Bureau Denies Petitions To Stay Inmate Calling Reform Order
Federal Communications Commission
Federal Communications Commission
Washington, D.C. 20554
In the Matter of
Rates for Interstate Inmate Calling Services
WC Docket No. 12-375
ORDER DENYING STAY PETITIONS AND PETITION TO HOLD IN ABEYANCE
Adopted: November 21, 2013
Released: November 21, 2013
By the Chief, Wireline Competition Bureau:
Two inmate calling service (ICS) providers, Securus Technologies, Inc. (Securus) and
Global Tel*Link (GTL) (jointly ICS Providers) have filed Petitions for Stay1 of the Inmate Calling Report
and Order and FNPRM.2 Securus also filed a Petition to Hold Further Rulemaking Proceeding in
Abeyance.3 We deny the three petitions for the reasons set forth below.
The Commission initiated its inquiry into inmate calling services in 2002 by seeking
comment on, among other things, cost and revenue data related to the provision of ICS, site commission
payment demands made by correctional facilities, states’ use of rate ceilings on local calling, and
alternatives to collect calling (including the use of debit calling).4 In 2003, the Wright Petitioners filed a
rulemaking petition with the Commission to address ICS practices.5 The petition requested that the
Commission prohibit exclusive ICS contracts and collect-call-only restrictions in correctional facilities.6
In 2007, the same petitioners filed an alternative rulemaking petition, requesting that the Commission
1 See Rates for Interstate Inmate Calling Services, Securus Technologies, Inc. Petition for Stay of Report and Order
Pending Appeal (FCC 13-113), WC Docket No. 12-375 (filed Oct. 22, 2013) (Securus Petition); see also Rates for
Interstate Inmate Calling Services, Petition of Global Tel*Link for Stay Pending Judicial Review, WC Docket No.
12-375 (filed Oct. 30, 2013) (GTL Petition).
2 See Rates for Interstate Inmate Calling Services, Report and Order and Further Notice of Proposed Rulemaking,
WC Docket No. 12-375, FCC 13-113 (rel. Sept. 26, 2013) (Inmate Calling Report and Order and FNPRM or
Order). The Order was published in the Federal Register on Nov. 13, 2013. See 78 FR 67956 (Nov. 13, 2013)
(final rules summary); see also 78 FR 68005 (Nov. 13, 2013) (proposed rules summary).
3 Rates for Interstate Inmate Calling Services, Securus Technologies, Inc. Petition to Hold Further Rulemaking
Proceeding in Abeyance, WC Docket No. 12-375 (filed Oct. 22, 2013) (Abeyance Petition).
4 See Implementation of the Pay Telephone Reclassification and Compensation Provisions of the
Telecommunications Act of 1996, Order on Remand and Notice of Proposed Rulemaking, CC Docket No. 96-128,
17 FCC Rcd 3248 at 3276-79, paras. 73-79 (2002) (Inmate Calling Services Order on Remand and NPRM).
5 See generally Implementation of the Pay Telephone Reclassification and Compensation Provisions of the
Telecommunications Act of 1996, Petition of Martha Wright et al. for Rulemaking or, in the Alternative, Petition to
Address Referral Issues in Pending Rulemaking, CC Docket No. 96-128 at 3 (filed Nov. 3, 2003) (First Wright
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reform high ICS rates by requiring a debit-calling option in correctional facilities, prohibiting per-call
charges, and establishing rate caps for interstate, interexchange ICS.7 The Commission sought and
received comment on both petitions.8 In 2008, certain ICS providers placed in the record a cost study that
quantified their interstate ICS costs.9 In December 2012, the Commission adopted a notice of proposed
rulemaking seeking comment on the two Wright petitions.10 Specifically, the Commission sought
comment on the Alternative Wright Petition’s proposed rate caps, and on possible variations on the rate
caps, seeking comment throughout the 2012 ICS NPRM on ways of regulating ICS rates based on the
costs of providing ICS.11 The 2012 ICS NPRM also sought comment on issues affecting the ICS market,
including the 2008 ICS Provider Data Submission; collect, debit, and prepaid ICS calling options; site
commission payments; and the Commission’s statutory authority to regulate ICS.12 On June 26, 2013, the
Wireline Competition Bureau (Bureau) released a Public Notice seeking additional comment on ancillary
charges, that is, charges ancillary to those directly related to the recovery of the cost to provision
telephone service, such as the costs of initiating or closing a debit or prepaid ICS account.13
Commission adopted the Inmate Calling Report and Order and FNPRM on August 9, 2013.14 As
described further below, the Order adopted several interim reforms regarding the rates for interstate ICS
calls, which reportedly constitute no more than 15 percent of all ICS traffic handled by the ICS
Section 201 of the Communications Act of 1934, as amended (Act) requires that all
carriers’ interstate rates be just and reasonable.16 To be just and reasonable, rates must be related to the
7 See Implementation of the Pay Telephone Reclassification and Compensation Provisions of the
Telecommunications Act of 1996, Petitioners’ Alternative Rulemaking Proposal, CC Docket No. 96-128 (filed Mar.
1, 2007) (Alternative Wright Petition).
8 See Petition For Rulemaking Filed Regarding Issues Related to Inmate Calling Services Pleading Cycle
Established, CC Docket No. 96-128, Public Notice, DA 03-4027, 2003 WL 23095474 (Wireline Comp. Bur. 2003);
Comment Sought on Alternative Rulemaking Proposal Regarding Issues Related to Inmate Calling Services, CC
Docket No. 96-128, Public Notice, 22 FCC Rcd 4229 (Wireline Comp. Bur. 2007) (2007 Public Notice).
9 See generally Don J. Wood, Inmate Calling Services Interstate Call Cost Study (WOOD & WOOD 2008), CC
Docket No. 96-128 (filed Aug. 15, 2008); Letter from Stephanie A. Joyce, Counsel to Securus Technologies, Inc., to
Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-128 (filed Aug. 22, 2008) (Joyce Aug. 22, 2008 Ex Parte
Letter) (attaching supplemental cost and usage data); record submission by “several providers of inmate telephone
service,” CC Docket No. 96-128 (filed Oct. 15, 2008) (amending supplemental cost and usage data) (collectively
2008 ICS Provider Data Submission).
10 See generally Rates for Interstate Inmate Calling Services, WC Docket No. 12-375, Notice of Proposed
Rulemaking, 27 FCC Rcd 16629 (2012) (2012 ICS NPRM). The 2012 ICS NPRM incorporated relevant comments,
reply comments and ex parte filings from the prior ICS docket, CC Docket No. 96-128, into WC Docket No. 12-
375. See 2012 ICS NPRM, 27 FCC Rcd at 16636, para. 15.
11 See 2012 ICS NPRM, 27 FCC Rcd at 16637-38, paras. 18-21; 16639, paras. 25-26; 16642-43, para. 37; 16642,
12 See generally 2012 ICS NPRM.
13 See More Data Sought on Extra Fees Levied on Inmate Calling Services, WC Docket No. 12-375, Public Notice,
28 FCC Rcd 9080, 9080-81 (Wireline Comp. Bur. rel. June 26, 2013).
14 See generally Inmate Calling Report and Order and FNPRM. In the accompanying FNPRM, the Commission
sought comment on the possible regulation of intrastate ICS rates, as well as certain other matters. Data and
information gathered through the FNPRM will be used to establish final ICS rules.
15 See infra para. 35.
16 See 47 U.S.C. § 201(b).
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cost of providing service.17 Section 276 additionally requires that payphone rates be fair.18 Yet for many
years, interstate ICS rates have been unreasonably high, unfair, and far in excess of the cost of providing
service.19 Excessive rates have been driven largely by substantial commission payments ICS providers
have agreed to make to prison authorities.20 The Commission relies in the first instance on competition
when it can do so to ensure just and reasonable rates. In the Inmate Calling Report and Order and
FNPRM the Commission found that “competition for ICS contracts may actually tend to increase the rate
levels in ICS contract bids where site commission size is a factor in evaluating bids.”21
As such, the
Commission found that the market forces in the interstate ICS market actually fail to constrain ICS
rates.22 In fact, because the benefits of any “competition” in the ICS market ran to the facility rather than
the inmate or their family (i.e., the party who actually paid for the service), rates in many cases were
being driven higher.23 In the absence of competition ensuring just and reasonable rates, the Commission
has used benchmarks to establish the appropriate rates for services.24 Here, however, the Commission did
not have adequate information to establish an interstate ICS benchmark rate. The Commission thus
utilized the data in the record – that is, cost data from ICS providers – to adopt interim rules that required
interstate ICS rates be cost-based and established, as described below, an interim two-tiered framework to
bring rates closer in line with costs with defined waiver processes.
In light of the Commission’s finding of market failure, the Order required that interstate
ICS rates be cost-based.25
Based on this guiding principle,26 the Order established “safe harbor” rate
17 Although in principle the Commission can specify a different approach to ensuring just and reasonable rates that
departs from cost-based ratemaking, it never has done so in the context of ICS. Inmate Calling Report and Order
and FNPRM at para. 45.
18 See 47 U.S.C. § 276(b).
19 See Inmate Calling Report and Order and FNPRM Section III.B.3.
20 “[U]nder most contracts the commission is the single largest component affecting the rates for inmate calling
service.” Inmate Calling Report and Order and FNPRM at para. 41 (citing Inmate Calling Services Order on
Remand and NPRM, 17 FCC Rcd at 3252-53, para. 10).
21 See Inmate Calling Report and Order and FNPRM at para. 41.
22 See id.
23 “While the process of awarding contracts to provide ICS may include competitive bidding, such competition in
many instances benefits correctional facilities, not necessarily ICS consumers – inmates and their family and friends
who pay the ICS rates, who are not parties to the agreements, and whose interest in just and reasonable rates is not
necessarily represented in bidding or negotiation.” Id. at para. 40 (internal citations omitted).
24 47 C.F.R. § 61.26(c) (“The benchmark rate for a CLEC’s switched exchange access services will be the rate
charged for similar services by the competing ILEC. If an ILEC to which a CLEC benchmarks its rates, pursuant to
this section, lowers the rate to which a CLEC benchmarks, the CLEC must revise its rates to the lower level within
15 days of the effective date of the lowered ILEC rate.”).
25 Inmate Calling Report and Order and FNPRM at paras. 50-52; see also id. at App. A (§64.6010).
requirement is a commonplace aspect of the regulation of interstate communications services and enables the
Commission to fulfill its core statutory responsibility that rates be just and reasonable. The requirement does not
alter the fundamental nature of the rate cap regime instituted by the Order. It is primarily an enforcement
mechanism which provides an objective and time-tested standard by which to assess the reasonableness of rates in
response to a complaint or an investigation. The impact of this requirement on ICS providers is consequently
narrow. Providers need not cost-justify their rates prior to setting them. They are not required to cost-justify to the
Commission rates at or below the safe harbors, unless and until a challenger successfully bears the burden of
proving those rates are unreasonable. See infra n.31. And they are not required to cost-justify in the first instance
rates subject to an informal complaint unless Commission initiates an investigation. Providers must cost-justify
their rates to the Commission only if those rates are above the safe harbors and are subject to a formal complaint or
a Commission investigation.
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levels. Rates set at or below the safe harbors will be presumed lawful,27 “unless and until the Commission
makes a finding to the contrary.”28 The safe harbor rate levels are based on substantial data in the record
and were set conservatively – i.e., at levels that are likely over-compensatory – to ensure cost recovery for
services provided at the vast majority of correctional facilities.29
The safe harbor rate levels do not
mandate specific rates or even rate structures, but instead, allow providers flexibility in setting rates
within the limits established by the safe harbor rate levels.30 The safe harbor creates protections for
providers because any party wishing to challenge a rate that complies with the safe harbor will bear the
burden of production and persuasion to overcome the presumption of lawfulness, and unless a challenger
overcomes that presumption, the ICS provider need not demonstrate its costs.31
Further, rates charged
within the safe harbor levels will not be subject to refunds should a complainant establish that the
challenged rates are not just and reasonable.32 Nor in the course of a Commission investigation will
providers whose rates are within the safe harbors be subject to forfeiture or refund if their rates are found
to be unjust and unreasonable. Such providers would be required to charge lower, cost-based, and
compensatory rates on a prospective basis only.
