Prison Phone Justice

Federal Communications Commission

DA 14-187

Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of
Rates for Interstate Inmate Calling Services;
Pay Tel Communications, Inc.’s Petition for
Waiver of Interim Interstate ICS Rates

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WC Docket No. 12-375

ORDER
Adopted: February 11, 2014

Released: February 11, 2014

By the Chief, Wireline Competition Bureau:
I.

INTRODUCTION

1.
In this Order, we find good cause to grant a limited, temporary waiver of the interim
interstate inmate calling service (ICS) rate caps to Pay Tel Communications, Inc. (Pay Tel).1 The rate cap
rule at issue was adopted by the Federal Communications Commission (FCC or Commission) in the
Inmate Calling Report and Order and FNPRM and will become effective on February 11, 2014.2 For the
reasons discussed below and with the limitations and additional commitments identified herein, we grant
Pay Tel a narrow waiver of the Commission’s ICS rate cap rule for nine months unless the Commission
decides to take action on intrastate ICS rate caps sooner, then such Commission Order would supersede
this waiver. This waiver will provide Pay Tel with sufficient time to pursue any necessary intrastate rate
changes through the applicable state processes in light of the aggregate impact of Pay Tel’s ability to
recover its costs with the application of the interim interstate ICS rate caps.
II.

BACKGROUND

2.
In 2003, a group of inmates, their friends and families as well as advocacy groups
(collectively Wright Petitioners) filed a rulemaking petition with the Commission to address ICS
practices.3 The petition requested that the Commission prohibit exclusive ICS contracts and collect-callonly restrictions in correctional facilities.4 In 2007, the same petitioners filed an alternative rulemaking
petition, requesting that the Commission reform high ICS rates by requiring a debit-calling option in

1

Pay Tel Communications, Inc.’s Petition for Waiver of Interim Interstate ICS Rates, WC Docket 12-375 at 1 (filed
Jan. 8, 2014) (Petition).

2

Rates for Interstate Inmate Calling Services, Report and Order and Further Notice of Proposed Rulemaking, WC
Docket No. 12-375, 28 FCC Rcd 14107 (2013) (Inmate Calling Report and Order and FNPRM or Order); pets. for
stay granted in part sub nom. Securus Techs. v. FCC, No. 13-1280 (D.C. Cir. Jan. 13, 2014) (Securus Techs. Partial
Stay Order); pets. for review pending sub nom. Securus Techs. v. FCC, No. 13-1280 (D.C. Cir. Nov. 14, 2013) (and
consolidated cases).

3

See generally Implementation of the Pay Telephone Reclassification and Compensation Provisions of the
Telecommunications Act of 1996, Petition of Martha Wright et al. for Rulemaking or, in the Alternative, Petition to
Address Referral Issues in Pending Rulemaking, CC Docket No. 96-128 at 3 (filed Nov. 3, 2003) (First Wright
Petition).

4

Id.

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correctional facilities, prohibiting per-call charges, and establishing rate caps for interstate ICS.5 The
Commission sought and received comment on both petitions.6 In December 2012, the Commission
granted the two petitions for rulemaking and adopted a notice of proposed rulemaking seeking comment
on their proposals.7 The Commission released the Inmate Calling Report and Order and FNPRM on
September 26, 2013.8 On January 13, 2014, the United States Court of Appeals for the District of
Columbia Circuit issued a partial stay of the Inmate Calling Report and Order and FNPRM, pending the
court’s resolution of petitions for review of the Order.9 The Partial Stay Order did not stay the interim
rate cap rule at issue in this Order.10
3.
Section 201 of the Communications Act of 1934, as amended (Act) requires that all
carriers’ interstate rates be just and reasonable.11 To be just and reasonable, rates must ordinarily be costbased absent an explanation for a departure12 as well as include a reasonable return.13 Section 276 of the
Act additionally requires that payphone rates be fair.14 As part of its analysis in the Inmate Calling
Report and Order and FNPRM, the Commission found that “the marketplace alone has not ensured that
5

See Implementation of the Pay Telephone Reclassification and Compensation Provisions of the
Telecommunications Act of 1996, Petitioners’ Alternative Rulemaking Proposal, CC Docket No. 96-128 (filed Mar.
1, 2007) (Alternative Wright Petition).

6

See Petition For Rulemaking Filed Regarding Issues Related to Inmate Calling Services Pleading Cycle
Established, CC Docket No. 96-128, Public Notice, DA 03-4027, 2003 WL 23095474 (Wireline Comp. Bur. 2003);
Comment Sought on Alternative Rulemaking Proposal Regarding Issues Related to Inmate Calling Services, CC
Docket No. 96-128, Public Notice, 22 FCC Rcd 4229 (Wireline Comp. Bur. 2007).

7

See generally Rates for Interstate Inmate Calling Services, WC Docket No. 12-375, Notice of Proposed
Rulemaking, 27 FCC Rcd 16629 (2012) (2012 ICS NPRM). The 2012 ICS NPRM incorporated relevant comments,
reply comments and ex parte filings from the prior ICS docket, CC Docket No. 96-128, into WC Docket No. 12375. See 2012 ICS NPRM, 27 FCC Rcd at 16636, para. 15.

8

See generally Inmate Calling Report and Order and FNPRM.

