Reynolds Nm Public Regulation Commission Testimony Prison Phones 2009

• Topics: Telephones

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BEFORE THE NEVIl MEXICO PUBLIC REGULATION COMMISSION

IN THE MATTER OF THIE COMMISSION
INQUIRY INTO THE RArES AND CHARGES
OF INSTITUTIONAL OPERATOR SERVICE
PROVIDERS

)
)
) Case No.
)

07-003~6-UT

-----------------)

PIREPARED DIRECT TESTIMONY

JOHN J. REYNOLDS

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED

January 23, 2009

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PRE:PARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

Please state your name and occupation.

My name is John ,I. Reynolds. I am employed by the New Mexico

Public Regulation Commission ("Commission") as a Utility Economist in

the Telecommunications Bureau of the Utility Division.

Please summarize your educational background.

I earned a Bachelor of Arts Degree in Linguistics as well as a Masters in

Business Administration with a concentration in Finance from the

University of Rochester in Rochester, NY.

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Please summarize your professional experience.

From 1978 to 2002, I worked in the non-ferrous metals production and

manufacturing industry in internal auditing, purchasing of raw materials

and trading of commodity derivatives to manage exposure to price

fluctuations. More recently, I have worked as an analyst for individual

income taxation with the Commonwealth of Virginia and as a Federal

Royalty Auditor in the Oil & Gas Bureau of the State of New Mexico's

Taxation and Revenue Department. In September of 2008, I joined the

Commission as a Utility Economist.

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Have you previously testified before this Commission?

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PREPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

No. This is my fist time testifying before the Commission.

What is the purpose of your testimony?

The purpose of my testimony is to provide background, history and an

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economic analysis of the market for inmate telephone services in New

Mexico. My intent is to provide a rational approach to the evaluation

inmate telephone rates that prevail in New Mexico correctional institutions.

Inmate Operator Service Providers (IOSPs) provide telephone services to

inmates pursuant to contracts independently negotiated with the operators

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of each correctional institution. My review will consist of:
•

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telephone industry in New Mexico
•

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•

A review of the cost-based information provided by IOSPs to

support the rates.
•

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An overview of the inmate telephone industry and how it
operates in New Mexico and other (lower 48) states.

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A history of the Commission's scrutiny of the inmate

A review of inmate telephone rates that prevail in other
states,

•

An analysis of the cost and market based information

supporting inmate telephone rates to determine whether

New Mexico rates are just and reasonable.

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PREPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

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What is the background of this case?

On July 25,2007, the Commission ordered that an inquiry be opened into

the rates and charges of IOSPs offering services within New Mexico. The

Commission further ordered that these IOSPs file with the Commission

cost of service studies or other ratemaking methodologies to justify the

rates currently on file. In its petition for this inquiry, Staff stated that the

conditions prevailing in the inmate telephone industry in New Mexico were

the same as those that caused the Commission to start a prior

investigation seven years earlier. IOSPs have long been the subject of

scrutiny by the Commission. A significant number of complaints to the

Consumer Relations Department about high inmate telephone rate was

cited in support of the prior case mentioned above (NMPRC Case No.

3317). During the pendency of that case, the New Mexico Legislature

enacted House Bill 133, effective June 15, 2001, which prohibited any

"commission or other payment to the operator of the correctional facility or

jail based upon amounts billed by the telecommunications provider for

telephone calls made by inmates in the correctional facility." In turn, the

role of such commissions paid to the correctional facility became central to

the investigation related to that case.

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PREPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT
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What was the ultimate resolution of NMPRC Case No. 3317 that
applied to all of the IOSPs?

Once the HB 133 prohibitions on commissions became law, the focus of

that case was on the effective timing of such prohibitions. IOSPs negotiate

contracts with operators of correctional facilities at various points in time.

At the time of the investigation, thirty-two contracts existed between

IOSPs and operators of New Mexico correctional institutions. Twenty-nine

of these thirty-two contracts included provisions for the payment of

commissions. Commission payments at that time ranged from 17% to

44.8% of billed revenues. Some of these contracts could be extended

indefinitely while others had expiration dates as distant as May 2011 if the

parties exercise all extension terms. The lion's share of these contracts

had escape clauses that allowed for termination by the contracting IOSPs.

The Hearing Examiner's recommended decision stated that (1) tariffs that

are commission-based from contracts in existence as of June 15, 2001

were just and reasonable, (2) tariffs that are commission-based from

contracts in existence after June 15, 2001, or renewed or amended after

that date, are not just and reasonable.

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Please provide some background as to the inmate telephone
business and the role of commission payments.

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PRI:PARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

While telephone service is now widely available to inmates around the

nation, the nature of the service differs significantly from what is available

to the rest of us. Rates available to the general public through direct-

dialing, calling cards and monthly plans are generally not available to

inmates who malke calls from institutions. Inmate telephone service is

provided

correctional institutions. The user and payors of this telephone service, i.e.

the inmates and their families, friends and lawyers, are not a party to the

establishment of bidding criteria or to the negotiations that lead to a

contract to locate the equipment in the facility and provide service to the

inmates housed in that facility. There is competition among IOSPs to

provide service and contracts are generally awarded as a result of a

competitive bidding process. With a contract in hand, the winning IOSP

becomes the exclusive provider of telephone service to the inmates

housed in the institution in question. The telephone equipment is generally

owned, installed, operated and maintained by the IOSP. All security

related hardware and software for call blocking and monitoring in

accordance with the institution's guidelines are the responsibility of the

IOSP. The contracts between the IOSPs and the operators of the

correctional institutions are generally long-term. In other words, the

contracts last one year or more with options to renew and/or extend the

by IOSPs under negotiated contracts with operators

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Case No. 07·00316·UT
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duration of the contracts for a year or more. Also, these contracts are

many times called zero-cost contract in that the IOSP bears all the cost of

installing, owning and maintaining the hardware and software related to

the provision of inmate telephone service thus there costing zero to the

operator of the correctional institution

As became evident during the investigation relating to the prior IOSP

case, the proverbial elephant-in-the-room related to the inmate telephone

industry is the issue of commission payments by the IOSPs to the

correctional institutions that can be a part of a contract awarded to an

IOSP. At the time HB 133 became effective in New Mexico on June 15,

2001, commissions paid by IOSPs operating in New Mexico ranged from

17% to 44.8% of gross billed inmate telephone revenues. New Mexico

was one the first states to prohibit the payment of such commissions to

operators of correctional institutions. Even today, there are only a handful

of states where such commissions are prohibited. I will testify to practices

in other states la1er in my testimony. The practice of paying commissions

has been and continues to be common nationwide. In most states, the

commissions generated by inmate phone calls are a significant source of

funding for the correctional facility. Operators of correctional facilities who

are recipients of commission payments thus become a revenue-sharing

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PRI:PARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

partner of the laSp by agreeing to have the lasp locate its equipment in

the facility but with little of the risk borne by the lasp.

In what states are commission payments from IOSPs disallowed?

Since the resolution of last lasp case before this Commission and since

the passage of HB 133 in New Mexico, there have been a small number of

states that have moved to disallowing commission payments from laSps

to operators of correctional institutions. The most prominent state to make

this change was New York. In January 2007, former Governor Elliott

Spitzer directed the NY Department of Corrections to no longer accept

commission payments from laSps. The NY Department of Corrections

was directed to renegotiate its inmate telephone rates with its existing

lasp and new zero-commission rates became effective in April 2007. This

prohibition applies only to correctional institutions under the jurisdiction of

the State of New York. Also in 2007, state law prohibiting commission

payments by laSps became effective in Rhode Island. Nebraska has a

long history of disallowing any commission payments from laSps. I also

understand that Missouri also disallows such commission payments. Later

in my testimony, I will provide some analysis about the impact of the

prohibition of commission payments on inmate telephone rates.

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PREPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

Who are the major players operating as IOSPs in New Mexico?

There are five IOSPs who are actively operating in New Mexico and who

are also parties to this case. They are (1) Conversant Technologies, Inc.

(CTI), (2) Evercom Systems, Inc. (Evercom), (3) Inmate Calling Solutions,

LLC (ICS), (4) Public Communications Services, Inc. (PCS), and (5) T-

Netix Telecommunications, Inc. (T-Netix). CTI provides inmate telephone

service at only one institution in New Mexico: Otero County Prison Facility,

a privately operated facility under contract with the US Marshals Service.

Global Tel*Link (GIl.) is also a party to this case but they do not appear to

be operating in New Mexico at this time and they are not actively

participating in this case. Following some industry consolidation since the

prior IOSP case, Evercom and T-Netix "have joined forces" to become

Securus

www.securustech.com web site). Evercom and T-Netix are wholly-owned

subsidiaries of H.I.G Capital, a private investment firm. Also part of the

H.I.G. Capital family is Correctional Billing Services, a division of Evercom

& T-Netix. Correctional Billing Services (CBS) is the billing arm for

Evercom & T-Netix and acts as the customer service point for friends &

families of inmates concerning inmate telephone calls.

There are two other inmate telephone providers currently operating in New

Mexico who are not parties to this case: (1) Digital Solutions, Inc. (DSI),

Technologies,

Inc.

(Securus)

(See/Listen

intro

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
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Case No. 07-00316-UT

and (2) Inmate Communications Corporation (ICC). OSI, which files under

the name of ITI Inmate Telephone Inc., has filed annual reports and a tariff

with the Commission. ICC has been filing annual reports with the

Commission and has a tariff on file. There is no record of ICC updating its

tariff since it was filed in October 1995. Also, ICC was a participant in the

prior IOSP case.

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What is the size of the inmate telephone market in New Mexico?

I have reviewed the last Carrier and Utility Inspection Report filed with the

Commission by each of the 8 IOSPs currently operating in New Mexico.

Gross receipts reported by the 8 IOSPs totaled $9.85 million for 2007. Of

this amount, $7.25 million (73.6%) were receipts for intrastate telephone

activity. Following is a list of the top IOSPs by share of gross receipts:

1) Securus (Evercom & T-Netix) 57.6%

2)PCS

30.6%

3) CTI

8.5%

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Please provide an overview of the correctional institutions currently
operating in New Mexico.

I have personally surveyed the locations of all correctional institutions
located in New Mexico which house adult inmates under state or county

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PRIEPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

jurisdiction by contacting the New Mexico Corrections Department

(NMCD), the

attempted to confirm and augment this information by viewing the web

sites of NMCD, for-profit operators of correctional facilities, and counties.

To the extent I was unable to get any information from any county or from

a county's web site, I tried to fill in the blanks with information from other

sources, e.g. the public records from the current docket and from the prior

IOSP case, web sites of for-profit operators of correctional facilities, and

press reports. I have excluded any facilities exclusively under federal

jurisdiction or privately operated under contract only with the federal

government or an agency thereof.

As a result of my research, I have developed a universe of 41 correctional

facilities in New Mexico that house adult state and county inmates. NMCD

manages 11 correctional institutions and also houses some state inmates

in 2 of the county facilities that are operated by subcontractors. Of these

11 NMCD institutions, 6 of them are also operated by NMCD. The other 5

institutions are operated by for-profit subcontractors. The GEO Group, Inc.

(GEO) operates

operates the last 2. Out of 33 counties in New Mexico, 29 have at least

one correctional institution. Most of these institutions are operated by the

county corrections or public safety department. A few are operated by the

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counties and/or county correctional institutions. I

of them and Corrections Corporation of America (CCA)

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Case No. 07-00316-UT
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local Sheriff's Office. Three county facilities are operated by for-profit

operators under contract with the county and, in 2 cases, the state. CCA

operates the Torrance County Detention Facility which houses county,

state and federal inmates. Cornell Companies, Inc. (Cornell) operates two

county facilities: (1) the Regional Correctional Center in Albuquerque and

(2) the Lincoln County Detention Center in Carrizozo. Four counties in

New Mexico do have not county managed correctional facilities: (1) Mora

County has an aqreernent with San Miguel County to house any inmates,

(2) Guadalupe County uses the NMCD facility in Santa Rosa which is

operated by GEO, (3) Union County used the NMCD facility in Clayton

also operated by GEO, and (4) Harding County uses adjoining county

detention facilities.

