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«JOURNAL OF LAW, ECONOMICS & POLICY VOLUME 10 SPRING 2014 NUMBER 2 EDITORIAL BOARD 2013-2014 Steve Dunn Editor-in-Chief Crystal Yi Meagan Dziura Sarah ...»

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64 See, e.g., Contract to provide inmates with access to telecommunications services in a correctional facility or jail; conditions, N.M. STAT. ANN. § 33-14-1 (2011) (New Mexico banned commissions in 2001).

65 Global Tel*Link Oct. 3 Ex Parte Letter, supra note 12, at attach.1, at 7.

66 Id. at attach.1, at 8.

67 Id. at attach.1, at 7.

2014] CALLING FROM PRISON 523 missions violated antitrust law.68 The district court deferred her complaint to the FCC, noting that the agency had primary jurisdiction over the regulation of tariffed phone providers.69 Wright petitioned the FCC in 2001 and, via her 2007 revised proposal, requested that the FCC impose telephone calling price caps at $0.20 to $0.25 per minute with no connection costs for interstate long-distance rates.70 These rates mirrored those provided by the BOP.71 Wright’s $0.20–$0.25 price caps coincided with early Congressional attempts to regulate prison payphone rates. In 2007, Representative Bobby Rush introduced the Family Telephone Connection Protection Act of

2007.72 This now defunct bill actively affirmed the FCC’s power over inmate payphone rates and mandated that the FCC implement sound and reasonable price caps.73 On August 9, 2013, the FCC enacted price caps similar to the Wright proposal.74 The FCC set rate caps at $0.21 per minute for debit calls and $0.25 per minute for prepaid calls.75 The FCC believes that this will decrease inmate call rates from $17 per fifteen-minute call to $3.75 and $3.15 for debit and prepaid calls, respectively.76 The FCC also created safeharbor rates, stating that $0.12 per minute for debit and prepaid calls and $0.14 per minute for collect calls was presumptively reasonable and cost based.77 Additionally, the FCC chose to prohibit monetary commissions.78 68 CTR. FOR CONSTITUTIONAL RIGHTS, Martha Wright v. Corrections Corporation of America (FCC Petition), http://ccrjustice.org/Wright-v-CCA (last visited on Oct. 15, 2012).

69 Id.

70 Petitoner’s Alternative Rulemaking Proposal at 5, In re Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996 Petition for Rulemaking or, in the Alternative, Petition to Address Referral Issues In Pending Rulemaking, DA 03No. 96-128), [hereinafter Wright 2007 Proposal].

71 KUKOROWSKI, supra note 11, at 4.

72 Family Telephone Connection Protection Act of 2007, H.R. 555, 110th Cong. § 1 (2007), available at http://www.govtrack.us/congress/bills/110/hr555/text.

73 Id. at § 2(16). Representative Rush introduced a second, nearly identical bill in 2009 that was also never enacted. Family Telephone Connection Protection Act of 2009, H.R. 1133, 111th Cong.

(2009), available at http://www.govtrack.us/congress/bills/111/hr1133.

74 FCC Press Release, supra note 13, at 1.

75 Id.

76 Id.

77 Id.

78 Id. at 2.

–  –  –

E. Third-Party Beneficiary Status of Inmates in Contract Bidding Necessitated Regulation Each state’s department of corrections allots the majority of their prison payphone contracts through a bidding process.79 Bids tend to encompass multiple state penal institutions.80 The winning bidder gains an exclusive service contract for all penal facilities under the department’s control, thereby gaining a monopoly in each of the contracted facilities.81 Prisoners were third-party beneficiaries in these negotiations, receiving pricing determined by the facility authority and the service providers.82 Due to their incarceration, inmates have no choice in telephone providers and must use the services determined by the state.83 As no close, legal substitutes exist, and alternatives such as letters and visitations are often ineffective or costly, the resulting inmate demand for this service is inelastic.84 Under a typical government bidding process for monopoly contracts, the selected contract should result in efficient and secure services similar to the competitive market, providing the lowest possible cost to the prisoner.85 However, the potential for monetary commissions changed state incentives.