Recognizing that ICS providers operate in some facilities where the costs of service are
exceptionally high, the Inmate Calling Report and Order and FNPRM established interim hard rate caps,
substantially higher than the safe harbor rates, which allow ICS providers flexibility in setting their rates
to reflect their individual costs. The hard caps represent the outside range of what the Commission found,
based on data in the record, a high cost ICS provider may be able to cost justify.33 The hard caps give ICS
providers even more flexibility in setting their interstate ICS rates, helping to ensure that the majority of
ICS providers will be able to recover their costs without a significant administrative burden prior to
(Continued from previous page)
It is not clear, moreover, how the Commission would enforce its ICS rate caps short of requiring such a cost
showing. Such cost showings are standard practice in formal complaints filed at the Commission under sections 201
and 208 and pursuant to the Commission’s complaint procedures. 47 U.S.C. §§ 201(b), 208; 47 C.F.R. § 1.720(ff).
Providers’ interstate ICS rates were subject to such complaint filings even prior to the adoption of ICS-specific rate
regulation. Such complaint proceedings would unavoidably involve cost showings similar to those that ICS
providers would make under the ICS rules.
The Order’s requirement that rates be cost-based can therefore hardly be
said to represent a “novel” requirement on ICS providers. See Securus Petition at 5.
26 As the Order noted, “the Commission typically focuses on the costs of providing the underlying service when
ensuring that rates for service are just and reasonable under section 201(b).” Inmate Calling Report and Order and
FNPRM at para. 50. See, e.g., 47 C.F.R. § 61.49(d) (cost showing required for rates that exceed price cap indices);
47 C.F.R. § 52.33 (allowing price cap carriers to recover local number portability costs through a cost showing).
27 See generally Inmate Calling Report and Order and FNPRM Section III.C.3.a.; id. at para. 49 (rates at or below
safe harbor rates will be presumed to be “just, reasonable, fair and cost-based”).
28 Inmate Calling Report and Order and FNPRM at para. 60; see also id. App. A, §64.6020(c).
29 See Inmate Calling Report and Order and FNPRM at para. 61.
30 For example, the Order allows ICS providers to employ a rate structure that includes both per call and per minute
charges as long as the resulting rates calculated for a 15 minute call remain under the safe harbor rates. See Inmate
Calling Report and Order and FNPRM at para. 88.
31 Inmate Calling Report and Order and FNPRM at para. 60; id. at para. 120. While the Order made the process
clear from the outset, the type of burden-shifting is not substantially different than would occur in an enforcement
proceeding absent these rules.
Moreover, the rules give ICS providers that avail themselves of the safe harbor the
additional protections that parties challenging such rates have to overcome a rebuttable presumption that such rates
are just, reasonable and fair. See id.; see also supra para. 45.
32 Inmate Calling Report and Order and FNPRM at para. 60; id. at para. 120.
33 See generally id. at Section III.C.3.b. To address the theoretical possibility of outliers, the Commission also made
clear that providers could seek waiver of the hard caps if they could show that their costs necessitated rates above
that level. Id. at paras. 82-84.
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setting their rates. In the event of a formal complaint or rate investigation, however, ICS providers that
elect to set rates above the interim safe harbor rate levels and at or below the interim rate caps will bear
the burden of production and persuasion and could be subject to refunds.34
Finally, the Commission recognized that there may be rare occasions where a particular
ICS provider was serving only extremely high cost facilities and believed that its cost-based rates would
be higher than even the hard caps. The Order provided the flexibility to deal with such situations by
creating a waiver process whereby such an ICS provider could establish its costs and receive a waiver
necessary to charge rates above the hard cap.35
To qualify for the extraordinary remedy of a stay, a petitioner must show that:
(1) it is
likely to prevail on the merits; (2) it will suffer irreparable harm absent the grant of preliminary relief;
(3) other interested parties will not be harmed if the stay is granted; and (4) the public interest would
favor grant of the stay.36 For the reasons described below, the ICS Providers have failed to meet the test
for extraordinary equitable relief.
Likelihood of Success on the Merits
Adequacy of Notice. Securus and GTL both claim that the Commission unlawfully failed
to provide notice that it was contemplating a requirement that interstate ICS rates be cost-based.37
Securus states that the Order “adopts a novel ‘cost-based’ ratemaking methodology that was neither
raised in the NPRM nor discussed in the record . . . .”38 GTL characterizes the requirement as “rate-of-
return regulation” and claims that no notice was provided for such an approach.39
The Commission provided adequate notice40 that it contemplated a cost-based rate cap
structure.41 As noted in the Order, the 2012 ICS NPRM sought comment on various aspects of rate caps
such as “how any caps should be set,” “how they should operate,” “the benefits to per-minute rate caps,”
34 See id. at para. 89; id. at para. 121. This requirement makes clear what the burdens and potential remedies will be,
a determination normally made in the course of an enforcement action. Importantly, the burden in such an
enforcement proceeding is no higher than it would have been absent the Commission’s actions at issue here.
35 See id. at paras. 82-84.
36 See Washington Metro. Area Transit Comm’n v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C. Cir. 1977) (Holiday
Tours); Virginia Petroleum Jobbers Ass’n v. Federal Power Comm’n, 259 F.2d 921, 925 (D.C. Cir. 1958) (VA
37 Securus and GTL differ in their arguments for stay on which portions of the Order lacked adequate notice.
Securus’ claim is limited to the requirement that rates be cost-based. Securus Petition at 5. “There simply was no
indication there that the Commission was considering the potential of requiring ICS providers to prove that their
rates were cost-based . . . .” GTL’s claim challenges the same requirement but also challenges the safe harbor rule
that “derives from” or “follows from” it. GTL Petition at 5, 6. Apart from these passing references, however, GTL
neither explains nor supports this assertion elsewhere in its petition. As explained below, the safe harbor rates are an
integral part of the Order’s two-tier rate cap system. We therefore find that GTL is not likely to succeed on its claim
there was inadequate notice for the Order’s safe harbor rates.
38 Securus Petition at 5.
39 GTL Petition at 7. GTL’s assertion that the requirement that ICS rates be cost-based effectively transforms the
Order’s rate cap regulation into traditional rate of return regulation misses the fact that the Commission’s price cap
rules require that a carrier’s initial price caps are set based on such carrier’s costs and, once set, continue to require
cost showings in certain circumstances. See, e.g., 47 C.F.R. § 61.49(e) (requiring an explanation of cost allocations
and assignments for proposed rates that exceed price cap indices.).
40 The Commission provided a description of the subjects and issues involved as required by the Administrative
Procedure Act. See 5 U.S.C. § 553(b).
41 See generally 2012 ICS NPRM, 27 FCC Rcd at 16636-47, paras. 16-48.
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and “perceived problems or challenges associated with” such caps.42 Moreover, the 2012 ICS NPRM
discusses costs throughout. For example, the Commission asked commenters to provide “specific,
detailed cost information and other relevant data” to support their proposals.43 Not surprisingly,
numerous commenters provided data on service costs and suggested rate caps. The public thus had notice
and an opportunity to comment on cost-based rate caps. Although the 2012 ICS NPRM did not expressly
discuss the specific two-tiered cap system of the type ultimately adopted, that system is at the least a
logical outgrowth of the 2012 ICS NPRM. As the Commission stated, its rules are “the kind of variant on
rate caps that was contemplated in the NPRM.”44 The Commission explained further that the 2012 ICS
NPRM “made clear that we were contemplating such a rule; at a minimum, it plainly left open the
possibility that we would implement rate caps in a manner that addressed concerns about the variability in
The Commission thus “‘adequately frame[d] the subjects for discussion.’”46
Contrary to GTL’s characterization, the adopted regulatory framework does not
constitute traditional rate of return regulation.47 Traditional rate of return regulation involves rates
established in a complex tariff filing process. At the Commission, the process is governed by Part 61 of
the Commission’s rules which require the use of the Commission’s Uniform System of Accounts in Part
32, the allocation of costs between regulated and non-regulated categories pursuant to Part 64 of the
Commission’s rules, the separation of costs between interstate and intrastate jurisdictions under the Part
36 rules, and the apportionment of interstate costs to the appropriate services using the Part 69 rules.48
Nothing of the sort is required by the Order. Rather, the Order adopted rate caps based on costs, and is
actually closer to the price cap regime for LECs that replaced rate of return. Other than in an enforcement
proceeding, a carrier need not demonstrate its costs or justify its rates. GTL therefore is wrong that the
Order requires ex ante review of ICS rates. Neither does the requirement that ICS providers annually file
rate information, so that the Commission may monitor compliance with our rules and determine the
appropriate future regulatory course, meaningfully resemble typically voluminous cost-supported tariff
GTL asserts that such requirements are not “definitional elements of rate of return [but]
The Commission has a long history as of rate of return regulation, which
unavoidably entails the aforementioned complex of rules and procedures traditionally used to regulate the
rates of incumbent local exchange carriers and interexchange carriers. These rules and procedures are
integral to rate of return regulation and cannot be separated from it. GTL’s reasoning, by contrast, would
require that every Commission attempt to foster cost-based rates be analyzed under an ill-defined sliding
scale to determine when it is or is not rate of return regulation. Indeed, GTL does not describe how to
reliably distinguish between a “definitional element” and a “regulatory method.” That the rate caps
42 Inmate Calling Report and Order and FNPRM at para. 59 n.222.
43 2012 ICS NPRM, 27 FCC Rcd at 16637, para. 20; see also id. at 16645-6, para. 44 (asking whether proposed rate
caps were supported by cost data); id. at 16633, para. 7 (questioning “whether ICS rates accurately reflect the costs
of providing ICS”); id. at 16639, para. 25 (asking whether a rate proposal was supported by “sufficient cost,
demand, and revenue detail to allow the Commission to determine whether the proposed rates are just and
45 Inmate Calling Report and Order and FNPRM at n.222.
46 Id. (citing Omnipoint v. FCC, 78 F.3d 620, 631-32 (D.C. Cir. 1996); Nat’l Mining Ass’n v. Mine Safety and
Health Admin., 512 F.3d 696, 699-700 (D.C. Cir. 2008)).
47 See Inmate Calling Report and Order and FNPRM at n.195.
48 These requirements occupy more than 150 pages of the Commission’s rules.
49 See infra paras. 12-13.
50 GTL Petition at 10.
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adopted by the Order include a cost-based requirement simply reflects that all ratemaking methods
attempt to adopt rates that approach cost. In the context of the ICS market, which the Order determined
is subject to market failures, we cannot rely on market mechanisms to achieve that goal.51
To be sure, should an ICS provider face a formal complaint proceeding or a Commission
investigation, it may at that point be required to demonstrate that its rates are cost-based. That
requirement does not turn the rate cap regime into rate-of-return regulation, however, because it is an
aspect of the Commission’s longstanding complaint process.52 Given the basic requirement of section
201of the Act that all interstate rates be just and reasonable, any provider may, upon complaint, be
required to show that its rates are based on its costs.53 Moreover, as a practical matter, we expect that the
cost-based requirement adopted in the Order will impose little burden on ICS providers to which they are
not already subject through the Commission’s existing complaint and investigation procedures.54 GTL’s
position boils down to the erroneous claim that any form of cost-based rate regulation that does not fully
insulate providers’ rates from a cost-based challenge automatically amounts to rate of return regulation.
The enforcement mechanisms adopted in the Order streamline the enforcement process.
The Act requires just, reasonable, and fair interstate ICS rates, and the Commission determined in the
Order that this requirement would be fulfilled by requiring that rates be cost based, subject to a
presumption that rates within the safe harbor would be presumed to be cost based unless and until the
Commission made a contrary finding.55 In reality, that presumption, along with the pleading requirements
of the formal complaint process, would make it difficult for a challenger to mount a successful case
against a safe harbor rate. The Commission also determined that in a formal complaint challenging ICS
rates above the interim safe harbor, the burden of production and persuasion would fall on the ICS
provider. In any complaint proceeding challenging whether interstate ICS rates are just, reasonable, and
fair under sections 201 and 276 of the Act, however, evidence of the costs of providing interstate ICS
would be relevant to resolving the complaint. Where, as here, the Commission has made a finding that
competition does not work to ensure just and reasonable rates, such evidence becomes essential and can
only come from the ICS provider, with or without the explicit burden shift adopted in the Order. The
enforcement mechanisms adopted in the Order merely recognize the need for cost information and the
fact that such information must be provided by the party in possession of the data. Adopting such
enforcement processes does not convert a rate evaluation in a complaint proceeding into rate-of-return
regulation. Any associated burdens will not rise to the level the ICS Providers fear.