9

See generally Securus Techs. Partial Stay Order. The following rules are stayed pending resolution of the appeal:
47 C.F.R. §§ 64.6010 (Cost-Based Rates for Inmate Calling Services); 64.6020 (Interim Safe Harbor); and 64.6060
(Annual Reporting and Certification Requirement).

10

Specifically, the following rules are not stayed by the Securus Techs. Partial Stay Order: 47 C.F.R. §§ 64.6000
(Definitions); 64.6030 (Inmate Calling Services Interim Rate Cap); 64.6040 (Rates for Telecommunications Relay
Service (TRS) Calling); and 64.6050 (Billing-Related Call Blocking). See generally id. The court also did not issue
a general stay of the Order, leaving in place, for example, the Commission’s provision for a one-time, mandatory
data collection that will enable the Commission to establish permanent rules
11

See 47 U.S.C. § 201(b).

12

See Inmate Calling Report and Order and FNPRM, 28 FCC Rcd at 14131, para. 45.

13

See id. at 14134, para. 53.

14

See 47 U.S.C. § 276(b). “The Commission has previously found the term ‘fairly compensated’ permits a range of
compensation rates that could be considered fair, but that the interests of both the payphone service providers and
the parties paying the compensation must be taken into account.” Inmate Calling Report and Order and FNPRM,
28 FCC Rcd at 14115, para. 14 (internal citation omitted). The Commission has previously addressed section 276
and its application to ICS, noting that “[u]nless an ICS provider can show that (i) revenue from its interstate or
intrastate calls fails to recover, for each of these services, both its direct costs and some contribution to common
costs, or (ii) the overall profitability of its payphone operations is deficient because the provider fails to recover its
total costs from its aggregate revenues (including both revenues from interstate and intrastate calls), then we would
see no reason to conclude that the provider has not been ‘fairly compensated.’” Implementation of the Pay
Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, Order on Remand
and Notice of Proposed Rulemaking, CC Docket No. 96-128, 17 FCC Rcd 3248, 3257-58, para. 23 (2002) (Inmate
Calling Order on Remand and NPRM) (emphasis in original).

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interstate ICS rates are just and reasonable and they are fair to consumers, as well as providers.”15 For
example, the record in this docket showed that “inmates, or those whom they call, pay as much as $17.30,
$10.70 or $7.35 for a 15-minute interstate collect call, depending upon the facility where the inmates are
incarcerated.”16 The Commission concluded “that the rate reforms we begin in this Order are necessary to
ensure [interstate ICS rates] are just and reasonable”17 and “necessary to implement section 276(b)(1)’s
‘fair compensation’ directive.”18
4.
As part of interstate ICS rate reform, the Commission adopted interim interstate ICS rate
caps of $0.21 per minute for interstate debit and prepaid calling and $0.25 per minute for collect calling
“to place an upper limit on rates providers may charge for interstate ICS.”19 The Commission determined
that the interim rate caps established in the Order were “set at sufficiently conservative levels to account
for all costs ICS providers will incur in providing ICS.”20 The interim rate caps were set based on cost
studies submitted in the proceeding, including a cost study submitted by Pay Tel.21 The Commission also
reaffirmed its earlier finding that site commission payments, “fees paid by ICS providers to correctional
facilities or departments of corrections in order to win the exclusive right to provide inmate phone
service,”22 are an apportionment of profit, not a cost of providing ICS.23 Waiver of the interstate ICS rate
caps is available for those “extraordinary circumstances” where a particular ICS provider “believes that it
has cost-based rates for ICS that exceed [the] interim rate caps.”24
5.
Pay Tel’s Petition. Pay Tel is an ICS provider based in North Carolina that currently
serves correctional facilities in thirteen states.25 Pay Tel filed its Petition for waiver of the Commission’s
interim interstate ICS rate caps on January 8, 2014.26 The Wireline Competition Bureau (Bureau)
released a Public Notice seeking comment on Pay Tel’s Petition on January 9, 2014.27 As described
below, interested parties commented on the Petition and Pay Tel filed supplementary information and
modified its request in response to questions raised by Bureau staff.28

15

Inmate Calling Report and Order and FNPRM, 28 FCC Rcd at 14131, para. 45.

16

Id. at 14126, para. 35.

17

Id. at 14131, para. 45.

18

Id. at 14131-32, para. 46.

19

Id. at 14147, para. 73.

20

Id. at 14147, para. 74.

21

Id. at 14148, para. 76.

22

Id. at 14110, para. 3.

23

Id. at 14135, n.199. See also id. at 14135, para. 54.

24

Id. at 14153, paras. 82-83.

25

Pay Tel’s waiver request is based on second quarter 2013 data when it operated in only ten states, including
Florida, Georgia, Kansas, Missouri, North Carolina, Ohio, South Carolina, Tennessee, Virginia, and Washington.
See Petition at 16-17. Pay Tel did not include in its shortfall analysis or its request for relief new facilities added in
three states (New Mexico, California and Maryland) after the second quarter of 2013. See Petition at nn.4 & 43.

26

In support of its Petition, Pay Tel also filed: a “Pay Tel Cost Study” (includes confidential information); its
“Wood Intrastate Shortfall Analysis”; a summary of its “Revenue Shortfall by State”; a “Summary of Intrastate
Local Rate Restrictions”; the specific “Intrastate Local Rate Restrictions”; “Pay Tel’s Existing Rates by Facility”
and signed declarations from its President and its economic and financial consultant. See generally Petition.

