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FCC Stay Opp. - Securus Tech. v. FCC (D.C. Cir.)

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Released: December 16, 2013
USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 1 of 48
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT










SECURUS TECHNOLOGIES, INC. et al.,
)









)
Petitioners,
)









)
v.
)

No.
13-1280
and









) consolidated cases
FEDERAL COMMUNICATIONS COMMISSION
)
and UNITED STATES OF AMERICA,


)









)

Respondents. )









)

OPPOSITION OF THE FEDERAL COMMUNICATIONS

COMMISSION TO MOTIONS FOR A STAY



The Federal Communications Commission opposes the motions of Securus
Technologies, Inc. (Securus), Global Tel*Link (GTL), and CenturyLink Public
Communications, Inc. (CenturyLink) for a stay pending judicial review of an FCC
order imposing interim caps on rates for interstate payphone service provided to
prison inmates.
Providers of prison payphone service have a monopoly in each correctional
institution they serve. For years, they have exploited that economic position by
charging rates for interstate calls greatly exceeding the cost of providing service, in
direct violation of the requirements of Sections 201 and 276 of the Communica-
tions Act that those rates be just, reasonable, and fair. Prisoners and their families,
some of the most economically disadvantaged people in the country, have no
choice but to pay and have for too long suffered the consequences.

USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 2 of 48
In the order on review, the FCC adopted a three-part interim interstate rate
framework. First, any provider may initially set its rates at a “safe harbor” level
that will be presumed to be a cost-based rate without regard to the costs of service.
In most cases, the safe harbor rate likely exceeds costs. Second, if a provider has
costs above the safe harbor, it has the option to set a cost-based rate above the safe
harbor rate, up to a hard cap. That cap was based on the highest costs reflected in
the record. Third, a provider with especially high costs may seek a waiver of the
hard cap. The FCC’s multi-tiered approach to inmate calling service rates is a
careful interim attempt to ensure that providers recover their costs (and likely
more) while reducing unfair overcharges that act as a penalty on prisoners and their
families.
Petitioners have sought a stay of the interim rules and a return to the
discredited system of monopoly exploitation and overcharges. For the reasons set
forth below, petitioners have not met the stringent test for equitable relief, and the
Court should deny their motions.

BACKGROUND

Inmates are literally a captive market for the companies that provide
payphone service in prisons and jails; no competitive market forces constrain
prices. To the contrary, a payphone provider contracts with the operator of an
incarceration facility to be the monopoly provider of inmate calling services (ICS)
there, often in return for “commissions” paid to the facility. Those commissions
are then passed on to end users in calling rates, which accordingly have far
exceeded the actual costs of service. In the order on review, Rates for Inmate
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USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 3 of 48
Calling Services, FCC No. 13-113 (rel. Sept. 26, 2013) (ICS Order), the FCC
adopted interim rate caps, based on available cost data, to bring interstate rates for
ICS closer to the cost of providing service while the agency gathers more data on
which to base permanent reform. The Wireline Competition Bureau denied
requests by Securus and GTL for a stay of the caps. Rates for Inmate Calling
Services, No. DA13-2236 (Nov. 21, 2013) (ICS Stay Order) (Ex. B to GTL’s
Motion).

A.

Market Failure In The Prison Payphone Marketplace

.
The ICS market is the opposite of a competitive market. ICS providers do
not compete for end users – the inmates and their families who pay for calls –
because each provider is a monopoly in a given facility. No market force keeps
rates in check. Worse, because many correctional facilities grant the monopoly
franchise partly on the basis of the commission payment offered, competition
among providers produces not lower end-user charges but increased commission
payments and correspondingly higher end-user charges. ICS Order ¶41. The
provider and the correctional institution split the monopoly profits extracted from
inmates and their families who have no choice but to pay in order to speak by
telephone. Prison authorities may use some of the funds to pay for prison-related
activities, but in many cases, the funds are used to defray ordinary state costs, such
as road construction and salaries. Id. ¶34.

High prison payphone rates deter communication between inmates and their
families, with serious social consequences. The FCC found that a single 15-minute
prison call can cost more than a month of regular telephone service. ICS Order
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USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 4 of 48
¶42. Considerable evidence before the FCC indicated that such rates discourage
communication between inmates and their families, many of whom are among “the
most economically disadvantaged in our society.” Ibid. Such barriers to
communication contribute to greater recidivism. Ibid. When jailed parents lack
regular contact with their children, those children (2.7 million of them nationwide)
have higher rates of truancy, depression, and poor school performance. Id. ¶2.
High ICS rates also burden inmates’ communication with their attorneys and are
associated with higher rates of contraband cell phones in prisons. Id. ¶44. The
long- and short-run costs to society are considerable.

For years, inmates’ families have asked the FCC to address prison payphone
rates. Current and former inmates and their families, known as the “Wright
petitioners,” petitioned the agency in 2003 to take action. They proposed a ban on
exclusive payphone contracts in private prisons, and they asked the agency to
create a “safe harbor” interstate rate cap along with the opportunity to charge
higher rates if the ICS provider “could show that its costs justified such a rate.”
Wright Petition at 19-20 (excerpt attached as Ex. A hereto). The FCC sought and
received comment on the petition. See ICS Order ¶9. In 2007, the same
petitioners asked in the alternative that the FCC cap interstate rates at all facilities.
Ibid. In 2012, the FCC initiated a proceeding to address the pending petitions.
Rates for Interstate Inmate Calling Services, 27 FCC Rcd 16629 (2012) (ICS
Notice).
In
the
ICS Notice, the agency sought comment on a broad array of topics. It
asked whether the proposed caps would “ensure just and reasonable rates …
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USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 5 of 48
consistent with sections 201 and 276 of the [Communications] Act,” ICS Notice
¶20, and “[w]hat factors … the Commission [should] consider in determining an
appropriate per-minute cap,” ibid. The agency sought “specific, detailed cost
information and other relevant data” pertinent to rate caps. Ibid.; see also id. ¶44
(asking whether proposed rate caps were supported by cost data); id. ¶7
(questioning “whether ICS rates accurately reflect the costs of providing ICS”); id.
¶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 reasonable”). “What additional data,” the FCC inquired, “does
the Commission require to set rates?” Id. ¶23. The agency asked further, “Would
a rate cap approach require the Commission to conduct rate cases”? Ibid. Seeking
input on methodologies other than the specific methodology proposed, the agency
inquired into “alternative methodologies supported by sufficiently detailed data.”
Id. ¶25. The FCC also sought comment on ancillary matters such as per-call
charges, id. ¶¶18-19, and monthly account fees, id. ¶33.

B.

ICS Order

.
Just, reasonable, and fair rates, the FCC explained, must under established
law be based on the costs of providing service. ICS Order ¶¶12, 45-46. The FCC
thus required that “[a]ll rates charged” for interstate ICS “be based only on costs
that are reasonably and directly related to the provision of ICS,” 47 C.F.R.
§ 64.6010 (ICS Order at 89). The record showed that commission payments on
inmate calls – which had been determined previously to be not a cost, but simply a
sharing of profit, ICS Order ¶54 – drive excessive end-user charges. Interstate
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USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 6 of 48
rates in states that allow commissions are systematically higher than in states that
do not allow them: well over a dollar per minute in some cases (with the
commission accounting for up to almost 90 percent of the charge), see ICS Order
¶¶34-35, compared with less than five cents per minute in most of the states that
have eliminated commissions, id. ¶¶37-38 & n.145. Calls from federal
immigration detention facilities, which also do not allow commissions, cost 12
cents per minute. Id. ¶4. Data provided by Securus showed that costs (excluding
commissions) for the majority of its calls were about 4.4 cents per minute, ICS
Stay Order n.148, but that its rates for those calls average 46 cents per minute, see
Siwek Report Table 10 (Ex. B hereto). On that record, the FCC determined that
end-user rates far exceed the actual costs of providing service. See ICS Order
¶¶34, 45-46; accord ¶12.
Such rates, the FCC determined, violate Congress’s directives that “[a]ll
charges … for and in connection with [interstate] communication services, shall be
just and reasonable,” 47 U.S.C. § 201(b), and that owners of payphones be “fairly”
– not excessively – “compensated” for calls made from their phones, 47 U.S.C.
§ 276(b)(1)(A); see ICS Order ¶¶12, 45-46; see also 47 U.S.C. §201(b) (declaring
“unlawful” rates that are “unjust” or “unreasonable”). As explained below, the
FCC implemented an interim regime that will bring prices closer to (but still
above) cost while the agency gathers more data and public comment to develop a
permanent rate regime.
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USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 7 of 48
1.

ICS Costs

.
To align rates with costs, the agency had to determine which costs could be
recoverable. It decided to permit rates based only on “costs that are reasonably and
directly related to the provision of ICS, including a reasonable share of common
costs.” ICS Order ¶53. Such costs include “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.” Ibid.; see id. n.196.
The FCC disallowed recovery through interstate rates of commissions paid
for a provider’s monopoly franchise. As the agency had held previously with
respect to those commissions, such costs generally are not “reasonably and directly
related to the provision” of service, ICS Order ¶53, but in almost all cases
represent only an “apportionment of profit” between the ICS provider and the
incarceration facility, id. ¶54, citing Inmate Calling Services, 17 FCC Rcd 3248,
3262 (2002). The FCC accordingly concluded that commissions “are not a …
category of … costs” recoverable in the rates charged for interstate calls placed
from such payphones.1 ICS Order ¶55. In doing so, however, the agency did not
prohibit the payment of commissions, id. ¶56 – only their recovery through end-
user rates.