Instead of negotiating for the cheapest services, states negotiated for contracts that resulted in higher monetary gains through commissions.86 The FCC noted that competition during the negotiation process does not create downward pressure on consumer rates.87 Even when commission rates were determined on a state level, outside of the bidding process, individual facilities benefited by negotiating for per-minute pricing higher than otherwise expected.88 Commissions on per-minute revenues were rarely negotiated during the bidding process and were usually set by the facility or statute.89 Telecom providers believed that monetary commissions resulted from local policy decisions and that the telephone providers could not affect the percentages during the bidding process.90 Nonetheless, increased costs due to monetary commissions ensured that phone providers had little incentive to 79 Zimmerman & Flaherty, supra note 6, at 262.

80 Letter from Melissa Newman, Vice President, Federal Regulatory Affairs for CenturyLink, to Marlene H. Dortch, Sec’y, FCC, CC Docket No. 96-128, at 1 (filed on Oct. 12, 2012).

81 Zimmerman & Flaherty, supra note 6, at 262.

82 Carver, supra note 7, at 392.

83 2002 Order and NPRM, supra note 4, at 6.

84 KUKOROWSKI, supra note 11, at 1.

85 Carver, supra note 7, at 395.

86 KUKOROWSKI, supra note 11, at 1.

87 2002 Order and NPRM, supra note 4, at 6.

88 Carver, supra note 7, at 392, 418.

89 Evercom and T-Netix May 2, 2007 Comments, CC Docket No. 96-128, DA 03-4027 at 7 [hereinafter Evercom May 2 Comments].

90 Securus Aug. 22 Ex Parte Letter, supra note 34, at 2.

2014] CALLING FROM PRISON 525 offer lower pricing during bidding. As a result, prisoners were often incentivized to use cheaper, illegal prison payphone substitutes.

F. FCC Regulation Disincentivizes the Use of Illegal Prison Payphone Substitutes The FCC has noted that prison payphone contracts, and resulting price structures, are not bound by typical phone provider rules due to exceptional security and penological circumstances.91 Providers block certain types of calls, such as call forwarding (where callers choose their call provider by routing their call through a third-party provider) and third-party conference calling.92 To ensure that the provider is able to restrict certain numbers and calling services, the FCC allows companies to block prohibited call diversion attempts (where calls are redirected through third-party providers to unidentified end callers).93 However, due to the heightened pricing created by monetary commissions, prisoners were incentivized to illegally circumvent the payphone systems.

1. Call Diversion

The Government Accountability Office (GAO) reported that higher priced, long-distance calls are decreasing while local calls are increasing, resulting in a drop in commission revenue.94 The BOP contends that this shift reflects the increased prevalence of call-diverter companies.95 Call diversion provides local numbers to call recipients who would otherwise qualify as long-distance recipients.

After clearance by the payphone provider’s centralized system, these calls are rerouted to the call diverter’s Voice over Internet Provider (“VoIP”) router.96 The VoIP router then sends the number to the unknown third party. As a result, recipients are able to save the difference in costs between local and long-distance charges, sometimes accounting to 70% savings.97 The GAO estimates that call diversion lowered the costs for 84% of inmate calls.98 However, call diversion makes it impossible for the service 91 1995 NPRM and Notice, supra note 50, at 1534.

92 Evercom May 2 Comments, supra note 89, at 3.

93 Id. at 4; 2002 Order and NPRM, supra note 4, at 6.

94 GAO Report, supra note 5, at 11 fig.1 (showing rates of long-distance calls are decreasing as local minutes are increasing, resulting in smaller revenues from facility commissions).

95 Id. at 15.

96 Securus July 2 Ex Parte Letter, supra note 38, at attach.1 at 2.

97 GAO Report, supra note 5, at 15.

98 Id.

–  –  –

provider to accurately validate the recipient’s identity. As such, call diversion may assist prisoner calls to unauthorized individuals and bypass the telephone provider’s security system.

The BOP believes that new technologies, such as Internet-based messaging systems, may lessen the popularity of call diversion.99 The BOP recently launched electronic messaging systems with pricing set at $0.05 per minute.100 Consumption of this substitute doubled between 2009 and 2010, and the BOP foresees demand increasing dramatically in the near future.101 Similarly, the rate of cell phone smuggling has increased in recent years. Further, now that the FCC has implemented pricing regulation, fewer inmates will find it economically viable to utilize call diverters in lieu of legal payphone systems. Hopefully, the FCC regulation will stem the growing popularity of call diversion and incentivize the majority of inmates to use sanctioned payphone communications.