Beyond the universe identified above, I know of two other major

correctional institutions that house only inmates under federal jurisdiction:

(1) Cibola County Correctional Center operated by CCA and (2) Otero

County Prison Facility operated by Management & Training Corporation

(MTC).

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Which IOSPs provide inmate telephone service in the New Mexico
institutions you have surveyed?

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PRIEPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

For the sake of simplicity and in light of the industry consolidation, I will

refer to Evercom and/or T-Netix as simply Securus. In my review, I have

found that many I have contacted at various counties and facilities referred

to their IOSP as Securus. While it is true that Evercom and T-Netix have

been filing separate tariffs with the Commission, they appear to be

effectively managed as a single entity and in this reply I will refer to either

of them as Securus. Evercom and T-Netix tariffs filed with the Commission

have become increasingly similar over time since their common ownership

and

the

individuals

managing

the

tariffs

named

the

public

correspondence with the Commission have the same name.

In the universe of 41 institutions identified earlier, I have been able to

ascertain that _

those institutions. PCS is the provider at 12 institutions and •

provider at I institutions. OSI and ICC each provide service to 1 institution.

A complete list of which IOSP provides inmate phone service to what

institutions is detailed in Exhibit JJR-1 attached to the confidential version

of my direct testimony. A redacted version of Exhibit JJR-1 is included with

the public version of my testimony.

As far as billing to friends & families of inmates is concerned, CBS is the

billing agent for 29 of the correctional institutions in my universe while

PCS is the

billin!~

is the provider of inmate telephone service at •

is the

agent for 4 of the institutions. This information was

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PRIEPARED DIRECT TESTIMONY OF
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Case No. 07-00316-UT
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garnered from the web sites of CBS and PCS (last checked on 1/5/09).

CBS is the billinq agent for at least 5 of the institutions managed and

operated by NMCD where PCS is the contracted IOSP. As CBS and PCS

are not members of the same family of companies, one would not expect

a company from one family to be a billing agent for an IOSP from a

different family especially where each family has active billing agents.

However, the record from the prior IOSP case before this Commission

indicates that PCS, the contracted IOSP for NMCD managed and

operated institutions, has been subcontracting its inmate telephone

service at these institutions to Evercom, a member of the family of

companies that includes CBS. I assume this subcontracting arrangement

continues to this day.

Since NMCD is the largest single client or host for inmate telephone

services, please review the rates that prevail at NMCD locations and

what impact HB 133 has had on those rates, if any.

PCS is the provider of inmate telephone service at NMCD operated

facilities in Los Lunas, Santa Fe, Roswell, Las Cruces, Springer and

Grants as well as the NMCD facility in Santa Rosa which is operated by

GEO. The record of the prior IOSP case indicates that PCS has been the

IOSP to NMCD facilities since its contract with the State dated November

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John J. Reynolds
Case No. 07-00316-UT

13, 1997. That contract between PCS and NMCD called for payment of

commission from PCS to NMCD equal to 48.25% of gross billed inmate

telephone revenues. The prevailing rates for a collect inmate telephone

call during evening/week-end hours lasting 15 minutes were the following:

Local

$4.58

IntraLATAlI ntrastate

$4.90

InterLATAlIntrastate

$4.90

After the passage of HB 133 which became effective June 15, 2001, PCS

renegotiated its contract with NMCD to eliminate any commission payment

provisions and the rates for the same telephone calls as described above

were and still are the following:

Local

$2.15

down 53.1%

IntraLATA

$3.63

down 25.9%

InterLATAll ntrastate

$3.63

down 25.9%

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Provide a history before the

Commission of the cost-based

information provided by IOSPs to support their tariffed rates?

In its April 4, 2000 Final Order approving PCS's request for certification as

an IOSP in Case No. 3113, the Commission docketed Case No. 3317 to

investigate whether the rates charged by PCS and other IOSPs were

reasonable, and whether rate caps or other rate limitations were

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PRI::PARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT
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necessary. The Commission ordered PCS and other IOSPs to furnish cost

of service studies or other ratemaking methodology to justify current rates.

The Final Order issued December 13,2003 in Case No. 3317 determined

that: (1) IOSP tariffs containing the costs of revenue-based commissions

resulted in higher costs to customers; and (2) that IOSP tariffs containing

the costs of revenue-based commissions resulting from contracts

executed after the effective date of HB 133 (June 15, 2001), or renewed or

amended after that date are not just and reasonable because they contain

such costs. The immediately preceding Q and A illustrates the impact of

removing such commissions from the costs that inflated inmate telephone

rates.

The Commission's Notice of Inquiry (NOI) in Case No. 07-000316-UT was

opened to determine whether there was a cost basis for the rates being

charged, and ordered IOSPs to file cost of service studies or other

ratemaking

responses to the NOI, Staff filed a motion on December 21, 2007

requesting that the IOSPs be ordered to submit cost information as

specified by Staff in the Exhibit A attached to that motion. All IOSPs filed

objections to Staffs motion. On January 30, 2008, the Hearing Examiner:

(1) ordered Staff to brief the issue of whether the Commission had the

legal authority to require the IOSPs to furnish cost of service studies or

methodologies

justify

current

rates.

Following

IOSP

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Case No. 07-00316-UT
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similar ratemaking

methodologies,

objections to its motion; and (2) also ordered the IOSPs to respond to

Staff's Brief and to include any estimates of expenses in providing cost of

service studies. The IOSPs filed their Joint IOSP Proposal to Commission

Staff Regarding Data to be Provided on March 6, 2008 advocating a rate

cap proposal based upon a nationwide benchmarking of IOSP rates. Staff

and the IOSPs enqaqed in intermittent discussions regarding whether

Staff and the IOSPs could agree to a form of cost study for the purposes

of supporting current IOSP rates, considering that these cost studies may

also be useful in possibly setting price caps in a later rulemaking

proceeding. In particular, the parties proposed cost studies along the lines

of the table and associated explanatory information contained on pages

11 - 12 of the August 21, 2000 Direct Testimony of Dr. Richard Cabe,

Ph.D. filed on behalf of Gateway Technologies, Inc. in Case No. 3317.

Due to similarities between Dr. Cabe's testimony and the cost information

originally requested by Staff in its December 21, 2007 motion, Staff

believed that approach, with some modifications proposed by Staff, would

be useful. By August 25, 2008, all IOSPs filed confidential cost

information, and Staff followed with its second set of interrogatories served

on October 2, 2008.

and to respond to the IOSPs'

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Did Staff find the! responses of the IOSPs adequate to provide a basis

to determine whether the rates charged by the IOSPs are just and

reasonable?

The IOSP-providl3d cost information lacked sufficient organization and

detail to determine whether the currently tariffed IOSP rates, some of

which may vary by facility, are justified by the costs of service. This may

at least in part be due to the fragmented nature of the market. Moreover,

the IOSPs have stated they do not use traditional cost of service

methodology to set rates or record expenses and revenues.

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What is the status of the contract for the provision of inmate
telephone services between PCS and NMCD?

The expiration date of the contract between PCS and NMCD has already

been reached. However, inmate telephone services continue to be

provided at NMCD institutions by PCS in accordance with the terms and

conditions of the expired contract under an emergency extension

agreement between PCS and NMCD.

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How is NMCD addressing the future provision of inmate telephone
service at its facilities?

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PRIEPARED DIRECT TESTIMONY OF
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Case No. 07-00316-UT

The

State

New

Mexico

(General

Services

Department,

State

Purchasing Division) has an issued a Request for Proposals (State RFP)

dated July 25, 2008 to select a provider of inmate telephone service at 6

NMCD managed and operated correctional facilities. The RFP can be

accessed

http://www.generalservices.state.nm.us/spd/rfp903610001086.html(last

accessed on 1/16/2009). This RFP process is nearing a conclusion.

Based on the sequence of 14 steps outlined on page 6 of the State RFP,

the process is currently in step 12 - "Finalize Contract". The State is

currently in discussion with a potential IOSP to produce a final contract.

Should the State and the potential IOSP reach an agreement, the contract

will be publicly awarded (step 13). The final step (14) provides for a 14-

day period to allow other IOSPs to protest the award. The State RFP calls

for a contract with zero cost to the State and it expressly states that the

State will "not accept any commission from the automated inmate

telephone system."

the

internet

the

following

link:

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Do you know what will be the inmate telephone rates in the new
contract to provide this service in NMCD facilities?

No. The inmate telephone rates that will prevail under the new contract at
NMCD facilities will not be disclosed until the contract is publicly awarded.

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Case No. 07-00316-UT

At the time of the award, the rates proposed in the awarded contract as

well as the rates proposed by other IOSPs will become publicly available.

telephone rates iin its evaluation of offers from IOSPs?

What weight does the State of New Mexico RFP give to inmate

On a 1000-point scale, the weight given to "rates and other charges" is

250 points. The next most significant factor, with 200 points, is the IOSPs'

"oral presentation and demonstration."

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How important is the ultimate award of a new contract by the State of

New Mexico to this case and to the evaluation of existing inmate

telephone rates?

In the context of this case, it is difficult to overstate the importance of the

new inmate telephone rates that will prevail in NMCD institutions as a

result of a new contract. This is the first public bidding process for a new

contract for inmate telephone service at NMCD operated institutions that

appears to be reaching a conclusion since the passage of HB 133. HB

133 provides that "a contract to provide inmates with access to

telecommunications services ... shall be negotiated and awarded to an

entity that. .. provides the lowest cost of service to inmates" and that such a

contract "shall not include a commission or other payment. ..based upon

PUBLIC VERSJ'ON - CONFIDENTIAL MATERIAL REDACTED
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John J. Reynolds
Case No. 07-00316-UT

amounts billed by the telecommunications provider for telephone calls

made by inmates." The outcome of the State RFP will therefore publicly

reveal market-based inmate telephone rates which result from a

competitive bidding process where inmate telephone rates are the single

most important factor in the award of the contract and where the host

institution refuses to accept any commission payments from the provider.

One of the bimlest challenges in evaluating the panoply of inmate

telephone rates in New Mexico (or any other state) is the wide range of

timing and conditions of existing contracts with state and local correctional

institutions. Whill3 the costs (not including the cost of commission

payments) incurred by IOSPs at different facilities may be different due to

conditions specific to the facility or because they were imposed by the

contract specific to a facility, there are enough similarities in the nature of

the service provided to assess the value of essentially similar services by

comparing market-based rates. To this end, the rates that will prevail from

the new contract awarded by the State of New Mexico will provide a useful

benchmark to evaluate all other inmate telephone rates prevailing in New

Mexico.

Another important: factor is the high visibility of the contract award by an

agency of the State of New Mexico. Since the State of New Mexico has

jurisdiction over a significant portion of all state and county inmates

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Case No. 07-00316-UT

housed in New Mexico, the process and the ultimate result should provide

an example and a resource for local governments to follow in negotiating

new contracts or renegotiating existing contacts with IOSPs.

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5

Before comparing rates between state and local institutions in New

Mexico, what about comparing inmate telephone rates at NMCD

institutions with statewide rates elsewhere?

I believe that is a valid comparison as statewide rates are almost always

the result of a highly visible and highly competitive public bidding process.

However, it is first very important to classify the states based on the

existence or absence of commissions paid by IOSPs to the contracting

state agency.

the resulting inmate telephone rates as it is the telephone revenue

generated by inmates and their friends & families that provide the

resources necessary to pay the commission. I believe the information I am

about to provide will bear that out.

ThE~

payment of commissions has an unarguable impact on

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What have you been able to find out about the inmate telephone

market in states other than New Mexico and whether these other

states accept commission payments?

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PRIEPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

The research I have been doing in preparation for this testimony has led

me to a clear premise that the large majority of states (40+) do not

disallow payments of commissions by IOSPs to the states. It has also

become clear to me that, where states do not disallow the payment of

commissions, the payments of commissions do occur. That appears to

have been the standard practice within the industry as the provision of

inmate telephone! service has become widespread. Note that, for my

research on this market in other states, I am focusing on corrections

agencies or departments at the state level and not at the local level. Due

to time limitations, my focus has been on finding states that disallow the

payment of commissions and states that awarded contracts relatively

recently so that telephone rates reflect improvements in technology and

current competitive market conditions.