1 Although concluding that commissions, as a general category, are not recoverable
through end-user rates, the FCC allowed avenues for recovery to the extent “that
some portion of [commission] payments may, in certain circumstances, reimburse
correctional facilities for their costs of providing ICS” – a “possibility” the record
did not “foreclose.” ICS Order n.203.
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USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 8 of 48
2. Interim Rate Structure.
Rather than adopting a single rate cap, the FCC created a three-part interim
rate structure: (1) the “safe harbor” cap, which all providers may use regardless of
their costs; (2) the “hard cap,” which serves as presumptive upper limit on
permissible rates, but under which rates must be set based on costs; and (3) a
process for waiving the hard cap, for providers with especially high costs.
a. Safe Harbor.
First, the agency created safe harbor rate caps: 12 cents per minute for debit
card and prepaid calls (i.e., calls paid for through an inmate’s prison account) and
14 cents per minute for collect calls (which cost more to provide). ICS Order ¶48.
The safe harbor rates operate much like traditional rate caps. An ICS
provider may in the first instance establish rates up to the safe harbor caps without
regard to its costs; they serve as “an administratively convenient pricing option”
for providers. ICS Order ¶69. Those rates “will be treated as lawful” and will be
presumed just, reasonable, and fair unless proven otherwise. Id. ¶60; see 47 C.F.R.
§ 64.6020 (safe harbor rate is “presumptively in compliance” with cost-based rate
requirement) (ICS Order at 89). A ratepayer may challenge a safe harbor rate as
exceeding the provider’s costs, but to do so, the challenger “must overcome a
rebuttable presumption that [the rate is] just, reasonable, and fair.” Id. ¶120. That
presumption, combined with the FCC’s pleading requirements, “will likely
insulate” ICS providers from any challenge to a safe harbor rate. ICS Stay Order
¶45; see id. ¶13 (it will be “difficult” to successfully challenge a safe harbor rate).
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USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 9 of 48
Moreover, in the unlikely event a safe harbor rate is successfully challenged, any
relief “will be forward-looking and will not include refunds.” ICS Order ¶120.
The FCC based the safe harbor rates on record evidence of rates “from states
that have eliminated site commissions and maintained adequate security,” which
serves as a “conservative proxy for cost-based rates.” ICS Order ¶62; see id. ¶63
(setting forth the calculation methodology). The rates are conservative – i.e., they
likely exceed reasonable costs – because although they exclude commissions, they
do not exclude “other factors driving these rates above … reasonable cost.” Id.
n.229. Indeed, rates in most of the states that do not allow commission payments
are in the range of 4 to 8 cents per minute, well below the safe harbor. Id. nn.235
& 238. Because there is little difference in costs among states, id. n.235, the safe
harbor rates are likely almost always overcompensatory, often by a large margin.
b. Hard Cap.
The FCC “expect[ed] the vast majority of providers” to charge rates “at or
below [the] safe harbor rate levels.” ICS Order ¶119. The safe harbors were not
meant, however, to be “binding rates,” id. ¶69; rather, the agency recognized that
some providers’ costs may exceed the safe harbor limits. As a safety valve, high-
cost providers may charge higher rates based on their costs, up to a hard cap of 21
cents per minute for debit card calls and 25 cents per minute for collect calls. Id.
¶48. When pricing above the safe harbor, the service provider may set its own
rates, without prior approval.
The FCC based the hard cap rates on “the highest costs in the record.” ICS
Order ¶74. Specifically, the agency relied on debit call data submitted by ICS
9


USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 10 of 48
provider Pay Tel, which reflected “the highest total-company costs of any data
submission in the record and therefore represent a conservative approach to setting
[an] interim … rate cap.” Id. ¶76. The Pay Tel cost figures were “significantly
higher” than other data in the record (16.4 cents per minute for a debit call), id.
¶77, and far above those of Securus (about 4 cents per minute, see id. ¶26 & n.91).
For the collect call cap, the FCC similarly relied on the highest cost data in
the record, which came from a study submitted by a group of several ICS providers
that included Securus and CenturyLink (then known as Embarq), id. n.87, and
supported collect call costs of 24.6 cents per minute, id. ¶78. The FCC explained
that the collect call rate cap probably exceeds “the level [that] can be cost-
justified,” ibid., and “likely overstates ICS providers’ costs,” id. ¶80.
Rates between the safe harbor and the hard cap must be based on the cost of
providing service and will not have the protections of the safe harbor. If
challenged, non-safe harbor rates will not be presumed lawful, and the carrier will
“bear the burdens of production and persuasion” that its rates are “just, reasonable,
and fair” (i.e., that they are cost based). ICS Order ¶121. Moreover, if the FCC
were to find the rate unjust, unreasonable, or unfair, the service provider could “be
ordered to pay refunds.” Id. ¶123. In addition, as the agency emphasized,
providers will have significant flexibility in justifying their rates. A provider that
serves multiple facilities with different cost characteristics may base its cost
justification on “groupings” of facilities, as long as the group “reflect[s] reasonably
related cost characteristics.” Id. ¶123.
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c. Waiver.
The FCC explained that “the rate caps … are set at sufficiently conservative
levels to account for all costs ICS providers will incur … pending … further
examination of such costs.” ICS Order ¶74. Nevertheless, as an additional safety
feature to accommodate any provider with especially high costs, the agency
allowed “[a]n ICS provider that believes that it has cost-based rates for ICS that
exceed [the] interim rate caps” to file a petition for a waiver. Id. ¶82. Waiver
requests will be evaluated “at the holding company level,” and not with respect to
the costs of any specific facility or group of facilities. Id. ¶83.
3.

Ancillary Charges

.
ICS providers charge end users “ancillary” charges for such things as setting
up and closing accounts and refunding unused funds. ICS Order ¶90. The FCC
found that those charges, which in some instances approach five dollars, “do not
appear to be cost-based.” Ibid. Concerned that providers would “increase their
ancillary charges to offset lower rates” under the caps, the FCC ruled that ancillary
charges must be based on costs as well. Id. n.338.
4.

Data Collection And Further Notice

.
To assure a complete record in support of a permanent regime, the FCC
required ICS providers to report data on inter- and intrastate costs and usage for
one year. ICS Order ¶¶124-125. These requirements take effect only after
approval by the Office of Management and Budget. See id. ¶182.
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In a Further Notice of Proposed Rulemaking, the FCC sought comment on
“alternative ways of accomplishing interstate … rate reforms,” ICS Order ¶153,
including ways to establish “permanent safe harbors and rate caps,” id.154.

ARGUMENT


To obtain a stay, petitioners must show that (1) they will likely prevail on
the merits, (2) they will suffer irreparable harm unless a stay is granted, (3) other
interested parties will not be harmed if a stay is granted, and (4) a stay will serve
the public interest. WMATC v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C. Cir.
1977); D.C. Cir. Rule 18(a)(1). A stay is an “intrusion into the ordinary processes
of administration and judicial review” and thus “is not a matter of right, even if
irreparable injury might otherwise result.” Nken v. Holder, 556 U.S. 418, 427
(2009) (quotation marks omitted). To merit such an “extraordinary remedy,”
petitioners must make “a clear showing” that they are “entitled to such relief.”
Winter v. NRDC, 555 U.S. 7, 22 (2008). Petitioners have failed to do so.

1. Petitioners Have Not Demonstrated A Likelihood

Of Success On The Merits.


