, or of a 
jail of a particular size--for which the Commission also has differing 
rate caps--the Commission finds it less likely that customers of 
interstate and international inmate calling services will know the 
circumstances that led to a given provider's site commission payment. 
Absent information separately breaking out the facility-related rate 
component of the service charge, and some identifier tying the charge 
to the relevant category under the Commission's rules, customers will 
be substantially less able to evaluate their bills and monitor whether 
they are receiving the protections of Commission rate caps to which 
they are entitled. To this end, the Commission exercises its authority 
to require providers choosing to recover the facility-related rate 
components in their total interstate or international inmate calling 
services rates to include those rate components separately on inmate 
calling services bills. The Commission believes that the requirements 
the Commission adopts advance truthfulness and accuracy in billing, 
consistent with the Commission's existing Truth-In-Billing rules. To 
the extent that the requirements of these rules differ from the 
requirements of the Commission's Truth-In-Billing rules with respect to 
the detail and specifications required or otherwise, the Commission 
makes clear that these more specific billing requirements for the 
facility-related component of interstate and international inmate 
calling services charges are controlling over the more general Truth-
In-Billing rules to the extent of any divergence--but only to that 
extent. Providers thus must treat the Commission's interstate and 
international inmate calling services disclosure requirements as 
controlling within their self-described scope and otherwise comply with 
the more general Truth-In-Billing rules. The facility-related rate 
components on such bills should contain the source of the obligation 
underlying that component, the amount of the component on a per unit 
basis, and the total interstate or international rate component 
resulting from the facility-related rate component charged for 
interstate or international calls and reflected on bills. The 
Commission provides more detailed guidance on the mechanics of 
implementing these requirements later in this section.
    159. The Commission has previously found that it has the 
jurisdiction to ``regulate the manner in which a carrier bills and 
collects for its own interstate offerings, because such billing is an 
integral part of that carrier's communications service.'' In the 2013 
ICS Order, the Commission used this authority to address billing-
related call blocking, explaining that ``the Commission and the courts 
have routinely indicated that billing and collection services provided 
by a common carrier for its own customers are subject to Title II'' of 
the Act. And, in adopting ancillary service charge rules in the 2015 
ICS Order, the Commission reaffirmed its jurisdiction to regulate the 
manner in which providers bill and collect charges associated with 
inmate calling services. Because these facility-related rate components 
concern the ``manner'' in which calling service providers bill for 
their interstate and international services, the Commission concludes 
that it has the necessary authority to require implementation as 
specified herein.
    160. The strong public interest in facilitating greater 
transparency with respect to site commission payments likewise 
justifies the disclosure of facility-related rate component 
information. Given that incarcerated people and their loved ones 
ultimately bear the burden of these payments through the total per-
minute rates charged by providers, there is a strong interest in 
transparency regarding the charges that incarcerated people and their 
families bear. Absent its requirements the Commission finds a 
substantial risk that billing information will lack the detail about 
correctional facility-related charges necessary for consumers to ensure 
they are receiving the protections of the Commission's rate caps in 
that regard.
    161. Calling service providers in this proceeding have similarly 
encouraged the Commission to account for the effect of state law in 
assessing site commission payments. GTL explains that there are 
``significant variances in site commission requirements,'' some of 
which are driven by state law. And Securus points to variations in 
state laws governing site commissions that ``might affect whether a 
particular contract pays a site commission.'' Securus expressly 
encourages the Commission to treat site commissions ``separate and 
distinct from the provider base rate.'' Securus highlights that 
``[t]his would allow the Commission to set a lower rate ceiling based 
on non-commission costs, and would increase public transparency of 
[inmate calling services] provider costs.'' The Commission agrees. By 
accounting for legally mandated and contractually prescribed site 
commissions separately, the Commission is better able to account for 
certain variances in site commission costs and increase transparency to 
end users with respect to what portion of their total interstate and 
international rates relate to site commission payments. The Commission 
also declines NCIC's request that rather than permit site commission 
allowances as an additive to the provider-related rate components, the 
Commission instead requires providers to make these payments ``from 
their revenue generated at the new caps.'' The Commission is unable, on 
the record before it and for purposes of the interim reforms the 
Commission makes today, to take this step.
    162. The Commission's treatment of correctional facility-related 
costs as a separate and distinct rate component from the lower 
provider-related interim rate caps the Commission adopts is consistent 
with GTL v. FCC. While the D.C. Circuit rejected the ``categorical 
exclusion'' of site commission costs from ``the calculation used to set 
[inmate calling services] rate caps,'' nothing in the court's decision 
dictates how the Commission implements recovery of such costs. The 
facility-related rate components the Commission adopts herein merely 
disaggregate correctional facility-related costs from provider-related 
costs and direct providers to recover these costs through separate 
interim rate components.
    163. Mechanics of the Legally Mandated Facility Rate Component. For 
providers subject to site commission payments required under codified 
laws or regulations, the Commission permits providers to pass through 
to consumers this cost of providing inmate calling services, without 
any markup, capped at the maximum total interstate rate cap currently 
in effect for debit and prepaid calls from any size correctional 
facilities. Providers may never charge a total rate for interstate 
calls that exceed $0.21, the highest interstate rate cap permissible as 
a result of today's actions. As the Commission indicated, nothing the 
Commission does today increases any interstate calling rate above the 
$0.21 rate cap in effect prior

[[Page 40712]]

to today for prepaid and debit calls from all sizes and types of 
facilities. The Commission agrees, for present purposes, that site 
commissions prescribed under formally codified laws are meaningfully 
distinguishable from contractually negotiated site commission payments. 
At least on the current record, while the Commission collects 
additional information through today's Fifth FNPRM, the Commission 
considers it prudent to regard site commissions of this type as 
reasonably related to the provision of inmate calling services.
    164. Consistent with the Commission's transparency objectives, 
providers shall: (1) Specify the state statute, law, or regulation 
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 giving rise to the mandatory nature of the 
obligation to pay; (2) disclose the amount of the payment on the 
applicable per-unit basis, e.g., per-call or per-minute if based on a 
revenue percentage; and (3) identify the total amount of this facility 
rate component charged for the interstate and international calls on 
the bill. For example, a provider serving a local jail in Tennessee is 
required to collect $0.10 for each completed telephone call. In issuing 
an inmate calling services customer bill, that provider must clearly 
label the legally mandated facility-related rate component, specify 
section 41-7-104 of the Tennessee Code as the relevant statutory code 
section giving rise to the obligation, specify the amount as $0.10 per 
call, and include a line item indicating the total charge to the 
customer resulting from multiplying the $0.10 per call charge by the 
number of interstate and international calls. Similarly, for a 
statutory obligation to remit a percentage of gross revenue, like the 
40% reflected in the Texas code, the Commission requires a provider to 
identify the Texas code section, specify that it requires an additional 
40% charge on top of the applicable per-minute interstate or 
international provider-related rate component, and include a line item 
reflecting how much of the total interstate and international rate 
charges are attributable to the mandatory 40% charge. The Commission 
recognizes the possibility that not all mandatory site commission 
payments may be easily expressed as a percentage of revenue or easily 
converted to a per-call or per-minute rate. Under these circumstances, 
providers must use their best judgment to comply with the Commission's 
billing-related disclosure obligations to reflect the legally mandated 
rate component in the manner the Commission prescribes for interstate 
and international calls on their inmate calling services customer 
bills. Providers are not required to use the terms ``legally mandated 
facility rate component'' or ``contractually prescribed facility rate 
component,'' but may do so if they choose. Other terms may be 
appropriate as long as providers clearly label the facility-related 
rate components. The Commission directs the Bureau staff to assist with 
questions that may arise on a case-by-case basis should providers 
encounter difficulty implementing the Commission's billing transparency 
requirements.
    165. Mechanics of the Contractually Prescribed Facility Rate 
Component. Providers subject to contractually prescribed site 
commissions pursuant to contract with correctional facilities or 
agencies may charge up to $0.02 per minute to recover those 
discretionary payments. Should a provider's total contractually 
prescribed site commission payment obligation result in a lower per-
minute rate than $0.02 per minute of use, that provider's contractually 
prescribed facility rate component would be limited to the actual 
amount of its per-minute site commission payment up to a maximum of 
$0.02. An illustration may prove helpful. If the provider charges $0.12 
per minute for a call from a larger jail and the correctional facility 
imposes a 10% site commission payment obligation on all gross revenue, 
the provider would be required to pay the correctional facility $0.012 
(an amount lower than $0.02). In such a case the provider is only able 
to charge a contractually prescribed facility rate component of $0.012 
rather than the full $0.02 amount. For this reason, providers must 
calculate any contractually prescribed facility rate component to three 
decimal points for all intermediate calculations occurring before the 
total amount of such charges related to interstate and international 
calling are determined. Similar to the requirements for the 
Commission's legally mandated rate component, should providers decide 
to recover this discretionary amount from their interstate or 
international calling customers, they must clearly label the rate 
component on their bill and indicate that this rate component is 
required by the correctional facility per contract. They must also show 
this rate component charge as an additional (up to $0.02, as 
applicable) per minute rate component on top of the applicable 
provider-related per-minute rate component, and then compute the total 
amount attributable to the $0.02 rate component charged to the end user 
for that call, determined by multiplying $0.02 by the number of 
interstate and international minutes reflected on that bill. To the 
extent providers believe they are unable to recover their costs through 
the interstate and international rate components the Commission adopts 
today, they may seek waivers through the waiver process the Commission 
also adopts today. ICSolutions requests that the Commission require 
providers to list in-kind commissions on consumer bills because 
``differential treatment based on the form of commissions 
distinguishing monetary from all other forms will lead to gold-plating 
and limitations on competition.'' The Commission declines to do so. 
Instead, consistent with the Commission's broad definition of site 
commissions in section 64.6000(t), the Commission makes clear that the 
$0.02 allowance for the contractually prescribed facility rate 
component reflects any type of site commission or compensation, whether 
monetary or in-kind, that is required to be paid in this situation. The 
Commission's focus on consumer transparency here means that consumers 
need to know what they are paying to cover any type of consideration 
that the provider is paying, giving, donating, or otherwise providing 
to the facility.
    166. Finally, NCIC Inmate Communications (NCIC) asks the Commission 
to clarify that the Commission's $0.02 allowance ``does not prohibit 
the payment of additional site commissions should the inmate calling 
services provider and correctional facility so negotiate.'' The 
Commission confirms that the $0.02 figure does not prevent or prohibit 
the payment of additional site commissions amounts to correctional 
facilities should the calling services provider and the facility enter 
into a contract resulting in the provider making per-minute payments to 
the facility higher than $0.02. All the Commission does here is limit 
the providers' ability to recover these commissions to $0.02. 
Consequently, the Commission rejects NCIC's assertion that the $0.02 
allowance could raise Tenth Amendment concerns ``by infringing on a 
state's right to require or permit site commissions.'' With respect to 
state prescribed statutory or legal obligations, the Commission allows 
recovery for such mandatory site commission payments as described 
herein, leaving

[[Page 40713]]

states free to require them as they wish. As the Public Interest 
Parties correctly highlight, the Commission's actions do not ``affect a 
state's ability to require or permit site commissions.'' The 
Commission's recognition here that existing site commission payment 
obligations may contain legitimate facility-related costs is not an 
invitation for correctional facilities not currently incorporating 
these discretionary payments into their bidding and contracting process 
to do so in the future. Indeed, in the Fifth FNPRM, the Commission 
seeks comment on whether providers should be prohibited from entering 
into any correctional facility contract that requires the payment of 
site commission payments with respect to interstate and international 
inmate calling services pursuant to the Commission's authority under 
section 201(b) of the Act.
5. Waiver Process for Outliers
    167. The Commission readopts and modifies the waiver process 
applicable to calling service providers and codify this process in its 
inmate calling services rules. The Commission reaffirmed its waiver 
process for inmate calling services providers in the 2015 ICS Order. 
These portions of the 2015 ICS Order were left unaltered by the GTL v. 
FCC court's 2017 vacatur. The 2020 ICS FNPRM proposed to adopt a 
modified waiver process to better enable the Commission to understand 
why circumstances associated with a provider's particular facility or 
contract differ from those at other similar facilities it serves, and 
from other facilities within the same contract, if applicable. The 
record, while not robust on this issue, generally supports the 
Commission's proposed waiver process modifications. For instance, GTL 
agrees with the Commission's proposal to apply the waiver process on a 
facility-by-facility basis rather than at the holding company level as 
required under the present rules. Significantly, no commenter opposes 
the proposed waiver process modifications.
    168. A waiver process provides an important safety valve for 
providers that may face 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. Such a process helps the 
Commission ensure that providers' rates for interstate and 
international inmate calling services and ancillary services are not 
unreasonably low within the meaning of section 201(b) of the Act and 
also is essential to the Commission's ability to ensure that providers 
are fairly compensated for each and every completed call, as section 
276(b)(1)(A) of the Act requires. Accordingly, the Commission 
establishes a modified waiver process requiring providers of inmate 
calling services that seek waivers of the Commission's interstate or 
international rate or ancillary fee caps to do so on a facility-by-
facility or contract basis, consistent with the Commission's proposal 
in the 2020 ICS FNPRM. The Commission similarly modifies its waiver 
process to specifically permit providers to seek waivers of the 
international rate caps the Commission adopts in this Report and Order. 
The Commission has previously delegated authority to the Bureau to 
review and rule on petitions for waiver of its caps for inmate calling 
services, and the Commission reaffirms that delegation of authority 
today.
    169. Throughout the course of this proceeding, various parties have 
argued that reductions in inmate calling services rates would threaten 
their financial viability, imperiling their ability to provide service, 
and risking degraded or lower quality service. The Commission finds 
that these claims are best handled on a case-by-case basis through a 
waiver process that focuses on the costs the provider incurs in 
providing interstate and international inmate calling services, and any 
associated ancillary services, at an individual facility or under a 
specific contract. The Commission finds these levels of analysis to be 
the most appropriate because they permit the evaluation of detailed 
information about individualized circumstances that are best measured 
at those disaggregated levels of operations, unlike its prior waiver 
process which was based at the holding company level. This approach 
also recognizes that in some instances the circumstances at a 
particular facility may prevent the provider from recovering its costs 
of providing interstate and international inmate calling services and 
associated ancillary services under the Commission's rate and ancillary 
service fee caps, while in other instances circumstances applicable to 
all facilities covered by a contract may prevent such cost recovery. To 
the extent any provider desires to cease serving a facility or 
facilities because it determines that it is no longer an economically 
attractive business operation, correctional facilities and incarcerated 
people need not fear an abrupt disruption or cessation of service, as 
some providers suggest could occur. If an inmate calling services 
provider seeks to discontinue offering service at any facility, it 
would first need to obtain authority from this Commission pursuant to 
section 214 of the Act, a provision which serves to ensure that 
customers of any telecommunications services provider have alternative 
service options available to them prior to the carrier discontinuing 
its service at any facility. Moreover, based on the contractual 
arrangements between the relevant correctional facility and provider, 
the inmate calling services contract would likely be transferred to 
another provider to ensure continuity of service for the incarcerated 
people residing in the facility in question, a transfer which also 
would require prior approval from the Commission pursuant to section 
214 of the Act.
    170. As with all waiver requests, the petitioner bears the burden 
of proof to show that good cause exists to support the request. Any 
inmate calling services provider filing a petition for waiver must 
clearly demonstrate that good cause exists for waiving the Commission's 
rate or fee caps at a given facility or group of facilities, or under a 
particular contract, and that strict compliance with the Commission's 
rate or fee caps would be inconsistent with the public interest. The 
Commission does not expect the Bureau to grant waiver requests 
routinely. Rather, the Commission expects the Bureau to subject any 
waiver requests to a rigorous review. Relief would be granted only in 
those circumstances in which the petitioner can demonstrate that 
adhering to the Commission's rate or fee caps would prevent it from 
recovering its costs of providing interstate inmate calling services at 
a particular facility or group of facilities, or pursuant to a 
particular contract. Moreover, the Commission agrees with commenters 
that suggest that the interim rate reform adopted in this Report and 
Order should minimize the need for providers to avail themselves of the 
Commission's waiver process.
    171. Petitions for waiver must include a specific explanation of 
why the waiver standard is met in the particular case. Conclusory 
assertions that reductions in interstate or international rates, or 
associated ancillary service fees, will harm the provider or make it 
difficult for the provider to expand its service offerings will not be 
sufficient. The Commission agrees with commenters that providers 
requesting a waiver of the Commission's inmate calling services rules 
should provide a detailed explanation of their claims, as well as a 
comparative analysis of the reasons the

[[Page 40714]]

provider cannot recover its costs when similar facilities or contracts 
served by the provider do. In addition, waiver petitions must include 
all required financial data and other information needed to verify the 
carrier's assertions. Failure to provide the information listed below 
will be grounds for dismissal without prejudice. Furthermore, the 
petitioner must provide any additional information requested by 
Commission staff needed to evaluate the waiver request during the 
course of its review. This requirement is consistent with prior 
Commission inmate calling services waiver requirements. This additional 
information may include information regarding the provider's facilities 
or contracts that have characteristics similar to those for which 
waiver is sought, the provider's interstate and international rates, 
and the provider's associated ancillary service charges, at or below 
the Commission's caps. Petitions for waiver must include, at a minimum, 
the following information:
     The provider's total company costs, including the 
nonrecurring costs of the assets it uses to provide inmate calling 
services and its recurring operating expenses for these services at the 
correctional facility or under the contract;
     The methods the provider used to identify its direct costs 
of providing interstate and international inmate calling services, to 
allocate its indirect costs between its inmate calling services and 
other operations, and to assign its direct costs to and allocate its 
indirect costs among its inmate calling services contracts and 
correctional facilities;
     The provider's demand for interstate and international 
inmate calling services at the correctional facility or at each 
correctional facility covered by the contract;
     The revenue or other compensation the provider receives 
from the provision of interstate and international inmate calling 
services, including the allowable portion of any permissible ancillary 
services fees attributable to interstate and international inmate 
calling services, at the correctional facility or at each correctional 
facility covered by the contract;
     A complete and unredacted copy of the contract for the 
correctional facility or correctional facilities, and any amendments to 
such contract;
     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 the waiver rules adopted in this Report and Order);
     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 serves, 
and from other correctional facilities covered by the same contract, if 
applicable; and
     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.
    172. The Commission declines to adopt Free Press's request that a 
provider's waiver request should terminate upon a showing either that 
facility costs have declined or that its revenue has increased, and 
that the Commission should ``require periodic updates on cost and 
revenue data to make these determinations.'' Requiring a provider to 
provide updated and detailed cost and revenue data and analyses on an 
ongoing basis, beyond its initial detailed cost and data submissions, 
would be unnecessarily burdensome. Any waiver request filed with the 
Commission will be rigorously scrutinized and, if granted, time limited 
as appropriate, based on the circumstances of each particular request. 
Additionally, the Commission views its waiver process as sufficiently 
narrow and rigorous to filter spurious waiver claims, and thus 
sufficiently addresses those commenters' requests that any potential 
grant of a waiver of the Commission's inmate calling services rules be 
as narrowly tailored as possible.
    173. Consistent with its past waiver process for inmate calling 
services, the Commission delegates to the Bureau the authority to 
approve or deny all or part of any petition for waiver of the 
Commission's inmate calling services rules. Such petitions will be 
placed on public notice, and interested parties will be provided an 
opportunity for comments and reply comments. The Bureau will endeavor 
to complete its review of any such petitions within 90 days of the 
provider's submission of all information necessary to justify such a 
waiver, including any information requested by the Bureau subsequent to 
receiving the waiver request.

D. Interim International Rate Caps

    174. Today the Commission adopts, for the first time, interim rate 
caps on international inmate calling services calls, as proposed in the 
2020 ICS FNPRM. In that FNPRM, the Commission proposed to ``adopt a 
rate cap formula that permits a provider to charge an international 
inmate calling services rate up to the sum of the provider's per-minute 
interstate rate cap for that correctional facility plus the amount that 
the provider must pay its underlying international service provider for 
that call on a per-minute basis.'' A diverse group of industry 
stakeholders strongly support the Commission's proposal to cap 
international calling rates.
    175. The record before the Commission is replete with evidence that 
Commission action to address international inmate calling services 
rates is long overdue. Although international calling minutes from 
correctional facilities represent only a fraction of all calling 
minutes from such facilities, for those incarcerated people who rely on 
international calling to stay connected with their loved ones abroad, 
current international calling rates present a heavy financial burden. 
The 2020 ICS FNPRM recognized that international rates are 
``exceedingly high in some correctional facilities, some as high as $45 
for a 15-minute call.'' Record evidence provides additional examples of 
extremely high international calling rates.
    176. Providers and public interest advocates alike broadly support 
Commission adoption of international rate caps. Notably, the record 
explains that providers have entered into contracts that limit 
international rates in certain states. In 2016, New Jersey, for 
example, prohibited state correctional authorities from contracting for 
international rates higher than $0.25 per minute. And in 2018, Illinois 
negotiated a contract with Securus capping international calls at $0.23 
per minute. The Commission applauds these state efforts to address 
excessive international calling rates through the states' contracting 
authority, which complements its action today setting long-overdue rate 
caps for international calling services.
    177. Calculating International Rate Caps. In the 2020 ICS FNPRM, 
the Commission proposed to adopt a rate cap formula for international 
inmate calling services calls that would allow a provider to ``charge a 
rate up to the sum of the inmate calling services provider's per-minute 
interstate rate cap for that correctional facility plus the amount that 
the provider must pay its underlying international service provider for 
that call on a per-minute basis (without a markup).'' Although some 
commenters support the proposed methodology for calculating the 
international rate caps, the Commission acknowledges Securus's argument

[[Page 40715]]

regarding the administrative difficulty of practically implementing the 
Commission's proposal for international rate caps.
    178. According to Securus, the rate structures used by underlying 
international providers outside the United States can vary based on the 
destination. While the average cost that Securus pays for international 
calls is around $0.09 a minute, in some countries the international 
termination rates are significantly higher than $0.09. To handle the 
fluctuating costs of international calls, Securus, like many 
telecommunications service providers, has implemented a ``least cost 
routing system'' for completing its inmate calling services customers' 
international calls that relies on continually updated ``rate decks'' 
containing thousands of entries for international rates. When an 
international call is made, Securus will steer the call through the 
route having the lowest rate at that time. When rates change or the 
route is no longer available, Securus must find an alternative route 
with the next lowest rate to terminate the calls. Securus states that 
this constant flux of different underlying international carriers 
charging Securus different wholesale rates makes it impractical for 
Securus--and, likely, other providers--to charge customers ``based on 
the actual cost of terminating each individual call.''
    179. Securus, therefore, proposes a methodology to account for this 
constant variation in international rates to the same overseas 
destination. Under Securus's proposal, the per-minute international 
rate cap applicable to each ``international destination'' would be 
based on the Commission's applicable total per-minute interstate rate 
cap for that facility, plus the average per-minute amount paid by the 
provider to its underlying wholesale international carriers to 
terminate international calls to the same ``international destination'' 
over the preceding calendar quarter. The Commission defines 
``international destination'' as meaning the rate zone in which an 
international call terminates. For countries that have a single rate 
zone, ``international destination'' means the country in which an 
international call terminates. Under this proposal, providers would be 
required to determine this average per-minute amount paid for calls to 
each international destination for each calendar quarter, and then 
adjust their maximum international per-minute rate caps based on such 
determination within one month of the end of each calendar quarter. The 
record supports Securus's proposal as being more administratively 
efficient than the Commission's proposal.
    180. Securus presents a convincing argument that compliance with 
international rate caps on a call-by-call basis, where the rates 
charged by underlying international carriers are constantly 
fluctuating, would be ``impractical.'' Moreover, this methodology takes 
into account not only the highest but also the lowest wholesale rate 
for international calls to the same destination over a reasonable 
period of time, benefiting incarcerated people by having a consistent, 
predictable international calling rate for every three-month period to 
the country or countries they need to call. No party has objected to 
this proposal, provided that the Commission makes clear that providers 
may not mark up any charge for international termination before passing 
it through to consumers. Accordingly, the Commission adopts Securus's 
approach for interim international rate caps, subject to a no mark-up 
requirement. Because the interstate rate caps adopted today are interim 
rate caps pending the Commission's collection of new, more uniform, 
cost data, and because the Commission's international rate caps include 
its applicable interim interstate rate cap component for each facility, 
these international rate caps are similarly interim in nature. This 
methodology will enable providers to recover the higher costs of 
international calling. In the unlikely scenario where an inmate calling 
services provider is unable to fully recover its international calling 
costs, such provider may avail itself of the waiver process the 
Commission adopts in this Report and Order. And incarcerated people 
will enjoy reasonable and more affordable international calling rates, 
allowing them to better communicate with family and friends abroad.
    181. To ensure that any international call termination charges are 
transparent to consumers, the Commission requires that providers 
disclose, as a separate line item on their calling services bills, any 
such international charges that they pass through to consumers. The 
Commission has jurisdiction to regulate ``the manner in which a carrier 
bills and collects for its own interstate offerings.'' Providers shall 
also clearly, accurately, and conspicuously disclose those charges on 
their websites or in another reasonable manner readily available to 
consumers. Providers shall retain documentation supporting any charges 
for international termination that they pass through to consumers and 
provide such documentation, including any applicable contracts, to the 
Commission upon request. The Commission finds that these transparency 
requirements will not be particularly burdensome because providers need 
to calculate international termination charges to set their rates and 
need to retain records for financial auditing purposes. And, in any 
case, the strong public interest in facilitating greater transparency 
with respect to calling services' rates outweighs the limited burden on 
providers. Absent these requirements, the Commission finds a 
substantial risk that consumers will lack sufficient information about 
international calling rates, which may be subject to change every 
quarter given the prescribed method of determining the wholesale 
provider rate component.
    182. Alternative Proposals. On the record before it, the Commission 
declines the Public Interest Parties' request that the Commission cap 
international inmate calling services rates at a level no higher than 
its applicable interstate rate caps. The Public Interest Parties note 
that some providers reported no international costs but did report 
international minutes and revenue from the calls, which ``suggests that 
international costs are already included in their total costs, and thus 
accounted for in the interstate rates.'' According to the Public 
Interest Parties, the Commission will double count those costs if it 
allows providers to recover the costs of international calls 
separately. While some small degree of double counting may have 
occurred through failure to separately report international costs in 
response to the Second Mandatory Data Collection, the record indicates 
that some providers did include separate costs for international calls 
in their responses. Regardless, the method the Commission is adopting 
recognizes that international calling does cost more than domestic 
calling and that providers are entitled to recover these extra costs 
through the method the Commission adopts. The Commission will continue 
to monitor international calling rates in providers' annual reports and 
collect more uniform data on international costs at the same time the 
Commission undertakes its data collection for interstate costs. Should 
those data reflect double counting, the Commission will adjust its 
permanent international rate caps accordingly. The Commission also 
declines the proposal of the Human Rights Defense Center, which asserts 
that ``$.05 per minute is more than adequate compensation for companies 
that provide all Inmate Calling Services (ICS) services, locally, 
interstate, intrastate and internationally.'' The

[[Page 40716]]

Human Rights Defense center provides insufficient support and basis for 
this proposal, in light of the Commission's obligations under section 
276 of the Act.