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15

16
17

Which states di:sallow the payment of commissions by IOSPs and

what are the rates prevailing in those states?
A.

New Mexico was one of the first to pass a law (HB 133) that disallows the

payment of commissions by IOSPs to the contracting party. Nebraska is

another state that has not allowed such commissions for a long time. As

stated earlier in my testimony, New York, Rhode Island, and Missouri

have more recently disallowed the payment of commissions. Prior to the

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Case No. 07-00316-UT

Governor's

prohibition

in early

commissions from its IOSP at the rate of 57.5% of gross billed inmate

telephone revenue, the highest prevailing commission rate by a statewide

agency. The NY Department of Corrections re-negotiated its inmate

telephone rates with its existing provider in April 2007 and the inmate

telephone rates were reduced by more than half. In 2008, New York

awarded a new contact to a new provider (Unisys) at rates reportedly

lower than the current rates but I have been so far unable to ascertain

those rates. However, the RFP for this for this latest contract award states

that the evaluation process will allocate 70% of the total evaluation score

to the bidder with the lowest per minute inmate telephone rate. The RFP

therefore makes clear that the telephone rate paid by inmates is by far the

largest single factor in the award process. In 2007, a new law was passed

in Rhode Island prohibiting the payment of commissions from IOSPs. Also

in 2007, a new IOSP contract was awarded by the state for inmate

telephone service, Missouri also recently prohibited IOSP commission

payments and awarded a new contract to provide inmate telephone

service. Followinq is a summary of the cost to an inmate in those 3 states

for a 15-minute Gall prepaid with the purchase of a calling card at the

institution's commissary as well as the current cost for the same call at

NMCD institutions:

2007,

New York

was

collecting

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Case No. 07-00316-UT
1
NY

Local

$2.30

$0.63

$1.50

$1.80

Intrastate LD

$2.30

$0.63

$1.59

$3.60

Interstate LD

N/A

$5.22

N/A

2
3
4

5
6

Why are you comparing rates only for 15-minute prepaid inmate
calls?

IOSPs currently offer 3 ways to make and complete a telephone call in

most institutions: collect, prepaid collect, and prepaid inmate. All other

things being equal, my research indicates that collect calls are the most

expensive while prepaid inmate calls are the least expensive. Correctional

institutions generally limit the duration of a single phone call to 15-20

minutes. Time of day is become less and less relevant in the pricing of

phone calls by inmates. To the extent contracted rates vary by the time of

day, I will be referring to the lowest evening/week-end rates. In light of the

above information, I have chosen to establish a proxy call for the purpose

of benchmarking rates in my testimony. The proxy call is prepaid by the

inmate and lasts '15 minutes. If relevant to the existing rates, the proxy call

takes place durinq evening and week-end hours.

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Case No. 07-00316-UT

1
2

What states did you find that do not disallow the payment of

commissions bY' IOSPs and what are the prevailing inmate telephone

rates in those states?

I have examined inmate telephone rates prevailing in Colorado, Kansas,

Maine, Nevada, and Texas. All of the rates prevailing in the institutions

managed by state corrections agencies in these states are the result of

relatively recent contract awards or updates. Colorado deregulated the

inmate telephone, business in 2003 and the Public Utilities Commission

has no jurisdiction over the providers of inmate telephone service. The

rate information I have for Colorado was updated in 2008. I was unable to

find out the rate of commissions paid by IOSPs to the State of Colorado.

Kansas awarded a new contract for IOSP services to Embarq in 2008.

The new contract calls for commissions to be paid at a rate of 41% of

telephone revenue and it also calls for a minimum annual commission

payment of just over $1 million. Inmate telephone rates in Maine were

updated in 2007. I was unable to determine the rate of commissions paid

back to the State of Maine. In 2008, Nevada awarded a new contract to

Embarq for the provision of inmate phone service. This contract calls for

ongoing commission payments from Embarq at the rate of 54%. The prior

contract had a commission rate of 52%. Finally, Texas, which has one of

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Case No. 07-00316-UT

the largest inmate populations in the country, awarded a new contract to

Embarq to establish and provide inmate telephone service. Texas was the

last of 50 states to provide readily available phone service to its inmates.

The contract with Embarq calls for a commission payment back to the

State of Texas at a rate of 40%.

Following are the rates for the proxy call described above that prevail at

the state correctional institutions in the 5 states above which do not

disallow the payment of commissions back to the state:

9
,

Local

$3.20

$1.96

$4.50

$1.45

$3.45

Intrastate LD

$3.20

$6.12

$4.50

$2.73

$3.45

Interstate LD

$3.95

$5.78

$4.50

$16.10

$5.85

10
11

Based on the rates you found that prevail in states that disallow

commission payments and rates in states that do not disallow

commission payments, what conclusions do you draw about the

impact of commissions?

16
17

In my view, the rate data outlined above and illustrated in the
accompanying

clharts

clearly

suggests that

commission

payments

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1

constitute a major portion of IOSP costs where such commissions are

payable and that rates paid by inmates and friends & families of inmates

are effectively inflated by the amount of the commission the IOSP is

paying. The cheapest local proxy call in the zero commission states is

57% less than the cheapest such call in commission states I have

examined. For local calls, there are some states where commissions are

paid where the local rate is slightly lower than New York's rate for a local

call, the highest local rate of any state where commissions are not paid.

Given that many state correctional institutions are located in relatively

remote areas of the state, it is reasonable to assume that most intrastate

inmate phone activity is long distance (instead of local). A comparison of

intrastate long distance even more clearly supports my view in that the

cheapest intrastate long distance proxy call in commission paying states is

more expensive than the most expensive equivalent call in zero

commission states.

reductions negotiated by the NY Department of Corrections in early 2007

without any chanqe in provider. In that case, there were no other changes

to the provision of inmate telephone service other than a reduction of

commission payments from 57.5% to 0% and a concomitant reduction in

rates. The same impact of commissions on rates is also illustrated by the

renegotiation of rates at NMCD operated institutions following the passage

This is further supported by the inmate phone rate

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Case No. 07-00316-UT

of HB 133 without any change in IOSP or equipment provided by the

IOSP.

What conclusions do you draw about the reasonableness of rates

currently paid by inmates or friends & families of inmates housed in

NMCD correctional institutions?

My approach to evaluating the reasonableness of inmate phone rates paid

by inmates or friends & families of inmates housed in NMCD institutions is

to compare the rates with those prevailing in other state correctional

institutions where the payment of commissions is prohibited. This is

important because as I contended earlier the existence of commission has

a major impact on the cost of providing inmate telephone and thus the

rates that prevail under those conditions. A comparison of inmate

telephone rates at an institution where commissions are paid by the IOSP

at a rate I am unable to ascertain with telephone rates at an institution

where no commissions are paid would be an "apples and oranges"

comparison. To that end, I have attempted to equalize the commission

factor when making comparisons to make the comparison as valid as

possible. Clearly, there are factors other than the payment of commissions

that may influence the comparison but my view is that the commission

factor stands far above all others.

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Case No. 07-00316-UT
1

The cost of a local proxy call as defined above from an NMCD institution is

slightly lower than for the equivalent call in New York but is 20% and

186% higher than the same call in Missouri and

respectively. The cost of an intrastate long distance proxy call from an

NMCD institution is higher than the cost of the same call in any of the

three other states: 65% higher than New York, 140% higher than Missouri,

and 471 % higher than Rhode Island. Further, it is also 46% higher than

the cost to the IOSP of an equivalent interstate call from a "marginal"

correctional facility as put forth by The Wood Report, a cost study dated

Rhode Island

August 15, 2008 that was funded by the inmate telephone industry.

Another perspective is the relative difference between local and intrastate

long distance proxy calls in each of the four states in my review that do not

allow the payment of commissions. In New York, Rhode Island and

Missouri, there is no difference between the cost of local and intrastate

long distance proxy calls. In New Mexico, the cost of an intrastate long

distance proxy calli is exactly double the cost of a local proxy call.

In my view, the comparisons outlined above show that the cost of a local

call from NMCD operated institutions is not significantly different from the

cost of the same call in states that are comparable to New Mexico. The

cost of an intrastate long distance call from NMCD operated institutions is

disproportionately higher than the cost of similar calls in other states

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Case No. 07-00316-UT

comparable to Nl3W Mexico and is also disproportionately high in relation

to the cost of a local call. Therefore, staff believes that the cost intrastate

long distance calls from NMCD institutions are not just and reasonable.

4
5

Turning to both state and county facilities in New Mexico, what are

the rates paid by inmates and their friends & families for telephone

calls from those institutions?

In the universe I defined earlier testimony, there are 10 correctional

institutions under state jurisdiction and the other 31 institutions are under

county jurisdiction. All of these institutions offer inmates the ability to make

collect calls. I could not find the rate information for facilities #37 and #40

(See Exhibit JJR-1) as the existing IOSPs (DSI and ICC) at these 2

institutions are not party to this case and thus did not provide the

information. Based on the information available to me, only. of the 41

institutions allow inmates to purchase prepaid calling cards and to make

telephone calls such calling cards. •

calling cards to inmates. I was unable to ascertain whether facility #5

offers prepaid calling cards. For facilities #37 and #40, I was unable to

verify the existence of prepaid calling card rates for the same reason

outlined above concerning collect call rates. Please see Exhibit JJR-2 filed

institutions do not offer prepaid

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Case No. 07-00316-UT

with the confidential version of my testimony for a listing of rates and

payment methods.

The cost of 15-milnute collect call at 39 of the 41 institutions ranges from

$0.50 to $3.83 for a local call and from $2.00 to $6.00 for an intrastate

long distance callI. See Exhibits JJR-3 and JJR-4 for a distribution of

collect call rates.

The cost of 15-minute prepaid inmate call at 24 of the 41 institutions

where this service is available ranges from $1.25 to $7.50 for a local call

and from $1.50 to $8.50 for an intrastate long distance call. See Exhibits

10
11

JJR-5 and JJR-6 for a distribution of prepaid inmate call rates.
Q

12
13

Does it appear that the IOSPs have adjusted their rates since the
passage of HB 133?

Earlier in my testimony, I reviewed how PCS, the IOSP to NMCD operated

institutions, reneqotiated inmate telephone in the middle of its contract

period in 2001 as HB 133 became effective. The renegotiated rates led to

the updated tariff filed by PCS in June 2001. With the negotiation of new

contracts and with the amendment and renewal of existing contracts

between IOSPs and New Mexico facility operators, the cost of a 15-min

collect call at most facilities is now the same or very near to what it was

based on the rates renegotiated in 2001 between NMCD and PCS. Since

2001, however, new contracts have been awarded which indicates that a

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Case No. 07·00316·UT

disparity exists between prevailing inmate phone rates at various

institutions. My previous reply along with exhibits JJR-3 through JJR-6

illustrates such a disparity. Also, the growth of prepaid inmate calling since

then is providinq an additional choice for inmates but similar rate

disparities exist with prepaid inmate rates. A review of the existing IOSP

contracts and thl3 continuing existence of rate disparities within New

Mexico suggest that the elimination of commission payments mandated by

HB 133 is resulting in rate benefits to inmates and their friends & families

only in isolated cases across the state. One would anticipate, given a

competitive market for contracts without the incentive for revenue

payments to the institutions, that contract and therefore tariffed rates may

be reduced somewhere in the magnitude of the revenue based payments

originally paid by the IOSPs to the inmate facilities as dictated by the prior

HB 133 contracts. The upcoming award of a new contract resulting from

the State of New Mexico RFP mentioned earlier should give us a clear

indication of competitive rates where revenue sharing is not a factor. We

already have indications of such competitive rates in other states where

inmate phone revenue is not shared in any way. Recently in New Mexico,

a handful of counties have awarded new contracts for inmate telephone

service where revenue sharing is minor or nonexistent factor. In late 2007,

Evercom filed an update to its tariff for a facility identified by Evercom as

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Case No. 07-00316-UT
1

"Location 2" where a 15-minute local call costs $0.50 while the same

'1
s:

intrastate long distance costs $2,00. The same call at many other

.,,..,

institutions is 3 or 4 times more expensive. The disparity is even wider for

prepaid inmate rates. The prepaid inmate rate at the facility identified as

"Location 2" by Evercom is now $0.1O/minute for all calls within the United

States. A similar 15-minute prepaid inmate call from many other facilities

today costs 5 times more.