a. The FCC Provided Notice Of Its Intent To Require Cost-Based Rates
And Did Not Adopt “Rate-Of-Return” Regulation.
All three petitioners claim they had inadequate notice of the FCC’s intention
to adopt cost-based rates. GTL Mot. 8-12; Securus Mot. 5-6; CenturyLink Mot. 4-
5. The claims are unavailing.
The Administrative Procedure Act (APA) requires an agency to provide “a
description of the subjects and issues involved” in a rulemaking proceeding.
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5 U.S.C. § 553(b)(3). Accordingly, “an agency may issue rules that do not exactly
coincide with the proposed rule so long as the final rule is the ‘logical outgrowth’
of the proposed rule.” Fertilizer Inst. v. EPA, 935 F.2d 1303, 1311 (D.C. Cir.
1991). That will be the case so long as the variation is not “so major that the
original notice did not adequately frame the subjects for discussion.” Omnipoint
Corp. v. FCC, 78 F.3d 620, 631 (D.C. Cir. 1996) (quotation marks omitted). The
FCC satisfied those standards.
The ICS Notice proposed a “per-minute rate cap” approach to “ensure just
and reasonable rates … consistent with sections 201 and 276 of the
[Communications] Act.” ICS Notice ¶20. Just and reasonable rates under Section
201 have long been tantamount to cost-based rates. ICS Order ¶¶12, 45; see
Competitive Telecomms. Ass’n v. FCC, 87 F.3d 522, 529 (D.C. Cir. 1996)
(Comptel). “Fair” rates under Section 276 likewise have always been evaluated
with reference to cost. ICS Order ¶46. The agency thus sought “specific, detailed
cost information and other relevant data,” ICS Notice ¶20, and questioned
“whether ICS rates accurately reflect the costs of providing ICS,” id. ¶7. Those
questions were posed in the context of an inquiry that had been initiated by the
2003 Wright petition, comment on which was already in the record, which had
directly proposed a “safe harbor” rate cap, with the possibility that higher cost
providers could exceed the cap. See 2003 Wright Petition 19-20.
The resulting record included cost data submitted by Securus, see ICS Order
¶26, and summary cost information submitted by CenturyLink, see id. ¶28.
Notably, CenturyLink’s comments advocated a system that would allow ICS
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USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 14 of 48
providers “to recover the[ir] costs … as well as a sufficient return.” CenturyLink
Comments 5 (Mar. 25, 2013).
The agency adopted a rate cap of the type proposed: a safe harbor rate,
which operates like a traditional price cap and which the agency expected most
providers to use. ICS Order ¶119. The agency also adopted two safety valves –
the hard cap and the waiver process – to accommodate high-cost providers. See
ICS Notice ¶25 (seeking comment on “alternative methodologies supported by
sufficiently detailed data”); 2003 Wright Petition 19-20. The agency thus provided
notice of a cost-based rate approach “adequate to afford interested parties a
reasonable opportunity to participate in the rulemaking process.” Florida Power &
Light Co. v. United States, 846 F.2d 765, 771 (D.C. Cir. 1988).
Petitioners nevertheless contend that the ICS rate regime establishes not
simply rate caps but “rate of return regulation,” for which the FCC gave no notice.
GTL Mot. 8-12; see Securus Mot. 6; CenturyLink Mot. 3-4. The gist of the claim
is that the rules require ICS providers to set their rates equal to their costs plus a
rate of return. E.g., GTL Mot. 8 (providers must “calculate each … rate on the
basis of its costs”), 9 (price caps “do not require that rates be set equal to an
individual provider’s costs”); Securus Mot. 8 (“an ICS provider can charge the rate
caps only if they can prove those rates are cost-justified”).
That argument misunderstands the operation of the rate cap regime. The
safe harbor cap does not require any ICS provider to set its rates at cost plus rate-
of-return. To the contrary, the safe harbor serves as an “administratively
convenient pricing option,” under which a provider may initially set prices up to
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the safe harbor without regard to its costs. ICS Order ¶69. Any rate less than or
equal to the safe harbor cap will enjoy a “presumption of reasonableness.” Ibid.;
see 47 C.F.R. § 64.6020 (safe harbor rates are “presumptively in compliance with”
cost-base rate requirement). That approach – foreshadowed in the 2003 Wright
petition – is fundamentally a rate cap methodology.
To be sure, if a ratepayer were to file a complaint against an ICS provider’s
safe harbor rate, and if the complaint were to overcome the presumption that the
rate is lawful (a possibility that the Wireline Competition Bureau deemed unlikely,
ICS Stay Order ¶¶13, 45), then the provider would have to demonstrate its costs
and the FCC would establish a cost-based rate. Even then, however, the provider
would be entitled to keep any previous earnings in excess of cost plus return (thus
providing an incentive for providers to reduce their costs). That arrangement
amounts at most to a “variant” on rate caps that falls within the terms of the notice.
ICS Order n.222; see ICS Notice ¶25.
Indeed, the idea that rates are subject to challenge is nothing new. Rates not
based on cost have always been subject to challenge pursuant to Sections 207 and
208(a) of the Communications Act as a violation of Section 201(b). See ICS Stay
Order ¶43; see also id. ¶12 (“any provider may … be required to show that its rates
are based on its costs”). GTL contends that the FCC does not grant complaints that
rates exceed costs in competitive markets, Mot. 12, but the FCC found – on
evidence GTL does not dispute – that from the end users’ perspective, ICS is not
competitive. See ICS Order ¶41.
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Should an ICS provider choose not to avail itself of the safe harbor (which
the FCC predicted few would do), rates above that cap must be based on the
provider’s cost of service. Even then, however, “a carrier need not demonstrate its
costs or justify its rates” outside of a complaint proceeding or FCC investigation.
ICS Stay Order ¶10. Such a safety valve mechanism does not transform the entire
regime into a “rate-of-return” scheme. Indeed, within the scope of the ICS Notice,
the agency could have simply capped rates at the safe harbor level; by allowing
providers to exceed those rates at will, the hard cap is a significant benefit to
providers. The addition of that safety valve provides no basis to reverse the ICS
Order. Indeed, the FCC anticipated possible complaint proceedings and asked in
the ICS Notice: “Would a rate cap approach require the Commission to conduct
rate cases?” Id. ¶23. There was thus notice of the ramifications of the FCC’s cost-
based approach.
Finally, the ICS rate caps bear no procedural resemblance to a rate-of-return
regime, which involves “a prescribed rate of return, ex ante review [of rates by the
FCC], tariff filings, [and] compliance with cost accounting rules.” ICS Order
n.195. Rate-of-return carriers must comply with complex regulations set forth in
four intricate and lengthy parts of the FCC’s rules. ICS Stay Order ¶10. In sharp
contrast, ICS providers may set their rates at or below the safe harbor or even the
hard cap without prior review by the FCC, without compliance with the rules
governing rate-of-return carriers, and without cost-justification. GTL attempts to
portray the traditional rate-of-return procedures as merely “features of a filed-tariff
regime,” Mot. 10, but they are the “integral” hallmarks of rate-of-return regulation
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and “cannot be separated from it,” ICS Stay Order ¶11. Because the FCC did not
adopt rate-of-return regulation, GTL is wrong to contend that the agency erred in
using a “disfavored” regulatory methodology. Mot. 13-14.
For the same reason, CenturyLink is wrong that the agency adopted a rate-
of-return approach on the basis of a misreading of this Court’s Comptel decision.
Mot. 9-10. As shown above, the agency adopted no such approach and thus did
not read Comptel to establish a presumption of rate of return. Comptel, however,
firmly supports the FCC’s determination that ICS rates should reflect the costs of
providing service. The Court stated that under Section 201 of the Communications
Act, the FCC must “justify any rate differential that does not reflect cost.”
Comptel, 87 F.3d at 529.
b. The Interim Rate Caps Are Not Impermissibly Vague.
GTL contends that the FCC “withh[eld] from providers critical information
they need to ensure compliance” with the alleged rate-of-return approach, “with
violators subject to refund obligations and forfeiture penalties.” Mot. 14-15; see
Securus Mot. 6-7 (arguing that the rules are “amorphous”); CenturyLink Mot. 4
(asserting that the FCC “fail[ed] to provide meaningful guidance” on the rules’
requirement of cost-based rates).
As explained above, providers may set their rates initially at or below the
safe harbor cap without regard to costs or fear of refund obligations or penalties.
See ICS Stay Order ¶20. There is nothing amorphous about the standard.
For providers that choose not to take advantage of the safe harbor, the FCC
provided adequate guidance regarding their obligations. The ICS Order specified
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the costs that are recoverable and those that are not. Recoverable costs include
“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.” ICS Order ¶53 & n.196. The
list includes advanced security features such as “biometric caller verification,”
“sophisticated tracking tools,” “link analysis software,” “audio word search,”
“storage of inmate call recordings,” and call “blocking mechanisms,” among many
other things. Id. n.196. Unrecoverable ones include “site commission payments,
costs of nonregulated services, costs relating to general security features of the
correctional facility unrelated to ICS, and costs to integrate inmate calling with
other services, such as commissary ordering, internal and external messaging, and
personnel costs to manage inmate commissary accounts.” Id. ¶53. Should specific
questions arise concerning the application of this guidance, agency staff routinely
“works with providers to help guide them through the implementation” of new
rules, and there is little risk of penalties for “good faith efforts to comply.” ICS
Stay Order ¶20.
c. The FCC Did Not Improperly Interfere With Existing ICS Contracts.
CenturyLink incorrectly argues that the FCC failed to explain its decision to
apply the interim rules to existing contracts. CenturyLink Mot. 5. The agency
explained that decision at length. See ICS Order ¶¶98-102. It acknowledged that
comments in the record were “mixed.” Id. ¶99. Some commenters asked the
agency to apply the rules only to contracts entered into after the rules took effect.
Id. nn.359 & 362. Others, however, asked for the rules to apply to existing
18


