Inside the Shadowy Business of Prison Phone Calls

An IBTimes investigation into the secretive world of selling phone calls to prisoners and their families.

by Eric Markowitz

Joanne Jones, an occupational therapist from Warwick, Rhode Island, has made an unlikely foe in the past year: Securus Technologies, a billion-dollar prison technology company based in Dallas.

Sitting at her kitchen table one recent afternoon in front of a stack of Securus bills, Jones explained that her 29-year-old son, Nate Jones, had been arrested on an aggravated robbery charge in January 2014. Her son’s life may have taken a negative turn, but Jones tries to keep in touch with him as often as possible.

They speak roughly once a week in a 15-minute phone call, and speak for another 25 minutes on a video chat. Jones says she’d travel to Texas to visit her son in person, but Hays County Jail, where he is locked up, banned visitations in November 2013. That happened shortly after the county jail entered into a contract with Securus.

Since then, all family communication with prisoners at Hays County goes through Securus, which charges Jones about $10 for a phone call and about $8 for a video visit.

In the year and a half that her son has been locked up, Jones says she has racked up over $1,000 in bills with Securus to keep in contact with her son. The cost to keep in touch, Jones says, “makes me ill.”

Over the last decade, the prison phone business has become a scandalous industry, characterized by lawsuits, exorbitant fees, high phone rates and monopolistic relationships between public jails and private companies that openly offer kickbacks to local sheriffs. In May 2015, Foster Campbell, the Louisiana Public Service commissioner, described the prison phone business in his state as “worse than any payday loan scheme.”

“Regardless of what they’re using the money for, this is about shifting the cost of the police state onto the backs of the poor people being policed,” says Paul Wright, executive director of Human Rights Defense Center and a longtime advocate for more affordable prison phone rates.

In June, Jones provided International Business Times with her Securus-related bills.

Even a cursory examination of the documents reveals several questionable fees, including a $3.99 “wireless administration fee” and a $7.95 payment processing fee every time she loads money into Nate’s commissary account. At Hays County Jail, where her son is incarcerated, a 25-minute video call costs $7.99, which is actually a pretty good price compared to the $20 (for a 20-minute call) she paid Securus when he was locked up in nearby Bastrop County Jail. A 15-minute phone call, also operated by Securus, costs $9.29 plus tax. Ironically, because of recent Federal Communications Commission regulations, out-of-state calls should be a little bit cheaper, but because Jones has a Texas area code on her cell phone, the calls are more expensive.

On a recent Wednesday afternoon, Jones and her son spoke to each other on a video chat. As she anxiously waited for his face to appear on the screen, she trained her eyes on the little digital box where he was set to appear. Finally, when his face showed up in the display, her eyes lit up.

“Hi Nate!” she exclaimed. She asked about the weather down in Texas and his haircut. They also discussed the latest novel they’ve begun reading simultaneously: “The Goldfinch.” It’s about a young boy who survives an attack that kills his mother.

Because Nate has not yet been convicted of a crime, Jones’ lawyers have urged her not to speak about her son’s case. But Jones says Nate already is taking steps to turn his life around behind bars. She says he recently was accepted into a college correspondence course in Colorado, where he plans to study business and entrepreneurship. In the meantime, he passes the time by reading novels and playing Sudoku.

Nate is just one of an estimated 2.2 million prisoners currently behind bars in America. If you’ve ever received a call from a prisoner, there’s a good chance you’ve heard of Securus, or its main competitor, Global Tel*Link (GTL). GTL was recently featured by Bloomberg, which reported that NPR spent $2,500 on phone bills to report for its “Serial” podcast. Lupe Fiasco, a popular rapper from Chicago’s South Side, even sings about “spendin’ 50 thousand on Securus” on a recent track.

The two companies reportedly make up about 80 percent of the prison phone business, which drives about $1.2 billion per year in revenues.

In the last few years, Securus, especially, has emerged into one of the largest, if not most secretive, prison technology companies in the business. The company employs 1,000 associates in 46 states, contracts with 2,600 jails and prisons across North America, and provides service to more than 1 million prisoners and their families. About 400,000 phone calls are placed each day, according to company statements.

Securus positions itself as a “high-tech” operator that pours its resources into research and development. “We lead the industry with all of our technology solutions,” Rick Smith, CEO of Securus Technologies, said in a recent press release.