E. Consistency With Section 276 of the Act

    183. Section 276(b)(1)(A) of the Act requires the Commission to 
``ensure that all payphone service providers are fairly compensated for 
each and every completed intrastate and interstate call.'' The 
Commission concludes, consistent with the Commission's proposal in the 
2020 ICS FNPRM, that the interim rate caps the Commission adopts in 
this Report and Order fully satisfy this mandate. In the vast majority 
of, if not all, cases, these rate caps will 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. To the extent there are legitimate but rare anomalous cases 
in which a provider cannot recoup such costs under the new rate caps, 
the provider may seek a waiver of those caps, to the extent necessary 
to ensure that it is fairly compensated, as required by the Act.
    184. As the Commission observed in the 2020 ICS FNPRM, this 
approach recognizes that calling services contracts often apply to 
multiple facilities and that providers do not expect each call to make 
the same contribution toward indirect costs. The record confirms that 
``because the industry norm is to bid for one contract for multiple 
facilities and then offer a single interstate rate across facilities 
irrespective of cost differentials that may exist among facilities 
under the contract, it would be impossible to reach a methodology that 
would allow a direct, one-to-one recovery of costs.'' No parties 
challenged this conclusion or commented otherwise. Indeed, providers 
acknowledge that they do not presently keep the type of accounting 
records that would allow them to measure the costs of individual calls. 
And, although the Mandatory Data Collection that the Commission adopts 
in this Report and Order will result in far more granular cost data 
than currently are available, the resulting data will necessarily rely 
on allocations of indirect costs among contracts and facilities and 
thus will fall far short of allowing a provider to directly assign all 
its inmate calling services costs to individual calls.
    185. The Commission finds that the interim rate caps it adopts 
today are consistent with both section 276 of the Act and the D.C. 
Circuit's decision in GTL v. FCC. In that decision, the court rejected 
the Commission's ``averaging calculus'' in the 2015 ICS Order, which 
set tiered rate caps using industry-wide average costs derived from 
cost data submitted by providers. The court explained that the 
Commission erred in setting rate caps using industry-average costs 
because calls with above-average costs would be ``unprofitable,'' in 
contravention of the ``mandate of Sec.  276 that `each and every' 
inter- and intrastate call be fairly compensated.'' The court found the 
Commission's reliance on industry-average costs unreasonable because, 
even disregarding site commissions, the proposed caps were ``below 
average costs documented by numerous [inmate calling services] 
providers and would deny cost recovery for a substantial percentage of 
all inmate calls.''
    186. GTL argues that the Commission's new interim rate caps fail to 
address the court's criticism of the Commission's prior rate caps, 
because they ``will not, in all cases, cover the costs of providing 
service.'' This argument ignores an important distinction between the 
rate cap methodology that was before the court in GTL v. FCC and the 
methodology the Commission uses in this Report and Order. Instead of 
setting rate caps at industry-wide average costs, the Commission's 
methodology begins by looking at industry-wide average costs but does 
not stop there. Instead, the Commission adjusts those mean costs upward 
by one standard deviation and use the results to establish zones of 
reasonableness from which the Commission selects separate provider cost 
components for prisons and larger jails. The Commission then adds an 
additional amount to account for the portion of site commission 
payments that the Commission conservatively estimates is related 
specifically to inmate calling services. As detailed in Part III.C.4, 
the Commission adopts a modified version of the site commission 
proposal in the 2020 ICS FNPRM based on record evidence that $0.02 per 
minute for every facility may not permit recovery of all legitimate 
facility costs related to inmate calling services and may not account 
for site commission payments required under codified law. The 
Commission permits full recovery of site commission payments required 
under codified law and up to $0.02 per minute for contractually 
prescribed site commission payments. At the same time, the Commission 
also explains above that full recovery of site commissions is not 
required under GTL v. FCC or section 276 of the Act. The Commission 
therefore disagrees with commenters asserting that section 276 requires 
full recovery of site commission payments in order to comply with 
section 276. The Commission's interim approach permits recovery of the 
portion of site commission payments that the Commission estimates are 
directly related to the provision of inmate calling services. Nothing 
more is required. The Commission's approach therefore incorporates 
assumptions and actions that lean toward over-recovery of costs. The 
Commission estimates that revenues from the capped per minute charges 
for individual interstate and international calls--along with the 
revenues from related ancillary service fees--will enable all providers 
to recover their actual costs of providing interstate and international 
inmate calling services, but provide a process for unusual cases where 
the Commission might be mistaken. Thus, contrary to GTL's assertion, 
the Commission's interim rate caps, coupled with the Commission's new 
waiver process, ``account for the real differences in costs among 
[inmate calling services] providers and ensure[ ] providers with higher 
costs receive fair compensation'' in a manner consistent with section 
276(b)(1)(A).
    187. ``Fair compensation'' under section 276(b)(1)(A) does not mean 
that each and every completed call must make the same contribution to a 
provider's indirect costs. Nor does it mean a provider is entitled to 
recover the total ``cost'' it claims it incurs in connection with each 
and every separate inmate calling services call. Instead, compensation 
is fair if the price for each service or group of services ``recovers 
at least its incremental costs, and no one service [e.g., interstate 
calling service] recovers more than its stand-alone cost.'' Economists 
generally agree that the price for each product (or group of products) 
is compensatory if it at least recovers its incremental costs but is an 
inefficiently high price if it recovers more than its standalone costs. 
The record indicates that, subject to one anomalous possible outlier 
contract, the rate cap methodology the Commission adopts today will 
allow every provider of calling services for incarcerated people to 
charge a price that recovers its direct costs (i.e., costs that are 
directly attributable to producing all of the inmate calls under a 
given contract) and contributes to recovery of its indirect

[[Page 40717]]

costs. The one exception is an apparent anomalous contract for which 
that contract's indirect costs were reported by [REDACTED] after the 
release of the 2020 ICS FNPRM. The per-minute cost the Commission 
calculates for this contract is the single highest per-minute cost of 
all jail contracts and more than double the per-minute cost for the 
second highest jail contract. To the extent this contract possesses 
such unusual characteristics that the provider's costs are indeed 
legitimately this high, this is precisely the type of contract the 
waiver process the Commission adopts today is meant to address. Indeed, 
the Commission demonstrates that virtually all contracts, except those 
that reflect the issues the Commission has discussed regarding GTL, 
impacted by the rate caps this Report and Order imposes are 
commercially viable under conservative assumptions. That is, the 
Commission expects they should be able to cover the contracts' direct 
charges and make a commercially sound contribution to costs shared 
across the contracts sufficient to ensure each provider's viability.
    188. As the Commission recognized in the 2002 Pay Telephone 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.' '' Here, contrary to the assertions of certain providers, the 
Commission adopts conservative interim rate caps that fall squarely 
within the zones of reasonableness, as well as an allowance for site 
commissions reflected by the Commission's new facility-related rate 
component that is supported by its analysis that reflects the 
variations in correctional facility costs, thus providing for fair 
compensation under the statute.
    189. Providers fail to acknowledge that a wide range of 
compensation amounts may be considered fair, arguing generally that the 
Commission must adopt rate caps that enable them to recover their total 
costs ``for each and every completed . . . interstate call.'' In 
effect, providers argue that a rate-setting methodology that does 
``not, in all cases, cover the costs of providing service'' fails to 
satisfy section 276. The Commission disagrees. First, GTL's reliance on 
Illinois Public Telecommunications Assoc. v. FCC for support is 
misplaced because totally different circumstances--resulting in ``no 
compensation for coinless calls made from inmate phones''--were before 
the court in that case. The Illinois Public Telecommunications court's 
rejection of a ``no compensation'' regime where providers received zero 
compensation for calls simply does not create a mandate that the 
Commission adopts any particular compensation methodology, much less 
the methodology the providers urge.
    190. Second, the Commission's rate cap methodology here differs 
materially from the methodology vacated in GTL v. FCC. There, the court 
found that the record ``include[d] two economic analyses, both 
concluding that the [2015 ICS] Order's rate caps are below cost for a 
substantial number of [inmate calling services] calls even after 
excluding site commissions'' and that ``[t]he [2015 ICS] Order does not 
challenge these studies or their conclusions.'' As a result, the court 
held that ``the use of industry-average cost data as proposed in the 
Order'' could not be upheld because ``it lacks justification in the 
record and is not supported by reasoned decisionmaking.'' The 
Commission's methodology in this Report and Order, by contrast: (1) Is 
designed to ensure that the costs of the vast majority of, if not all, 
calls are recovered; (2) includes a site commission allowance; (3) is 
based on a rigorous analysis of data submitted into the record by 
providers responding to a Commission data collection; and (4) as a 
backstop, provides the opportunity for providers to obtain a waiver if 
they can show that one is needed to ensure that they receive fair 
compensation, consistent with the statute.
    191. But for the extraordinary case, providers will recover their 
costs under the new interim rate caps the Commission adopts. Providers 
that continue to claim they will be unable to recover their costs of 
interstate or international inmate calling services under the interim 
rate caps the Commission adopts today will be able to seek a waiver of 
those caps in accordance with the procedures set forth in this Report 
and Order. Any such waiver requests will be analyzed and resolved based 
on more comprehensive, current, and disaggregated cost data regarding 
that provider's cost of providing inmate calling services at the 
particular facility or facilities at issue. The Commission rejects 
Securus's suggestion that, for purposes of assessing compliance with 
section 276 of the Act, the Commission should calculate the return 
component of a provider's costs using the price its current owners paid 
to purchase the provider. Instead, the Commission concludes that it 
should calculate that component for purposes of assessing compliance 
with section 276 using the same rate base that the Commission uses in 
assessing compliance with section 201(b)--the original cost of the 
property used to provide inmate calling services at the particular 
facility or facilities. The combination of the Commission's carefully 
considered interim rate caps and the Commission's revised waiver 
process afford all providers the opportunity to recover fair 
compensation for each and every completed interstate and international 
inmate calling services call consistent with section 276(b)(1)(A).

F. Cost-Benefit Analysis of Revised Interstate Rate Caps

    192. Although the Commission's actions in this Report and Order are 
not dependent on its analysis of the relative costs and benefits of the 
revised interim interstate rate caps, the Commission finds that the 
benefits of its actions far exceed the costs. The benefits of lowering 
inmate calling services rates sweep broadly, affecting incarcerated 
people, their families and loved ones, and society at large. Although 
important and substantial, these benefits do not lend themselves to 
ready quantification. As one commenter aptly explains, increased 
communication and ties to the outside world are important for 
``maintaining inmate mental health.'' The formerly incarcerated can 
face myriad obstacles on reentry, including ``limited occupational and 
educational experience and training to prepare them for employment, 
drug and alcohol addictions, mental and physical health problems, 
strained family relations, and limited opportunities due to the stigma 
of a criminal record.'' Lower telephone rates will likely lead to 
increased communication by incarcerated people which, in turn, can help 
mitigate some of these issues by, for example, allowing incarcerated 
people to maintain family relationships and make plans for post-release 
housing or employment.
    193. Lower rates, and the resulting increase in calls, can also 
lead to improvements in the health and well-being of the families of 
incarcerated people. In particular, children of incarcerated parents 
are much more likely to suffer from behavioral problems, poor 
educational attainment, physical health problems, substance abuse, and 
adult incarceration. Studies show that contact with incarcerated 
parents can help mitigate these harmful effects. One study, for 
example, demonstrated that a child's chances of dropping out of school 
or being suspended decreased if the child had increased contact with an 
incarcerated

[[Page 40718]]

parent. As Verizon explains, ``[p]reserving family ties allows 
incarcerated people to parent their children and connect with their 
spouses, helping families stay intact. Supporting strong families, in 
turn, makes our communities safer.'' The Commission agrees.
    194. The Commission's actions will benefit incarcerated people, 
their families, and society in ways that cannot easily be reduced to 
monetary values but that standing alone support its actions. That being 
said, an analysis of the quantifiable benefits of the Commission's 
actions today shows that they far exceed the costs. In the 2020 ICS 
FNPRM, the Commission estimated that implementing the proposed changes 
would cost $6 million. These estimated implementation costs included 
one-time administrative, contract-revision, and billing-system costs. 
These costs included costs associated with changing the rate for debit/
prepaid calls at jails with average daily populations less than 1,000. 
The Commission now finds that $6 million is a reasonable estimate for 
the costs of implementing the changes it adopts today. These costs are 
only a relatively small fraction of the $32 million in quantifiable 
benefits that the Commission now estimates its actions will bring and 
pale in comparison to the qualitative benefits today's changes will 
confer on incarcerated people, their communities, and society as a 
whole. In the 2020 ICS FNPRM, the Commission estimated benefits of $30 
million, including a benefit of $7 million due to expanded call volumes 
plus at least $23 million for reduced recidivism, which would reduce 
prison operating costs, foster care costs, and crime. The Commission's 
estimate of $32 million in benefits is the sum of: (1) A gain of $9 
million from inmate calling services users making more calls at lower 
rates (which is an increase of $2 million as compared with the 
Commission's previous estimate of $7 million); and (2) $23 million in 
benefits to society due to reduced recidivism, crime, and foster-child 
care costs that improved access to communications will bring. GTL 
suggests that it ``may not be the case'' that revised interstate rate 
caps will result in increased call volume. GTL posits that this is 
because interstate calls are ``only a small part of all'' inmate 
calling services calling and that ``incarcerated individuals are not 
entitled to unfettered access to telephonic communications.'' The 
Commission finds GTL's arguments to be speculative and unsupported. The 
Commission therefore rejects these arguments in favor of the more data-
driven approach it takes here. As the Commission has explained, rate 
reform will promote increased communication between incarcerated 
persons and their loved ones. This additional communication will help 
preserve essential family ties, allowing children to stay in touch with 
an incarcerated parent, which, in turn, will make communities safer. 
Being able to maintain communication also will help incarcerated 
persons plan for successful integration back into their communities 
upon release by providing a vital avenue to explore housing and 
employment opportunities.
    195. Expected Quantitative Benefits of Expanded Call Volumes. In 
the 2020 ICS FNPRM, the Commission calculated benefits based on a 
forecast of the increase in the number of calls that would occur if the 
Commission adopted the proposed rate caps. The Commission used 
estimates of current call minutes at prices above the proposed rate 
caps, the price decline on those call minutes implied by the proposed 
rate caps, and the responsiveness of demand to the changes in price. 
Using 2018 call volume data, the Commission estimated that 
approximately 592 million interstate prepaid and debit minutes and 3.3 
million interstate collect minutes originated from prisons at rates 
above the proposed caps. Those data also showed that approximately 453 
million interstate prepaid and debit minutes and 2 million interstate 
collect minutes were made from jails at rates above the proposed caps. 
To determine these numbers, the Commission used rate information from 
the 2019 Annual Reports and call volume data (interstate minutes) from 
the Second Mandatory Data Collection responses. The Commission 
considers each of the following call types: Interstate debit and 
prepaid calls for prisons and larger jails only; and interstate collect 
calls for prisons, larger jails, and jails with average daily 
populations less than 1,000. For each of these call types, the 
Commission adjusted the reports for minutes downward by dropping the 
minutes recorded in nine states--Alaska, Delaware, Hawaii, Maryland, 
New Mexico, Texas, Vermont, Washington, and West Virginia. The 
Commission did this because each of these states has important 
contracts with rates below the caps the Commission is adopting, and the 
rates under those contracts will only be affected by the Commission's 
actions if they are required to reduce their site commissions. This 
adjustment means the Commission's benefit estimates are likely 
substantially understated. In computing benefits, the Commission relied 
on a lower-end interstate calling estimate of demand price elasticity 
of 0.2, and estimated annual benefits of approximately $1 million, or a 
present value over ten years of approximately $7 million. Following 
common convention, the Commission expresses own-price elasticities as 
positive numbers. An elasticity of 0.2 means that for each percentage 
point drop in rates, interstate inmate calling services demand would 
increase by 0.2%. The Commission's analysis is based on pre-COVID-19 
data and makes no adjustments for the COVID-19 pandemic. However, if 
post-COVID-19, there is an increased reliance on telecommunications, 
and acceptance by correctional authorities of such use, the 
Commission's estimates would be understated. The present value of a 10-
year annuity of $1 million at a 7% discount rate is approximately $7 
million. Erring on the side of understatement, the Commission uses the 
7% rate.
    196. The Commission's estimation methodology remains essentially 
the same as in the 2020 ICS FNPRM, with two exceptions. First, leaving 
intact the $0.21 per minute rate for interstate debit and prepaid calls 
from jails with average daily populations less than 1,000 excludes some 
call volume from the lower cap, lowering impacted call volumes. Prior 
to the Commission's actions today, the interim interstate rate caps for 
all interstate calls were $0.21 per minute for debit and prepaid calls 
and $0.25 per minute for collect calls. The new interim provider-
related rate caps the Commission adopts today plus an allowance of 
$0.02 for contractually prescribed facility rate components adopted in 
this Report and Order result in the following five price declines from 
these rates (assuming all calls include the $0.02 allowance and no 
legally mandated site commission payment results in an allowance higher 
than $0.02 per minute, both of which will not be the case given that 
some facilities charge no site commissions and thus no facility cost 
allowance is permitted and some legally mandated site commission 
payments may exceed $0.02 per minute): For prison debit and prepaid 
calls, 33% (= ($0.21-$0.14)/$0.21); for prison collect calls, 44% (= 
($0.25-$0.14)/$0.25); for jail debit and prepaid calls, for jails with 
average daily populations of 1,000 or more, 24% (= ($0.21-$0.16)/
$0.21), with no change for jails with average daily populations less 
than 1,000; and for jail collect calls, for jails with average daily 
populations of 1,000 or more, 36% (=

[[Page 40719]]

($0.25-$0.16)/$0.25), and for jails with average daily populations less 
than 1,000, 16% (= ($0.25-$0.21)/$0.25). The Commission cuts these 
price changes in half to allow for contracts with rates below the 
current caps. (This is equivalent to assuming prices are evenly 
distributed around the midpoint between current caps and the 
Commission's new caps.) Second, the Commission's estimate of inmate 
calling services price elasticity has been revised upward to 0.3. With 
these changes, the Commission estimates an annual welfare gain of $1.3 
million, or a present value of $9 million from reduced inmate calling 
services rates. The Commission calculates the increase in surplus due 
to lower call prices separately for: Debit and prepaid calls from 
prisons; collect calls from prisons; debit and prepaid calls from jails 
with average daily populations of 1,000 or more; collect calls from 
jails with average daily populations of 1,000 or more; and collect 
calls from jails having average daily populations less than 1,000. The 
calculated surpluses equal one half of the product of three items: 
Minutes for each of the five call types; the demand elasticity estimate 
(0.3); and, respectively for each of the five call types, half the 
price decline from the earlier cap to the new interim cap. This is the 
area of the surplus triangle generated by an assumed price fall of one 
half the difference between the Commission's current caps and the new 
interim caps if demand and supply are linear and the final price 
represents costs. If the final price is still above costs, as is likely 
given the Commission's conservative assumptions, the surplus gain would 
be greater. Nonlinearities of both demand and supply have ambiguous 
impacts, so linearity is a good approximation in the absence of further 
information. The Commission obtains an increase in surplus of $1.7 
million, and then calculate the present value of a 10-year annuity of 
$1.7 million at a 7% discount rate to be approximately $12 million.
    197. Inmate Calling Service Demand Elasticity. When prices fall, 
quantity demanded increases. Demand elasticity is a measure of the 
sensitivity of quantity changes to changes in prices. For small 
changes, demand elasticity is the ratio of the percentage change in 
quantity to the percentage change in price, holding other things 
constant. However, for larger changes, again holding other things 
constant, demand elasticity is better estimated by the ratio of (1) the 
percentage change between the original quantity and the quantity midway 
between the original quantity and final quantity to (2) the percentage 
change between the original price and the price midway between the 
original price and the final price. This is because, due to the simple 
mathematics of percentage changes, for a large change in quantity or 
price, the elasticity of demand as measured by the simpler ratio can be 
materially different than the measure that would obtain if the change 
was reversed: A Change from 1 to 0.80 is a 20% decline, but a rise from 
a 0.80 price to 1.00 is a 25% rise. In the 2020 ICS FNPRM, the 
Commission relied on demand elasticity estimated for voice 
telecommunications generally and chose a conservative estimate from 
these of 0.2. However, the record provides five pieces of direct 
evidence of the demand elasticity for inmate calling services, three of 
which are quite recent. These estimates, three of which are 
approximately 0.4 and two of which are approximately 0.3, lead the 
Commission to conservatively conclude inmate calling services have a 
demand elasticity of at least 0.3. For the first three of the 
Commission's estimates the Commission does not have sufficient data to 
ensure it is holding all other things constant, and for the fourth, 
from Securus's consultant FTI, the Commission cannot verify FTI's 
approach. Thus, all these estimates should be viewed as approximate. To 
avoid overstating benefits, the Commission uses the lower bound of 
these estimates rounded to the first decimal place.
    198. First, a 57.5% drop in calling rates in New York state in 2007 
resulted in an increase in call volumes of 36%, suggesting a demand 
elasticity of 0.38. The 0.38 elasticity calculation is as follows. The 
Commission normalizes or changes the units in which quantity and price 
are denominated, so the initial quantity is 100 and the initial price 
is $100. Using the quantity increase of 36% and price decline of 57.5%, 
the Commission can determine the new quantity and price in these new 
normalized units. Normalization works because the arc elasticity 
calculation depends on the change between quantities and prices and 
therefore yields the same measure regardless of the units used to 
measure quantity and price. A quantity increase of 36% implies a new 
quantity of 136 (= 100 * (1 + 36%)). A price decrease of 57.5% implies 
a new price of 42.5 (= 100 * (1-57.5%)). The quantity change using the 
midpoint formula is 30.5% (= (136-100)/((100 + 136)/2)). The price 
change using the midpoint formula is 80.7% (= (100-42.5)/((100 + 42.5)/
2)). Thus, the elasticity is 0.38 (= 30.5%/80.7%). Second, 2018 data 
from the New York City contract suggests a demand elasticity of 0.37. 
The Commission estimates the elasticity based on the price of a 15-
minute phone call, the price of which dropped from $1.20 = ($0.50 + (14 
* $0.05)) to $0.45 = (15 * $0.03). Normalizing the initial quantity to 
100 implies a new quantity of approximately 140 (= 100 * (1 + 40%)). 
The quantity change in the midpoint formula is 33.3% (= (140-100)/((100 
+ 140)/2)); the price change in the midpoint formula is 90.9% (= 
($1.20-$0.45)/(($1.20 + $0.45)/2)); therefore, the elasticity is 0.37 
(= 33.3%/90.9%). Third, in 2019, in San Francisco, when calls became 
free, call volumes rose 81%, suggesting an elasticity of 0.29. The 
elasticity of 0.29 is derived as follows: Normalizing the initial San 
Francisco quantity to 100 and price to $100 implies the new quantity is 
181, and the new price is zero. Thus, the quantity change in the 
midpoint formula is 57.7% (= (181-100)/((100 + 181)/2)); the price 
change in the midpoint formula is 200% (= (100-0)/((100 + 0)/2)); and 
the elasticity is 0.29 (= 57.7%/200%). Fourth, two estimates are 
calculated using evidence submitted by Securus. Securus's consultant 
FTI estimates price and quantity movements from the rate reduction seen 
in 2014 due to the Commission's earlier action. FTI's estimates suggest 
a demand elasticity of 0.31 and evidence from a recent pilot program 
conducted by Securus suggests an elasticity of 0.36. FTI initially used 
regression analysis to estimate an elasticity of 1.25 for interstate 
calling for large facilities. However, FTI was concerned the regression 
model did not account for a range of factors, the two most important of 
which were substitution from intrastate/local inmate calling services 
to interstate inmate calling services, said to increase call volumes by 
28.3%, and unexplained Securus initiatives, said to increase call 
volumes by 14.9%. After making adjustments to control for the impact of 
these factors, FTI estimates that a 38.2% fall in interstate prices 
increased demand by 15.5%. From these measures the elasticity 
calculation is as follows. Normalizing the initial quantity and price 
to 100 implies the price fell to 61.8 (= 100 * (1-38.2%)) and the 
quantity rose to 115.5 (= (100 * (1 + 15.5%))). The midpoint formulas 
are 47.2% (= (100-61.8)/((100 + 61.8)/2)) for price; and 14.4% (= 
(115.5-100)/((100 + 115.5)/2)) for quantity. Thus, the elasticity is 
0.31 (= 14.4%/47.2%). Securus reported a 27% increase in call length 
and a 50% reduction in per-

[[Page 40720]]

minute costs under six pilot programs that gave incarcerated persons 
and their families ``the option of paying a flat rate for a set number 
of calls per month.'' From this information, the Commission estimates 
an elasticity of 0.36. Normalizing the initial quantity and price to 
100 implies a new quantity of 127 (= 100 * (1 + 27%)) and a new price 
of 50 (= 100 * (1-50.0%)). The quantity change in the midpoint formula 
is 23.8% (= (127-100)/((100 + 127)/2)); the price change in the 
midpoint formula is 66.7% (= (100-50)/((100 + 50)/2)); therefore, the 
elasticity is 0.36 (= 23.8%/66.7%). Securus only mentions call length. 
If there was an additional increase in frequency of calls, not 
accounted for in the provided measure, then this elasticity measure is 
underestimated. In both the New York City and San Francisco cases, the 
Commission's elasticity estimate is derived from a price decrease in 
which the initial price was closer to its current caps than will be the 
case for most of the contracts the Commission discusses. Economic 
theory suggests that the demand elasticity for contracts with prices 
above the Commission's caps will be greater than the New York City or 
San Francisco estimates. In general, demand elasticity changes at 
different points along the good's demand curve, generally rising with 
price. (This is most easily seen for a linear demand curve. For small 
changes, demand elasticity is defined as the product of the demand 
curve's slope and the ratio of price to quantity. When demand is 
linear, its slope is constant, thus any change in elasticity is 
determined by how the ratio of price to quantity changes, and this 
ratio always rises with price, since a rising price implies a falling 
quantity. For realistic nonlinear curves, for which quantity demanded 
is finite at a zero price and for which a price exists at which 
quantity demanded is zero, this relationship will hold at low and high 
prices; as price approaches zero, elasticity also approaches zero, 
while as price approaches the point at which quantity demanded is zero, 
elasticity becomes large.) Both the New York City and San Francisco 
cases considered price changes that happened along a portion of the 
demand curve where price was less than the Commission's rate caps. 
Therefore, these estimates were taken over a portion of the demand 
curve where elasticity was likely smaller than it is for the contracts 
with current rates above the Commission's caps. In addition, economic 
theory predicts that a good has higher elasticity if it accounts for 
more of a consumer's overall budget. Every estimate for inmate calling 
elasticity that the Commission has seen has been below 1. This implies 
that incarcerated people residing in facilities with higher calling 
rates end up spending more on calling services overall--even after 
accounting for differences in minutes purchased--than incarcerated 
people in facilities with lower calling rates. It follows that because 
incarcerated people in facilities with prices above the Commission's 
caps spend more on inmate calling than incarcerated people in New York 
City and San Francisco did, these incarcerated people will have a 
higher demand elasticity than incarcerated people in New York City and 
San Francisco.
    199. The Commission also expects lower rates for calling services 
to yield additional benefits by reducing recidivism and crime and the 
need for child foster care. Several commenters point to the link 
between affordable inmate calling, improved mental health, and lower 
recidivism. According to the Episcopal Church and the United States 
Conference of Catholic Bishops, ``studies have shown that phone 
communication between families and their loved ones in prison and its 
associated mental health benefits make incarcerated people less likely 
to recidivate.'' Citing the California Department of Corrections, GTL 
also emphasizes the recidivism-reducing effect that affordable inmate 
calling services can have by helping incarcerated people prepare for 
life after confinement. In the 2020 ICS FNPRM, the Commission estimated 
that the benefits from reduced recidivism would exceed $23 million over 
ten years. That estimate and the underlying reasoning continue to apply 
here. Although the Commission cannot pinpoint how much increased 
telephone contact would reduce recidivism among incarcerated people, 
the Commission estimates that even if its reforms resulted in only 100 
fewer people being incarcerated due to recidivism, that would yield 
savings of approximately $3.3 million per year, or more than $23 
million over 10 years in present value terms. Other savings would also 
be realized through reduced crime, and fewer children being placed in 
foster homes. The potential scale of fiscal saving--in addition to the 
immense social benefits--is suggested by the fact that, on average, 
state and local governments incur administrative and maintenance costs 
of $25,782 per foster placement.
    200. Costs of Reducing Rates for Interstate Inmate Calling Services 
Calls. The Commission finds most credible the cost estimate used in the 
2020 ICS FNPRM, where the Commission estimated that the costs of 
reducing rates for interstate inmate calling services calls would 
amount to approximately $6 million. The Commission continues to assume 
smaller jails incur costs for all calls. Approximately 3,000 calling 
services contracts will need to be revised based on the rules the 
Commission adopts today, and a smaller number of administrative 
documents may need to be filed to incorporate lower interstate and 
international rates. The Commission uses an hourly wage of $46 for this 
work. The Commission examined several potential wage costs. For 
example, in 2020, the median hourly wage for computer programmers was 
$45.98, and for accountants and auditors, it was $39.26. The Commission 
chose the higher of these because of the specialized technical nature 
of the work. This rate does not include non-wage compensation. To 
capture this, the Commission marks up wage compensation by 46%. In 
March 2020, hourly wages for the civilian workforce averaged $25.91, 
and hourly benefits averaged $11.82, yielding a 46% markup on wages. 
Using this 46% markup on the $46 hourly wage, the Commission obtains an 
hourly rate of $67.16 (= $46 x 1.46), which the Commission rounds up to 
$70. The Commission estimates that these changes would require 
approximately 25 hours of work per contract. The Commission uses a $70 
per hour labor cost to implement billing system changes, adjust 
contracts, and to make any necessary website changes. The estimated 
cost of these actions is $5,139,750 (= 2,937 (number of contracts) * 25 
(hours of work per contract) * $70 per hour), which the Commission 
rounds up to $6 million to be conservative.
    201. GTL argues that the Commission's estimate that it would take 
25 hours of work per contract to revise calling services contracts is 
unrealistically low. According to GTL, its recent experience 
renegotiating contracts and implementing new rates in 2013 and 2015 
indicates that the costs of such renegotiations are much higher than 
what the Commission estimated. GTL, however, did not provide any 
specific data about the costs it incurred and did not explain the 
methodology it used to arrive at its cost estimates. Accordingly, the 
Commission cannot reasonably assess the merits of GTL's objection, much 
less rely on its filings to provide a different estimate. As a result, 
the Commission finds that its earlier estimate that its reforms would 
cost providers approximately $6

[[Page 40721]]

million continues to provide the best information for the Commission to 
use in conducting its cost-benefit analysis.
    202. Anticipated Effect on Inmate Calling Services Investment. The 
Commission's new rate caps will give inmate calling services providers 
the opportunity for full cost recovery and a normal profit. This full 
cost recovery includes operating costs, common costs, a return on 
capital investment, and capital replacement. By adopting the new 
interim rate caps, the Commission seeks to lower the price of 
interstate and international inmate calling services closer to the 
costs companies incur in providing the services. GTL argues that the 
Commission risks discouraging investment by ignoring components of 
providers' total costs, particularly capital costs, and setting inmate 
calling services rates too low. Securus claims that ``the proposed caps 
would not allow Securus to recover its costs at many jail facilities,'' 
and that the Commission has not accounted for ``the potential negative 
outcomes of degraded or lower quality service at some facilities if 
providers are not able to fully recover all of their costs.'' The 
Commission disagrees with both providers. The rate caps adopted in this 
Report and Order will allow every provider of calling services for 
incarcerated people to charge a price that recovers its direct costs--
namely the costs directly attributable to producing all of the calls 
under a given contract--and that contributes to the recovery of the 
provider's indirect costs. With rates set to exceed estimated per-
minute costs, including an allowance for the cost of capital, a 
provider should generate sufficient revenue to more than cover its 
total operating costs, thereby avoiding any disincentive to invest. As 
a fail-safe, however, the Commission's Report and Order also allows 
providers unable to recover their costs under the interim rate caps 
adopted herein to seek waivers of those caps.
    203. Under the Commission's new policy, lower rates will enable 
more frequent inmate calling at lower prices. Incarcerated people and 
their families will enjoy added consumer surplus, measured by the 
difference between the lower price and their willingness to pay for the 
increased call volume. Some of the producer surplus, measured by the 
difference between the lower price and service providers' marginal 
costs, will be transferred from providers to incarcerated people and 
their loved ones, thereby reducing provider profits. As discussed 
above, surplus gains may come from other sources besides provider 
profits. Any addition to consumer surplus that did not exist previously 
as provider profit is a net economic gain. Neither gain will come at 
the expense of provider investment. And, as noted above, lower calling 
rates will facilitate increased communication between incarcerated 
people and their loved ones, which will benefit all incarcerated 
persons and their families by fostering essential family ties and also 
allowing incarcerated people to plan for successful reentry upon 
release.

G. Disability Access

    204. The Commission is committed to using all of its authority to 
ensure that incarcerated people with hearing and speech disabilities 
have access to functionally equivalent telecommunication services to 
communicate with their families, loved ones, and other critical support 
systems. The Commission specifically ``acknowledge[s] the injustice 
facing the scores of incarcerated people with disabilities who lack 
access to functionally equivalent communications.'' In the 2020 ICS 
FNPRM, the Commission asked for comment on the needs of incarcerated 
people with communication disabilities. As the Commission did in the 
2015 ICS Order, the Commission uses ``disabilities'' to include 
individuals who are deaf or hard of hearing, as well as those who are 
deafblind or have speech disabilities who also have policy concerns 
that are similar to those incarcerated people who are deaf or hard of 
hearing. The response was voluminous. The Commission received 17 
substantive responses in the comment cycle, and 68 express comments. 
Commenters' concerns generally fall into two categories. First, 
commenters allege that some providers are not following the 
Commission's rules for the provision of TRS and complain about 
egregiously high rates and the lack of necessary equipment at 
correctional facilities. The Commission reminds providers that they are 
obligated to comply with the Commission's existing inmate calling 
services and related rules, including rules requiring that incarcerated 
people be provided access to certain forms of TRS, rate caps for calls 
using a text telephone (TTY) device, rules prohibiting charges for TRS-
to-voice or voice-to-TTY calls, and rules requiring annual reporting of 
the number of TTY-based calls and any complaints. In addition, like 
other communications service providers, inmate calling services 
providers must ensure that the services and equipment provided for use 
by incarcerated people are accessible and usable by incarcerated people 
with disabilities (subject to achievability), including when legacy 
telephone services are discontinued and replaced with advanced services 
such as Voice over internet Protocol (VoIP).
    205. Second, several commenters argue that TTY is an outdated mode 
of communication for individuals with disabilities. The Commission 
agrees that given the changes in telecommunications technologies in the 
past decades, TTYs have become little used because of the widespread 
transition to internet Protocol-based services. The Commission also 
understands that TTYs may not be suitable for individuals who, for 
example, use American Sign Language as their primary mode of 
communication. To fill the void and to better serve incarcerated people 
with disabilities, commenters advocate that the Commission require 
providers to offer other types of functionally equivalent 
telecommunication services. The Commission intends to address these 
concerns in the near future in a manner that best meets the needs of 
incarcerated persons who are deaf, hard of hearing, deafblind, or have 
a speech disability, consistent with the Commission's jurisdiction and 
legal authority. Accordingly, the Commission seeks detailed comment to 
further explore this issue in the Fifth FNPRM, published elsewhere in 
this issue of the Federal Register.
    206. Public interest groups also urge the Commission to coordinate 
with the Department of Justice (DOJ). Through the Federal Bureau of 
Prisons, DOJ administers federal correctional facilities. In addition, 
DOJ has authority to adopt disability access regulations applicable to 
federal, state, and local government entities, including correctional 
authorities, under section 504 of the Rehabilitation Act of 1973 and 
Title II of the Americans with Disabilities Act (ADA). The Commission 
agrees that such coordination would be beneficial in assisting it with 
addressing issues such as those raised in the record and in the Fifth 
FNPRM, published elsewhere in this issue of the Federal Register. The 
Commission therefore directs CGB to make all efforts to coordinate with 
DOJ to ensure that incarcerated people with communications disabilities 
have access to communications ``in a manner that is functionally 
equivalent to the ability of a hearing individual who does not have a 
speech disability to communicate using voice communication services.''