The ICS Providers also assert that the Order’s requirement that rates be cost-based
eliminated the incentives to improve efficiency that are inherent in rate cap regulation.56 The ICS
Providers, however, fail to note that the Order’s interim safe harbor rates provide precisely this kind of
incentive. Rates set at or below the safe harbors benefit from a presumption of lawfulness.57 Thus, a
provider that sets its rates at the safe harbor level but whose costs are lower will keep all profits earned
even if the Commission eventually were to issue an order finding those rates to be unjust and
51 See Inmate Calling Report and Order and FNPRM Section III.B.4.
52 Because the Commission did not adopt rate of return regulation, GTL cannot succeed on its claim that the
Commission had an obligation to justify its adoption of rate-of-return regulation after having abandoned that
regulatory methodology for interexchange carriers in the late 1980s. See GTL Petition at 14-19; see also Securus
Petition at 6-10. The Commission had no obligation to explain a “return” to a system of regulation it did not adopt.
53 We note that rates compliant with existing Commission rules adopted to ensure rates are just and reasonable may
be subject to specific standards for evaluation. See generally 47 C.F.R. § 61.49. See also supra n.17.
54 See Inmate Calling Report and Order and FNPRM at paras. 50-52.
55 See id.
56 See Securus Petition at 8; GTL Petition at 14-17.
57 Inmate Calling Report and Order and FNPRM at para. 60.
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unreasonable. In this sense, the safe harbor truly is safe: i.e., profits earned prior to a Commission order
finding a provider’s rates to be unjust can be retained without risk of refund or forfeiture, provided the
rate is below the safe harbor. By contrast, a provider whose rates fall outside the safe harbor runs the risk
that any profit above a reasonable return will have to be remitted in the form of refunds plus possible
forfeitures. In this way, the safe harbor rates and hard rate caps adopted in the Order combine cost-based
regulation with a strong incentive to increase operating efficiencies.
GTL also claims the Commission provided inadequate notice for its requirement that
charges for ancillary services be cost-based.58 As the Inmate Calling Report and Order and FNPRM
pointed out, however, the 2012 ICS NPRM sought comment on “outstanding questions with prepaid
calling such as: how to handle monthly fees; how to load an inmate’s account; and minimum required
account balance” – that is, ancillary charges.59 The Order also notes that “many commenters properly
understood that ancillary charges were part of the cost-based reform being considered.”60 These
commenters submitted multiple examples of excessive fees and proposals for regulating them.61 The
Order also makes clear that regulating ancillary fees “was a necessary aspect of our cost-based reforms,
as otherwise providers could simply increase their ancillary charges to offset lower rates subject to our
caps.”62 The adopted system is at the least a logical outgrowth of the 2012 ICS NPRM.63 For the reasons
described above, we find that the ICS Providers fail to demonstrate a likelihood of success on the merits
of their inadequacy of notice claim.
Vagueness. Securus asserts that it is likely to succeed on the merits of its claim that the
Order is “fatally vague in describing the rate regulation it imposes.”64 But there is nothing vague about
the approach that the Commission adopted. A provider can set its rates either at or below the safe harbor
level. Alternatively, if it believes its reasonable and direct costs of providing service exceed that level,
the provider may set its rates up to the hard cap. And the Commission described in the Order the
particular types of costs that would be considered: “the cost of capital (reasonable return on investment);
expenses for originating, switching, transporting, and terminating ICS calls; and costs associated with
security features relating to the provision of ICS.”65 The Commission has previously imposed rate cap
regulation with a similar degree of specificity.66
58 “Nor did the Commission’s proposals indicate that it was considering regulation of ancillary charges . . . .” GTL
Petition at 8.
59 See Inmate Calling Report and Order and FNPRM at para. 90. Although the 2012 ICS NPRM did not expressly
refer to such charges as “ancillary charges,” it is clear that the term as used in the Order encompasses such charges.
60 Id. at n.338.
62 Id.; see also Transcript of Reforming ICS Rates Workshop at 136, WC Docket 12-375 (filed July 16, 2013)
(Transcript of Reforming ICS Rates Workshop) (Cheryl Leanza, President, A Learned Hand, LLC (“I think the FCC
absolutely has to look at all the other corresponding fees because those will definitely go up if the rate – if only the
rate is addressed.”)).
63 See, e.g., CSX Trans. v. Surface Trans. Bd., 584 F.3d 1076, 1081 (D.C. Cir. 2009). See also, e.g., Petitioners 2013
Comments at 3, 24-27; Pay Tel 2013 Reply at 2-3 & n.6; Telmate 2013 Reply at 3.
64 Securus Petition at 6-10.
65 Inmate Calling Report and Order and FNPRM at para. 53 & n.196.
66 In a previous effort to impose a price cap regime less complex than the IXC or ILEC price cap regimes, the
Commission imposed a price cap regime on providers of IP Relay service based generally on the price cap plan
implemented for incumbent LECs but without specifying much of the detail required by that plan. See
Telecommunications Relay Services and Speech-to-Speech Services for Individuals with Hearing and Speech
Disabilities, CG Docket No. 03-123, Report and Order and Declaratory Ruling, 22 FCC Rcd 20140, 20158-60,
paras. 39-46 (2007).
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It is of no consequence that the Commission did not adopt a specific return on investment
such as the prescribed 11.25 percent rate of return used in traditional rate-of-return regulation of smaller
local exchange carriers.67 Securus claims that the Order leaves providers “without sufficient guidance” as
to what a “reasonable profit” means,68 but the Commission has a long history of determining reasonable
costs of capital, including in the payphone context,69 and the Order clearly identifies a “reasonable return
on investment” as a compensable cost that is “reasonably and directly related to the provision of ICS.”70
The Commission also states that the rate caps it adopts will ensure “fair compensation (including a
reasonable profit).”71 The Order made clear that the absence of a prescribed rate of return (and other
more technical elements of rate of return regulation) are examples of the flexibility inherent in the
Order’s rate cap approach.72 The rate cap approach adopted here is by nature less burdensome and more
flexible for providers to comply with and for the Commission to administer. Securus mistakes flexibility
for vagueness. We therefore find Securus fails to demonstrate it is likely to succeed on the merits of its
claim of vagueness.73
In a related vein, GTL contends that it faces severe penalties for failure to comply with
the rate caps and the Commission failed to provide sufficient guidance to enable ICS providers to comply
with the caps.74 To the contrary, we find that the Order provided ample guidance to enable ICS providers
to set cost-based rates in compliance with the interim rate caps established by the Order and created no
undue risk of enforcement fines or penalties for entities that act in good faith.
As discussed above, the Inmate Calling Report and Order and FNPRM provided general
guidance in assessing the costs that are recoverable through interstate ICS rates, that is, “only costs that
are reasonably and directly related to the provision of ICS.”75 The Order then provided numerous
specific examples of costs that would likely be compensable and non-compensable, giving providers
granular guidance that includes no less than twenty specific examples of cost categories that the
67 See Securus Petition at 7.
69 See Implementation of the Pay Telephone Reclassification and Compensation Provisions of the
Telecommunications Act of 1996, CC Docket No. 96-128, Third Report and Order, and Order on Reconsideration of
the Second Report and Order, 14 FCC Rcd 2545 at 2620-23, paras. 165-169 (1999).
70 Inmate Calling Report and Order and FNPRM at para. 53.
71 Id. at para. 61.
72 Id. at n.195.
73 In its arguments on vagueness, Securus includes assertions that its costs “must be reviewed on a contract-by-
contract basis” and not on a holding company basis as the Order directs. Securus Petition at 10 & n.26. It claims
that a review at the holding company level is arbitrary and capricious “because it ignores the reality of this market . .
. that rates are derived on a contract-by-contract basis.” Id. at n.26.
The Order, however, finds that analyzing costs
at the holding company level more accurately captures the operational realities of the ICS market. Inmate Calling
Report and Order and FNPRM at para. 83. ICS providers typically make use of centralized calling platforms which
realize very significant efficiencies and scale economies but which also may indicate that many of the costs of
providing ICS are joint and common costs that would be difficult to allocate with accuracy on a facility-by-facility
basis. See id. at para. 29. Moreover, the Order notes that the Commission previously determined that analyzing ICS
costs on a holding company basis was appropriate. Inmate Calling Services Order on Remand and NPRM, 17 FCC
Rcd at 3257-58, para. 23 (“Unless an ICS provider can show that . . . the overall profitability of its payphone
operations is deficient because the provider fails to recover its total costs from its aggregate revenues . . . then we
would see no reason to conclude that the provider has not been ‘fairly compensated.’”) (emphasis in original); see
also infra para. 28.
74 See GTL Petition at 17-19.
75 Inmate Calling Report and Order and FNPRM at para. 53.
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Commission would likely find compensable and eight examples of costs that it would not.76 To have
included additional detail or to have mandated uniform compliance with those details would have risked
creating a formalized system of cost accounts inappropriately detailed and rigid for the interim rate cap
regime adopted by the Order. A central goal of the Commission was to provide a significant degree of
flexibility to allow providers to utilize their existing accounting systems and conventions and not to
impose a single set of mandated cost categories to which providers would have to expend time and
resources conforming their internal accounting systems and data.
GTL is not likely to face “severe penalties” should it rates be found – after formal
complaint or investigation proceedings – to be above its reasonable costs.77 While the Order referred to
the Commission’s authority to assess fines, it did so with regard to “existing rules” that already applied to
interstate ICS providers, such as disclosure requirements.78 The Order did not indicate that carriers would
face penalties for good faith efforts to set cost-based rates that are subsequently found to exceed
permissible limits. Indeed, in almost all cases of new rule regimes, the Commission typically works with
providers to help guide them through the implementation of the rules79 and would be unlikely to assess
penalties on ICS providers that make good faith efforts to comply with these rules during this process.80
Moreover, if a provider’s rates fall within the safe harbor, no matter what its costs are, those rates will be
treated retrospectively as just and reasonable and cannot give rise to forfeiture or other penalty. Even if
the Commission were to investigate those rates and find them to be above the provider’s compensable
costs, the sole result of the investigation would be the prospective prescription of a lower cost-based rate.
There would be no penalty associated with those rates prior to the effective date of the new rate
prescription. In this way, the safe harbor creates a true zone of safeness that is free from the risk of any
penalty, much less the “severe penalties” cited by GTL.
GTL is also wrong that the Commission gave inadequate guidance on apportioning costs
between interstate and intrastate calls.81 ICS providers routinely distinguish between interstate and
intrastate costs and traffic in the normal course of business, for example, to accurately price and monitor
the different services they offer. This was evident in the record as the 2008 ICS Provider Data
Submission and the Securus cost study were both based, in whole or in part, on jurisdictionally separated
76 See Inmate Calling Report and Order and FNPRM at para. 53, nn.196, 198.
77 GTL Petition at 17.
78 Inmate Calling Report and Order and FNPRM at para. 118. Moreover, GTL does not cite a single instance of an
ICS provider being fined for violating the rules referenced in this section of the Order.
79 See, e.g., Transport Rate Structure and Pricing, Memorandum Opinion and Order, 8 FCC Rcd 5370, para. 1
(1993) (“clarify[ing] certain issues on which guidance is needed before the LECs file their initial transport rates”);
Amendment of Part 69 of the Commission's Rules to Ensure Application of Access Charges to All Interstate Toll
Traffic, Memorandum Opinion and Order and Request For Supplemental Comments, 102 FCC 2d 1243, 1257-58,
para. 28 (1985) (providing “sufficient guidance to permit the exchange carriers or NECA to develop the necessary
tariff provisions, if they do not already exist, and to permit the proper billing and collection of access charges”);
Material To Be Filed In Support Of 2013 Annual Access Tariff Filings, Order, 28 FCC Rcd 5224, 5228, paras. 11-12
(Wir. Comp. Bur. 2013) (providing guidance on the transition from intrastate switched access rates and rate
structures to interstate switched access rates and rate structures in light of questions that had been raised); Letter
from Sharon E. Gillett, Chief, Wireline Competition Bureau, to Regina McNeil, Vice President and General
Counsel, NECA, 27 FCC Rcd 5801 (2012) (describing Bureau staff discussions with NECA regarding the
implementation of intercarrier compensation reform, and providing certain formal guidance in that regard).