27

Comment Sought on Pay Tel Communications, Inc. Waiver Petition, WC Docket No. 12-375, Public Notice, DA
14-27 (Wireline Comp. Bur. rel. Jan. 9, 2014).

28

See infra para. 9.

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DA 14-187

6.
In its Petition, Pay Tel requests a waiver of the Commission’s rule establishing interim
interstate ICS rate caps29 and approval to continue to charge its current interstate ICS rates.30 Pay Tel
acknowledges that the Commission relied on Pay Tel’s Cost Study in setting the interim rate caps31 and
Pay Tel expressly bases its waiver request on the total company average per minute costs it produced.32
We agree that the Pay Tel Cost Study accurately represents Pay Tel’s costs of providing ICS.33 Pay Tel
asserts that here, however, there is good cause for a waiver because the Order “fails to properly consider
the impact that below-cost intrastate rate restrictions will have when working in tandem with the Order’s
interstate rate caps.”34 Specifically, Pay Tel asserts that it “cannot recover its costs on a holding company
level if it is required to charge the Order’s interim interstate rates.”35 Pay Tel bases this assertion on rate
restrictions in five of the ten states where it provided service in 2012, that are mandated by either “the
applicable state regulatory requirements or by the facility provider.” 36 Pay Tel claims such restrictions
require it to provide intrastate service at below-average-cost rates.37 Because of the interaction between
these below-average-cost intrastate rates and the limits imposed by the interim interstate rate cap, Pay Tel
asserts that it cannot meet its total company revenue requirement while complying both with our interstate
rate caps and the relevant state rate requirements.38 Pay Tel estimates this disparity will result in a
shortfall of approximately 11 percent of its total 2012 revenue.39 The shortfall, Pay Tel asserts, leaves it
in an “economically unsustainable situation” that will force it either to go “out of business” or to
“substantially curtail its operations,” likely by terminating service in the smallest facilities it serves.40
7.
In addition to its request for a waiver of the Commission’s rate caps, Pay Tel further
requests that the Commission allow Pay Tel “to continue charging its existing interstate rates.”41 The
Petition states that “this relief will permit Pay Tel to remain in business as the Commission continues to
investigate the appropriate regulatory environment for the ICS industry.”42 Pay Tel also commits that it
“will not charge interstate rates any greater than its existing rates” and “will remain bound by the
Ancillary Charges provisions of the Order’s rate requirements and commit[ ] to charging no more than its

29

See 47 C.F.R § 64.6030; see also Petition at 1, 23-25. Pay Tel further requests the Commission either determine
that its rates comply with the Commission’s rule that ICS rates be cost-based or grant a waiver of such requirement.
Id. Given the Court of Appeals’ stay of this rule pending its resolution of appeals of the Order, the Bureau does not
address this request. We further note that Pay Tel neither seeks a waiver of the other rules adopted by the Order,
nor of the provisions of the Order generally. See Petition at 22-23.

30

Based on Pay Tel’s reported total interstate revenues and total interstate minutes of use, staff calculates that Pay
Tel’s interstate ICS rates average $0.81 per minute. See Petition at Exh. B.

31

See Petition at 4.

32

See, e.g., Petition at 6 (“In support of its waiver request . . . Pay Tel submits . . . a company-level cost study.”);
Petition at 7 (“As shown in the study, Pay Tel’s cost of providing ICS are [$0.21 per minute for debit calls].”).

33

See Inmate Calling Report and Order and FNPRM, 28 FCC Rcd at 14151, n.293.

34

Petition at 12.

35

Id. at 1.

36

Id. at 16.

37

See id.

38

See id. at 2.

39

See id.

40

Id.

41

Id. at 24.

42

Id. at 22.

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current fees” in the event its waiver request is granted.43 Pay Tel asserts such relief will be in the public
interest in that it will ensure the viability of Pay Tel and avoid a reduction in competition among ICS
providers,44 it will mean that “ICS services will likely not be curtailed,”45 and it will not “result in a
financial windfall to Pay Tel.”46 Pay Tel requests that the Commission review and approve its Petition
before the rate caps adopted in the Order take effect on February 11, 2014.47
8.
The Wright Petitioners filed comments on the Petition, stating that they “do not oppose
FCC review of the Waiver Request to determine if relief is necessary.”48 The Wright Petitioners request
that if the Commission determines that a waiver of the rate caps for Pay Tel is necessary, that the waiver
be “narrowly tailored.”49 Pay Tel submitted reply comments, noting that no commenting parties opposed
the relief Pay Tel requested.50 The Human Rights Defense Center (HRDC) also submitted comments that
address data, analyses, and claims made by Pay Tel in support of its waiver Petition.51 While HRDC does
not dispute Pay Tel’s financial and operational data, it questions Pay Tel’s assertion that its operations
would be financially unsustainable under the provisions of the Order.52 HRDC asserts that Pay Tel “has
not addressed other options which remain available to it.”53 Specifically, HRDC asserts that Pay Tel
43