[[Page 40722]]

H. Other Issues

1. Ancillary Fee Cap for Single-Call Services and Third-Party 
Transaction Fees
    207. The Commission revises its rules for single-call services and 
third-party financial transaction fees to establish a uniform cap for 
both types of ancillary service fees for or in connection with 
interstate or international use of inmate calling services. Providers 
may no longer simply pass through third-party financial transaction 
fees, including those related to single-call services, to calling 
services consumers. The Commission sought comment in the 2020 ICS FNPRM 
on whether its ancillary services fee caps, generally, should be 
lowered or otherwise modified. It also sought comment on what limits, 
if any, should be placed on third-party transaction fees that providers 
may pass on to consumers, including those related to single-call 
services. Single-call services are collect calls by incarcerated people 
that ``are billed through third-party billing entities on a call-by-
call basis to parties whose carriers do not bill collect calls.'' 
Specifically, the Commission defined single-call services as ``billing 
arrangements whereby an Inmate's collect calls are billed through a 
third party on a per-call basis, where the called party does not have 
an account with the Provider of Inmate Calling Services or does not 
want to establish an account.'' Record evidence provided by the Prison 
Policy Initiative explains that Western Union, one of the most 
prominent third-party money transfer services used in this context, 
charges $6.95 to send money to GTL, the largest inmate calling services 
provider. The Commission therefore modifies its rules to limit the 
charges a provider may pass on to incarcerated people or their friends 
and family for third-party financial transaction fees associated with 
single-call services or for third-party money transfer service fees to 
$6.95 per transaction on an interim basis. These modifications are 
warranted to close loopholes in the Commission's rules. The Commission 
also clarifies that no third-party transaction fee may be charged when 
a third party is not involved directly in a particular transaction, 
e.g., in the case of an automated payment where the consumer uses a 
credit card to fund or create an account.
    208. In adopting the $6.95 interim cap for third-party transactions 
fees, including those appropriately charged for single-call services, 
the Commission declines to adopt at this time NCIC's proposal to cap 
these fees at the $3.00 cap for automated payment fees or the $5.95 cap 
for live agent fees, as applicable, pending further input on this 
proposal, which the Commission seeks in the Fifth FNPRM, published 
elsewhere in this issue of the Federal Register. For the same reasons, 
the Commission declines the proposal of ICSolutions, at this time, to 
limit third-party fees to the $5.95 live agent fee or the $3.00 
automated payment fee. The Commission does not have sufficient evidence 
to adopt this proposal at this time, especially considering the data 
provided by the Prison Policy Initiative, which supports a higher rate 
($6.95) than the highest rate NCIC's proposal would allow ($5.95). The 
Commission encourages all interested parties to comment further on the 
NCIC proposal. At this time, however, the Commission concludes that the 
number provided by the Prison Policy Initiative is a reasonable interim 
step that reduces excessively high third-party fees embedded in the 
total fees for single-call services and other third-party transactions.
    209. Single-Call Services. In the 2015 ICS Order, the Commission 
first adopted rules for single-call and related services, one of five 
permissible ancillary service charges that providers were allowed to 
assess on their customers in connection with inmate calling services. 
The Commission found that providers were using single-call services 
``in a manner to inflate charges,'' and limited fees for single-call 
and related services to the exact transaction fee charged by the third 
party that bills for the call, ``with no markup, plus the adopted, per-
minute rate.'' The ``third-party transaction'' referred to in section 
64.6020(b)(2) of the Commission's rules for single-call services is the 
same type of ``third-party financial transaction'' referred to in 
section 64.6020(b)(5) of the Commission's rules. Because the D.C. 
Circuit stayed the rule on March 7, 2016, it never became effective; 
and the Commission reinstated it in the 2020 ICS Order on Remand 
without revision.
    210. In reinstating the single-call services rule, the Commission 
noted evidence in the record suggesting that certain providers may have 
entered into revenue-sharing arrangements with third parties in 
connection with single-call services that indirectly result in mark-up 
of fees charged by third-party processing companies and thus serve to 
circumvent the Commission's cap on pass-through fees for single-call 
services. This evidence included, for example, a then recent report 
prepared by the Prison Policy Initiative detailing the way some 
providers use these revenue-sharing arrangements with third parties, 
like Western Union and MoneyGram, to circumvent the caps on the fees 
they may charge for single-call services. The third-party financial 
provider charges the inmate calling services provider as much as $12 to 
send it a payment in connection with a single-call service or to fund 
an account. The inmate calling services provider then passes this fee 
on to the family of the incarcerated person who placed the call, and 
the two companies split the $12 fee, each getting $6. Some providers 
freely admit that they engage in these revenue-sharing schemes. Other 
providers have asked the Commission to address this practice and 
preclude it.
    211. These ``egregiously-high third-party transaction fees'' are 
unconnected to legitimate costs of inmate calling services. The 
Commission, therefore, revises the single-call service rule and limit 
the third-party transaction fees providers may pass on with respect to 
single-call services to $6.95 per transaction. The Commission declines 
the suggestion of ICSolutions to delete the reference to single-call 
services from section 64.6020 of its rules and move it to a definition 
in section 64.6000. Section 64.6000 already contains a definition for 
this ancillary service charge. More broadly, however, ICSolutions 
appears to envision removing fees for single-call services from the 
list of permitted ancillary service charges. The Commission declines to 
do so at this time, but the Commission seeks comment on this proposal 
in the Fifth FNPRM, published elsewhere in this issue of the Federal 
Register. There is support in this record for this proposal. The 
Commission declines NCIC's request to clarify that the fee cap for 
single call services ``will continue to be $3.00'' or to prohibit 
transaction fees on all single calls. Nothing in the Commission's rules 
today provides for a $3.00 fee cap for single call services. And the 
Commission declines at this time to prohibit transaction fees for 
single calls pending further record development on this issue through 
today's Fifth FNPRM. The Commission has previously found single-call 
services to be among ``the most expensive ways to make a phone call.'' 
And record evidence suggests some providers still may steer families of 
incarcerated people to these more expensive calls. The Commission 
previously noted ``concerns that providers may be using consumer 
disclosures as an opportunity to funnel end users into more expensive 
service options, such as those that may require consumers to pay fees 
to third parties.'' Revising the rule applicable to single-

[[Page 40723]]

call services in this way will ensure that consumers of inmate calling 
services, who may be unaware of or confused by other available calling 
options, are protected from unjust and unreasonable charges and 
practices when seeking to remain in contact with incarcerated friends 
or family, particularly when they are initially incarcerated and this 
immediate single-call method of communication is even more critical.
    212. Third-Party Financial Transaction Fees. For the same reasons 
the Commission limits the third-party transaction fee associated with 
single-call services, the Commission revises the rule pertaining to 
third-party financial transaction fees in connection with funding 
accounts directly with the inmate calling services provider that may be 
set up on behalf of incarcerated people by their friends and family or 
by the incarcerated people themselves. The same revenue-sharing 
practices that lead the Commission to revise the single-call services 
rule are implicated in connection with the third-party financial 
transaction fees rule. Although the 2020 ICS FNPRM referred to ``third-
party transaction fees,'' the third-party financial transaction fee 
described in section 64.6020(b)(5) is the same as the third-party 
transaction fee referred to in the rule pertaining to single-call 
services. Of course, as the Commission states, where no third party is 
involved in a call, no third-party fees may be charged.
    213. The Commission sought comment in the 2015 ICS FNPRM on a 
variety of issues relating to revenue-sharing, including how the 
Commission can ``ensure that these revenue sharing arrangements are not 
used to circumvent the Commission's rules prohibiting markups on third-
party fees.'' In the 2020 ICS FNPRM, the Commission sought further 
comment on the use of revenue-sharing arrangements and whether the 
Commission should clarify the third-party financial transaction fee 
rule. CenturyLink previously contended that the rule governing third-
party financial transaction fees already implicitly prohibits providers 
from recovering higher fees from consumers as a result of revenue-
sharing agreements. In the 2020 ICS FNPRM, the Commission stated that 
``[m]arking up third-party fees, whether directly or indirectly, is 
prohibited.''
    214. Yet the record in this proceeding continues to suggest that 
the same types of revenue-sharing agreements that lead to indirect 
markups of third-party transaction fees for single-call services 
similarly lead to mark-ups of third-party financial transaction fees. 
Such practices serve to circumvent, either directly or indirectly, the 
limits placed by the Commission on ancillary service charges and lead 
to unjust and unreasonable charges. The Commission thus revises its 
rules relating to third-party financial transaction fees and limit the 
fees that a provider can pass through to a calling services consumer to 
$6.95. The Commission clarifies that it does not prohibit providers 
from entering into revenue-sharing agreements with third parties, 
despite at least one commenter proposal to do just that. But providers 
may not pass on fees exceeding $6.95 per transaction--whether or not 
they are associated with such agreements--to incarcerated people and 
their families.
2. Effect on State Regulation
    215. As the Commission explained in the 2020 ICS Order on Remand, 
where the Commission has jurisdiction under section 201(b) of the Act 
to regulate rates, charges, and practices of interstate communications 
services, ``the impossibility exception extends that authority 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.'' Consistent with that explanation and prior cases, the 
Commission exercises its authority under the Supremacy Clause of the 
U.S. Constitution to preempt state regulation of jurisdictionally mixed 
services but only to the extent that such regulation conflicts with 
federal law. To be clear, state regulation of jurisdictionally mixed 
services would not conflict with federal law if state regulation 
required rates at or below the federal rate caps. In such cases, the 
provider would need to comply with the lowest rate cap to comply with 
both federal and state requirements for jurisdictionally indeterminant 
services. Thus, state laws imposed on inmate calling services providers 
that do not conflict with those laws or rules adopted by the Commission 
are permissible. The interim reforms the Commission adopts in this 
Report and Order apply to interstate and international inmate calling 
services rates and certain ancillary services charges imposed for or in 
connection with interstate or international inmate calling services. To 
the extent that a call has interstate as well as intrastate components, 
the federal requirements will operate as ceilings limiting potential 
state action. To the extent a state allows or requires providers to 
impose or charge per-minute rates or fees for the affected ancillary 
services higher than the caps imposed by the Commission's rules, that 
state law or requirement is preempted except where a call or ancillary 
service fee is purely intrastate in nature, as the Commission did in 
the 2020 ICS FNPRM. In connection with ancillary service charges, the 
Commission reminds providers that ``[t]o the extent a state allows or 
requires an inmate calling services provider to impose fees for 
ancillary services other than those permitted by its rules, or to 
charge fees higher than the caps imposed by its rules, that state law 
or requirement is preempted except where such ancillary services are 
provided only in connection with intrastate inmate calling services.'' 
To the extent that state law allows or requires providers to impose 
rates or fees lower than those in the Commission's rules, that state 
law or requirement is specifically not preempted by the Commission's 
actions here. For example, the Commission is aware that certain states 
have begun efforts to examine inmate calling services rates and charges 
subject to their jurisdiction. The Commission applauds these state 
initiatives, which appear consistent with its own efforts in this 
proceeding. The fact that the Commission is also examining inmate 
calling services rates and charges involving jurisdictionally mixed 
services in no way precludes the states from also adopting rules 
governing such services so long as the states' rules are not 
inconsistent with or conflict with federal law or policy.
3. Additional Data Collection
    216. The Commission adopts a new data collection obligation to 
collect, in a more consistent and directed manner, the data and 
information necessary to respond to the various criticisms in the 
record about the imperfections and inconsistencies in the data from the 
Second Mandatory Data Collection. The 2020 ICS FNPRM sought comment on 
whether and how the Commission should proceed with respect to any new 
data collection. The Commission agrees with commenters that a new 
collection must state more precisely what data the Commission seeks and 
how a provider should approximate or derive the type of data the 
Commission requests if it does not keep its records in such a manner. 
This is an essential prerequisite to adopting permanent interstate rate 
caps for both provider-related and facility-related costs. Accordingly, 
the Commission delegates authority to WCB and the Office of Economics 
and Analytics (OEA) to implement a Mandatory Data Collection, including

[[Page 40724]]

determining and describing the types of information required related to 
providers' operations, costs, demand, and revenues, consistent with the 
directives in this section. In addition, the Commission delegates 
authority to CGB to undertake, if necessary, a separate data collection 
related to inmate calling services providers' costs and other key 
aspects of their provision of TRS and other assistive technologies, in 
conjunction with the disability access issues the Commission explores 
in the accompanying Fifth FNPRM, published elsewhere in this issue of 
the Federal Register.
    217. Background. The Commission has conducted two mandatory data 
collections related to inmate calling services in the past eight 
years--the 2013 First Mandatory Data Collection and the 2015 Second 
Mandatory Data Collection. The 2013 collection required providers to 
report actual and forecasted costs, separately for jails and prisons 
and at a holding company level; specific categories of costs, including 
telecom costs, equipment costs, security costs, and other specified 
costs; and information on site commissions, minutes of use, number of 
calls, number of facilities, and information on charges for ancillary 
services. The data collected from the 2015 Second Mandatory Data 
Collection form the basis for the interim rates caps the Commission 
adopts herein. To allow for consistent data reporting, the Commission 
directed WCB in both collections to develop a template for providers to 
use when submitting their data and to furnish providers with further 
instructions to implement the collection. The Commission also directed 
WCB to review the providers' submissions and delegated to WCB the 
authority to require providers to submit additional data as necessary 
to perform its review. For example, staff analysis of responses to the 
Second Mandatory Data Collection revealed numerous deficiencies and 
areas requiring clarification. WCB and OEA conducted multiple follow-up 
discussions with providers to supplement and clarify their responses 
resulting in direction to several providers to amend their submissions 
and respond to questions from staff.
    218. In response to the 2020 ICS FNPRM seeking comment on whether 
the Commission should collect additional data and, if so, what data it 
should collect, several parties support additional data collection. The 
Commission also sought comment on, among other things, whether 
providers should be required to update their responses to an additional 
data collection on a periodic basis. GTL, however, suggests that the 
Commission should avoid the burden of an additional data collection, 
asserting that there is no reason to believe that providers will report 
their costs differently than they have in the past. GTL argues that the 
Commission should allow the market to adjust to any rules adopted as a 
result of the 2020 ICS FNPRM before imposing additional reporting 
requirements. GTL also suggests that relying on the Annual Reports that 
inmate calling services providers file pursuant to section 64.6000 of 
the Commission's rules would provide a less burdensome way of obtaining 
data and a better measure of rates in the marketplace.
    219. Mandatory Data Collection. The Commission concludes that a 
Mandatory Data Collection is essential to enable it to adopt permanent 
interstate and international rate caps that more accurately reflect 
providers' costs than the interim rate caps the Commission adopts in 
this Report and Order. Such a data collection is also needed to enable 
the Commission to evaluate and, if warranted, revise the current 
ancillary service charge caps. Because of the adverse impact that 
unreasonably high rates and ancillary services charges have on 
incarcerated people and those family and loved ones they call, the 
Commission believes that the benefits of conducting a third collection 
far outweigh any burden on providers. Moreover, providers have long 
been on notice of the types of cost information the Commission intends 
to collect and will have ample time to consider how best to prepare to 
respond. The Commission delegates to WCB and OEA authority to implement 
this new data collection. The Commission directs them to develop a 
template and instructions for the collection to collect the information 
the Commission needs to protect consumers against unjust and 
unreasonable rates and ancillary services charges for interstate and 
international inmate calling services and to aid its continuing review 
of this unique inmate calling services marketplace that one provider 
quite aptly describes as ``nuanced and multilayered.''
    220. Contrary to GTL's assertion, an additional data collection is 
warranted, particularly considering the deficiencies of its own and 
other providers' responses to the Second Mandatory Data Collection. The 
Commission is not persuaded by GTL's concern about the timing of an 
additional collection, as the potential benefits from expediting 
further reform far outweigh any burdens the collection may place on 
providers. The Commission's cost-benefit analysis shows substantial 
benefits are gained from lowering interstate and international inmate 
calling services rates towards costs. If, as appears likely, the 
interim price caps put in place today are still significantly above 
costs, then bringing rates down to costs will bring substantial further 
benefits. Finally, while the Annual Reports contain useful and relevant 
marketplace information on providers' rates and charges, the Commission 
disagrees with the contention that the Annual Reports provide 
sufficient data to establish just and reasonable interstate inmate 
calling services rates. As the Public Interest Parties explain, the 
Annual Reports only include information on rates and charges and not 
the type of cost data required to set cost-based rates.
    221. Details of Data Collection. In the 2020 ICS FNPRM, the 
Commission sought comment on whether it should consider other types of 
data that would more fully capture industry costs beyond the detailed 
and comprehensive data it had already collected. Securus asserts that 
the Commission should require providers to follow a standard cost-
causation modeling methodology to attribute costs to specific products, 
and, where that is not feasible, properly allocate costs across the 
products in a cost-causative manner, to the extent possible. Securus 
contends that cost drivers should be incorporated into the cost 
attribution analysis, such as time-tracking by software developers, IT 
support tickets, and physical inventory of computing hardware. The 
Public Interest Parties contend that, among other things, the 
Commission should collect granular data with detailed components of 
direct and indirect costs, operations, and revenues, in addition to 
collecting costs at the facility level. In addition, they assert that 
the Commission should standardize a methodology for allocating indirect 
costs. The Public Interest Parties maintain that future data 
collections should require the submission of the costs of ancillary 
services and should be audited by an independent third party prior to 
submission to the Commission. They also assert that the Commission 
should collect data on marketplace trends, such as bulk purchasing at 
fixed monthly rates. The Public Interest Parties further argue that the 
Commission should require certification of the submitted cost data by 
the chief executive officer, chief financial officer, or other senior 
executive of the provider, as required for the Annual Reports. In 
addition, they assert that the Commission should take enforcement

[[Page 40725]]

action against any parties violating the Commission's rules well in 
advance of any future data collection.
    222. Securus asks that the Commission provide more specific 
instructions on how to measure direct and indirect costs and contends 
that each company should be required to provide detailed work papers 
showing how it complied with the Commission's instructions. Pay Tel 
supports modifications to forms, instructions, and guidance governing 
future data collections as necessary ``to avoid the same or similar 
dataset issues currently presented.'' Pay Tel asserts that detailed 
instructions would guide providers when completing the data collection 
form, including by clearly and expressly defining terms that are 
crucial to the collection process. Pay Tel claims that many of the 
issues with the current dataset appear to have arisen due to differing 
provider interpretations of instructions and terms, and that the 
Commission should minimize the potential for such differing 
interpretations as much as possible.
    223. The Commission directs WCB and OEA to consider all of the 
foregoing suggestions in designing the Mandatory Data Collection 
including considering whether to collect data for multiple years. They 
should also incorporate lessons learned from the two prior data 
collections to ensure that the Commission collects, to the extent 
possible, uniform cost, demand, and revenue data from each provider.
    224. To ensure that the Commission has sufficient information to 
meaningfully evaluate each provider's operations, cost data, and 
methodology, the Commission directs WCB and OEA to collect, at a 
minimum, information designed to enable the Commission to:
     Quantify the relative financial importance of the 
different products and services in each provider's business portfolio, 
including revenues from products supplied by any corporate affiliates, 
and ensure that the provider's inmate calling services are not being 
used to subsidize the provider's, or any corporate affiliate's, other 
products or services;
     Quantify the relative financial importance of services, 
including revenues from each transmission service and ancillary 
service, included within the provider's inmate calling services 
operations;
     Measure the demand for the provider's inmate calling 
services (e.g., in terms of paid and unpaid total minutes of use or 
completed calls);
     Calculate the provider's gross investment (gross book 
value of an asset, i.e., prior to subtracting accumulated depreciation 
or amortization), accumulated depreciation or amortization, deferred 
state and federal income taxes, and net investment (net book value of 
an asset, i.e., after subtracting accumulated depreciation or 
amortization) in tangible assets, identifiable intangible assets, and 
goodwill, including, but not limited to, the extent to which such 
intangible assets and goodwill were created internally as opposed to 
being generated through company acquisitions or asset purchases;
     Calculate the provider's recurring capital costs for 
depreciation and amortization, state and federal income tax, and 
interest, each disaggregated among appropriate categories, and its 
weighted average cost of capital, including capital structure, cost of 
debt, cost of preferred stock, and cost of equity;
     Calculate the provider's recurring operating expenses, at 
a minimum for maintenance and repair; billing, collection, and customer 
care; general and administrative; other overhead; taxes other than 
income tax; and bad debt, each disaggregated among appropriate 
categories;
     Ensure that the provider has directly assigned to its 
inmate calling services operations, and to its other operations, the 
investments and expenses that are directly attributable to those 
operations, as may be prescribed by WCB and OEA;
     Ensure that the provider has allocated to its inmate 
calling services operations, and to its other operations, common 
investments and expenses (i.e., investment and expenses that are not 
directly assignable to inmate calling services or to any single non-
inmate calling services line of business);
     Ensure that the provider has directly assigned to specific 
contracts or facilities investments and expenses directly attributable 
to inmate calling services to the extent feasible;
     Ensure that the provider has allocated any remaining 
unassigned inmate calling services and common investment and expenses 
to specific contracts or facilities using reasonable, cost-causative 
methods;
     Ensure that the provider has directly assigned any site 
commission payments to, or allocated any such payments between, its 
inmate calling services and its other operations using reasonable, 
cost-causative methods; and
     Ensure that the provider has followed any required 
instructions regarding the foregoing.
    225. The Commission also delegates to WCB and OEA the authority to 
require providers to submit any additional information that they deem 
necessary to help the Commission formulate permanent rate caps or to 
revise its rules governing ancillary service charges. WCB and OEA shall 
have the authority to require each provider to fully explain and 
justify each step of its costing process and, where they deem it 
appropriate, to specify the methodology the provider shall use in any 
or all of those steps. WCB and OEA also shall have the authority to 
require any provider to clarify and supplement its response to this 
data collection where appropriate to enable the Commission to make a 
full and meaningful evaluation of the company's cost, demand, and 
revenue data and costing methodology. Each provider shall keep all 
records necessary to implement this collection, and all providers shall 
make such records available to the Commission upon request.
    226. Timeframes for Data Collection. The Commission directs the 
template and instructions for the data collection to be completed for 
submission to the Office of Management and Budget (OMB) not later than 
90 days after this Report and Order becomes effective. The Commission 
also directs WCB to require providers to respond within 120 days after 
WCB announces in a Public Notice that OMB has approved the new data 
collection, such announcement to occur no later than seven business 
days after receipt of OMB's approval. WCB may, however, grant an 
extension of the 120-day response deadline for good cause.
    227. Potential CGB Data Collection. The Commission separately 
delegates authority to CGB to undertake a separate data collection 
related to inmate calling services providers' costs and other key 
aspects of their provision of TRS and other assistive technologies 
should CGB determine such a data collection is necessary to assist the 
Commission's consideration of the record obtained with respect to 
assistive technologies for incarcerated people pursuant to the 
Commission's accompanying Fifth FNPRM, published elsewhere in this 
issue of the Federal Register. To the extent CGB undertakes such data 
collection, the Commission delegates to it the authority to require 
providers to submit any additional information that it deems necessary 
to assist the Commission's consideration of reforms in this area. CGB 
shall also have the authority to require any provider to clarify and 
supplement its response to such data collection where appropriate.

[[Page 40726]]

4. Effective Dates
    228. The Commission's actions in this Report and Order, including 
its new interim interstate and international rate caps, will take 
effect 90 days after notice of them is published in the Federal 
Register, except that the delegations of authority in Part III.H.3 
shall take effect upon such publication, and the rules and requirements 
that require approval from OMB under the Paperwork Reduction Act shall 
be effective on the date specified in a notice published in the Federal 
Register announcing OMB approval. This 90-day timeframe is the same 
transition timeframe the Commission proposed in the 2020 ICS FNPRM, and 
this period matches the timeframe the Commission adopted when providers 
first became subject to the current interim caps. The Commission 
received varying proposals for effective dates in response its proposed 
90-day timeframe. Certain commenters argue for an effective date of 30 
days after publication in the Federal Register, on the basis that 
providers have been on notice of the pending changes for some time and 
that any further delay will only add to the costs that incarcerated 
people and their families will bear. Other commenters propose an 
effective date beyond 90 days or advocate for a staggered approach that 
would allow more transition time for jails, arguing that this 
additional time is necessary to make billing system changes or to 
renegotiate contracts among private parties.
    229. The Commission concludes that a 90-day timeframe for 
implementing the new interim provider-related and facility-related rate 
caps and other changes that do not require OMB approval strikes a 
reasonable balance between the competing interests. On the one hand, a 
rapid timeframe would help alleviate the burden of unreasonably high 
interstate and international rates on incarcerated people and those 
they call, a burden that the ongoing COVID-19 global pandemic has 
exacerbated. On the other hand, the record shows that providers and 
correctional officials will need more than 30 days to execute any 
contractual amendments necessary to implement the new interstate and 
international rate caps and otherwise adapt to those caps. Parties 
seeking a longer transition period rely primarily on the difficulties 
jails with average daily populations less than 1,000 may encounter in 
implementing relatively sweeping changes to the rate cap structure. The 
only rate cap change applicable to those jails, however, will be to 
reduce the per-minute charges for interstate collect calls from $0.25 
per minute to $0.21 per minute. Further, as the Commission recognized 
in the 2020 ICS FNPRM, 90 days after publication in the Federal 
Register appears to have been sufficient for implementation of the rate 
cap changes adopted in the 2013 ICS Order. In view of the foregoing 
considerations, the Commission finds that a 90-day transition period 
after publication in the Federal Register appropriately balances the 
need for expedited reform with the difficulties of adapting to its new 
rules. The Commission rejects GTL's request that the Commission defer 
the effective date of the changes to the provider-related and facility-
related rate cap components (which do not require OMB approval) until 
after OMB approves the new disclosure requirements affecting how 
providers bill consumers for calling services. GTL makes no showing as 
to why it cannot implement the changes to the rate caps components 
within 90 days after publication of notice of them in the Federal 
Register or why implementing them at a later date would be fair to 
calling services consumers. The Commission notes, however, any provider 
that wishes to avoid separate implementation dates is free to 
voluntarily implement the new disclosure requirements prior to their 
being approved by OMB.
    230. The Commission finds good cause for having its delegations of 
authority to WCB, OEA, and CGB take effect immediately upon publication 
of notice of them in the Federal Register. Making the delegations 
effective at that time will enable WCB and OEA to move as expeditiously 
as practicable toward finalizing the Mandatory Data collection and 
thereby reduce the time it will take the Commission to set permanent 
rate caps for interstate and international inmate calling services and, 
if appropriate, revise the current ancillary service fee caps. 
Similarly, making the delegation to CGB effective upon publication in 
the Federal Register will enable CGB to move forward with any data 
collection as soon as practicable once it receives comments on the 
Fifth FNPRM, published elsewhere in this issue of the Federal Register. 
Given the importance of these areas to incarcerated people, including 
those with communication disabilities, any unnecessary delay in these 
initiatives would be inconsistent with the public interest.
5. Rule Revisions
    231. The Commission makes two non-substantive changes to its inmate 
calling services rules. First, the Commission amends section 64.6000(g) 
of its rules to fix a typographical error. Currently, this section 
erroneously uses the word ``though'' instead of ``through'' in defining 
``Debit Calling'' whereas a parallel definition for ``Prepaid Calling'' 
correctly uses ``through.'' The Commission therefore changes ``though'' 
to ``through'' in section 64.6000(g). Second, the Commission removes 
the last sentence of section 64.6000(c) of its rules. That sentence 
references section 64.6010, which previously was removed and reserved 
for future use.
    232. The Commission finds good cause to make these revisions 
without notice and comment. The Administrative Procedure Act permits 
agencies to issue rule changes without notice and comment ``when the 
agency for good cause finds (and incorporates the finding and a brief 
statement of the reasons therefor in the rules issued) that notice and 
public procedure thereon are impracticable, unnecessary, or contrary to 
the public interest.'' The Commission finds good cause here because the 
rule changes are editorial and non-substantive. The rule changes 
correct a typographical error and conform the Commission's rules to 
previous rule amendments. The Commission need not seek comment on rule 
changes to ``ensure consistency in terminology and cross references 
across various rules or to correct inadvertent failures to make 
conforming changes when prior rule amendments occurred.''

IV. Severability

    233. All of the rules and policies that are adopted in this Third 
Report and Order and Order on Reconsideration are designed to ensure 
that rates for inmate calling services are just and reasonable while 
also fulfilling the Commission's obligations under sections 201(b) and 
276 of the Act. Each of the separate reforms the Commission undertakes 
here serves a particular function toward these goals. Therefore, it is 
the Commission's 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 remaining rules shall 
remain in full force and effect.

V. Procedural Matters

    234. People with Disabilities. The Commission asks that requests 
for accommodations be made as soon as possible in order to allow the 
agency to satisfy such requests whenever possible. Send an email to 
[email protected] or call the Consumer and Governmental Affairs Bureau at 
(202) 418-0530.
    235. Congressional Review Act. The Commission has determined, and 
the Administrator of the Office of

[[Page 40727]]

Information and Regulatory Affairs, Office of Management and Budget 
concurs, that this rule is non-major under the Congressional Review 
Act, 5 U.S.C. 804(2). The Commission will send a copy of this Third 
Report and Order to Congress and the Government Accountability Office 
pursuant to 5 U.S.C. 801(a)(1)(A).
    236. Supplemental Final Regulatory Flexibility Act Analysis. As 
required by the Regulatory Flexibility Act of 1980, as amended (RFA), 
the Commission has prepared a Supplemental Final Regulatory Flexibility 
Analysis (FRFA) relating to the Third Report and Order and Order on 
Reconsideration. The FRFA is set forth below.
    237. Final Paperwork Reduction Act Analysis. The Third Report and 
Order contains new or modified information collection requirements 
subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-
13. It will be submitted to OMB for review under section 3507(d) of the 
PRA. OMB, the general public, and other Federal agencies will be 
invited to comment on the new or modified information collection 
requirements contained in this proceeding. In addition, the Commission 
notes that pursuant to the Small Business Paperwork Relief Act of 2002, 
Public Law 107-198; see 44 U.S.C. 3506(4), the Commission previously 
sought comment on how it will further reduce the information collection 
burden for small business concerns with fewer than 25 employees.