8
9

10
11

What, in your opinion, explains the disparity of prevailing inmate
telephone rates in New Mexico since the passage of HB 133?

NMCD and a small number of counties have recently awarded or are

about to award contracts that do not call for sharing of inmate phone

revenue in any way. Revenue sharing is still widely accepted as standard

practice in the IOSP industry across the country and so far only new law

or a governor's decision has led to states or counties foregoing the

sharing of inmate telephone revenue. It is therefore reasonable to assume

that the absence of revenue sharing in such awarded contracts in New

Mexico is a direct consequence of the passage of HB 133. While the

existence of HB 133 suggests that commission payments to facility

operators based on inmate phone revenue have been mostly eliminated,

sharing of revenue in other ways continues to take place in most county

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Case No. 07-00316-UT
1

institutions. My analysis of inmate telephone contracts signed since

6/15/2001 and associated contract rates indicates that revenue sharing

continues to take! place. A small number of contracts signed since the

passage of HB 133 include the payment of commissions based inmate

phone revenue. It appears that almost all of the inmate facility contracts

have replaced simple commission based payments by laSps to the

inmate facilities with revenue sharing (e.g.

prior negotiated

commission payments, which does not, possibly depending upon how the

language in HB 133 is read, mean such revenue sharing is in violation of

the law by negotiating it into the newly negotiated contracts. Under

conditions that existed prior to HB 133, laSps and state and county facility

operators all shared inmate telephone revenues through a payment of a

simple commission payment from the IOSP to the facility. In the case of

NMCD operated institutions, the commission rate was 48.25% of phone

revenues. Therefore, the disparity among pre-HB 133 rates was not

among inmate phone rates but between inmate phone rates generally and

rates paid by the public outside correctional institutions. The existence of

HB 133 has led some counties to forego any revenue sharing with laSps

while most other counties have opted to continue sharing inmate phone

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Case No. 07-00316-UT

revenue with IOSPs but in ways other than simple straightforward

commissions. To the extent facility operators continue to seek sharing

such revenue sharing results in the inflation in inmate phone rates

necessary to cover the sharing of revenue. The differing approaches of

facility operators which choose to seek or reject sharing of revenue results

in a wider and more apparent disparity of inmate telephone rates.

7
8

match the IOSPs filed rates with the Commission?

Do the rates contracted by the IOSPs with correctional institutions

Inmate telephone rates are not consistently spelled out in contracts

between IOSPs and correctional institutions. Most contracts simply refer to

the tariffed rates filed with the Commission that will apply to inmates in the

particular institution. A small number of contracts refer to rates that appear

to be the result of negotiation and thus differ from the standard tariffed

rates. Where rates for certain institutions depart from the standard tariffed

rates, IOSPs genl3rally submit revisions to the tariff or notices of deviations

from the tariff for specific locations only. In these revisions or notices of

deviation, IOSPs either identify the facility where the revised rate applies

or the identification of the facility is withheld, e.g. the facility is referred to

as "Location 1" or "Location 2". IOSPs do not submit any contract

information to support the revisions or notices of deviation but rather

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Case No. 07-00316-UT

assert a prerogative to deviate from tariffed rates as long as the

contracted rates Clre filed with the Commission.

My review of the rates that prevail at 41 state and county institutions in

New Mexico indicates that inmate telephone rates at the lion's share of

these institutions match the tariffs on file with the Commission. Where

some rates depart from the tariff, those rates are always lower that the

standard tariffed rates. The distribution of inmate telephone rates charted

in my Exhibit JJR.-3 through JJR-6 illustrates how the cost of phone calls

from institutions is very similar at most of them but that significantly lower

rates exist at a small number of institutions.

11
12

Are there other fees being charged to inmates and their friends &

families that increase the cost of a phone call beyond rates reviewed

so far in your testimony?

As mentioned earlier, there are 3 payment methods inmates can choose

from prior to initiating a phone call from a institution: (1) collect where the

call recipient is billed on the recipient's LEC bill after accepting the call, (2)

prepaid collect where the call recipient can set up an account with the

IOSP or its billing agent and prepay for subsequent collect calls, and (3)

prepaid inmate where the inmate can purchase calling cards at the

institution's commissary. Each method of payment entails additional fees

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Case No. 07-00316-UT
that increase the cost of a call beyond the stated tariffed for the call.
2

These additional fees are spelled out in the IOSPs' filed tariffs.

For collect calls, the billed party is subject to a billing cost recovery of

$2.49 for each month that a collect call charge appears on the recipient's

local telephone bill.

For prepaid collect accounts, the parties setting up such accounts are

subject to a fee of $6.95 for processing credit card payments or check

payments by phone. Returned check fees vary from $15.00 to $25.00.

Refunds of unused balances on prepaid collect accounts are subject to a

processing fee of $15.00 by 2 IOSPs. I was unable to ascertain from the

other tariffs on fil,e how the other IOSPs address requests for refunds of

unused account balances.

For prepaid inmate calls, tariffs filed indicate that 2 IOSPs collect a service

charge of $1.00 per completed intraLATA or interLATA telephone call. It

appears that this service charge is not included in the rate information

provided by the IOSPs for the facilities they serve. The rates highlighted

earlier in testimony were based on the rates by the IOSPs and thus

presumably do not include this service charge. As this service charge is

part of a number of prepaid inmate rate options listed in the tariff of 2

IOSPs, it is not clear to me whether it is currently being assessed. Unused

balances on prepaid inmate calling cards are not refundable according of

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Case No. 07-00316-UT
2 IOSPs. I was unable to determine any analogous refund policy for the

other IOSPs from their filed tariffs.

The various fees and charges outlined above are the focus of a separate

case currently before the Commission (Case No. 07-00442-UT).

5
6

Did the passage of HB 133 ensure that non-telecommunications

related costs were not included in the terms of the contracts between

IOSPs and state or county correctional facilities after June 15, 2001?

No. My review of the contracts between IOSPs and certain facility

operators executed after this date indicates that other non-commission

costs to be paid by IOSPs were negotiated in to the contracts between the

IOSPs who won those contracts and the institutional operators who

awarded those contracts. For example, the Albuquerque Journal reported

on January 9, 2002 about the award to PCS at that time of a contract to

provide inmate telephone service at Bernalillo County's Metropolitan

Detention Center (See my Exhibit JJR-7 for a copy of this article). In this

case, it was reported that the inmate telephone rates offered by PCS were

higher than the rates offered by two competing IOSPs (Owest and Sprint).

However, PCS included in its offer the provision of "$925,000 in cabling

and wiring." A dissenting Bernalillo County Commissioner was at that time

concerned that this could be considered a payment and thus a violation of

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Case No. 07-00316-UT

HB 133. Other County Commissioners who supported the award to PCS

said that the lower telephone rates offered by competing IOSPs "had not

yet been approved by the Public Regulation Commission" and that their

review of the legality of the agreement led them to conclude it did not

conflict with HB 133. The award of the Bernalillo contract to PCS shows

that facility operators continue to benefit from inflated inmate telephone

rates. The IOSP providing the lowest inmate telephone rates was not

selected. In this case, Bernalillo County received cabling and wiring

services from PCS with a value of $925,000 for the Metropolitan Detention

Center which was under construction at the time the contract was

awarded. While the passage of HB 133 resulted in the gradual phasing

out of commission payments based on a simple percentage of inmate

telephone revenue, the award of the Bernalillo contract illustrates how

other methods were subsequently developed to channel in-kind value

back to the institutional operators based on inflated inmate telephone

rates. PCS contributed $925,000 in cabling and wiring during the

construction of the institution thus presumably reducing the county's

construction expenditures by an equal amount.

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Case No. 07-00316-UT
Q.

Is your perspective of the inmate telephone contract between

Bernalillo County and PCS supported by the actual contract that was

provided by PCS as part of the record of this case?

6
7
8
9
10
11
12
13

14
15

16
17
18
19

The county chose to award the

IOSP contract which included $925,000 of cabling and wiring services,

financed by shared telephone revenue from inmates and their friends &

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families, instead of another contract which provided for lower inmate
telephone rates offered by competing IOSPs at that time.

3
4

Please provide another example of the forms of revenue sharing that

take place as a result of contracts between facility operators and

IOSPs signed since the effective date of HB 133?

8
9

10
11
12
13

15
16

17
18
19

20
21

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1
2
3
4
5

6
7
8
9
10
11

12
13
14
15

16
17
18

19
20
21

the market for inmate telephone service in

New Mexico

competitive?

In order to answer this question, one must be clear about defining the
market and the providers and customers who are part of this market as

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Case No. 07-00316-UT

well as the impact of any competition. What is clearly stated in the
2

agreements to provide inmate telephone is the identity of the two parties:

the IOSPs named throughout this testimony and the operators of the

correctional facilities, e.g. state, county or private operators. Rather than a

market to provide telephone service, this is more accurately described as

a market to host an automated telephone system with security features in

a detention facility with captive users and payors of the system. In this

market where IOSPs and operators strike an agreement to host a

telephone system there is nothing to suggest an absence of competition.

In as much as there is a public bidding process where an ample number of

IOSPs have the opportunity to compete by submitting independent bids to

provide inmate telephone service, Staff submits there is ample competitive

pressure for IOSPs to control cost, improve technology and take any

further measures to minimize the cost of providing telephone service while

meeting the needs of the facility and maximize the odds of securing future

agreements to provide this service. Staff finds that IOSPs do not appear to

be profiting from any apparent predatory pricing of inmate telephone

service. In this context, the IOSPs and the public or private facility

operators are engaging in rational behavior to maximize their welfare.

There is another differently defined market for inmate telephone service

where the existence of competition is not evident. This is the market

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Case No. 07-00316-UT

where the IOSPs. are the providers and the inmates or the friends &

families of inmates are the customers. Put another way, this is a market

for non-optional operator assisted telephone service. Unlike the operators

of the institution (in the market defined earlier, the customers) who can

choose among competing IOSPs, inmates face only one choice: use the

service provided at the terms and conditions agreed to between the IOSP

and the operator or not use the service. Unlike the average landline

telephone customer who can choose a provider for local service and long

distance service, inmates can only use the provider at the institution that

was selected by the operator. Unlike the person in the street who can

choose from a wide array of calling cards to make use a public payphone

or who can make, a collect call in an emergency, inmates may have the

ability to buy or not to buy a calling card from a single provider and must

use operator services provided by the IOSP to complete any call whether

it is an emergency or not. Only to the extent the operator of the institution

acts as a proxy for the inmates while negotiating an agreement with an

IOSP can inmates benefit from competition. While there appear to be

additional security related costs to provide inmate telephone, the current

disparity between rates prevailing throughout New Mexico indicates that

the benefits of competition are still not trickling down evenly to the inmates

or their friends &: families. Given the range of rates reviewed by Staff,

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Case No. 07-00316-UT

there is no evidence to suggest that the cost of differing security

requirements or other physical circumstances at particular institutions are

,.,

anywhere sufficient to justify the disparity in rates. While the cost of a 15-

min collect long distance phone call is $6 at many institutions, the cost for

the same call from one institution is only $2. Such a wide pricing disparity

in the market where IOSPs are the providers and inmates and their friends

& families are the customers suggests an absence of effective

competition. If inmates were free to move between institutions to take

advantage of lower telephone rates, inmates would move to those

institutions where lower rates prevail. Institutions with higher rates would

react by lowerinq rates to keep from losing inmates or to attract new

inmates. Eventually, most institutions would have roughly equal phone

rates in order to maintain their inmate customer base. Clearly, this does

not and cannot happen thus the absence of competition in this market.

