40682 Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 

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. 

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 §§ 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 

§ 64.6110 and the addition of § 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 michael.scott@fcc.gov 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 Simon.Solemani@fcc.gov 

regarding other portions of the Report 

and Order. 

SUPPLEMENTARY INFORMATION: The 

amendment to § 64.6110 and the 

addition of § 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/FCC21-60A1.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. 

Æ 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. 

Æ 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. 

Æ 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 thirdparty 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 perminute 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 

§ 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 § 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 § 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 industrywide 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-byfacility 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 


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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 perminute 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 singlecall 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 

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(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 


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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-toend 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 ‘‘collectonly’’ 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 everdiminishing 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 


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1,000 or greater to differentiate larger 

jails from smaller jails and apply its new 

interim provider-related and facilityrelated 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 


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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. 


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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 perminute 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 


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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 perminute 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 perminute 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 perminute 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 


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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 


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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 


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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-ofreturn ratemaking, a company’s cost of 


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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 


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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 providerrelated 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 providerrelated rate cap for prisons and that 

$0.14 per minute will provide a 

reasonable interim interstate providerrelated 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, 


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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 riskadjusted 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 profitmaximizing 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 perminute 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 


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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 commissionrelated 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 socalled ‘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 


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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 providerrelated 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 facilitycost 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 


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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 


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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 


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entertain noncompliant offers if it wants 

the individuals in its custody to have 

access to interstate and international 

calling services. Given the welldocumented 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 commissionfree 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 


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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 


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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 


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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 perminute 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 facilityprovided cost data. Thus, the 

Commission’s proposed methodology 


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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 providerrelated 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 facilityrelated 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 


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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 × 24 hours per 

day), this equates to more than 17 fulltime 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 providerrelated 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 doublecounting concern raised by the Public 

Interest Parties. The Commission also 

rejects the arguments of Prisoners’ Legal 

Services of Massachusetts that ‘‘[t]here 


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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 facilityrelated 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 callingrelated 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 nonrecoverable 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 


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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 ratesetting 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 investmentbacked 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 


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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 facilityrelated 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 noncommission 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 facilityrelated 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 


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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 facilityrelated 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 perminute 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 inkind 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 inkind, 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 


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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 facilityby-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 


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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 


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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 


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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 § 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 


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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 industryaverage 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 postrelease housing or employment. 

193. Lower rates, and the resulting 

increase in calls, can also lead to 

improvements in the health and wellbeing 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 


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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 fosterchild 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 datadriven 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 postCOVID–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% (= 


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($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 

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40720 Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 

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 × 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 


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


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40722 Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 

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 thirdparty 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 thirdparty 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, perminute 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 singlecall 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 thirdparty 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.’’ 

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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 singlecall 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 ‘‘thirdparty 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 revenuesharing, 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 thirdparty 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 perminute 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 


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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 timetracking 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 


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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. 


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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 nonsubstantive 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 nonsubstantive. 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 fcc504@fcc.gov 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 


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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 


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‘‘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, SharedTenant 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, SharedTenant 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 


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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 clientsupplied 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. 


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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: 


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PART 64—MISCELLANEOUS RULES 

RELATING TO COMMON CARRIERS 

■ 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. 

■ 2. Amend § 64.6000 by revising 

paragraphs (c) and (g) and adding 

paragraphs (v), (w), and (x) to read as 

follows: 

§ 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 § 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 § 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. 

■ 3. Amend § 64.6020 by revising 

paragraphs (b)(2) and (5) to read as 

follows: 

§ 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. 

■ 4. Revise § 64.6030 to read as follows: 

§ 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 FacilityRelated 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 (ProviderRelated Rate Component plus FacilityRelated 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 perminute 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. 

■ 5. Delayed indefinitely, revise 

§ 64.6110 to read as follows: 

§ 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 § 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 


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40732 Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 

(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 

§ 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. 

■ 6. Delayed indefinitely, add § 64.6120 

to subpart FF to read as follows: 

§ 64.6120 Waiver process. 

(a) A Provider may seek a waiver of 

the interim rate caps established in 

§ 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 


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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 costbased 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 revenuebased 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 providerrelated 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 


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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 perminute 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 perminute 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 perminute 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 


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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 perminute 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. 


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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 


khammond on DSKJM1Z7X2PROD with RULES2ER28JY21.000</GPH>

Figure 1 - Density of Average Daily Population for Jails 

For the purposes of this Figure, the Commission visualizes only jail contracts with average daily 

populations less than 5,000. 
Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 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

Provider Prison 

contracts 

Jail 

contracts 

Total 

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 perminute costs and per-minute revenues 

reported by each provider. 

