Bloomberg News

Prison Phones Prove Captive Market for Private Equity

October 04, 2012

Federal Communications Commission Chairman Julius Genachowski

In an online question-and-answer exchange last month, U.S. Federal Communications Commission Chairman Julius Genachowski called prison phone rates a “serious issue for families, communities, security” and said the FCC is “preparing next steps.” Photographer: Alex Wong/Getty Images

U.S. prisoners pay as much as $17 for a 15-minute call with their families in a jailhouse phone market dominated by two private equity-backed companies, and that cost now is drawing scrutiny from regulators.

Global Tel*Link Corp., Securus Technologies Inc. and smaller competitors in the $1.2 billion inmate-phone industry bid for exclusive contracts to provide telephone service, agreeing to pay as much as two-thirds of calling charges to government or private prison operators. Those commissions can drive fees to levels that make it difficult for prisoners to maintain contact with spouses, children and parents.

“Hello, does anybody hear me out there?” David Wrobleski, serving a life sentence in a Michigan prison, wrote July 15 to U.S. Federal Communications Commission Chairman Julius Genachowski. “Over the years, I have lost most of my contact with my family and friends due to the increased cost of a telephone call from the prison setting. I come from a very poor family.”

In an online question-and-answer exchange last month, Genachowski, a Democrat, called prison phone rates a “serious issue for families, communities, security” and said the FCC is “preparing next steps.” He didn’t provide details.

A collection of civil rights, religious groups and members of Congress is pressing the FCC to act on a petition filed in 2003 by prisoners and family members to cut “exorbitant” rates. Representatives from the Leadership Conference on Civil and Human Rights, the United Church of Christ, the National Urban League and other organizations met with Genachowski in September and asked for a clear date for action.

Singapore Cheaper

“It is cheaper to call Singapore at 12 cents a minute from a cell phone than it would be to speak to someone in prison in this country,” a group of 30 organizations and individuals said in a May 18 filing asking the FCC to cap interstate rates. The current system, they said, provides “every incentive to choose bids that maximize fees.”

Global Tel*Link, based in Mobile, Alabama, has about 50 percent of the correctional phone services market, followed by Securus with almost 30 percent, according to Standard & Poor’s.

Global Tel*Link directed questions to its owner, American Securities LLC, a Park Avenue private equity firm. Caroline Harris, a spokeswoman for American Securities, declined to comment. So did Michael Millican, a spokesman for New York-based Castle Harlan Inc., which owns Securus.

Commission Criticism

Prison phone charges vary by location. A 15-minute call through Global Tel*Link costs $2.36 in Massachusetts and more than $17 in Georgia, according to a study released Sept. 11 by the Prison Policy Initiative, an advocacy group in Easthampton, Massachusetts. In New York, where commissions aren’t allowed, Global Tel*Link charges about 5 cents a minute, according to the study.

The commissions phone companies pay to prison operators “are the product of a public policy decision made by correctional authorities, and in some cases state legislatures,” which may use their share of phone fees to fund prison operations and inmate welfare funds, Dallas-based Securus said in a filing with the FCC.

Prison calls cost more than residential telephone service for reasons that include security requirements and bad debts, according to Securus, which said in a filing that it has about 1,400 contracts in 46 states.

Extra Security

Prison calling services include security capabilities such as preventing call-forwarding and conference calls, and caller identification based on voice analysis, Global Tel*Link said in an Oct. 3 filing at the FCC. Chief Executive Officer Brian Oliver discussed inmate calling in a meeting with Commissioner Ajit Pai, a member of the agency’s Republican minority, according to the filing.

Prisoners make collect calls or set up prepaid accounts funded by relatives or by their earnings from prison jobs that pay cents per hour. Service providers may collect per-call fees in addition to time-based charges, according to the Prison Policy Initiative.

Forty-two states got commissions from phone companies in 2008, averaging 42 percent of the charges and reaching as much as 66 percent, according to a July filing by groups asking the FCC to set a benchmark rate of 20 cents or 25 cents a minute.