Competition manifests itself not in declining rates by inmates and their

friends & families but rather in increasing the share of tariff-based inmate

phone revenue that benefits the partnership consisting of the IOSPs and

the public or private facility operators.

19
20
21

Please describe the impact of HB 133 in shaping the current market
for inmate telephone services.

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Case No. 07-00316-UT

The disparity among inmate telephone rates within New Mexico appears

to have grown since the passage of HB 133. The state and a small

number of counties have removed revenue sharing as a factor in the

award of new contracts since the effective date of HB 133. Some new

contracts are being awarded primarily on the basis of telephone rates paid

by inmates and their families & friends. For these facilities, this has led to

a dramatic reduction in rates. Most counties in New Mexico continue to

seek to benefit from a share of inmate telephone revenue. This has been

demonstrated by choices counties have made among competing IOSP

offers such as the one made by Bernalillo County in 2002. To meet the

demand for revenue sharing from most counties, IOSP have been

competing for contracts with counties by offering increasing shares of

inmate phone revenue thus leading to a partnership between IOSPs and

counties. In this partnership, the gross revenue is a function of the tariff on

file with the Commission and competition drives the IOSPs to minimize its

telecommunications costs and therefore maximize the remaining revenue

shared with the counties. Counties are active participants in the inmate

telephone business seldom as advocates for the reduction of inmate

telephone rates but most often as direct beneficiaries of revenue streams

resulting from tariff-based revenue. As technology improves and drives

down the cost of telecommunications, this leaves more tariff-based

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PREPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

revenue to be shared in imaginative ways that differ from simple
commissions or payments.

Since many counties are effectively active participants in the inmate

telephone business in spite of the passage of HB 133, would it not be

preferable for the counties to be party to this case?

The absence of the counties from this case is a significant impediment to

the even-handed inquiry this case calls for. While my view is that most

counties seek to continue reaping the benefits of the inmate phone

business and that IOSPs do their best to meet the needs of these counties

in competing for contract awards, there may be a compelling public

interest case to be made by counties for continued sharing of inmate

phone revenue. To the extent that the goal of my analysis is to provide a

quantitative benchmark to evaluate the justness and reasonableness of

rates paid by inmates and their friends & families, I am not attempting to

accept or reject a public interest argument. However, the dichotomy

evident in how different counties approach the same set of circumstances

by either rejecting or seeking revenue sharing indicates that a public

interest consensus on this matter may be difficult to reach.

PUBLIC VERSJ'ON - CONFIDENTIAL MATERIAL REDACTED
PREPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

How can the commlsslcn address the existing disparity in inmate

telephone rates so that rates reflect only the fixed cost of the secure

telephone system and the variable telecommunications costs but not

the revenue sharing sought by many public or private correctional

facility operators?

Staff urges the Commission to consider as a matter of public policy the

need to insure that inmate telecommunications services are made

available by the IOSPs at the lowest reasonable rates in keeping with the

underlying purpose and intent of HB 133 and the unique needs of the

inmate population within the State of New Mexico. See also the American

Bar Association Recommendation dated August 2005 - Exhibit JJR-8.

The existence of tariffs where rates for collect calls initiated by inmates in

correctional institutions have not changed since the middle of 2001 has

led

telecommunications costs that prevailed in 2001 thus generally depriving

inmates from the benefits of a declining cost industry. Tariffs have

expanded with the addition of new payment methods such as prepaid

collect accounts and prepaid calling cards. There are benefits to be had

from the prepayment of phone calls by inmates or their friends & families,

e.g. phone rates are cheaper and IOSPs reduce if not eliminate credit or

bad debt costs. On the other hand, prepayment methods lead to a

the

leqitirnization

tariff-based

revenues

based

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PR~EPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

propensity by IOSPs to charge processing fees for payment methodology
2

and refunds of unused balances as well as service charges for call

completions. Furthermore, the widespread discounting of prepaid calling

cards is another method of revenue sharing with an ultimate impact that is

identical to commission payments that are prohibited under HB 133.

Staffs recommendation to the Commission to achieve just and reasonable

pricing of inmate telephone calls that is devoid of inflation to support

revenue sharing is threefold:

9
10
11

1) Simplify current tariffs by setting a flat per minute charge regardless
of mileage and time of day. No per call charges should be allowed.

2) Set a new flat per minute rate that is commensurate with current

market-driven rates for similar inmate telephone services at

correctional institutions in New Mexico and other states where such

institutions do not accept any form of commissions or revenue

sharing.

3) Any new contracts related to the provision of inmate telephone

service and the revenue generated by such service awarded by

public or private correctional facility operators to IOSPs should be

submitted to the Commission for review.

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PREPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

The simplification of the rates in the tariffs filed by the IOSPs would

provide sorely needed transparency to inmates, friends & families of

inmates, facility operators, and regulators. Such flat rate pricing also

mimics simplified pricing of retail telephone service available to the

general public. Existing tariffs on file with the Commission still contain

antiquated rates Ibased on time of day and mileage bands. One IOSP

currently operatinq in New Mexico has not updated its tariff since 1996. A

flat per minute rate is easier to understand and to grasp. It is easier for

facility operators to explain to inmates and their families & friends. It is

more consistent with the public expectation of the retail pricing of a

telephone call. It is less prone to unexpected charges to lead to disputes

that are burdensome in so many ways. Regulators are also provided with

a simpler yardstick to assess the rates charged by IOSPs. Current IOSP

tariffs are replete with unnecessarily complicated rates and they lie

dormant for years until inequities and disparities become glaring enough

to lead to a case such as this one.

There is small but significant trend toward the simplification of inmate

telephone rates in New Mexico and other states as a few public facility

operators reject any form of revenue sharing and at the same time a

simple flat per minute rate for inmate telephone calls. The facility identified

PUBLIC VERSfON - CONFIDENTIAL MATERIAL REDACTED
PR.EPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

by Evercom as "L.ocation 2" in a tariff update dated November 9, 2007 has
2

a simple set of rates with no time of day considerations:
Collect Surch

Collect per min

Prepaid Surch

Prepaid per min

Local

$0.50

None

$0.10

Long Distance

$0.50

$.010

None

$0.10

All collect calls at this facility served by Evercom incur a surcharge of

$0.50 with a per minute charge of $0.10 for long distance calls only. All

prepaid calls cost $0.10 per minute. The rate for prepaid inmate calls from

institutions operated by the Missouri Department of Corrections is also a

flat $0.10 per minute regardless of distance or time of day. In its

outstanding RFP for an inmate telephone system, the State of New York

requests that the rate "shall be a single per minute rate inclusive of all

fees, taxes, connect charges, and other costs for all calls within the

continental United States, its territories and protectorates, and Canada.

The rate shall be a single blended rate for pre-paid and collect calls." In

light of the numerous benefits of simplification and the feasibility of simple

rates as demonstrated above, it behooves the Commission that inmate

telephone rates be stated in the tariffs filed by IOSPs as flat per minute

rates only for collect calls and for prepaid calls with no consideration for

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PREPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT
1

distance, time of day, day of week and with no additional per call

surcharges of any kind.

Staff recommends that inmate telephone rates be significantly reduced to

reflect market-driven rates that prevail in publicly or privately operated

correctional facilities that reject any form of revenue sharing with the IOSP

and to minimize the current disparity among facilities and between local

and long distance rates. It is clear to staff that gross inmate telephone

revenues based on the current tariffs far exceed the fixed costs necessary

to provide inmate telephone service. In my earlier review of inmate

telephone rates in New Mexico and elsewhere, the data in question

suggests a clear correlation between the rate charged at a correctional

institution and the extent of revenue sharing taking place at that institution.

In New Mexico, there is clear disparity between 34 institutions who are

revenue sharing partners of the IOSPs where a 15-minute local collect call

costs 4 times more than the same call at a single institution that chooses

not to accept any share of inmate phone revenue. A 15-minute long

distance call costs 3 times more at 22 institutions and 80% more at 13

institutions that the same at the single institution that does not share in the

revenue stream. There is no other plausible explanation to justify these

disparities in New Mexico than the widespread

arrangements between public and private facility operators and IOSPs that

revenue

sharing

PUBLIC VERSION - CONFIDENTIAL MATERIAL REDACTED
PR.EPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

still prevail in spite of HB 133's prohibition of commissions and payments
2

based on phone revenues. The objectives achieved by these revenue

sharing arrangements are the same as those of commissions and

payments prohibited by HB 133. This results in the inflation of inmate

phone rates to support revenue sharing thereby conflicting with the HB

133 mandate to provide service at the lowest possible cost to inmate and

their friends & families.

Staff recommends that new flat telephone rate of $0.10 per minute for all

intrastate calls originating from an inmate under state, county or local

jurisdiction within a publicly or privately operated correctional facility in

New Mexico. Any proposed per call surcharge is to be submitted to the

Commission for review with cost or competitive market driven information

to support such 81 per call surcharge. This rate is currently being charged

at a facility in New Mexico and Staff sees no reason short of revenue

sharing why the same rate cannot apply across New Mexico. Further,

Staff reserves the right to review its recommended flat rate of $0.10 per

minute for all intrastate calls upon the upcoming public award of a new

contract for inmate telephone service by the State of New Mexico. This

new contract is expected to establish a new up-to-date competitive

benchmark for inmate telephone rates in New Mexico that excludes any

revenue sharing factor. The review by Staff may result in a new

PUBLIC VERSlON - CONFIDENTIAL MATERIAL REDACTED
PREPARED DIRECT TESTIMONY OF
John J. Reynolds
Case No. 07-00316-UT

recommended inmate telephone rate to replace the one recommended

above.

Finally, Staff recommends that alllOSPs operating in New Mexico provide

the Commission for the public record: (1) all existing contracts for the

provisions of inmate telephone service with public or private facility

operators of correctional facilities in New Mexico, (2) any amendments

and renewals of existing contracts as described above, and (3) any new

contracts for the provision of inmate telephone service in these same

facilities. Only by providing such contracts can the Commission make a

complete evaluation of prevailing inmate telephone rates. Rates listed in

the IOSP tariffs on file with the Commission only serve to establish a

revenue derived from inmate telephone usage but provide no indication as

to what portion, if any, of that revenue is shared with the operators of the

correctional facilities. Only these contracts can provide the information to

either support telecommunications costs incurred by the IOSP or reveal

the depth of the revenue sharing partnership between the IOSP and the

public or private correctional facility operator.

No. 'I
Name
,Acr~ Location Avg POPL nftlonel.. Operator Jurisdiction I ' IOSP
Biller Comm i ~
Contac~~xpiry
1 Central New Mexico Correctional Facility
!CNMCF [Los Lunas
1,305 T555-865-1622NMCDState
I
!
I
2 [Guadalupe County Correctional£a~~ly~_IGCCF··. :~llta.~~a599:575-:47~1Q01GEo"·-']State~L
·~.T-~'---:T,
3 [Lea County Correctional Facility. .
<LCCF
.Hobbs
1,263 i575-392-4055GEOState
.. ~. __ .
... _.1.
4 ~NewMexico WOll1.e_n's.forre~i9n.aIFj3cifitY:_iNMWC~~"i"lnts_ ..
58~r5i5:287-2941ic9An
,§tate
.. ~.
~
5 [Northeast New Mexico Detention Facility
:NENMDF,Clayton
:
625,575-374-4005 :GEO
,State
i , "
I
6 [Penitentiary of New-Mexico
!PNMSanta Fe
791 :505-827-8205 NM~State
I
!
I
!
"(TRoswell Correctional Center
" ' - ' - - iRCC
Roswell
r
334 1575-625-3100 NMCD iState' . - ~. - - _ _ ! _ _ ! . . __
--+-----1
.BlSouthern NM Correctional Facili!Y
iSNMCF__T~ Cruces1 <135 ~575-523-3200 NM~D-=-=- §.la te -~.
.
!
I
9 [Springer Correctional Center
,SCC
ISpringer_.! .... 2~'.?75~3-31~0-tNMCD l§tC3!e
.. :.
L _ _ .L____
.i-.---f-.
10 ;Western NM Correctional Facility..
,WNMCF jGrants -----t- 409 ,575-876-8300 ~MCD---+.State . . .L_._L_
__ ..'
i
I'.

