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  • News: FCC Published Final Rule on Rates for Interstate Inmate Calling Services

    Federal Register, Volume 78 Issue 219 (Wednesday, November 13, 2013)
    [Federal Register Volume 78, Number 219 (Wednesday, November 13, 2013)]
    [Rules and Regulations]
    [Pages 67956-67976]
    From the Federal Register Online via the Government Printing Office [www.gpo.gov]
    [FR Doc No: 2013-26378]
    
    
    =======================================================================
    -----------------------------------------------------------------------
    
    FEDERAL COMMUNICATIONS COMMISSION
    
    47 CFR Part 64
    
    [WC Docket No. 12-375; FCC 13-113]
    
    
    Rates for Interstate Inmate Calling Services
    
    AGENCY: Federal Communications Commission.
    
    ACTION: Final rule.
    
    -----------------------------------------------------------------------
    
    SUMMARY: In this document, the Federal Communications Commission 
    (Commission) adopts rule changes to bring high interstate inmate 
    calling service (ICS) rates into compliance with the statutory mandate 
    of being just, reasonable, and fair. This action is intended to bring 
    rate relief to inmates and their friends and families who have 
    historically been required to pay above-cost rates for interstate ICS.
    
    DATES: This final rule is effective February 11, 2014 except for 47 CFR 
    64.6060 and Section III.I which contain information collection 
    requirements that are not effective until approved by the Office of 
    Management and Budget. The FCC will publish a document in the Federal 
    Register announcing the effective date for those sections.
    
    FOR FURTHER INFORMATION CONTACT: Lynne Engledow, Wireline Competition 
    Bureau, Pricing Policy Division, (202) 418-1520 or 
    lynne.engledow@fcc.gov.
    
    SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
    and Order and Further Notice of Proposed Rulemaking in WC Docket No. 
    12-375, FCC 13-113, adopted on August 9, 2013 and released on September 
    26, 2013. The full text of this document is available for public 
    inspection during regular business hours in the Commission's Reference 
    Center, 445 12th Street SW., Room CY-A257, Washington, DC 20554. The 
    full text of this document may be downloaded at the following Internet 
    address:  http://www.fcc.gov/documents/--. The complete text may be 
    purchased from Best Copy and Printing, Inc., 445 12th Street SW., Room 
    CY-B402, Washington, DC 20554. To request alternative formats for 
    persons with disabilities (e.g., accessible format documents, sign 
    language, interpreters, CARTS, etc.), send an email to fcc504@fcc.gov 
    or call the Commission's Consumer and Governmental Affairs Bureau at 
    (202) 418-0530 or (202) 418-0432 (TTY). The Commission notes that 
    pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 
    107-198, see 44 U.S.C. 3506(c)(4), we previously sought specific 
    comment on how the Commission might further reduce the information 
    collection burden for small business concerns with fewer than 25 
    employees.
    
    I. Introduction
    
        1. Nearly 10 years ago Martha Wright, a grandmother from 
    Washington, DC, petitioned the Commission for relief from exorbitant 
    long-distance calling rates from correctional facilities. Tens of 
    thousands of others have since urged the Commission to act, explaining 
    that the rates inmates and their friends and families pay for phone 
    calls render it all but impossible for inmates to maintain contact with 
    their loved ones and their broader support networks, to society's 
    detriment. Today, we answer those pleas by taking critical, and long 
    overdue, steps to provide relief to the millions of Americans who have 
    borne the financial burden of unjust and unreasonable interstate inmate 
    phone rates.
        2. This Order will promote the general welfare of our nation by 
    making it easier for inmates to stay connected to their families and 
    friends while taking full account of the security needs of correctional 
    facilities. Studies have shown that family contact during incarceration 
    is associated with lower recidivism rates. Lower recidivism means fewer 
    crimes, decreases the need for additional correctional facilities, and 
    reduces the overall costs to society. More directly, this helps 
    families and the estimated 2.7 million children of incarcerated parents 
    in our nation, an especially vulnerable part of our society. One 
    commenter states that the ``[l]ack of regular contact with incarcerated 
    parents has been linked to truancy, homelessness, depression, 
    aggression, and poor classroom performance in children.'' In this Order 
    we help these most vulnerable children by facilitating contact with 
    their parents. By reducing interstate inmate phone rates, we will help 
    to eliminate an unreasonable burden on some of the most economically 
    disadvantaged people in our nation. We also recognize that inmate 
    calling services (ICS) systems include important security features, 
    such as call recording and monitoring, that advance the safety and 
    security of the general public, inmates, their loved ones, and 
    correctional facility employees. Our Order ensures that security 
    features that are part of modern ICS continue to be provided and 
    improved.
        3. Our actions address the most egregious interstate long distances 
    rates and practices. While we generally prefer to promote competition 
    to ensure that inmate phone rates are reasonable, it is clear that this 
    market, as currently structured, is failing to protect the inmates and 
    families who pay these charges. Evidence in our record demonstrates 
    that inmate phone rates today vary widely, and in far too many cases 
    greatly exceed the reasonable costs of providing the service. While an 
    inmate in New Mexico may be able to place a 15 minute interstate 
    collect call at an effective rate as low as $0.043 per minute with no 
    call set up charges, the same call in Georgia can be as high as $0.89 
    per minute, with an additional per-call charge as high as $3.95--as 
    much as a 23-fold difference. Also, deaf prisoners and family members 
    in some instances pay much higher rates than hearing prisoners for 
    equivalent communications with their families. For example, the family 
    of a deaf inmate in Maryland paid $20.40 for a nine minute
    
    [[Page 67957]]
    
    call placed via Telecommunications Relay Service (TRS)--an average rate 
    of $2.26 per minute. A significant factor driving these excessive rates 
    is the widespread use of site commission payments--fees paid by ICS 
    providers to correctional facilities or departments of corrections in 
    order to win the exclusive right to provide inmate phone service. These 
    site commission payments, which are often taken directly from provider 
    revenues, have caused inmates and their friends and families to 
    subsidize everything from inmate welfare to salaries and benefits, 
    states' general revenue funds, and personnel training.
        4. We applaud states such as New Mexico and New York that have 
    already accomplished reforms, and thereby shown that rates can be 
    reduced to reasonable, affordable levels without jeopardizing the 
    security needs of correctional facilities and law enforcement or the 
    quality of service. Similarly, we acknowledge that some federal 
    agencies, such as the Department of Homeland Security's Immigration 
    Customs and Enforcement (ICE), have taken similar measures to provide 
    lower rates, resulting in nationwide calling rates of $0.12 a minute 
    without additional fees or commissions at ICE facilities. Following 
    such reforms, there is significant evidence that call volumes 
    increased, which shows the direct correlation of how these reforms 
    promote the ability of inmates to stay connected with friends and 
    family. There is also support in the record that ICS rate reform has 
    not compromised the security requirements of correctional facilities. 
    Thus, these examples disprove critics who fear that reduced rates will 
    undermine security or cannot be implemented given provider costs. Our 
    actions build upon these examples by reducing rates, while balancing 
    the unique security needs of facilities and ensuring that inmate phone 
    providers receive fair compensation and a reasonable return on 
    investment.
        5. While some states have taken action to reduce ICS rates, the 
    majority have not. We therefore take several actions to address 
    interstate rates. We require inmate phone providers to charge cost-
    based rates to inmates and their families, and establish ``safe-
    harbor'' rates at or below which rates will be treated as lawful (i.e., 
    just, reasonable, and fair) unless and until the Commission issues a 
    finding to the contrary. Specifically, we adopt interim safe harbor 
    rates of $0.12 per minute for debit and prepaid interstate calls and 
    $0.14 per minute for collect interstate calls. Based on the evidence in 
    this record, we also set an interim hard cap on ICS providers' rates of 
    $0.21 per minute for interstate debit and prepaid calls, and $0.25 per 
    minute for collect interstate calls. This upper ceiling ensures that 
    the highest rates are reduced immediately to the upper limit of what 
    can reasonably be expected to be cost-based rates. Interstate ICS rates 
    at or below the safe harbor are presumed just, reasonable, fair and 
    cost-based. Rates between the interim safe harbor and the interim rate 
    cap will not benefit from this presumption.
        6. We base the safe harbor rate levels and rate caps on data and 
    cost studies presented by parties and/or taken directly from ICS 
    provider service contracts in the record. The safe harbor rate levels 
    are derived from ICS rates in seven states that have prohibited site 
    commission payments from ICS providers to facilities. The interim rate 
    caps adopted are based on (1) the highest total-company costs presented 
    in a cost study provided by Pay Tel, an ICS provider that exclusively 
    serves jails, and (2) the highest collect calling cost data presented 
    in the 2008 ICS Provider Data Submission, compiling data from seven 
    different ICS providers that serve various types and sizes of 
    correctional facilities. We based the interim rate caps on these high 
    levels, without attempting to exclude any unrecoverable costs or adjust 
    any inputs, in order to ensure that the cap levels were a conservative 
    estimate of the levels under which all ICS providers could provide 
    service. Even so, we provide a waiver process to account for any unique 
    circumstances.
        7. In addition to immediate rate reform, we find that site 
    commission payments and other provider expenditures that are not 
    reasonably related to the provision of ICS are not recoverable through 
    ICS rates, and therefore may not be passed on to inmates and their 
    friends and families. We require that charges for services ancillary to 
    the provision of ICS must be cost-based. We prohibit special charges 
    levied on calls made using teletypewriter (TTY) equipment or other 
    technologies used to access TRS. While we find that the record fully 
    supports the safe harbor and rate caps adopted here, we seek additional 
    information that could allow us to refine these rates in the future. 
    Accordingly, we require all ICS providers to submit data on their 
    underlying costs so that the Commission can develop a permanent rate 
    structure, which could include more targeted tiered rates in the 
    future.
        8. The Communications Act (Act) requires that interstate rates be 
    just and reasonable for all Americans--there is no exception in the 
    statute for those who are incarcerated or their families. The Act 
    further requires that our payphone regulations ``benefit . . . the 
    general public,'' not just some segment of it. Our actions in this 
    Order, while long overdue, fulfill these statutory mandates while 
    taking into account the legitimate and unique requirements for security 
    and public safety in the provision of inmate phone services and the 
    benefits to society of increased communications between inmates and 
    their families. Our work, however, is not done, and we continue in the 
    Further Notice (or FNPRM) our efforts to ensure that these rates are 
    just, reasonable, and fair to the benefit of both providers and the 
    general public.
    
