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Prison Phone Company Kickbacks




An exhaustive analysis of prison phone
contracts nationwide has revealed
that with only limited exceptions, telephone
service providers offer lucrative
kickbacks (politely termed “commissions”)
to state contracting agencies
– amounting on average to 42% of gross
revenues from prisoners’ phone calls – in
order to obtain exclusive, monopolistic
contracts for prison phone services.
These contracts are priced not only
to unjustly enrich the telephone companies
by charging much higher rates than
those paid by the general public, but are
further inflated to cover the commission
payments, which suck over $152 million
per year out of the pockets of prisoners’

families – who are the overwhelming recipients
of prison phone calls. Averaging
a 42% kickback nationwide, this indicates
that the phone market in state prison systems
is worth more than an estimated $362
million annually in gross revenue.
In a research task never before accomplished,
Prison Legal News, using
public records laws, secured prison phone
contract information from all 50 states
(compiled in 2008-2009 and representing
data from 2007-2008). The initial survey
was conducted by PLN contributing writer
Mike Rigby, with follow-up research by
PLN associate editor Alex Friedmann.
The phone contracts were reviewed
to determine the service provider; the
kickback percentage; the annual dollar
amount of the kickbacks; and the rates
charged for local calls, intrastate calls
(within a state based on calls from one Local
Access and Transport Area to another,
known as interLATA), and interstate calls
(long distance between states). To simplify
this survey, only collect call and daytime
rates were analyzed.
Around 30 states allow discounted
debit and/or prepaid collect calls, which
provide lower prison phone rates (much
lower in some cases). However, since other
states don’t offer such options and not all
prisoners or their families have access to
debit or prepaid accounts, only collect
calls – which are available in all prison
systems except Iowa’s – were compared.
Also, while telephone companies sometimes
provide reduced rates for evening
and nighttime calls, many prisoners don’t
have the luxury of scheduling phone calls
during those time periods.
Lastly, it should be noted that more

recent phone rates may now be in effect due
to new contract awards or renewals, and
while data was obtained from all 50 states,
it was not complete for each category. See
the chart accompanying this article for a
breakdown of the data obtained.
PLN has previously reported on the
egregious nature of exorbitant prison
phone rates, notably in our January 2007
cover story, “Ex-Communication: Competition
and Collusion in the U.S. Prison
Telephone Industry,” by University of
Michigan professor Steven Jackson.
How Are Phone Rates Regulated?
Domestic phone calls are generally
divided into three categories: local, intrastate
and interstate. The rates charged for
these calls depend on several factors and
are regulated by different authorities. Local
calls are usually flat-rate within a small
area around the call’s originating location;
e.g., within the same city.
Local and intrastate calls are often
regulated by state public utility or service
commissions, which set rate caps.
These caps are negotiated to allow phone
companies to recover capital costs in a
reasonable time frame while also satisfying
requirements levied by the state. The latter
include subsidizing low-income phone users,
providing emergency communications
for state agencies, and providing required
phone coverage (such as emergencyreporting
phone booths along major
highways). Obviously, some of these statemandated
requirements are not in and of
themselves profitable, so negotiation of
rate structures includes recouping these
otherwise nonrecoverable costs.
At the interstate level, phone com-

panies are also regulated by the Federal
Communications Commission (FCC).
The FCC oversees rate structures across
state lines, provides for an orderly integration
of smaller telephone companies
into the national phone network, and is
responsible for implementing the Telecommunications
Act of 1996.
These regulatory agencies are necessary
to prevent one large company from
forming a monopoly and price gouging
the public with unreasonably high phone
rates. However, such monopolies are only
prohibited in the non-prison market.
Prison phone service providers are free
to bid on contracts at the maximum rates
allowed by regulatory agencies, and upon
winning such bids are effectively granted
a monopoly on phone services within a
given prison or jail system.
The Prison Phone Bidding Process

Prisons and jails present unique
cost factors to telephone service providers.
Such factors include physically
secure phones (i.e., no readily removable
parts); extensive monitoring and recording
capabilities, including the ability to
archive phone calls for later review by
investigators; and difficult access to the
prison-based equipment for servicing.
Some of these requirements, especially
the monitoring, recording and archiving
aspects, are not unique to prisons and are
routinely provided to corporate America’s
call and customer service centers. Naturally,
telephone companies should be allowed
to build into their charged rate structure
the recovery of capital and operating costs
for such expenses.
But that simple logic does not control
the cost of prison phone rates. What does
control the rates? Pure, unabated greed
by both the phone companies and the
contracting agencies (e.g., state prison
systems, county jails and private prison

systems, county jails and private prison
companies).
The bidding process for prison phone
contracts typically begins with a request
for proposal (RFP) – a document that outlines
the number of phones, locations and
technical performance standards required
by the contracting agency. The latter
include minimum “down time” specifications,
frequency of servicing, estimated
usage, and (in most but not all cases) audit
provisions. From the RFP, telephone companies
can determine their cost exposure

when making bids. But that is not what
guides their bid price or determines the
winning bidder in most cases.
With very few exceptions, prison
phone contracts contain kickback provisions
whereby the service provider agrees
to pay “commissions” to the contracting
agency based on a percentage of the gross
revenue generated by prisoners’ phone
calls. These kickbacks are not insignificant.
At more than $152 million per year
nationwide for state prison systems alone,
the commissions dwarf all other considerations
and are a controlling factor when
awarding prison phone contracts.
For example, when Louisiana issued
an RFP for prison phone services in 2001,
it specified that “[t]he maximum points,
sixty (60) ... shall be awarded to the bidder
who bids the highest percentage of
compensation ...,” and that “[t]he State
desires that the bidder’s compensation
percentages ... be as high as possible.”
When the Alaska Dept. of Corrections
(DOC) issued an RFP in 2007,
bidders were rated on a point system with
60% of the evaluation points assigned
to cost. The RFP explicitly stated that
“[t]he cost proposal providing the largest
percentage of generated revenues ... to the
state will receive the maximum number
of points allocated to cost.” That is, the
most important evaluation criterion was
the commission rate.
Prison phone service kickbacks average
42% nationwide among states that accept
commissions, and in some cases reach 60%
or more. Put into simple terms, up to 60% of
what prisoners’ families pay to receive phone
calls from their incarcerated loved ones has
absolutely nothing to do with the cost of the
phone service provided. The kickbacks are
not controlled by state or federal regulatory
agencies, and the only limit on the maximum
rate for prison phone calls is the top rate
permitted by such agencies or by the phone
service contract itself.
It should come as no surprise, then,
that many prison phone contracts result
in very high rates, with enough profit left
over after recouping all of the phone company’s
costs to permit up to 60% of the
gross revenue to be paid to the contracting
agency. The kickback rates are listed
in the chart accompanying this article, as
are the dollar amounts of the commissions

received in 2007-2008.
Some prison officials have denied that
kickbacks influence their decision when
contracting for prison phone services.
“There are complaints due to the rates,”

 



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