Securus Will Sue Over FCC’s Prison Calling Order, CEO Says

Commissioner Ajit Pai penned a “brilliant” dissent -- which Securus plans to use as a blueprint, Smith said. The 21-page dissent was “phenomenal,” and “really laid out a road map to successfully get the decision overturned,” Smith said. Pai cited what he considered legal deficiencies of the order, from lack of true notice in the inmate calling NPRM, to the agency’s inability to administer the rules it enacted.

"The Commission teed up several discrete proposals” in its NPRM, Pai said, including eliminating per-call charges, capping per-minute rates and using tiered pricing to set differing caps for higher- and lower-volume facilities. “De facto rate-of-return regulation was not on the table,” he said. “Had the Commission sought comment on imposing rate-of-return regulation upon ICS providers, the record almost surely would look quite different than it does today."

The FCC is “confident our Order is legally sound and can withstand any challenge,” a spokesman said by email. Backers of prison-calling rate reform said they were disappointed in Pai’s dissent. They said the order was legally sound, because ICS companies had plenty of notice the rules were coming. “The industry largely refused to participate” in the proceeding despite it going on for more than a decade, said Peter Wagner, Prison Policy Initiative executive director.

Pai’s dissent was “surprising,” said Lee Petro of Drinker Biddle, representing Martha Wright, the grandmother who first asked the FCC to get involved in high prison phone rates. Notwithstanding Pai’s characterization of the order as “de facto” rate-of-return regulation, “I don’t see it as a rate-of-return regulation,” said Petro, by email. “Looking at the actual cost of providing ICS service is the appropriate solution to a problem created by the unwillingness of the ICS providers to respond to the Commission’s repeated request to justify their widely-divergent rates."

Pai would have supported simple rate caps, his dissent said, but the rate-of-return regulation contemplated in the order will be impossible to administer. After adjusting their interstate rates and ancillary charges to be “cost based,” the order requires ICS providers determine whether all of those cost-based rates fall beneath the safe harbor, or any rise above the cap. Then they must report annually on all rates charged, minutes billed and calls disconnected, and document and report costs on an institution-by-institution basis. The order left the details of how implementation will work “wholly unanswered,” Pai said. The “massive data collection” will bring in over 122,000 separate pieces of information for jails alone, he said. “How we will review that information, check it for errors, and analyze it within a reasonable time frame is a mystery."

The whole point of notice-and-comment rulemaking is to build a record that reflects what the commission proposed, said Berin Szoka, president of TechFreedom. “I don’t think it’s any exaggeration to say that this idea came out of nowhere.” Acting FCC Chairwoman Mignon Clyburn “had the idea that this was going to be her legacy, and she wanted it to be her big win,” but in the process, she might have dismissed critics who warned of potential legal pitfalls, Szoka said. This is a great example, he said, of “why sweating the legal details matters so much.” The FCC needs to be well-grounded in its legal authority, he said. “This is why it’s not a good idea to have commissioners, let alone chairmen, who aren’t lawyers.”

Pai argued the FCC lacked an adequate record, but the commission had access to cost summaries of the major ICS providers in 2008, access to the underlying contracts and a state-by-state survey showing the disparity in rates, Petro emailed. “The Courts have said that the FCC may rely on comparable rates when the parties holding the information are unwilling to provide it. If the record was lacking information, the blame for that sits squarely on the ICS providers.” Pai’s determination that the FCC lacks the competency to administer its rules is “startling,” Petro said, expressing his “complete faith” that the commission can administer a data collection program and respond to waivers and complaints. Clyburn should be “highly praised,” Petro said. He dismissed the idea that she “rushed” the order, which had a record “as complete as it would be” without complete cooperation by ICS providers.

Securus will have to hire up to 20 new employees to give the FCC the data it wants on the company’s 2,000 existing contracts, Smith said. The agency, in turn, will likely need to hire hundreds to go through all the filings that will be made, he said, “because virtually everyone is going to be over those safe harbor rates.” Pai got it right, Smith said: Rate-of-return regulation is “unbelievably” burdensome, and it’s fiscally irresponsible for the commission to implement rules that will require so many man hours, especially given talk of a government shutdown. (See related story in this issue.)

Securus’s existing contracts will be affected, Smith said, notwithstanding the “cover-your-ass comment” in the order reassuring ICS providers that nothing in the text “directly overrides” contracts between correctional facilities and ICS providers. Because virtually none of Securus’s rates are below the safe-harbor rates, the order “denies us compliance with existing contracts,” he said.

Securus’s contracts “were negotiated in good faith,” Smith said. “The FCC has been relatively cavalier in the way they treated that” by encouraging ICS providers to renegotiate them, or put them out for a new request for proposal, he said. “Clearly the FCC doesn’t understand the work involved with putting something out to RFP.” That process can last as long as 18 months from the time consultants are engaged, to when the decision is made, he said. “With 18,000 contracts in the industry, that’s not something you can snap your fingers on and say get all that stuff done in 90 days."

Representatives from the other leading ICS providers, including Global Tel*Link, Telmate and Pay Tel, told us they were reviewing the order and Pai’s dissent, and wouldn’t comment on if they would also challenge the order in court. Pay Tel President Vincent Townsend said he would discuss the order with counsel, and have a “formal response” within the next week.

For years, “the industry was on notice and refused to participate,” said Wagner. It was the “larger companies owned by the investment banks” that “refused to answer the FCC’s questions,” said Wagner. “At best, Securus dragged their feet on clarifying to the FCC what their fees were. At worst, they refused and misled the FCC."

Smith thinks Securus has about a 50-50 chance of success in court. It would be higher, but for the political concerns of appointed justices, he said. “We will try our best to get it overturned, and that’s what we're going to tell all our 2,000 customers as well.”

To Szoka, that would be an unfortunate yet predictable end to an otherwise admirable goal. “This is really sad,” Szoka said. “Because all the people who thought this was great, and thought they were finally going to get relief, are going to be sorely disappointed when they realize that this is all going to turn to ashes.”