80 Due process would preclude the Commission from imposing a penalty insofar as the regulation at issue “‘fails to
provide a person of ordinary intelligence fair notice of what is prohibited, or is so standardless that it authorizes or
encourages seriously discriminatory enforcement.’” FCC v. Fox Television Stations, 132 S. Ct. 2307, 2317 (2012)
(internal citations omitted).
81 See GTL Petition at 18.
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cost data.82 Providers clearly were not hampered by a lack of guidance from the Commission in preparing
these studies and the Commission did not question the allocations made in either case. The Commission
in fact relied on one of these studies to set its interim rate caps.83 The Order allowed providers to
determine their own jurisdictional separations of costs to ensure providers have flexibility in
implementing this requirement.84 Moreover, the relatively burdensome nature of a formal separations
process specified by the Commission makes it less well-suited to the interim rate cap regime instituted by
the Order. GTL has not alleged that it does not or cannot separate its costs, the Commission is not
requiring that ICS providers develop a new separations methodology for this purpose, and there is no
indication that the Commission would find providers’ current separations methodology to be
We therefore conclude that the ICS Providers are not likely to prevail on their claims that
the Order unlawfully failed to provide sufficient guidance in describing and implementing the rate
regulation it imposed.
Contract Impairment. Securus also claims that the Commission unlawfully interfered
with its contracts with prison authorities.85 It first invokes the Sierra-Mobile doctrine,86 under which an
agency may modify or abrogate a valid contract “only if it harms the public interest.”87 This doctrine
does not apply for at least two reasons. First, as the Commission explained, the new rules “do not …
explicitly abrogate any agreements between ICS providers and correctional facilities,”88 nor do they
modify any provisions within those contracts.
Instead, the rules prohibit unjust, unreasonable, and unfair
rates paid by ICS end users: i.e., prisoners and their friends and family. End users are not parties to any
existing ICS contracts, which are between ICS providers and correctional facilities.89 Moreover, to the
extent that contracts between ICS providers and correctional facilities have change of law provisions, a
change in the law is by definition not an abrogation or modification of the contract. Because the
Commission has not abrogated or modified any contract, Sierra-Mobile does not apply here.
82 See 2008 ICS Provider Data Submission; see Siwek Report.
83 Inmate Calling Report and Order and FNPRM at paras. 78-80.
84 Id. at para. 53, n.195.
85 Securus Petition at 10-12.
86 Id. at 11-12.
87 Morgan Stanley Capital Group Inc. v. Public Util. Dist. No. 1 of Snohomish Cty., 554 U.S. 527, 548 (2008)
(Morgan Stanley). See also Western Union Tel. Co. v. FCC, 815 F.2d 1495, 1501 (D.C. Cir. 1987) (“Under the
Sierra-Mobile doctrine, the Commission has the power to prescribe a change in contract rates when it finds them to
be unlawful, . . . and to modify other provisions of private contracts when necessary to serve the public interest[.]”)
(citing FPC v. Sierra Pacific Power Co., 350 U.S. 348, 353–55 (1956); United Gas Co. v. Mobile Gas Corp., 350
U.S. 332, 344 (1956)); id. at 1501, n.2 (explaining that “[a]though the legal standard for changing contract rates
(they must be ‘unlawful’) differs from the standard for changing other contract provisions (they must disserve ‘the
public interest’), in fact the two standards are not very different.”); Morgan Stanley, 554 U.S. at 546 (holding that
the public interest standard under Sierra-Mobile is not at odds with the just-and-reasonable rate standard, but rather
defines “what it means for a rate to satisfy the just-and-reasonable standard in the contract context”).
88 Inmate Calling Report and Order and FNPRM at para. 101. As explained more fully below, not only does the
Order not modify, abrogate, or require the renegotiation of any contract, nor does it prohibit contractual provisions
obligating providers to pay site commissions to correctional facilities, but to the extent there are any indirect effects
on particular contracts, change of law provisions and/or routine amendment processes should be sufficient to address
those effects without impairing the contracts. See infra para. 40.
89 See Inmate Calling Report and Order and FNPRM at para. 100 (observing that existing ICS agreements were not
between sellers and purchasers of ICS, but rather between sellers (i.e., ICS providers) and correctional facilities,
with the purchasers of ICS not being parties to those agreements).
Federal Communications Commission
Second (and relatedly), “Sierra was grounded in the commonsense notion that ‘[i]n
wholesale markets, the party charging the rate and the party charged [are] often sophisticated businesses
enjoying presumptively equal bargaining power, who could be expected to negotiate a ‘just and
reasonable’ rate as between the two of them.”90 Here, however, the parties charged – prisoners and their
friends and family – are not even parties to the agreements and thus have no bargaining power
whatsoever. Consequently, the Sierra-Mobile doctrine does not apply here.
But, as the Commission concluded in the Order, even if Sierra-Mobile were relevant, the
Order is consistent with that doctrine.91 Indeed, insofar as “[t]he doctrine directs the Commission to
reject a contract rate that ‘seriously harms the consuming public,’”92 the reforms adopted in the Order
were both appropriate and necessary to fulfill that directive. In adopting those reforms, the Commission
relied on ample record evidence that existing ICS rates were inflicting serious harms on the consuming
public. For instance, the Commission found that the high ICS rates currently in place “discourage
communication between inmates and their families and larger support networks, which negatively impact
the millions of children with an incarcerated parent, contribute to the high rate of recidivism in our
nation’s correctional facilities, and increase the costs of our justice system,” and that “[f]amilial contact is
made all the more difficult because ‘mothers are incarcerated an average of 160 miles from their last
home, so in-person visits are difficult for family members on the outside to manage.’”93 Given the
extensive record of serious harm to the consuming public, the Commission found that the reforms
adopted in the Order were necessary “to ensure that rates and charges for interstate ICS are just,
reasonable, and fair under the Act and consistent with the public interest,” and that
[t]o the extent that a contract between a facility and an ICS provider contains a rate
that not meet those legal standards, it would be in the public interest to mandate that
the contracts be modified so that they reflect rates that comply with the relevant legal
requirements. . . . even if we were understood to be directly modifying existing contracts.94
The Order also emphasized repeatedly that unjust, unreasonable, and unfair ICS rates were inflicting
substantial and clear harm on the general public (and not merely on private interests),95 and that to the
extent interstate ICS rates exceeded providers’ costs directly and reasonably related to the provision of
ICS, those rates were unlawful under sections 201(b) and 276 of the Act.96
Therefore, even if Sierra-
Mobile were relevant (which it is not), the Commission satisfied its requirements by making appropriate
90 Morgan Stanley, 554 U.S. at 546 (quoting Verizon v. FCC, 535 U.S. 467, 479 (2002)) (emphasis added).
91 See Western Union, 815 F.2d at 1501; see also Inmate Calling Report and Order and FNPRM at n.365 (noting
that “[e]ven if our actions today were somehow construed as modifying particular contractual provisions or
abrogating particular contracts, we still would be acting within our lawful authority”).
92 NRG Power Marketing, LLC v. Maine Public Utils. Comm’n, 558 U.S. 165, 175 (2010) (quoting Morgan Stanley,
554 U.S. at 545-546).
93 Inmate Calling Report and Order and FNPRM at para. 42 (citations omitted). See also id. at paras. 1-3.
94 Inmate Calling Report and Order and FNPRM at n.365. See also id. at paras. 42-46 (describing the societal
impacts of high ICS rates, and the need to adopt reforms that will ensure that interstate ICS rates are just, reasonable,
95 See, e.g., Inmate Calling Report and Order and FNPRM at para. 1 (ICS reforms will “provide relief to the
millions of Americans who have borne the financial burden of unjust and unreasonable interstate inmate phone
rates”); id. at para. 2 (“This Order will promote the general welfare of our nation by making it easier for inmates to
stay connected to their families and friends while taking full account of the security needs of correctional
facilities.”); id. at para. 8 (“The Communications Act (Act) requires that interstate rates be just and reasonable for all
Americans . . . . The Act further requires that our payphone regulations ‘benefit . . . the general public,’ not just
some segment of it. Our actions in this Order, while long overdue, fulfill these statutory mandates . . . .”) (emphases
96 See, e.g., Inmate Calling Report and Order and FNPRM at paras. 12, 45-53, 59, n.222.
Federal Communications Commission
findings in the Order.
The Record Supports the Adopted Rates. Securus is incorrect when it claims that the
Inmate Calling Report and Order and FNPRM ignored record evidence of smaller, higher-cost facilities’
costs in setting its rate caps, resulting in below cost rates.97 In fact, the Commission expressly addressed
such evidence and used it as the basis for the interim rate caps which establish the outside level of rates
ICS providers may be able to cost justify. The interim rate cap for prepaid and debit ICS calls was set
based on the detailed cost data submitted by Pay Tel, which serves exclusively jails, “which providers
claim are more costly to serve than prisons.”98 The rate cap for collect ICS calls was based on the 2008
ICS Provider Data Submission which consisted of cost data from 25 correctional institutions (including
some served by Securus), the majority of which were higher-cost jails.99 With regard to the interim rate
caps, the Commission stated that it adopted the “highest cost data available in the record, which we
anticipate will ensure fair compensation for providers serving jails and prisons alike.”100 In fact, the cost
data used to establish both interim rate caps were data for the very kind of higher cost jails that Securus
asserts the Commission ignored.101 Notably, the Commission relied on these high cost showings even
though they contained types of costs that the Commission identified as costs that are not reasonably and
directly related to the provision of ICS because the intended purpose of the interim rate cap is to mark the
outer boundary of such costs to ensure reasonable compensation for all providers. The safe harbor rate
cap levels, by contrast, were based on data from state prisons, which more closely approximated actual
costs. That is why rates within the safe harbor are given a presumption of reasonableness.102 Even the
safe harbor rate levels were set conservatively to ensure that they accorded a reasonable recovery to the
majority of ICS providers, including many serving higher-cost populations.103
While Securus faults the Order for ignoring record evidence that the cost of serving some
of its facilities is higher than the interim rate caps,104 Securus’ own cost study underscores the fact that
averaged pricing is commonplace among ICS providers, as it is among communications providers
generally.105 The Siwek Report shows that the rates Securus charges for the highest cost institutions fail
to recover its self-identified costs of serving those institutions. It indicates that the average cost for “Low
10” group of institutions it serves is $1.71 per minute106 but that on average Securus charges only $1.10
per minute for calls from these same institutions.107 Securus does not contend that it is not profitable as a
97 See Securus Petition at 14-16.
98 Inmate Calling Report and Order and FNPRM at paras. 76-77; see also Letter from Marcus W. Trathen, Counsel
for Pay Tel Communications, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 12-375 (filed July 23, 2013).
99 Inmate Calling Report and Order and FNPRM at paras. 78-80. See also 2008 ICS Provider Data Submission.
100 Inmate Calling Report and Order and FNPRM at para. 81; see also id. at para. 62 (“We set our interim safe
harbor at conservative levels to account for the fact that there may be cost variances among correctional facilities.”).
101 See id. at paras. 76, 78.
102 See id. at paras. 61-65.
103 See id. at para. 65 (citing several benchmarks confirming the conservative nature of the Order’s safe harbor
rates); see also id. at para. 63, n.235 (citing the inclusion of two states’ rate data that are significantly higher than
rate data from the other states in the sample, the effect of which was to increase the average rate for prepaid and
debit calling from $0.054 per minute to $0.12 per minute).
104 Specifically, the average per minute rates for Securus’ Medium 10 and Low 10 groups are higher than the
Order’s rate caps. See Siwek Report at 3, Tbl. 2.