TABLE 2—SELECTED STATISTICS OF RESPONDING PROVIDERS

Provider Number of 

contracts ADP ADP (% of total) 

Paid minutes 

(millions) 

Paid minutes 

(% of total) 

Per-paid 

minute 

cost 

($) 

Per-paid 

minute 

revenue 

($) 

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] 


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40738 Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 

TABLE 2—SELECTED STATISTICS OF RESPONDING PROVIDERS—Continued 

Provider Number of 

contracts ADP ADP (% of total) 

Paid minutes 

(millions) 

Paid minutes 

(% of total) 

Per-paid 

minute 

cost 

($) 

Per-paid 

minute 

revenue 

($) 

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 costbased 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 companywide 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 


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

Cost 

allocator 

Total 

contracts Mean Standard deviation 

Implied 

rate cap 

(mean + 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

Cost allocator 

Implied 

rate cap 

(mean perminute allocated cost + 1 

standard 

deviation) 

Contracts with per-minute 

allocated costs greater than 

implied rate cap 

Contracts with per-minute provider revenues greater than 

their per-minute allocated costs 

Total 

contracts 

Number Percent Number Percent Number 

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 


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40740 Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 

TABLE 4—COST ALLOCATOR RATE CAP, IMPLIED ANOMALOUS CONTRACTS, AND TOTAL CONTRACTS—Continued 

Cost allocator 

Implied 

rate cap 

(mean perminute allocated cost + 1 

standard 

deviation) 

Contracts with per-minute 

allocated costs greater than 

implied rate cap 

Contracts with per-minute provider revenues greater than 

their per-minute allocated costs 

Total 

contracts 

Number Percent Number Percent Number 

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). Perminute 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 perminute 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 perminute 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 overcompensate 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 perminute 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 perminute 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 


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

Cost allocator 

Implied 

rate cap 

(mean perminute allocated cost + 1 

standard deviation) 

Contracts with per-minute 

allocated cost greater than 

implied rate cap 

Contracts with per minute provider revenues greater than 

their per-minute allocated cost 

Total contracts 

Number Percent Number Percent 

Number 

Minutes ..................................................... $0.149 194 6.7 2,540 87.6 2,900 


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TABLE 5—COST ALLOCATOR RATE CAP, IMPLIED ANOMALOUS CONTRACTS, AND TOTAL CONTRACTS ADJUSTED TO AVOID

DOUBLE COUNTING OF SUBCONTRACTOR OVERHEADS—Continued 

Cost allocator 

Implied 

rate cap 

(mean perminute allocated cost + 1 

standard deviation) 

Contracts with per-minute 

allocated cost greater than 

implied rate cap 

Contracts with per minute provider revenues greater than 

their per-minute allocated cost 

Total contracts 

Number Percent Number Percent 

Number 

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 perminute 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 perminute 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 perminute 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. 


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Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 40743 

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 perminute 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 


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Table 6 - Upper Bound Estimates 

Contracts Mean Std. Dev. 

Larger Jails 182 0.100 0.118 

Prisons 129 0.092 0.041 

Mean+2 Std. Dev. 

0.336 

0.174 
40744 Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 

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 

Firm Type Number of 

contracts 

Percent share 

of contracts 

Average 

per-minute 

revenues 

($) 

Average 

per-minute 

costs 

($) 

Average 

per-minute 

profits 

($) 

Average 

per-minute 

direct 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 perminute 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 perminute 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). 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 40745 

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 


khammond on DSKJM1Z7X2PROD with RULES2ER28JY21.002</GPH>

Table 9- Number and Percentage of Contracts 

fi or Wh. IC h S 1pec1 1e evenue s 1ma es over ,pec1 1e OS S 0 ti d R E f t C S 0 ti d C t 

Direct Costs 

Allocated Costs Covered Covered by Allocated Costs 

by ICS Revenues ICS Covered by ICS Direct Costs Covered 

Facility Without Ancillary Revenues Revenues and by ICS Revenues and 

Firm Type Contracts Revenues Without Ancillary Revenues Ancillary Revenues 

Ancillary 

Revenues 

# # % # % # % # % 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

D] D] D] ACTE DAC D] ED] D] ED] 

ATN Larger Jail DJ TED] 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

DJ DJ DJ ACTE DAC DJ ED] DJ ED] 

CenturyLink Larger Jail DJ TED] 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

DJ DJ DJ ACTE DAC DJ ED] DJ ED] 

Correct Larger Jail D] TED] 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

DJ DJ DJ ACTE DAC DJ ED] DJ ED] 

CPC Larger Jail D] TED] 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

D] D] D] ACTE DAC D] ED] D] ED] 