VI. Supplemental Final Regulatory Flexibility Analysis

A. Need for, and Objectives of, the 2021 Third Report and Order

    247. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Second Further Notice of Proposed Rulemaking in the 
Commission's Inmate Calling Services proceeding. The Commission sought 
written public comment on the proposals in that document, including 
comment on the IRFA. The Commission did not receive comments directed 
toward the IRFA. Thereafter, the Commission issued a Final Regulatory 
Flexibility Analysis (FRFA) conforming to the RFA. This Supplemental 
FRFA supplements that FRFA to reflect the actions taken in the Third 
Report and Order and conforms to the RFA.
    248. The Third Report and Order adopts lower per-minute interim 
interstate provider-related rate caps of $0.12 per minute for prisons 
and $0.14 per minute for larger jails, respectively, until the 
Commission completes its evaluation of a new mandatory data collection 
and adopts permanent rate caps. Next, it reforms the current treatment 
of site commission payments by adopting facility-related rate 
components to permit recovery only of the portions of such payments 
estimated, on the present record, to be directly related to inmate 
calling services and requires them to be separately listed on bills, if 
charged. Where site commission payments are mandated pursuant to state 
statute, or law or regulation and adopted pursuant to state 
administrative procedure statutes where there is notice and an 
opportunity for public comment that operate independently of the 
contracting process between correctional institutions and providers 
(the Legally Mandated facility rate component), providers may pass 
these payments through to consumers, without any markup, as an 
additional component of the new interim interstate per-minute rate cap. 
Where site commission payments result from contractual obligations 
reflecting negotiations between providers and correctional facilities 
arising from the bidding and subsequent contracting process (the 
Contractually Prescribed facility rate component), providers may 
recover up to $0.02 per minute to account for these costs at prisons 
and larger jails. To promote increased transparency, the Third Report 
and Order requires providers to clearly label a Legally Mandated or 
Contractually Prescribed facility rate component, as applicable, in the 
rates and charges portion of a consumer's bill, including disclosing 
the source of such provider's obligation to pay that facility-related 
rate component. Next, the Third Report and Order eliminates the current 
interim interstate collect calling rate cap, resulting in a single 
uniform interim interstate maximum rate cap of $0.21 per minute for 
calls from jails with average daily populations below 1,000. The Third 
Report and Order emphasizes that the sum of the provider-related and 
facility-related rate components for prisons and larger jails may not 
result in a higher permissible total rate cap for any interstate call 
from any size facility than the $0.21 per minute cap that existed for 
interstate debit and prepaid calls before today and that continues to 
apply to all providers for all types of calls from jails with average 
daily populations below 1,000. The Third Report and Order also caps 
international inmate calling services rates for the first time, adopts 
a new mandatory data collection to obtain more uniform cost data based 
on consistent allocation methodologies to determine fair permanent 
cost-based rates for facilities of all sizes, and reforms the ancillary 
service charge rules, capping third-party transaction fees related to 
calls that are billed on a per-call basis and related to transferring 
or processing financial transactions. Finally, the Third Report and 
Order reaffirms providers' current obligations regarding functionally 
equivalent access for incarcerated people with hearing and speech 
disabilities.
    249. Regarding access to inmate calling services by people who are 
deaf, hard of hearing or deafblind, or have speech disabilities, the 
Third Report and Order reminds providers that they are obligated to 
comply with the existing inmate calling services and related rules, 
including rules requiring that incarcerated people be provided access 
to certain forms of telecommunications relay service (TRS), rate caps 
for calls using a text telephone (TTY) device, rules prohibiting 
charges for TRS-to-voice or voice-to-TTY calls, and rules requiring 
annual reporting of the number of TTY-based calls and any complaints. 
In addition, inmate calling services providers must ensure that the 
services and equipment provided for use by incarcerated people are 
accessible and usable by incarcerated people with communication 
disabilities (subject to achievability), including when legacy 
telephone services are discontinued and replaced with advanced services 
such as Voice over internet Protocol (VoIP).

B. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA

    250. The Commission did not receive comments specifically 
addressing the rules and policies proposed in the IRFA.

C. Response to Comments by the Chief Counsel for Advocacy of the Small 
Business Administration

    251. 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

    252. 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 adopted herein. 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

[[Page 40728]]

``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).
    253. Small Businesses. Nationwide, there are a total of 
approximately 27.9 million small businesses, according to the SBA.
    254. 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.'' The SBA has developed a small business size standard 
for Wired Telecommunications Carriers, which consists of all such 
companies having 1,500 or fewer employees. U.S. Census Bureau data for 
2012 show that there were 3,117 firms that operated that year. Of this 
total, 3,083 operated with fewer than 1,000 employees. Thus, under this 
size standard, the majority of firms in this industry can be considered 
small.
    255. Local Exchange Carriers (LECs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to local exchange services. The closest applicable NAICS 
Code category is Wired Telecommunications Carriers. Under the 
applicable SBA size standard, such a business is small if it has 1,500 
or fewer employees. U.S. Census Bureau data for 2012 show that there 
were 3,117 firms that operated for the entire year. Of that total, 
3,083 operated with fewer than 1,000 employees. Thus under this 
category and the associated size standard, the Commission estimates 
that the majority of local exchange carriers are small entities.
    256. Incumbent Local Exchange Carriers (incumbent LECs). Neither 
the Commission nor the SBA has developed a small business size standard 
specifically for incumbent local exchange services. The closest 
applicable NAICS Code category is Wired Telecommunications Carriers. 
Under the applicable SBA size standard, such a business is small if it 
has 1,500 or fewer employees. U.S. Census Bureau data for 2012 indicate 
that 3,117 firms operated the entire year. Of this total, 3,083 
operated with fewer than 1,000 employees. Consequently, the Commission 
estimates that most providers of incumbent local exchange service are 
small businesses that may be affected by its actions. According to 
Commission data, one thousand three hundred and seven (1,307) Incumbent 
Local Exchange Carriers reported that they were incumbent local 
exchange service providers. Of this total, an estimated 1,006 have 
1,500 or fewer employees. Thus, using the SBA's size standard the 
majority of incumbent LECs can be considered small entities.
    257. The Commission has included small incumbent LECs in this 
present RFA analysis. As noted above, a ``small business'' under the 
RFA is one that, inter alia, meets the pertinent small business size 
standard (e.g., a telephone communications business having 1,500 or 
fewer employees), and ``is not dominant in its field of operation.'' 
The SBA's Office of Advocacy contends that, for RFA purposes, small 
incumbent LECs are not dominant in their field of operation because any 
such dominance is not ``national'' in scope. The Commission has 
therefore included small incumbent LECs in this RFA analysis, although 
it emphasizes that this RFA action has no effect on Commission analyses 
and determinations in other, non-RFA contexts.
    258. Competitive Local Exchange Carriers (competitive LECs), 
Competitive Access Providers (CAPs), Shared-Tenant Service Providers, 
and Other Local Service Providers. Neither the Commission nor the SBA 
has developed a small business size standard specifically for these 
service providers. The appropriate NAICS Code category is Wired 
Telecommunications Carriers and under that size standard, such a 
business is small if it has 1,500 or fewer employees. U.S. Census 
Bureau data for 2012 indicate that 3,117 firms operated during that 
year. Of that number, 3,083 operated with fewer than 1,000 employees. 
Based on these data, the Commission concludes that the majority of 
Competitive LECS, CAPs, Shared-Tenant Service Providers, and Other 
Local Service Providers, are small entities. According to Commission 
data, 1,442 carriers reported that they were engaged in the provision 
of either competitive local exchange services or competitive access 
provider services. Of these 1,442 carriers, an estimated 1,256 have 
1,500 or fewer employees. In addition, 17 carriers have reported that 
they are Shared-Tenant Service Providers, and all 17 are estimated to 
have 1,500 or fewer employees. Also, 72 carriers have reported that 
they are Other Local Service Providers. Of this total, 70 have 1,500 or 
fewer employees. Consequently, based on internally researched FCC data, 
the Commission estimates that most providers of competitive local 
exchange service, competitive access providers, Shared-Tenant Service 
Providers, and Other Local Service Providers are small entities. The 
Commission has included small incumbent LECs in this present RFA 
analysis. As noted above, a ``small business'' under the RFA is one 
that, inter alia, meets the pertinent small business size standard 
(e.g., a telephone communications business having 1,500 or fewer 
employees), and ``is not dominant in its field of operation.'' The 
SBA's Office of Advocacy contends that, for RFA purposes, small 
incumbent LECs are not dominant in their field of operation because any 
such dominance is not ``national'' in scope. The Commission has 
therefore included small incumbent LECs in this RFA analysis, although 
it emphasizes that this RFA action has no effect on Commission analyses 
and determinations in other, non-RFA contexts.
    259. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a small business size standard specifically for 
Interexchange Carriers. The closest applicable NAICS Code category is 
Wired Telecommunications Carriers. The applicable size standard under 
SBA rules is that such a business is small if it has 1,500 or fewer 
employees. U.S. Census Bureau data for 2012 indicate that 3,117 firms 
operated for the entire year. Of that number, 3,083 operated with fewer 
than 1,000 employees. According to internally developed Commission 
data, 359 companies reported that their primary telecommunications 
service activity was the provision of interexchange services. Of this 
total, an estimated 317 have 1,500 or fewer employees. Consequently, 
the Commission estimates that the majority of interexchange service 
providers are small entities.
    260. Local Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. Under

[[Page 40729]]

that size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 213 carriers have reported 
that they are engaged in the provision of local resale services. Of 
these, an estimated 211 have 1,500 or fewer employees and two have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of local resellers are small entities that may be affected by 
the Commission's action.
    261. Toll Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 881 carriers have reported 
that they are engaged in the provision of toll resale services. Of 
these, an estimated 857 have 1,500 or fewer employees and 24 have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of toll resellers are small entities that may be affected by 
the Commission's action.
    262. Other Toll Carriers. Neither the Commission nor the SBA has 
developed a size standard for small businesses specifically applicable 
to Other Toll Carriers. This category includes toll carriers that do 
not fall within the categories of interexchange carriers, operator 
service providers, prepaid calling card providers, satellite service 
carriers, or toll resellers. The closest applicable size standard under 
SBA rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 284 companies reported that their primary 
telecommunications service activity was the provision of other toll 
carriage. Of these, an estimated 279 have 1,500 or fewer employees and 
five have more than 1,500 employees. Consequently, the Commission 
estimates that most Other Toll Carriers are small entities that may be 
affected by the Commission's action.
    263. Payphone Service Providers (PSPs). Neither the Commission nor 
the SBA has developed a small business size standard specifically for 
payphone services providers, a group that includes inmate calling 
services providers. The appropriate size standard under SBA rules is 
for the category Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 535 carriers have reported that they are 
engaged in the provision of payphone services. Of these, an estimated 
531 have 1,500 or fewer employees and four have more than 1,5000 
employees. Consequently, the Commission estimates that the majority of 
payphone service providers are small entities that may be affected by 
the Commission's action.
    264. TRS Providers. TRS can be included within the broad economic 
category of All Other Telecommunications. Ten providers currently 
receive compensation from the TRS Fund for providing at least one form 
of TRS: ASL Services Holdings, LLC (GlobalVRS); Clarity Products, LLC 
(Clarity); ClearCaptions, LLC (ClearCaptions); Convo Communications, 
LLC (Convo); Hamilton Relay, Inc. (Hamilton); MachineGenius, Inc. 
(MachineGenius); MEZMO Corp. (InnoCaption); Sorenson Communications, 
Inc. (Sorenson); Sprint Corporation (Sprint); and ZP Better Together, 
LLC (ZP Better Together).
    265. All Other Telecommunications. The ``All Other 
Telecommunications'' category 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. Establishments providing internet services or 
voice over internet protocol (VoIP) services via client-supplied 
telecommunications connections are also included in this industry. The 
SBA has developed a small business size standard for All Other 
Telecommunications, which consists of all such firms with annual 
receipts of $35 million or less. For this category, U.S. Census Bureau 
data for 2012 show that there were 1,442 firms that operated for the 
entire year. Of those firms, a total of 1,400 had annual receipts less 
than $25 million and 15 firms had annual receipts of $25 million to 
$49,999,999. Thus, the Commission estimates that the majority of ``All 
Other Telecommunications'' firms potentially affected by its actions 
can be considered small. Under this category and the associated small 
business size standard, a majority of the ten TRS providers can be 
considered small.

E. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements for Small Entities

    266. The Third Report and Order requires providers to examine site 
commission payments in order to recover only the portions of such 
payments estimated to be directly related to inmate calling services 
and to separately list these charges on consumers' bills. Providers 
must determine whether a site commission payment is either (1) mandated 
pursuant to state statute, 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 
(the Legally Mandated facility rate component), or (2) results from 
contractual obligations reflecting negotiations between providers and 
correctional facilities arising from the bidding and subsequent 
contracting process (the Contractually Prescribed facility rate 
component). For Legally Mandated site commission payments, providers 
may pass these payments through to consumers without any markup, as an 
additional component of the new interim interstate per-minute rate cap. 
For Contractually Prescribed site commission payments, providers may 
recover an amount up to $0.02 per minute to account for these costs. To 
promote increased transparency, the Third Report and Order requires 
providers to clearly label a Legally Mandated or Contractually 
Prescribed facility rate component, as applicable, in the rates and 
charges portion of a consumer's bill, including disclosing the source 
of such provider's obligation to pay that facility-related rate 
component.
    267. The Third Report and Order adopts a waiver process for 
providers if they can show that the applicable total rate per minute 
and ancillary service charge caps do not permit them to recover their 
costs of providing interstate and international calling services as 
well as minimum requirements for such a showing. It also adopts a new 
mandatory data collection to obtain more uniform cost data based on 
consistent prescribed allocation methodologies to determine fair 
permanent cost-based rates for facilities of all sizes.

[[Page 40730]]

F. Steps Taken To Minimize the Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered

    268. The RFA requires an agency to describe any significant, 
specifically small business, alternatives that it has considered in 
reaching its proposed approach, which may include the following four 
alternatives (among others): ``(1) the establishment of differing 
compliance or reporting requirements or timetables that take into 
account the resources available to small entities; (2) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the rules for such small entities; (3) the 
use of performance rather than design standards; and (4) an exemption 
from coverage of the rule, or any part thereof, for such small 
entities.''
    269. The Commission's rate caps differentiate between prisons, 
larger jails, and jails with average daily populations below 1,000 to 
account for differences in costs incurred by providers servicing these 
different facility types. The Commission adopts new interim interstate 
provider-related rate caps for prisons and larger jails and for collect 
calls from jails with average daily populations below 1,000. The 
Commission believes these actions properly recognize that, in 
comparison to prisons and larger jails, jails with average daily 
populations below 1,000 may be relatively high-cost facilities for 
providers to serve. The Commission also adopts rate caps for 
international calls originating from facilities of any size.
    270. The Commission adopts new interim interstate facility-related 
rate components for prisons and larger jails to allow providers to 
recover portions of site commission payments estimated to be directly 
related to the provision of inmate calling services and to separately 
list these charges on consumers' bills. Providers must determine 
whether a site commission payment is either (1) mandated pursuant to 
state statute, or law or regulation and 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 
(Legally Mandated facility rate component), or (2) results from 
contractual obligations reflecting negotiations between providers and 
correctional facilities arising from the bidding and subsequent 
contracting process (the Contractually Prescribed facility rate 
component). For Legally Mandated site commission payments, providers 
may pass these payments through to consumers without any markup, as an 
additional component of the new interim interstate per-minute rate cap. 
For Contractually Prescribed site commission payments, providers may 
recover an amount up to $0.02 per minute to account for these costs. To 
promote increased transparency, the Third Report and Order requires 
providers to clearly label a Legally Mandated or Contractually 
Prescribed facility rate component, as applicable, in the rates and 
charges portion of a consumer's bill, including disclosing the source 
of such provider's obligation to pay that facility-related rate 
component.
    271. The Commission recognizes that it cannot foreclose the 
possibility that in certain limited instances, the interim rate caps 
may not be sufficient for certain providers to recover their costs of 
providing interstate and international inmate calling services. To 
minimize the burden on providers, the Commission adopts a waiver 
process that 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 legitimate inmate calling services-related costs at 
that facility or for that contract. The Commission will review 
submitted waivers and potentially raise each applicable rate cap to a 
level that enables the provider to recover the costs of providing 
inmate calling services at that facility. This waiver opportunity 
should benefit any inmate calling services providers that may be small 
businesses and that are unable to recover their interstate and 
international costs under the new interim rate caps.

G. Report to Congress

    272. The Commission will send a copy of the Third Report and Order, 
including this Supplemental FRFA, in a report to be sent to Congress 
pursuant to the Small Business Regulatory Enforcement Fairness Act of 
1996. In addition, the Commission will send a copy of the Third Report 
and Order, including this Supplemental FRFA, to the Chief Counsel for 
Advocacy of the Small Business Administration. A copy of the Third 
Report and Order and Supplemental FRFA (or summaries thereof) will also 
be published in the Federal Register.

VII. Ordering Clauses

    273. Accordingly, It is ordered that, pursuant to the authority 
contained in sections 1, 2, 4(i)-(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)-(j), 201(b), 218, 220, 225, 255, 276, 403, and 617, 
this Third Report and Order is adopted.
    274. It is further ordered that, pursuant to the authority 
contained in sections 1, 2, 4(i)-(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)-(j), 201(b), 218, 220, 225, 255, 276, 403, and 617, 
this Third Report and Order, including the amendments to sections 
64.6000, 64.6020, and 64.6030, of the Commission's rules, shall be 
effective ninety (90) days after publication in the Federal Register, 
except that the delegations of authority to the Wireline Competition 
Bureau, the Office of Economics and Analytics, and the Consumer and 
Governmental Affairs Bureau shall be effective upon publication in the 
Federal Register. Sections 64.6110 and 64.6120 contain new or modified 
information collection requirements that require review by OMB under 
the PRA. The Commission directs the Wireline Competition Bureau to 
announce the effective date for those information collections in a 
document published in the Federal Register after the Commission 
receives OMB approval, and directs the Wireline Competition Bureau to 
cause sections 64.6110 and 64.6120 to be revised accordingly.
    275. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Third Report and Order including the Initial Regulatory 
Flexibility Analysis to the Chief Counsel for Advocacy of the Small 
Business Administration.

Federal Communications Commission.
Marlene Dortch,
Secretary.

List of Subjects in 47 CFR Part 64

    Communications, Communications common carriers, Communications 
equipment, Computer technology, Individuals with disabilities, Prisons, 
Reporting and recordkeeping requirements, Security measures, 
Telecommunications, Telephone, Waivers.

Final Rules

    For the reasons set forth above, the Federal Communications 
Commission amends part 64, subpart FF, of Title 47 of the Code of 
Federal Regulations as follows:

[[Page 40731]]

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

0
1. The authority citation for part 64 is amended 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.

0
2. Amend Sec.  64.6000 by revising paragraphs (c) and (g) and adding 
paragraphs (v), (w), and (x) to read as follows:


Sec.  64.6000  Definitions.

* * * * *
    (c) Average Daily Population (ADP) means the sum of all Inmates in 
a facility for each day of the preceding calendar year, divided by the 
number of days in the year.
* * * * *
    (g) Debit Calling means a presubscription or comparable service 
which allows an Inmate, or someone acting on an Inmate's behalf, to 
fund an account set up through a Provider that can be used to pay for 
Inmate Calling Services calls originated by the Inmate;
* * * * *
    (v) 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 Inmates and all 
Prisons may charge for interstate Collect Calling, Debit Calling, 
Prepaid Calling, or Prepaid Collect Calling.
    (w) 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).
    (x) International Destination means the rate zone in which an 
international call terminates. For countries that have a single rate 
zone, International Destination means the country in which an 
international call terminates.

0
3. Amend Sec.  64.6020 by revising paragraphs (b)(2) and (5) to read as 
follows:


Sec.  64.6020  Ancillary Service Charge.

* * * * *
    (b) * * *
    (2) For Single-Call and Related Services--$6.95 per transaction, 
plus the adopted, per-minute rate;
* * * * *
    (5) For Third-Party Financial Transaction Fees--$6.95 per 
transaction.

0
4. Revise Sec.  64.6030 to read as follows:


Sec.  64.6030  Inmate Calling Services interim rate caps.

    (a) For all Jails with Average Daily Populations of less than 1,000 
Inmates, no Provider shall charge a rate for interstate Collect 
Calling, Debit Calling, Prepaid Calling, or Prepaid Collect Calling in 
excess of $0.21 per minute.
    (b) For all Jails with Average Daily Populations of Inmates of 
1,000 or greater, no Provider shall charge a Provider-Related Rate 
Component for interstate Collect Calling, Debit Calling, Prepaid 
Calling, or Prepaid Collect Calling in excess of $0.14 per minute.
    (c) For all Prisons, no Provider shall charge a Provider-Related 
Rate Component for interstate Collect Calling, Debit Calling, Prepaid 
Calling, or Prepaid Collect Calling in excess of $0.12 per minute.
    (d) For all Jails with Average Daily Populations of Inmates of 
1,000 or greater, and for all Prisons, Providers may recover the 
applicable Facility-Related Rate Component as follows:
    (1) Providers subject to an obligation to pay Site Commissions by 
state statutes or laws and regulations that are adopted pursuant to 
state administrative procedure statutes where there is notice and an 
opportunity for public comment such as by a state public utility 
commission or similar regulatory body with jurisdiction to establish 
inmate calling services rates, terms, and conditions and that operate 
independently of the contracting process between Correctional 
Institutions and Providers, may recover the full amount of such 
payments through the Legally Mandated Facility Rate Component subject 
to the limitation that the total rate (Provider-Related Rate Component 
plus Facility-Related Rate Component) does not exceed $0.21 per minute.
    (2) Providers that pay Site Commissions pursuant to a contract with 
the Jail or Prison may recover up to $0.02 per minute through the 
Contractually Prescribed Facility Rate Component except where the 
Provider's total Contractually Prescribed Facility Rate Component 
results in a lower per-minute rate than $0.02 per minute of use. In 
that case, the Provider's Contractually Prescribed Facility Rate 
Component is limited to the actual amount of its per-minute Site 
Commission payment up to a maximum of $0.02 per minute. Providers shall 
calculate their Contractually Prescribed Facility Rate Component to 
three decimal places.
    (e) No Provider shall charge, in any Prison or Jail it serves, a 
per-minute rate for an International Call in excess of the applicable 
interstate rate cap set forth in paragraphs (a), (b), (c), and (d) of 
this section plus the average amount that the provider paid its 
underlying international service providers for calls to the 
International Destination of that call, on a per-minute basis. A 
Provider shall determine the average amount paid for calls 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
5. Delayed indefinitely, revise Sec.  64.6110 to read as follows:


Sec.  64.6110  Consumer disclosure of Inmate Calling Services rates.

    (a) Providers must 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. In connection with international 
rates, providers shall also separately disclose the rate component for 
terminating calls to each country where that provider terminates 
International Calls.
    (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

[[Page 40732]]

    (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 
Calls in Sec.  64.6030(e) as a separate line item on Consumer bills. To 
be clearly labeled, providers must identify the amount charged to the 
Consumer for the International Call, including the costs paid by the 
provider to its underlying international providers to terminate the 
International Call to the international destination of the call.
    (d) Paragraphs (a), (b), and (c) of this section contain new or 
modified information collection requirements adopted in FCC 21-60. 
Compliance with these information collection requirements will not be 
required until after approval by the Office of Management and Budget. 
Providers will be required to comply with these information collection 
requirements immediately upon publication by the Commission of a 
document in the Federal Register announcing Office of Management and 
Budget approval and revising this paragraph accordingly.

0
6. Delayed indefinitely, add Sec.  64.6120 to subpart FF to read as 
follows:


Sec.  64.6120   Waiver process.

    (a) A Provider may seek a waiver of the interim rate caps 
established in Sec.  64.6030 and the Ancillary Service Charge fee caps 
on a Correctional Facility or contract basis if the interstate or 
international rate caps or Ancillary Service Charge fee caps prevent 
the Provider from recovering the costs of providing interstate or 
international Inmate Calling Services at a Correctional Facility or at 
the Correctional Facilities covered by a contract.
    (b) At a minimum, a Provider seeking such a waiver is required to 
submit:
    (1) The Provider's total company costs, including the nonrecurring 
costs of the assets it uses to provide Inmate Calling 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 interstate and international Inmate Calling Services, to 
allocate its indirect costs between its Inmate Calling Services and 
other operations, and to assign its direct costs to and allocate its 
indirect costs among its Inmate Calling Services contracts and 
Correctional Facilities;
    (3) The Provider's demand for interstate and international Inmate 
Calling 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 interstate and international Inmate Calling Services, 
including the allowable portion of any permissible Ancillary Service 
Charges attributable to interstate or international inmate calling 
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 date 
this section is codified.
    (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 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 paragraph (a) of this 
section must provide any additional information requested by the 
Commission during the course of its review.
    (d) Paragraphs (a), (b), and (c) of this section contain new or 
modified information collection requirements adopted in FCC 21-60. 
Compliance with these information collection requirements will not be 
required until after approval by the Office of Management and Budget. 
Providers will be required to comply with these information collection 
requirements immediately upon publication by the Commission of a 
document in the Federal Register announcing Office of Management and 
Budget approval and revising this paragraph accordingly.

    Note:  The following appendices will not appear in the Code of 
Federal Regulations.

Appendix A

Analysis of Responses to the Second Mandatory Data Collection

A. Introduction

    1. The Commission determines the interim interstate provider-
related rate caps by developing separate zones of reasonableness 
based on data submitted by inmate calling services providers in 
response to the Second Mandatory Data Collection. In this Appendix, 
the Commission frequently refers to inmate calling services 
providers by short names or acronyms. These providers are: ATN, Inc. 
(ATN); CenturyLink Public Communications, Inc. (CenturyLink); 
Correct Solutions, LLC (Correct); Combined Public Communications 
(CPC); Crown Correctional Telephone, Inc. (Crown); Global Tel*Link 
Corporation (GTL); ICSolutions, LLC (ICSolutions); Legacy Long 
Distance International, Inc. (Legacy); NCIC Inmate Communications 
(NCIC); Pay Tel Communications, Inc. (Pay Tel); Prodigy Solutions, 
Inc. (Prodigy); and Securus Technologies, LLC (Securus). The goal of 
the Commission's approach is to estimate the mean contract cost per 
paid minute while taking into account providers' costs of providing 
inmate calling services as reported in response to the Second 
Mandatory Data Collection as well as the limitations of those data 
and concerns raised by stakeholders. The Commission establishes the 
bounds of the zones using a variety of standard data and economic 
methods. The Commission's overall approach is described in this 
Introduction, with additional details and the results discussed in 
the remainder of this Appendix and the Appendices that follow.
    2. The Commission begins by collecting certain cost and revenue 
data related to inmate calling services from providers through the 
Commission's Second Mandatory Data Collection. Next, following a 
standard approach to data cleaning, the Commission then reviews the 
responses to the Second Mandatory Data Collection to identify 
submissions with duplicative, missing, or anomalous data. The 
Commission then fixes or removes these observations as appropriate, 
and create new variables that will be used in its analysis. Created 
variables include, for example, facility size categories and 
rurality (based on geocoding). These new variables are based on 
information submitted in the Second Mandatory Data Collection and 
described in greater detail below. At the core of its initial 
analysis and creation of new variables is the selection of a 
suitable mechanism to allocate reported indirect costs. Allocating 
indirect costs is critical to ensuring that the estimates capture 
the providers' actual costs associated with providing inmate calling 
services to the greatest possible extent. These steps result in a 
dataset that serves as the basis for the remainder of its analyses. 
Data cleaning and cost allocation play a critical role in ensuring 
appropriate evaluation of the data and lead to results that better 
reflect the realities of the inmate calling services market.
    3. Using this dataset, the Commission first estimates the upper 
bounds of the zones of reasonableness by calculating, for both 
prisons and larger jails, the mean per-minute contract costs plus 
one standard deviation. Incorporating a standard deviation into each 
upper bound recognizes that providers' costs vary but places a limit 
on how much costs may differ among providers. Under a normal 
distribution, 68% of providers would fall within one standard 
deviation of the mean. The Commission recognizes, however, that per-
minute costs may be affected by the

[[Page 40733]]

particular characteristics of a facility or contract, such as size 
or location. With statistical modeling, the Commission can identify 
how well various reported characteristics predict the per-minute 
costs of a contract. The results of this analysis can inform which 
characteristics, if any, may influence its approach to setting 
interim rates.
    4. To estimate the lower bound of each zone of reasonableness, 
the Commission compares results from standard statistical tests to 
identify outliers within the dataset. An outlier is a value within 
the data that ``lies an abnormal distance from other values.'' After 
removing the outliers, the Commission finds there are still 
contracts that have reported per-minute costs that are significantly 
higher than other providers. To bring these contracts into alignment 
with comparable contracts, the Commission employs a statistical 
method that replaces the cost information for the abnormally high-
cost contracts with cost information from contracts that have 
similar characteristics. The Commission uses these adjusted data to 
calculate the mean per-minute cost plus one standard deviation. From 
between the upper and lower bounds, the Commission then selects 
interim interstate provider-related rate caps for prisons and larger 
jails in accord with its analysis. The Commission concludes its 
analysis by testing whether these interim rate caps will allow 
providers to recover the costs of providing calling services to 
incarcerated people. In the remainder of this Appendix, the 
Commission describes the Second Mandatory Data Collection in greater 
detail, specific steps taken to clean the data, and initial data 
analysis to allocate indirect costs and explore the data. In 
addition, the Commission selects an appropriate cost allocator and 
assess the commercial viability of contracts under the new interim 
interstate provider-related rate caps.
    5. Collecting Inmate Calling Services Data. The Commission's 
efforts to reform inmate calling services rates begin with 
collecting the cost, revenue, and other data reported by providers. 
The Commission initiated the Second Mandatory Data Collection in 
order to obtain more comprehensive and detailed data about inmate 
calling services providers, with the goal of setting more accurate 
cost-based rates. This effort included seeking cost data at the 
level of the contract and seeking information on cost components 
such as credit card processing fees, payments to affiliates, and the 
direct costs for collect calls. Further, the Second Mandatory Data 
Collection was unprecedented in how it disaggregates minutes, calls, 
site commissions, and revenues. Unlike past collections, providers 
reported both paid and unpaid minutes, and reported breakdowns of 
minutes and calls by payment type (debit/prepaid and collect calls) 
and by regulatory jurisdiction. Providers also reported site 
commissions in fixed and variable components, and disaggregated 
revenues between inmate calling services revenues and ancillary 
service revenues. These data, coupled with key attributes, such as 
average daily population (ADP), facility type (prison or jail), and 
facility locations, provide a detailed view of the inmate calling 
services industry.
    6. Appropriate use of these data, however, requires awareness of 
the data's flaws. Two difficulties stand out. First, different 
providers record and interpret costs differently. This makes it 
impossible to ensure an apples-to-apples comparison among providers. 
Second, providers have strong incentives to overstate costs because 
higher costs will increase any rate caps the Commission bases upon 
those costs, resulting in higher prices. In fact, these two 
difficulties may be the reason why the data do not support two 
widely believed stylized facts: that providers' prison costs per 
minute are generally lower than their jail costs per minute; and 
that providers' unit costs tend to rise as the size of a 
correctional institution falls. Consequently, averaging reported 
costs, as allocated between prison and jail contracts, shows prisons 
to be more expensive to serve on a per-minute basis than jails.
    7. However, careful analysis can identify such biases, and 
correct for them (see Appendix C). A similar distortion can occur if 
different providers have different approaches to reporting their 
costs. One provider's costs could, through the averaging process, 
overstate the costs of contracts of a certain type and understate 
the costs of others. However, averaging over all providers would 
reduce such distortions to the extent they were not systematic. 
Separately, the Commission finds other aspects of the reported data 
are less likely to be distorted. Providers' reports of call minutes 
(i.e., minutes of use) and revenues are likely to be accurate down 
to the level of the contract. Call minutes are almost universally 
billed, as are calls when the first minute is priced differently to 
the second, requiring auditable accounting. For roughly 72% of 
contracts (2,100 of 2,900), providers report paid minutes which 
account for 90% or more of their total reported minutes, according 
to staff analysis of the Second Mandatory Data Collection responses. 
Revenue tracking, and thus reported revenues, are also likely to be 
reliable. Calling service providers have strong incentives to 
accurately track revenues. First, they must do so in order to make 
revenue-based site commission payments, which occur in a large 
majority of contracts. For roughly 86% of contracts (2,488 of 
2,900), providers report variable site commissions (both legally 
compelled and negotiated), according to staff analysis of the Second 
Mandatory Data Collection responses. Second, tracking revenues at 
the contract level is necessary to determine whether a contract is 
profitable. Revenue reports are particularly valuable for the 
Commission's analysis because they provide an upper bound for 
contract costs that can be used to verify the accuracy of chosen 
cost allocation approaches. Accordingly, the Commission finds 
reported minutes of use and revenues to be reliable, and the 
Commission uses them in setting the interim interstate provider-
related rate caps.

