Hiding commission payments and bypassing regulation

Letter to FCC: crafting effective regulation for prison phone market requires taking a comprehensive view of the commission system, ending high rates.

by Aleks Kajstura, August 3, 2013

On Thursday we submitted a letter to the FCC urging it to craft effective regulation for the prison and jail phone market by taking a comprehensive view of the commission system that leads to high rates. We wrote:

[S]ome states and at least one county have already started banning commissions in an effort to stem the high rates. However, our review has found that an overly narrow concept of commissions leaves some glaring loopholes that make these efforts far less effective than originally expected. We would like to share the examples of Dane County, Wisconsin and the State of California to illustrate the possible result of a too-narrow view of commissions: Commissions can instantly be rebranded as “administrative fees” with no actual change.

In 2007, the County Commissioners of Dane County, Wisconsin voted to ban the commissions that brought in nearly $1 million per year. County Supervisor Dave de Felice explained the county was “addicted to this money.” Recognizing the inherent conflict of interest that commissions created, he stated, “We’ve lost our moral compass and direction for a million bucks a year.” The addiction metaphor turned out to be truer than Supervisor de Felice imagined, because when the contract was up in 2009, the County specified that it “shall receive no commission from phone service revenue” yet it required ICSolutions to pay an annual “administrative fee” of $476,000 in monthly increments.

The California Department of Corrections & Rehabilitation also banned commissions and now collects an “Administration Fee” of $66,666.66 per month.

What may have started as an exploitation of regulatory loopholes is now clearly a trend. As Telmate notes: “[C]ommissions are no longer confined merely to a portion of the carrier’s revenues…. These include free ‘booking’ calls, live deposit acceptance, automated inmate grievance and other IVR systems, voice biometrics, commissary ordering, managed cell phone access, storage of recorded inmate calls, and in some instances computing equipment for corrections staff as well as law libraries or religious services. The volume of such non-financial consideration has likewise been increasing….”

As we explained in our report, Please Deposit All of Your Money: Kickbacks, Rates, and Hidden Fees in the Jail Phone Industry, free booking calls ‘should be subsidized by state and local governments, not prison phone companies that must then compensate for the lost income by overcharging for all other calls.’ And,

As market-leader Global Tel*Link aptly stated: ‘Put simply, there is no free lunch.’ The kickbacks, via explicit commissions and payments-in-kind, are driving up the costs for the phone companies and, as a result, for consumers.

The FCC will vote on a proposal on August 9th, let’s see what happens!