105 See, e.g., HRDC 2013 Comments, Rev. Exh. B.
106 Siwek Report at 3, Tbl. 2. These are costs for all local, intrastate and interstate calling. Costs for Securus’
interstate calls would likely be higher than this average cost.
107 Id. at 8, Tbl. 10.
Federal Communications Commission
whole or that because its current rates do not cover the cost of serving its Low 10 facilities, it will be
obliged to cease serving these locations.
Securus further asserts it is likely to succeed in its claim that the “Commission’s failure
to address Securus’s evidence . . . is a failure of ‘reasoned decisionmaking.’”108 This claim is factually
inaccurate. As discussed above, the Commission used the 2008 ICS Provider Data Submission, which
was based in part on Securus’ own cost data, to set the Order’s interim collect call rate cap.109 The
Commission also used the 2008 ICS Provider Data Submission and the average cost data reported by
Securus’ own cost study for all call types, net of commissions to benchmark the reasonableness of Pay
Tel’s debit calling cost data, and found the Pay Tel data yielded a higher interim rate cap for providers.110
Securus contends that its cost study “demonstrated that smaller facilities are orders of magnitude more
expensive to serve than larger facilities” and that the Order “dismisses these differences in cost
structure.”111 Securus’ cost study does show that the smaller institutions it serves may be more costly to
serve.112 Yet, as the Order noted, when a provider’s costs are reviewed in the context of a complaint, it
will be “on the basis either of the whole of its ICS business or by groupings that reflect reasonably related
cost characteristics, and not on the basis of a single facility it serves.”113 An ICS provider will therefore
be able to choose how its cost support is reviewed. On that basis, Securus’ average per minute cost
(without commissions) for all the institutions included in its study was significantly below even the
lowest interim safe harbor rate level set by the Order.114 Ultimately, Securus’ own data suggest that, far
from being harmed by the rates set by the Order, Securus likely will be overcompensated by such rates on
a company-wide basis.115 We find therefore that Securus is unlikely to succeed in its claim that the
Commission failed to engage in “reasoned decisionmaking.”
The Order Does Not Violate the Takings Clause. Securus also contends that the
Commission failed to consider record evidence that site commissions are imposed by contract or state
law, which failure “caused the Commission to set rate caps that are confiscatory in violation of the
Takings Clause of the Fifth Amendment.”116 The Commission, however, considered and rejected ICS
providers’ record assertions that it “must defer to states on any decision about site commission
payments.”117 Rather, the Commission stated “[w]e do not conclude that ICS providers and correctional
facilities cannot have arrangements that include site commissions. We conclude only that, under the Act,
such commission payments are not costs that can be recovered through interstate ICS rates.”118 The
108 Securus Petition at 15 (emphasis added).
109 See Inmate Calling Report and Order and FNPRM at para. 78. The Commission found that the resulting cap
exceeded the average costs for collect calls reflected in Securus’ more recent cost data submission. Id.
110 See Inmate Calling Report and Order and FNPRM at para. 77.
111 Securus Petition at 15.
112 The Commission accepted Securus’ cost study for purposes of its analysis in the Inmate Calling Report and
Order and FNPRM. This did not prejudge how the Commission would review Securus’ cost study in a cost
113 Inmate Calling Report and Order and FNPRM at para. 123. See also id. at para. 83 (waiver petitions to be
judged on a holding company basis). Providers whose costs for the whole of their ICS business exceed the Order’s
rate caps may seek a waiver. See Inmate Calling Report and Order and FNPRM at paras. 82-84.
114 Inmate Calling Report and Order and FNPRM at para. 26.
115 We also remind the ICS Providers that the reforms adopted in the Inmate Calling Report and Order and FNPRM
are limited to interstate ICS only.
116 Securus Petition at 15-16.
117 Inmate Calling Report and Order and FNPRM at para. 56, n.211.
118 Id. at para. 56.
Federal Communications Commission
Order also noted that the Commission previously held that site commission payments are an
apportionment of profit, not a cost of providing ICS.119 Additionally, the financial impact of our reforms
on ICS providers is limited due to the fact that they affect only interstate ICS rates, which comprise only
about 15 percent of all ICS traffic.120 Finally, the Order also addressed and rejected the claim that the rate
regulations it adopted effectuated unconstitutional takings.121 Securus’ petition provides no additional
substantiation for this claim. We therefore find that Securus is not likely to succeed on this claim.
The Order Does Not Mandate Cross-Subsidization. Securus finally asserts it is likely to
succeed on its claim that the Commission failed to take into consideration the differences in cost to serve
smaller facilities, effectively mandating cross-subsidization between different correctional institutions.122
Securus states that the “Commission ignored the record evidence”123 and cites a “lack of reasoned
analysis.”124 As previously discussed, however, the Commission took into account differences in the cost
of serving smaller facilities.125 Securus may disagree with the Commission’s analysis but it cannot
contend the Commission did not undertake it.
Securus asserts that the adoption of a single set of rates for all correctional facilities
“requires nationwide cross-subsidization of ICS services.”126 Securus claims that the Order “never even
acknowledges that [cross subsidization] is the necessary outcome of its new rules.”127 To the contrary,
the Order squarely addressed this issue.128 It is a given that when a regulatory pricing structure is
established, providers subject to those rates will serve higher and lower cost customers or locations and
will effectively be required to average its costs among those customers.129 The Order cited both wireline
and CMRS providers as examples.130 Both types of providers use regional and nationwide prices to serve
end users with a wide range of cost and traffic characteristics.131 Likewise, no regulatory rate structure is
precise enough to account for the differences between all providers let alone all the locations served by
119 Id. at para. 54 n.199.
120 See infra nn. 145-50. Rules that affect such a small portion of traffic cannot, as a matter of law, constitute a
taking. See, e.g., Full Value Advisors, LLC v. SEC, 633 F.3d 1101 at 1109 (D.C. Cir. 2011) (government action
must “amount to a deprivation of all or most economic use” of property in order to constitute an unconstitutional
121 Inmate Calling Report and Order and FNPRM at paras. 103-07.
122 Securus Petition at 16-18.
123 Id. at 17.
124 Securus Petition at 18.
125 See supra paras. 26-28.
126 Id. at 17.
128 See Inmate Calling Report and Order and FNPRM at n.280.
129 See Southwestern Bell Telephone Co. v. FCC, 168 F.3d 1344, 1352 (D.C. Cir. 1999) (“The use of industry-wide
averages in setting rates is not novel.
Indeed, the Supreme Court has affirmed ratemaking methodologies employing
composite industry data or other averaging methods on more than one occasion. See, e.g., FPC v. Texaco Inc., 417
U.S. 380, 387, 94 S.Ct. 2315, 41 L.Ed.2d 141 (1974) (noting that agency ratemaking does not “require that the cost
of each company be ascertained and its rates fixed with respect to its own costs”); In re Permian Basin Area Rate
Cases, 390 U.S. 747, 769, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968).”).
130 Inmate Calling Report and Order and FNPRM at n.280.
131 Id. (“[B]oth wireline and CMRS providers routinely offer regional or nationwide service at a single rate, in spite
of the fact that offering service in this manner necessarily involves averaging of higher and lower per-customer
Federal Communications Commission
each provider.132 Additionally, the extent to which the averaging of costs among different facilities may
actually be taking place is dependent on how joint and common costs are allocated among facilities.133
This commonplace practice of averaging among locations of differing cost characteristics is
distinguishable from what is traditionally described as cross subsidization and which the statute and the
Commission’s rules prohibit.134
The Order also noted that ICS providers commonly engage in this same kind of
averaging of costs under single rates.135 Securus participated in the 2008 ICS Provider Data Submission
which produced average cost figures for both prepaid and collect ICS calling notwithstanding the fact that
participating ICS providers would not recover their costs if the study’s average cost figures were adopted
as rates in the majority of locations included in the study.136 Also, as previously discussed, Securus’ cost
study shows that the per minute rates Securus charges for its “Low 10” group of facilities are significantly
below the per-minute costs Securus identified for those facilities.137 As also previously discussed, the
Order provided a mechanism for ICS providers to charge higher rates for higher cost facilities if it elects
to establish (and justify in an enforcement proceeding if necessary) cost based rates for all of its
facilities.138 The Order provided that an ICS provider cost study supporting its rates in an investigation or
formal complaint may be made “on the basis either of the whole of its ICS business or by groupings that
reflect reasonably related cost characteristics, and not on the basis of a single facility it serves.”139
Securus asserts that the cost averaging implicitly required by the rate caps “contravene[ ]
the mandate of section 276, which expressly requires fair compensation for ‘each and every’ call.”140 In
the context of ICS, however, the Commission has previously interpreted this statutory requirement to
apply on a whole company basis, not on the basis of an individual call or service location.141 Given the
foregoing, we find Securus is not likely to succeed in its claim that the Commission’s adoption of a single
set of interim rate caps ignored evidence of higher costs among smaller correctional institutions, thereby
mandating cross subsidization between correctional facilities.
132 Inmate Calling Report and Order and FNPRM at n.230 (“it would not be possible, much less practical, to set this
kind of exquisitely granular rate”).
133 Given the highly centralized nature of ICS networks, a substantial portion of ICS costs are joint and common.
See Inmate Calling Report and Order and FNPRM at n.301. Providers will have flexibility to allocate joint and
common costs in a way that will help them charge rates at or below the caps and in compliance with the cost-based
134 See, e.g., 47 U.S.C. § 254(k).
135 Inmate Calling Report and Order and FNPRM at n.280 (“ICS providers typically use uniform rates when they
serve multiple correctional facilities with differing cost and demand characteristics under a single contract. See, e.g.,
State of California, California Technology Agency, IWTS/MASS Agreement Number OTP 11-126805 (listing
approximately 80 correctional facilities served through a common rate structure) (available at
http://prisonphonejustice.org/Prison-Phone-Kickbacks.aspx?state=California) (last visited Sept. 17, 2013).”).
136 See 2008 ICS Provider Data Submission. The August 22, 2008 and October 15, 2008 subsequent ex parte filings
by the study’s participants contain additional data that enable the calculation that 17 out of 25 locations included in
the study had costs higher than the study’s average cost for both debit and collect calling. See Joyce Aug. 22, 2008
Ex Parte Letter.
137 See supra para. 27.
138 See supra para. 6.
139 Inmate Calling Report and Order and FNPRM at para. 123.
140 Securus Petition at 17.
141 See Inmate Calling Services Order on Remand and NPRM, 17 FCC Rcd at 3257-58, para. 23.
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ICS Providers will not Suffer Irreparable Injury
The ICS Providers have failed to prove that they will suffer irreparable injury absent a
grant of their stay petitions. We reject their claims for the reasons described below.
The Adopted Reform Applies to a Small Portion of the Petitioners’ ICS Business.
Securus argues that it will suffer significant lost revenues under the new ICS rate regime.142 The new
rules may reduce Securus’ revenue compared to pre-reform levels. But, to the extent that is true, it is
because its current revenues are the product of unlawfully high rates.143 Securus has no right to charge
unjust and unreasonable rates that violate sections 201 and 276 of the Communications Act, and a
requirement that it bring its rates to levels consistent with statutory requirements creates no cognizable
irreparable injury.144 Additionally, the Commission has created procedures such as third party complaints
to determine, if necessary, whether Securus’ interstate ICS rates are just and reasonable (should Securus
believe that its lawful rates are between the safe harbor and the cap). And, as discussed above, if Securus
sets rates that it believes in good faith are lawful and the Commission ultimately disagrees, Securus is
unlikely to owe any more than a refund, which is not a penalty of any kind. There is thus no cognizable
injury here, much less the kind of severe and imminent injury necessary to support the extraordinary relief
of a stay. Moreover, the interim rate regime applies only to interstate calls, which constitute about 15
percent of Securus’ traffic145 (and about 10 percent of GTL’s).146
Thus, any loss of revenue will be minor
in the context of Securus’s entire business. That does not constitute irreparable injury of the sort that
justifies a stay.147
As a factual matter, moreover, there is insufficient evidence that Securus will lose money
on its operations, even if it chooses the safe harbor rates. Its 2012 cost data filing shows that costs for 99
percent of the ICS minutes included in the filing come from high volume/low-cost facilities and are
significantly below the safe harbor levels.148
Although Securus also serves smaller, higher-cost jails,149
142 See generally Securus Petition at Section II.
143 See e.g., HRDC 2013 Comments, Rev. Exh. B.
144 A provider’s recoverable costs include a reasonable return (or profit) and therefore any lost revenues would
consist of revenues above a reasonable profit on the costs reasonably and directly associated with the provision of
ICS. See Inmate Calling Report and Order and FNPRM at para. 61. The ICS Providers have not made the case that
the loss of such revenues can justify a finding of irreparable harm. See, e.g., Wisc. Gas, 758 F.2d at 674 (to
demonstrate irreparable harm “the injury must be both certain and great” and “it is . . . well settled that economic
loss does not, in and of itself, constitute irreparable harm”); Davis v. Pension Benefit Guaranty Corp., 571 F.3d
1288, 1295 (D.C. Cir. 2009) (“in the absence of special circumstances, . . . recoverable economic losses are not
considered irreparable”) (ellipsis in original; citation and internal quotation marks omitted).