B. Fundamentals of the Second Mandatory Data Collection

    8. Description of Data Collection. The Second Mandatory Data 
Collection was adopted with the goal of enabling the Commission to 
identify trends in the market and provide information necessary to 
adopt further reforms. Providers offering inmate calling services 
were required to submit five years of information, covering calendar 
years 2014 to 2018. Providers filed their responses to the data 
collection in March 2019. Commission staff then ``undertook a 
comprehensive analysis of the . . . responses and conducted multiple 
follow-up discussions with . . . providers to supplement and clarify 
their responses.'' In addition, staff relied on providers' April 1, 
2020, annual reports to further inform the analysis and results set 
forth in the 2020 ICS FNPRM.
    9. Information requested by the Commission in the Second 
Mandatory Data Collection included company and affiliate 
information, total costs and revenues, and facility-level 
information. Filers were required to indicate the portion of total 
costs directly attributable to the provision of inmate calling 
services and allocate indirect costs, such as general overheads, 
between inmate calling services and other operations. In total, 13 
providers of inmate calling services submitted data to the 
Commission (see Table 1). The 13th provider, Talton, is excluded 
from Table 1 for the reasons discussed below. The collected data 
included information on numerous characteristics of the providers' 
contracts, such as:
     Whether the contract was for a prison or a jail;
     The average daily incarcerated population (average 
daily population) of all the facilities covered by the contract;
     The total number of calls made annually under the 
contract, broken out by paid and unpaid, with paid calls further 
broken out by debit, prepaid, and collect;
     Total call minutes; call minutes broken out by paid and 
unpaid; interstate, intrastate, and international; and prepaid, 
debit, and collect calls;
     Inmate calling services revenues, broken out by 
prepaid, debit, and collect;
     Automated payment revenues and paper bill or statement 
revenues, earned under the contract (live operator revenues were not 
collected);
     Site commissions paid to facility operators under the 
contract; and
     Each provider's inmate calling services costs in total, 
exclusive of site commissions.
    10. Description of Initial Data Cleaning. In its review of the 
responses to the Second Mandatory Data Collection, the Commission 
identifies submissions with incomplete or invalid data, duplicative 
information, and contracts that are not comparable to others because 
of unique characteristics. The Commission excludes these contracts 
where they cannot be used (e.g., where missing data would not allow 
the Commission to make relevant calculations) or where the contracts 
do not have paid minutes, and so are unaffected by changes to the 
interstate rate caps. As the Wright Petitioners, Prison Policy 
Initiative, and Public Knowledge (Public Interest Parties) 
recognize, ``data cleaning to ensure comparability of costs'' is 
important. In response to commenters' emphasis on data consistency, 
the Commission further reviews the responses to the Second Mandatory 
Data

[[Page 40734]]

Collection and identify additional contracts that should be excluded 
from its analysis. Commenters express concern with instances where 
provider responses to the Second Mandatory Data Collection report 
zero values. Specifically, the Commission removes an additional 35 
contracts beyond the contracts removed from the results presented in 
the 2020 ICS FNPRM. Commenters express concern with instances where 
provider responses to the Second Mandatory Data Collection report 
zero values. The Commission does not remove these contracts because 
the Commission finds it appropriate to classify them as smaller jail 
contracts based on the reported paid minutes of use. The contracts 
removed from the 2020 ICS FNPRM analysis included three contracts 
``not comparable to the average correctional facility'' and 
contracts reporting zero minutes. In addition to removing these 
contracts, the Commission removes contracts with negative or zero 
total revenue. Other than the adjustments noted below, the 
Commission accepted the filers' data and related information ``as 
provided'' (i.e., without any modifications).
    11. Removing Contracts with Invalid or Incomplete Data. For the 
calculations presented in this Appendix, the Commission excludes a 
total of 467 contracts from the Second Mandatory Data Collection 
data. First, the Commission removes 424 contracts where a provider 
reported either zero paid minutes or zero total minutes, 416 of 
which reported neither paid nor total minutes. Of the remaining 
eight contracts reporting either zero paid minutes or zero total 
minutes, two appear to be contracts for juvenile services and the 
provider may not charge for calls ([REDACTED] in Texas and 
[REDACTED] in Florida), and six report zero paid minutes, but report 
a range of total minutes from four to 97. As a practical matter, 
contracts that provide free inmate calling services will not be 
affected by the interim rate caps adopted in the Report and Order, 
and zero-minute contracts frustrate attempts to calculate per-minute 
rates or revenues. The Commission finds these reasons sufficient to 
exclude such contracts from its analysis. Second, the Commission 
removes 10 contracts where a provider reported direct costs less 
than $0. By contrast, the Commission did not delete contracts for 
which no direct costs were reported. Finally, the Commission 
excludes 31 contracts where the total revenue net of site 
commissions is less than or equal to $0. The Commission finds that 
contracts that report negative direct costs and or negative revenues 
are implausible, and likewise indicative of some error in reporting.
    12. Excluding an Anomalous Contract. The Commission excludes a 
long-standing, so presumably viable, contract between GTL and the 
[REDACTED], because it has an unusual preponderance of free calls, 
and at face value suggests GTL's per-minute costs on this contract 
for both paid and unpaid minutes are as low as [REDACTED]. In 2018, 
GTL provided [REDACTED] free minutes, earning revenues on only 
[REDACTED] minutes, or [REDACTED] of all minutes on this contract. 
Thus, free minutes constitute [REDACTED] of all minutes on this 
contract. In contrast, the share of paid minutes for all contracts 
excluding this one is 3.3%. Consistent with this [REDACTED] share of 
free minutes, it appears that the state requires the provision of at 
least two free 10-minute calls to each incarcerated juvenile per 
week. This equals the quotient of GTL's total revenues under the 
contract and total minutes supplied. GTL also paid [REDACTED] on the 
contract, which also is somewhat unusual. In 2018, only 31% of all 
prison contracts were commission-free. Inclusion of this contract 
distorts the cost allocation procedure, raising the mean per-minute 
cost for prisons by approximately [REDACTED] (from [REDACTED] to 
[REDACTED]), and increasing the standard deviation from $0.041 to 
$0.658. This occurs because the Commission estimates the per-minute 
costs by dividing a contract's allocated cost by paid minutes. 
Because this contract bears so few paid minutes, the Commission 
calculates a per-minute cost of [REDACTED]. If per-minute costs were 
calculated using total minutes instead of paid minutes, the per-
minute costs would be [REDACTED]. This is implausible on its face, 
and becomes more implausible in light of the reported revenues 
associated with the contract. By way of comparison, this is 
[REDACTED] times higher than the next nearest allocated cost, 
[REDACTED] times higher than the average allocated cost for prisons, 
and [REDACTED] times higher than the [REDACTED] per-minute costs the 
Commission calculates for GTL's contract with the [REDACTED]. GTL 
only reports earning [REDACTED] per paid minute on this contract, an 
amount that is less than [REDACTED] the per-minute allocated cost. 
This is also substantially lower than the rate GTL earned per all 
minutes on its contract with the [REDACTED], or [REDACTED] per 
minute.
    13. Eliminating Double Reporting and Excluding Federally Managed 
Facilities. In discussions with calling service providers, the 
Commission learned that several had included site commissions as 
part of their total inmate calling services costs and a subset of 
those had also reported site commissions as part of their direct 
inmate calling services costs. Because the Commission is interested 
in the cost of providing the underlying telecommunications service, 
the Commission does not include site commission payments in the 
measures of providers' costs. The Commission also discovered a 
double reporting of site commission payments for [REDACTED] 
contracts that both [REDACTED] and [REDACTED] reported serving. In 
their responses to the Second Mandatory Data Collection, it appears 
that [REDACTED] reported its share of the site commission while 
[REDACTED] reported the site commission for the entire contract. In 
these cases, the Commission has removed the site commission payments 
reported by [REDACTED] and consider [REDACTED]'s reported payment to 
represent the site commissions for the entire contract.
    14. The Commission also excluded two contracts that are not 
comparable to the average correctional facility because they are 
managed by Immigration and Customs Enforcement (ICE) and the Federal 
Bureau of Prisons (BOP). This is because significant elements of 
inmate calling services in these federal institutions are managed by 
the incarceration authority and not the reporting provider. The ICE 
contract was the only contract held by Talton, so dropping this 
contract eliminated Talton from the dataset thus resulting in 
reliance on data from 12 providers. Before dropping the BOP 
contract, the Commission allocated a share of GTL's costs reported 
at the level of the firm (as opposed to the contract) to the BOP 
contract as described below. Excluding these contracts produces a 
dataset of 2,900 contracts, accounting for 2.2 million incarcerated 
people and 7.8 billion paid minutes.
    15. The Commission's dataset of 2,900 contracts gives an 
unprecedented view into providers' costs, revenues, and call 
minutes. Today, CenturyLink's former inmate calling services 
operations are part of ICSolutions, but the Commission kept those 
operations separate in the analysis. By excluding incomplete and 
anomalous contracts, the Commission substantially improves the 
comparability of the information submitted by providers. However, 
providers may have overstated their costs or reported costs 
differently than other providers. The Commission addresses these 
issues in Appendix C by excluding outliers and replacing the cost 
information for abnormally high costs with that of comparable 
contracts.

C. Initial Data Analysis

    16. After cleaning the reported data, the Commission makes a 
number of basic analytical observations to aid its analysis. First, 
it is important to understand the different levels of granularity in 
reported costs. This leads the Commission to conduct the analysis at 
the contract level. Next, the Commission divides the reported data 
into several tiers, and examine prisons, larger jails, and jails 
with average daily populations less than 1,000 separately. The 
Commission also conducts a geographic analysis to analyze the 
effects of rurality on reported costs. Finally, the Commission 
observes that disparate treatment of ancillary services costs and 
revenues requires some attention in order to ensure the Commission 
is comparing commensurate quantities. Taken together, these steps 
form a predicate around which may then offer further, deeper 
analysis of the resultant costs. The Commission reviews these steps 
below.
    17. Granularity of Reported Costs. In the Second Mandatory Data 
Collection, costs are effectively reported at two levels, that of 
the inmate calling services provider--total costs--and that of the 
contract. Contract costs are costs that the provider attributes to a 
specific contract, including any proportion of overheads the 
provider elects to allocate. In this Appendix, unless otherwise 
specified, the Commission uses ``overheads'' to refer to costs 
incurred to provide a service, but which are also incurred to 
provide other services, and so cannot be directly attributed to any 
of those services. The canonical example is a chief executive 
officer's salary. Another example is the cost of a provider's 
platform and associated software used to provide inmate calling 
services across all of the

[[Page 40735]]

provider's contracts. That cost cannot be directly attributed to any 
particular contract. Instead, it is incurred whether or not one, 
several, or perhaps even most of the contracts are served. The 
difference between a provider's total costs and the sum of all costs 
reported at the contract level is unallocated costs, and these 
represent costs that have not been attributed to a particular 
contract. While providers generally reported at least some inmate 
calling services costs at the level of the contract, and more rarely 
at the level of the facility, each did this differently. Providers 
took different approaches in how they reported these costs. For 
example, bad debt is the only cost GTL reports at the level of the 
contract. Thus, for GTL, a range of other contract-specific costs 
are recorded at the level of the firm only. By contrast, another 
provider allocates some of its costs, most likely including 
overheads, to the contract according to the contract's share of 
phones installed. Still other providers allocate all of their 
overheads using a revenue allocator.
    18. Unit of Analysis. The Commission's analysis is conducted 
primarily at the contract level. This approach is consistent with 
its view that the contract is the basic unit of supply for inmate 
calling services. That is, providers bid on contracts, rather than 
facilities (though in many instances the contract is for a single 
facility). This approach is also consistent with how the data were 
submitted, reflecting the underlying reality that providers are 
focused on contracts as a whole and not elements of the contracts. 
The Commission requested information to be submitted for each 
correctional facility where a provider offers inmate calling 
services, and some key variables--for example, the quantity of calls 
and minutes of use--were reported by facility. However, even though 
over 90% of contracts were reported as representing a single 
facility, most filers do not maintain all of the data the Commission 
requested by facility in the ordinary course of their business. As a 
result, in some instances, contracts were reported that covered 
multiple facilities without any breakout for those facilities. For 
example, contracts with the [REDACTED] and [REDACTED] were reported 
as single facilities, with average daily populations of [REDACTED] 
and [REDACTED], respectively. In other cases, some facility-level 
data were not reported. Examples of the latter include average daily 
populations and credit card processing costs. In any event, because 
the Second Mandatory Data Collection instructions had required 
providers to cross-reference their contracts with the facilities 
they covered, the Commission was able to group facilities by 
contract, which facilitated its ability to conduct its analysis at 
the contract level.
    19. Separation into Tiers. The Commission separates contracts 
into three distinct categories for analysis: Contracts for prisons, 
contracts for jails with average daily populations of less than 
1,000, and contracts for jails with average daily populations of 
1,000 or more (larger jails). Average daily population was not 
reported for three of the 129 prison contracts and 81 of the 2,771 
jail contracts. The average paid minutes across these 81 jail 
contracts is 54,895 paid minutes. Since the average paid minutes for 
these contracts are lower than the average paid minutes reported for 
jails with average daily populations less than 1,000, the Commission 
categorizes these 81 jail contracts as contracts for jails with 
fewer incarcerated people for the purposes of its analysis. Average 
paid minutes for a smaller jail is 634,774, and average paid minutes 
for a larger jail is 9,274,594.
    20. Average daily population of 1,000 serves as a natural 
breakpoint in the data in two key respects. A natural break in a 
dataset is an approach to classifying data into ranges based on the 
similarity of the observations within a class, in this case, 
facility size (i.e., average daily population). First, in terms of 
cost differentials, jails with average daily populations less than 
1,000 are more likely than larger jails to exhibit higher per-minute 
costs. For instance, contracts for jails with fewer people exceed a 
cost threshold of $0.16 per minute at more than twice the rate of 
contracts for larger jails. Of the 2,589 smaller jail contracts, 132 
contracts have an average per-minute cost above $0.16, and of the 
182 larger jail contracts, four have an average per-minute cost 
above $0.16. Staff analysis of Second Mandatory Data Collection. 
Second, as shown in Figure 1 below, visualizing the distribution of 
the average daily population data for jails shows a shift in the 
shape of the data around an average daily population of 1,000, with 
a much more substantial density of observations below 1,000 as 
compared to above. Distribution of average daily population was 
visualized by plotting the results of a kernel density estimate. 
This density is driven by large numbers of contracts with low 
average daily populations. Specifically, approximately 48% of all 
jail contracts report average daily populations of less than 100, 
and approximately 93% of all jail contracts report average daily 
populations of less than 1,000. The Commission then looks at the 
95th percentile value because it is often used to identify the tail 
of a distribution (i.e., the values in the distribution that are 
farthest from the mean). Across all 2,771 jail contracts, the 95th 
percentile of average daily population is 1,165. Put differently, 
95% of the jail contracts have average daily populations of less 
than 1,165, and 5% of jail contracts report an average daily 
population of 1,165 or greater. Since average daily population is an 
annualized estimate based on one year of data, the Commission finds 
it reasonable to round to the nearest order of magnitude and remain 
consistent with other analyses that use 1,000 or more as a category. 
The Commission includes jails with average daily populations less 
than 1,000 in the total dataset of 2,900 contracts for purposes of 
analyzing the various possible allocation methodologies and to 
ensure the analysis is sufficiently comprehensive. But, because the 
Commission does not adopt a new interstate interim rate cap for 
debit and prepaid calls from jails with average daily populations 
less than 1,000, the Commission does not provide summary statistics 
or otherwise analyze such facilities in this Appendix.

[[Page 40736]]