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contracts in time periods ranging from immediately to six months or longer. Id.
¶99 & nn.360-361. For example, the National Association of State Utility
Consumer Advocates warned that existing contracts rates would exacerbate the
harm to inmates and their families. Id. n.361. The Human Rights Defense Center
opined that it would be unjust and unreasonable to allow continued overcharges
under existing contracts. Id. n.360. Even an ICS provider, Telmate, suggested that
any new rules apply to existing contracts. Ibid.
Further, the FCC explained that many ICS contracts are regularly amended,
ICS Order ¶102, and that to the extent ICS contracts contain change-of-law
provisions (as GTL indicated they “typically” do, id. n.367), such provisions may
help bring existing contracts into compliance with the new rules, see id. ¶102. The
FCC accommodated the range of comments by delaying the effect of the rules until
90 days after publication of the ICS Order in the Federal Register (which itself
took place more than a month after the order was issued). See ibid.
Securus is incorrect to contend that the FCC violated the Sierra-Mobile
doctrine by interfering with its existing ICS contracts. Mot. 12-13. That doctrine
prohibits the FCC “from modifying [an established] contract rate … except where
the modification is both required by the ‘public interest’ and upon a showing that
the changes are just, reasonable, and nondiscriminatory.” East Ky. Power Co-op,
Inc. v. FERC, 489 F.3d 1299, 1309 (D.C. Cir. 2007); accord Exxon Mobil Corp. v.
FERC, 430 F.3d 1166, 1171 (D.C. Cir. 2005) (agency “may modify a contract rate
provision if (but only if) the ‘public interest’ so requires”). The agency determined
that the ICS Order did not override contracts between providers and prison
19


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authorities, but regulated “only … the relationship between ICS providers and end
users.” ICS Order ¶100. Thus, the Sierra-Mobile doctrine does not apply. See
ICS Stay Order ¶23.
Even if the doctrine did apply, however, the FCC determined that existing
rates violated the public interest. See ICS Order n.365. In light of the long history
of grossly excessive charges for ICS – resulting in rates far out of compliance with
the Communications Act’s requirements of just, reasonable, and fair rates, with
serious, detrimental social consequences – that determination was sound. The
agency properly exercised its “authority under the Mobile-Sierra doctrine to
proscribe contractual arrangements that contravene the relevant public interests.”
Freeport-McMoRan Corp. v. FERC, 669 F.3d 302, 306 (D.C. Cir. 2012) (quotation
marks omitted).
d. Petitioners’ Remaining Claims Lack Merit.
Petitioners raise a hodgepodge of additional claims, none of which has merit.
Compensation. Securus contends that the rates are undercompensatory.
Mot. 8. In fact, Securus’s own cost data, contained in the Siwek Report, show that
“costs for 99 percent of [Securus’s] minutes … come from high volume/low-cost
facilities and are significantly below the safe harbor levels.” ICS Stay Order ¶36.
Excluding commission payments (Securus does not challenge the agency’s finding
that they do not represent a recoverable cost), Securus’s average per-minute rate is
4.4 cents, id. n.148, well below the 12 cents per minute safe harbor rate for debit
calls. Indeed, rates in most states that have eliminated commissions are under 5
cents per minute. ICS Order ¶¶37-38 & n.145. Such facts, particularly in
20


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combination with the waiver process, defeat Securus’s claim of “confiscatory”
rates. Mot. 10; see Rural Cellular, 588 F.3d 1095, 1104 (D.C. Cir. 2009) (cost-
justified exemption process defeated claim of unlawfully low rate).
Cross-subsidization. Relatedly, Securus and CenturyLink contend that a rate
cap that applies to facilities with disparate costs results in “unreasonable cross-
subsidization,” Securus Mot. 10; CenturyLink Mot. 5, which allegedly violates
“longstanding FCC policy,” Securus Mot. 11. But the use of “industry-wide
averages in setting rates,” which is essentially what the FCC has done here, “is not
novel.” Southwestern Bell Tel. Co. v. FCC, 168 F.3d 1344, 1352 (D.C. Cir. 1999)
(quotation marks and citations omitted). Rather, as this Court has recognized, “the
Supreme Court has affirmed ratemaking methodologies employing composite
industry data or other averaging methods on more than one occasion.” Ibid. The
FCC employed a similar methodology in determining the rate of compensation to
be paid by long distance companies to payphone owners. See APCC v. FCC, 215
F.3d 51, 54 (D.C. Cir. 2000). “It is a given that when a regulatory pricing
structure is established” on an industry-wide basis, “providers subject to those rates
will serve higher and lower cost customers.” ICS Stay Order ¶31. Indeed, ICS
providers themselves “typically use uniform rates when they serve multiple …
facilities with differing cost … characteristics,” ICS Order n.280, as do many other
types of telecommunications providers, ibid. By contrast, the FCC policies against
cross-subsidization on which Securus and (by extension) CenturyLink rely, see
Securus Mot. 11 n.33; CenturyLink Mot. 5, concern subsidies from rate-regulated
21


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lines of business to unregulated lines of business, not industry-wide average
pricing.
Prison Administration. Securus contends that by “prevent[ing]” ICS
providers from paying commissions, the FCC has “chang[ed] the manner in which
[incarceration] facilities operate and the services that they can provide,” an action
allegedly “beyond the FCC’s purview.” Mot. 14. In fact, the agency did not
prohibit commissions, ICS Order ¶56, but merely deemed them a cost not
recoverable through interstate rates. Securus’s costs are below the safe harbor
rates, see p. 20, supra, and it may continue to pay commissions.
More fundamentally, Congress granted the FCC jurisdiction over “all
interstate … communication by wire or radio,” 47 U.S.C. § 152(a), declared
unlawful all rates for interstate service that are unjust and unreasonable, 47 U.S.C.
§ 201(b), and granted the agency authority to “prescribe such rules and regulations
as may be necessary … to carry out” the provisions of the statute, ibid. The FCC
has ample authority to regulate interstate payphone rates. That its exercise may
affect the ability of prisons to rely on funds generated by unjust intrastate calling
rates does not diminish the scope of that authority. See Cable & Wireless PLC v.
FCC, 166 F.3d 1224, 1230 (D.C. Cir. 1999) (the FCC “does not exceed its
authority simply because a regulatory action has … consequences” on parties
beyond the agency’s jurisdiction).
Ancillary Fees. Securus attacks the FCC’s regulation of “financial
transaction fees,” by which it appears to mean ancillary charges, on the ground that
the agency’s authority “does not extend to financial transactions.” Mot. 14.
22


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Congress required charges “for [or] in connection with” interstate service to be just
and reasonable. 47 U.S.C. § 201(b) (emphasis added). Congress also granted the
FCC direct authority over “inmate telephone service in correctional institutions,
and any ancillary services.” 47 U.S.C. § 276(d) (emphasis added). The agency
reasonably explained that regulation of ancillary charges was necessary to ensure
ICS providers would not “increase their ancillary charges to offset lower rates”
under the rate caps. ICS Order n.338; see id. ¶91.
GTL asserts in passing that the FCC gave no notice that it would regulate
ancillary charges. Mot. 8. That brief mention is inadequate to justify a stay, but if
preserved, the argument fails. In fact, the ICS Notice sought comment on “how to
handle monthly fees; how to load an inmate’s account; and minimum required
account balance.” ICS Notice ¶33; see ICS Order n.338. Those are ancillary
charges. The ICS Notice also cited comments filed earlier in the proceeding that
had similarly addressed ancillary charges. ICS Notice ¶33 & n.106; see ICS Order
n.338; ICS Stay Order ¶15. And the ICS Notice also sought comment on “any
proposals in the record that are not” otherwise addressed in the notice, ICS Notice
¶35; such proposals included “a number identifying the need for … regulation to
address excessive fees for ancillary services,” ICS Order n.338. The ICS Order
identified five different proposals directly addressing ancillary charges. See ibid.
The ICS Notice “put interested parties on notice that the FCC wanted …
answer[s]” to particular questions regarding ancillary charges, and “the Order
answered [those] questions.” Covad Communications Co. v. FCC, 450 F.3d 528,
549 (D.C. Cir. 2006).
23


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2.

Petitioners Have Not Demonstrated Irreparable Injury.


“This court has set a high standard for irreparable injury.” Chaplaincy of
Full Gospel Churches v. England, 454 F.3d 290, 297 (D.C. Cir. 2006). First, the
injury “must be both certain and great; it must be actual and not theoretical.”
Wisconsin Gas Co. v. FERC, 758 F.2d 669, 674 (D.C. Cir. 1985) (per curiam).
“[P]rospective monetary loss, while it may be injurious,” is not “in itself an
irreparable harm.” Cities of Anaheim and Riverside, California v. FERC, 692 F.2d
773, 779 (D.C. Cir. 1982); accord Va. Petroleum Jobbers Ass’n v. FPC, 259 F.2d
921, 925 (D.C. Cir. 1958) (per curiam) (“Mere injuries, however substantial, in
terms of money, time and energy necessarily expended in the absence of a stay, are
not enough.”). The Court has suggested, for example, that harm tantamount to
“destruction of a business” would justify a stay. Holiday Tours, 559 F.2d at
843 n.2.
Petitioners have not met that strict standard. GTL and CenturyLink
complain that they will lose some revenue as a result of having to charge rates that
are closer to their costs. GTL Mot. 9; CenturyLink Mot. 11. Notably, GTL does
not claim that the safe harbor rates fail to ensure fair compensation (even if GTL
continues to pay commissions). Nor could it contest that fact: before the FCC,
GTL claimed that its costs were among the lowest in the industry; data submitted
by Securus showed costs far below the safe harbor rates. ICS Order ¶80; see p. 20,
supra. Thus, any revenue GTL may forgo if it sets rates at the safe harbor reflects
only its inability under the new rules to collect overcharges imposed on prisoners
and their families. Similarly, CenturyLink represented to the FCC that its average
24