145 Securus provided data for a representative sample of 38 of the correctional facilities it serves. Table 2 in this data
filing provides all ICS minutes from those 38 facilities. Table 9 of the data filing provides the total interstate
minutes for those 38 correctional facilities. Dividing total interstate minutes by all ICS minutes reveals that only
approximately 15 percent of Securus’ annual ICS minutes are interstate. See Siwek Report at 3, 8, Tbls. 2 and 9.
146 See Letter from Michael K. Kellogg, Counsel for Global Tel*Link to Marlene H. Dortch, Secretary, FCC, WC
Docket No. 12-375 at 2 (filed Nov. 7, 2013) (estimating that interstate ICS accounts for 10 percent of ICS provider
GTL’s ICS traffic) (GTL Nov. 7, 2013 Ex Parte Letter); see also Inmate Calling Report and Order and FNPRM at
147 See, e.g., Wisc. Gas, 758 F.2d at 674 (to demonstrate irreparable harm “the injury must be both certain and
great”); Holiday Tours, 559 F.2d at 843 n.2 (referring to a “severe” injury as “destruction of a business” and holding
that “‘mere’ economic injuries” are not sufficient for a stay). Nor have petitioners demonstrated that they lack a
way to recover lost revenue if the Order were to be reversed by a court, as they allege, see Securus Petition at 28;
GTL Petition at 19, for example through subsequently negotiated agreements with correctional facilities.
148 When site commission payments are removed (as ordered by the Inmate Calling Report and Order and FNPRM)
from Securus’ sample per-minute rates provided in its 2012 cost data filing, its average per-minute rate level is
$0.044. See Siwek Report at 3, Tbl. 2.
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those facilities account for a smaller proportion of its overall business.150
It also appears that small, high-
cost jails have an especially low volume of interstate calls because the offenders held there are primarily
local to the jail. Data in the record show that jails have weekly population turnover rates averaging more
than 60 percent.151 We thus expect that the vast majority of calls made from jails are intrastate and
therefore not impacted by reforms adopted in the Inmate Calling Report and Order and FNPRM.152
GTL also claims it will suffer significantly reduced revenues from the Commission’s
action,153 but it fails to substantiate that claim, and in any event it fails for all the same reasons discussed
above as to Securus.154
While GTL has asserted it stands to lose millions of dollars, the assertion is
irrelevant to the extent that those revenues reflect unlawful rates. Moreover, GTL has declined to provide
requested data throughout this proceeding.155 GTL may not now complain that the Commission used the
data that were available to it.156 We also note that the rate reform adopted in the Order is interim in
(Continued from previous page)
149 See Siwek Report at 3.
150 Securus’ data show that for all of 2012, its highest cost, lowest volume facilities had between 885 and 1,668 ICS
minutes. Securus says this minute volume represents between 113 and 284 calls from the facilities they detailed for
an entire year. See Siwek Report at 2-3.
151 Letter from Marcus W. Trathen, Counsel to Pay Tel, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 12-
375 at 1 (filed July 3, 2013) (“The national turnover average for jails is 62.2% per week – meaning that over one-
half of the inmate population changes in the course of a single week.”). See also Transcript of Reforming ICS Rates
Workshop at 262 (Timothy Woods, National Sheriffs’ Association, noting the turnover differences between jail
populations and prison populations).
152 See, e.g., Pay Tel 2007 Comments at 6 (Pay Tel, an ICS provider that serves primarily jail facilities, stated that in
2007 81 percent of its calls in jail facilities were local calls). See also Pay Tel 2013 Comments at 7 (in 2012 Pay Tel
asserts that 84 percent of its revenue calls were intrastate).
153 See GTL Petition at 19.
154 See supra para. 36.
155 GTL 2013 Comments at 26 (“Because GTL has more than 1,900 correctional facilities customers, each with
unique procurement requirements and individualized contractual terms, it would be extraordinarily difficult and
time-consuming to extract the summary information the Commission has requested for each of those correctional
156 See, e.g., American Public Communications Council v. FCC, 215 F.3d 51, 56 (D.C. Cir. 2000) (citing Industrial
Union Dep't, AFL-CIO v. Hodgson, 499 F.2d 467, 474-75 n. 18 (D.C.Cir.1974)) (“[W]e cannot require an agency to
enter precise predictive judgments on all questions as to which neither its staff nor interested commenters have been
able to supply certainty. ‘Where 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.’”); Cable & Wireless P.L.C. v. FCC, 166 F.3d 1224, 1233 (D.C. Cir. 1999) (“Throughout the
rulemaking process, moreover, petitioners withheld the very cost data that would have enabled the Commission to
establish precise, cost-based rates. In its published notice proposing the TCP methodology [at issue in the case], the
Commission repeatedly invited commenters to suggest alternative methods for calculating settlement rates. . . . At
one point, agreeing with petitioners’ view that ‘the appropriate cost standard for establishing benchmark settlement
rates is the incremental cost of terminating international traffic,’ . . . the Commission explicitly stated: ‘We
encourage foreign and U.S. carriers to submit data on their costs.’ . . . Yet in its final rule, the Commission reported
that ‘no commenter has provided cost data in the record about the costs of providing international termination
services.’ . . . Since petitioners refused to let the Commission see their cost data, and since the Commission
thoroughly explained why ‘the TCP methodology provides a reasonable basis for establishing settlement rate
benchmarks in the absence of carrier-specific cost data,’ . . . we have no firm basis for accepting petitioners’ claim
that the benchmark rates are not fully compensatory.”) (citations omitted). Cf. Wright Petitioners Opposition to
GTL Petition at 4 (“[I]t is inconceivable that the ICS providers are incapable of immediately preparing reports that
‘record and document its costs of providing service.’”).
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nature157 and that GTL is free to charge up to the hard cap (subject to refunds if the Commission
ultimately disagrees that such a rate reflects costs) and even take advantage of the waiver process to
establish that it should be allowed to charge rates above the interim rate caps, should its costs justify that
outcome.158 Again, therefore, there is no evidence of severe, imminent, and irreparable injury.
The Adopted Rate Reform Allows for Full Cost Recovery. We also reject Securus’
argument that it “will be forced to provide below-cost service”159 under the requirements adopted in the
Inmate Calling Report and Order and FNPRM.
According to Securus’ own cost data, the interim safe
harbor rate levels and rate caps adopted in the Order should allow for full recovery of Securus’ costs,
including a reasonable return. As the Commission discussed, the 2012 cost data Securus filed in this
proceeding show that Securus’ per-minute ICS costs, exclusive of the costs of disallowed site
commissions but inclusive of costs and minutes of use (MOU) from their highest cost facilities, were
$0.04/minute, which is well below the interim safe harbor rate levels and rate caps adopted by the
Commission.160 Specifically, Securus’ cost study establishes that its costs of providing ICS are less than
40 percent of the interim safe harbor rate levels and less than 30 percent of the interim rate caps. There is
thus little likelihood that Securus, which can charge up to the hard cap without prior Commission
permission (and subject, assuming good faith, only to refunds) will be forced to offer below-cost service,
and, in any event, as discussed above, can even seek a waiver to go above the hard cap.
Securus complains that the rates adopted in the Inmate Calling Report and Order and
FNPRM preclude it “from recovering the costs of mandatory site commission payments.”161 Here, too,
however, this prohibition applies only to the 15 percent of Securus traffic that is jurisdictionally interstate.
In addition, the Order builds upon prior Commission precedent when it states “that site commission
payments are not part of the cost of providing ICS and therefore not compensable in interstate ICS
rates.”162 And in the Order, the Commission made clear that actual costs reasonably and directly related
to the provision of ICS, such as security costs, incurred by the correctional facilities and reimbursed by
ICS providers could be recoverable.163 As fully explained by the Commission, “our regulations are
designed to allow providers to recover their costs of providing ICS, including a reasonable return on
Minimal Effect on Contracts. We reject the ICS Providers’ unsubstantiated arguments165
that the changes adopted in the Inmate Calling Report and Order and FNPRM will require the
comprehensive renegotiation of almost every ICS contract they have with correctional facilities.166 In the
Order the Commission neither required the renegotiation of contracts, directed parties to modify contract
157 See Inmate Calling Report and Order and FNPRM at paras. 47-49.
158 See id. at paras. 82-84.
159 Securus Petition at 21.
160 See Inmate Calling Report and Order and FNPRM at para. 26. See also supra n.148.
161 See Securus Petition at 18-19.
162 Inmate Calling Report and Order and FNPRM at para. 54 (citing the Inmate Calling Services Order on Remand
and NPRM, 17 FCC Rcd at 3254-55, para. 15).
163 For example, the Commission will include the “costs associated with security features in the compensable costs
recoverable in ICS rates.” Inmate Calling Report and Order and FNPRM at para. 58.
164 Inmate Calling Report and Order and FNPRM at para. 103.
165 See, e.g., Wright Petitioners Opposition to GTL Petition at 4.
166 See Securus Petition at 19-21; GTL Petition at 20-21.
According to the record, the average contract term is three
to five years and ICS providers therefore renegotiate contracts in the regular course of business. See Inmate Calling
Report and Order and FNPRM at para. 98.
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terms, nor prohibited site commission payments by ICS providers under existing contract terms.167 The
Inmate Calling Report and Order and FNPRM made clear that site commission payments do not
constitute a cost of providing ICS and thus cannot be used to justify unreasonable rates charged to
inmates and their friends and families.168 In addition, the rates at issue are charged to end users that are
not parties to the ICS contracts.169 While Securus notes that such rates are “generally included as express
terms of service contracts,”170 it does not demonstrate that those contracts compel it to charge only those
rates and nothing lower. The record further indicates that many ICS contracts include change of law
provisions171 and the ICS Providers do not claim otherwise in their petitions.172 In fact, the record
contains examples of Securus’ ICS contracts that contemplate Commission action lowering ICS rates and
describe, within the contract, how that rate change will be accomplished.173 The record also indicates that
ICS contracts are amended on a regular basis174 and it is reasonable to believe that changing, or even
renegotiating, the applicable rates does not rise to the level of injury necessary to justify a stay.175
such, we reject the ICS Providers’ claims that they will suffer irreparable harm as the result of
renegotiating numerous ICS contracts.
The Commission Adopted a Reasonable Reporting Requirement. Securus has not shown
it will suffer irreparable harm from the reporting requirements adopted in the Inmate Calling Report and
Order and FNPRM.176 First, we note that the reporting and certification requirement, as well as the one-
time mandatory data collection, adopted in the Order are not effective until the Commission receives
approval from the Office of Management and Budget (OMB).177 There is thus no imminent irreparable
167 Inmate Calling Report and Order and FNPRM at paras. 100-102.
168 See id. at paras. 54-58, 133.
170 Securus Petition at 19-20.
171 The record shows that state contracts for ICS as well as county contracts for ICS include language “wherein the
respective parties also agreed to conform their agreements in the future to take into account possible changes in the
regulatory landscape.” Letter from Lee G. Petro, Counsel to Wright Petitioners, to Marlene H. Dortch, Secretary,
FCC, WC Docket No. 12-375 at 2 (filed Aug. 2, 2013) (Wright Petitioners Aug. 2, 2012 Ex Parte Letter).
