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Low Rates in Michigan DOC Phone Contract Demonstrate Actual Cost of Prison Phone Services

PLN’s April 2011 cover story detailed the results of our comprehensive multi-year research project on prison phone services, including a state-by-state comparison of prison phone rates, commission (kickback) percentages, and the amounts of commission payments from prison phone contracts nationwide.

Our research found that based on data from 2007-2008, 42 states receive kickbacks or other payments from prison phone service companies, averaging 41.9% of gross revenue from prison phone calls, which generate over $152 million per year in commission payments.

Further, prison phone rates vary widely among different states and even within the same state, despite the fact that all prison phone companies provide essentially the same service with the same security features. Local collect calls cost as much as $2.75 + $.23/minute (Colorado), intrastate collect calls are as high as $3.95 + $.69/minute (Oregon), and interstate collect calls range up to $4.95 + $.89/minute (Washington).

As prison phone contracts tend to be awarded based on the highest kickback percentage rather than the lowest phone rates, the usual competitive forces that result in lower prices to consumers are largely absent in the prison phone service market. Consequently, prison phone rates, which are primarily paid by prisoners’ families, are artificially and excessively high.

A rulemaking petition to require competition in the prison phone service market that would benefit consumers, and to place caps on interstate prison phone rates, is presently pending before the Federal Communications Commission (FCC) in CC Docket No. 96-128 (commonly known as the “Wright Petition”).

The actual cost of prison phone services provided by telecommunications companies has been a point of heated contention in the Wright Petition, as evidenced by filings made by both the petitioners and by prison phone service companies. However, a recent prison phone contract sheds some much-needed light on the actual cost of prison phone calls.

In February 2011, the Michigan Department of Corrections (MDOC) entered into a phone contract with Public Communications Services, Inc. (PCS), which is owned by Global Tel*Link – the nation’s largest prison telecommunications company, which provides prison phone services in more than half the states. Michigan is one of only 8 states that do not accept commission “kickbacks” from prison phone service providers.

Under the terms of the MDOC contract, the charged rates are $.0393/minute for collect calls and $.0343/minute for debit calls regardless of whether the calls are local, intrastate or interstate. The contract also provides for “optional” services that can be added for an additional fee; such options include a “key word search” feature and a “special equipment fund” charge.

On April 23, 2011, the MDOC executed Change Notice No. 1 to the PCS phone contract. The change added the optional key word search feature for an additional $.0075/minute and the optional special equipment fund charge for $.1532 to $.2430/minute, resulting in total per-minute charges of $.20/minute for collect local and intrastate calls, $.23/minute for collect interstate calls, $.18/minute for local and intrastate debit calls, and $.21/minute for interstate debit calls.

Notably, the base per-minute rates under the MDOC contract ($.0393/minute for collect calls and $.0343/minute for debit calls) are the lowest in the nation. And according to MDOC spokesman John Cordell in a June 10, 2011 email response to an inquiry by PLN, the 
“[b]ase rate charged by PCS” covers “the cost of operating expense and their capital costs.” The optional features added by the MDOC in the April 2011 Change Notice are just that – optional. The word search option is a supplemental security feature and the special equipment fund “will be used to install the latest cell phone detection, jamming or managed signal technologies.”

That is, the optional features are above and beyond the operational and capital costs of PCS, which can generate profit at the contractual base rates of $.0393/minute for collect calls and $.0343/minute for debit calls. These low rates demonstrate the actual cost (plus an unspecified profit margin for PCS) in providing phone services to the MDOC, despite the claims of prison telecommunication companies that their costs are much higher due to security features, specialized equipment, etc. If PCS could not generate a sufficient amount of profit at the base rates specified in the MDOC contract, it would not have entered into that contract.

Further, since PCS is owned by Global Tel*Link, the largest prison phone service company in the nation, similar low rates could be offered in most other state prison systems, but are not. Rather, as indicated in PLN’s April 2011 cover story, prison phone rates are usually much higher due to commission kickbacks paid to the contracting agency, averaging 41.9% of gross revenue generated by prison phone calls.

The low base rates in the MDOC contract of $.0393/minute for collect calls and $.0343/minute for debit calls demonstrate that prison phone companies are perfectly capable of charging such low rates while still generating profit (despite protestations that their operating costs are higher which they claim justifies higher rates). This is particularly true given that the MDOC says the base rates cover PCS’s “cost of operating expense and their capital costs.”

PLN submitted this information to the FCC in a June 16, 2011 letter, noting that “the caps on interstate prison phone rates requested in the ... alternative rulemaking proposal submitted in the Wright Petition would not unduly burden prison phone service companies, as the MDOC contract evidences that such companies can generate profit at rates of less than $.04/minute for both collect and debit prison phone calls.”

The exorbitant rates charged by prison phone companies in other states, often amounting to over $1.00/minute for interstate calls, represent price gouging due to the greed of both the companies and the public agencies they contract with that receive kickback payments.

Sources: Contract between the State of Michigan and PCS dated March 18, 2011; Contract Change Notice No. 1 dated April 23, 2011; MDOC emails

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