[GRAPHIC] [TIFF OMITTED] TR28JY21.000

    21. Geographic Analysis. Rurality is an additional 
characteristic of correctional facilities that may affect the costs 
of provisioning inmate calling services. For example, jails and 
prisons in more rural areas of the country may be required to pay a 
higher rate for access to the public switched telephone network and 
these costs should be recoverable. Similarly, it is possible other 
costs, such as those for maintenance visits or installations, may be 
higher in rural areas. Detailed geographic information was not 
requested as part of the Second Mandatory Data Collection; however, 
the Commission did request that providers submit the street address 
for each facility reported. The Commission geocoded these addresses 
to determine the Census Block in which each facility is located. 
Geocoding is a process of associating longitude and latitude 
coordinates to a facility's address to conduct geographic analyses. 
This allows the Commission to test, for example, whether the costs 
of providing inmate calling services tend to be higher for 
facilities in blocks defined as rural by the U.S. Census Bureau. 
```Rural' encompasses all population, housing, and territory not 
included within an urban area.'' ``Urban areas'' are ``Urbanized 
Areas (UAs) of 50,000 or more people''; and ``Urban Clusters (UCs) 
of at least 2,500 and less than 50,000 people.'' ``Census blocks 
provide the `building blocks' for measuring population density and 
delineating each urban area.''
    22. The Commission applied three processes to ultimately geocode 
3,784 or 88% of the 4,319 filed facilities. The Commission first 
used ArcMap software version 10.8 to geocode 3,321 or 77% of the 
4,319 filed facilities. The Commission then took a random sample of 
170, or 17%, of the 998 addresses the Commission was unable to 
geocode, and where possible, corrected them manually. The Commission 
were able to geocode 164 of these 170 addresses. Finally, the 
Commission developed a Python script to clean up the remaining 
addresses--which the Commission then manually checked--and were able 
to geocode 299 additional facilities this way. In instances of 
contracts with multiple facilities, the Commission was unable to 
geocode the relevant facilities where a filer only provided a single 
address. In some instances, a mailing address was reported. If this 
was different from the facility's physical address and the address 
correction process did not detect this error, then the mailing 
address was used.
    23. Matching Ancillary Costs and Revenues. The Second Mandatory 
Data Collection also collected data on the revenues generated from 
ancillary service charges, which are separate from inmate calling 
services revenues. Such charges have their own matching costs, which 
may be separately accounted for by providers. Providers should not 
have reported costs for lines of business such as video visitation 
services as part of inmate calling services costs, and thus the 
Commission does not have to account for these services. For example, 
ancillary services revenues from passthrough fees can be matched to 
separately reported costs. Thus, because revenues and costs for 
passthrough fees are separately reported, they can be readily 
compared.
    24. In other cases, the costs of ancillary services may not be 
separately reported, but instead may be included by providers as the 
costs of supplying inmate calling services. In such cases, the 
Commission cannot be sure appropriate matching occurs. Because it is 
important to compare commensurate costs and revenues when assessing 
service profitability, the Commission must take steps to control for 
these circumstances. For example, for some analyses, the Commission

[[Page 40737]]

adds the revenues for two ancillary services--automated payments, 
and paper billing and statements--to inmate calling services 
revenues in order to compare commensurate revenues to costs. In some 
instances, the analyses of the ability of providers to recover their 
costs at the new interim interstate rate caps do not account for 
these ancillary services fee revenues. In those cases, the results 
therefore overstate the percentage of contracts under which the 
provider would be unable to recover its reported costs under those 
rate caps. The revenues earned on these ancillary services do not 
have separate matching cost reports, although the costs of these 
services are ordinarily included in the providers' inmate calling 
costs. Indeed, total billing costs, including automated payments and 
paper billing costs, are typically considered as costs of the billed 
service. Matching like to like therefore requires including revenues 
from these ancillary services in with inmate calling services 
revenues. Providers may also have reported some or all of their live 
agent services costs as inmate calling services costs, given no 
other category in which to include them. However, since this is less 
clear, the Commission made no adjustment to account for live agent 
services revenues.
    25. Lastly, accounting for the costs and revenues of shared 
services also poses difficulties that may lead the Commission to 
understate inmate calling services' profitability. This possibility 
arises because providers may have allocated the costs of shared 
services to inmate calling services but are unable to allocate the 
related revenues accordingly. As an example, consider a payment 
account that incarcerated persons must set up to purchase inmate 
calling services as well as commissary services, tablet access, and 
other services. Providers may have allocated some or all the costs 
of the payment system to inmate calling services. At the same time, 
if there are usage fees associated with the payment account, such as 
fees charged to set up the account or to deposit money, then the 
provider should not have reported these in their inmate calling 
services nor ancillary services fee revenues, notwithstanding that 
the revenues are in part generated due to demand for inmate calling 
services.
    26. Recognition of these nuances regarding the reported data and 
their limitations allows the Commission to offer some basic 
observations about inmate calling providers and the overall 
industry.

D. Summary Statistics

    27. After taking the aforementioned steps, the Commission finds 
it useful to summarize aspects of the data here. The final dataset 
used in the analyses contains information on 2,900 contracts that 
are reported by 12 providers. Table 1 shows, for each provider and 
the industry, the number of contracts by facility type and in total, 
the number of facilities covered under those contracts, and the 
aggregated average daily population of those facilities.

                    Table 1--Inmate Calling Services Providers Ranked by Number of Contracts
----------------------------------------------------------------------------------------------------------------
                                      Prison                           Total
            Provider                 contracts    Jail contracts     contracts      Facilities          ADP
----------------------------------------------------------------------------------------------------------------
[REDACTED]......................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
[REDACTED]......................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
[REDACTED]......................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
[REDACTED]......................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
[REDACTED]......................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
[REDACTED]......................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
[REDACTED]......................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
[REDACTED]......................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
[REDACTED]......................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
[REDACTED]......................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
[REDACTED]......................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
[REDACTED]......................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
----------------------------------------------------------------------------------------------------------------
Industry........................             129           2,771           2,900           3,628       2,238,732
----------------------------------------------------------------------------------------------------------------

    28. Table 1 suggests that the provision of inmate calling 
services is very concentrated, with two providers reporting 
servicing more than [REDACTED] of all incarcerated people. Prison 
contract supply is more concentrated than that of jails, with only 
six of the 12 providers reporting prison contracts. Of the 129 
prison contracts, [REDACTED], and 86% were held by the top three 
providers combined. Other measures also show high concentration for 
prisons. The largest provider covers 45% of reported average daily 
populations, and the top three cover 96%. The same numbers for total 
minutes are 51% and 96%, and for provider revenues including 
automated payment fees and paper bill fees are 55% and 95%. For 
jails, the largest provider, [REDACTED] of the contracts, and the 
top three providers combined held 59% of all jail contracts. Other 
measures also show high concentration for jails. The largest 
provider covers 34% of reported average daily populations, and the 
top three cover 74%. The same numbers for total minutes are 37% and 
79%, and for provider revenues including automated payment fees and 
paper bill fees are 37% and 80%.
    29. Table 2 presents each provider and the number of contracts 
it serves, lists the average daily population and total quantity of 
paid minutes delivered under those contracts, and provides the 
overall per-minute costs and per-minute revenues reported by each 
provider.

                                                  Table 2--Selected Statistics of Responding Providers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             Per-paid        Per-paid
                Provider                     Number of          ADP          ADP (% of     Paid minutes    Paid minutes     minute cost   minute revenue
                                             contracts                        total)        (millions)     (% of total)         ($)             ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
ATN.....................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
CenturyLink.............................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Correct.................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
CPC.....................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Crown...................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
GTL.....................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
ICSolutions.............................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Legacy..................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
NCIC....................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Pay Tel.................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]

[[Page 40738]]

 
Prodigy.................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Securus.................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry................................           2,900       2,238,732           100.0           7,790           100.0           0.092           0.096
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry (Excluding GTL)................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: Average daily population was reported for only 2,816 out of 2,900 contracts. Per-paid-minute costs equal reported total costs, excluding site
  commissions, divided by paid minutes. Per-paid minute revenues equal all reported calling revenues, including for automated payment and paper billing
  services, divided by paid minutes.

    30. Two noteworthy observations are offered by the foregoing 
table. First, because of the highly concentrated nature of supply, 
the data submitted by a few providers have a disproportionate effect 
on the total revenues and costs reported by the industry. For 
example, exclusion of GTL--see the last row--lowers the average cost 
per paid minute by nearly [REDACTED]. Second, GTL uniquely reports 
making losses on inmate calling services (with a per-paid minute 
cost of [REDACTED] compared to a per-paid minute revenue of 
[REDACTED]), and that loss is [REDACTED], being [REDACTED] of its 
reported costs. However, GTL's revenues likely represent an upper 
bound for its economic costs, given GTL's long-standing operation in 
the industry. In that case, its per-minute costs would be no more 
than [REDACTED].

E. Determining the Appropriate Cost Allocator

    31. Introduction. Traditionally, under cost-based regulation, 
regulators set rates for a regulated firm based on a cost-of-service 
study. A cost-of-service study measures a firm's total cost of 
providing regulated services using the firm's accounting data. The 
cost of doing business includes operating expenses (e.g., operating, 
maintenance and repair, and administrative expenses), depreciation 
expense (the loss of value of the firm's assets over time due to 
wear and tear and obsolescence), cost of capital (the cost incurred 
to finance the firm's assets with debt and equity capital), and 
income and other tax expenses. As part of this study, all of the 
firm's costs are directly assigned to or allocated among different 
jurisdictions and services. The results are referred to as fully 
distributed, or fully allocated, costs. Regulators typically 
establish a uniform system of accounts (USOA) and rules that specify 
how costs, are to be assigned or allocated, and these costs, direct 
assignments, and allocations are reflected in the cost-of-service 
study in accordance with these accounts and rules. For example, the 
Commission's USOA for rate-of-return incumbent local exchange 
carriers--a distinct set of carriers not at issue here--is set forth 
in Part 32 of the Commission's rules. Part 32 requires rate-of-
return incumbent local exchange carriers to disaggregate company-
wide cost data into 80 different accounts, including 49 balance 
sheet accounts, eight revenue accounts, 15 expense accounts, and 
eight other income accounts. The Commission's rules for separating 
regulated costs from nonregulated costs are set forth in Part 64 of 
the Commission's rules. Under these rules, the company-wide costs 
booked to Part 32 accounts are directly assigned to either regulated 
or nonregulated activities as feasible. The remaining costs are 
grouped into homogenous cost categories and then allocated based on 
the hierarchy of (1) direct analysis; (2) indirect, cost-causative 
links to another cost category for which direct assignment or 
attribution based on direct analysis is possible; or (3) a general 
allocator that reflects the ratio of all expenses directly assigned 
or attributed to regulated and nonregulated activities. The 
Commission's Part 36 rules set forth procedures for separating 
between intrastate and interstate jurisdictions the costs assigned 
or allocated to regulated activities under Part 64. The Commission's 
Part 69 rules set forth procedures for assigning to or allocating 
among different categories of interstate access services the costs 
assigned or allocated to regulated interstate services under Part 
36.
    32. In contrast to the traditional approach to cost-based 
ratemaking for industries that have a long history of rate 
regulation, its overall approach here is a relatively simple one 
that reduces the reporting burden on the industry but limits the 
degree to which a precise accounting of costs can be reflected in 
new interim provider-related rate caps. The Commission did not 
create a uniform system of accounts or a detailed set of cost 
accounting requirements for inmate calling services. Nor did it 
specify any complex set of rules for assigning or allocating inmate 
calling services costs to rate-regulated inmate calling services, 
nonregulated inmate calling services, and non-inmate calling 
services. The Commission also did not require providers to do a 
detailed cost-of-service study, although the FTI study of Securus's 
costs demonstrates the possibility of doing such a study in a 
credible way even without a detailed USOA or specific set of cost 
allocation rules. Securus gave FTI access to a highly disaggregated 
and comprehensive set of accounting data. As a result, FTI was able 
to distinguish among many different types of costs, develop more 
than 90 different cost allocators, and use these allocators to 
assign and allocate those different types of costs to inmate calling 
services subject to the rate caps or to services not subject to the 
rate caps, including services provided to prisons and jails (e.g., 
advanced and investigative services), and other non-inmate calling 
services to estimate Securus's fully distributed cost of providing 
inmate calling services.
    33. Providers, in response to the Second Mandatory Data 
Collection, aggregated various types of costs of supplying inmate 
calling services and reported a single number for each contract that 
reflects the aggregation of these costs. Any remaining costs not 
reported at the contract level were reported at the level of the 
firm. Costs directly attributable to the contract were not always 
allocated to the contract. For example, the only direct costs GTL 
reported at the contract level were those for bad debts, when many 
other costs would be contract specific. The reverse was also true. 
Costs that are not directly attributable to the contract level were 
sometimes reported as such. For example, CenturyLink allocated all 
of its costs down to the contract level. Costs that are not directly 
attributable to a contract and costs reported at the level of the 
provider, rather than contract, create a challenge: The Commission 
needs to allocate the various types of overhead costs among all of a 
provider's contacts as part of developing a cost-based rate cap, but 
the aggregation of these costs limits the Commission to a single 
allocation using a single one-size-fits-all allocator. The fact that 
some providers have categorized inmate calling services costs that 
almost certainly are attributable to a contract as overhead costs, 
rather than direct costs, and vice versa, further complicates the 
cost allocation problem. Different allocators for overhead costs 
produce materially different allocations and the Commission must 
choose the one that allocates these costs the best.
    34. To cap per-minute rates, the Commission seeks to identify 
commercially viable rates--rates which would cover the true direct 
costs of any contract and provide enough contribution to recover 
total costs across all contracts. If a provider is unable to recover 
its costs for a specific contract, it may seek a waiver. Given 
providers' accounting systems are designed to run their businesses, 
and that providers bid for contracts, for the purposes of analyzing 
various possible allocators the Commission accepts their reports of 
costs, overstatement and miscategorization issues aside, as being

[[Page 40739]]

largely accurate. That leaves the Commission with the need to 
identify rates which recover costs reported at the level of the 
contract (``reported direct costs'') and make appropriate 
contributions to the difference between reported total costs and the 
sum of the providers' reported direct costs (``reported 
overheads''). One approach to this is to allocate reported overheads 
to contracts using a cost allocator, and to then determine a per-
minute rate that would cover most contracts' fully allocated costs.
    35. The Commission's analysis leads it to choose total minutes 
as the cost allocator. The Commission begins by explaining the cost 
allocation problem, then show that the best cost allocator of seven 
considered is call minutes. Lastly, the Commission explains the 
record provides it with little support to cap prices on a basis 
other than a per-minute price cap, such as a per-call or per-person 
per-period price cap.
    36. Compensatory Rates and Cost Allocation. Putting aside the 
difficulties of interfirm comparisons, there is no clear rule for 
identifying a price for inmate calling services that covers costs 
directly attributable to a contract and makes a contribution to the 
recovery of any remaining costs not directly attributable to inmate 
calling services supplied under the contract, such that total costs 
are recovered. Under broadly accepted economic principles, where a 
firm provides a service under multiple contracts, prices for the 
service provided under each contract are compensatory if three 
conditions are met: (1) The price at least covers the contract's 
direct costs for inmate calling services, meaning recovery of the 
costs attributable to supplying these services under the contract; 
(2) the price does not recover more than the cost of providing 
inmate calling services on a standalone basis under the contract 
(i.e., the costs that would be incurred if these services alone were 
supplied under the contract, and no other contract were supplied); 
and (3) prices overall recover the firm's total costs, meaning 
recovery of the direct costs for inmate calling services under each 
contract and the reported costs that are not attributable to any one 
contract but were allocated to inmate calling services. Thus, for 
example, any costs shared among all the contracts would be 
attributable to the one contract. However, since many prices are 
consistent with these conditions, they fail to provide full guidance 
for price setting.
    37. Cost allocation is a standard, if imperfect, procedure used 
by regulators to develop cost-based prices for different services or 
customer groups where not all of a regulated firm's costs are 
attributable to a single service or customer group. Following a 
similar approach here, the Commission identifies a method to 
allocate providers' reported overheads to contracts, as these are 
the costs that providers did not attribute to contracts, and apply 
that method. The resulting cost allocation is then used to determine 
a cost-based price that would allow the provider to recover its 
contracts' reported direct costs while making a sufficient 
contribution to reported overheads such that total costs for all the 
contracts would be covered. The Commission considers seven 
approaches to allocating overheads, the six cost allocators analyzed 
in the 2020 ICS FNPRM--call minutes (i.e., minutes of use), number 
of calls, average daily population, revenues, contracts, and 
facilities--and, at the suggestion of commenters, direct costs. To 
do this, the Commission must identify the unit of sale for the 
service to be regulated and choose a cost allocator.
    38. In developing these allocators, the Commission allocates 
reported overheads to contracts, calculate the mean per-minute cost 
of a contract, the standard deviation relative to that mean, and 
then add the mean to the standard deviation following the approach 
in the 2020 ICS FNPRM. The Commission calculates a per-minute cost 
of a contract for each possible allocator by allocating reported 
overheads among each provider's contracts in proportion to the 
contracts' shares of the provider's total minutes, calls, average 
daily population, etc., and then divide the total cost of each 
contract by its quantity of paid minutes. Paid minutes are used as 
the divisor because those are the minutes that providers rely on to 
recover their costs. The Commission uses total minutes to allocate 
reported overhead costs rather than paid minutes, because costs are 
incurred to build sufficient capacity to provide all minutes, 
regardless of whether the minutes generate revenue. These results 
are reported in Table 3.

            Table 3--Means, Standard Deviations, and Implied Rate Caps Using Various Cost Allocators
----------------------------------------------------------------------------------------------------------------
                                                                                                   Implied  rate
                 Cost allocator                        Total           Mean          Standard       cap (mean +
                                                     contracts                       deviation      std. dev.)
----------------------------------------------------------------------------------------------------------------
Minutes.........................................           2,900          $0.093          $0.056          $0.149
Number of Calls.................................           2,900           0.116           0.092           0.208
ADP.............................................           2,804           0.789          10.325          11.114
Revenue.........................................           2,900           0.164           0.170           0.333
Contracts.......................................           2,900          18.499         300.136         318.636
Facilities......................................           2,900          16.485         287.199         303.685
Direct Costs....................................           2,125           0.228           2.189           2.417
----------------------------------------------------------------------------------------------------------------

    39. Choosing Minutes of Use as a Cost Allocator. In determining 
the appropriate allocator, the Commission recognizes concerns that 
if the Commission were to prefer the per-minute cost allocator due 
to the low variance in the resulting per-minute costs, there would 
be an element of circular reasoning in its decision. The Commission 
selects the cost per-minute allocator over the six other 
alternatives based on a range of reasons. The primary aim of a cost 
allocator is to find a reasonable way of attributing costs, in this 
case to contracts, that either cannot be directly attributed, such 
as true overheads, or that, while conceptually could be attributed 
to a specific contract, cannot be attributed based on how the 
providers' accounts are kept. Such an allocator must be likely to 
reflect cost causation and result in rates that demand can bear. 
Three primary reasons are not subject to the circularity critique: 
Data trustworthiness, availability of data, and consistency with 
reported revenues. Table 4 compares the seven cost allocators:

                                   Table 4--Cost Allocator Rate Cap, Implied Anomalous Contracts, and Total Contracts
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Implied  rate     Contracts with per-minute       Contracts with per-minute         Total
                                                          cap (mean per-   allocated costs greater than   provider revenues greater than     contracts
                                                              minute             implied rate cap           their per-minute allocated   ---------------
                     Cost allocator                       allocated cost --------------------------------              costs
                                                           + 1 standard                                  --------------------------------     Number
                                                            deviation)        Number          Percent         Number          Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
Minutes.................................................          $0.149             196             6.8           2,532            87.3           2,900
Number of Calls.........................................           0.208             245             8.4           2,358            81.3           2,900

[[Page 40740]]

 
ADP.....................................................          11.114              28             1.0           2,150            76.7           2,804
Revenue.................................................           0.333             254             8.8           2,290              79           2,900
Contracts...............................................         318.636              23             0.8             907            31.3           2,900
Facilities..............................................         303.685              20             0.7           1,000            34.5           2,900
Direct Costs............................................           2.417              12             0.6           1,735            81.6           2,125
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: The implied rate cap for each allocator is the sum of the mean of contract costs and 1 standard deviation of the contract cost distribution, as
  set forth in Table 3. The number of contracts with per-minute allocated cost greater than implied rate cap is calculated for each cost allocator by
  counting the contracts with a cost allocation that exceeds the implied rate cap. The corresponding percent column represents this number as a share
  over the number of contracts for which a cost allocation could be calculated (contract totals are reported in the last column). Per-minute provider
  revenues equal contract revenues from calling rates, plus automated payment fees and paper billing fees, less commissions divided by paid minutes. The
  number of contracts with per-minute provider revenues greater than their per-minute allocated cost is calculated by counting the contracts with per-
  minute revenues that exceed the contract's allocated costs. The corresponding percent column represents this number as a share over the number of
  contracts for which a cost allocation could be calculated.

    40. In Table 4, the second column reports the rate cap implied 
by each respective allocator. Only two of the potential allocators--
minutes of use and number of calls--produce results below the 
current cap of $0.021 per minute for prepaid and debit calls. In 
contrast, the implied rate caps for revenue, direct costs, average 
daily population, facilities, and contracts all suggest that 
interstate inmate calling services rates are presently unreasonably 
low. This disparity is one of the reasons the Commission finds that 
minutes of use and number of calls are the only plausible allocators 
among the available alternatives.
    41. In Table 4, the third and fourth columns (under the title 
``Contracts with per-minute allocated costs greater than implied 
rate cap'') report the number and percentage of contracts that would 
not recover the costs allocated to them if prices were set to the 
implied rate cap. Lower numbers in these columns indicate that the 
cost allocator minimizes the number of contracts with allocated 
costs above the cap.
    42. In Table 4, the fifth and sixth columns (under the title 
``Contracts with per-minute provider revenues greater than their 
per-minute allocated costs'') provide a measure of the extent the 
cost allocator is consistent with prices currently set by providers. 
These two columns, respectively, report the number and percentage of 
contracts that earn revenues that are greater than the allocated 
per-minute costs. If the cost allocation is consistent with 
commercial cost recovery in an industry found to be in need of rate 
regulation and otherwise thought to be in solid shape financially, 
then revenues from the contracts recorded in these columns would 
recover direct costs and contribute to the recovery of overhead 
costs, as these contracts are commercially viable. Thus, a cost 
allocator that is compensatory, if not overly so, would have numbers 
close to the total contract number, or 100%, in these columns. The 
smaller the entries in these columns are, the less plausible the 
cost allocator is.
    43. While no allocator is likely to pass these tests perfectly, 
the call minute cost allocator is the standout performer. The call 
minute cost allocator has the highest percentage, 87.3%, of 
contracts with revenues greater than their per-minute allocated cost 
(i.e., the greatest percentage of contracts that appear to recover 
direct costs and contribute to overhead cost recovery) consistent 
with actual commercial revenue recovery in a financially solid 
industry. Thus, it produces results most consistent with what is 
required to make a contract commercially viable.
    44. The call minute cost allocator also has the lower implied 
rate cap error rate, 6.8%, of the two plausible cost allocators, the 
other two being the number of calls. Simultaneously, it produces the 
lowest implied rate cap, $0.149, among all allocators. Thus, it is 
least likely to overcompensate providers, and, among plausible 
allocators, most likely to allow cost recovery.
    45. The only other allocator to come close to producing results 
consistent with what the Commission learns from observed contract 
revenues, and not appearing to over-compensate providers, is the 
number of calls allocator. There, the percentage of contracts with 
observed per-minute revenues greater than per-minute allocated costs 
is 81.3%--a percentage that is lower than that for the call minute 
allocator. The number of calls allocator has the second-lowest 
implied rate cap (behind the call minute cost allocator) at $0.208, 
with 8.4% of contracts with per-minute allocated costs that would 
exceed this rate cap. These values indicate that the call minute 
cost allocator is a superior choice to the number of calls 
allocator.
    46. Use of an average daily population allocator requires 
dropping 96 contracts, and providers in many instances had 
difficulties accurately reporting this number. While these facts 
alone are perhaps insufficient to eliminate average daily population 
as a cost allocator, they cast some doubt on its relative 
usefulness. Further, the average daily population allocator implies 
that only about three-fourths of all contracts recover their 
allocated cost at actual commercial rates, 10% points lower than the 
same number for the call minute allocator. The average daily 
population allocator also has an implied rate cap of $11.114. No 
credible contract in the data earns this much. There is an 
[REDACTED] contract [REDACTED] with per-minute revenues of $12.20. 
That contract has an average daily population of zero and only one 
reported paid minute in 2018. If the data recorded for that contract 
are not in error, then the contract is too unusual to be a good 
comparator. The next highest is an [REDACTED] contract for the 
[REDACTED]. It has an average daily population of 64, paid minutes 
of 3,335 or 52 minutes per incarcerated person per year, and per-
minute revenues of $8.99, followed by an [REDACTED] contract 
[REDACTED], which has an average daily population of 754, paid 
minutes of 1,272, or 1.7 minutes per incarcerated person per year, 
and per-minute revenues of $1.50. [REDACTED] contract has the 
highest per-minute revenues of larger jails, at $1.35. Its average 
daily population is 1,128, with 130,781 paid minutes, for 116 
minutes per incarcerated person per year. In contrast, the minutes 
per average daily incarcerated person for smaller jails is 3,671 and 
for all jails, 3,705. Thus, the [REDACTED] contracts appear peculiar 
with minutes per incarcerated person per year that are several 
orders of magnitude less than the smaller jail ratio. Further, if 
the allocator correctly assigns costs, then 28 or 1% of contacts 
earning $11.114 in revenues per minute implausibly would fail to 
recover costs. Based primarily on the commercial cost recovery 
mistake rate and implausibly high implied rate cap, the Commission 
concludes that average daily population is an unreasonable 
allocator.
    47. Although a revenue cost allocation key may be used for 
certain accounting purposes, a revenue key is inappropriate for 
regulatory purposes because revenue is not a cost driver. While 
costs can be expected to increase with quantity sold, revenues do 
not always increase with quantity sold, and this can lead to 
perverse effects. For example, in general quantity sold increases as 
price falls. Starting from a price where no sales are made, revenues 
also increase as prices fall. However, at some point as prices fall, 
revenues also begin to fall: The revenue gain from new sales made at 
the lower price is

[[Page 40741]]

smaller than the revenue loss incurred due to the lower price as 
applied to all purchases that would have been made at the higher 
price. In that circumstance, holding other things constant, a 
revenue cost allocator would allocate less cost to a contract with a 
greater sales volume, contrary to cost causation. This also means a 
revenue allocator might reinforce monopoly prices. The exercise of 
market power can result in higher revenues than would be earned in a 
competitive market. In that circumstance, holding other things 
constant, a revenue allocator would allocate more costs to 
monopolized services than competitive ones. The Commission does not 
need to determine whether ``[a]llocating costs based on revenue is a 
commonly-used accounting tool in business.'' What is relevant here 
is that it is inappropriate for the purpose of setting rates for the 
reasons the Commission gives. In addition, the revenue allocator 
scores worse than the call minute cost allocator on all of the 
performance measures. Most significantly, it produces a rate cap 
that is more than twice the call minute rate cap, while 
simultaneously indicating a higher percentage of contracts would not 
cover their costs at that rate cap. Given these concerns, the 
Commission eliminates revenue as a cost allocator.
    48. The contracts cost allocator has the lowest percentage of 
contracts with per-minute provider revenues greater than their per-
minute allocated cost, 31.3%, a percentage that is about one-third 
of the call minute cost allocator percentage, and that is 
inconsistent with actual commercial rates. In addition, the 
contracts cost allocator implied rate cap of $318.63 is disconnected 
from reality, being an order of magnitude higher than the highest 
per-minute revenues earned on any contract. For both these reasons, 
the Commission concludes that contracts are an unreasonable cost 
allocator.
    49. The facility data are poor with many providers failing to 
report the number of facilities under their contracts. In addition, 
a facility allocator has nearly the same problems as the contract 
allocator. Given these concerns, the Commission eliminates 
facilities as a cost allocator.
    50. The Commission eliminates direct costs as an allocator due 
to the lack of availability of data and concerns about the 
trustworthiness of the data. Because direct costs were not reported 
for certain contracts, the Commission has to drop 775, or more than 
a quarter, of its observations. This artificially increases the 
amount of indirect costs allocated to the remaining contracts. In 
addition, many providers took markedly different approaches to 
recording direct costs, meaning the direct cost allocator treats 
different providers very differently. For example, GTL only reports 
bad debt as direct costs, essentially rendering any allocation based 
on direct costs meaningless for an additional [REDACTED] of all 
contracts, which cover nearly [REDACTED] of incarcerated people. 
Further, the direct cost allocator allocates overhead costs such 
that 81.6% of the contracts have provider per-minute revenues from 
actual commercial rates that are greater than their per-minute 
allocated cost, a share lower than that of the per-minute allocator. 
The relative shares rather than absolute number of contracts must be 
compared because to develop the direct cost allocator requires 
dropping 876 observations for which no direct costs were reported. 
It also produces an implied rate cap of $2.417, an implausibly high 
cap given only two contracts currently earn per-minute revenues 
greater than this. Such a rate cap would unnecessarily allow 
substantial margins for most contracts. The Commission eliminates 
this allocator based on these concerns.
    51. The Commission concludes that a call-minute cost allocator 
remains the most reasonable choice for setting per-minute inmate 
calling services rate caps. A call minute cost allocator has the 
highest percentage of the contracts with provider per-minute 
revenues from actual commercial rates that are greater than their 
per-minute allocated cost, thus representing the allocator that most 
closely hews to commercial cost recovery as seen in supply. 
Consistent with this, its implied rate cap appears unlikely to 
significantly overcompensate providers on an interim basis, while 
ensuring commercial viability for most contracts.
    52. Subcontracts. Some providers subcontract some or all of 
their contracts to a second provider. In 2018, of CenturyLink's 
[REDACTED] calling services contracts, the Commission has data on 
[REDACTED] which were subcontracted. CenturyLink has [REDACTED] 
subcontracts with [REDACTED], but [REDACTED] did not report data for 
these contracts), and a [REDACTED] contract has no reported 
subcontractor. If the Commission were to remove all subcontractor 
overhead costs allocated to CenturyLink's contracts, the average 
per-minute cost of CenturyLink's contracts would decrease from 
[REDACTED]. If the Commission removed only half of the overhead, 
this would result in an average per-minute cost of [REDACTED]. While 
Crown employed NCIC as a subcontractor for all of its [REDACTED] 
contracts, the providers' data descriptions and justifications 
suggest there was no double counting. This raises the question of 
how to deal with overhead costs in the case of subcontractors. The 
Commission takes an approach that may double count some overhead 
costs, as the Commission cannot identify what fraction of the 
subcontractors' overhead costs are captured in what they charge the 
prime contractor.
    53. The reporting of costs for shared contracts varies by 
provider. Where the prime contractor only reported the cost of 
supplying the broadband connection on its contracts, while the 
subcontractor reported the costs of servicing the facilities 
(installation, maintenance, etc.), the Commission aggregated their 
costs. Because the reported costs represent the provision of 
different services, the Commission does not believe these contracts 
have costs that were double counted. Other providers operating as 
prime contractors reported all costs (including subcontractors' 
costs). Where the prime contractor's associated subcontractor did 
not file reports on the subcontracts, the Commission used the costs 
as reported by the prime contractor. However, where the associated 
subcontractors reported their costs, the Commission removed their 
direct costs to avoid counting them twice.
    54. The subcontracting filers were also the main inmate calling 
services suppliers on other contracts, raising the question of how 
to avoid double counting the allocation the Commission made for 
overhead costs for their subcontracts. Leaning toward overstating 
costs, a shared contract is allocated the overhead of both providers 
that report the contract. The two observations were then aggregated 
into one and placed under the name of the firm that is the primary 
contract holder.
    55. Inclusion of the overhead costs reported by the 
subcontractors overstates the cost recovering rate if, as is likely, 
they charge a markup over their direct costs. The markup would be 
part of the prime contractor's reported expenses, and to avoid 
double counting, the Commission would need to remove the markup from 
the calculations. The Commission cannot determine the amount of this 
markup, however. One approach would be to assume the markup matched 
the overhead cost allocation. In that case, the overhead costs of a 
subcontractor that are allocated to a subcontract would not be 
counted as they would be captured in the prime contractor's costs. 
However, if the markup exceeded this amount, the Commission would 
still be double counting costs, while if the markup was less than 
this amount, then the Commission would be understating costs. Table 
5 shows the impact of this adjustment.

     Table 5--Cost Allocator Rate Cap, Implied Anomalous Contracts, and Total Contracts Adjusted To Avoid Double Counting of Subcontractor Overheads
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Implied  rate     Contracts with per-minute       Contracts with per minute         Total
                                                          cap  (mean per-   allocated cost greater than   provider revenues greater than     contracts
                                                              minute             implied rate cap           their per-minute allocated   ---------------
                     Cost allocator                       allocated cost --------------------------------              cost
                                                           + 1 standard                                  --------------------------------     Number
                                                            deviation)        Number          Percent         Number          Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
Minutes.................................................          $0.149             194             6.7           2,540            87.6           2,900

[[Page 40742]]

 
Calls...................................................           0.208             244             8.4           2,360            81.4           2,900
ADP.....................................................          11.114              28             1.0           2,157            76.9           2,804
Revenue.................................................           0.334             250             8.6           2,304            79.4           2,900
Contracts...............................................         318.635              23             0.8             915            31.6           2,900
Facilities..............................................         303.684              20             0.7           1,009            34.8           2,900
Direct Costs............................................           2.417              12             0.6           1,735            81.6           2,125
--------------------------------------------------------------------------------------------------------------------------------------------------------

    56. Table 5, when compared with Table 4, shows the impact of 
assuming that the markup matches the overhead cost calculation on 
the implied rate caps of the seven possible cost allocators to be 
small. Specifically, for the per-minute cost allocator, the implied 
rate remains the same, the number of contracts with a per-minute 
allocated cost greater than the implied rate cap decreases from 196 
to 194, and the percentage of contracts where the per-minute 
revenues are greater than per-minute allocated costs increases from 
87.3% to 87.6%. This analysis of the adjusted data reinforces the 
finding above that a call minute cost allocator remains the most 
reasonable choice for setting per-minute inmate calling services 
rate caps.
    57. Rejecting Alternative Allocation Approaches Proposed in the 
Record. With sufficient record evidence, the Commission would 
simultaneously identify the unit of sale for the service to price 
and choose a cost allocator. Commenters explain with some merit that 
when considering allocators other than costs per minute, the 
Commission should not rule out those allocators by considering only 
the implied cost-per-minute estimates those allocators produce. 
Instead, the Commission also should examine the costs and implied 
prices using the cost allocator as the unit of account. For example, 
if the Commission allocates costs by average daily population, the 
Commission should not divide these by minutes, producing a per-
minute rate, to consider whether an average daily population 
allocator is sensible. Instead, the Commission should consider the 
resulting distribution of costs per incarcerated person per day. The 
chief line of reasoning for focusing on cost expressed in the same 
unit of account as the allocator is that to do otherwise 
mathematically favors the chosen unit of account. A per-minute cost 
allocator can be expected to produce per-minute costs with less 
variance than, for example, an average daily population allocator 