Id. Ancillary charges are non-call-related charges imposed on ICS end users, for example, to set up or add money
to prepaid or debit calling accounts, refund any outstanding money in a prepaid or debit calling account, or to deliver
ICS calls to a wireless number. See Inmate Calling Report and Order and FNPRM, 28 FCC Rcd at 14156, para. 90.
The Commission expressed concern over the possibility of ICS providers “circumventing our reforms by
augmenting ancillary services charges beyond the costs of providing such services.” Inmate Calling Report and
Order and FNPRM 28 FCC Rcd at 14158-59, para. 92. Specifically, the Commission required that in keeping with
its action on interstate ICS rates, ancillary service charges “must be cost-based, and to be compensable costs must be
reasonably and directly related to provision of ICS.” Inmate Calling Report and Order and FNPRM 28 FCC Rcd at
14157-58, para. 91. We note that the rule requiring “Cost-Based Rates for Inmate Calling Services” which states,
“[a]ll rates charged for Inmate Calling Services and Ancillary Charges must be based only on costs that are
reasonably and directly related to the provision of ICS,” was stayed in the Securus Techs. Partial Stay Order. See
generally Securus Techs. Partial Stay Order.

44

See Petition at 24.

45

Id. at 25.

46

Id. at 22.

47

See id. at 2.

48

Wright Petitioners Jan. 16, 2014 Waiver Comments at 2.

49

Id. at 3. Securus also filed comments on the Petition but such comments did not address the merits of the request.
See Securus Jan. 16, 2014 Waiver Comments at 3.

50

Pay Tel Jan. 21, 2014 Waiver Reply Comments.

51

HRDC’s comments were submitted as reply comments in response to the FNPRM in this docket. See HRDC
FNPRM Reply Comments. HRDC’s comments addressed data and analyses previously submitted by Pay Tel in an
ex parte filing. The data and analyses submitted in Pay Tel’s ex parte submission were consistent with the
supporting material submitted by Pay Tel as part of its Petition. See generally Letter from Marcus W. Trathen,
Counsel for Pay Tel, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 12-375 (filed Dec. 9, 2013).

52

See HRDC FNPRM Reply Comments at 7.

53

HRDC FNPRM Reply Comments at 2. Specifically, HRDC asserts that Pay Tel could renegotiate its contracts,
seek waivers from state regulatory agencies’ rules where necessary, or reconsider doing business in states that
impose below-cost rate requirements. See id. at 7-8. Pay Tel notes that simply ceasing operations in certain states,
as HRDC suggests, could result in inmates losing service which we note would be contrary to the purposes of
section 276 and the Order. See Pay Tel January 21, 2014 Waiver Reply Comments at 7. HRDC also notes that in
three states that regulate intrastate ICS rates, a significant proportion of Pay Tel’s contracts generate net positive
revenue. HRDC FNPRM Reply Comments at 2. Review of the intrastate rates charged by Pay Tel indicate that
while not all of Pay Tel’s intrastate rates are set at the maximum allowed by state regulation, rates for the great
majority of its intrastate call volume are at the caps set by the relevant states. The net intrastate surplus HRDC
(continued….)

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could renegotiate its contracts, seek waivers from state regulatory agencies’ rules where necessary, or
reconsider doing business in states that impose below-cost rate requirements.54 In its reply comments,
Pay Tel notes that HRDC “has not identified any errors in the analysis present[ed] by Pay Tel.”55
9.
Pay Tel’s Supplemental Filings. In evaluating Pay Tel’s Petition, Bureau staff questioned
whether allowing Pay Tel to continue to charge its existing rates following the effective date of the rules56
would result in Pay Tel recovering interstate revenues that are currently used to pay site commissions that
are based on interstate revenues.57 The Commission confirmed in the Order that such site commission
payments “are not part of the cost of providing ICS.”58 In response to staff inquiries, Pay Tel filed
additional data and analyses in support of its waiver request and revised its request for relief.59
Specifically, Pay Tel filed a revised shortfall analysis, information on change of law provisions in its
contracts, and interstate site commission data.60 Pay Tel also provided Bureau staff with its audited
financial statements.61 Pay Tel further supplemented its Petition to add a “commitment that Pay Tel will
not assess a rate for interstate long distance calls in excess of $0.46/minute for existing or new clients.”62
Additionally, Pay Tel commits not to charge interstate rates at any correctional institution any greater than
its existing rates,63 and to implement the “rate of $0.46/minute as a ‘postalized’ rate without any
additional per-call surcharges” (except in facilities with interstate rates currently below the proposed
$0.46/minute rate).64 Pay Tel states that “[t]his revised commitment reflects . . . the elimination of
interstate commissions from Pay Tel’s interstate rates.”65 Pay Tel asserts that grant of the requested relief
will be in the public interest since it “will, in no way, result in a financial windfall to Pay Tel,”66 “will

(Continued from previous page)
identifies for a number of Pay Tel’s facilities in rate-capped states is relatively minor in amount and would be
insufficient for Pay Tel to recover its costs.
54

See HRDC FNPRM Reply Comments at 7-8.

55

See Pay Tel Jan. 21, 2014 Waiver Reply Comments at 5.

56

See Petition at 24.

57

The Commission made clear in the Order that site commission payments are not a direct cost of providing ICS.
See Inmate Calling Report and Order and FNPRM, 28 FCC Rcd at 14135-38, paras. 54-58.

58

Inmate Calling Report and Order and FNPRM, 28 FCC Rcd at 14135, para. 54.