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rates (excluding commissions) are below the safe harbor level. See ICS Order ¶28
& nn. 98-99. And significantly, neither GTL nor CenturyLink claims that its rates
reflect its costs or that the FCC erred, as a factual matter, in finding prevailing rates
unjust, unreasonable, and unfair.
Nor does either GTL or CenturyLink show that revenue losses pose a
significant threat to its business. GTL represented to the FCC that interstate calls,
the only calls at issue here, account for about 10 percent of its traffic. See ICS Stay
Order ¶35 & n.146. CenturyLink acknowledges that its proportion of interstate
calls is even lower, only 7 percent, Mot. Exh. A ¶8, but speculates that the share of
interstate traffic will increase as inmates and their families “disguise” higher-
priced intrastate calls as interstate calls, Mot. 13. That claim, which is unsupported
by data, still demonstrates no loss of revenue that would pose a substantial threat to
CenturyLink’s ICS business.
To the degree GTL claims it will be irreparably injured by “the risk of
significant penalties” for setting its rates above the safe harbor, the assertion
amounts at most to a “mere possibility of harm” that is “insufficient” to justify
relief. Winters, 555 U.S. at 20. The unsupported speculation that the FCC would
impose a penalty for charges imposed in good faith that turn out to be above cost is
far from the “actual” and “imminent” harm required for a stay. Wisconsin Gas,
758 F.2d at 674. As discussed at page 18 above, the agency has stated that it will
cooperate with regulated companies to provide guidance and is especially unlikely
to penalize any rate imposed in good faith. ICS Stay Order ¶20.
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All three petitioners suggest they will be irreparably harmed by having to
undertake what GTL characterizes as the “impossible task” of renegotiating every
contract “in less than three months” to modify commission payments. GTL Mot.
17; see Securus Mot. 15; CenturyLink Mot. 11. The ICS Order requires no such
thing, and petitioners do not demonstrate otherwise (they provide no contracts for
inspection). The order permits ICS providers to continue to pay commissions
under their existing contracts (and it does not affect at all commissions on
intrastate calls, which are the vast majority of calls), and the generous safe harbor
rate will in many if not all cases ensure sufficient compensation for interstate calls
even with a commission. GTL, for example, expressly told the FCC that because
of economies of scale and the efficiency of its operations, it could both maintain
low rates and pay commissions. ICS Order n.166. If necessary, petitioners can
renegotiate their contracts over time, either when they expire, pursuant to change-
of-law clauses, or over a period of time longer than three months. Any contract
adjustments that may be necessary do not amount to “a ‘clear and present’ need for
equitable relief,” England, 454 F.3d. at 297, but constitute only “something merely
feared as liable to occur at some indefinite time,” Wisconsin Gas, 758 F.2d at 674
(quotation marks omitted).
CenturyLink’s contention that some state agencies may be unable or
unwilling to renegotiate existing contracts, see Mot. 12-13, does not change that
analysis. Even if that were true – which CenturyLink has not demonstrated –
CenturyLink does not show it could not maintain safe harbor rates at the relevant
facilities and still pay commissions. For example, it asserts that Texas law requires
26


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ICS providers to pay 40 percent of their gross revenue to the state in the form of
commissions, but it does not contend – let alone demonstrate – that charging
allowable rates for interstate calls in Texas would prevent it from recovering
recoverable costs plus a reasonable return on investment. See Mot. 12.
Securus contends that if a consumer should lodge a rate complaint, Securus
will have to defend itself, thereby incurring various expenses. But staying the ICS
Order would provide no relief from that cost – Securus and all other ICS providers
always have been, and remain, liable to a complaint charging that their rates are
unreasonable, even in the absence of the specific inmate rate rules. See ICS Stay
Order ¶43. If anything, the safe harbor rule, which shifts the ordinary burdens of
production, gives Securus significant additional protections.
Securus also argues that it will be “forced to provide below-cost service,”
Mot. 15, a claim that CenturyLink echoes in passing, Mot. 11 (asserting that safe
harbor rates would “require [CenturyLink] to serve many accounts at a loss”).
According to Securus’s cost study, however, more than 99 percent of Securus’s
traffic has costs (excluding commission) significantly below the safe harbor cap.
ICS Stay Order ¶36 & n.148; see p. 20, supra. Moreover, Securus’s higher-cost
local jails “have an especially low volume of interstate calls.” Id. ¶36. In any
event, interstate calls account for only 15 percent of Securus’s call volume. Id.
¶35. CenturyLink did not provide cost data but did represent to the FCC that its
average per-minute costs are below the safe harbor levels. ICS Order ¶28; see
pp. 24-25, supra. And as already noted, p. 25, supra, interstate calls account for
only about 7 percent of CenturyLink’s call volume, Mot. Exh. A ¶8. Moreover, to
27


USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 28 of 48
the degree that higher-cost facilities constitute a business grouping that “reflect[s]
reasonably related cost characteristics,” ICS Order ¶123, Securus and CenturyLink
will likely be able to justify charging rates above the safe harbor in those facilities,
up to the hard cap. Under the circumstances, any harm resulting from any below-
cost rates does not merit the extraordinary relief of a stay.
3. A Stay Would Harm Third Parties And Disserve The Public Interest,

And The Balance Of Equities Strongly Disfavors A Stay.


The “parties and the public, while entitled to both careful review and a
meaningful decision, are also generally entitled to the prompt execution of orders.”
Nken, 556 U.S. at 427. The order under review “take[s] critical, and long overdue,
steps to provide relief to the millions of Americans who have borne the financial
burden of unjust and unreasonable interstate inmate phone rates.” ICS Order ¶1.
The FCC’s efforts to reform the inmate calling system are intended to make it
easier for inmates to stay connected to their families and friends, to lessen the
negative impact on the millions of children with an incarcerated parent, to reduce
recidivism (with its attendant savings in the cost of incarceration), and to improve
communication between inmates and their legal representatives. Id. ¶¶2, 42-44.
Petitioners claim that a reduction in commissions paid to state prison
authorities will result in reduced services to inmates. GTL Mot. 19; Securus Mot.
19; CenturyLink Mot. 16-17. But the FCC found that in many cases, the funds are
used for state expenses with no direct connection to prison operation, such as road
construction and state employee salaries. ICS Order ¶¶3, 34. CenturyLink admits
that in Texas a substantial portion of commissions go into the state’s “general
28


USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 29 of 48
revenue fund.” Mot. Ex. A ¶16. Indeed, the “inmate welfare fund” in one prison
expends less than 1 percent of its budget on prisoner services. ICS Order. n.13.
To the degree the money is spent on prisoners through services such as Alcoholics
Anonymous and educational programs, not all inmates take advantage of or benefit
from such services. More important, there is no reason why users of inmate calling
services should bear the costs of unrelated services through overcharges on
telephone calls that impose a serious hardship on their ability to communicate. It is
telling in that regard that entities representing prisoners and their families before
the FCC did not advocate retention of the prior rates and have informed us that
they will oppose a stay of the ICS Order in this Court. Finally, nothing in the order
prevents a state or locality from replacing any diminution in commission revenue
through taxpayer revenues or other funding mechanisms.
Securus and CenturyLink speculate that the new rules will force service
providers to terminate service to high-cost facilities. Securus Mot. 17-18;
CenturyLink Mot. 14-15. But the hard cap rates are based on the highest costs in
the record, and there is no indication that those rates are insufficient to support
service in high-cost facilities. In any event, the possibility that some providers
might decide to withdraw service to a few high-cost facilities does not outweigh
the certain and immediate harm to millions of prisoners and their families from a
stay.
Staying the ICS Order and reverting to the prior rates practices will
significantly harm millions of third parties and substantially disserve the public
interest. The balance of equities in this case compels denial of a stay.
29


USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 30 of 48

CONCLUSION



For the foregoing reasons, the Court should deny the motions for a stay.








Respectfully submitted,








Jonathan Sallet







Acting General Counsel

Jacob M. Lewis
Associate
General
Counsel








Joel Marcus
Counsel

/s/
Sarah
E.
Citrin








Sarah E. Citrin
Counsel

Federal
Communications
Commission
445
12th
Street,
SW
Washington,
DC
20554
(202)
418-1537

December 16, 2013

30


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EXHIBIT A

(Excerpt of 2003 Wright Petition)



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USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 34 of 48

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EXHIBIT B

(Siwek Declaration)




USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 36 of 48
Economists Incorporated

Expert Report of Stephen E. Siwek

On Behalf of

Securus Technologies, Inc.