2. Ties to Cell Phone Smuggling

Between 2008 and 2010, the BOP confiscated 8,656 smuggled cell phones.102 During this time, eight states collectively confiscated nearly 50,000 smuggled cell phones.103 Prisoners claim that the price and risk of prosecution from using smuggled cell phones were less costly than using the payphone system.104 However, smuggled cell phones are also used to coordinate identitytheft rings, threaten public officials and their families, and order assassinations.105 In response, Congress passed the Cell Phone Contraband Act, which added cell phones to the prohibited prison contraband list under 18 U.S.C. § 1791.106 The bill increased the punishment for possessing smuggled cell phones to up to one-year imprisonment,107 pushing many prisoners to use prison payphones instead.

Despite the increased penalties, detection and prevention of smuggled cell phones are constrained by resource issues and prisoners continue to use 99 Id.

100 Id.

101 Id.

102 Id. at 20 tbl.3.

103 These states were California, Florida, Maryland, Mississippi, New Jersey, New York, South Carolina, and Texas. See GAO Report, supra note 5, at 22 tbl.4.

104 Erin Fitzgerald, Cell “Block” Silence: Why Contraband Cellular Telephone Use in Prisons Warrants Federal Legislation to Allow Jamming Technology, 2010 WIS. L. REV. 1269, 1278 (2010).

105 GAO Report, supra note 5, at 23–24.

106 Cell Phone Contraband Act, 2010, Pub. L. No. 111-225, 125, 124 Stat. 2387, 18 U.S.C.

§ 1791(d)(1)(F) (2012).

107 18 U.S.C. § 1791(b)(4).

2014] CALLING FROM PRISON 527 cell phones as a payphone substitute.108 The FCC’s regulation of the inmate telephone industry will add an additional incentive, ensuring that pricesensitive inmates use prisoner payphones in lieu of smuggled cell phones.


Previous cases suggest increased per minute costs do not violate inmates’ First Amendment rights and that the service contracts fall under state immunity from antitrust laws. However, court precedent holds that the FCC, which was granted specific power to regulate payphones under the Telecommunications Act of 1996, may regulate payphone contracts otherwise protected from antitrust claims.109

A. Inmate Payphone Reform is not Based on First Amendment Rights

Constitutional challenges to prison payphone rates typically argued that excessive rates violated First Amendment rights to free speech and Fourteenth Amendment rights to equal protection and due process.110 However, established court precedent holds that prisons may create reasonable limitations on prisoner rights in light of legitimate penological or administrative concerns.111 While it is uncontested that prisoners have a right to communicate with their families, it is unclear whether this right extends to an affirmative duty on the part of the prison facility to provide such services.112 Under Sixth and Ninth Circuit precedent, the First Amendment creates an affirmative obligation to provide telephone services to inmates.113 However, the First and Seventh Circuits have held that no affirmative obligation exists.114 The First and Seventh Circuits agree that prisoners have a First Amendment right to speech, but split from the Sixth and Ninth Circuits in refusing to extend this right to electronic communication.115 Despite some circuit holdings that prisons have an affirmative duty to provide contact with the outside world, no court precedent requires low 108 Fitzgerald, supra note 104, at 1282–84.

109 Verizon Commc’ns Inc. v. Trinko, 540 U.S. 398, 406–07 (2004).

110 Severin, supra note 24, at 1512–13.

111 Id. at 1514.

112 Holloway v. Magness, 666 F.3d 1076, 1079 (8th Cir. 2012), cert. denied, 133 S. Ct. 130 (U.S.


113 Holloway v. Magness, 2011 WL 204891, 6–7 (E.D. Ark. Jan. 21, 2011) (citing Johnson v.

California, No. CV95–1192–RG, 1996 WL 34442602 (C.D. Cal. July 15, 1996)); Washington v. Reno, 35 F.3d 1093, 1099–100 (6th Cir. 1994).

114 Id.

115 Id.

–  –  –

payphone pricing or that prisons provide other forms of electronic communication, such as email and instant messaging.116 Many courts have also held that the contractual system of monetary commissions and statesanctioned monopolies does not infringe upon prisoners’ First Amendment rights.117 Courts maintain that because inmates have access to some form of alternate communication through mail and visitation, the high cost for telephone communication does not constitute an absolute denial of free speech rights.118 Consequently any hardship alleged by prisoners is not a “constitutionally significant curtailment of the right of the free speech... particularly given the limited nature of that right in prison settings.”119 When prisoners’ First Amendment complaints have failed to provide pricing relief, inmates turned to economic arguments against excessive payphone rates.

B. Antitrust Review by Courts Was Unsuccessful and Necessitated FCC Action

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