    II. Procedural Background
    
        9. In 2003, Mrs. Wright and her fellow petitioners (Petitioners), 
    which included current and former inmates at Corrections Corporations 
    of America-run confinement facilities, filed a petition with the 
    Commission seeking to initiate a rulemaking to address high ICS rates. 
    The petition sought to prohibit exclusive ICS contracts and collect-
    call-only restrictions. In 2007, the same petitioners filed a second 
    rulemaking petition, seeking to address ICS rates by requiring a debit-
    calling option in correctional facilities, prohibiting per-call 
    charges, and establishing rate caps for interstate, interexchange ICS. 
    The Commission sought and received comment on both petitions. In 2008, 
    certain ICS providers placed in the record a cost study that quantified 
    their interstate ICS costs.
        10. In December 2012, the Commission adopted a notice of proposed 
    rulemaking seeking comment on, among other things, the proposals in the 
    Wright petitions. The 2012 ICS NPRM, 78 FR 4369, Jan. 23, 2013, sought 
    comment on the two petitions and proposed ways to ``balance the goal of 
    ensuring reasonable ICS rates for end users with the security concerns 
    and expense inherent to ICS within the statutory guidelines of sections 
    201(b) and 276 of the Act.'' The 2012 ICS NPRM, 78 FR 4369, Jan. 23, 
    2013, sought comment on other issues affecting the ICS market, 
    including possible rate caps for interstate ICS; the ICS Provider Data 
    Submission; collect, debit, and prepaid ICS calling options; site 
    commissions; issues regarding disabilities access; and the Commission's 
    statutory authority to regulate ICS.
        11. The FCC's Consumer Advisory Committee (CAC) adopted a 
    recommendation in 2012 finding that ICS rates may be ``unreasonably 
    high and unaffordable'' and that such high ICS rates challenge the 
    ``national goal of
    
    [[Page 67958]]
    
    the reduction of recidivism among inmates.'' The CAC recommended that 
    the Commission: ensure that the rates for ICS calls are reasonable; 
    restrict ``commissions'' paid to correctional institutions; encourage 
    the use of ``prepaid debit accounts'' or use of other ``low-cost 
    minutes;'' and continue to allow collect calls ``with charges that are 
    a reasonable amount above the actual cost of providing the call.'' On 
    August 2, 2013, the CAC reiterated its request for the Commission to 
    take action on ``this long overdue issue'' of high ICS rates.
    
    III. Ensuring That Rates for Interstate Inmate Calling Services Are 
    Just, Reasonable, and Fair
    
        12. In this Order, we take several actions to ensure that 
    interstate ICS rates are just, reasonable, and fair as required by the 
    Communications Act. First, we examine the statute and the current state 
    of the ICS market and conclude that the current market structure is not 
    operating to ensure that rates are consistent with the statutory 
    requirements of sections 201(b) and 276 to be just, reasonable, and 
    fair. Thus, we require that interstate ICS rates be cost-based. We 
    address what appropriate costs are and conclude, among other things, 
    that site commission payments, in and of themselves, are not a cost of 
    providing the communications service--ICS. We then address several 
    interrelated rate issues, including rate levels and options for 
    provider compliance with our rules including ``safe harbor'' rate 
    levels. We require that ancillary service charges also be cost-based. 
    We address rates for the use of TTY equipment. We conclude that our 
    actions herein do not require us to abrogate existing contracts between 
    correctional facilities and ICS providers; to the extent that any 
    agreement may need to be revisited, it is only because those agreements 
    cannot supersede our authority over rates charged to end users. 
    Finally, we address collect-calling only requirements at correctional 
    facilities, require an annual certification filing, and initiate a 
    mandatory data collection, directing all ICS providers to file data 
    regarding their ICS costs. These actions take into account the needs of 
    ICS providers for adequate cost recovery and the need for just, 
    reasonable, and fair rates for ICS consumers while meeting the unique 
    security needs inherent in the provision of ICS.
    
    A. Statutory Requirements for ICS
    
    1. Statutory Standards for ICS Rates and Practices
        13. The Communications Act requires ICS rates, charges, and 
    practices to be just, reasonable, and fair. Section 201(b) provides 
    that ``charges, practices, classifications, and regulations for and in 
    connection with [interstate common carrier] service, shall be just and 
    reasonable,'' and grants the Commission authority to ``prescribe such 
    rules and regulations as may be necessary in the public interest to 
    carry out the provisions of this chapter.'' The Commission has 
    previously found that interstate ICS, typically a common carrier 
    service, falls within the mandates of section 201.
        14. In addition, section 276 directs the Commission to ``establish 
    a per call compensation plan to ensure that all payphone service 
    providers''--which the statute defines to include providers of ICS--
    ``are fairly compensated for each and every completed intrastate and 
    interstate call.'' The Commission has previously found the term 
    ``fairly compensated'' permits a range of compensation rates that could 
    be considered fair, but that the interests of both the payphone service 
    providers and the parties paying the compensation must be taken into 
    account. Section 276 makes no mention of the technology used to provide 
    payphone service and makes no reference to ``common carrier'' or 
    ``telecommunications service'' definitions. Thus, the use of VoIP or 
    any other technology for any or all of an ICS provider's service does 
    not affect our authority under section 276. Indeed, several commenters 
    state that the Commission can regulate ICS regardless of the underlying 
    technology used to provide the service. Finally, section 276 provides 
    that ``[t]o the extent that any State requirements are inconsistent 
    with the Commission's regulations, the Commission's regulations on such 
    matters shall preempt such State requirements.''
        15. Our exercise of authority under sections 201 and 276 is further 
    informed by the principles of Title I of the Act. Among other things, 
    that provision states that it is the Commission's purpose ``to make 
    available, so far as possible, to all the people of the United States'' 
    communications services ``at reasonable charges.'' The regulation of 
    interstate ICS adopted in this Order advances those objectives.
    2. Types of Facilities
        16. The rules we adopt herein apply to interstate ICS provided in 
    ``correctional institutions'' as that term is used in section 276. 
    Accordingly, the scope of facilities covered by this Order is 
    coextensive with the scope of the term ``correctional institutions'' in 
    the statute and includes, for example, prisons, jails and immigration 
    detention facilities.
        17. Prisons and Jails. Prisons and jails are both core examples of 
    facilities that constitute ``correctional institutions'' under section 
    276 and this Order. The Commission has long made clear that its ICS 
    rules apply at a minimum to inmate telephone service in prisons and 
    jails. For instance, the 2002 Inmate Calling Services Order on Remand 
    and NPRM repeatedly referred to ``prisons'' and ``jails,'' often in 
    contexts that explicitly make clear that both entities fall within the 
    definition of ``correctional institution.'' 67 FR 17009, April 9, 2002. 
    Similarly, in the 2012 ICS NPRM, the Commission repeatedly used the 
    more generic term ``prison,'' noting, however, that jails are a 
    particular subset of prisons (i.e., that jails are ``local prisons'' to 
    be distinguished from ``state prisons''). 78 FR 4369, Jan. 23, 2013. 
    Finally, a number of commenters in this proceeding--including ICS 
    providers--submitted data for both prisons and jails, and/or otherwise 
    stated or assumed within their written advocacy that both entities 
    would be subject to any new rules. We do not distinguish in this Order 
    between prisons and jails, in part because our record does not permit 
    us to draw any clear distinctions. Because both are included within the 
    scope of this Order, however, there is no need at this time to draw any 
    distinction.
        18. Immigration Detention Facilities. Immigration detention 
    facilities also are a type of ``correctional institutions.'' The term 
    is widely understood to include ``facility[ies] of confinement.'' This 
    common understanding of the term has long been reflected in advocacy 
    regarding the lawfulness of ICS rates under section 276. As early as 
    2004, for example, commenters made arguments predicated on the 
    assumption that immigration detention facilities are a type of 
    ``correctional institution'' under section 276. Petitioners in this 
    proceeding likewise made arguments based on the same assumption, as did 
    a number of commenters in response to the 2012 ICS NPRM as well as 
    participants in the Reforming ICS Rates Workshop. This common 
    understanding of that statutory term was not disputed or called into 
    question by any evidence in the record. As such, ``correctional 
    institution'' as used within section 276 includes immigration detention 
    facilities.
    