.J.__

-j-_

1-----,--

...L

-=t -:

~ ~ ~:;~:~illill~O~~~~%~i26Prf~~~n~-T~~~'S-gf~}~~~-=~~j~~~~~{~~:I'~~70 .~~~~~r;~~;~~-~c:r~eli"-+~~~n~ +.-----..~ .~- - -------ll-'---~I

i: i~~~~:~~~~~~~~~~:~~:~'

iCibola County Correctional Center

l=i~f,~t-=t-=::J~~!~m~::~-~:::r=-r-=nr--r::=f~=::l=-.-----r=----I-..
,----- ,50.§-285-4900 :CCA
Fed-'-'
I
-.-- ---~
'575-445-3691 !
._._.lC()l!r1.tx __
J _.J.
:Clovis
Ij ,'575-763-1490
,
[County
.. . - --- --Ft Sumner'
22 575-355-7870 County
County
,
ILas Cruces,
800 . 57S=i347=7600iCarlsbacr'-r',575-887-7556 :
County
.---.-._-_.....- '-,

17
18
19
20

'Curry County Jail
'De Saca County Detention Center
'Dona Ana County Detention Center
Eddy County Adult [)eten-tlon Facility

lR,aton
r

--------------r---------r-------

-. -

- - -

.j n.L~~I'v'er~i!r_L_.__-t575-534-3803County ICounty
:~~~~~~u~~~no~nty . . ---. ---·---r~::sGa~j~~::ed~~~~~%:~:~~ties:---m+-._---- ICounty
22 IHidalgo County Detention Center" ---.T--=- .Kordst>lJi}L_'. ... ~5?~~?42-8828 lSheriff_bnty

r :J~~E~~~l_-'0$t~::Y
.
g;:g&~i:~~:
ICO""~

Uses

1
I

[

.... -c

. T

---

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._-'..

'
.

=:- j-.----=-

_.n_
:
I
: :

-+---_'._
-i----.i. ______.+.
i_ ..
~__

_..L

_'.~.1 .--.-.-..-.--..1

JJR; 1/23/2009; 3:58 PM
IOSP_Info; Facilities

---+-

[Rio Arriba C()unty D~t~l1tion..s:_Emter
:T A
... t ' . _ _ ~7_?-588-7350 County
County
I
Roosevelt Countt. AdLJltDet~ntionC~n~er
IPortales
_
575-356-6871_ C?LJntyn (CoU.ntL_
San Juan County_A.9ultDetenti()n~E!.n~er
.
: ~~lTlin.glCJ.n._L_ ..6.25 505-566~04 County _[CoLJn_!}'._
,San Miguel County Correctional Center_I. .....
~La~"'ega.s_J
505-454-7403 County
iCounty
!Sandoval County Detention Center
__ ISCD~_-iB_ernalillo.1
505-8.s2-~~~ County_ c.lJul1t}'.
IS~nta Fe County Cor~ections Department
.Santa Fe
I
500 ;505-428-3100 ICounty .[County
,T or C
I
. . 575-894-2537 I County
;County
I
,Sierra County Detention Center
r
!Socorro County...
..
Socorro .---;--uf575-835-0945 l.fcounty_·
jTaos County Adult Detention Center
Tao's
1575-737-6410 [Sheriff
:County
I
I Torrance County Detention Center
·····--Estancia1575-384-5184icCA
I State, Cnty !
1Union County
See Northeast Facility above
:575-374-9800 I
1 CountY
i
40 Valencia County Detention Center-Los-Lun'as1
:SO-S-565='S90-6 ICountyCounty
:Ote~o C()unty Prison Facility ..
._:ChC1parralj-E>75-~2~-i884j~=fc·
~Fed
41 'Camino Nuevo Correctional Center
Albuoueroue
1505-347-7000 ICCAState
30
31
32
33
34
35
36
37
38
39

I
,

+-_._1 __
- L~ 1 .--.--+
f
•

L.. _

.__'

[Lea County Detention ~cility
ILo~ngto.!'=1
260 1575-396-8694 Icounty
lCounty
;Lincoln County Detention Center
1
[Carrizozo I
144 1575-648-6510 [Cornell [County
1Los Alamos County. .o~le!l1t~nFacility
I
Ll:.0s Alam.?~l
1.2...j 505-662-8279 I PD
I County
! Luna County DetentionCenter____ ~I-.. .
_L[)emin.g__ .l._2T~!575::5±1~Q!~1jS;CJ~!1.ty_ Counttn.
505 726
P_ J
27 IMcKinley County AdU.ltD.ete.ntion.ce'te'__
IGaIlU
__ 34.0 1 - -8474
Ico,..nty
..

__I __._1.

---T--

;: !~;:g~~~~ ~=~:~~ g:~::;

COlJntY-'County,nn

21 Grant County Jail

23
24
25
26

---~

. - -'!Milan"

16 ,Colfax County Detention Center

!--1 --J-J--- 1--1--.

I.. -

---. '.
l.
. _

,-----.1---I
:
.. !
-+

-l
,--.---I

H'"

_J._

•

Exhibit JJR-1

Page 1 of2

N0'1. . _ _ . Name
,Claytown Town Jail.
.
- i'~s~;a~nola Oet.entiori~e~~r-~~~~

'. Acronym I

Location

! . !Clayton.

~ _

I Avo POPi
'..
. . i

TEspano,a--t---~----L-

,pcs ~pringer Boys School
iRuidoso City PO
!San JlJanCountv OWl

JJR; 1/23/2009; 3:58 PM
IOSP_Info; Facilities

Operator JUriSdiction-,..

+-- --"
---,.------_.----r--

--r--[Sprinqsr
i
i Ruidoso'
iAztec
n

IOS£l__ i Biller !. Comm I . Verify?'-l Contact
~ --r--!
.

Exp~!1

---l-------t-------- --1---------r--i---r---- - -----i - i ·
. . . .
.
-------t ---- -T--------~--1 --+-----1----+-t-

:~~~~~;~bty~~~~~~gton!

1·----·--

Phone

Exhibit JJR-1

-t-.--._.---t--------,-... - - - , - - - - - i '
i

Page 2 of 2

No.
1

Site

Contract As of Tariff as of

1
1

2
2
3
3

3
3
4
4

5
5

6
6
6
6
7
7

7
7
8
8
8
8
9
9
9
9
10
10
10
10

11
11

12
12
13
13

14
14
15
15
16
16

17
17
18
18
19
19
20

20
21
21

22
22
23
23
24
JJR; 1/23/2009; 3:57 PM
IOSP_Info: NoNameNMper15minCail

Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Prepaid
Collect
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Prepaid
Collect
Prepaid
Collect
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Prepaid
Collect
Prepaid
Collect
Collect
Prepaid
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid

Inmate
Inmate
Inmate
Inmate
Inmate
Inmate
Inmate
Inmate

Inmate
Inmate
Inmate
Inmate
Inmate
Inmate
Inmate
Inmate
Inmate
Inmate
Inmate
Inmate
Inmate .

Inmate
Inmate
Inmate
Inmate
Inmate

Exhibit JJR-2

Page 1 of 2

No.

Site

Contract As of Tariff as 0

••

40
40

Collect
Prepaid
Collect
Collect
Prepaid
Prepaid
Collect
Collect
Prepaid
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Collect
Prepaid
Collect
Prepaid
Prepaid
Collect
Collect
Prepaid
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Prepaid
Collect
Collect
Prepaid

Prepaid Inmate

Collect
Collect
Prepaid Inmate
Collect
Prepaid Inmate

25
25
26

26
26

27
27
27
27

28
28
29
29

30
30
31
31
32

32
32
32

33
33
34
34
35
35

36
36
37
37

38
39
39

41
41

JJR; 1/23/2009; 3:57 PM
IOSP_Info; NoNameNMper15minCail

Inmate

Inmate
Inmate

Inmate
Inmate
Inmate
Inmate
Inmate
Inmate

Inmate
Inmate
Inmate

Inmate
Inmate
Inmate
Inmate
Inmate
Inmate

Inmate

Exhibit JJR-2

Page 2 of 2

Distribution of Inmate Phone Rates
(_ State and County Institutions in NM)
/'
.///

0/
+oJ

:::J

t)/

.. /

.-//

---------.--

$0.50-0.99

$1.00-1.49

$1.50-1.99

r,- - - -

$2.00-2.49

Rate for is-Min Local Call- Collect

ibit jJR 3

$2.50-2.99

Distribution of Inmate Phone Rates
(_ State and County Institutions in NM)
/~-----------------------------------------------------------.///

(/)

oC /,,/",/

::l

.;:;
(/)

c
4-

o. //
o

-:
/'
/

$2.00-2,49

-----------

- - - - - - - - - - - -

$2.50-2.99

$3.00-3.49

//'

- -------

$3.50-3.99

$4.00-4.49

$4.50-4.99

$5.00-5.49

Rate for 15-Min Intrastate LD Call- Collect

Exhih

J.lR 4

$5.50-5.99

,
i

$6.00-6.49

Distribution of Inmate Phone Rates
(_ State and County Institutions in NM)

II)

o
.+-'

::J

+-'

t;; //
C

o. /
o
z
/

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_._----_.._ ._,-

-==::====:: =====;=====;-r:====:;:=~~=::;=~~==;:~~==:;:~;~-~~~~-~:~;--i
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t>,OJ
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t>,OJ
sy'\ °

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Distribution of Inmate Phone Rates
(_ State and County Institutions in NM)
//

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a
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Rate for 1S-Min Intrastate LD Call- Prepaid Inmate

Exhibit 1Jf\ 6

t;:f'b

9J<-j

County OKs Contract for Inmate Phone Calls. (09-JAN-02) Albuquer...

http://www.accessmylibrary.comlcomsite5/bin/aml_landing_tt.pl?pu...

County OKs Contract for Inmate Phone Calls.(Final)
Source :_..Albuquerque Journal (Albuquerque, NM)
Publication Date: 09-JAN-02
Byline: Dan McKay Journal Staff Writer
Bernalillo County commissioners on Tuesday approved the last major contract needed for the new West
Side jail.
County officials also said the lockup won't be finished until April, not March as planned.
The eight-year contract approved Tuesday calls for Public Communication Services, a California-based
company, to install and operate a system to handle inmate telephone calls at the Metropolitan Detention
Center.
The commission voted 3-1 in favor of the contract, with Ken Sanchez in dissent. Steve Gallegos was
excused.
As part of the agreement, Public Communication Services is to provide about $925,000 in cabling and
wiring. The company will get revenue from inmate telephone calls.
Sanchez raised several concerns about the agreement. He said other vendors interested in the contract
Qwest and Sprint offered a cheaper rate for inmates' local collect calls.
He also said a bill passed by the Legislature last year says a contract to provide inmates with telephone
service cannot include a commission or other payment to a jail operator based on amounts billed by the
provider for inmates' calls. He said the $925,000 in wiring could be considered a payment.
Responding to Sanchez, other county officials said the rates offered by competing companies had not yet
been approved by the Public Regulation Commission. County administrators also said they reviewed the
legality of the agreement and determined it doesn't conflict with the bill passed by the Legislature.
"No one's rights were diminished in any way by moving forward," Commission Chairman Tim Cummins
said after the meeting. He said there is a process for other companies to file protests if they want to.
Earlier Tuesday, County Manager Juan Vigil said construction of the new jail will be finished in April. The
completion date has been pushed back several times already.
"Several factors have postponed the original opening date," Vigil said in a written statement. "We have
not been able to test systems due to the lack of water and some supplies have not come in on time."
County action
In other action Tuesday, comrnlssioners:

* Chose Tim Cummins as board chairman. Cummins, a Republican, is serving his first term as
commissioner. His district includes the Northeast Heights.
The chairman presides at meetings and appoints committee members.