Until recently, charges from Global Tel*Link ran about $100 a month for Tom and Dora Pickles, 79-year-old retirees in Wake Forest, North Carolina. Their son, Scott, is serving a life sentence in Connecticut after killing his wife and two children.

“We have counted that as an expense that was just there -- we didn’t care what it was, were going to live with it, and pay it,” Dora Pickles said in a telephone interview.

Reducing Recidivism

After Connecticut rebid the contract and switched providers this year to Securus, charges dropped to less than $4 from about $13 for 15 minutes, the longest call allowed, Tom Pickles said.

“It certainly was a big break when it changed,” he said. “And by the way, that’s the quickest 15 minutes of the week.”

Connecticut reduced long-distance calling rates for most of its 16,000 inmates in 15 institutions, Brian Garnett, a spokesman for the Connecticut Department of Correction, said in an interview. “We are very cognizant of the strain that phone rates can place on family support of an inmate,” he said.

Keeping prisoners in contact with family reduces repeat incarcerations, Nancy La Vigne, director of the Justice Policy Center at the Urban Institute in Washington, told Congress in a May 2010 hearing. Contact while in prison reinforces ties between fathers and children, giving prisoners a greater stake in good behavior, La Vigne said.

Private Equity

Global Tel*Link was bought in December by its management and American Securities, a private-equity firm with investments that include Oreck Corp., a vacuum-cleaner maker, and the Potbelly Sandwich Works restaurant chain. Terms weren’t disclosed for the acquisition from Veritas Capital and GS Direct LLC, the Goldman Sachs Group Inc. (GS:US) investing unit.

Castle Harlan acquired Securus from HIG Capital LLC in May 2011 for $450 million, according to a video posted on Castle Harlan’s website. Securus was headed toward $80 million of earnings before interest, taxes, depreciation and amortization in 2012, up from $62 million at the time of the purchase, William Pruellage, co-president of Castle Harlan, said on the video.

Corrections Corp. of America, the largest private prison operator, said in a regulatory filing that an FCC decision to bar commissions would have a material adverse effect on its results. The company gets commission revenue “in some instances,” though not all, Steve Owen, a spokesman for the Nashville, Tennessee-based company, said in an interview.

Call Monitoring

Eight states, including New Mexico, have banned prison phone commissions and as a result the cost of calls in those states has dropped, the New Mexico Public Regulation Commission, which oversees phone services, said in a resolution adopted Sept. 25.

The National Sheriff’s Association told the FCC in a 2008 filing that capping rates for interstate calls would “seriously hamper the ability of sheriffs to effectively manage our nation’s jails.” Inmate charges help cover the cost of monitoring calls, Fred Wilson, a spokesman for the Alexandria, Virginia-based group, said in an interview.

If commissions are cut, localities could face a choice on whether to have taxpayers make up the difference, Wilson said. “Is that still going to get picked up, or is that program going to go away?” he said.

Money from commissions goes toward programs such as recreational and library supplies in Massachusetts, maintenance of county jails in Arkansas, and a victim compensation fund in Texas, Global Tel*Link said in its Oct. 3 filing.

‘National Priority’

Mignon Clyburn, a Democrat on the five-member FCC, supports limiting fees. “Connecting husbands to wives, parents to children, and grandparents to grandchildren should be a national priority,” she said in a statement.

Democratic Representatives Bobby Rush of Illinois and Henry Waxman of California urged the FCC Sept. 12 to act “as soon as possible” on the petition from 2003.

“It shouldn’t take the FCC one more decade to ensure that prison phone services are priced in line with their true costs and made more affordable,” Rush said in an e-mailed release.

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

In an online question-and-answer exchange last month, U.S. Federal Communications Commission Chairman Julius Genachowski called prison phone rates a “serious issue for families, communities, security” and said the FCC is “preparing next steps.” Photographer: Alex Wong/Getty Images

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