59

Letter from Marcus W. Trathen, Counsel for Pay Tel, to Marlene H. Dortch, Secretary, FCC, WC Docket 12-375
(filed Jan. 23, 2014) (revised waiver request) (Pay Tel Third Supplemental Filing).

60

See Letter from Marcus W. Trathen, Counsel for Pay Tel, to Marlene H. Dortch, Secretary, FCC, WC Docket No.
12-375 (filed Jan. 16, 2014) (revised shortfall analysis, change in law provision information, and interstate site
commission data) (Pay Tel First Supplemental Filing) (includes confidential information).

61

Letter from Marcus W. Trathen, Counsel for Pay Tel, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 12375 (filed Jan. 16, 2014) (financial statements) (Pay Tel Second Supplemental Filing) (includes confidential
information).

62

Pay Tel Third Supplemental Filing at 1-2.

63

“This commitment would not apply in those facilities with rates currently below the proposed $0.46/minute rate
(as to those rates, Pay Tel does not have the contractual flexibility to unilaterally increase rates). As a result, this
proposal would not result in interstate rate increases in any existing Pay Tel facility.” Id. at n.3.

64

Id. at 2, n.3.

65

Id. at 2.

66

Id.

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permit Pay Tel to remain in business,”67 and will “ensur[e] that consumers of interstate services receive
meaningful decreases in interstate rates.”68
10.
Applicable Waiver Standard. Pay Tel seeks a waiver under the Commission’s general
waiver rule as informed by additional guidance included in the Order.69 Section 1.3 of the Commission’s
rules states that the Commission’s rules may be waived for good cause shown.70 Waiver of the
Commission’s rules “is appropriate only if special circumstances warrant a deviation from the general
rule and such deviation will serve the public interest.”71 In the Order, the Commission stated that “the
petitioner bears the burden of proof to show good cause exists to support the request” and identified
factors to be considered in reviewing a waiver request.72 It further stated that ICS providers “will have
opportunities to seek waivers to the extent the framework adopted in this Order does not adequately
address their legitimate costs of providing ICS.”73 The Commission noted that “petitions for waiver of
the interim rate caps would account for extraordinary circumstances.”74 The Commission concluded that,
for both substantive and administrative reasons, it would evaluate waivers at the holding company level.75
It delegated authority to the Bureau to “request additional information necessary for its evaluation of
waiver requests and to approve or deny all or part of requests for waiver of the interim rate caps adopted
herein.”76
III.

DISCUSSION

11.
We conclude that Pay Tel has met its burden of proof to establish good cause to grant a
limited, temporary waiver of the Commission’s interim ICS rate cap rule. Based on a thorough review of
the information provided by Pay Tel, we conclude that Pay Tel has shown that the combination of its
existing below-average-cost state ICS rates and the Commission’s interim rate caps, which accurately
reflect its average total company costs constitute “extraordinary circumstances”77 that justify temporary
waiver of the Commission’s rate caps, and that the waiver will be in the public interest.78 We note that
Pay Tel’s data submissions adequately address the factors relevant to the review of its Petition as
67

Id.

68

Id.

69

See Petition at 1, 6.

70

“Any provision of the rules may be waived by the Commission on its own motion or on petition if good cause
therefor is shown.” 47 C.F.R. § 1.3.

71

Cellular Telephone Co. v. FCC, 897 F.2d 1164, 1166 (D.C. Cir. 1990) (Northeast Cellular). The Commission
may exercise its discretion to waive a rule where the particular facts make strict compliance inconsistent with the
public interest. Northeast Cellular 897 F.2d at 1166. In addition, the Commission may take into account
considerations of hardship, equity, or more effective implementation of overall policy on an individual basis. WAIT
Radio v. FCC, 418 F.2d 1153, 1159 (D.C. Cir. 1969); Northeast Cellular, 897 F.2d at 1166. Waiver of the
Commission’s rules is appropriate only if both (i) special circumstances warrant a deviation from the general rule,
and (ii) such deviation will serve the public interest. Northeast Cellular, 897 F.2d at 1166.

72

Inmate Calling Report and Order and FNPRM, 28 FCC Rcd at 14153, para. 82.

73

Id. at 14164, para. 105. The factors are “costs directly related to the provision of interstate ICS and ancillary
services; demand levels and trends; a reasonable allocation of common costs shared with the providers’ non-inmate
calling services; and general and administrative cost data.” Id. at 14153, para. 82.

74

Id. at 14153, para. 83.

75

Id.

76

Id. at 14154, para. 84.

77

Id. at 14153, para. 83.

78

Petition at 2.

