The Legal Underpinnings Of The Prison Phone Call Debate

You may well have read about the Federal Communications Commission’s vote last August to cap rates for interstate phone calls placed by prison inmates. Understandably, most of the coverage of this controversy has focused upon what the FCC did, rather than the legal underpinnings of its actions. This post will address some of those legal questions.

The legal questions are significant, because the FCC’s decision was promptly appealed. In January, the U.S. Court of Appeals for the District of Columbia issued a partial stay, which indicates that there may be merit to the appeal.

At the outset, it is important to stress that the FCC’s action was limited to interstate calls. At the same time that it acted on interstate calls, the FCC solicited comment on the different, and somewhat more difficult, question of whether it can extend its action to intrastate calls.

Prisoners, their families and their attorneys were paying as much as $17 for a 15 minute call, in addition to extra “ancillary” fees to set up, maintain or close an account. (Prison calls are, of course, coinless; calls must be collect or, more commonly, be made through a prepaid debit card account.) These charges, imposed on the most vulnerable people in society, have counterproductively restricted prisoner/family relations, with adverse impact on recidivism and crime rates. (More details are here.)

The most pernicious aspect of the prison call scheme is that in most states and localities, the prison phone companies pay a percentage of their revenues (in the form of “site commissions”) to the prisons, the cost of which have been passed on to the prisoners and their families. This creates a perverse incentive for the providers to compete for contracts by raising, rather than lowering rates. Under the FCC’s new rules, the cost of these kickbacks may not be passed on. Instead, the FCC says, they are a form of profit sharing, which the phone companies may not assess against their customers.

The FCC’s action was an initial victory for prison reform advocates who have been fighting for relief for more than 10 years. The fight is far from over, as the three largest prison call providers (which have about 90% of the market), joined by a number of state corrections officials, have challenged the decision in court. Moreover, the FCC’s rate caps were interim in nature, and the FCC is now trying to devise a permanent scheme. Even more importantly, the FCC is now contemplating extending its new rules to intrastate calls, which are far greater in volume than interstate calls.

The Appeal of Interstate Phone Rates

There isn’t any real dispute over the FCC’s power, in general, to regulate rates for interstate prison calls: Under Section 201 of the Communications Act, the FCC has the power to insure that “charges, practices, classifications and regulations for and in connection with such communication service, shall be just and reasonable.” Another, more ambiguous provision, Section 276, gives the FCC additional jurisdiction over prison calls. (More about this later.) However, in their judicial appeals, the prison phone companies and corrections officials have raised a number of issues. For one thing, they say that the FCC made procedural errors in adopting the rules. They focus their challenge in particular at the FCC’s effort to regulate ancillary fees and site commissions. The fees, they say, are not charged for making phone calls, but are independent financial arrangements which are not subject to regulation as a “charge” for a phone call. Site commissions, they argue, are a legitimate part of the costs of providing phone service and they should therefore be able to include those costs in their rates.

The corrections officials also make a series of very far-reaching states’ rights arguments. They insist that the FCC is improperly interfering with the states’ administration of their prisons, something the federal government cannot do.

What’s Next: Intrastate Rates and Permanent Interstate Rates

Even as the appeal over interstate calls proceeds in the court, the FCC is moving ahead on developing permanent rates to replace the interim rates, and on a proposal to extend its regulations to cover intrastate phone calls.

Ordinarily, intrastate phone calls are regulated by the states and not by the FCC. However, Section 276 contains unusual provisions which appear to give the FCC authority to regulate intrastate phone calls. It provides in relevant part:

(1) Contents of regulations

In order to promote competition among payphone service providers and promote the widespread deployment of payphone services to the benefit of the general public,...the Commission shall take all actions necessary (including any reconsideration) to prescribe regulations that—

(A) establish a per call compensation plan to ensure that all payphone service providers are fairly compensated for each and every completed intrastate and interstate call using their payphone, except that emergency calls and telecommunications relay service calls for hearing disabled individuals shall not be subject to such compensation;...

(Emphasis added.)

The rather strange language of Section 276 comes from the fact that it was principally intended to address competition between payphones operated by the big “Baby Bell” local phone companies and the small independent companies that also provide payphone services. Because the Baby Bells also control the network that the independent companies must use to route their calls to recipients, much of Section 276 relates to making sure that the big companies don’t exploit their monopoly to gouge the small payphone companies.

In light of the purposes of Section 276, it is not an open and shut case that the language of that provision provides a basis to regulate the charges made for intrastate prison phone calls.

Since Section 276(d) specifically defines “payphone service” as “the provision of inmate telephone service in correctional institutions,” Section 276 would at first appear to give the FCC authority to regulate intrastate prison phone calls. However, unlike Section 201 quoted above, what the FCC is not given authority to regulate the “charges” for phone calls but, rather, is authorized “to ensure that all payphone service providers are fairly compensated.”

In light of the text, the argument that Section 276 authorizes the FCC to regulate intrastate prison calls is that regulating the rates for phone calls is an element of “ensur[ing] that payphone service providers are fairly compensated.” After all, if a price is too high, the provider is being “unfairly” compensated. However, this is not the only possible reading, since the focus of Section 276 is on “compensation” to the payphone companies and not “rates” charged to callers, and the legislative history of Section 276 is directed at compensation paid by payphone providers to big phone companies.

The FCC has received comments from affected parties on the questions of intrastate calls and on determining permanent interstate rates. Action is expected by the end of the year.

By Andrew Jay Schwartzman.