with costs also expressed per minute. The reverse also holds. An 
average daily population allocator can be expected to produce per 
person costs with less variance than if costs are allocated per 
person and then expressed per minute.
    58. The Commission does not dispute the accuracy of this 
critique. However, the record provides no real guidance as to how 
the Commission would regulate prices using a call, average daily 
population, revenue, contract, facility cost, or direct cost 
allocator. For example, minimizing the variance of cost estimates 
for a call allocator would require estimating per-call costs, not 
per-minute costs. This would result in a cap on call prices of 
$11.10, regardless of whether the call lasted a minute or an hour. 
Across all contracts, the mean per-call rate is $2.754, with a 
standard deviation of $8.341, which sum to $11.095. A 15-minute call 
would cost $ 0.74 per minute. Thus, a 30-second call, say, to reach 
voice mail, could be charged $11.10, the same charge as would apply 
for a 30-minute call or even an hour-long call. However, there is 
essentially no discussion of the implications of taking such an 
approach in the record. Additionally, a per-call price of $11.10 
does not result in a per-minute rate of less than the current 
prepaid cap of $0.21 until the 53rd minute of the call ($11.10/53 = 
$0.209 per minute). This alone is sufficient to rule out this 
approach.
    59. Allocating costs using average daily population, and then 
applying a per-person cap set to the contract mean plus one standard 
deviation would result in a cap of $437.38 per person per year. 
Across all contracts, the mean per-average daily population rate is 
$281.159, with a standard deviation of $156.220, which sum to 
$437.379. Operationalizing an average daily population allocator to 
minimize variance would require setting per-person per-period 
charges for two reasons. First, it would be inequitable to charge 
the many people who can spend only a few hours or days incarcerated 
the same as what is charged someone who spends much longer. Second, 
since average daily population is not the same as the number of 
people who are admitted to a facility in a year, an annual rate 
applied to people who are incarcerated for shorter periods would 
grossly over recover costs. Consider a jail with an average daily 
population of 10. The $437.38 cap is intended to bring annual 
revenues of $4,373.80. But if the jail houses ten new people every 
two weeks, and each new group of ten also brings in annual revenues 
of $4,373.80, then the total revenues for the year will be 26 times 
that amount. The problem is avoided by charging each person a 
fraction of the $437.38 where that fraction equals the fraction of 
the year they are incarcerated. Thus, a cap would have to be applied 
for a relatively short time period. A daily cap would be equal to 
$1.20 (= $437.38/365.25) per person, and would apply day in and day 
out, whether the incarcerated person made any calls that day or not. 
This would make calling cheaper for those with high demand, but more 
expensive for those with low demand. If incarcerated persons were 
allowed to opt out on a daily basis, the daily charge would have to 
be increased to ensure cost recovery for providers. For example, if 
everyone were to opt out for 50% of their days, then the rate would 
have to double. However, the record provides no basis that could be 
used to determine the appropriate rate if occasional opting out were 
allowed. The record provides almost no support for any of this.
    60. The record provides even less guidance as to how the 
Commission would regulate prices if a revenue, contract, facility, 
or direct cost allocator were used, but a per-minute rate cap was 
not set. Price cannot be set per dollar of revenue or per contract 
or per facility or per dollar of direct cost without specifying some 
unit relevant to an incarcerated person. The only approach with a 
solid basis in the record is a per-minute rate.
    61. Applying the Per-Minute Allocator. The Commission defines 
the upper bound as the mean plus one standard deviation of per-
minute contract costs, separately for prisons and larger jails. For 
prisons, the upper bound is $0.133, and for larger jails, the upper 
bound is $0.218. These estimates rely on providers' reported costs 
in the Second Mandatory Data Collection, with minimal corrections 
for anomalies and indirect costs allocated among each provider's 
contracts using a per-minute cost allocator. Including one standard 
deviation in the upper bound recognizes that providers' costs vary. 
The Commission presents the upper bound estimates in Table 6 below.

[[Page 40743]]

[GRAPHIC] [TIFF OMITTED] TR28JY21.001

    62. The Commission finds these upper bounds likely overstate 
providers' inmate calling services costs for several reasons. First, 
providers have some incentive to overstate their costs because 
higher costs would lead to higher interstate rate caps and higher 
profits. Second, a lack of specificity in the Instructions for the 
Second Mandatory Data Collection, particularly those related to how 
providers should account for indirect costs, permitted providers to 
inflate reported costs further. These factors shift costs upward, 
resulting in higher upper bounds than would result with more 
accurate data. These costs are further overstated because of the 
treatment of costs shared between contractors and subcontractors.

F. Assessing and Ensuring the Commercial Viability Under the New 
Interim Interstate Provider-Related Rate Caps

    63. In the Report and Order, the Commission sets new interim 
interstate provider-related rate caps of $0.12 per minute for 
prisons and $0.14 per minute for larger jails, respectively. To help 
evaluate the reasonableness of those caps, the Commission considers 
the commercial viability of contracts under the selected interim 
rate caps compared to revenues reported by providers in the Second 
Mandatory Data Collection.
    64. The Commission first compares revenues and costs by provider 
in 2018, and then consider what would happen to revenues under 
interim provider-related rate caps of $0.12 per minute for prisons 
and $0.14 per minute for larger jails. In the first instance, the 
Commission takes a straightforward, but simplistic approach using 
minutes of use as the allocator. The Commission holds call minutes, 
automated payment revenues, and paper billing revenues constant and 
project that those new interim caps would allow providers to recover 
their allocated costs for 71% of their prison contracts and 99% of 
their contracts for larger jails. To test the robustness of this 
analysis, the Commission then determines the percentage of prison, 
and separately larger jail, contracts for which the new interim caps 
would allow providers to recover the revenues they earned in 2018. 
The Commission finds the percentages to be 74% for prisons and 65% 
for larger jails. The Commission's examination of the remaining 
contracts shows that they, on average, have lower per-minute costs 
than the contracts under which providers would recover their 2018 
revenues, and thus all of the contracts are also likely to be viable 
under the new interim rate caps. Lastly, recognizing that revenues 
in 2018 represent an upper bound on costs, and allowing call volumes 
to expand because the new interim caps will lower prices to 
incarcerated persons (leading to more call minutes), the Commission 
finds that 77% of prison and 73% of larger jail contracts are 
projected to recover costs consistent with the revenues earned on 
each contract in 2018. Each of these estimates, except for the 
estimate that all contracts will be viable under the new interim 
rate caps, are conservative.
    65. Comparing Reported Revenues and Costs. Table 7 shows the 
following for each provider and for the industry as a whole: Inmate 
calling revenues, which include amounts collected to pay site 
commissions; automated payment revenues; paper billing and account 
revenues; the sum of the preceding three types of revenues; inmate 
calling services costs, which for this purpose include site 
commissions; and profits defined as the difference between those 
summed revenues and inmate calling costs. Thus, profit nets out site 
commissions. Again, only [REDACTED] fails to recover its reported 
costs, incurring a surprisingly large [REDACTED] loss of [REDACTED] 
million on its inmate calling services operations, even when its 
revenues from ancillary service charges are included in its revenue 
total. That [REDACTED] reports losses despite being the winning 
bidder on [REDACTED] contracts, the industry's largest provider by 
most measures, and one of the industry's most sophisticated 
providers, suggests [REDACTED] revenues may be a more accurate 
estimate of its costs than are its reported costs.

                          Table 7--Inmate Calling Services Revenues and Costs Inclusive of Site Commissions by Provider in 2018
                                                                    [in $ thousands]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                        Provider                           ICS revenues    APF revenues    PBF revenues   Total revenues    Total costs       Profits
--------------------------------------------------------------------------------------------------------------------------------------------------------
ATN.....................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
CenturyLink.............................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Correct.................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
CPC.....................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Crown...................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
GTL.....................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
ICSolutions.............................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Legacy..................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
NCIC....................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Pay Tel.................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Prodigy.................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Securus.................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry................................................       1,093,192         115,757             410       1,209,359       1,181,611          27,748
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: ``APF'' means automated payment fee, and ``PBF'' means paper billing fee.

    66. Table 8 shows the following for each provider, and across 
all providers, split by prisons and larger jails: Number of 
contracts; contract shares; the contract mean for total revenues per 
paid minute (that is, the mean for the sum of inmate calling 
revenues, including amounts collected to pay site commissions, plus 
automated payment revenues and paper billing revenues, all divided 
by paid minutes for each of the 2,900 contracts); the contract mean 
of costs per paid minute, again including site commissions; the 
contract difference per paid minute between the preceding (profit), 
which nets out site commissions; and the contract mean of direct 
costs per paid minute, excluding site commissions. In 2018, for 
prisons, both [REDACTED] and [REDACTED] on average incurred losses 
(i.e., had per-minute costs exceeding their per-minute revenues); 
and, for larger jails, only [REDACTED] on average incurred such 
losses. This may be due, in part, to these providers bidding overly 
aggressively for some contracts and to the cost allocation approach 
being unable to reliably allocate indirect costs for as many as 
12.7% of

[[Page 40744]]

contracts, due to limitations of the reported cost data. 
Additionally, at least three of the direct cost per-minute entries 
are misleading: Two carriers, [REDACTED] and [REDACTED], report zero 
direct costs, while GTL only reports bad debt as a direct cost. 
These three providers almost certainly have substantially larger 
direct costs and hence substantially larger direct costs per minute.

           Table 8--Inmate Calling Services Per-Minute Revenues and Costs Inclusive of Site Commissions by Provider and Facility Type in 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Average  per-   Average  per-   Average  per-   Average  per-
               Firm                         Type             Number of     Percent share      minute       minute  costs      minute      minute  direct
                                                             contracts     of contracts    revenues ($)         ($)         profits ($)      costs ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
ATN...............................  Larger Jail.........      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
CenturyLink.......................  Larger Jail.........      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Correct...........................  Larger Jail.........      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
CPC...............................  Larger Jail.........      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
GTL...............................  Larger Jail.........      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
ICSolutions.......................  Larger Jail.........      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Legacy............................  Larger Jail.........      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
NCIC..............................  Larger Jail.........      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Pay Tel...........................  Larger Jail.........      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Securus...........................  Larger Jail.........      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry..........................  Larger Jail.........             182             100           0.247           0.218           0.029           0.026
--------------------------------------------------------------------------------------------------------------------------------------------------------
CenturyLink.......................  Prison..............      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
GTL...............................  Prison..............      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
ICSolutions.......................  Prison..............      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Legacy............................  Prison..............      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
NCIC..............................  Prison..............      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Securus...........................  Prison..............      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry..........................  Prison..............             129             100           0.148           0.137           0.011           0.010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: Direct costs are costs, excluding site commissions, recorded at the contract level in the Second
Mandatory Data Collection responses. Averages are calculated across contracts.

    67. Recovery of Allocated Costs Under the New Interim Provider-
Related Rate Caps. The Commission estimates the inmate calling 
services revenues that providers would have earned in 2018 under the 
new interim caps, assuming no change in minute volumes. Table 9 
presents the number and percentage of contracts for which these 
estimated inmate calling services revenues would exceed allocated 
costs or would exceed reported direct costs, first excluding 
automated payment and paper billing revenues, and second including 
these revenues (referred to as ancillary revenues in the table). The 
number of [REDACTED] and GTL contracts that cover direct costs as 
reported in the third-to-last and last columns are overstated 
because [REDACTED] did not record any direct costs, and GTL only 
recorded bad debt. On this basis, the Commission finds that 
providers would recover their allocated costs under 71% of prison 
contracts. All of the other [REDACTED] prison contracts are 
contracts [REDACTED] held in 2018. Based on its reported costs, 
[REDACTED] would incur per-minute losses ranging from [REDACTED] to 
[REDACTED] with a median loss of [REDACTED] per minute. If automated 
payment and paper billing fees are excluded, [REDACTED] contracts 
would have per-minute costs above the $0.12 interim cap, ranging 
from [REDACTED] to [REDACTED]. Of these contracts, all held by 
[REDACTED], [REDACTED] have per-minute revenues of less than $0.12. 
Providers would recover their allocated costs under 99% of larger 
jail contracts. The other 1% (or two contracts) were contracts 
[REDACTED] and [REDACTED] held in 2018. Based on their reported 
costs, these providers would incur per-minute losses of [REDACTED] 
and [REDACTED], respectively. If automated payment and paper billing 
fees are excluded, [REDACTED] contracts would have per-minute costs 
above the $0.14 interim cap, ranging from [REDACTED] to [REDACTED]. 
Of these [REDACTED] contracts, [REDACTED] were allocated per-minute 
costs below [REDACTED]. All [REDACTED] contracts with per-minute 
costs above [REDACTED] reported revenues below their allocated 
costs. The 71% and 99% figures are likely underestimates for several 
reasons: many providers' reported costs may be overstated; the full 
range of ancillary fees that contribute toward recovering inmate 
calling services costs may not be reported, while some costs 
associated with these may be included in inmate calling services 
costs; some contracts where subcontracting occurs likely double 
count costs; and minutes of use may over-allocate costs to certain 
contracts. Revenues from automated payment fees and paper billing 
fees alone covered the costs of five, or 3%, of larger jail 
contracts in 2018. The importance of these revenues is shown in 
Table 9 when comparing total costs covered by project revenues with 
and without ancillary revenues, as the overall industry costs 
covered increases from 92% (without) to 99% (with).

[[Page 40745]]

[GRAPHIC] [TIFF OMITTED] TR28JY21.002

    68. Contracts with Per-Minute Revenues Under the New Interim 
Caps. The preceding analysis relied on the cost allocation to 
conservatively determine the fraction of contracts that are viable 
under the new interim interstate provider-related rate caps. 
However, the cost allocation approach in some instances is not 
perfect. For example, the cost allocation approach suggests that 
12.7% of current contracts are loss-making, implausibly implying 
providers in all those cases made mistaken bids. An alternative 
approach to determining the fraction of the contracts that are 
viable under the new interim caps is to examine the fraction of 
contracts that would recover at least the same revenues as they 
would in 2018. The Commission finds 74% of prison contracts and 65% 
of larger jail contracts satisfy this condition. And, when the 
Commission examines the remaining contracts, the Commission finds 
they are on average likely to have lower costs than the contracts 
that would recover at least the same revenues, and thus are also 
likely to be viable. Separately, comparing revenues of the remaining 
contracts to allocated costs

[[Page 40746]]

suggests 81% of prison and 96% of larger jail contracts cover costs.
    69. Prison Contracts with Revenues Under the New Interim Caps. 
Revenue analysis shows that the bulk of prisons likely would be 
commercially viable at rates capped at $0.12 per minute (i.e., the 
contracts have per-minute costs less than the cap after allowing for 
a possible $0.02 per minute site commission allowance). In 2018, 
approximately 74% of prisons had per-minute revenues net of 
commissions of less than $0.12 per minute (hereinafter ``low per-
minute revenue prisons''). The Commission's new interim caps should 
not impact these contracts. Further, these contracts, with rare 
exceptions, should be commercially viable. If that were not the 
case, providers would not have voluntarily accepted such contracts. 
That result is all the more probable since providers may supplement 
their call revenues through automated payment and paper billing fees 
not accounted for in capping rates received by providers at $0.12 
per minute. While the revenue analysis includes revenues from 
automated payment and paper billing fees, the rate caps only apply 
to calling fees. Thus, providers can earn additional revenues 
through automated payment and paper billing fees. The remaining 26% 
of prisons have revenues, net of commissions, that are greater than 
or equal to $0.12 per minute (hereinafter ``high per-minute revenue 
prisons''). Thus, the new interim caps will potentially affect cost 
recovery for these prisons.
    70. Table 10 compares high and low per-minute revenue prison 
contracts. For both sets of prison contracts, the Table gives the 
mean value for seven contract characteristics, as well the p-value 
from a two-sided difference in means statistical test--with a lower 
p-value indicating a lower likelihood that the difference in the two 
means is due to random error. For example, a p-value of 0.05 says 
that if the two means were the result of samples from two identical 
populations, that outcome would only be observed in 5% of cases. 
Apart from the variables Total Revenue Per Minute and Revenue Minus 
Commission Per Minute, each of the variables included is likely to 
be related to a contract's costs. The difference in means between 
the two groups for the five plausible cost-determining variables is 
not statistically significant at the 95% confidence level, except 
for minutes, which should cause the low per-minute revenue contracts 
to have higher, not lower, costs. The similarities along cost-
determinative characteristics suggest that to the extent that a 
$0.12 per-minute rate cap is viable for low per-minute revenue 
prisons, it should also be viable for high per-minute revenue 
prisons. Commissions per minute may be a proxy for differences in 
contract regulatory environments--for example, correctional 
authorities that seek high site commissions may have other common 
characteristics that influence costs, including other services they 
require under an inmate calling services contract. The Commission 
places less weight on the facility data given that the providers 
acknowledged they had limited abilities to accurately report such 
data. Revenues per minute and revenues net of commission per minute 
are statistically higher for the high per-minute revenue contracts 
since the Commission defined the groups by whether they had lower or 
higher per-minute revenues. In any case, revenues do not, 
independent of minutes, cause costs, and the Commission controls for 
minutes.

                       Table 10--Mean Characteristics for Prison Contracts by Revenue Type
----------------------------------------------------------------------------------------------------------------
                                                                                                    P-Value for
                                                                     High per-    Low per-minute     two-sided
                                                                  minute revenue      revenue      difference in
                                                                     contracts       contracts      means test
----------------------------------------------------------------------------------------------------------------
Total Revenue Per Minute........................................           $0.24           $0.12            0.00
Commission Per Minute...........................................           $0.04           $0.05            0.54
Revenue Minus Commission Per Minute.............................           $0.20           $0.07            0.00
Facilities Per Contract.........................................            1.91            5.39            0.21
Average Daily Population........................................           6,665          12,018            0.20
Contract Includes Urban Facilities..............................            0.32            0.49            0.09
Minutes.........................................................      15,482,499      41,681,215            0.05
Observations....................................................              34              95  ..............
----------------------------------------------------------------------------------------------------------------

    71. An alternative method to analyze whether a $0.12 per minute 
cap for prisons is commercially viable is to consider the per-minute 
cost allocation associated with the high per-minute revenue prison 
contracts. As before, 74% of prisons could be expected to recover 
costs since their revenues are already below $0.12. Of the remaining 
26%, which the Commission labeled high per-minute revenue prisons, 
27% have allocated per-minute costs below $0.12. Of all the high 
per-minute revenue prisons, nine contracts had costs less than $0.12 
per minute and 25 contracts had costs greater than or equal to $0.12 
per minute. This suggests that 81% (= 74% + (26% * 27%)) of all 
prison contracts could cover their costs with a rate of $0.12. To 
the extent that the providers' unaudited costs are overstated, or 
that unit costs will fall as reduced rates expand call volumes, this 
number would be higher.
    72. Contracts for Larger Jails with Revenues Under the New 
Interim Caps. Revenue analysis shows the bulk of larger jail 
contracts are likely to have per-minute costs less than the interim 
cap of $0.14 per minute and would therefore be commercially viable 
at that capped rate. In 2018, approximately 65% of contracts for 
larger jails had per-minute revenues net of commissions of less than 
$0.14 per minute (hereinafter ``low per-minute revenue jails''). The 
Commission's new interim caps should not impact these contracts. 
Further, these contracts, with rare exceptions, should be 
commercially viable. If that were not the case, providers would not 
have voluntarily accepted such contracts. That result is all the 
more probable since providers may supplement their call revenues 
through automated payment and paper billing fees not accounted for 
in capping rates at $0.14 per minute. The remaining 35% of larger 
jails have revenues, net of commissions, which are greater than or 
equal to $0.14 per minute (hereinafter ``high per-minute revenue 
jails'').
    73. The Commission finds that cost-determinative characteristics 
for high per-minute revenue jails are similar to those for low per-
minute revenue jails. This implies a $0.14 per minute rate cap would 
ensure the vast majority of contracts for larger jails are viable. 
Table 11 compares cost-determinative characteristics between high 
and low per-minute contracts. A lower p-value indicates a lower 
likelihood that the difference in the two means is due to random 
error. The difference in means between the two groups for the listed 
plausible cost-determinative variables are not statistically 
different at the 95% confidence level.

[[Page 40747]]



                    Table 11--Mean Characteristics for Larger Jail Contracts by Revenue Type
----------------------------------------------------------------------------------------------------------------
                                                                                                    P-Value for
                                                                     High per-    Low per-minute     two-sided
                                                                  minute revenue      revenue      difference in
                                                                     contract        contract       means test
----------------------------------------------------------------------------------------------------------------
Total Revenue Per Minute........................................           $0.34           $0.19            0.00
Commission Per Minute...........................................           $0.13           $0.11            0.26
Revenue Minus Commission Per Minute.............................           $0.22           $0.08            0.00
Facilities Per Contract.........................................            1.88            1.85            0.94
Average Daily Population........................................           2,215           2,447            0.60
Contract Includes Urban Facilities..............................            0.84            0.85            0.95
Minutes.........................................................       7,883,827      10,895,979            0.06
Observations....................................................              64             118  ..............
----------------------------------------------------------------------------------------------------------------

    74. An alternative method to analyze whether a $0.14 per minute 
cap for larger jails is commercially viable is to consider the per-
minute cost allocation associated with the high per-minute revenue 
contracts. Doing this suggests at least 96% of contracts for larger 
jails would likely recover their costs at a rate cap of $0.14 per 
minute. As before, 65% of contracts for low per-minute revenue jails 
could be expected to recover costs since their revenues are already 
below $0.14. Of the remaining 35%, 89% have allocated per-minute 
costs less than $0.14. Of all the high per-minute revenue jails, 57 
had costs less than $0.14 per minute, and 7 had costs greater than 
or equal to $0.14 per minute. This suggests that 96% (= 65% + (35% * 
89%)) of all larger jail contracts could cover their costs with a 
rate of $0.14. Again, to the extent that the providers' unaudited 
costs are overstated, or that unit costs will fall as reduced rates 
expand call volumes, this number would be higher. For example, 47% 
of the contracts for low per-minute revenue jails have allocated 
costs in excess of their revenues per minute, indicating that 
allocated costs are an imperfect measure.
    75. Contract Viability Allowing for Call Volume Adjustment. The 
Commission's previous revenue analysis showed that 74% of prison and 
65% of larger jail contracts are already operating under the new 
interim caps according to reported data. Since these contracts were 
likely to have been commercially viable prior to this Report and 
Order, they should still be so after the new interim caps take 
effect. Further, some of the remaining contracts would still be 
commercially viable under the new interim rate caps, because lower 
prices will lead incarcerated persons to increase time spent on the 
telephone, which in this industry will reduce per-minute costs. The 
Commission conservatively estimates that when the increase in demand 
due to lower end-user prices is accounted for, 77% of prison and 73% 
of larger jail contracts will earn per-minute revenues that cover 
their implied costs. These estimates take no account of the various 
factors discussed above that imply an even higher percentage of 
contracts would be commercially viable. For example, these numbers 
are understated to the extent that: (i) The providers' revenues are 
an overstatement of their costs; (ii) the elasticity estimates are 
understated; and (iii) estimates of the cost of an additional minute 
are overstated. Relatedly, GTL also argues that any reduced rates 
faced by incarcerated people as a result of the Commission's 
proposed caps would not lead to increased call volume. The 
Commission is unconvinced, and the record suggests otherwise. GTL 
has itself refuted this position in other submissions. While 
incarceration authorities sometimes place tight restrictions on call 
frequency and length, there is ample evidence in the record that 
lower prices result in greater call minutes, because high prices do 
more to discourage calling than these restrictions do. Further, 
economic theory echoes the record evidence, and predicts that 
providers will increase output when a price cap lowers their rates 
as long as the additional revenue exceeds any corresponding increase 
in costs. Here, not only do current per-minute rates exceed per-
minute costs, but they exceed the per-minute costs of supplying 
additional minutes by a wide margin; thus, a rational provider will 
find it profitable to increase its output.
    76. To obtain these estimates, the Commission uses inmate 
calling service revenues plus revenues for automated payment and 
paper billing fees net of site commissions divided by paid minutes 
as a proxy for contract rates. The Commission then assumes that each 
prison and larger jail contract with rates as just defined above the 
new caps recovers, through those rates, its direct costs and makes 
any necessary contribution to overheads to account for costs 
associated with the provision of inmate calling services, but earns 
no more than that. This is conservative, as providers could earn 
more than that, but are unlikely to systematically earn less than 
that, since that would imply they are overall making losses. 
However, even making this ``break-even'' assumption, the new interim 
caps could still allow providers to recover their costs under these 
contracts. This is because the new caps will lead to increased 
inmate calling, allowing providers to spread relatively high fixed 
costs over more minutes. Inmate calling services have high fixed 
costs (e.g., installation of secure telephone equipment), and low 
additional costs for each minute of inmate telephone use.
    77. For example, consider a hypothetical larger jail inmate 
calling services contract, voluntarily entered into, that charges 
incarcerated people $0.25 per minute with a $0.10 per minute site 
commission. Assume further that this results in 1,000 calling 
minutes. The provider would earn $150 (= ($0.25-$0.10) * 1,000) in 
revenue and, given the contract's voluntary nature, the contract 
would presumably be commercially viable. Now suppose the provider 
lowered rates to be consistent with the new interim caps, charging 
$0.16, with the provider receiving $0.14 and with $0.02 for site 
commissions. Suppose further, at the lower price of $0.16 per 
minute, incarcerated people increase their calling minutes from 
1,000 to 1,132 total minutes. This assumes a demand elasticity of 
0.3, as provided in the following paragraph. Thus, a 44% (= 0.25-
0.16/(0.25 + 0.16)/2) decline in price leads to 13.2% (= 44% * 0.3) 
increase in call minutes. This would generate revenues for the 
provider of $158.48 (= 1,132 * $0.14) compared with the revenues of 
$150 earned at a $0.25 per minute rate with $0.10 per minute in site 
commission payments. If, at the same time, each additional minute 
costs the provider $0.01, and the provider was originally breaking 
even, then the provider's costs would rise from $150 to $151.32 (= 
$150 + (132 * $0.01)), implying per-minute costs of approximately 
$0.134 (= $151.32/1,132), less than the original per-minute costs of 
$0.15 (= $150/1,000). Thus, the provider would earn $7.16 (= 
$158.48-$151.32) more than in the original situation. If supply for 
this contract were competitive, then the provider winning the bid 
for this contract would require a price of just below $0.154 per 
minute (= $0.02 + ($151.32/1,132)).
    78. In connection with the preceding example, the Commission 
estimated the call-minute volumes that would result for each 
contract that in 2018 had per-minute revenues greater than those 
allowed under the new caps, assuming a demand elasticity of 0.3. 
This is the low end of the inmate calling services elasticities 
found in the record. Using those projected call volumes, and 
assuming a generous additional or incremental per-minute cost of 
$0.01, the Commission found 77% of prison and 73% of larger jail 
contracts would recover as much as they had at the lower 2018 
volumes plus enough to cover their additional per-minute costs. Many 
direct costs are independent of the need to carry additional call 
minutes. For example, the cost of each additional telephone 
installed at a facility would be a direct cost of the facility and 
is independent of how many call minutes originate from that 
telephone. Thus, the cost of $0.01 per additional minute assumed 
here is therefore a very conservative estimate of the cost of an 
additional call minute. For example, [REDACTED] operated two 
contracts at rates

[[Page 40748]]

of $0.009 and $0.0119--suggesting that under these rates the 
provider can cover the marginal cost of a minute of calling as well 
as cover their fixed costs. Similarly, six contracts in the Second 
Mandatory Data Collection report providers earning per-minute rates 
net of site commissions of less than $0.01, including the [REDACTED] 
contract for the [REDACTED]. Indeed, the cost of an additional 
minute may be de minimis, with the cost of both originating and 
terminating a call being near zero. Thus, a material majority of 
contracts would be able to recover their costs under the new interim 
rate caps. Given that the estimates presented here are based on the 
upper bound of costs for a contract, that the Commission leaned 
toward understating demand responsiveness, the true share of 
contracts that are cost-covering is likely larger.

Appendix B

Sensitivity Testing: Additional Statistical Analysis of Cost Data

    1. The Commission analyzes inmate calling services providers' 
responses to the Second Mandatory Data Collection to determine 
whether certain characteristics of inmate calling services contracts 
can be shown to have a meaningful association with contract costs on 
a per-minute basis, as reported by the providers. In this Appendix, 
the Commission frequently refers to inmate calling services 
providers by short names or acronyms. These providers are: ATN, Inc. 
(ATN); CenturyLink Public Communications, Inc. (CenturyLink); 
Correct Solutions, LLC (Correct); Combined Public Communications 
(CPC); Crown Correctional Telephone, Inc. (Crown); Global Tel*Link 
Corporation (GTL); ICSolutions, LLC (ICSolutions); Legacy Long 
Distance International, Inc. (Legacy); NCIC Inmate Communications 
(NCIC); Pay Tel Communications, Inc. (Pay Tel); Prodigy Solutions, 
Inc. (Prodigy); and Securus Technologies, LLC (Securus). The 
Commission previously performed this analysis in Appendix B of the 
2020 ICS FNPRM. That analysis found that provider identity and the 
state a facility is located in were by far the most important 
predictors of a contract's per-minute costs. It also found that 
other facility and contract variables, such as the average daily 
populations of the facilities covered by the contract, the type of 
those facilities (prison or jail), and the rurality of the 
facilities, had virtually no additional predictive power. In 
comments submitted to the Commission, the finding that per-minute 
costs were not significantly impacted by facility size and type was 
criticized. This Appendix repeats the analysis from Appendix B of 
the 2020 ICS FNPRM using updated data.
    2. To perform the analysis, the Commission uses a recognized 
statistical method named least absolute shrinkage and selection 
operator (Lasso) to identify which, if any, variables serve as 
accurate predictors of per-minute contract costs for calling 
services. This method identifies predictors of an outcome variable--
in the case the logarithm of costs per minute--by trading off the 
goodness of fit against the complexity of the model, as measured by 
the number of predictors. As used here, the Lasso model seeks to 
identify factors that are predictive of an inmate calling service 
provider's costs per minute, balancing a number of competing 
considerations. Lasso is especially useful in situations like this 
where many variables, and interactions among those variables, can 
potentially predict outcomes. Given that the Commission is 
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, and estimating the effects of all variables on costs via more 
traditional methods (such as linear regression) is infeasible. In 
the Lasso model, the Commission finds the main predictors of costs 
per minute to be provider identity and the state where the 
contract's facilities are located. The Commission also finds that 
facility type (whether the facility is a prison or jail) is a 
predictor of costs per minute, although not as strong as provider 
identity and state. Finally, the Commission finds that a wide range 
of other variables have less, or essentially no, predictive power.
    3. The Commission chooses the inmate calling services contract 
as the unit of observation for the analysis for two reasons. First, 
providers bid for contracts rather than separately bidding for each 
individual facility, which indicates that commercial decisions are 
made at the contract level. Second, many contracts cover more than 
one facility, but several providers did not report data on those 
facilities separately, which precludes any meaningful analysis at 
the facility level. As in Appendix A, jails with average daily 
populations of less than 1,000 are included in the totals to ensure 
that the sensitivity analysis is comprehensive among the total 
dataset of 2,900 contracts. But, because the Commission does not 
address jails with average daily populations of less than 1,000 in 
the Report and Order for purposes of arriving at revised interim 
rate caps based on the Second Mandatory Data Collection, the 
Commission does not include any results based on such jails in this 
Appendix. The Commission focuses on the logarithm of costs per 
minute as the dependent variable--i.e., the Commission seeks to 
evaluate what factors are predictive of an inmate calling service 
provider's costs per minute. The contract variables that the 
Commission considers in the analysis are as follows:
     The identity of the inmate calling services provider;
     The state(s) in which the correctional facilities 
covered by a contract are located;
     The Census division(s) and region(s) in which the 
facilities covered by a contract are located;
     The type of facility (prison or jail);
     An indicator for joint contracts (i.e., contracts for 
which an inmate calling services provider subcontracts with another 
inmate calling services provider);
     Contract average daily population;
     Contract average daily population bins (average daily 
population <=25; average daily population <=50; average daily 
population <=100; average daily population <=250; average daily 
population <=500; average daily population <=1,000; average daily 
population <=5,000);
     Rurality of the facilities covered by the contract 
(rural, if all the facilities covered by the contract are located in 
a census block designated by the Bureau of Census as rural; urban, 
if all facilities are located in a census block not designated as 
rural; or mixed, if the contract covers facilities in census blocks 
designated as both rural and not rural); and
     Various combinations (i.e., multiplicative 
interactions) among the above variables.
    4. Lasso and Costs per Minute. The Lasso results indicate 
economically significant differences in costs per minute across 
different providers and states. The provider identity and state 
variables retained by Lasso as predictors of cost explain 
approximately 67% of the variation in costs across contracts. 
Provider identity is an especially meaningful predictor of costs; a 
Lasso model with it alone explains over 60% of the variation in 
costs across contracts. The differences in costs measured by the 
provider identity variable may reflect systematic differences in 
costs across providers, but they are more likely indicative of 
systematic differences in the way costs are calculated and reported 
to the Commission by providers. The differences in cost measured by 
the state variables may reflect statewide differences in costs 
arising from different regulatory frameworks or other state-specific 
factors. Lasso results also indicate differences in costs per minute 
by facility type (prison or jail), rurality, and region. However, 
these variables are not economically significant: When retained as 
predictors by Lasso, these variables explain less than 1% of the 
variation in costs that are explained by the provider identity and 
state variables alone.
    5. A group of contracts representing a significant fraction--
about 11%--of observations contained insufficient information to 
ascertain the rurality of facilities included in those contracts. As 
a result, in the baseline model that includes all contracts, the 
Commission interprets the effect of the rurality variables as 
differences from the contracts for which the Commission does not 
have rurality information. To ensure that this is a sound approach, 
the Commission uses a sample selection model to confirm that the 
factors that may be associated with a contract not having sufficient 
rurality information are not significantly correlated with costs. 
The Commission estimates a Heckman sample selection model where 
selection is for observations that contain rurality information. The 
dependent variable and controls in this model were chosen to be the 
same as the ones in Lasso. The Commission finds that the coefficient 
on the inverse Mills ratio is not significant at reasonable levels 
of significance (p-value is 0.21), allaying potential concerns about 
sample selectivity. The Commission also conducts the analysis using 
only the contracts that contain rurality information and obtain 
Lasso results that are similar to the results the Commission obtains 
with the baseline model.
    6. The Commission also explores the differences in the costs 
reported by the top three providers by size using a double-selection 
Lasso model. Double-selection Lasso is a method of statistical 
inference that

[[Page 40749]]

selects control variables in two stages: The first stage runs a 
Lasso regressing the dependent variable on a set of common controls; 
the second stage regresses the explanatory variables of interest on 
the same set of common controls. A simple Lasso only selects 
predictors, without the possibility of statistical inference 
afforded by double selection. The Commission focuses on GTL, 
ICSolutions, and Securus because these firms' costs explain the bulk 
of industry costs. These providers supply 58% of all inmate calling 
services contracts, and cover approximately 78% of all incarcerated 
people as measured by average daily population. These shares may in 
fact represent an understatement of their industry share because, 
for example, CenturyLink, a large provider when judged by average 
daily population, subcontracts almost all of its contracts to 
ICSolutions, and, in the case of the large Texas Department of 
Corrections contract, to Securus. These three firms are also more 
suitable for making cross-firm comparisons because they do not 
subcontract the provision of inmate calling services to a third 
party, and because they are the largest three of the five providers 
that serve prisons, covering 111--or 86%--of all prison contracts. 
Of the remaining prison providers, CenturyLink supplies [REDACTED] 
prison contracts, Legacy supplies [REDACTED], and NCIC supplies 
[REDACTED]. The results illustrate how high GTL's reported costs are 
relative to those of its nearest peers, showing GTL's costs to be--
all other things being equal--[REDACTED] greater than the costs 
reported by Securus and [REDACTED] greater than the costs reported 
by ICSolutions. These cost differences are statistically significant 
at confidence levels greater than 99%. When the sample is restricted 
to the contracts with no missing rurality information, GTL's costs 
are--all other things being equal--approximately [REDACTED] greater 
than the costs reported by Securus, and [REDACTED] greater than the 
costs reported by ICSolutions.
    7. The results of the double-selection Lasso model also indicate 
that--all other things being equal--the costs of providing inmate 
calling services are approximately 22% greater in jails than in 
prisons; this difference is statistically significant at confidence 
levels greater than 99%. For the sample restricted to contracts with 
complete rurality information, this estimate is approximately 21% 
and significant at the 99% level of confidence.
    8. The Lasso model allows the Commission to consider how a wide 
array of variables affect a contract's per-minute cost. However, the 
limitations of the available data may cause the Lasso model to 
