NEW YORK -- The private equity-backed prison phone call industry is making plans to fight an FCC vote last month that will slash long-distance rates for inmates.
After a decade of delay, the FCC voted 2-1 in August to set maximum rates for collect and prison debit card calls. The new maximum rate for a collect call will be 25 cents a minute -- still far above the average for a traditional landline, but a serious reduction.
In an interview with The Huffington Post, the CEO of the second-largest company in the $1.2 billion a year industry said he will go to court to stop the still-unreleased rules if they are issued as described in an FCC press release. He also lashed out at the industry's critics.
"What we've built for the corrections industry is very secure and it helps solve tens of thousands of crimes a year, and it helps save thousands of lives a year," claimed Richard Smith of Securus Technologies, pointing to technology his company uses to detect prisoners ordering hits over the phone. "All of that good work gets undone when you paint us as bad guys who are making lots and lots of money, and we're just raping the friends and families of inmates."
"It's almost like throwing firemen and policemen under the bus, it just isn't fair," Smith added.
The value of Securus debt dropped about two percent in the weeks after the FCC's decision, suggesting the market foresees a modest but noticeable impact on the company's bottom line. The FCC's ruling will not impact local calls, which make up the bulk of the market.
After a decade-long period of consolidation and mergers in the industry, Securus and another company, Global-Tel-Link, control 80 percent of the prison phone call market. Their success has rewarded private equity firms handsomely, including Veritas Capital and an investment arm of Goldman Sachs, which jointly saw a reported three-year, 325 percent gain when they sold Global-Tel-Link in 2011.
Securus itself was recently sold to private equity firm Abry Partners in a reported $640 million deal. Neither Abry nor Global-Tel-Link's owner, American Securities, responded to requests for comment.
The industry's profits have been made, critics charge, on the backs of poor, mostly black and Latino inmates. Prison reform advocates have quoted rates as high as $17 for a single 15-minute phone call.
"It's been times when she did have to choose over paying for her medication to talk to me, that really does happen," Ulandis Forte, a man convicted of murder whose grandmother was the lead plaintiff in a lawsuit over the sky-high phone fees, said earlier this year. "I don't blame anybody for putting me in the position I was in, wholeheartedly I accept my responsibility, but in doing so it was so unjust at the pain my grandmother had to go through."
Studies have found a link between prisoners' contact with families back home and lower recidivism rates.
The FCC said prison phone companies' rates were "exorbitant," an assertion supported by an analysis conducted for reform advocates. The rates are kept high by commissions -- critics charge they are essentially kickbacks -- that the phone service providers pay to prisons as part of their contracts. Prisons then use those commissions to avoid asking their states for more tax revenues.
But Smith claimed that prison advocates and Democrats at the FCC were "embellish(ing)" the profitability of his business, and dismissed personal stories like Forte's. He also suggested prisoners' families should easily be able to pay what he charges, which according to his company's calculations averages out to $34 per inmate per month.
"We see lots and lots of people (visiting) jail who have one cellular, two cellulars, drive very nice cars," Smith said. "I've been in the booking areas, I've seen lots and lots of visitors in the waiting areas, and every single person has at least one cellular."
In the wake of the FCC's decision, Securus raised the fee it charges families to deposit money onto prisoners' phone debit cards over the phone from $7.95 to $9.95, according to the Prison Policy Initiative, which pushed for the FCC rule change.
"I can’t think of a business that I use regularly that charges me a fee to take my money," wrote Peter Wagner, the executive director of the non-profit group. "Generally, companies absorb those costs because they want my business. Because this industry has its customers locked in (pun intended), they don’t have to worry as much about competition."
Smith said that the costly commissions keeping prison phone call prices high are already written into his contracts with prisons, meaning the FCC's caps will cut into the revenues he expected to earn.
A FCC spokesman said the commission still has yet to publish the new regulations in the Federal Register. Once they are published, the rules will kick in after 90 days.
"Clearly we will file a lawsuit," if the new top rates don't take into account commissions, Smith said. If the new rates remain, he predicted higher local call fees and lower commissions for prisons.
"It isn't an altruistic business. It's a business for profit, and commission is, for the last 20 years it's been the vehicle that prisons and jails have asked for so we can pay them part of revenue for every call back to them," Smith said. "That's just the business model."
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