GTL Larger Jail D] TED] 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

D] D] D] ACTE DAC D] ED] D] ED] 

IC Solutions Larger Jail D] TED] 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

D] D] D] ACTE DAC D] ED] D] ED] 

Legacy Larger Jail DJ TED] 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

DJ DJ DJ ACTE DAC DJ ED] DJ ED] 

NCIC Larger Jail DJ TED] 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

DJ DJ DJ ACTE DAC DJ ED] DJ ED] 

Pay Tel Larger Jail DJ TED] 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

DJ DJ DJ ACTE DAC DJ ED] DJ ED] 

Securus Larger Jail Dl TED] 

Industry Larger Jail 182 167 92 179 98 180 99 182 100 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

DJ DJ DJ ACTE DAC DJ ED] DJ ED] 

Century Link Prison DJ TED] 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

DJ DJ DJ ACTE DAC DJ ED] DJ ED] 

GTL Prison DJ TED] 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

DJ DJ DJ ACTE DAC DJ ED] DJ ED] 

IC Solutions Prison DJ TED] 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

DJ DJ DJ ACTE DAC DJ ED] DJ ED] 

Legacy Prison D] TED] 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

DJ DJ DJ ACTE DAC DJ ED] DJ ED] 

NCIC Prison DJ TED] 

[REDACTE [REDACTE [REDACTE [RED [RE [REDACTE [REDACT [REDACTE [REDACT 

DJ DJ DJ ACTE DAC DJ ED] DJ ED] 

Securus Prison Dl TEDl 

Industry Prison 129 63 49 129 100 91 71 129 100 
40746 Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 

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 perminute costs less than the cap after allowing 

for a possible $0.02 per minute site 

commission allowance). In 2018, 

approximately 74% of prisons had perminute revenues net of commissions of less 

than $0.12 per minute (hereinafter ‘‘low perminute 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 perminute revenue prisons’’). Thus, the new 

interim caps will potentially affect cost 

recovery for these prisons. 

70. Table 10 compares high and low perminute 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

High 

per-minute 

revenue 

contracts 

Low 

per-minute 

revenue 

contracts 

P-Value for 

two-sided 

difference in 

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 perminute 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 perminute costs below $0.12. Of all the high perminute 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 perminute revenues net of commissions of less 

than $0.14 per minute (hereinafter ‘‘low perminute 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 costdeterminative characteristics for high perminute 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 perminute 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. 


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Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 40747 

TABLE 11—MEAN CHARACTERISTICS FOR LARGER JAIL CONTRACTS BY REVENUE TYPE

High 

per-minute 

revenue 

contract 

Low 

per-minute 

revenue 

contract 

P-Value for 

two-sided 

difference in 

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 perminute 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 perminute 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 callminute 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 


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40748 Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 

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 perminute 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 costcovering 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 perminute 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 doubleselection Lasso model. Double-selection 

Lasso is a method of statistical inference that 


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Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 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 contractlevel 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 a/2N. For 

the Thompson Tau test, the Student’s t is 

based on N–2 degrees of freedom and a tail 

value of a/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 


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40750 Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 

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 nonparametric 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—Crown) ............. Smaller Jail ............... [REDACTED] [REDACTED] [REDACTED] 

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 


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Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 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 knearest neighbor approach to find contracts 

similar to GTL’s and then adjust GTL’s perminute 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 perminute 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 perminute 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 perminute 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. 


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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 perminute 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 nonoutlier 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 perminute 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 nonparametric 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. 


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Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 40753 

TABLE 6—PROVIDER MATCHES TO GTL BY FACILITY TYPE

Smaller Jail Larger Jail Prison Overall 

Number of 

matches Percent Number of matches Percent Number of matches Percent Number of 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 nonGTL 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 perminute 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. 

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 


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Table 7 - Lower Bound Estimates 

Lower Bound-Weighted GTL Adjustment 

# of Std. Dev. 

Contracts $ 

Larger Jails 

# of Mean Std. Dev 

Contracts $ $ 

Larger Jails 179 0.070 0.108 

Prisons 129 0.058 0.088 
40754 Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 

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 perminute 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

[$] 

Facility type Per-minute 

rate cap 

1 Std. dev. 

buffer 

2 Std. dev. 

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, giveand-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

Facility type Site commission Mean 

($) 

Std. dev. 

($) 

Mean + std. 

dev. 

($) 

Number of contracts 

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 


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Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations 40755 

TABLE 1—SITE COMMISSIONS AND PER-MINUTE COSTS—Continued 

Facility type Site commission Mean 

($) 

Std. dev. 

($) 

Mean + std. 

dev. 

($) 

Number of contracts 

Below Above Total 

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 


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