WC Docket No. 12-375

March 25, 2013

1.0

Introduction and Background

1.1
My name is Stephen E. Siwek. I am a Principal at Economists Incorporated, a research
and consulting firm with offices in Washington D.C. and in San Francisco. I have been
active in research and consulting for over 30 years. During this period, I have frequently
been asked to analyze economic, financial and accounting issues that arise in regulatory
hearings, arbitrations and court proceedings. I have testified as an expert witness before
such bodies on more than 80 occasions. My business address is Suite 1100, 2121 K
Street, NW Washington, D.C. 20037.
1.2
I have been continuously involved in economic consulting since 1975. My areas of
specialization include the assessment of commercial damages; the economic analysis of
U.S. media and related industries that depend on copyright protection and the economic
and financial assessment of rates for regulated services including telecommunications,
public utility and postal services.
1.3
With respect to the telecommunications industry, I have testified on more than eighteen
occasions before state public service commissions on issues relating to the costing and
pricing of telecommunications facilities and services. I have also testified in arbitration
and rate hearings relating to carrier interconnection, access charge levels and rate design.
In addition, I have also participated in proceedings before this Commission’s Markets
Disputes Resolution office that focused on telecommunications issues.
1.4
With regard to inmate calling services (“ICS”), I have previously testified in a 2009
proceeding before the Public Regulation Commission of New Mexico. In that case, I pre-
filed direct testimony with the New Mexico Commission and I participated directly in
hearings as well.1 My CV is attached herewith as Appendix I.
1.5
I have been retained by Securus Technologies, Inc. (“Securus”) to present cost and traffic
data from sites that Securus served in 2012. Securus installs and manages call
management and communications systems for use by correctional facilities throughout
the United States. Headquartered in Dallas, Texas, Securus employs more than 900
1 New Mexico Public Regulation Commission, In the Matter of the Commission Inquiry into the Rates and Charges
of Institutional Operator Service Providers, Case No. 07-00316-UT.
1

USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 37 of 48
Economists Incorporated
employees nationwide. The company serves approximately 2,200 correctional facilities in
45 states and the District of Columbia and more than 850,000 inmates nationwide.
2.0

Facility Groups

2.1
In the United States, Securus serves both state Department of Corrections (“DOC”)
facilities and a variety of county and local detention facilities and jails (“non-DOC”).
Securus maintains data that includes costs incurred, revenue brought in, and call traffic
volumes such as number of minutes and number of distinct calls.
2.2
In order to present this data, the following procedure was established.
2.3
I reviewed Securus’s data, and determined that it would be useful to divide the non-DOC
facilities into three groups. Each group contains ten facilities for which Securus provided
ICS services in 2012. The three groups included the ten highest volume non-DOC
customers (“High 10”), the ten medium volume non-DOC customers (“Medium 10”) and
the 10 lowest non-DOC volume customers (“Low 10”) (collectively, the “10-10-10”
methodology). For each customer, the volume used to determine membership in each
group was based on total minutes.
2.4
In addition to these three groups, a fourth group was created consisting of all DOC
facilities that Securus served in 2012, of which there are eight (8).
2.5
After review of the data provided for the 10-10-10 groups, it was decided to adjust the
data as follows: First, a minimum contract revenue of $1,000 was adopted for the Low 10
group. This adjustment removed facilities with extremely low revenue totals that likely
reflected measurement periods of less than one year. Second, outlier facilities in the
original High 10 group were replaced by alternative facilities. The three outlier facilities
reported volume and/or ICS revenue data that for known reasons are not representative of
the High 10 Group.
2.6
The actual facilities included in each of the four facilities groups are identified in
Appendix II. This Appendix also reports interstate calling rates and the site commission
percentages that were in effect for each of these facilities in 2012. Finally Appendix II
identifies DOC and non-DOC facilities to which Securus made cash or prepaid payments
to the facility in question.
2.7
The highest and lowest volumes in each of the 10-10-10 groups and in the DOC group
are shown in Table 1. The annual number of minutes for the High 10 facilities ranged
from a low of 6.1 million up to a high of 26.1 million minutes. Calling volumes for the
High 10 group ranged from a low of 281,000 calls to a high of 1.19 million calls.

Table 1: Highest and Lowest Volumes by Facility Group

Highest Total

Lowest Total

Highest Total

Lowest Total

Category

Minute Volume

Minute Volume

Number of Calls

Number of Calls

High 10

26,119,012
6,134,884
1,186,473
281,011

Medium 10

69,859
67,105
8,088
4,702

Low 10

1,668
885
284
113

State DOC

120,643,191
2,488,244
9,134,770
242,657
2

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Economists Incorporated
2.8
For the Medium 10 group, the differences between high and low minute and calling
volumes were less dramatic than in the High 10 group. The highest minute volume
reported in the Medium 10 group was 70,000 minutes while the lowest minute volume
was 67,000 minutes. Similarly, the highest call volume in the Medium 10 group was
8,000 calls while the lowest call volume was 4,700 calls.
2.9
For the Low 10 Group, minute volumes range from a high of 1,668 minutes to a low of
885 minutes. For the Low 10 Group, the highest calling volume was 284 calls while the
lowest calling volume was 113 calls.
2.10
For the DOC facilities, the lowest volume institution recorded nearly 2.5 million minutes
while the highest volume DOC facility generated nearly 120.6 million minutes. Calling
volumes for the DOC institutions ranged from a low of 242,000 calls to a high of 9.1
million calls.
2.11
As these statistics make clear, the facilities served by Securus differ dramatically in terms
of the total ICS minutes and calls that they generate each year. For example, in the High
10 Group, the number of minutes generated by the highest volume customer (26.1 million
minutes) is more than four times the number of minutes processed by the lowest volume
customer in the High 10 Group (6.1 million minutes).
2.12
For the DOC facilities, the number of minutes generated by the highest volume customer
(120.6 million minutes) exceeds the number of minutes processed by the lowest volume
DOC customer by an even greater margin. At 120.6 million minutes, the highest volume
DOC customer’s volume exceeded that of the lowest volume DOC customer (2.49
million minutes) by more than 118 million minutes.
3.0

Average Costs Per Minute and Per Call

3.1
The costs incurred by Securus for the provision of ICS services to a typical institution in
each facility group are summarized in Table 2. The ICS cost figures reflect the average
costs incurred by Securus to provide ICS service. The costs include site commissions,
bad debt, billing and collection, telecom facilities and services, validation, field
technicians, and customer services.2

Table 2: ICS Costs per Minute

ICS Costs per

Category

ICS Costs

Total Minutes

Minute

High 10 Simple Average

$
1,759,901
10,068,670 $
0.1748

Medium 10 Simple Average

$
34,258
68,403 $
0.5008

Low 10 Simple Average

$
2,207
1,290 $
1.7106

State DOC Simple Average

$
4,605,001
43,083,108 $
0.1069
3.2
In order to serve the average High 10 facility in 2012, Securus incurred ICS costs of
nearly $1.8 million. As shown in Table 2, the average High 10 facility would also have
2 For purposes of Table 2, no distinction is made between correctional facilities where Securus paid site
commissions and correctional facilities where Securus paid no site commissions. Site commissions are addressed
directly later in this report.
3

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Economists Incorporated
generated calling demand of more than 10 million minutes in 2012. To put this figure in
context, recall from Table 1 that the highest volume High 10 institution served by
Securus generated 26.1 million minutes while the lowest volume High 10 facility
processed 6.1 million minutes.
3.3
Based on the figures in Table 2, the average cost per minute incurred by Securus to serve
a High 10 facility in 2012 was $0.1748 per minute.
3.4
Moving to the Medium 10 facility group, the average cost incurred by the company to
serve a Medium 10 customer in 2012 was $34,258 (See Table 2). Since the average
number of minutes generated by a Medium 10 customer was 68,403, the average cost per
minute incurred by Securus to serve a Medium 10 10 customer was $0.5008 per minute.
This value is more than twice the average cost per minute reported above for the High 10
facilities.
3.5
For the Low 10 facility group, average costs per minute are higher still. In order to serve
the average Low 10 institution, Securus incurs an average cost of $2,207 (Table 2). In
2012, the average volume generated by a Low 10 facility was only 1,290 minutes. These
figures imply that the average cost per minute needed to serve a Low 10 customer was
$1.7106 per minute. This figure is nearly ten times the cost per minute required to
process one minute of calling traffic from a High 10 customer.
3.6
For the DOC facilities served by Securus, the average cost incurred for a typical facility
was $4,605,001 (Table 2). On average, a DOC facility processes 43 million minutes per
year. Taken together, these figures suggest that Securus incurs costs of $0.1069 per
minute to provide ICS services to the average DOC facility.
3.7
As shown in Table 2, the average cost of ICS services varies significantly as calling
volume changes. The costs per minute incurred by Securus to provide ICS services to
high volume DOC and non DOC facilities range between $0.11 and 0.18 per minute. By
contrast, the costs per minute needed to serve Medium 10 and Low 10 facilities are
between three and ten times higher.
3.8
The costs faced by Securus in providing ICS services can also be assessed on a per-call
basis. As shown in Table 3, Securus incurred total ICS costs of $2.53 per call in serving
the average High 10 facility. For Medium 10 facilities, the company incurred costs of
$5.48 per call. For Low 10 institutions, on average, Securus faced ICS costs per call of
$11.54 per call. Finally, for DOC facilities, the company’s average ICS cost per call came
to $1.51.