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identified in the waiver provisions of the Order.79 Pay Tel does not dispute that the cost study relied upon
by the Commission continues to accurately represent its average costs of providing ICS service. Instead,
it maintains that it cannot recover its costs plus a reasonable return while complying both with our interim
interstate rate caps and its existing intrastate rate requirements because some of these intrastate rates are
below its actual costs. We therefore grant this temporary waiver to afford Pay Tel additional time to
pursue appropriate changes to its intrastate requirements, which when brought to appropriate levels
should permit Pay Tel to charge rates in compliance with our requirements. We therefore limit the
duration of this waiver to nine months unless the Commission decides to take action on intrastate ICS rate
caps sooner, then such Commission Order would supersede this waiver.
12.
We review Pay Tel’s request under the Commission’s standard waiver analysis as
informed by the additional guidance included in waiver provisions of the Order. This requires Pay Tel to
establish good cause for a waiver by demonstrating that it faces special circumstances that warrant a
waiver and by showing that a waiver would be in the public interest. Pay Tel cites as special
circumstances the Commission’s average-cost-based interstate rate caps and below-average-cost state
rates, the combination of which precludes it from recovering its total company costs of providing ICS.
We therefore must review and verify: 1) the data and analyses that establish Pay Tel’s average cost and;
2) the data and analyses that support Pay Tel’s quantification of its intrastate shortfall.
13.
Corporate Structure. As an initial matter and consistent with the Order’s waiver
provisions, we review Pay Tel’s request and supporting data at the holding company level.80 Pay Tel’s
Petition states that “Pay Tel has a one-tier corporate organizational structure” and that “[a]ll of its ICS
operations are conducted as Pay Tel Communications, Inc.”81 There is no evidence in the record of any
parent company or other corporate entity having an ownership interest in Pay Tel, nor is there evidence
that Pay Tel has an ownership interest in other corporate entities. Additionally, given that Pay Tel’s
corporate structure includes no subsidiaries or affiliates, there are no inter- or intra-company allocations,
transactions or interests that might otherwise impact our analysis of Pay Tel’s Petition and require the
submission of additional data.
14.
Cost Showing. To establish that it faces special circumstances warranting a waiver, Pay
Tel must first demonstrate its total company average cost of providing ICS in order to provide a baseline
for assessing its intrastate shortfall claims. We find that the supporting data and analyses submitted by
Pay Tel, including a cost study82 which we find accurately reflects the company’s cost of providing ICS,
audited financial statements,83 and data on its average interstate site commission payments,84 are sufficient
to establish that its average total company per-minute cost is at the interim interstate rate cap.85 The cost
data in Pay Tel’s Cost Study were corroborated by cost data from its audited financial statements86 and we
find it remains valid but note, as the Commission discussed in the Order, that our actions here are not a
79

Inmate Calling Report and Order and FNPRM, 28 FCC Rcd at 14153, para. 83.

80

Id.

81

Petition at 1 n.2.

82

See Petition at Exh. A.

83

See Pay Tel Second Supplemental Filing at Attach.

84

See Pay Tel Third Supplemental Filing at Attach.

85

The D.C. Circuit stayed rule 64.6010 (“Cost-Based Rates for Inmate Calling Services”). See generally Securus
Techs. Partial Stay Order. However, Pay Tel voluntarily submitted cost information in support of its Petition and
we see no conflict in reviewing Pay Tel’s cost information for the express purpose of evaluating and addressing its
request. Also, costs are central to the analysis under the just and reasonable mandate found in section 201(b). See
supra para. 3.

86

See Pay Tel Second Supplemental Filing at Attach. (includes confidential information).

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blanket endorsement of the study.87 Pay Tel’s interstate site commission payment data supplemented the
site commission data from its cost study and identified the site commissions assessed on Pay Tel’s
interstate ICS.88
15.
Impact of Below-Cost Intrastate Rates. To support its request, Pay Tel also establishes
that it faces below-average-cost state rate mandates and quantifies the magnitude of the resulting revenue
shortfall it incurs. Pay Tel’s Petition includes a detailed analysis that concludes that it incurs a total
intrastate shortfall of approximately $2.8 million, approximately $1.2 million of which is offset by
interstate revenues.89 We find the data and analyses Pay Tel submitted sufficient to verify these claims.
Pay Tel’s Petition included detailed rate, call volume and revenue data by facility and by type of inmate
calling service, which enabled an independent assessment of its intrastate revenue shortfall assertions.90
These data were corroborated by comparable data in its financial statements.91 Pay Tel also provided
summary descriptions of the below-cost intrastate rate mandates it claims cause its intrastate shortfall
along with excerpts from the relevant mandates by state.92 Given Pay Tel’s average cost and its intrastate
revenue shortfall, we conclude that it has demonstrated that it faces special circumstances that warrant a
waiver.
16.
Public Interest Showing. Finally, Pay Tel must also demonstrate that a waiver of the
Commission’s interim interstate ICS rate caps is in the public interest. We find that Pay Tel has
demonstrated that a limited, temporary waiver will serve the public interest. It will ensure that Pay Tel
continues to provide highly-secure ICS to inmates and their families at the facilities which it serves.93 We
further note that a waiver will be consistent with our statutory obligation under section 201(b) of the Act
and, pursuant to section 276, will “promote competition” and “promote the widespread deployment of
payphone services to the benefit of the general public.”94 Finally, and importantly, Pay Tel has asserted
that setting a rate cap at $0.46 per minute will ensure that the great majority of people most affected by
Pay Tel’s interstate ICS rates – the inmates in the facilities Pay Tel serves and their families – will see
immediate and substantial rate decreases when this Order becomes effective because it will result in a
reduction of over 40 percent from average existing interstate ICS rates of $0.81 per minute.95
17.
We limit the waiver we grant to the revised $0.46 per-minute rate cap Pay Tel proposed
in its Third Supplemental Filing.96 This revised rate cap reflects, on a per-minute basis, the “elimination
of interstate commissions from Pay Tel’s interstate rates”97 consistent with the Order’s determination that
87

See Inmate Calling Report and Order and FNPRM, 28 FCC Rcd at 14151, n. 293.