    [[Page 67959]]
    
        19. Additional support for this finding derives from the largely 
    fungible nature of jails and facilities where immigrants are detained 
    when viewed from the standpoint of detained immigrants. As commenters 
    have pointed out, of the nearly 400,000 immigrants detained in this 
    country each year, many are ``held in local jails and prisons that have 
    contracted with Immigration Customs and Enforcement.'' This fact 
    suggests a rough functional equivalence between jails and prisons on 
    the one hand, and immigration detention facilities on the other--
    particularly from the perspective of the would-be users of ICS (i.e., 
    apprehended immigrants who may be detained either in a jail or some 
    other facility, depending on happenstance). Moreover, treating the two 
    categories of institutions differently would result in disparate 
    treatment among immigrant detainees. For instance, if immigration 
    detention facilities were excluded from the scope of ``correctional 
    institution,'' immigrant detainees in jails would receive a ``fair'' 
    rate for phone calls while immigrant detainees in ICE facilities would 
    not. This kind of disparate treatment would not be just or consistent 
    with the public interest, and for this reason as well we find it 
    reasonable that ``correctional institutions'' includes immigration 
    detention facilities.
    
    B. Need for Reform
    
        20. In this section, we first describe the different categories of 
    rates and charges for ICS and the different options that end users have 
    to pay for them. We then explore the record on the costs of providing 
    ICS, and the record on rates, and find that in most facilities the 
    rates for interstate ICS far exceed the cost of providing ICS. To 
    assess why this occurs, we look at competition in the market for ICS, 
    which, in this case, does not adequately exert downward pressure on 
    end-user rates. We examine the societal impacts of high ICS rates, and 
    we conclude that we must take action to meet our statutory mandate that 
    all rates be just, reasonable, and fair.
    1. Current Structures for ICS Rates and Payment Options
        21. ICS providers generally offer their services pursuant to 
    contracts with correctional facilities. These contracts vary by the 
    correctional facilities and ICS providers involved, and the states and 
    local jurisdictions in which the services are provided. ICS rates can 
    differ for local, intrastate long distance, and interstate long 
    distance calls and can include per-minute or per-call charges or both. 
    This varies, however, and some ICS contracts provide only for a per-
    minute charge while others provide only for a flat rate per call. It is 
    important to note that the users of ICS--the inmates and the family and 
    friends whom they call--are not party to these contracts. Rather, the 
    correctional institution agrees to an amount that it is willing to 
    allow the ICS provider to charge.
        22. The inmates who use ICS (or the persons called by those 
    inmates) typically pay for calls by using collect, debit, or prepaid 
    payment options. These methods differ as to who pays for the call and 
    when payment is received. Collect calls occur when an inmate places a 
    call with the assistance of a live operator or an automated recording, 
    and the called party is billed after the call is completed. 
    Correctional facilities use collect calling due to the relative ease of 
    administering such calls, as well as the high degree of security and 
    control involved. ICS providers assert, however, that collect calling 
    can pose billing and collection problems.
        23. Debit calling involves an arrangement whereby the charges are 
    deducted from an inmate's pre-existing account that often can be used 
    to pay for a variety of goods and services within a correctional 
    facility. An inmate's account can be funded by the inmate (with earned 
    funds, for example) or by outside parties. Inmates typically place 
    debit calls by dialing into a central number and using a personal 
    identification number (PIN) or by entering the numbers listed on a 
    physical debit card. An aggregated list on the record of current ICS 
    contract rates indicates that 36 states currently allow debit calling, 
    and that debit calling is less expensive than collect calling in many 
    of those states. Some facilities allegedly do not favor debit calling 
    because debit calling can be more administratively burdensome than 
    collect calling.
        24. Prepaid calling refers to arrangements whereby the called party 
    has a prepaid account set up with the ICS provider in advance. This 
    account is often established and replenished by the inmates' friends 
    and family members. The record indicates that prepaid calling is 
    generally less expensive than collect calling but can be about equal in 
    rates to debit calling. Some ICS contracts are limited to collect 
    calling only while others allow prepaid and/or debit calling options.
    2. The Record on ICS Costs
        25. In this section, we highlight aspects of the record regarding 
    the costs of providing ICS. In 2008, seven ICS providers filed a cost 
    study based on proprietary cost data for certain correctional 
    facilities with varying call cost and call volume characteristics. The 
    study apportioned interstate ICS costs into per minute and per call 
    categories and calculated the resulting averages for both debit and 
    collect calls. The results of the study indicated that the per-call 
    cost for debit calls was $0.16 per minute and the per-call cost for 
    collect calls was $0.25 per minute. The providers subsequently provided 
    additional usage data and cost calculations but did not otherwise make 
    the underlying proprietary cost information available.
        26. In response to the 2012 ICS NPRM, Securus filed a report 
    analyzing per-call and per-minute costs of ICS for certain correctional 
    facilities it serves. The report was based on 2012 data and analyzed 
    cost, call volume, site commission and other data according to type and 
    size of facility. It divided the study sample into four groups, 
    including one for state department of corrections facilities and three 
    others for different-sized jail facilities. The report contained total 
    cost data for the facilities but did not otherwise provide 
    disaggregated cost data. Using this data, the Commission calculated an 
    average per-minute cost for interstate calls from all facilities 
    included in the report to be $0.12 per minute with commissions and 
    $0.04 per minute without them. We note that the two groups in the 
    Securus report with the smallest facilities (``Medium 10'' and ``Low 
    10'') are estimated to have fewer than 50 (``Medium 10'') and fewer 
    than 5 (``Low 10'') inmates per facility, respectively. Facilities of 
    these sizes hold only a very small share of inmates nationally. Thus, 
    the data for the ``Medium 10'' and ``Low 10'' groups do not necessarily 
    reflect the costs of serving vast majority of inmates that generate 
    nearly all calls. Nonetheless, for completeness we included those data 
    in calculating the averages mentioned above.
        27. Pay Tel also filed financial and operational data for its ICS 
    operations, which it states are exclusively in jails, not prisons. The 
    filing contained comprehensive cost, capitalized asset, call volume, 
    and other actual and projected data. The non-confidential cost summary 
    included in the filing reported actual and projected 2012-2015 average 
    total costs for collect and debit per-minute calling of approximately 
    $0.23 and $0.21, respectively, (including the cost of an advanced 
    security feature known as continuous voice biometric identification).
        28. Although CenturyLink did not file a cost study, it did file 
    summary cost
    