Jones chafes at statements like that. She says the video calls are grainy and prone to drop, and she notes that Securus’ system does not even support Apple Macs, which Securus acknowledges on their website. 

Regardless, because consumers have little choice in the provider they use, business has been good for Securus: Abry Partners, a Boston-based private equity group, acquired a major stake in Securus in 2013 for $640 million. 

Securus executives have long refuted the notion that they are a particularly profitable company. In 2013, Rick Smith said that prison advocates “embellish” the profitability of the prison phone business. At a July 2014 hearing with the FCC, Smith argued that, compared to other phone operators – from Verizon to AT&T – Securus’ profits were actually quite small. “We don’t earn excessive profits,” Rick Smith said at the hearing. “We don’t earn excessive profits. We don’t earn excessive profits. I said that three times for the egregious and abusive and predatory kinds of comments that come at us most of the time.”

However, leaked company documents from a Securus investor presentation, which were obtained and published by the Huffington Post, and later reported by the New York Post and the Prison Policy Initiative, tell a different story. The slides show that Securus earned $114.6 million in profits in 2014, on revenues of about $404 million – margins comparable to companies like Apple and Google.

In an e-mail, Securus’ Smith said “the HuffPost” received three PowerPoint slides “illegally” from “our recent bank presentation” but did not comment on their authenticity. He also declined a request for an interview. On June 17, Securus noted in a letter to the FCC that “the figures set forth in the article are simply incorrect or taken in the incorrect context.”

A week later, on June 25, the Human Rights Defense Center wrote in a letter to the FCC that “Securus did not explain why, if the data was inaccurate, it was included in the company’s investor presentation.”

Either way, those profit numbers are of particular interest to the FCC.

By the end of this summer, the FCC will expand its 2013 regulations on the prison phone business.

The new regulations have the potential to present a historic shift in the prison phone business. Should the FCC decide to limit commissions paid to sheriffs and cap excessive fees companies are allowed to charge consumers, the new rules could fundamentally change the way the industry operates. The reform is welcomed by advocates and their families – but, perhaps not too surprisingly, Securus is on the defensive.

After all, billions of dollars are at stake.

FCC Commissioner Mignon Clyburn, who was appointed to office by President Barack Obama in 2009, is looking very closely at how companies like Securus operate and make money.

“People should be treated with as much dignity and respect as possible, even if they are incarcerated,” Clyburn said in an exclusive interview with IBTimes. “These families deserve the same level of consideration [as] any other consumer of a telecommunications product. They deserve that. I am committed to answer that call.”

How Does This Industry Even Work?

The prison phone business is a wildly complex, fiercely secretive and enormously lucrative industry. Already, interested parties have held quiet skirmishes behind the scenes to protect their interests. Perhaps the most controversial element of the FCC plan to rein in the costs of prisoner calls is to limit the amount of commissions that get paid back to county sheriffs.

Critics like Peter Wagner, executive director of the Prison Policy Initiative, say it’s the commissions, ultimately, that have driven costs so high.

When companies like Securus send proposals to jails and prisons around the country, they offer a percentage of the call rate back to the sheriff’s office. Jail administrators say that allowing prisoners to speak on the phones costs them money, because they need to pay guards to monitor the calls. 

It’s typical for commissions to range anywhere from 40 percent to 80 percent. They can be higher. In Arizona, for instance, commissions have reached as much as 93.9 percent of the call revenue, according to Cronkite News.

The size of these commissions – and the price at which companies like Securus place their rates – are often big factors in winning the bid with the jail or prison.

“In a normal market, people that use a product get to pick the product based on the features that benefit them,” says Wagner. “Here, the decisions are made by a third party – in this case, the [facilities that] have a financial incentive in making sure that the rates are as high as possible.”

At Hays County Jail, where Joanne Jones’ son is incarcerated, Securus collects $9.29 for each call placed by him. However, reports show that Securus then pays up to 58 percent, or $5.39, back to the Hays County sheriff’s office.

In fact, this relationship has become something of a marketing selling point for companies like Securus. Securus boasts that over the last 10 years, it has generated some $1.3 billion in commissions.

Wagner says that allowing jails and prisons to recover their costs makes sense; but this dynamic has been exploited for financial gain for local sheriffs’ offices around the country.

