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Scandal-Ridden, Bankrupt MCI WorldCom Wins No-Bid California Prisoner Phone Contract

A renewed four-year no-bid prisoner phone contract was awarded in June, 2002 by the California Department of General Services to MCI WorldCom, a telephone conglomerate whose recent bankruptcy exposed the largest accounting fraud in US business history - $11 billion. The non-competitive award, giving MCI exclusive control of prisoner phone calls in 29 of California's state prisons (the other four went to Verizon Corp.) was let two months after MCI gave $13,000 and one month after Verizon gave $25,000 to Governor Gray Davis' political campaign fund. MCI spokeswoman Natasha Haubold called the timing "purely coincidental." Gov. Davis, under intense media pressure, had recently returned a $25,000 donation that preceded an $85 million no-bid award to software supplier Oracle Corp.

Charles Carbone, legal director of California Prison Focus - a San Francisco non-profit prisoner rights group - called the award "very disconcerting" because the contract "should have been opened to competitive bidding." But even if it had been, it is unclear for what factor the "winner" would have been selected. California, like many other states, exacts a contractor "kickback" as a flat percentage of all prisoner phone revenues. The previous two-year MCI contract generated approximately $35 million in annual kickbacks to California. In the new contract, with annual revenues estimated to be $60 million, the state is reportedly scheduled to receive $26 million per year - a 43% slice before costs and profits to MCI.

MCI, with similar lucrative contracts in New York, Georgia and Florida, charges recipients of prisoner collect calls $4.84 for the first minute and from 15 to 89 cents for each additional minute. MCI spokeswoman Haubold reported that - in spite of MCI's assertion that prices for prisoner calls are driven by costly required extra security measures, let alone the 43% kickback - prison prices are now cheaper than public pay phone calls.

California has extensive rules requiring competitive bidding, but the San Francisco Chronicle reports that notwithstanding those rules, California has "awarded billions of dollars in no-bid deals over the past three years" such as the Oracle scandal. Circumventing of the bidding rules seems to track "favored companies and campaign contributors," the Chronicle said.

One explanation, offered by General Services lawyer Laurie Giberson, was that the requests for proposals are so confusing that vendors don't bid. Such a "failed competition" then results in a "no-bid" award. Presumably, such industry giants as AT&T, Verizon and SBC's Pacific Telephone are simply incapable of comprehending telephone system proposals; only recent Davis campaign donors are possessed of this skill.

State Senator John Vasconcellos called the no-bid process "grossly immoral"; Senator Debra Bowen called it "a mess." "I am much more concerned about the policy of socking it to the families of prisoners," she said. In fact, California passed legislation requiring the prisoner phone contracts be awarded to the company offering the lowest rates, not the biggest kickback. But Gov. Gray Davis vetoed it, saying he didn't want to give up the revenue stream.

Six months later, MCI tangled with Pacific Bell by disconnecting Pacific Bell's pay phones in juvenile prisons and hooking up its own local lines instead. Thus, "long-distance" vendor MCI allegedly illegally invaded Pacific Bell's "local lines" turf. MCI claimed it had the right to do so under a February, 2002 state contract. Ironically, the pitched business sector battle between the two firms might be resolved in favor of MCI when bankruptcy gives them a financial advantage by absolving their fraud-grounded debt.

MCI's lust for prisoner families' phone dollars isn't limited to California. In 1999, MCI gave a 60% kickback to New York - which awarded the contract to the firm guaranteeing the biggest payola. New York's Department of Correctional Services (NY DOCS) spokesman James Flateau called it "smart to charge a commission ... to offset ... taxpayer costs for inmate programs." MCI's contract resulted in a 10 minute call rising from $3.83 (using an 800 number-based collect calling system) to $5.03. Prisoners' families (often poor and of color) should bear some of the cost of running the prison system, Flateau pointed out, because prisoners are in prison for punishment. The state's 60% pays for cable TV, free buses, postage stamps, nurseries in women's prisons and the $40 cash and civilian clothing paroling prisoners receive, he added. Prisoner advocates countered that the 60% also went for prisoner health care, something the state is obligated to pay for.

The New York Times, citing Florida House of Representatives sources, tabulated the 1999 annual prisoner telephone contract kickbacks by state: New York, $20-21 million; Illinois, $12-16 million; California, $15 million; Ohio, $14 million; Florida, $14 million; Georgia, $10-12 million; Missouri, $9- 10 million; Virginia, $10 million; Michigan, $10 million; Pennsylvania, $3 million.

In April, 2003, SBC Corp. negotiated a Cook County, Illinois, jail phone contract with a 45% kickback provision. Some jail commissioners wondered why the families of jailed, unconvicted (and presumably some innocent) prisoners were thus being punished. SBC was given the non-competitive contract because their deal was "very attractive" and they had been a "good partner." A minority subcontractor to SBC, Crucial Communications, is run by the son of Nation of Islam founder Elijah Muhammad, whose business partners had donated over $12,000 to the county commissioners who awarded the contract, including a $5,000 donation to Commissioner John Daley, brother of Chicago Mayor Richard Daley. Notably, the President of SBC is yet another brother - William Daley.

Previous MCI phone overcharges and scandals were reported in PLN. California's Public Utilities Commission ordered MCI to rebate $522,458 in overcharges [PLN, Nov. `01]. A $1.5 million MCI overcharge/rebate in Georgia implicated State Senator Majority Leader Charles Walker [PLN, Apr. `02].

Recent technology has spawned a middleman cottage industry offering call forwarding long-distance service to prisoners who then call only a local exchange, bypassing MCI's exorbitant long distance charges. Frequently advertising in PLN, these vendors are now the target of MCI, who uses call-blocking tactics to interrupt the process. MCI blocked 12,000 phone numbers called by New York prisoners in 2002 because they did not have MCI billing arrangements.

In another move, MCI set out to destroy Outside Connections, Inc., a call-forwarding firm started by ex-prisoner Brian Prins in May, 2002. Prins was determined to cut prison phone costs after suffering $1,000 per month phone bills for calls to his father. MCI began blocking calls to Outside Connections' customers three months later, reducing Prins' customer base by two-thirds. NY DOCS then moved to protect MCI's kickback money by threatening solitary confinement to any prisoner using Prins' phone service. Declaring solicitations for Prins' service "contraband," NY DOCS ordered prison superintendents to return such letters to the sender at the prisoner's expense - or else destroy them. Prins filed a petition with the Federal Communications Commission in February 2003, charging MCI and NY DOCS with unlawful interference with his business. A decision is expected in November.

Florida, an MCI-contract state, has unilaterally banned prisoners from receiving PLN because it contains such advertisements. PLN is preparing to litigate this issue. In a rare victory, a user suing to enjoin prison rules banning such calls won a Louisiana court ruling that will save her approximately $1400/year.

Far beyond its stateside reach for no-bid contracts, MCI recently won a $45 million no-bid award from the US Government for a wireless network in Iraq. Not even Motorola, an established vendor in the field, knew of the pending procurement. Maine Senator Susan Collins is spearheading a Govt. Affairs Committee investigation into such federal contracts - wondering all the while if the federal government should even be doing business with such a corrupt firm.

The state of Oklahoma has recently filed criminal charges against MCI and its corporate officers. The federal government has belatedly banned MCI/WorldCom from soliciting federal contracts. MCI also faces a flurry of lawsuits from defrauded investors and competitor phone companies complaining of illegal phone billing and routing practices.

Sources: New York Times, Chicago Tribune, BC Cycle, San Francisco Chronicle, City Limits

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