Table 3: ICS Costs per Call

ICS Cost per

Category

ICS Cost

Total Calls

Call

High 10 Simple Average

$
1,759,901
694,324 $
2.53

Medium 10 Simple Average

$
34,258
6,251 $
5.48

Low 10 Simple Average

$
2,207
191 $
11.54

State DOC Simple Average

$
4,605,001
3,048,531 $
1.51
4

USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 40 of 48
Economists Incorporated
4.0

Site Commissions

4.1
The costs referenced thus far in this report comprise the costs incurred by Securus to
provide ICS services to inmate facilities. These data include the costs of the site
commissions that Securus must pay in order to remain competitive in the bidding process
to serve inmate facilities. Securus must generate sufficient revenue to recover its site
commission costs and all of the other costs needed to provide ICS services. In this section
of the report, the magnitude of the site commissions that Securus pays to non-DOC and
DOC facilities will be documented in detail.
4.2
In Table 4, the site commissions paid by Securus are presented for the four facility groups
identified previously. For the average High 10 facility, the average site commission paid
in 2012 was $1,326,530. For the average Medium 10 facility, the average site
commission paid out by Securus was $23,098. For the average Low 10 facility, the
typical site commission cost was $409. Finally, for the average DOC facility, the average
site commission paid by Securus in 2012 was $2,750,105.

Table 4: Average Site Commissions per Facility

Category

Site Commission

High 10 Simple Average

$
1,326,530

Medium 10 Simple Average

$
23,098

Low 10 Simple Average

$
409

State DOC Simple Average

$
2,730,105
4.3
In Table 5 the average site commissions reported in Table 4 are divided by the total
average costs required to provide ICS services for the facilities in each facility group. The
ICS cost figures were previously reported in Table 2.

Table 5: Average Site Commissions as a Percent of Average ICS Costs

Site Commission as

Category

Site Commission

ICS Costs

Percent of ICS Costs

High 10 Simple Average

$
1,326,530
$
1,759,901
75.4%

Medium 10 Simple Average

$
23,098
$
34,258
67.4%

Low 10 Simple Average

$
409
$
2,207
18.5%

State DOC Simple Average

$
2,730,105
$
4,605,001
59.3%
4.4
As shown in Table 5, for High 10 facilities, site commissions averaged 75.4% of the total
costs incurred by Securus to provide ICS services. For Medium 10 institutions, site
commissions comprised 67.4% of all ICS costs. In contrast to these figures, the site
commission percentage for Low 10 facilities was only 18.5%. Finally, for DOC facilities,
site commissions averaged 59.3% of total ICS costs.
4.5
In Table 6, the average site commissions from Table 4 are divided by the average ICS
revenue generated by inmate facilities in each of the four facility groups. The resulting
percentages demonstrate the magnitude of site commissions as a function of the average
calling revenue earned by Securus in each facility group.
5

USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 41 of 48
Economists Incorporated

Table 6: Average Site Commissions as a Percent of Average ICS Revenue

Site Commission as

Category

Site Commission

ICS Revenue

Percent of ICS Revenue

High 10 Simple Average

$
1,326,530
$
2,260,788
58.7%

Medium 10 Simple Average

$
23,098
$
29,465
78.4%

Low 10 Simple Average

$
409
$
1,204
33.9%

State DOC Simple Average

$
2,730,105
$
5,742,182
47.5%
4.6
The site commission percentages reported in Table 6 are weighted averages. For each
facility group, total site commissions for all facilities are summed and divided by total
ICS revenue for the same facility. These site commission percentages are quite
significant.
4.7
For High 10 Facilities, site commissions make up, on average, 58.7% of revenue. For the
Medium 10 Facilities, site commissions comprise 78.4% of ICS revenue while for the
Low 10 facilities site commissions represent 33.9% of revenue. With respect to the DOC
facilities, site commissions for the average facility comprise 47.5% of total ICS revenue.
4.8
The significance of site commissions to the company can also be seen in the amount of
ICS revenue that Securus must earn in order to pay for these costs. In fact, the impact of
site commissions on the company would be devastating if Securus could no longer offset
these costs in telephone rates. In Tables 9a and 9b, the impact of site commissions
without revenue offsets is provided for DOC facilities (Table 7a) and for non-DOC
facilities (Table 7b). With no revenue recovery of site commission costs, the gross
margins earned from each facility group turn sharply negative.
4.9
In Table 7a, an amount equal to the site commission paid by the average DOC facility is
subtracted from average DOC revenue. This calculation causes average DOC revenue to
decline from $5.7 million to $3.0 million. This revenue decrease in turn results in a
significant change in the average gross margin earned on these DOC customers. For the
average DOC facility, gross margin falls from $1.137 million to ($1.593 million).

Table 7a: Average Gross Margins with and without Recovery of Site Commissions

Gross Margin as

Percent of ICS

Category

ICS Revenue

ICS Costs

Gross Margin

Revenue

State DOC Simple Average

$
5,742,182
$
4,605,001
$
1,137,181
19.8%

Adjusted ICS Revenue

Adjusted Margin* as

(ICS Revenue less Site

Adjusted

Percent of Adjusted

Category

Commission)

ICS Costs

Margin*

ICS Revenue*

State DOC Simple Average

$
3,012,078
$
4,605,001
$
(1,592,924)
-52.9%
4.10
Similar calculations for the non-DOC customers are provided in Table 7b. For each
facility group, the loss of revenue to cover site commissions results in significant changes
in gross margins. For High 10 facilities, the average margin declines from $500,888 to
($825,643). For Medium 10 and Low 10 facilities, the loss of site commission revenue
transforms relatively modest losses into significant losses.
6

USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 42 of 48
Economists Incorporated

Table 7b: Average Gross Margins with and without Recovery of Site Commissions

Gross Margin as

Percent of ICS

Category

ICS Revenue

ICS Costs

Gross Margin

Revenue

High 10 Simple Average

$
2,260,788
$
1,759,901
$
500,888
22.2%

Medium 10 Simple Average

$
29,465
$
34,258
$
(4,793)
-16.3%

Low 10 Simple Average

$
1,204
$
2,207
$
(1,003)
-83.3%

Adjusted ICS Revenue

Adjusted Margin* as

(ICS Revenue less Site

Adjusted

Percent of Adjusted

Category

Commission)

ICS Costs

Margin*

ICS Revenue*

High 10 Simple Average

$
934,258
$
1,759,901
$
(825,643)
-88.4%

Medium 10 Simple Average

$
6,367
$
34,258
$
(27,891)
-438.0%

Low 10 Simple Average

$
796
$
2,207
$
(1,411)
-177.3%
4.11
As Tables 9a and 9b demonstrate, site commissions still comprise a major cost for ICS
providers like Securus. From the company’s perspective, these costs, like all other ICS
costs, must be recovered in rates. If Securus were precluded from rate recovery of site
commission costs, the financial impact of such a policy on the company, as shown in
Tables 9a and 9b would be catastrophic.
5.0

Other Calculations

Bad Debt Costs
5.1
The analysis above demonstrates the significance of site commissions from the point of
view of ICS providers like Securus. Site commissions are not, however, the only
significant cost borne by ICS providers. Bad Debt is another significant cost element for
ICS service.
5.2
Data on the bad debt expenses incurred by Securus for the provision of ICS services are
provided in Table 8. For High 10 facilities, bad debt averages 3.8% of ICS revenue. This
percentage rises with Medium 10 and in particular for Low 10 facilities. For Low 10
facilities, bad debt averages 17.6% of total ICS revenue. For DOC facilities, bad debt
expenses average nearly 3.0% of ICS revenue.

Table 8: Average Bad Debt Costs as a Percent of ICS Revenue

Bad Debt as a Percent

Category

Total Bad Debt Costs

ICS Revenue

of ICS Revenue

High 10 Simple Average

$
85,090
$
2,260,788
3.8%

Medium 10 Simple Average

$
1,725
$
29,465
5.9%

Low 10 Simple Average

$
212
$
1,204
17.6%

State DOC Simple Average

$
167,573
$
5,742,182
2.9%
7

USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 43 of 48
Economists Incorporated
Average Duration of Interstate Calls
5.3
The Securus customer data base used in this presentation was not designed to record costs
as a function of jurisdiction. For this reason, only certain, more limited calculations can
be developed from jurisdictional data for interstate calling from Securus facilities. One of
the more limited jurisdictional calculations that can be derived from the Securus data is
an estimate of interstate call duration.
5.4
As shown in Table 9, the total number of interstate calls from all Securus facilities
nationwide in 2012 was 9,122,432 calls. For the same year, the company processed
106,082,679 interstate minutes. Based on these two figures, the average length of an
interstate call from a Securus facility in 2012 was 11.63 minutes.

Table 9: Interstate Calls, Minutes, and Minutes per Call

Total Interstate

Total Interstate

Interstate Minutes

Calls

Minutes

per Call

High 10 Simple Average

198,407
2,080,285
10.48

Medium 10 Simple Average

532
5,561
10.45

Low 10 Simple Average

104
738
7.10

State DOC Simple Average

490,533
6,137,602
12.51

All Facilities Total

9,122,432
106,082,679
11.63
5.5
Table 9 also includes calculations of the average number of interstate minutes per call
reported for the four facilities groups. These average call durations were: 10.48, 10.45,
7.10, and 12.51 minutes per call for High 10, Medium 10, Low 10, and State DOC
facilities, respectively.