88

Pay Tel Third Supplemental Filing at Attach.

89

Following the filing of its Petition, Pay Tel supplemented its shortfall analysis with additional documentation. See
Pay Tel First Supplemental Filing at 1-2, Attach.

90
Petition at 13-19, Exh. B. It also included a summary of the financial impacts by state of intrastate ICS rates. See
Petition at Exh. C.
91

See Petition at Exh. B; Pay Tel Third Supplemental Filing at Attach.

92

Petition at Exhs. D & E.

93

Pay Tel Third Supplemental Filing at 2 (The limited, temporary nature of the waiver will ensure that it will not
result in a financial windfall for Pay Tel, an outcome Pay Tel expressly disavowed and distanced itself from by
revising downward its requested initial request for relief.).

94

47 U.S.C. § 276(b)(1).

95

See Pay Tel Third Supplemental Filing at 2; supra n.30.

96

Using the data that Pay Tel provided on its interstate site commissions, staff calculated that those commissions
represent approximately $0.35 per-minute of its average $0.81 per-minute revenue. See Petition at Exh. B; see also
Pay Tel Third Supplemental Filing at Attach.
97

Pay Tel Third Supplemental Filing at 2.

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site commissions are not a recoverable component of interstate ICS rates.98 Granting Pay Tel’s revised
waiver request will, according to Pay Tel, “permit Pay Tel to remain in business.”99 We note that the
$0.46 per minute rate cap will enable Pay Tel to continue to recover that portion of interstate revenues
that is currently available to Pay Tel to offset its intrastate shortfall. Specifically, the Bureau estimated
the amount of revenue the revised $0.46 per minute rate cap would yield Pay Tel by using the Wood
Intrastate Shortfall Analysis to calculate its total interstate ICS revenue less its total interstate site
commission payments and its total cost of providing interstate service.100
18.
notes that:

A grant is also consistent with the Inmate Calling Order on Remand and NPRM, which
[u]nless an ICS provider can show that (i) revenue from its interstate or
intrastate calls fails to recover, for each of these services, both its direct costs
and some contribution to common costs, or (ii) the overall profitability of its
payphone operations is deficient because the provider fails to recover its total
costs from its aggregate revenues (including both revenues from interstate and
intrastate calls), then we would see no reason to conclude that the provider has
not been ‘fairly compensated.’101

The data submitted by Pay Tel demonstrate that it falls within the second category enumerated above,
further supporting the decision to grant the waiver. Moreover, we agree with Pay Tel that reducing its
interstate ICS rates to no more than $0.46 per minute will “ensur[e] that consumers of interstate services
receive meaningful decreases in interstate rates.”102
19.
Duration of Waiver. We grant Pay Tel a temporary waiver in order to provide it with an
opportunity to address below-average-cost rate mandates at their source – at the state level and with the
individual facilities it serves. Pay Tel explains that the intrastate revenue shortfalls it experiences result
either from state regulatory mandates or contractual provisions predicated on state mandated rates. We
agree with HRDC that Pay Tel nevertheless is not constrained from pursuing relief in either instance.103
Specifically, Pay Tel can follow existing processes within the relevant states to seek necessary intrastate
rate changes, or waivers, in light of the impact of the interim interstate ICS rate caps.104 Further, as the
Commission asserted in the Order, ICS providers, like most commercial entities, generally can
renegotiate contract terms with the facilities they serve, particularly where such contracts contain change
of law provisions.105 The fact that certain of Pay Tel’s ICS contractual rates are predicated on rates that
state commissions established for local exchange service does not change our analysis of the ability of
providers to seek necessary intrastate rate changes. Additionally, we recognize that the Commission has
an open proceeding that is considering final interstate ICS rates and potential action on intrastate ICS
98

See Inmate Calling Report and Order and FNPRM, 28 FCC Rcd at 14135, para. 54.

99

Pay Tel Third Supplemental Filing at 2.

100

See Petition at Exhs. A & B; see also Pay Tel Third Supplemental Filing. The Wood intrastate Shortfall Analysis
includes rate and call volume data for the second quarter of 2013 for all locations in operation for the entire quarter;
data is provided for post-paid collect, prepaid-collect, pre-paid calling cards, and debit calls by jurisdiction.
101

Inmate Calling Order on Remand and NPRM, 17 FCC Rcd 3248 at 3257-58, para. 23 (emphasis in original).

102

Pay Tel Third Supplemental Filing at 2.

103

See supra n. 53.

104

See HRDC FNPRM Reply Comments at 7.

105

Inmate Calling Report and Order and FNPRM, 28 FCC Rcd at 14162-63, para. 102. See also HRDC FNPRM
Reply Comments at 7. But cf. Petition, Exh. G at 1 (statement of Vincent Townsend); Pay Tel First Supplemental
Filing at 2; Pay Tel Jan. 21, 2014 Reply Comment at 5-6 (noting that only a small proportion of its contracts contain
such a provision).