    [[Page 67960]]
    
    information for its ICS operations. Specifically, CenturyLink reported 
    that its per minute costs to serve state departments of corrections 
    facilities (excluding site commission payments) averaged $0.116 and 
    that its per-minute costs to serve county correctional facilities 
    (excluding site commission payments) averaged $0.137.
        29. The record in this proceeding suggests that the costs of 
    providing ICS are decreasing, in part due to technology advances. As 
    one smaller ICS provider stated, ``[g]iven modern-day technology, the 
    costs for providing secure phone and video services to correctional 
    facilities are low (and are getting lower).'' As ICS moves increasingly 
    to IP technology, we expect costs to decline as is the case for similar 
    services that are not ICS. Some commenters and the Petitioners posit 
    that ``[t]echnology has driven the actual cost of ICS calls to a 
    fraction of what they were when the petitions were filed.'' In 
    particular, they point to the replacement of live operators with 
    automated systems, the reduction or total absence of on-site service by 
    the ICS providers, the consolidation of ICS providers, and the 
    centralized application of requested security measures. The ability to 
    centrally provision across multiple facilities is especially salient 
    given that the spread of hosted and/or managed service capabilities can 
    result in reduced total cost of ownership for solutions such as VoIP 
    with more centralized--that is, cloud-based--remote services, provided 
    over IP packet based networks.
        30. Other developments also point to lower costs. These changes 
    include lower ``basic telecommunications costs.'' Consistent with 
    recent trends in capital costs for the communications industry, some 
    providers acknowledge that capital costs for on-site equipment are 
    decreasing. In addition, ICS providers and correctional facilities 
    increasingly offer prepaid and debit calling as an alternative to 
    collect calling. Because every prepaid or debit call is paid, this 
    trend is lowering provider costs by reducing uncollectibles. Indeed, 
    Pay Tel was a participant in the 2008 cost study, which concluded the 
    difference between the costs of debit and collect calls was $0.09. In 
    its 2013 submission, Pay Tel's costs indicate the differential between 
    the costs of debit and collect calls had fallen to $0.02, with the 
    collect calling costs decreasing significantly.
        31. Further, the Commission adopted comprehensive intercarrier 
    compensation reforms, which have reduced the costs of transport and 
    certain long distance charges for ICS providers, a trend that will 
    continue as these reforms continue to be implemented. Moreover, IP-
    transit charges, relevant for the supply of IP-based services, have 
    also steadily fallen.
        32. Notwithstanding these lower cost trends, some providers assert 
    their costs have stayed the same or increased due to factors such as 
    investments in enhanced features, general and administrative costs such 
    as additional personnel to create and maintain individual customer 
    accounts, and high corporate debt. Some ICS providers also include 
    ``free-to-the-inmate'' services such as free calls to public defenders, 
    free calls for indigent inmates, and free visitation calls as a portion 
    of their costs of providing ICS. They also highlight the need to 
    provide security features that are necessary to the provision of ICS 
    though there is insufficient evidence to indicate that the costs of 
    providing such security features have increased since the ICS Provider 
    Data Submission.
        33. Finally, providers point to ``site commissions'' as a 
    significant driver of increases to rates charged to inmates. Site 
    commissions are payments made from ICS providers to correctional 
    facilities and related state authorities. Since the First Wright 
    Petition was filed in 2003, the record indicates that there has been a 
    significant increase in site commission payments made in connection 
    with the provision of ICS. Such payments can take the form of a 
    percentage of gross revenue, a signing bonus, a monthly fixed amount, 
    yearly fixed amount, or in-kind contributions. Site commission payments 
    are currently prohibited in seven states, as well as at some federal 
    detention facilities including dedicated facilities operated by ICE.
        34. The record makes clear that where site commission payments 
    exist, they are a significant factor contributing to high rates. Site 
    commission payments are often based on a percentage of revenues ICS 
    providers earn through the provision of ICS, and such percentages can 
    range from 20 to 88 percent. While the record indicates that site 
    commission payments sometimes fund inmate health and welfare programs 
    such as rehabilitation and educational programs; programs to assist 
    inmates once they are released; law libraries; recreation supplies; 
    alcohol and drug treatment programs; transportation vouchers for 
    inmates being released from custody; or other activities, in accordance 
    with the decisions of prison administrators and other local 
    policymakers, such payments are also used for non-inmate needs, 
    including employee salaries and benefits, equipment, building renewal 
    funds, states' general revenue funds, and personnel training. Thus, it 
    is clear that the level of such payments varies dramatically and their 
    use and purposes differ significantly, from funding roads to purposes 
    that ultimately benefit inmate welfare.
    3. The Record on ICS Rates
        35. The record contains data regarding interstate ICS rates, 
    including an aggregation of ICS contract data and current ICS contracts 
    by state. Some of the rates for interstate calls are very high by any 
    measure. While most Americans have become accustomed to paying no 
    additional charge for individual long distance calls, inmates, or those 
    whom they call, pay as much as $17.30, $10.70 or $7.35 for a 15-minute 
    interstate collect call, depending upon the facility where the inmates 
    are incarcerated.
        36. Some states and federal agencies, such as ICE, have reformed 
    ICS rates and achieved significantly lower rates. Additionally, 
    interstate ICS rates vary significantly and in ways that are unlikely 
    to be based on ICS providers' costs. Individual ICS providers charge 
    widely varying rates in the different facilities they serve, 
    notwithstanding their ability to share the costs of serving multiple 
    facilities using centralized call routing and management and security 
    platforms. For example, ICS provider GTL has entered into contracts to 
    charge both one of the highest rates for a 15-minute collect call 
    ($17.30 in Arkansas, Georgia, and Minnesota) and one of the lowest 
    ($0.72 in New York).
        37. One of the most significant factors in rate levels is whether 
    the relevant state has reformed or addressed ICS rates. For example, an 
    interstate collect call in Missouri (a state that has reformed ICS 
    rates) can cost as little as $0.05 per minute for a 15-minute call, 
    while the same call in Georgia, a state that has not undertaken rate 
    reform, can be as high as $0.89 per minute, plus an additional per-call 
    charge as high as $3.95--as much as a 23 fold difference. States that 
    have lowered rates have done so in different ways. Some have banned 
    site commissions entirely, and others permit only limited or sharply-
    reduced site commissions. Some states have imposed rate caps, 
    disallowed or reduced per-call charges, and required providers to offer 
    less expensive calling options, such as prepaid or debit calling.
        38. Site commission payments appear to be a particularly 
    significant contributor to high rates. Several states have eliminated 
    or reduced such payments, and available data indicate that ICS rates in 
    those states are
    
    [[Page 67961]]
    