172 ICS Providers may not now complain about the potential for renegotiating some of their ICS contracts after they
previously made business decisions to exclude change of law provisions in their negotiated contracts. Specifically,
if some of ICS contracts do not include change of law provisions, it is reasonable to conclude that this omission was
a business decision made by sophisticated companies.
173 See, e.g., Wright Petitioners Aug. 2, 2012 Ex Parte Letter at Exh. B at 2 (“These rates shall remain firm during
the term of the contract, and any renewals, unless: The Louisiana Public Service Commission (LPSC) or the Federal
Communications Commission (FCC) issues regulations that mandate lower rates (individually or collectively,
“Regulations”). If this occurs, and such Regulations are applicable to this Contract, the Contractor shall be required
to decrease the affected rates in accordance with the time period required by such Regulations.”).
174 “[T]he State of Florida and Securus have amended their agreement on four occasions since its execution in 2007.
. . . Among the modifications in the amendments are the rates to be charged inmates for telephone service.” Letter
from Lee G. Petro, Counsel to Wright Petitioners, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-128, at
3 (filed June 28, 2012).
175 In fact, ICS contracts often include a one-page rate sheet that is easily modified. See, e.g., Letter from Lee G.
Petro, Counsel to Wright Petitioners, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 12-375, at Exh. B.,
Attach. 1 at 34; Exh. C at 2; Exh. D, Attach. 1 at 24 (filed July 18, 2013).
176 See Securus Petition at 23. If Securus’ claim is true, we find that hiring employees, by itself, is not an irreparable
harm that meets the test to satisfy the second prong of the VA Petroleum Jobbers test. VA Petroleum Jobbers, 259
F.2d at 925 (“The key word in this consideration is irreparable. Mere injuries, however, substantial, in terms of
money, time and energy necessarily expended in the absence of a stay, are not enough.”).
177 See Inmate Calling Report and Order and FNPRM at para. 188; App. A (§ 64.6060).
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harm under any scenario as there is no danger such requirements will be implemented absent a
comprehensive review by the OMB of the reasonableness of the burden such requirements will impose.
For this reason alone, this claim is neither imminent nor certain and thus fails.
Additionally, Securus overstates the burden of these reporting requirements.178 Securus’
2012 cost data filing shows that it already maintains much of the requested information. Specifically, the
Siwek Report makes reference to Securus maintaining “data that includes costs incurred, revenue brought
in, and call traffic volumes such as number of minutes and number of distinct calls.”179 Securus also
complains about having to provide the Commission with its ICS rates and costs.180 We reject the validity
of these concerns because we find it reasonable that a large business, with “the largest team in the
industry” that has provided ICS for 25 years181 would maintain a comprehensive list of its ICS rates and
costs in the normal course of business. Finally, the Commission was careful to ask only for the data it
needs to establish a baseline and to provide itself with information necessary to determine trends and
therefore inform future interstate and intrastate ICS rate regulation.182 Securus will have an opportunity
through the PRA process to make its claim regarding the burden of the Commission’s data collection and
record –keeping requirement.183 We thus reject Securus’ claims that they will suffer irreparable harm as
the result of having to comply with the Order’s reporting requirements.
Petitioners Misunderstand the Applicable Enforcement Mechanisms and Safety Valves.
The ICS Providers’ concerns about the enforcement mechanisms detailed in the Inmate Calling Report
and Order and FNPRM are misplaced.184 Specifically, interstate ICS has always been subject to the
section 201 requirement that rates be just, reasonable, and non-discriminatory, and ICS providers have
always been subject to the Commission’s informal and formal complaint processes.
The Inmate Calling
Report and Order and FNPRM merely enunciated these pre-existing standards185 and established how
burdens would be placed in a formal complaint proceeding, including reducing some burdens on ICS
providers in certain circumstances.186
With regard to the informal complaint process explained in the Order, no additional
burden is placed on ICS providers by the Order. Further, the Commission’s existing informal complaint
process does not impose significant procedural burdens187 on complainants or respondents and does not
automatically trigger the formal complaint process.188
178 We agree with the Wright Petitioners’ opinion that “it is inconceivable that the ICS providers are incapable of
immediately preparing reports reflecting ‘rates, costs, minutes of use as well as average call duration,’ and claims
that companies might have to hire up to 10 new employees are unsupported as well.” Rates for Interstate Inmate
Calling Services, Opposition to Petition for Stay of Report and Order Pending Appeal, WC Docket No. 12-375 at 3-
4 (filed Oct. 29, 2013) (Wright Petitioners Opposition to Securus Petition).
179 Siwek Report at 2.
180 See Securus Petition at 22.
181 See Securus Technologies, Inc. Company Fast Facts, available at https://securustech.net/web/securus/company-
profile (last visited Nov. 20, 2013).
182 See Inmate Calling Report and Order and FNRPM at paras. 124-26.
183 See Paperwork Reduction Act of 1995 (PRA), Public Law 104-13.
184 See Inmate Calling Report and Order and FNPRM at Section III.H.
185 See supra para. 20.
186 See supra para. 4.
187 See 47 C.F.R. §§ 1.716-.719.
188 “If the complainant is not satisfied by the carrier’s response and the Commissions’ disposition, it may file a
formal complaint in accordance with § 1.721 of this part.” 47 C.F.R. § 1.717.
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With regard to the formal complaint process explained in the Order, the Commission
addressed how the burdens of production and persuasion would be placed in certain circumstances and
limited the burden and potential financial exposure of ICS providers where they elect to take advantage of
the safe harbor rate levels.189 Specifically, the burdens of production and persuasion fall on the ICS
provider only when its rates are above the safe harbor levels.190 This is because the ICS providers are
best-suited to supply the information and analysis needed to conduct a complaint proceeding. In addition,
the Order establishes that the complaining party will have the burdens of production and persuasion when
challenging ICS rates that are below the safe harbor levels.191 As a practical matter, that burden allocation
will likely insulate ICS providers with rates at or below the safe harbor levels from formal complaints.
This is a protection that did not exist prior to the Inmate Calling Report and Order and FNPRM. Absent
this explicit burden shift, the formal complaint process would be more burdensome for an ICS provider.
With regard to forfeitures, the risk of incurring enforcement penalties is mitigated
because the Order set interim safe harbor rates at conservatively high levels and thus reduced the risk that
providers would run afoul of the Order’s guidance on compensable costs. This is likely to be particularly
true for the two petitioning ICS Providers. Securus submitted cost data into the record (data submitted to
the Commission using the company’s own internal accounting processes with no guidance from the
Commission) that yielded average per-minute costs, net of commission revenues, significantly below the
adopted safe harbors.192 GTL did not submit any of its own cost data in the record,193 despite having the
opportunity to do so, but did claim in its comments that it is “one of the largest providers” of ICS and thus
has “economies of scale and efficiency”194 that make its costs lower than other providers.195 As a result,
the risk that GTL (or Securus) will incur enforcement penalties if they act in good faith seems remote –
and thus not the kind of imminent or certain injury that could justify a stay.196
The Requested Stays Will Result in Harm to Others
The ICS Providers have failed to prove that third parties will not suffer if the
189 Inmate Calling Report and Order and FNPRM at para. 121. See also 47 C.F.R. § 1.720 (“Formal complaint
proceedings are generally resolved on a written record consisting of a complaint, answer, and joint statement of
stipulated facts, disputed facts and key legal issues, along with all associated affidavits, exhibits and other
attachments. Commission proceedings may also require or permit other written submissions such as briefs, written
interrogatories, and other supplementary documents or pleadings.”).
190 See Inmate Calling Report and Order and FNPRM at para. 121.
191 See id. at paras. 120-21.
192 See Securus 2013 Comments, Expert Report of Stephen E. Siwek (Siwek Report) at 3, 5, Tbls. 2, 5 (enabling the
calculation of an average minute-weighted cost net of commissions of all facilities included in the study of $0.044
193 GTL stated “it would be extraordinarily difficult and time-consuming to extract the summary information the
Commission has requested . . . .” GTL 2013 Comments at 26. The Wright Petitioners stated “ICS providers such as
GTL flatly refused to actively participate in the FCC’s rulemaking” and “flatly refused to supply cost data.” Rates
for Interstate Inmate Calling Services, Opposition to Petition for Stay of Report and Order Pending Appeal, WC
Docket No. 12-375 at 3 (filed Nov. 6, 2013) (Wright Petitioners Opposition to GTL Petition).
194 Inmate Calling Report and Order and FNPRM at para. 80 & n.296.
195 GTL serves the New York Department of Corrections and Community Supervision-run correctional facilities at a
rate of $0.048/minute. See Letter from Anthony J. Annucci, Acting Commissioner, NY DOCCS to Gregory V.
Haledjian, Attorney-Advisor, FCC, WC Docket No. 12-375 at 2 (filed July 8, 2013).
196 See, e.g., Wisc. Gas Co. v. FERC, 758 F.2d 669, 674 (D.C. Cir.1985) (per curiam) (Wisc. Gas) (To demonstrate
irreparable harm “the injury must be both certain and great; it must be actual and not theoretical. . . . [T]he party
seeking injunctive relief must show that ‘[t]he injury complained of [is] of such imminence that there is a ‘clear and
present’ need for equitable relief to prevent irreparable harm.’”) (citations omitted).
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Commission grants their stay petitions. We reject their claims for the reasons described below.
As the Commission stated in the Inmate Calling Report and Order and FNPRM, current
interstate ICS rates are, in most cases, greatly above costs,197 and as such, “place an unreasonable burden
on some of the most economically disadvantaged people in our nation.”198 The Commission noted that
excessively high ICS rates “discourage communication between inmates and their families and larger
support networks.”199 This lack of contact in turn negatively impacts recidivism rates, increases costs to
our criminal justice system, harms the children of prisoners by depriving them of parental love and
guidance, and discourages adequate access to counsel for inmates.200 If these petitions are granted and a
stay is issued, these “third parties,” that is, perhaps millions of ICS customers and their family members,
will continue to suffer the negative effects of existing unjust, unreasonable, and unfair interstate ICS rates.
In addition, members of the public would continue to be harmed by the greater recidivism, and attendant
crime, that would likely persist during a stay. The reforms implemented in the Inmate Calling Report and
Order and FNPRM have been delayed long enough. They should not be delayed any further, and we
reject petitioners’ assertion that third parties will not continue to be harmed by a stay.201
Additionally, Securus and GTL are incorrect that the Wright Petitioners will not be
harmed by a stay because they “did not envision or advocate the ongoing, cost-based rate review that the
Commission has established here.”202 The objective of the Wright Petitioners, and of the Commission in
adopting its Inmate Calling Report and Order and FNPRM, was to reduce excessive ICS rates and the
harms that resulted from such rates. As explained above and further below, the record shows that many,
perhaps millions, of third parties will be harmed by a stay through the continued imposition of highly
excessive rates, as the Wright Petitioners themselves observe in opposing a stay.203 In any event, as the
Commission noted from the outset, “[p]etitioners made clear that their proposed rate caps were designed
to ensure that ICS rates better reflected the costs of providing ICS service.”204 The Commission sought
comment on Wright Petitioners’ proposed cost-based caps, and on possible variations to the caps, in the
2012 ICS NPRM, and sought comment throughout on ways to regulate ICS rates based on costs.205 In the
2012 ICS NPRM, the Commission also “sought comment on the competitive nature of the ICS market and
whether such competition constrains ICS rates.”206 Prior to that time, the Commission requested
comment on “fair compensation under section 276 with reference to the costs of providing the relevant
service, including in the context of ICS.”207 The ICS Providers’ contention that the Wright Petitioners did
not envision cost-based rates is incorrect and does not support the adoption of a stay.
We also disagree with the ICS Providers’ argument that third parties will be harmed due
to correctional facilities’ “deprivation” of site commissions, which would lead to compromised “security
197 Inmate Calling Report and Order and FNPRM at paras. 38-41.
198 Id. at para. 2.
199 Id. at paras. 42-44.
201 See Wright Petitioners Opposition to Securus Petition at 4.
202 Securus Petition at 24; GTL Petition at 22 (the Wright Petitioners “did not ask for that complex and disfavored
regulatory approach,” nor did they ask for “rate caps as superior regulatory solution”).