Table 10: Tariffed Prices for Interstate Calls of Average Duration

Assumed Call

Calculated Price per

Category

Duration (minutes)

Call

High 10 Simple Average

11
$
12.03

Medium 10 Simple Average

11
$
11.88

Low 10 Simple Average

8
$
8.77

State DOC Simple Average

13
$
6.02
5.6
Table 10 reports the calculated price per call that would apply for an interstate call of
average duration that was generated by an average facility in one of the four facility
groups. Note that the average call lengths assumed in Table 10 closely track the
calculated average call lengths for the four facility groups.
Competition
5.7
In deciding how to respond to a Request for Proposal (“RFP”) from an inmate facility,
Securus must carefully evaluate the technical and financial specifications that are set
forth in the RFP. In addition to telecommunications features and functions, these
specifications generally include requests that the successful ICS bidder provide site
8

USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 44 of 48
Economists Incorporated
commissions to the inmate facility in question. These requirements are made available to
all bidders and potential bidders as part of the competitive process. In his proposal, a
bidder may choose to disregard RFP requirements knowing that this decision may well
serve to eliminate that bidder from the contract award. For any given RFP, a bidder can
also decide to ignore the RFP process entirely. Nevertheless, as explained in the
Declaration of Mr. Hopfinger, Securus typically faces many other bidders as it seeks to
provide ICS services to states, county and city inmate facilities.3 In my opinion, this
vigorous and well attended bidding process provides good evidence that ICS services in
the United States are generally provided competitively.
5.8
A competitive bidding system ensures that high quality ICS services are provided at low
cost. Even the most competitive bidding system however, is not likely to permit bidders
to ignore the bid specifications that were set forth in the facility’s RFP. If those
specifications had included a requirement that the provider pay site commissions, the bids
generated through the competitive process would specify the site commissions that the
bidder was willing to pay. These competitive bids would also permit bidders to recover
their cost outlays for site commissions. A competitive bidding system provides for the
efficient selection of ICS providers at low cost. Such a system however, is not intended to
force bidders to propose ICS service offerings at below cost prices.
3 Declaration of Curtis L. Hopfinger, WC Docket No. 12-375, Para. 4-5.
9

USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 45 of 48
APPENDIX 2
Calling and Site Commission
Rates

Appendix 2

USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 46 of 48

Appendix 2: List of Facilities by Group

Interstate

Stated Site

Flat-Rate

Rate per

Interstate

Commission

Commission

Category

Facility Name

Minute

Rate per Call

Rate

Payment

High 10
Broward County*
0.89
$
3.95
$
0.0%
172,145
$
High 10
Cook County Illinois*
0.20
$
1.00
$
57.5%
300,000
$
High 10
Orleans Parish*
0.89
$
3.95
$
59.0%
1,039,588
$
High 10
Palm Beach County
0
$ .69
3.80
$
68.0%
-
$
High 10
Louisville / Jefferson County Metro Govt Parent*
0
$ .89
3.95
$
64.0%
397,400
$
High 10
Suffolk County Sheriff'S Department
0.89
$
3.95
$
50.0%
-
$
High 10
Allegheny Parent
0.59
$
3.00
$
0.0%
-
$
High 10
East Baton Rouge
0.89
$
3.95
$
0.0%
-
$
High 10
Suffolk County Sheriff'S Department
0.89
$
3.98
$
50.0%
-
$
High 10
Hampden County
0
$ .89
3.95
$
52.0%
-
$
Medium 10
Teller County Jail
0.20
$
2.54
$
44.0%
-
$
Medium 10
Parke County Jail*
0.89
$
3.95
$
45.0%
10,000
$
Medium 10
Wilkes County Sheriff'S Office- (HLS)
0.89
$
3.95
$
44.0%
-
$
Medium 10
Gilpin County Jail
0.15
$
2.54
$
38.0%
-
$
Medium 10
Ravalli County Sheriff'S Department
0.89
$
4.09
$
45.0%
-
$
Medium 10
Jennings County Jail
0.69
$
3.95
$
50.0%
-
$
Medium 10
Heart Of America Correctional & Treatment Center*
0
$ .89
4.05
$
30.0%
7,000
$
Medium 10
Carbon County Jail
0.89
$
3.95
$
30.0%
-
$
Medium 10
Tunica County County Sheriff'S Dept - JSI*
0.89
$
3.95
$
0.0%
20,000
$
Medium 10
Bibb County Commission
0.89
$
3.95
$
58.0%
-
$
Medium 10
Titus County Jail*
0.89
$
3.95
$
58.0%
20,000
$
Low 10
Walla Walla County Juvenile
0.35
$
2.25
$
0.0%
-
$
Low 10
Aurora City Police Department
0.65
$
2.60
$
5.0%
-
$
Low 10
Keweenaw County Jail
0.89
$
3.95
$
35.0%
-
$
Low 10
Marion County Juvenile Detention Facility
0.50
$
2.50
$
28.0%
-
$
Low 10
Oakview Juvenile Residential Center
0.89
$
3.95
$
40.0%
-
$
Low 10
Furnas County Jail
0.65
$
3.50
$
30.0%
-
$
Low 10
Edwards County Jail
0.50
$
3.50
$
20.0%
-
$
Low 10
Midlothian City - Northern Ellis Emergency Dispatch
0.89
$
3.95
$
30.0%
-
$
Low 10
Sheridan County Jail
0.89
$
3.95
$
30.0%
-
$
Low 10
Monett City Police Dept
0.65
$
2.60
$
0.0%
-
$
State DOC
Florida DOC
0.06
$
1.20
$
35.0%
-
$
State DOC
Maryland DOC1
0.30
$
3.00
$
0.0%
-
$
State DOC
Missouri DOC
0.05
$
1.00
$
0.0%
-
$
State DOC
Arizona DOC*
0.40
$
2.40
$
0.0%
1,797,978
$
State DOC
Connecticut DOC
0
$ .32
-
$
68.8%
-
$
State DOC
Kentucky DOC*
0.30
$
2.00
$
54.0%
80,000
$
State DOC
Louisiana DOC2
0.17
$
2.15
$
70.0%
-
$
State DOC
Alaska DOC
$ 0.89
$ 3.95
7.0% $ -
1 For MD DOC, $0.30 per minute rate does not apply to first minute.
2 LA DOC reports two per minute rates--$0.17 and $0.27. Here, $0.17 is listed.
* The following facilities have required Securus to pay a flat-rate commission payment: Broward County, Cook County Illinois,
Orleans Parish, Louisville / Jefferson County Metro Govt Parent, Parke County Jail, Heart Of America Correctional & Treatment
Center, Tunica County County Sheriff'S Dept - JSI, and Titus County Jail; Arizona DOC and Kentucky DOC.

USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 47 of 48

IN THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT











SECURUS TECHNOLOGIES, INC. et al

., )









)

Petitioners,






)









)
v.
)

No.

13-1280
and









) consolidated cases

FEDERAL COMMUNICATIONS COMMISSION

)
and UNITED STATES OF AMERICA,

)









)

Respondents.
)









)

CERTIFICATE OF SERVICE



I, Sarah E. Citrin, hereby certify that on December 16, 2013, I electronically filed
the foregoing Opposition Of The Federal Communications Commission To
Motions For Stay with the Clerk of the Court for the United States Court of
Appeals for the D.C. Circuit by using the CM/ECF system. Participants in the case
who are registered CM/ECF users will be served by the CM/ECF system.


Stephanie A. Joyce
Michael K. Kellogg
G. David Carter
Courtney S. Elwood
Arent, Fox LLP
Aaron M. Panner
1717 K Street, N.W.
John B. Ward
Washington, D.C. 20036
Kellogg Humber Hansen Todd
Counsel for:Securus Technologies,
Evans & Figel, PLLC
Inc.
1615 M Street, N.W., Suite 400

Washington, D.C. 20036
Counsel for: Global Tel*Link





USCA Case #13-1280 Document #1470786 Filed: 12/16/2013 Page 48 of 48

Helgi C. Walker
Angela J. Campbell
Scott G. Stewart
Georgetown University Law Center
Philip S. Alito
Institute for Public Representation
Gibson, Dunn,& Crutcher
600 New Jersey Avenue, NW
1050 Connecticut Ave., N.W.
Suite 312
Washington, D.C. 20036
Washington, DC 20001
Counsel for: Mississippi Dept.
Counsel for: Intervenors
of Corrections & South Dakota
Dept. of Corrections


Robert B. Nicholson
Robert A. Long, Jr.
U.S. Department of Justice
Matthew J. Berns
Antitrust Division
Kristen E. Eichensehr
950 Pennsylvania Ave., N.W.
Covington & Burling
Room 3224
1201 Pennsylvania Ave., N.W.
Washington, D.C. 20530
Washington, D.C. 20004
Counsel for: USA
Counsel for: CenturyLink Public

Communications, Inc.

Dennis R. Hansen
Deputy Attorney General
Office of Attorney General
323 Center Street, Suite 200
Little Rock, AR 72201
Counsel for: Arkansas Dept.
Of Correction



/s/ Sarah E. Citrin

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