    substantially lower than those in states that require commission 
    payments. For example, in New Mexico, after site commissions were 
    prohibited, ICS rates fell from $10.50 for a 15-minute interstate 
    collect call to $0.65 for the same 15-minute call based on revised ICS 
    rates--a 94 percent reduction. Similarly, New York ended site 
    commission payments in 2008, ``taking the position that the state 
    prison system shall not accept or receive revenue in excess of its 
    reasonable operating cost for establishing and administering its ICS, 
    while ensuring that the system provides reasonable security measures to 
    preserve the safety and security of prisoners, correctional staff, and 
    call recipients.'' New York's prison phone rates prior to ending its 
    commission payments were $1.28 per call plus $0.068 per minute for all 
    categories of calls, or $2.30 for a 15-minute call. Today, New York 
    rates are $0.048 per minute for all categories of calls with no per-
    call charges, or $0.72 for a 15-minute call--a 69 percent reduction. 
    When site commission payments were eliminated in South Carolina and 
    Michigan, the average cost of a 15-minute call went down, from $2.70 to 
    $1.35 and from $5.30 to $1.10, respectively. There is no evidence in 
    this record that these reformed rates are below cost or insufficient to 
    cover necessary security features of the ICS networks, or do not 
    provide fair compensation for ICS providers. Moreover, ICS providers 
    have seen significant increases in call volumes in states in which 
    rates have been lowered, often providing additional revenue even as 
    rates decrease.
    4. Competition in the ICS Market
        39. The Commission traditionally prefers to rely on market forces, 
    rather than regulation, to constrain prices and ensure that rates are 
    just and reasonable. The 2012 ICS NPRM sought comment on the 
    competitive nature of the ICS market and whether such competition 
    constrains ICS rates. 78 FR 4369, Jan. 23, 2013. Economic literature 
    states that, in effectively competitive markets, firms expect to earn 
    sufficient revenues to cover their long run economic costs, and not 
    more.
        40. In response to the 2012 ICS NPRM, some commenters suggest that 
    the ICS market is competitive but, in so doing, these commenters focus 
    on competition among providers to obtain contracts from correctional 
    facilities, not whether there is competition within the facility giving 
    inmates competitive options for making calls. While the process of 
    awarding contracts to provide ICS may include competitive bidding, such 
    competition in many instances benefits correctional facilities, not 
    necessarily ICS consumers--inmates and their family and friends who pay 
    the ICS rates, who are not parties to the agreements, and whose 
    interest in just and reasonable rates is not necessarily represented in 
    bidding or negotiation.
        41. Thus, the Commission has previously found that competition 
    during the competitive bidding process for ICS ``does not exert 
    downward pressure on rates for consumers,'' and that ``under most 
    contracts the commission is the single largest component affecting the 
    rates for inmate calling service.'' We reaffirm those findings here. 
    Indeed, as the Commission has found, competition for ICS contracts may 
    actually tend to increase the rate levels in ICS contract bids where 
    site commission size is a factor in evaluating bids. For example, a 
    former Commissioner on the New Mexico Public Regulation Commission, 
    Jason Marks, has stated that the interstate ICS market is characterized 
    by ``reverse competition'' because of its ``setting and security 
    requirements.'' He further asserts that ``reverse competitive markets 
    are ones where the financial interests of the entity making the buying 
    decision can be aligned with the seller, and not the buyer'' and that 
    such competition ``is at its most pernicious in the inmate phone 
    service context because buyers not only do not have a choice of service 
    providers, they also have strong reasons not to forego using the 
    service entirely.'' Although one ICS provider asserts that ``service 
    providers compete vigorously with respect to rates'' it is clear from 
    requests for proposals (RFPs) in the record that, at best, end user 
    rates are but one of many factors that correctional facilities use to 
    judge competing bids. The record also indicates that some correctional 
    facilities may base their selection of a contractor largely on the 
    amount of cash and/or in-kind inducement offered rather than being 
    driven by proposals focused on high quality service at the most 
    affordable rates for consumers. In sum, market forces do not appear to 
    constrain ICS rates. Absent Commission action here, it is clear that we 
    will not have met our statutory obligation to ensure that rates are 
    just, reasonable, and fair.
    5. Societal Impacts of High ICS Rates
        42. Excessive ICS rates also impose an unreasonable burden on some 
    of the most economically disadvantaged in our society. Families of 
    incarcerated individuals often pay significantly more to receive a 
    single 15-minute call from prison than for their basic monthly phone 
    service. We have received tens of thousands of comments from 
    individuals, including many personal stories from inmates, their family 
    members and their friends about the high price of staying in touch 
    using ICS. These rates discourage communication between inmates and 
    their families and larger support networks, which negatively impact the 
    millions of children with an incarcerated parent, contribute to the 
    high rate of recidivism in our nation's correctional facilities, and 
    increase the costs of our justice system. Familial contact is made all 
    the more difficult because ``mothers are incarcerated an average of 160 
    miles from their last home, so in-person visits are difficult for 
    family members on the outside to manage.''
        43. Just, reasonable, and fair ICS rates provide benefits to 
    society by helping to reduce recidivism. The Congressional Black Caucus 
    cites ``a powerful correlation between regular communication between 
    inmates and their families and measurable decreases in prisoner 
    recidivism rates.'' In addition, NARUC formally endorsed ``lower prison 
    phone rates as a step to reduce recidivism and thereby lower the 
    taxpayer cost of prisons.'' As the Center on the Administration of 
    Criminal Law explains, ``a reliable way of decreasing the likelihood 
    that prisoners will re-offend is to foster the growth of a family 
    support structure that gives inmates a stake in the community to which 
    they return and can provide them with the tools and incentives they 
    need to succeed upon release.'' Further, reducing recidivism would 
    provide significant cost savings, as the annual cost to incarcerate one 
    person is estimated at over $31,000 per year or between $60 and $70 
    billion per year nationwide. Indeed, one study indicates that a one 
    percent reduction in recidivism rates would translate to more than $250 
    million in annual cost savings across the United States.
        44. Just and reasonable interstate ICS rates will produce further 
    societal benefits by providing the justice system with cost savings and 
    improved representation for inmates. Some public defenders and court-
    appointed lawyers limit the number of collect calls they accept because 
    the cost of calls from correctional facilities has become overly 
    expensive. One commenter states that the cost to one public defenders' 
    office for such collect calls rose to $75,000 in one year alone, while 
    another says that some public defenders ``spend more than $100,000 a 
    year accepting collect calls from prisoners.'' Commenters assert a 
    correlation between lower rates and a lower incidence of contraband
    
    [[Page 67962]]
    
    cell phone use in correctional facilities, noting that efforts 
    including ``good security measures for both visitation and perimeter 
    security'' are also contributing factors. Reforms are necessary to 
    ensure that these benefits, which unquestionably are in the public 
    interest and will not be accrued in the absence of ICS rate reform, are 
    realized.
    6. Reforms Are Necessary To Ensure That Interstate ICS Rates Are Just, 
    Reasonable, and Fair
        45. Based on the record, we conclude that the marketplace alone has 
    not ensured that interstate ICS rates are just and reasonable and that 
    they are fair to consumers, as well as providers. The Commission must 
    therefore take action to establish just, reasonable, and fair rates. As 
    the Commission has previously explained, ``the just and reasonable 
    rates required by Sections 201 and 202 . . . must ordinarily be cost-
    based, absent a clear explanation of the Commission's reasons for a 
    departure from cost-based ratemaking.'' Thus, although the Commission 
    ``is not required to establish purely cost-based rates,'' it ``must, 
    however, specially justify any rate differential that does not reflect 
    cost.'' The Commission has not previously justified such a departure in 
    the context of ICS rates, nor do we find a basis in this record to do 
    so now. Given our findings above that the rates for ICS frequently are 
    well in excess of the costs reasonably incurred in providing those 
    services, we conclude that the rate reforms we begin in this Order are 
    necessary to ensure they are just and reasonable.
        46. Likewise, under section 276, although the Commission has 
    previously found the term ``fairly compensated'' to be ambiguous, and 
    acknowledged that a range of compensation rates could be considered 
    fair, it has evaluated the question with reference to the costs of 
    providing the relevant service, including in the context of ICS. As 
    noted above, the Commission traditionally prefers to rely on market 
    forces, rather than regulation, to constrain rates. Thus, the 
    Commission indicated in 1996 that it preferred to defer to the results 
    of commercial negotiations, and in a 1996 order stated that ``whenever 
    a PSP is able to negotiate for itself the terms of compensation for the 
    calls its payphones originate, then our statutory obligation to provide 
    fair compensation is satisfied.'' There, however, the Commission was 
    focused on fair compensation from the perspective of ensuring that 
    payphone providers received compensation that was not too low. As the 
    Commission has recognized, the concept of fairness encompasses both the 
    compensation received by ICS providers and the cost of the call paid by 
    the end-user. Given the significant record evidence regarding the many 
    exorbitant rates for ICS today, except in areas where states have 
    undertaken reform, continuing to rely upon negotiated agreements in 
    this context will not adequately ensure fairness to the end-user paying 
    the cost of the ICS because evidence is clear that this process does 
    not constrain unreasonably high rates. We thus find the rate reforms 
    begun in this Order are necessary to implement section 276(b)(1)'s 
    ``fair compensation'' directive.
    