* Approved an $811,000 contract with Construction, Contracting and Management Inc. to improve the Rio
Bravo and Broadway SE intersection.
The project:, which is federally funded, includes adding right-turn lanes in all four directions and other
improvements. Construction is expected to start this month.
PHOTO: b/w
CUMMINS: Selected County Commission chairman

lof2

11/24/2008 3:34 PM

AMERICAN BAR ASSOCIATION
CRIMINAL JUSTICE SECTION

REPORT TO THE HOUSE OF DELEGATES
RECOMMENDATION

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RESOLVED, That the American Bar Association encourages federal, state, territorial and
local governments, consistent with sound correctional management, law enforcement and
national security principles, to afford prison and jail inmates reasonable opportunity to maintain
telephonic communication with the free community, and to offer telephone services in the
correctional setting with an appropriate range of options at the lowest possible rates.

REPORT
Telecommunications services are integral to human interaction in today's society.
Accessing these services is especially important to people who are incarcerated, separated from
family, friends and legal counsel by the fact of incarceration. Telephone access is particularly
important for the significant percentage of the incarcerated population with limited literacy
skills. I
Leaders in the corrections profession have long recognized the importance of extending
telephone privileges to people in their custody as a means of fostering and strengthening ties
with their families and their communities? Telephone access can be a critical component of a
prisoner's successful transition to a productive, law-abiding life after leaving prison? It can also
contribute to safer prisons by reducing the number of disciplinary incidents." At the same time,
we recognize that the desire to provide robust communications services to prisoners remains in
tension with legitimate penological constraints of the correctional setting.'
Although recognizing the importance of providing expansive telephone privileges, many
correctional systems engage in practices that make it difficult, if not impossible, for incarcerated
people to use the telephone. First, many correctional facilities only permit prisoners to make

Approximately 40% of the national prison population is functionally illiterate. The Center on Crime,
Communities & Culture, Education as Crime Prevention: Providing Education to Prisoners, Research Brief:
Occasional Paper Series 2 (Sept. 1997).

See, e.g., the October 1996 Resolution on Excessive Phone Tarriffs adopted by the American Correctional
Association (ACA); ACA's Public Correctional Policy on Inmate/Juvenile Offender Access to Telephone (adopted
24 January 2001); and ACA's related standards (Standards for Adult Correctional Institutions (3Td ed); Standards
for Adult Local Detention Facilities (3 rd ed); Standards for Adult Community Residential Facilities (4'h ed);
Standards for Adult Correctional Boot Camp Programs (lSI ed.); Standards for Juvenile Community Residential
Facilities (3rd ed); Standards for Juvenile Detention Facilities (3rd ed); Standards for Juvenile Correctional Boot
Camp Programs (1" ed.); Standards for Juvenile Training Schools (3rd ed.); Standards for Small Juvenile Detention
Facilities (lSI ed.); and Small Jail Facilities (lSI ed.)). See also, the National Sheriffs' Association Resolution of 14
June 1995; and USDOJ-BOP, Program Statement 5264.06, Telephone Regulations/or Inmates (Jan. 31,2002).
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See, e.g., U.S. Department of Justice, Office of the Inspector General, Criminal Calls: A Review of the
Bureau of Prisons' Management of Inmate Telephone Privileges, Ch. II, n.6 (Aug. 1999), available at
http://www.usdoj.gov/oig/special/9908/c:allsp2.htm (last accessed 30 January 2005)(''te1ephone usage and other
contacts with family contribute to inmate morale, better staff-inmate interactions, and more connection to the
community, which in tum has made them less likely to return to prison ....") and State of Louisiana Department of
Public Safety and Corrections, Time in Prison: The Adult Institutions, p.5 (2004).
Bureau of Prisons Program Statement 5264.07, "Telephone Regulations for Inmates," codified at 28 C.F.R
§ 540.100 ("Telephone privileges are a supplemental means of maintaining community and family ties that will
contribute to an inmate's personal development. ... Contact with the public is a valuable tool in the overall
correctional process."); State of Louisiana Department of Public Safety and Corrections, Time in Prison: The Adult
Institutions, p. 5 (2004), available at h!!Id/www.corrections.state.la.uslWhats%20NEw/PDFs/TimeInPrison.pdf.
The "correctional setting" refers to facilities where people are detained or incarcerated, irrespective of their
actual status as pretrial, civilly committed, adjudicated, or sentenced. Thus, the Recommendation encompasses jails
and other detention facilities, prisons, training schools, residential facilities, and correctional facilities of all types.

collect calls. Second, charges for prisoner-initiated telephone calls are high as compared to rates
offered in the residential and business markets and, in some cases, excessive." In some
jurisdictions, escalating prices appear to be driven by "commissions" paid by service providers to
correctional facilities for exclusive contracts, which hover in the 30% to 40% range, and can be
as high as 65%, of all revenue generated. Third, many correctional systems require telephone
service providers to block calls from prisoners to certain prohibited phone numbers for reasons
of public safety and crime prevention. Some institutions, however, impose call-blocking
requirements for inappropriate reasons, including a local carrier's failure to enter into a billing
agreement with the provider, or because the number called is a cell phone or is a remote call
forwarding number. In the case of calls placed to cell phones, many telephone service
subscribers are opting for cellular service instead of the more conventional land-line connection.
Remote call forwarding is a technology that has been employed by some telephone service
providers to compete for business by re-directing calls to customers at costs lower than would
otherwise apply. In an age of increasing mobility, it will often be possible to reconcile legitimate
security concerns with new technologies. Fourth, many prison systems and jails place
unreasonable limits on the number of calls a prisoner is allowed to make or receive, or the
aggregate amount oftime a prisoner can spend on the telephone during a prescribed period.i
Finally, correctional institutions monitor and record inmate telephone calls routinely, but policies
that permit monitoring client-attorney communications in the correctional setting or that
unreasonably limit the availability of permissible unmonitored calls threaten fundamental rights
regarding the effective assistance of counsel and access to the courts." Such policies are
presumptively unconstitutional."

"[C]orrectional agencies should discourage profiteering on tarriffs placed on phone calls which are far in
excess of the actual cost of the call, and which could discourage or hinder family or community contacts." ACA's
October 1996 Resolution on Excessive Phone Tarriffs.
In Texas prisons, inmate access to telephones is quite limited. "Offenders who demonstrate good behavior
can eam one 5-minute collect phone cal'l every 90 days...." Texas Department of Criminal Justice, Correctional
Institutions Divisions, Frequently Asked Questions (http://www.tdcLstate.tx.us/faq/faq-cid.htm#telephone)(last

accessed 16 January 2005).
By comparison, the Federal Bureau of Prisons (BOP) policy is generous. BOP Program Statement 5264.07
entitled, "Telephone Regulations for Inmates," which was codified at 28 C.F.R § 540.100 et seq., states that inmates
are generally permitted privileges to contact up to a maximum 000 individuals on an approved telephone list for up
to 300 minutes per month. P.S. 5264.07, §§ lO.a. (30 numbers), and lO.d.(I)(300 minutes). Although advocating
that then-unlimited telephone access be restricted, the Office of the Inspector General found the 300-minute
limitation to be "arbitrary." Criminal Calls, supra n. 3, Ch, VIII, § I. ~ 1. (Aug. 1999), available at:
htto://www.usdoLgov/oig/special/9908/callsp7.htm#Punishments (last accessed 30 January 2005). Indeed, for
several consecutive years, the BOP has permitted inmates 400 minutes of telephone access during the months of
November and December.
The U.S. Attorney General signed a directive on 31 October 2001 authorizing correctional officials to
monitor inmate-client/attorney communications under certain circumstances. AG Order No. 2529-2001,66 FR
55062. That directive was subsequently codified at 28 C.F.R. 501.3 (31 Oct. 200 I).

See infra, n. 14.

As the billed parties for inmate collect calls, the family and friends of incarcerated people
regularly shoulder the high cost of prison telephone services. A call recipient is often confronted
with a choice of paying exorbitant rates for a collect call from a jail or prison, or refusing it.
Many families cannot afford the inflated rates. 1O One damaging result is that children are
frequently unable to maintain contact with parents who are confined. Arbitrarily blocked calls
only exacerbate the situation.
Individually and collectively, the foregoing practices also make it more difficult for
incarcerated people to communicate with their lawyers. Telephone calls are an efficient means
for attorneys to communicate with incarcerated clients, particularly when literacy or Englishspeaking skills are a factor. It is regularly less burdensome for an attorney to speak with a client
over the telephone than to travel to the facility and conduct a meeting or personal interview. The
high cost of prisoner phone calls makes it difficult or impossible for many prisoners' lawyers to
accept their calls. The vast majority of incarcerated people are represented by public defenders
or court-appointed attorneys who operate with extremely limited budgets. I I This has serious
implications given the constitutional protections surrounding a prisoner's ability to communicate
with counsel.l/ When attorneys are able to accept prisoner calls, the high cost of the calls cuts
into the attorneys' budgets, making it difficult for them to afford other items necessary to their
clients' defense.
Correctional administrators struggle with the perennial problem of stretching limited
financial resources to meet institutional needs. The lure of telecommunications contracts that
promise a return of as much as 65% of all revenue can appear irresistible in the absence of
alternative sources of revenue. But entering into such an arrangement creates an ethical
quagmire of both real and perceived conflicts which compromise both the professional integrity
of correctional officials and the public's perception. Given the penological and societal benefits
that occur when incarcerated people are able to maintain contact with the outside world, the
monetary advantages are not worth the human costs. 13
See, e.g., In the Matter of Implementation ofPay Telephone Reclassification and Compensation Provisions
ofthe Telecommunications Act of 1996, Comments ofthe Ad Hoc Coalitionfor the Right to Communicate Regarding
Petition for Rulemaking or, in the Alternative, Petition to Address Referral1ssues in Pending Rulemaking, and
accompanying declarations, FCC Docket No. 96-128 (filed 10 March 2004).
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According to the U.S. Department of Justice, 82% of felony defendants in state cases in the 75 largest
counties in the country in 1996, and 66% of felony defendants in federal cases in 1998 were represented by courtappointed attorneys. Department of Justice, Bureau of Justice Statistics, Defense Counsel in Criminal Cases, Nov. 2000.
Both public defenders and other court-appointed counsel are paid by the same governments (state and federal) whose
monies are used to fund the correctional systems from which inmate telephone calls originate. Given the current fiscal
crisis in governments at all levels, exorbitant rates for inmate-generated telephone calls seem particularly pernicious.

Compare Alabama v. Shelton" 535 U.S. 654 (2002) and Gideon v. Wainwright, 372 U.S. 335 (1963)
(indigent's constitutional right to counsel in criminal cases) with Lewis v. Casey, 518 U.S. 343 (1996) and Bounds v.
Smith, 430 U.S. 817 (1977)(prisoners' right of access to the courts with regard to certain civil and post-conviction
matters).
J]

The Nebraska Department of Correctional Services does not accept commissions on inmate telephone
charges. Instead, rates are set by the Nebraska Public Service Commission. Nebraska Department of Correctional
Services, Frequently Asked Questions, available at:
http://www.corrections.state.ne.us/freqUt~nt_questions/telephone-index.html (last accessed 30 January 2005).