Perhaps not surprisingly, sheriffs who run the jails – and who collect the commissions – are not pleased with the decision to limit their revenues.

In response to the suggestion that the FCC might eliminate commissions, more than 200 sheriffs recently filed letters of opposition with the FCC, claiming they’ll rip the phones from the wall if the government takes away their commissions.

In other words, if the government takes away their commissions, the sheriffs will take away the phones from prisoners and their families.

After all, the sheriffs argue that they incur a variety of costs by providing the phone service, and the commissions help alleviate the financial burden. 

When reached by telephone earlier this year, Jonathan Thompson, executive director of the National Sheriffs’ Association, toldIBTimes that, should the FCC do away with commissions, “it’s very possible that sheriffs could elect to eliminate the calls ... they don’t have to provide a call service.”

Thompson did not return follow-up e-mails.

In theory, sheriffs are supposed to use this money to offset the cost of providing the phone services and provide prisoner welfare services. 

However, some critics allege there’s very little cost actually incurred by offering the service, especially because companies like Securus will pay for the installation themselves. In 2011, for instance, Securus paid the Hays County Jail $40,000 for the privilege of installing the phones, according to news reports at the time. 

Paul Wright, head of the Human Rights Defense Center, also says that there’s little oversight over the money that’s generated from these commissions, and the funds are often misspent. For instance, in the Orange County Jail in California in 2010, the prisoner welfare services fund grew to $5,016,429. Of that sum, 74 percent was used to pay staff salaries, according to documents filed with the FCC. About 0.8% was used for prisoner educational programs and 0.06% was used for prisoner re-entry programs.

“Every single filing I’ve ever seen from the sheriffs is about the money,” says Wright. “That’s all they’re talking about. They aren’t giving a rat’s ass about safety, about recidivism, encouraging family contact, keeping people out of jail in the first place – it’s literally all about ‘Hey, we got budgets, and we need money.’”

Political Support

Behind the scenes, many politicians are standing firm with the law enforcement community.

A review of documents filed with the FCC reveals that six members of Congress have lobbied in support of the sheriffs. They urge the FCC to consider how reducing phone rates and commissions could affect the jails’ ability to monitor calls – as well as how regulations could affect county budgets. 

Sen. Mark Warner, a Democrat from Virginia, wrote in a letter to the FCC dated Sept. 4, 2014, that, although his office supports making rates fair for families, “the enforcement community is understandably alarmed about how potential Inmate Calling System rate changes might affect revenues.” Warner notes that his Virginia district receives $13.5 million from prison telephones.

Sen. Patrick Toomey, R-Pa., similarly wrote on Dec. 11, 2014, that “it is not unreasonable to allow the use of [inmate calling service] monies to fund other general services needed at prisons.”

Other legislators disagree with the approach. 

“It is an absolute abuse of a situation,” Rep. Bonnie Watson Coleman, a Democrat from New Jersey, said in an interview with IBTimes. “There should be no profit associated with keeping a family connected, even with an individual who has made a mistake and is paying for it by being incarcerated.”

She added, “This is not a good look for the United States of America. It’s not a good look for this country to be concerned about profitability on the backs of people who are poor and people who are incarcerated.”

How Did We Even Get Here?

One may wonder how companies like Securus can turn such staggering profits if they are giving so much of the calling money back to sheriffs. 

The answer, according to experts, may be relatively straightforward: Unregulated fees and “single-call” programs, which charge as high as $14.95 for a single 15-minute phone call. 

“The business model has evolved so that the business model is what I call ‘fee harvesting,’” says Peter Wagner, director of the Prison Policy Initiative. “Rather than actually selling phone service and making money as a phone company, the phone calls are just a gimmick in order to charge the fees, because that’s where the real money is.”

Wagner has spent considerable time and resources studying Securus’ business model. Because commissions paid to sheriffs are only based on the call rates – and not the fees – Wagner says companies like Securus have increased the number of fees to recoup the lost revenue from the commissions. 

“The companies playing the fee game look generous because they are promising to share up to 99% of the rate revenue with facilities,” Wagner wrote in a June report. “But that ‘generosity’ is only possible because the company is hiding the revenue it collects from fees.”

Fair Fees

In September 2014, Securus, along with Global Tel*Link and Telmate, the two other major prison phone providers, presented a nine-page proposal to the FCC on what they believed a fair regulation would look like.