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rates.106 In light of these circumstances, we find it is in the public interest to grant Pay Tel temporary
relief while it pursues relief in the states, and we therefore limit the duration of the waiver to nine months
unless the Commission decides to take action on intrastate ICS rate caps sooner, then such Commission
Order would supersede this waiver.107
20.
For these reasons, we conclude that Pay Tel has demonstrated good cause for the Bureau
to grant a limited, temporary waiver of the Commission’s rule establishing interim interstate ICS rate
caps. Furthermore, we find the following conditions to be consistent with Pay Tel’s proposed
commitments and in the public interest: Pay Tel (1) may not assess a rate for interstate long distance ICS
calls in excess of $0.46 per minute for existing and new clients and may not charge interstate rates any
greater than its rates as of February 10, 2014 if those rates were under $0.46 per-minute;108 and Pay Tel
(2) may charge no more than its current fees.109 Pay Tel notes, however, that changes in circumstances
may justify a change in its fee structure.110 Given the spirit of the Inmate Calling Report and Order and
FNPRM, increasing ancillary fees to offset the rate caps could thwart reforms and relief for inmates and
their families. We therefore adopt Pay Tel’s additional commitment that it “will assess the minimum in
fees which are necessary to recover its costs.”111 Further, to the extent Pay Tel assesses any new or
increased fees, in addition to notifying its customers,112 we require it to also notify the Commission and to
include an updated analysis of its cost and revenue data. Any such new or increased fees may impact the
need and justification for the instant waiver.113 As a result, we adopt the waiver with these conditions.
21.
We authorize such rates for a period of nine months unless the Commission decides to
take action on intrastate ICS rate caps sooner, then such Commission Order would supersede this waiver.
This period of time will provide Pay Tel an opportunity to seek modification of the intrastate rates it cites
in its Petition. States should recognize the Commission’s and the Bureau’s actions in this proceeding as
part of a broader effort to establish a consistent framework of cost-based rate caps for ICS generally and
work with the relevant parties to that end. We allow Pay Tel up to seven days from the release of this

106

While Pay Tel’s Petition does not expressly limit the duration of its requested waiver, it nonetheless suggests
such a limitation by requesting relief “as the Commission continues to investigate the appropriate regulatory
environment for the ICS industry.” Petition at 22; see also Pay Tel Third Supplemental Filing at 2. The
Commission’s investigation into ICS rates is on-going. In the FNPRM in this proceeding, the Commission sought
and received comment on extending its interim interstate ICS rules to intrastate ICS and making its ICS rules
permanent. See Inmate Calling Report and Order and FNPRM at Sections V.A. and V.C. The Inmate Calling
Report and Order and FNPRM also prescribed a mandatory data request for ICS providers that will allow the
Commission to assess more accurately the costs of providing ICS and therefore adopt rate caps that will more
precisely reflect providers’ costs. See Inmate Calling Report and Order and FNPRM, 28 FCC Rcd at 14172-73,
paras. 124-26.
107

Any subsequent requests from Pay Tel will require, at a minimum, a showing of its efforts to obtain relief from
state-imposed regulatory mandates.

108

“As a result, this proposal would not result in interstate rate increases in any existing Pay Tel facility.” Pay Tel
Third Supplemental Filing at 2, n.3. Rates should be calculated on a per-minute basis assuming a call duration of 15
minutes. See Inmate Calling Report and Order and FNPRM, 28 FCC Rcd at 14155-56, para. 88.

109

See Petition at 22.

110

See Petition at 22, n.68.

111

Pay Tel Third Supplemental Filing at 2, n.5.

112

See Pay Tel Third Supplemental Filing at 2, n.5.

113

To the extent that Pay Tel assesses a fee or fees that would recover more than its reasonable costs and would
result in Pay Tel obtaining a financial windfall, we reserve the right to revise the $0.46 per minute rate cap granted
in this Order.

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Order to make the rate changes adopted herein.114 We implement this limited, temporary waiver to ensure
that Pay Tel recovers its total costs, on a holding company basis, for providing ICS.
IV.

ORDERING CLAUSES

22.
Accordingly, IT IS ORDERED, pursuant to the authority contained in sections 1, 4(i),
5(c), 201, and 276 and of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151, 154(i),
155(c), 201, and 276, and sections 0.91, 0.291, and 1.3 of the Commission’s rules, 47 C.F.R. §§ 0.91,
0.291, and 1.3, that the Petition for Waiver of Interim Interstate ICS Rates filed by Pay Tel
Communications, Inc. on January 8, 2014 IS GRANTED to the extent and subject to the conditions set
forth above, for a duration of nine months, beginning on February 11, 2014 and ending on November 11,
2014 unless the Commission decides to take action on intrastate ICS rate caps sooner, then such
Commission Order would supersede this waiver.
23.
IT IS FURTHER ORDERED that the Petition for Waiver of Interim Interstate ICS Rates
filed by Pay Tel Communications, Inc. on January 8, 2014, and subsequently revised on January 23,
2014, is DENIED to the extent not granted herein.
24.
IT IS FURTHER ORDERED that the Petition for Partial Stay of Rates for Interstate
Inmate Calling Services Order filed by Pay Tel Communications, Inc. on November 26, 2013 in WC
Docket 12-375 is DISMISSED AS MOOT.
25.

IT IS FURTHER ORDERED that this Order SHALL BE EFFECTIVE upon release.
FEDERAL COMMUNICATIONS COMMISSION

Julie A. Veach
Chief
Wireline Competition Bureau

114

Pay Tel may charge its existing interstate ICS rates in the intervening seven days until it begins charging
$0.46/minute for all interstate ICS calls.

12