Although some courts have recognized the constitutional problems inherent in
correctional policies that make it imreossible for prisoners to contact lawyers and others," neither
the courts" nor regulatory agencies 6 have yet required correctional authorities to abandon solesource contracts and open the prison environment to competition that could result in a broader
range of calling options at the lowest possible rates.
The resolution encourages federal, state, territorial and local governments to ensure that
incarcerated people are afforded a reasonable opportunity to maintain telephonic communication
with family and friends in the fi'ee community, consistent with the imperatives of correctional
management, law enforcement and national security. While the resolution does not go further to
specify particular measures correctional authorities must take to ensure the "reasonable

14
Courts have long recognized that the ability to communicate privately with an attorney by telephone is
essential to the exercise of the constitU1tional rights to counsel and to access to the courts. Murphy v. Waller, 51
F.3d 714, 718 & n.7 (7th Cir. 1995)("Restrictions on a detainee's telephone privileges that prevented him from
contacting his attorney violate the Sixth Amendment right to counsel... . In certain limited circumstances,
unreasonable restrictions on a detainees access to a telephone may also violate the Fourteenth Amendment.");
Tucker v. Randall, 948 F.2d 388, 390-91 (7th Cir. 1991)(denying a pre-trial detainee telephone access to his lawyer
for four days would implicate the Sixth Amendment); Johnson-E/ v. Schoemeh/, 878 F.2d 1043, 1051 (8th
Cir. I989)(holding that inmates' challenge to restrictions on the number and time of telephone calls stated a claim for
violation of their rights to counsel); Miller v. Carlson, 401 F. Supp. 835 (M.D. Fla. 1975), ajJ'd & modified on other
grounds, 563 F.2d 741 (5th Cir, 1977)(gr.mting a permanent injunction precluding the monitoring and denial of inmates'
telephone calls to their attorneys). See also Dana Beyerle, Making Telephone Calls From Jail Can Be Costly, Times
Montgomery Bureau (Sept. 22, 2002)(Etowah, Alabama county jail under court order to provide phones to people
incarcerated in the jail based in part on complaints they could not talk to lawyers). They have accordingly held that,
when prisons' collect call-only policies interfere with the ability of incarcerated people to communicate with their
lawyers, they may violate these rights. See, e.g., Lynch v. Leis, Docket No. C-I-00-274 (S.D. Ohio Feb. 19,
2002)(holding that where public defender's office and many private attorneys refused most collect calls, a prison's
collect call-only policy was unconstitutional)(unpublished decision on file with the Brennan Center); In re Ron
Grimes, 208 Cal. App. 3d 1175, 1178 (1989)(holding that switch by Humboldt County (California) Jail from coin
operated to collect-only calls violated the constitutional rights of people incarcerated there because the public
defender's office, other county departments, and some private attorneys did not accept collect calls).
IS

See, e.g., Arsberry v. Illinois, 244 F.3d 558 (7th Cir. 2000). Illinois granted one phone company the
exclusive right to provide telephone services to inmates in return for 50 percent of the revenues generated. Prisoners
and members of their families challenged the practice as a violation of their free speech rights, as a discriminatory
denial of equal protection of the laws, and as a violation of federal anti-trust laws. In the Arsberry case, the United
States Court of Appeals for the Seventh Circuit concluded that the practice did not violate the constitution or any
federal law. See, also, Daleure v. Kentucky, 119 F. Supp. 2d 683 (WD. Kentucky 2000)(The court found
defendants' actions did not violate the Constitution); Miranda v, Michigan, 141 F. Supp. 2d 747 (E.D. Mich.
2001)(Plaintiff's Federal Telecommunications Act claims fell within the primary jurisdiction of the Federal
Communications Commission and were dismissed).
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See, e.g., In the Matter of Wright Petition for Rulemaking or, in the Alternative, Petition to Address
Referral Issues in Pending Ru/emaking, CC Docket 96-128 (Federal Communications Commission)(decision
pending); In re: Petition of Outside Connection, Inc., DA 03-874 (Federal Communications Commission);
Voluntary Remand of Inmate Telephone Services Issues. CC Docket No. 96-128 (Federal Communications
Commission); and North Carolina Utilities Commission, Docket No. P-100, Sub 84; Docket No. P-55, Sub 1005;
and Docket No. P-100, Sub 126, These cases were matters in which prisoner advocates filed briefs, appeared at oral
argument, and engaged in discussions with commission personnel, all without success.

opportunity" that is urged, there are a number of basic steps that have been identified as
deserving of serious consideration. First, correctional authorities should encourage service
providers to offer a broad range of calling options, consistent with sound correctional practices.
Toll-free calling, debit calling, and collect calling are options that offer different advantages at
varying costs. To the extent that existing technology does not permit full access to toll-free
numbers for security reasons, correctional authorities should work proactively with telephone
service providers to develop and refine technology that extends security features to toll-free calls.
Although correctional authorities must be mindful of security concerns when determining what
calling options to offer, some telecommunications experts and numerous correctional systems
have found that alternatives to collect call-only policies - such as the debit-calling option
presently in place in a significant number of facilities - can satisfy legitimate security concerns.V
Second, telephone services in the correctional setting should be offered at the lowest
possible rates. A wide range of calling options and fair competition in the marketplace will help
control excessive costs. Non-exclusive contracts, contracts with multiple vendors, the provision
of debit cards through multiple vendors, and unrestricted vendor access to correctional telephone
networks are all measures that promote fair competition which will lead to reasonably priced
telephone services for prisoners and their families. Greater oversight of the terms and conditions
-- particularly the site commissions - of service contracts will enable service providers to lower
their cost of service and pass those savings on to consumers.
Third, telephone service contracts should expressly forbid call-blocking for any reason
other than legitimate law enforcement and national security concerns, requests initiated by the
customer, or failure to pay legitimately invoiced charges.
Finally, if correctional authorities conclude that limits must be placed on the number of calls a
prisoner makes, or on the aggregate amount of telephone time allotted a prisoner in a given
period, those limits should be as flexible and generous as possible in light ofthe many benefits of
maintaining ties between incarcerated people, their families, and their communities.
Respectfully submitted,

Catherine Anderson
Chair, Criminal Justice Section
August 2005

See In the Matter of Wright Petition for Rulemaking or, in the Alternative, Petition to Address Referral
Issues in Pending Rulemaking, FCC Docket 96-128, Affidavit of Douglas Dawson. The federal Bureau of Prisons
pennits prisoners to place calls using debit cards, demonstrating that collect call-only policies are not necessary to
maintain prison security. See U.S. Department of Justice, Federal Bureau of Prisons, Memorandum For All
Institution Controllers All Trust Fund Supervisors, from Michael A, Atwood, Chief, Trust Fund Branch, Trust Fund
Message Number 18-02 (Feb. 8, 2002) at 2.

GENERAL INFORMATION FORM
1. Summary of Recommendation. encourages federal, state, territorial and local governments,
consistent with the constraints of sound correctional management, law enforcement and
national security principles, to afford prison and jail inmates every reasonable opportunity to
maintain telephonic communication with the free community, and to offer telephone services
in the correctional setting with an appropriate range of options at the lowest possible rates.

The proposed resolution encourages federal, state, territorial and local governments to
afford incarcerated people every reasonable opportunity to maintain telephonic
communication with the free community consistent with the constraints of sound
correctional management principles, and to offer the broadest possible range of telephone
services in the correctional setting at the lowest possible rates.

Approved by Submitting Entity.
This recommendation was approved by the Criminal Justice Section Council at its May 1415,2005 meeting.

Similar Recommendations Submitted Previously.
This recommendation has not previously been submitted to the House of Delegates or the
Board of Governors.

Relevant Existing ABA Policies and Affect on These Policies. None.

Urgency Requiring Action at this Meeting. The proposed resolution has been the subject
of deliberation and discussion among a broad range of people with diverse interests. Drafts
of the proposed resolution have been widely circulated, and based upon comments
received, the proposed resolution has been repeatedly revised and refined. As it is
presently worded, the proposed resolution has been approved by the Corrections and
Sentencing Committee of the Criminal Justice Section and is ready for consideration by the
Board of Governors and the House of Delegates.

Status of Congressional Le:gislation (If applicable). None.

Cost to the Association. None.

Disclosure of Interest (If Applicable).
No known conflict of interest exists.

Referrals.
Concurrently with submission of this report to the ABA Policy Administration Office for
calendaring on the August 2005 House of Delegates agenda, it is being circulated to the
following:
Sections, Divisions and Forums:
All Sections and Divisions

10. Contact Person (Prior to 2005 Annual Meeting).
Margaret Love, Esq.
Law Office of Margaret Love
1100 Park Street, N.E.
Washington, D.C. 20002
Phone: (202) 547-0453
E-Mail: margaretlove@pardonlaw.com

Michael S. Hamden, Esq.
NC Prisoner Legal Services Inc.
1110 Wake Forest Road
Raleigh, NC 27604
Phone: (919)856-2200
E-Mail: mhamden@ncpls.org

11. Contact Persons (Who will present the report to the House).
Neal R. Sonnett
Law Offices of Neal R. Son nett
One Biscayne Tower
Two South Biscayne Blvd. Suite 2
Miami, Florida 33131
Phone: (305) 358-2000
FAX: (305) 358-1233
E-Mail: nsonnett@sonnett.com

Stephen Saltz burg
George Washington University
School of Law
720 20 th Street, NW - Room B-303F
Washington, DC
20006
Phone: (202) 994-7089
FAX: (202) 994-7143
E-Mail: ssaltz@main.nlc.gwu.edu

BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION

IN THE MATTER OF A COMMISSION INQUIRY
INTO THE RATES AND CHARGES OF
INSTITUTIONAL OPERATOR SERVICE PROVIDERS

)
)
)Case No. 07 -00316-UT

AFFIDAVIT OF JOHN J. REYNOLDS
STATE OF NEW MEXICO
COUNTY OF SANTA FIE

)
)ss.
)

I, John J. Reynolds, de» hereby swear, depose and state as follows:
I hereby attest that I have read the foregoing Prepared Direct Testimony of
John J. Reynolds, and the statements contained therein are true and accurate
to the best of my knowledge and information.

~\~
SUBSCRIBED AND SWORN to before me this

2009.
M)' c()mmis~/~ / ~
Expires: ~ = ;

23- day of January,

BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION

IN THE MATTER OF A COMMISSION INQUIRY
INTO THE RATES AND CHARGES OF
INSTITUTIONAL OPERATOR SERVICE PROVIDERS

)
)
)

Case No. 07-00316-UT

-------------------)
~~ERTIFICATE OF

SERVICE

I HEREBY CERTIFY that a true and correct copy of the foregoing Prepared
Direct Testimony of John J. Reynolds, issued January 23, 2009, was forwarded on
this date to the New Mexico Public Regulation Commission's offices at the PERA
Building, 1120 Paseo De Peralta, Santa Fe, NM 87501, for mailing to each of the
following:
Monique Byrnes, Consultant
2600 Maitland Center Parkway, Ste 300
Maitland, FL 32751

Curtis L. Hopfinger
Evercom Systems, Inc. And T-Netix
14651 Dallas Pkwy, 6th Floor
Dallas, TX 75240

Conversant Technologies, Inc.
John Provanchik
Post Office Box 865081
Plano, TX 75075-6615

..
Dennis J. Reinhold
T-Netix Telecommunications Services, !/}C.
F/k1a Gateway Techonologies, Inc.
,.
14651 Dallas Parkway, Suite 600
G ..
Dallas, TX 75254

Patricia Salazar Ives
Cuddy & McCarthy, LLP
1701 Old Pecos Trail
Post Office Box 4160
Santa Fe, NM 87502-4160

Robin Norton
Technologies Management, Inc.
Post Office Drawer 200
Winter Park, FL 32790-0200

Dorothy E. Cukier, Director
Corporate Counsel - Regulatory Affairs
Global Tel*Link Corporation
12021 Sunset Hills Road, Suite 100
Reston, VA 20190

Steve Asher, Esq.
301 E. Berger Street
Santa Fe, NM 87505-2613

Alison Maker
General Counsel
Public Communications Services, Inc.
11859 Wilshire Blvd., - Suite 600
Los Angeles, CA 90025

Tommie Joe, President
Public Communications Services, Inc.
11859 Wilshire Blvd., Suite 600
Los Angeles, CA 90025

Ken Dawson/Peter Bustons
Inmate Calling Solutions, LLC
d/b/a JC Solutions
5883 Rue Ferrari
San Jose, CA 95138

Stephanie A. Joyce
Womble, Carlyle, Sandridge & Rice
1401 Eye Street, NW - i h Floor
Washington, DC 20005

Jeffrey H. Albright, Esq.
Lewis and Roca, LLP
201 Third Street, NW - Suite 1950
Albuquerque, NM 87102

and hand-delivered to:
Cydney Beadles, Esq.
NM Public Regulation Commission
224 East Palace Avenue
Santa Fe, NM 87501
DATED this 23rd day of January, 2009.

fmena S. Apodaca,

'-_. __ .~

Certificate of Service
Utility Case No. 07-00316-UT

legal