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Prisoner Education Guide

Private Equity Firms Profit Handsomely from Prison Phone Services

The October 2011 sale of Global Tel*Link Corp. (GTL), the nation’s largest prison and jail phone company, demonstrates what a goldmine prison phone services are for the provider side of the market. The sale, reportedly valued at $1 billion, was highly unusual because it was a leveraged deal at a time when the nearly frozen financial sector is running from most leveraged deals.

GTL and its subsidiaries provide phone services for the prison systems of over half the states plus various county jails. In February 2009, the private equity firm Veritas Capital and Goldman Sachs purchased GTL from Gores Equity LLC for $345 million. The deal to sell GTL to Alabama-based American Securities Capital, another private equity firm, will about triple their investment.

The high value of GTL derives from the fact that it operates a pure monopoly once it obtains a prison phone contract. The company then price-gouges its captive customers, who have few other means of calling their family members and friends.

GTL charges up to $3.95 plus $.89 per minute for long distance calls, or $17.30 for a 15-minute conversation. The company’s call rates vary from state to state; GTL also charges service fees, such as for credit card payments by family members, which pad its profit margin. [See: PLN, April 2011, p.1].

While companies like GTL profit handsomely from their prison phone service monopolies, prisoners and the recipients of their phone calls are the ones who have to pay.

Another prison phone service provider, Securus Technologies, Inc., was acquired on May 31, 2011 by Castle Harlan, Inc., a New York-based private equity corporation. That sale was valued at an estimated $450 million.

Sources: New York Post, www.thedeal.com, www.prnewswire.com

 

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