    C. Framework for Just, Reasonable, and Fair ICS Rates
    
        47. In this section, we create a new framework to ensure that 
    interstate ICS rates are just and reasonable, as required by section 
    201(b), and provide fair compensation to providers and consumers of 
    interstate ICS consistent with section 276. We require ICS rates to be 
    cost-based. We identify the costs that are and are not to be included 
    in determining whether a rate is consistent with the statute.
        48. We address rates by adopting interim safe harbor rate levels 
    and interim rate caps that work together to ensure that ICS rates are 
    just, reasonable, and fair to both providers and end users. We adopt 
    interim safe harbor interstate rate levels for prepaid and debit calls 
    and separately for collect calls, and we will presume that interstate 
    ICS rates at or below the safe harbors are cost-based and therefore 
    just and reasonable under section 201(b) and fair under section 276. 
    Specifically, we adopt initial interim safe harbor rates of $0.12 per 
    minute for debit and prepaid interstate ICS calls and $0.14 per minute 
    for collect interstate ICS calls. We adopt an interim rate cap of $0.21 
    per minute for debit and prepaid interstate calls, and $0.25 per minute 
    for collect interstate calls.
        49. As of the effective date of this Order, ICS providers' 
    interstate per-minute rates must be at or below the interim rate cap 
    levels. An ICS provider may elect to charge rates at or below the 
    interim interstate safe harbor rates and benefit from a presumption 
    that such rates are just, reasonable, fair, and cost-based. Rates above 
    the safe harbor will not benefit from such a presumption.
    1. Interstate ICS Rates and Charges Must Be Cost-Based
        50. As discussed above, the Commission typically focuses on the 
    costs of providing the underlying service when ensuring that rates for 
    service are just and reasonable under section 201(b). Likewise, the 
    cost of providing payphone service generally has been a key point of 
    reference when the Commission evaluates rules implementing the fair 
    compensation requirements of section 276(b)(1)(A). In the 2012 ICS NPRM 
    the Commission sought comment on ways of regulating ICS rates based on 
    the costs of providing ICS. 78 FR 4369, Jan. 23, 2013. Although the 
    Commission theoretically might deviate from such an approach, we find 
    no basis to do so here and conclude that interstate ICS rates, which 
    include per-minute charges, per-call charges, and ancillary charges and 
    other fees charged in connection with such service, must be cost-based.
        51. Section 276(b)(1) states that the Commission's regulations 
    implementing that provision should, among other things, ``promote the 
    widespread deployment of payphone services to the benefit of the 
    general public.'' Beyond harming the end users paying ICS rates, 
    excessive ICS rates, and the resulting negative consequences, harm the 
    public more generally. Since cost-based rates help avoid such negative 
    consequences, this statutory language supports our reliance on such an 
    approach. Our mandate to carry out our responsibilities under section 
    276(b)(1), along with the same underlying policy considerations, 
    likewise persuades us that requiring cost-based interstate ICS rates 
    will best implement section 201(b), as well.
        52. We recognize that the term ``cost'' is itself ambiguous, and a 
    range of possible interpretations of this term might be reasonable. For 
    purposes of the interim rules and requirements adopted in this Order, 
    we evaluate whether ICS rates are cost-based by relying on historical 
    costs. We expect that historical cost information will be most readily 
    available to ICS providers for production to the Commission as needed, 
    making this approach readily administrable for purposes of interim 
    rules that will represent an improvement over the status quo for 
    interstate ICS rates, while we consider possible further reforms as 
    part of the FNPRM. We discuss in further detail below the types of 
    historical costs that are reasonably and directly related to the 
    provision of ICS to be included in those rates.
    2. Costs of Providing Interstate ICS
    a. General Standard
        53. In this section, we conclude that only costs that are 
    reasonably and directly related to the provision of ICS, including a 
    reasonable share of common costs, are recoverable through ICS rates
    
    [[Page 67963]]
    
    consistent with sections 201(b) and 276(b)(1). Such compensable costs 
    would likely include, for example, the cost of capital (reasonable 
    return on investment); expenses for originating, switching, 
    transporting, and terminating ICS calls; and costs associated with 
    security features relating to the provision of ICS. On the other hand, 
    costs not related to the provision of ICS may include, for example, 
    site commission payments, costs of nonregulated service, costs relating 
    to general security features of the correctional facility unrelated to 
    ICS, and costs to integrate inmate calling with other services, such as 
    commissary ordering, internal and external messaging, and personnel 
    costs to manage inmate commissary accounts.
    b. Site Commission Payments
        54. The Commission has previously held that site commissions are--
    for purposes of considering ICS rates under section 276--an 
    apportionment of profit, not a cost of providing ICS. In the 2012 ICS 
    NPRM, the Commission sought comment on its prior conclusion that site 
    commission payments, or ``location rents are not a cost of payphones, 
    but should be treated as profit.'' 78 FR 4369, Jan. 23, 2013. Site 
    commission payments are not costs that are reasonably and directly 
    related to the provision of ICS because they are payments made to 
    correctional facilities or departments of corrections for a wide range 
    of purposes, most or all of which have no reasonable and direct 
    relation to the provision of ICS. After carefully considering the 
    record, we reaffirm the Commission's previous holding and conclude that 
    site commission payments are not part of the cost of providing ICS and 
    therefore not compensable in interstate ICS rates.
        55. We disagree with commenters who argue that site commission 
    payments should be treated as compensable ICS cost for the purpose of 
    determining whether rates are just or reasonable under section 201(b). 
    These commenters argue that the analysis conducted by the Commission 
    with respect to fair compensation under section 276 for payphone 
    providers is fundamentally different from determining whether a service 
    provider's rates comply with section 201(b). We need not determine 
    whether the standards for determining compliance with section 276 and 
    section 201(b) are identical because under the ``fair compensation'' 
    requirement of section 276 or the ``just and reasonable'' requirement 
    of section 201(b), we reach the same conclusion: site commission 
    payments are not a compensable category of ICS costs because they are 
    not costs that are reasonably and directly related to provision of ICS. 
    While we appreciate the view that these excess revenues are paid to 
    correctional facilities and thus may not be ``profits'' to ICS 
    providers in the sense that they can keep these excess revenues and use 
    them for whatever purpose they like, they are excess revenues above 
    costs nonetheless. This argument is analogous to that considered in the 
    USF/ICC Transformation Order, where the Commission determined that 
    ``excess revenues that are shared in access stimulation schemes provide 
    additional proof that the LEC's rates are above cost.'' There, the 
    Commission concluded that ``how access revenues are used is not 
    relevant in determining whether switched access rates are just and 
    reasonable in accordance with section 201(b).'' The same principle 
    applies here: the fact that payments from excess revenues are made to 
    correctional facilities is not relevant in determining whether ICS 
    rates are cost-based and thus just, reasonable, and fair under sections 
    201(b) and 276. Moreover, even if site commission payments are viewed 
    as a cost rather than as excess revenues, they still would not be 
    reasonably and directly related to the provision of ICS because, as 
    noted above, they are simply payments made for a wide range of 
    purposes, most or all of which have no reasonable and direct relation 
    to the provision of ICS.
        56. We also disagree with ICS providers' assertion that the 
    Commission must defer to states on any decisions about site commission 
    payments, their amount, and how such revenues are spent. We do not 
    conclude that ICS providers and correctional facilities cannot have 
    arrangements that include site commissions. We conclude only that, 
    under the Act, such commission payments are not costs that can be 
    recovered through interstate ICS rates. Our statutory obligations 
    relate to the rates charged to end users--the inmates and the parties 
    whom they call. We say nothing in this Order about how correctional 
    facilities spend their funds or from where they derive. We state only 
    that site commission payments as a category are not a compensable 
    component of interstate ICS rates. We note that we would similarly 
    treat ``in-kind'' payment requirements that replace site commission 
    payments in ICS contracts.
        57. The record reflects that site commission payments may be used 
    for worthwhile causes that benefit inmates by fostering such objectives 
    as education and reintegration into society. Law enforcement and 
    correctional facilities assert that some or all of these programs would 
    cease or be reduced if commission payments were not received as no 
    other funding source would be available. Although these causes may 
    contain worthy goals, we are bound by our statutory mandate to ensure 
    that end user rates are ``just and reasonable,'' and ``fair,'' taking 
    into account end users as well as ICS providers. The Act does not 
    provide a mechanism for funding social welfare programs or other costs 
    unrelated to the provision of ICS, no matter how successful or worthy.
        58. We also are cognizant of the critical security needs of 
    correctional facilities. For example, the U.S. Department of Justice 
    has chronicled hundreds of criminal convictions involving the use of 
    ICS as part of the criminal activity. Moreover, according to one 
    commenter, a disproportionately large percentage of ICS-enabled crimes 
    target and victimize vulnerable populations consisting of victims, 
    witnesses, jurors, inmates, and family members of these individuals. 
    While our actions to establish interim ICS safe harbors and rate caps 
    prohibit the recovery of site commission payments, we include costs 
    associated with security features in the compensable costs recoverable 
    in ICS rates. Security monitoring helps correctional facilities 
    identify potential altercations; monitor inmates who the facility is 
    concerned may be suicidal; prevent criminal activity outside of the 
    jail; prevent violation of no-contact orders and witness tampering; and 
    aid in the prosecution of criminal cases. Our actions in this Order 
    take into account security needs as part of the ICS rates as well as 
    the statutory commitment to fair compensation. Indeed, data from 
    facilities without site commission payments, which form the basis for 
    our interim safe harbor rates, demonstrate the feasibility of providing 
    ICS on an on-going basis to hundreds of thousands of inmates without 
    compromising the levels of security required by these states' 
    correctional facilities. Our interim rate caps are based on cost 
    studies that include the cost of advanced security features such as 
    continuous voice biometric identification.
    3. Interim Interstate Rate Levels
        59. In the 2012 ICS NPRM, the Commission sought comment not only on 
    various rate cap alternatives, but also on other possible ways of 
    regulating ICS rates, as well as any other proposals from parties. 78 
    FR 4369, Jan. 23, 2013.
    