In it, they address commissions, fees and the costs of providing phone services.

The proposal asks the FCC to institute “flat rate caps” of 20 cents per minute.

Critics, like Paul Wright and the Human Rights Defense Center, don’t believe 20 cents is fair. 

They advocate a call rate of 5 cents per minute. Wright notes that if the FCC decides to eliminate the commission structure – and prison phone companies therefore get to keep the entirety of the call revenue – the proposal would actually, ironically, be a win-win for companies like Securus.

In a recent filing with the FCC, Wright pointed out that the actual costs companies like Securus bear to provide the phone services are remarkably low. 

West Virginia, for instance, recently imposed the lowest rates and commissions in the country: All calls will now cost 3.5 cents per minute, while the correctional facility will take 0.1% commission. “This is not only another example of the low costs that [inmate calling service] providers can charge and still make a profit,” he writes, “but also more evidence of the link between lower rates and an effective elimination of the commission.”

In order to decide on an appropriate rate, the FCC asked all of the prison phone companies to supply it with their costs. Securus complied with the FCC under the condition that its cost documents would not be available to the public under a protective seal.

In late April 2015, IBTimes filed a Freedom of Information Act request with the FCC to release Securus documents pertaining to the true costs of operating in prisons and jails.

The request was ultimately denied by the FCC after a series of stern objections from Securus’ legal counsel, Stephanie Joyce, who wrote that should any of Securus’ cost documents leak, “the likelihood of irreparable, devastating harm is extremely high.”

How Their Business is Changing

Though some may consider it an unsavory business, the prison technology industry appears to be an attractive bet for investors.

In 2013, Abry Partners of Boston bought a major stake in Securus. One of the private equity group’s core values is to invest in high-growth businesses that have “predictable, recurring revenues – such as subscription-like businesses with high customer retention rates.” 

It’s unclear, for now at least, how Abry views Securus in light of the new round of FCC regulations. Abry did not return a request for an interview.

Over the past few years, Securus has expanded into a variety of new services, including video visitations and electronic monitoring. In other words, they’ve seemed to be able to leverage their profits to expand their business. Backed by Abry, Securus was able to purchase JPay, a prison payment-processing company that also sells tablets to prisoners, for a reported $205 million.

According to a recent company press release, Securus has purchased 13 companies in the last 39 months. “Securus’ solutions have been very successful and are reaching new milestones of success in keeping our world safe and connecting what matters,” the company noted. Recently, the company opened a 10,000-square-foot “technology center” to show off their new products.

Back in Rhode Island

The FCC regulations could come as early as the end of summer or as late as fall.

It also has prompted the creation of civil action groups, like Silent Sentence, which encourage people to lobby the FCC to end the sheriffs’ commissions. Robert Raben, the founder of the group and an influential lobbyist in Washington, says more than 20,000 people have signed a petition. 

The Silent Sentence site does not mention who is backing the campaign. It also does not describe any of the fees companies like Securus and GTL charge. When asked if any of the prison phone companies were backing the Silent Sentence campaign, Raben responded, “I don’t talk about that.”

Regardless, dozens of Americans have sent letters of their own to the FCC urging action.

The prison phone business “is rife with greed, shameless profiteering and the exploitation of vulnerable consumers,” writes Michael Hamden, a lawyer in North Carolina, in a letter dated June 24, 2015. “Industry executives have colluded with correctional professionals to bilk millions of dollars from prisoners and their families....”

Back in Rhode Island, Joanne Jones hopes to see that reform soon. She, too, has filed letters with the FCC. The experience of having a family member incarcerated for the first time has made her into something of an activist.

“My husband will tell you: When I feel like I’m wronged, I go to the top level,” she says. “If there’s a problem with a bill, I’m going to go to the top. It’s in my nature. I’ll always ask for the next person, and if I don’t get resolution, I’ll write to the president.”

Recently, she wrote Securus CEO Rick Smith two letters, urging him to reduce the rates and fees families pay to speak with their loved ones behind bars.

She says Smith has not yet responded to her letters.

This article was originally published by International Business Times (www.ibtimes.com) on July 2, 2015; it is reprinted with permission of the author, with minor edits. The FCC is currently considering reforms for intrastate (in-state) prison and jail phone calls, including rate caps. A ruling is expected within the next few months.