203 Wright Petitioners Opposition to Securus Petition at 4-5.
204 Inmate Calling Report and Order and FNPRM at n.222, citing Alternative Wright Petition at 4, 16-18.
205 Inmate Calling Report and Order and FNPRM at n.222, citing 2012 ICS NPRM at 16637, para. 20; id. at 16638,
para. 22; id. at 16638, para. 23.
206 Inmate Calling Report and Order and FNPRM at para. 39.
207 See Inmate Calling Services Order on Remand and NPRM, 17 FCC Rcd 3248 at 3276-79, paras. 73-79.
Federal Communications Commission
features and functionalities necessary to maintain public safety inside and outside the correctional
facility.”208 In the Inmate Calling Report and Order and FNPRM, the Commission recognized the
“critical security needs to correctional facilities.”209 The Commission took into account “security needs
as part of the ICS rates” as well as its “statutory commitment to fair compensation.”210 The Order allows
ICS providers to recover costs associated with security features in the overall category of compensable
ICS costs.211 It also recognized that ICS systems include “important security features, such as call
recording and monitoring, that advance the safety and security of the general public, inmates, their loved
ones, and correctional facility employees.”212 What the Commission disallowed is the recovery of site
commission payments “because they are payments made to correctional facilities or departments of
corrections for a wide range of purposes, most or all of which have no reasonable and direct relation to
the provision of ICS.”213 In contrast, the Commission specifically allowed for the inclusion of costs
related to the provision of ICS that are incurred by correctional facilities and reimbursed by ICS
providers. Such allowable costs include security costs.214 Securus therefore has failed to show that a stay
is necessary to ensure that costs related to security will be recovered or that a stay otherwise is needed to
maintain those security measures.215
We also disagree with GTL’s assertion that inmates at lower-cost facilities will suffer
because they will subsidize higher-cost facilities and may ultimately suffer loss of services due to such
cross-subsidization.216 As discussed above,217 the Order did not mandate what is traditionally called
“cross-subsidization.”218 What the Order did, however, was adopt a single set of interim safe harbor rate
levels and interim rate caps based on averaged data that will ensure fair compensation for all providers.219
It also held that an ICS provider may cost justify its rates on “the basis of either the whole of its ICS
business or by groupings that reflect reasonably related cost characteristics, and not on the basis of a
single facility it serves[,]” thereby providing a mechanism for ICS providers to elect to charge higher
rates for high cost facilities where it can cost justify such rates and it makes business sense to do so
company-wide.220 As stated in the Order, no regulatory rate structure is granular enough to account for
all differences between providers, let alone all locations served.221 These assertions of loss of service,
with no substantive support, provide an inadequate basis for stay.
The Public Interest Does Not Support a Grant
The ICS Providers have failed to prove that the public interest supports grant of their stay
petitions. We reject their arguments for the reasons described below.
208 Securus Petition at 26; see also GTL Petition at 24.
209 Inmate Calling Report and Order and FNPRM at para. 58.
210 Id. at para. 58.
211 Id. at para. 58 & n.196.
212 Id. at para. 2.
213 Id. at para 54.
214 Id. at para 58 & n.196.
215 See Securus Petition at 25.
216 See GTL Petition at 22-23.
217 See supra paras. 30-33.
218 See, e.g., 47 U.S.C. § 254(k).
219 See Inmate Calling Report and Order and FNPRM at paras. 60, 62-64.
220 Id. at para. 123.
Federal Communications Commission
We disagree with GTL and Securus’ assertions that the public interest favors a stay,
pursuant to the fourth prong of the Virginia Petroleum Jobbers test.222 Specifically, the ICS Providers
assert that the reforms adopted in the Order will harm the public interest by eliminating cost recovery in
the form of site commission payments,223 and by negatively affecting inmate and public safety,224 victims’
rights and inmate welfare,225 and inmates’ access to ICS.226
First, as discussed above, the Inmate Calling Report and Order and FNPRM allows ICS
providers to recover their just, reasonable, and fair costs, including reasonable security costs.227 And, as
stated in the Order, the Commission’s statutory obligations relate only to the rates charged to end users—
the inmates and the parties whom they call.228 While objectives such as education and societal reentry are
worthy goals, Congress has determined that the public interest demands rates that are just, reasonable, and
fair, and the Commission is bound by that statutory mandate.229 The Act does not provide a mechanism
for funding social welfare programs or other costs unrelated to the provision of ICS, “no matter how
successful or worthy.”230
Additionally, as discussed above, the Commission did not address “how correctional
facilities spend their funds or from where they derive.”231 The ICS Providers offer no proof in support of
their arguments that correctional facilities will have to change their budgets or program decisions as a
result of interstate ICS rate reform.232 In addition, affordable access to telecommunications service itself
provides ample benefits that will justify continuation in the absence of site commissions. The ICS
Providers’ vague speculations about purported effects of the reforms adopted in the Inmate Calling
Report and Order and FNPRM are insufficient reason to grant a stay.
We also dispute Securus and GTL’s assertion that the new rules adopted in the Order will
harm the public interest by discouraging competition and innovation.233 The Commission stated that it
believes that “innovation will continue to drive down costs through automation and centralization of the
security features” that correctional facilities require, which will lead to increased efficiencies.234 The
Commission found, as did several commenters to the 2012 ICS NPRM, including Securus, that robust
222 See GTL Petition at 23-24; Securus Petition at 28.
223 See GTL Petition at 23; Securus Petition at 25-26.
224 See Securus Petition at 25-26; see also GTL Petition at 23-24.
225 See Securus Petition at 25-26; see also GTL Petition at 23.
226 See Securus Petition at 25-27; see also GTL Petition at 23-26.
227 See supra para. 39; Inmate Calling Report and Order and FNPRM at para. 58 and n.196.
228 Inmate Calling Report and Order and FNPRM at para. 56.
229 Id. at para. 57.
231 Id. at para. 56.
232 As discussed above, the Commission did not preclude ICS providers from paying site commissions to
correctional facilities, but only held that such commission payments are not costs that can be recovered through
interstate ICS rates. See supra para. 31. In this regard, we note that interstate ICS accounts for only a small portion
of total ICS (including just 15 percent of Securus’s traffic and about 10 percent of GTL’s). See supra para. 37.
Finally, the ICS Providers’ assertions of harm to inmates in this regard absent a stay clearly cannot extend to the use
of site commissions for things unrelated to correctional facilities. See Inmate Calling Report and Order and
FNPRM at para. 34 & n.132 (discussing the use of site commissions for things unrelated to correctional facilities
including, for example, states’ general revenue funds).
233 Securus Petition at 9, 27; GTL Petition at 23-24.
234 Inmate Calling Report and Order and FNPRM at para. 71.
Federal Communications Commission
competition exists among ICS providers during the bidding process.235 The ICS Providers have offered
insufficient evidence for us to find otherwise.
Finally, we disagree with the ICS Providers’ general assertions that the public interest
will be harmed by “enforcing a rate regulation that is later vacated,” as it will lead to a waste of time and
energy that is “ultimately borne by subscribers of the service.”236 As discussed above, the cost-based
requirement and interim implementing framework adopted in the Order is based on significant data in the
record and provides a means for ICS providers to seek a waiver if their costs support rates outside the
boundaries established by such framework. Additionally, delay of implementation of the reforms adopted
in the Order will perpetuate the significant harms that third parties are currently subject to in the form of
unjust, unreasonable and unfair ICS rates and the various secondary harms that those excessive rates
cause, such as a higher rate of recidivism and emotional harm to prisoners’ children.237 Finally, the cases
cited by Securus are unavailing.238 They merely demonstrate that the Commission may hold applications,
waiver requests and the like in abeyance when the balance of interests favors such an outcome. We do
not find that to be the case here. We affirm that the reforms adopted in the Inmate Calling Report and
Order and FNPRM were reasonable, and that the ICS Providers have not otherwise demonstrated a
likelihood of success on the merits of their petitions.239
These reforms have been delayed long enough
and should not be delayed any further due to the providers’ speculative claims.240
PETITION TO HOLD FNPRM IN ABEYANCE
Securus also filed a Petition to Hold Further Rulemaking Proceeding in Abeyance.241
Specifically, Securus argues that “taking and considering comments on the FNPRM, the great majority of
which is expressly premised on the findings and conclusions in the Report and Order, would not be an
appropriate use of Commission resources. . . .”242 While we appreciate Securus’ concerns over
Commission resources, we reject Securus’ arguments. Contrary to Securus’ claims, the Commission’s
ICS rules are not “unsettled.”243 In addition, the questions in the FNPRM do not undermine the reforms
adopted in the Order, but rather seek further comment on the interim reforms adopted in the Order244 and
the possible applicability of the reforms adopted in the Order to intrastate ICS rates.245
In addition, the comments received as a result of the information sought by the FNPRM
235 Inmate Calling Report and Order and FNPRM at para. 40 & n.156 (citing comments by, inter alia, Securus,
which states that “The competition for service contracts is, to put it mildly, robust.”). As the Commission found in
the Order, however, competition during the bidding process does not sufficiently exert downward pressure on rates
for ICS consumers. Id. at para. 41.
236 Securus Petition at 28; see also GTL Petition at 24-25 (“A stay will forestall the expense and confusion – in the
ICS industry and among correctional facilities – that would result from efforts to implement” the reforms.).
237 See supra para. 48; see also Wright Petitioners Opposition to GTL Petition at 5 & n.21 (noting that the record to
the Order reflects that “just a 1% decrease in the recidivism rate would result in savings of more than 250 million
dollars for state, county and local jurisdictions”).
238 See Securus Petition at 28.
239 See supra Section III.A.
240 See supra para. 48.
241 See generally Abeyance Petition.
242 Abeyance Petition at 1.
243 Id. at 2.
244 See Inmate Calling Report and Order and FNPRM at para. 152.
245 See id. at para. 129.
Federal Communications Commission
will be extremely valuable to the Commission regardless of the outcome of any pending litigation.246 For
example, such comments will help inform the adoption of permanent interstate ICS rates, whether they
are higher or lower than the interim rates adopted, and will help determine the appropriateness of
intrastate ICS rate regulation. Finally, just as staying the reforms adopted in the Inmate Calling Report
and Order and FNPRM will harm third parties and is counter to the public interest,247 preventing or
delaying the receipt of additional information will not help inform further ICS rate reform. As such, we
reject Securus’ arguments that we should hold in abeyance the FNPRM in this proceeding.
We note that the Commission recently received a third petition for stay of the Inmate
Calling Report and Order and FNPRM.248 Given that the Correctional Institutions’ Petition was received
significantly after the Securus and GTL petitions we will address the Correctional Institutions petition in a
Accordingly, IT IS ORDERED, pursuant to the authority contained in sections 1, 4(i),
4(j), 201, 225, 276, and 303(r) and of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151,
154(i)-(j), 201, 225, 276, and 303(r) and the authority delegated pursuant to sections 0.91 and 0.291 of the
Commission’s rules, 47 C.F.R. §§ 0.91 and 0.291, this Order Denying Stay Petitions and Petition to Hold
in Abeyance in WC Docket No. 12-375 IS ADOPTED.
IT IS FURTHER ORDERED, that the Securus Technologies, Inc. Petition for Stay of
Report and Order Pending Appeal (FCC 13-113), the Securus Technologies, Inc. Petition to Hold Further
Rulemaking Proceeding in Abeyance, and the Petition of Global Tel*Link for Stay Pending Judicial
Review ARE DENIED.
FEDERAL COMMUNICATIONS COMMISSION
Julie A. Veach
Wireline Competition Bureau
246 See Securus Technologies, Inc. v. FCC, No. 13-1280 (D.C. Cir. filed Nov. 15, 2013).
247 See supra Sections III.C and III.D.
248 Rates for Interstate Inmate Calling Services, Correctional Institutions Petition for Stay Pending Judicial Review,
WC Docket No. 12-375 (filed Nov. 12, 2013) (Correctional Institutions’ Petition).
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