    [[Page 67964]]
    
    Below, we adopt interim rate caps that include interim safe harbors 
    setting boundaries for rates that will be treated as lawful absent a 
    Commission decision to the contrary, and serve to minimize regulatory 
    burdens on ICS providers. The interim rate cap framework we adopt 
    enables providers to charge cost-based rates up to the interim rate 
    caps.
    a. Interim Safe Harbors for Interstate ICS Rates
        60. We adopt interim safe harbor rates of $0.12 per minute for 
    debit and prepaid interstate ICS calls and $0.14 per minute for collect 
    interstate ICS calls. Rates at or below these interim interstate safe 
    harbor rate levels will be treated as lawful, i.e., just and reasonable 
    under section 201(b) of the Act and ensuring fair compensation under 
    section 276(b)(1)(A) of the Act, unless and until the Commission makes 
    a finding to the contrary. Providers will have the flexibility to take 
    advantage of the interim safe harbor rates if they so choose. Providers 
    that elect to take advantage of the safe harbors will enjoy the 
    presumption that their rates are lawful and will not be required to 
    provide refunds in any complaint proceeding.
    (i) Methodology for Setting Interim Safe Harbor Per-Minute Rate Levels
        61. We base our methodology for setting conservative interim 
    interstate ICS safe harbor rate levels on our analysis of rate data in 
    the record. In particular, the record includes detailed data on 
    interstate ICS rates charged by ICS providers serving various types of 
    correctional facilities. Specifically, HRDC filed detailed and 
    comprehensive 2012 ICS rate data for virtually all of the state 
    departments of corrections in the country. We conclude that these data 
    provide a reasonable basis for establishing safe harbor rates that are 
    intended to approximate the costs of providing interstate ICS--costs 
    that include fair compensation (including a reasonable profit) and 
    include full recovery for security features the correctional facilities 
    have determined to be necessary to protect the public safety. Further, 
    these safe harbor rates are validated by other evidence in the record.
        62. The comprehensive rate data submitted by HRDC include data for 
    seven states that have excluded site commission payments from their 
    rates. Rates in every state, including the non-commission states, were 
    included by ICS providers in their bids for state ICS contracts, such 
    that we can presume that they are high enough to cover the providers' 
    costs. We find that this subset of rates, derived from states that have 
    eliminated site commissions and maintained adequate security, is the 
    most relevant to our approach to determining the costs that should 
    still be recoverable through interstate ICS rates. The subset provides 
    a reasonable basis for establishing a conservative proxy for cost-based 
    rates. We set our interim safe harbor at conservative levels to account 
    for the fact that there may be cost variances among correctional 
    facilities.
        63. We first derive an interim safe harbor rate for interstate ICS 
    debit and prepaid calls. We establish a single rate for both debit and 
    prepaid calls, given the evidence that costs for both billing 
    approaches are substantially similar. We begin by calculating the 
    average per-minute interstate ICS debit and prepaid call rates of the 
    seven identified state departments of corrections. We assume a call 
    duration of 15 minutes for purposes of our calculation. We then total 
    the charges for a 15-minute call for each state, taking into account 
    per-minute as well as per-call charges. We divide that total by 15 to 
    calculate an average per-minute rate for each state. Finally, we 
    average those per-minute rates across the seven relevant states. This 
    calculation results in an average rate of $0.1186 per minute for a 15-
    minute debit call. We similarly calculate the same states' prepaid 
    interstate ICS calling rates, to obtain an average prepaid rate of 
    $0.1268 per minute. Given the similarities of debit and prepaid 
    charges, we group the two into a single category and average those 
    rates to obtain an overall per minute average of $0.1227, which we 
    round to $0.12 per minute. We therefore adopt $0.12 as the safe harbor 
    per minute rate for interstate ICS debit and prepaid calls. As 
    described in more detail below, ICS providers have the flexibility to 
    satisfy the safe harbor either by certifying that the per-minute rate 
    is at or below the safe harbor or by demonstrating that their total 
    charge for a 15-minute call is at or below the safe harbor per-minute 
    rate times 15.
        64. We derive a corresponding interim safe harbor rate level for 
    interstate ICS collect calls by utilizing the data provided by HRDC for 
    the interstate ICS collect calling rates for the same set of states. 
    Employing the same methodology utilized by ICS debit and prepaid calls, 
    we determine the average rate for a 15-minute interstate ICS collect 
    call for these states to be $0.1411 per minute, which we round to $0.14 
    per minute. We therefore adopt $0.14 per minute as the safe harbor rate 
    for interstate ICS collect calls.
        65. Other data in the record further validate that the interim 
    interstate safe harbor rates we establish here are just, reasonable, 
    and fair. In addition to being higher than rates currently charged by 
    several state departments of corrections without site commissions, our 
    $0.12 per minute safe harbor debit call rate is at or above the rate 
    that would result if site commissions were deducted from the rates in 
    ten states that allow them. Similarly, there are nine states with site 
    commission payments in their rates whose interstate ICS collect rates 
    are at or below our $0.14 per minute safe harbor collect call rate when 
    their commissions are deducted. Additionally, our interim safe harbor 
    rate levels closely approximate the rates currently being charged in 
    ICE-dedicated facilities.
        66. Data in the record on the demand stimulation effects of lower 
    rates further validate the conservative nature of our safe harbor rates 
    and the likelihood that the safe harbors will provide fair compensation 
    to ICS providers. There is general agreement in the record that lower 
    rates will stimulate additional ICS usage, which will help to offset 
    any revenue declines ICS providers might experience from lower rates. 
    For example, petitioners cite an immediate increase in call volume of 
    36 percent following a significant reduction of ICS rates by New York 
    in 2007. The New York State Department of Corrections and Community 
    Supervision reported that call volumes continued to increase following 
    their ICS rate reductions--from a total of 5.4 million calls in 2006 to 
    an estimated 14 million calls in 2013--an increase of approximately 160 
    percent. Also, Telmate reported a 233 percent increase in call volume 
    in one state when it brought its interstate ICS rates down to the $0.12 
    per minute level of its local ICS rates. Telmate also saw an increase 
    of up to 300 percent in call volume when it lowered its rates 
    elsewhere. Given the largely fixed cost nature of the ICS industry, 
    call volume increases are likely to generate significant revenues for 
    ICS providers without resulting in significant cost increases. Such 
    revenue increases are likely to offset in part the revenue declines ICS 
    providers might otherwise experience from lower rate levels.
        67. Other Methodologies. We find that using comprehensive state 
    rate data to establish the interim safe harbor rates is preferable to 
    other methodologies proposed in the record. For example, Petitioners 
    propose a rate-setting methodology that combines an analysis of 
    prevailing non-ICS prepaid calling card rates with estimates of the 
    additional costs necessary to provide
    