understate the impact of certain variables. For example, because 
reported costs vary greatly across providers, Lasso may be under-
ascribing importance to other variables such as size and type of 
facility. Commenters criticized the Commission's analysis of 
reported costs in the 2020 ICS FNPRM. In addition to critiquing the 
shortcomings of the data used, commenters disagreed with the notion 
that costs were similar across facility type and size. Some 
commenters argued that prisons should be expected to have lower per-
unit costs than jails, and that larger jails should have lower per-
unit costs than jails with average daily populations less than 
1,000. Given the concerns that differences in provider data filing 
practices impede the Lasso's ability to capture the significance of 
other variables, as well as the economic rationale for the presence 
of economies of scale in this market, the Commission finds these 
arguments to be persuasive. The Commission performs additional 
analyses to investigate differences in cross-provider costs in 
Appendix C. The approach the Commission uses there attempts to 
address provider-level cost differences that obscure the 
relationship between variables such as facility size and a 
contract's cost.

Appendix C

Lower Bound Analysis

    1. Given deficiencies of the cost data submitted by providers, 
the removal of invalid, incomplete, and otherwise anomalous 
contracts performed in Appendix A is a necessary step towards 
determining accurate per-minute costs. In this Appendix, the 
Commission frequently refers to inmate calling services providers by 
short names or acronyms. These providers are: ATN, Inc. (ATN); 
CenturyLink Public Communications, Inc. (CenturyLink); Correct 
Solutions, LLC (Correct); Combined Public Communications (CPC); 
Crown Correctional Telephone, Inc. (Crown); Global Tel*Link 
Corporation (GTL); ICSolutions, LLC (ICSolutions); Legacy Long 
Distance International, Inc. (Legacy); NCIC Inmate Communications 
(NCIC); Pay Tel Communications, Inc. (Pay Tel); Prodigy Solutions, 
Inc. (Prodigy); and Securus Technologies, LLC (Securus). Using those 
data, the Commission then develops the upper bounds of the zones of 
reasonableness for the interim interstate provider-related rate caps 
based on a mean plus one standard deviation approach. However, the 
upper bounds overstate true per-minute costs by substantial margins. 
In addition to generally applicable grounds for overstatement, each 
upper bound's construction includes a number of contracts that the 
Commission identifies as statistical outliers, and includes all GTL 
contract costs as reported, despite abundant indicia that GTL's 
reported costs are both unreliable as a measure of GTL's actual 
costs of providing inmate calling services and significantly higher 
than its true costs.
    2. In the following analysis, the Commission makes further 
adjustments to the submitted cost data using generally accepted 
statistical and econometric techniques. The Commission begins by 
performing an analysis of statistical outliers to determine whether 
certain remaining contracts in the data are well outside of the mean 
of per-minute costs and remove those observations revealed to be 
outliers by the use of these metrics. Next, the Commission performs 
a cost adjustment of GTL's reported per-minute contract costs, using 
reliable information reported for GTL's own contracts as well as the 
contract information of other inmate calling services providers to 
identify surrogate observations to use instead of GTL's reported 
per-minute costs. The results of this analysis allow the Commission 
to derive lower bounds of per-minute contract costs for prisons and 
larger jails. They additionally allow the Commission to address 
concerns raised in the record regarding expected differences in 
contract costs across facilities of different types and sizes.

1. Analysis of Outliers

    3. As the Commission reviews in detail in Appendix A, the 
Commission performs an initial round of data cleaning on the 
contract-level dataset derived from the Second Mandatory Data 
Collection by removing contracts with invalid or incomplete data, 
excluding anomalous contracts, and making additional data 
adjustments. The final dataset contains 2,900 contract-level 
observations and is the starting point for the outlier analysis 
presented here. The Commission now turns to outlier detection and 
removal. Using conservative thresholds for both parametric and non-
parametric outlier detection techniques (that is, techniques that 
rely on normality assumptions about the distribution of the cost 
data versus techniques that do not), the Commission finds and 
removes the data points that are well outside of the central 
tendency of the distribution of per-minute costs as measured by the 
mean and standard deviation.
    4. The Commission first employs two closely related parametric 
techniques: The Grubbs test and the modified Thompson Tau test. Both 
tests detect the largest absolute deviations from the mean divided 
by the standard deviation. For each approach, if the data point with 
the largest deviation is above a critical threshold then it is 
considered an outlier and removed. Both tests continue to iterate 
through the dataset, recalculating the test statistic and comparing 
it to the critical value until they no longer detect any outlying 
observations. The critical regions for the Grubbs and Thompson Tau 
tests are similar but are based on a different version of the 
Student's t test statistic. For the Grubbs test, the Student's t is 
based on N-2 degrees of freedom and a tail value equal to [alpha]/
2N. For the Thompson Tau test, the Student's t is based on N-2 
degrees of freedom and a tail value of [alpha]/2. This difference 
results in the Thompson Tau test always calculating a lower test 
statistic than the Grubbs, leading to the detection of more outliers 
at a given confidence level but also a higher likelihood of false 
positives.
    5. The Commission performs this analysis on the average cost per 
minute for each contract, and separately for prisons, larger jails, 
and jails with average daily populations of less than 1,000. The 
contract-level cost per minute is defined as: (contract direct costs 
+ contract allocated overhead costs)/(contract total paid minutes). 
Larger jails have average daily populations greater than or equal to 
1,000. As in Appendix A, jails with average daily populations of 
less than 1,000 are included in the totals to ensure that the 
Commission's outlier detection and removal is comprehensive among 
the total dataset of 2,900 contracts. But, because the Commission 
does not address such jails in the Report and Order for purposes of 
arriving at interim provider-related rate caps based on the Second 
Mandatory Data Collection, the

[[Page 40750]]

discussion of them in this Appendix is limited. To be as 
conservative as possible, the Commission chooses the confidence 
level for the critical value to be 99%. The Thompson Tau test 
identifies 98 total outliers: 94 jails with average daily 
populations of less than 1,000, 3 larger jails, and 1 prison. The 
Grubbs test identifies 25 total outliers: 22 Jails with average 
daily populations less than 1,000 and three larger jails.
    6. Both the Grubbs and Thompson Tau tests assume that each 
observation is drawn from a normal distribution, and that outlier 
observations are those that would not typically occur from the same 
data generating process. However, if the true data-generating 
process leads to a right-skewed distribution, then observations 
identified as outliers under an assumption of normality may in fact 
be legitimate data points. In a right-skewed distribution, the mean 
is greater than the median. To ensure the outlier results are robust 
to normality assumptions, the Commission also employs a well-known 
non-parametric approach to outlier detection: The box plot. This 
approach does not rely on the assumption of normality and instead 
uses only the mean, median, and quartiles of the data. A box plot 
defines outlier observations as those that are more than 1.5 times 
the interquartile range from the upper or lower quartiles of the 
per-minute cost data (the upper and lower bounds). These bounds are 
referred to as ``Tukey's fences.'' The procedure identifies a total 
of 52 observations above the upper bound: 49 Jails with average 
daily populations less than 1,000 and 3 larger jails.
    7. The Grubbs, Thompson Tau, and box plot approaches identify 
the same overlapping set of contracts as outliers, but with 
increasing restriction based on the technique. Specifically, there 
is no outlier identified by Grubbs that is not also an outlier for 
Thompson Tau and the box plot. Similarly, there is no outlier 
identified by the box plot that is not also an outlier for Thompson 
Tau. Though Thompson Tau appears to be least conservative and Grubbs 
most conservative, what is important is that all three approaches 
lead to the identification of the same nested set of outlier 
observations. To retain as much data as possible, and to be as 
conservative with the analysis as possible, the Commission excludes 
from the contracts data only those 25 observations identified by 
Grubbs as being outliers.
    8. The results of the outlier analysis are presented in Tables 
1, 2, and 3 below. Table 1 lists the outlier observations for each 
firm and facility type, while Table 2 presents the full list of 
contracts identified as outliers. Finally, Table 3 presents the 
summary statistics of per-minute costs for the group of outlier 
contracts.

                                                 Table 1--Outlier Observations by Firm and Facility Type
                                                                  [Number of contracts]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   ATN        Correct       Crown         GTL        Pay Tel      Securus       Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Smaller Jails................................................            2            5            4            2            6            3           22
Larger Jails.................................................            0            3            0            0            0            0            3
                                                              ------------------------------------------------------------------------------------------
    Total....................................................            2            8            4            2            6            3           25
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                                        Table 2--Contracts Classified as Outliers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                   Firm                           Contract identifier               Facility type               ADP             CPM             RPM
--------------------------------------------------------------------------------------------------------------------------------------------------------
Correct..................................  Williamson......................  Larger Jail................      [REDACTED]      [REDACTED]      [REDACTED]
Correct..................................  San Luis........................  Larger Jail................      [REDACTED]      [REDACTED]      [REDACTED]
Correct..................................  West Texas......................  Larger Jail................      [REDACTED]      [REDACTED]      [REDACTED]
ATN......................................  [REDACTED]......................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
ATN......................................  [REDACTED]......................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Correct..................................  Morgan City.....................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Correct..................................  Little River....................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Correct..................................  Rolling Plains..................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Correct..................................  Wise............................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Correct..................................  Livingston WR...................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Crown....................................  Graham County Jail (NCIC--Crown)  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Crown....................................  Thayer County Jail (NCIC--Crown)  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Crown....................................  Pawnee County Jail (NCIC--Crown)  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Crown....................................  Phillips County Jail (NCIC--      Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
                                            Crown).
GTL......................................  [REDACTED]......................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
GTL......................................  [REDACTED]......................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Pay Tel..................................  [REDACTED]......................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Pay Tel..................................  [REDACTED]......................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Pay Tel..................................  [REDACTED]......................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Pay Tel..................................  [REDACTED]......................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Pay Tel..................................  [REDACTED]......................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Pay Tel..................................  [REDACTED]......................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Securus..................................  [REDACTED]......................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Securus..................................  [REDACTED]......................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
Securus..................................  [REDACTED]......................  Smaller Jail...............      [REDACTED]      [REDACTED]      [REDACTED]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: ``ADP'' is the average daily population covered by the contract; ``CPM'' is a contract's average cost per minute; and ``RPM'' is a contract's
  average revenue per minute, net of any commissions paid.


                                                      Table 3--Outlier Analysis Summary Statistics
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Number of
                                                             contracts       Mean ($)       Median ($)     Std. dev. ($)    Minimum ($)     Maximum ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Smaller Jails...........................................              22           0.410           0.359           0.128           0.283           0.734
Larger Jails............................................               3           0.782           0.512           0.656           0.303           1.529
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................              25           0.455           0.370           0.255           0.283           1.529
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 40751]]

    9. The Commission's outlier procedure identifies and removes a 
total of 25 observations (22 jails with average daily populations 
less than 1,000, and 3 larger jails). This amounts to 1.6% of 
observations of larger jails and 0.8% of observations of jails with 
average daily populations less than 1,000. The outlier procedure 
removes three contracts for larger jails operated by Correct. The 
remaining 22 observations are all jails with average daily 
populations less than 1,000 whose per-minute costs also fall outside 
of the bounds of all three outlier detection methods.
    10. It is evident that the outlier contracts have average per-
minute costs that are significantly above the norm. All of the 
larger jails have revenues per minute below their per-minute costs, 
suggesting the cost data are unreliable in these cases. Of the jails 
with average daily populations less than 1,000, 11 have per-minute 
revenues that are less, and in some cases substantially less, than 
their per-minute costs, again suggesting that their costs are 
unlikely to be valid. The remaining outliers also have per-minute 
costs that are well outside of the central tendency of the data, 
adding further validity to the Grubbs procedure.

1. GTL Data Adjustment

    11. Though the Commission believes the contract-level cost data 
to be improved after removing the outlier observations, the 
Commission finds the costs reported by certain contracts that are 
not identified as outliers to be outside of what is reasonable given 
comparable contracts in the data. Specifically, GTL's per-minute 
costs for its prison contracts, as calculated using the data GTL 
reported, are significantly higher than per-minute costs calculated 
based on data submitted by providers operating similarly sized 
facilities. Likewise, both GTL and [REDACTED] are high-cost 
providers for larger jails. [REDACTED]'s average costs per minute 
for larger jails drop to a lower level after the removal of the 
three larger jail contracts in the outlier analysis. However, 
[REDACTED] only has two such contracts while GTL has 62. As such, 
while [REDACTED]'s inconsistent larger jail contracts should be 
explored, they do not have nearly as significant an effect on 
overall costs per minute as do GTL's contracts. GTL, [REDACTED], and 
[REDACTED] are also the highest-cost providers of inmate calling 
services for smaller jails, but those contracts are not the primary 
focus of this analysis.
    12. To illustrate the large discrepancy between GTL's per-minute 
costs for prison and larger jail contracts and those of all other 
providers, the Commission presents the histograms in Figure 1 below. 
Rather than a normal distribution of per-minute costs across 
contracts, the histograms appear bimodal due to GTL's costs. GTL's 
average per-minute costs for prisons and larger jails are about 
[REDACTED] as large as those of all other providers. In fact, for 
prisons, GTL's least costly contract is still higher than any other 
provider's most costly contract.

Figure 1--Cost per Minute (CPM) Distributions for Prisons and Larger 
Jails

[REDACTED]

Notes: ``CPM'' is the cost per minute. Dark red areas are where the 
Non-GTL and GTL bars overlap.

    13. Given the large discrepancy between GTL's costs and those of 
all other providers, the Commission finds it implausible that GTL's 
actual cost of providing inmate calling services to prisons and 
larger jails is as high as its reported data suggest. Therefore, in 
order to address GTL's costs, the Commission implements a k-nearest 
neighbor matching algorithm to match each GTL contract to multiple 
other contracts by non-GTL providers based on similar contract 
characteristics. More formally, the multivariate k-nearest neighbor 
regression is a non-parametric method that uses the Euclidian 
distance between continuous variables to determine the ``closeness'' 
of observations. It is a well-established approach to data 
imputation issues, where missing or unreliable observations need to 
be replaced with plausible values from the same dataset. The 
Commission implements the k-nearest neighbor approach to find 
contracts similar to GTL's and then adjust GTL's per-minute costs 
based on the per-minute costs of those other contracts. In their 
attempt to address outliers, the report of The Brattle Group 
utilizes a data censoring technique known as winsorization to 
replace all per-minute cost observations above $0.50 with the next 
highest values in the cost distribution. The Commission believes a 
combination of outlier removal and cost adjustment using k-nearest 
neighbor regression to be an improvement over winsorization. Whereas 
winsorization replaces a set percentage (or number) of observations 
above a predetermined threshold, the Grubbs procedure relies on the 
variation in the data to determine observations likely drawn from a 
different population distribution. Likewise, k-nearest neighbor 
relies on a multivariate measure of the ``closeness'' of contracts 
to determine the adjustment to GTL observations, making fewer 
assumptions and utilizing more information in the contracts.
    14. The Commission performs the analysis with k = 3. That is, 
the Commission finds the three nearest neighbors to each GTL 
contract. The matching is done on the following variables: Average 
daily population, total inmate calling services minutes of use, 
total commissions paid, and facility type. The Commission has also 
performed the analysis with the addition of other variables such as 
revenues, geography, and rurality, and obtained similar results. In 
the case of encoded categorical variables such as geography, the 
Commission forced the algorithm to make a match to ensure that the 
distance measure was not attempting to minimize distance between 
unrelated states/regions based on how they were coded in the 
dataset. Though the resulting adjusted per-minute costs were largely 
unchanged, this is not the preferred specification as forcing a 
match on any given dimension will invariably weaken the match on the 
other covariates. Additionally, while the Lasso analysis set forth 
in Appendix B pointed to provider identity as the dominant predictor 
of a contract's per minute costs, the Commission does not match on 
provider identity. The Commission finds no economic rationale for 
why certain providers should have higher costs than their 
competitors for comparable facilities, nor do comments filed with 
the Commission make this argument. Furthermore, as explained in 
Appendix B, the importance attributed to provider identity by the 
Lasso model is most likely the result of asymmetric provider data 
filing practices, rather than actual differences in costs of 
provision. A neighbor to a specific GTL contract is the contract 
that is closest to the GTL contract along these dimensions. For 
example, if a GTL contract had an average daily population of 100, 
15,000 total minutes, and paid $3,000 in site commissions, then 
another contract with an average daily population of 110, 16,000 
total minutes, and paid site commissions of $3,400 would be a nearer 
neighbor than a third contract with an average daily population of 
600, 100,000 minutes, and paid site commissions of $18,000. Matching 
was done on these four variables, as economic rationale and comments 
submitted to the Commission argue that each of the four is important 
in determining a contract's cost of provision. Numerous commentators 
argued that average daily population and facility type are important 
to a contract's per minute costs. Total minutes of use is included 
because inmate calling contracts have high fixed costs. As such, a 
contract's per minute costs will depend in part on minutes of use, 
as higher minutes of use allow fixed costs to be spread across more 
minutes, reducing a contract's per minute costs. Total commissions 
paid is included because, as first concluded in the 2020 ICS FNPRM, 
site commissions may represent negotiations between providers and 
facility authorities in which providers agree to incur additional 
costs related to the provision of inmate calling services in 
exchange for not having to pay site commissions. The Commission 
creates two adjusted per-minute costs for GTL. The first takes a 
weighted average cost per minute of each nearest neighbor, weighted 
by each neighbor's inverse distance from GTL. That is, of the three 
nearest neighbors, the Commission put more weight on the neighbors 
that are more similar to GTL according to the Euclidian distance 
measure. The second approach is more conservative and relies on the 
maximum cost per minute of all nearest neighbors. The Commission has 
run the matching on various values of k and find the results are 
robust to the choice of k. Even at k = 6, the Commission obtains 
reasonable results for the maximum per-minute cost of the six 
nearest neighbors. Though as expected, when adding more neighbors, 
the maximum per-minute cost of the new group of neighbors continues 
to increase. As this is not a classification analysis, there is no 
methodology or metric for choosing the optimal k. However, the 
Commission finds k = 3 to be reasonable. The Commission's choice is 
further supported by the use of k = 3 in the existing literature. 
Table 4 presents summary statistics for GTL's original per-minute 
costs for non-outlier prison and larger jail contracts, as well as 
the weighted and maximum costs per minute that result from the 
nearest neighbor matching algorithm.

[[Page 40752]]



                                                        Table 4--GTL Matching Summary Statistics
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Number of
                                                             contracts       Mean ($)       Median ($)     Std. dev. ($)    Minimum ($)     Maximum ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Pre-Matching
--------------------------------------------------------------------------------------------------------------------------------------------------------
Larger Jails............................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Prisons.................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Post-Matching Weighted
--------------------------------------------------------------------------------------------------------------------------------------------------------
Larger Jails............................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Prisons.................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Post-Matching Maximum
--------------------------------------------------------------------------------------------------------------------------------------------------------
Larger Jails............................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Prisons.................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
--------------------------------------------------------------------------------------------------------------------------------------------------------

    15. Prior to the adjustment, GTL's per-minute costs are both 
high compared to other providers and essentially flat across 
facility types. There is no statistically significant difference in 
per-minute costs between GTL's larger jails and prisons. This is 
highly unusual, as the Commission would expect firms to exhibit 
economies of scale by spreading their fixed costs over more call 
minutes, thereby reducing their per-minute costs on larger 
contracts. For comparison, the average larger jail contract has 9.3 
million minutes of use while the average prison contract has 34.6 
million minutes of use. For example, [REDACTED] After performing the 
k-nearest neighbor adjustment, GTL costs also exhibit economies of 
scale, and the difference in per-minute costs between GTL prisons 
and larger jails is statistically significant at the 1% level.
    16. The Commission can now estimate the effect that the GTL cost 
adjustment has on the overall distribution of per-minute costs in 
the contract-level data. Table 5 presents the average per-minute 
costs across all non-outlier prison and larger jail contracts after 
adjusting GTL costs.

                                                 Table 5--All Contracts Post-Matching Summary Statistics
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Number of
                                                             contracts       Mean  ($)      Median  ($)   Std. dev.  ($)   Minimum  ($)    Maximum  ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Post-Matching Weighted
--------------------------------------------------------------------------------------------------------------------------------------------------------
Larger Jails............................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Prisons.................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Post-Matching Maximum
--------------------------------------------------------------------------------------------------------------------------------------------------------
Larger Jails............................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Prisons.................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
--------------------------------------------------------------------------------------------------------------------------------------------------------

    17. Even when using the conservative approach of replacing GTL's 
per-minute costs with the highest costs of the three nearest 
neighbors, the overall per-minute cost of prisons and larger jails 
drops substantially. This is unsurprising as not only are GTL's 
costs high, but GTL also operates [REDACTED] prison contracts and 
[REDACTED] larger jail contracts. With the adjusted GTL 
observations, the full contracts data now indicate a decreasing per-
minute cost of operating larger facilities. The reason is twofold: 
first, because GTL has a larger market share in the provision of 
inmate calling services for prisons than for larger jails, even a 
uniform reduction in its costs per minute across facility types 
would exert greater downward pressure on the average costs of 
prisons compared to larger jails; and second, because other firms do 
exhibit returns to scale, the results of the nearest neighbor 
matching procedure highlight this important aspect of the data. 
Hence the procedure adjusts GTL per-minute costs for each facility 
type to reflect this market reality.
    18. Finally, to better visualize the GTL data adjustment, the 
Commission presents overlaid histograms of GTL and non-GTL per-
minute costs for prison and larger jail contracts after performing 
the k-nearest neighbor matching procedure in Figures 2 and 3. These 
are overlaid histograms rather than stacked bar charts. Therefore, 
the dark red color represents the intersection of GTL and non-GTL 
contracts, and the total number of contracts at any cost bin is the 
sum of the GTL and non-GTL bars. [REDACTED]

Figure 2--CPM Distributions for Prisons with k-Nearest Neighbor 
Matching

[REDACTED]

Notes: ``CPM'' is the cost per minute. Dark red areas are where the 
Non-GTL and GTL bars overlap.

Figure 3--CPM Distributions for Larger Jails with k-Nearest Neighbor 
Matching

[REDACTED]

Notes: ``CPM'' is the cost per minute. Dark red areas are where the 
Non-GTL and GTL bars overlap.

2. Analysis of GTL ``Neighborhoods''

    19. To further examine the nearest neighbor results, the 
Commission explores the matches for each of GTL's [REDACTED] non-
outlier contracts. Aside from the choice of contract characteristics 
on which to perform the matching, the approach is non-parametric and 
relies only on the data to find the nearest neighbors of each 
observation. Nevertheless, the Commission wants to understand 
whether a single firm is dominant in the matches or if there is 
variation in the neighbors found. Even if the matches are 
overwhelmingly to a single firm, the legitimacy of the procedure is 
not in doubt as it is only a reflection of the data. However, the 
results would be less robust if an argument could be made for that 
firm also having unreliable cost data. In Table 6 below, the 
Commission presents the total number and percentage of time that 
each firm matches with a GTL contract, categorized by type of 
facility. The Commission notes that within the total dataset of 
2,900 contract observations, GTL's smaller jail contracts only 
matched with other providers' smaller jail contracts.

[[Page 40753]]



                                                                        Table 6--Provider Matches to GTL by Facility Type
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Smaller Jail                     Larger Jail                       Prison                          Overall
                                                                 -------------------------------------------------------------------------------------------------------------------------------
                                                                     Number of                       Number of                       Number of                       Number of
                                                                      matches         Percent         matches         Percent         matches         Percent         matches         Percent
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Securus.........................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
ICSolutions.....................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
CPC.............................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
NCIC............................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Legacy..........................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Pay Tel.........................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
CenturyLink.....................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Correct.........................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
ATN.............................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Crown...........................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
Prodigy.........................................................      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]      [REDACTED]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    20. The numbers in parentheses represent the percentage of all 
non-outlier and non-GTL contracts that each firm has, thereby 
allowing for a comparison of the frequency of nearest neighbor 
matches to the overall frequency in the data. Unsurprisingly, given 
the large market share of each, Securus is a frequent match to GTL. 
Of the [REDACTED] GTL contracts included in the analysis, [REDACTED] 
of them (19.7%) include zero Securus contracts in their 
neighborhood; [REDACTED] (34.8%) include one Securus contract in 
their neighborhood; [REDACTED] (29.4%) include two Securus contracts 
in their neighborhood; and [REDACTED] (16.1%) include three Securus 
contracts in their neighborhood. By neighborhood, the Commission 
refers to the set of three matched contracts for each GTL contract. 
On average, a GTL contract's neighborhood is comprised of [REDACTED] 
(47.3%) Securus contracts. As Securus comprises roughly 40% of all 
non-GTL contracts in the data, the results are reasonable and 
suggest that Securus does not have an outsized influence on the 
matching relative to its size in the market. After Securus, the 
providers whose contracts constitute the largest number of neighbors 
to GTL contracts are ICSolutions, CPC, and NCIC, with the average 
neighborhood consisting of [REDACTED] contracts from each provider, 
respectively.
    21. That no firm plays an outsized role in the nearest neighbor 
matching holds across the different types of facilities. [REDACTED] 
In general, the smallest firms in the market tend to be under-
represented in the matching, likely because scale economies make the 
bigger players look more similar along multiple dimensions of a 
contract, even within a particular facility type.
    22. The results of this analysis indicate that GTL is being 
matched to every other firm in the data at least some of the time. 
Though its nearest neighbors are usually other large providers, that 
is in no way surprising. The variation in the match data supports 
the validity of the results, while shedding additional light on the 
contracts that look closest to GTL's for the purposes of the data 
adjustment procedure.

3. Determining Lower Bound for Interim Rate Caps

    23. With confidence that the outlier and GTL data adjustment 
procedures are valid and robust to a variety of assumptions, the 
Commission can now construct the lower bounds for the zones of 
reasonableness. As with the upper bound approach, the Commission 
defines the lower bound as the mean plus one standard deviation of 
per-minute contract costs, separately for prisons and larger jails. 
These estimates rely on the full contract-level data excluding the 
identified outliers and replacing the original GTL cost data with 
the per-minute cost estimates derived from the nearest neighbor 
adjustment procedure. The Commission presents the lower bound 
estimates in Table 7 below.
[GRAPHIC] [TIFF OMITTED] TR28JY21.003

    24. As with the previous results, the Commission presents lower 
bound estimates derived from a weighted average GTL adjustment as 
well as more conservative estimates based on the maximum of GTL's 
nearest neighbors. As both approaches are valid, the Commission 
selects the weighted average results as the estimates of the lower 
bound for the zone of reasonableness. For prisons, the lower bound 
is $0.064, and for larger jails, the lower bound is $0.08. These are 
the most plausible, lowest estimates of per-minute interim rate caps 
across all contracts in the data.

4. Maximum GTL Costs Support the New Interim Provider-Related Rate 
Caps

    25. The Commission has established the lower bounds of the zones 
of reasonableness as being $0.064 for prisons and $0.080 for larger 
jails based on an analysis that removes outlier observations and 
adjusts unreliable GTL per-minute cost data. Given GTL's size and 
presence in the inmate calling services market, the Commission now 
determine the maximum per-minute costs that GTL could hypothetically 
incur that would still support the interim provider-related rate 
caps. That is, the Commission asks what GTL's highest average per-
minute costs would need to be, separately for its prison and larger 
jail contacts, such that the overall per-minute cost plus one 
standard deviation across all

[[Page 40754]]

calling services contracts would be no higher than $0.12 per minute 
for prisons and $0.14 per minute for larger jails. The Commission 
refers to this as the critical cost threshold for GTL, as it is the 
cost that must be exceeded for the provider-related rate caps to no 
longer be supported by the analysis.
    26. To determine GTL's critical cost threshold, the Commission 
presents a critical cost analysis to support the new interim 
provider-related rate caps of $0.12 per minute for prisons and $0.14 
per minute for larger jails. The analysis calculates GTL's threshold 
per-minute costs that would bring the overall average cost per 
minute across all calling services contracts, plus a buffer, to 
$0.12 per minute and $0.14 per minute for prisons and larger jails, 
respectively. The Commission examines a buffer of both one and two 
standard deviations from the mean. A buffer of one standard 
deviation reflects the approach to rate-setting, while a two 
standard deviation buffer is an even more conservative assumption 
because it requires per-minute costs to be even lower in order to 
remain under the interim rate caps. As such, GTL's threshold per-
minute cost derived from this analysis will ensure that the rate 
caps are set at a level that allows the majority of firms to recover 
their costs.
    27. The Commission relies on the per-minute cost data from the 
contract-level dataset described in Appendix A after removing the 25 
identified outliers. To determine the critical cost thresholds, the 
Commission optimizes over the set of GTL prison and larger jail 
contracts to find the cost per minute that sets the overall cost per 
minute plus a buffer across all prison contracts to $0.12 and across 
all larger jail contracts to $0.14. The Commission performs four 
constrained optimizations: Two each for prisons and larger jails 
with two different buffers (1 and 2 standard deviations). The 
Commission presents the results in Table 8.

                                      Table 8--GTL Critical Cost Thresholds
                                                       [$]
----------------------------------------------------------------------------------------------------------------
                                                                    Per-minute      1 Std. dev.     2 Std. dev.
                          Facility type                              rate cap         buffer          buffer
----------------------------------------------------------------------------------------------------------------
Prison..........................................................           0.120           0.117           0.094
Larger Jail.....................................................           0.140           0.153           0.117
----------------------------------------------------------------------------------------------------------------

    28. Even with a large buffer of two standard deviations from the 
mean (which would allow the vast majority of firms to recover costs 
with certainty), GTL's average per-minute costs for prisons and 
larger jails need only be at or below $0.094 per minute and $0.117 
per minute, respectively. These thresholds are still $0.041 per 
minute and $0.053 per minute higher than the average per-minute 
costs of all non-GTL prison and larger jail contracts. Furthermore, 
after applying a conservative k-nearest neighbor matching algorithm 
that sets GTL's contract costs to the maximum of its three 
neighbors, GTL's per-minute costs are $0.063 and $0.078 for prisons 
and larger jails, respectively. These cost estimates are well below 
the threshold values necessary to support the interim rate caps. As 
such, with reasonable high-end estimates of GTL's costs, the 
analysis indicates that the interim rate caps would allow nearly all 
firms to recover their costs of providing inmate calling services as 
reported in response to the Second Mandatory Data Collection.

Appendix D

Analysis of Site Commission Payments

    1. The Commission permits a $0.02 per minute interim allowance 
for reasonable correctional facility costs for prisons and larger 
jails where site commission payments are part of a negotiated 
contract. The Commission bases its decision on two separate and 
independent grounds. First, this allowance is based on estimates of 
the portion of site commission payments that are legitimately 
related to inmate calling services based on the approach set forth 
in Appendix D of the 2020 ICS FNPRM, which the Commission has 
updated below with corrected cost data consistent with the record. 
Second, this allowance is based on record evidence reintroduced by 
Pay Tel and the National Sheriffs' Association supporting a $0.02 
allowance.
    2. To improve comparability between contracts that do and do not 
involve payment of a site commission, the Commission removed 
invalid, incomplete, and anomalous contracts from the cost data 
submitted by providers in response to the Second Mandatory Data 
Collection using the process described in Appendix A. The resulting 
data do not specify the costs, if any, that correctional facilities 
incur that are directly related to the provision of inmate calling 
services. In the absence of direct information on the level of those 
costs, the Commission estimates the costs correctional facilities 
incur by comparing the relative costs per minute to providers for 
contracts with and without site commissions, as shown in Table 1. As 
the Commission concluded in the 2020 ICS FNPRM, the Commission 
continues to find that it is reasonable that the higher costs per 
minute for contracts without site commissions reflect, at least in 
part, give-and-take negotiations in which providers agree to incur 
additional costs related to the provision of inmate calling services 
in exchange for not having to pay site commissions. In the context 
of Contractually Prescribed site commission payments, facilities may 
seek that providers pay a site commission as part of a request for 
proposal. In other cases, a correctional facility may not seek a 
site commission payment but may indicate that offers to make such 
payments will be a factor in the bid evaluation process. In either 
case, bidders' choices about whether to offer a site commission 
payment and at what level are informed by their discretionary 
business decisions about which strategies are more or less 
profitable to pursue. Consequently, it is reasonable to conclude 
that providers and correctional facilities have at least some give-
and-take during the negotiation process, which, at least in part, 
contributes to higher costs for contracts that do not provide for 
site commission payments compared to similarly situated providers 
operating under contracts that do provide for such payments.

                                                     Table 1--Site Commissions and Per-Minute Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        Number of contracts
           Facility type               Site commission       Mean ($)      Std. dev. ($)    Mean + std.  -----------------------------------------------
                                                                                             dev. ($)          Below           Above           Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Larger Jails......................  No Commission Paid..           0.100           0.042           0.142              11               1              12
                                    Commission Paid.....           0.100           0.121           0.221             167               3             170
                                    All Larger Jails....           0.100           0.118           0.218             179               3             182
All Jails.........................  No Commission Paid..           0.097           0.061           0.158             260              13             273
                                    Commission Paid.....           0.093           0.056           0.150           2,325             173           2,498
                                    All Jails...........           0.093           0.057           0.150           2,583             188           2,771
Prisons...........................  No Commission Paid..           0.097           0.038           0.135              38               2              40
                                    Commission Paid.....           0.089           0.042           0.131              82               7              89
                                    All Prisons.........           0.092           0.041           0.133             120               9             129
All Facilities....................  No Commission Paid..           0.097           0.059           0.155             298              15             313

[[Page 40755]]

 
                                    Commission Paid.....           0.093           0.056           0.149           2,408             179           2,587
                                    All Facilities......           0.093           0.056           0.150           2,708             192           2,900
--------------------------------------------------------------------------------------------------------------------------------------------------------

    3. The bottom three rows of Table 1 (for All Facilities) show a 
$0.004 difference in mean costs per minute between contracts without 
site commissions ($0.097) and contracts with site commissions 
($0.093). The difference in mean costs per minute between contracts 
without site commissions and contracts with site commissions is 
$0.008 for prisons ($0.097-$0.089) and $0.004 for jails ($0.097-
$0.093). For larger jails, there is no difference in mean costs per 
minute between contracts without site commissions and contracts with 
site commissions ($0.10-$0.10).
    4. These differences between mean costs per minute for contracts 
that do and do not provide for payment of site commissions are lower 
than the estimates from the 2020 ICS FNPRM. However, the Second 
Mandatory Data Collection did not require the reporting of data on 
the costs, if any, that facilities incur that are directly related 
to the provision of calling services for incarcerated people. 
Because the absence of such data prevents the Commission from more 
accurately determining the portion of site commissions directly 
related to the provision of inmate calling services, the Commission 
declines to reduce the $0.02 allowance at this time.

[FR Doc. 2021-14730 Filed 7-27-21; 8:45 am]
BILLING CODE 6712-01-P