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    ICS. Using their methodology, Petitioners propose a per-minute rate of 
    $0.07 for both collect and debit interstate ICS calls. Other commenters 
    support Petitioners' approach. Some ICS providers, however, oppose 
    Petitioners' proposal, stating that interstate ICS is not comparable to 
    prepaid calling card services and that basing a methodology on such an 
    assumption could preclude ICS providers from being fairly compensated. 
    Some claim that the rate levels proposed by Petitioners, if adopted, 
    would undermine ICS providers' financial viability. We do not find on 
    the basis of this record that using commercial prepaid calling card 
    rates is a reasonable starting point for calculating ICS calling rates 
    given the significant differences between the two services, most 
    notably, security requirements. Further, Petitioners' proposed 
    methodology relies on combining prepaid calling card rates with ICS 
    providers' costs. Because the two sets of data are not necessarily 
    related, it would be difficult for us to adopt this methodology as the 
    basis for our rates without further explanation.
        68. We also decline to base our safe harbor rates on the call 
    volume, cost, commission, and revenue data submitted by Securus or the 
    cost data submitted by CenturyLink. While Securus' data provide some 
    insight into the costs of its ICS operations, we have concerns about 
    relying entirely on these data to calculate rates, in part because 
    Securus did not provide the disaggregated data used to derive the 
    report's total cost results, and the data it submitted did not 
    distinguish between collect, debit, or prepaid calls. Similarly, 
    consistent with our discussion below, we decline to base our safe 
    harbors on the cost data CenturyLink submitted given the absence of 
    underlying data, the lack of a description of its methodology, and the 
    lack of a distinction between debit, prepaid and collect calling costs.
        69. Additional Considerations. We disagree with concerns that it is 
    not feasible to adopt uniform rates for all correctional facilities, 
    particularly with regard to the safe harbors we are establishing here. 
    Our safe harbors are not binding rates but are designed to give 
    providers that elect to use them an administratively convenient pricing 
    option that offers a rebuttable presumption of reasonableness. If 
    providers serving jails or other facilities with different cost 
    characteristics do not choose to use them, they may price their service 
    up to the rate caps we establish below or seek a waiver of those caps. 
    Ultimately, we believe that the safe harbors are set at levels that are 
    likely to ensure fair compensation for providers serving a significant 
    proportion of inmates. Accordingly, we find that it is reasonable to 
    establish a uniform set of interim safe harbor rate levels for 
    providers serving different sizes and types of correctional facilities. 
    Ultimately, we conclude that by setting the interim safe harbor rates 
    at reasonable levels and providing flexibility to providers 
    implementing the rates, including the ability to charge cost-based 
    rates up to the interim rate cap, our interim interstate safe harbor 
    rates will ensure that ICS providers are fairly compensated.
        70. Because we find that the interim safe harbor rates we establish 
    here will provide fair compensation to ICS providers and will encourage 
    continued investment and deployment of ICS to the general public, we do 
    not find persuasive the assertion that regulation of interstate ICS 
    would negatively impact ICS providers generally, possibly even 
    curtailing ICS access. Rather, our finding is supported by the fact 
    that many state departments of correction make ICS available to inmates 
    at rates lower than those we implement here and nonetheless operate in 
    a safe, secure, and profitable manner. Moreover, testimony in our 
    record indicates that following a legislative mandate to lower rates in 
    New Mexico, the New Mexico Corrections Department released an RFP for 
    ICS that prescribed even lower rates than those adopted in the state's 
    reform proceeding. ICS continues to be made available to inmates even 
    at these lower rates.
        71. Additionally, by using existing rates from states that have 
    prohibited site commission payments to derive the interim safe harbors, 
    we believe that our reforms will not impact security or innovation in 
    the ICS market. Indeed, we note that innovation will continue to drive 
    down costs through automation and centralization of the security 
    features correctional facilities require. Some commenters have raised 
    concerns that decreasing ICS rates will result in a lower quality of 
    service for inmate calling. As we discuss above, the interim safe 
    harbor levels and rate caps we adopt today are conservative numbers. 
    Accordingly, we believe the rate framework we adopt today should not 
    negatively impact quality of service. For example, ICE has rates for 
    all long distance calls for their detainees on par with those we adopt 
    today, and concurrently includes quality of service standards, in 
    addition to a 25 to 1 ratio of detainees to operable telephones. We 
    encourage continued innovation and efficiencies to improve the quality 
    of service for ICS.
        72. In summary, on the effective date of this Order, which is 90 
    days following its publication in the Federal Register, all rates, 
    fees, and ancillary charges for interstate ICS must be cost-based. ICS 
    providers that elect to utilize the safe harbor to establish cost-based 
    interstate ICS rates as of that date must lower their interstate ICS 
    rates to or below $0.12 per minute for debit and prepaid interstate 
    calls and $0.14 per minute for collect interstate calls for their rates 
    to be presumed to be just, reasonable and fair. Separately, in the 
    accompanying Further Notice we seek comment on adopting permanent safe 
    harbors.
    b. Interim Rate Caps for Interstate ICS Rates
        73. We adopt interim rate caps to place an upper limit on rates 
    providers may charge for interstate ICS. As explained below, the 
    interim rate caps we establish are $0.21 per minute for debit and 
    prepaid interstate calls and $0.25 per minute for collect interstate 
    calls. We adopt the interim rate caps to provide immediate relief to 
    consumers. As of the effective date of this Order (90 days after 
    Federal Register publication), providers' rates for interstate ICS must 
    be at or below these levels.
        74. We believe that the rate caps we establish here are set at 
    sufficiently conservative levels to account for all costs ICS providers 
    will incur in providing ICS pending our further examination of such 
    costs through the accompanying FNPRM and data collection. The interim 
    rate caps we establish are not a finding of cost-based ICS rates 
    because we use the highest costs in the record, which include the costs 
    of advanced ICS security features, to set an upper bound for interstate 
    rates that will be subject to cost justification. We also establish a 
    waiver process to accommodate what we expect to be the rare provider 
    that can demonstrate that recovery of its ICS costs requires rates that 
    exceed our caps.
    (i) Methodology for Establishing Interim Rate Caps
        75. To establish interim interstate ICS rate caps, we identify the 
    relevant ICS provider cost data available in the record, which consists 
    principally of the ICS Provider Data Submission, cost filings by Pay 
    Tel (an ICS provider that exclusively serves jails), Securus, and 
    CenturyLink (ICS providers that serve a variety of type and sizes of 
    correctional facilities). In 2008, the ICS Provider Data Submission 
    identified the cost of debit and the adjusted cost of collect
    
    [[Page 67966]]
    
    ICS calls as being $0.164 per minute and $0.246 per minute, 
    respectively, assuming a 15-minute call duration. Both Pay Tel and 
    Securus were participants in the 2008 study. In its recent cost study, 
    Pay Tel reports average actual and projected costs for debit and 
    collect ICS calls of $0.208 per minute and $0.225 per minute, 
    respectively, inclusive of additional fees for continuous voice 
    biometric identification service, or $0.189 and $0.205 per minute 
    without such costs. Securus submitted total cost data for a subset of 
    the facilities it serves that on a minute-weighted basis averaged 
    $0.044 per minute for all types of calls. CenturyLink also submitted 
    summary ICS cost data. All these costs were reported excluding site 
    commission payments.
        76. Debit and Prepaid Call Rate Cap. We establish an interim rate 
    cap for debit and prepaid interstate ICS calls of $0.21 per minute 
    based on the public debit call cost data included in Pay Tel's cost 
    submission. The costs reported by Pay Tel for debit calling represent 
    the highest, total-company costs of any data submission in the record 
    and therefore represent a conservative approach to setting our interim 
    debit and prepaid rate cap. Specifically, Pay Tel reported that the 
    average of its actual and projected 2012-2015 debit calling costs, 
    excluding commissions and including continuous voice biometric 
    identification fees, is $0.208 per minute. While Pay Tel's cost data 
    are characterized by certain limitations, we conclude that Pay Tel's 
    public cost submission provides a sound basis to derive the 
    conservative high-end estimate that we use to set the debit and prepaid 
    interim rate cap. This is true for a number of reasons.
        77. First, this interim rate cap for debit calls is significantly 
    higher than the per-minute cost for debit calling reported in the 2008 
    ICS Provider Data Submission ($0.164 per minute, assuming a 15-minute 
    call duration) or by Securus ($0.044 per minute for all call types). 
    The 2008 ICS Provider Data Submission is the only multi-provider cost 
    sample in the record and includes debit call cost data from locations 
    with varying cost and call volume characteristics, and is $0.05 per 
    minute lower than our interim debit and prepaid rate cap. The interim 
    rate cap is also significantly higher than the cost study submitted by 
    Securus. Second, Pay Tel serves jails exclusively, which are generally 
    smaller and which providers claim are more costly to serve than 
    prisons. As a result, we expect that the rates of most facilities, 
    whether jails or prisons, large or small, should fall below this rate. 
    Third, we include Pay Tel's estimated increases in cost projections 
    used to calculate our rate caps, despite record evidence showing that 
    many ICS costs are significantly decreasing. We thus accept at face 
    value Pay Tel's projected costs--costs that it reports to be 
    increasing--which may include costs that we would conclude, after a 
    thorough review, may not be related to the provision of ICS, and costs 
    that it may have the incentive to overstate as the Commission evaluates 
    reform. Finally, we note that Pay Tel's and all ICS providers' 
    transport and termination costs will continue to decline pursuant to 
    the Commission's intercarrier compensation reform, further reducing the 
    cost of providing the transport and termination of ICS. For all these 
    reasons, we find Pay Tel's debit calling cost data to be an 
    appropriately conservative basis for our debit and prepaid rate cap and 
    adopt a $0.21 per minute interim rate cap for debit and prepaid 
    interstate ICS calls.
        78. Collect Call Rate Cap. We use a similar approach to establish 
    the $0.25 per minute interim rate cap for interstate ICS collect calls. 
    The costs reported by the ICS Provider Data Submission represent the 
    highest costs of any data submitted in the record and represent a 
    conservative approach to setting our interim collect rate cap. 
    Specifically, the ICS Provider Data Submission reported an effective 
    per minute cost for ICS collect calls of $0.246 per minute, assuming a 
    15-minute call duration. We base our collect call rate cap on this 
    record information and note that this cost is higher than both Pay 
    Tel's and Securus' reported costs of collect calls ($0.225 per minute 
    for collect calls and $0.124 per minute for all calls, respectively). 
    Additionally, we take a conservative approach by setting the rate caps 
    above the level we believe can be cost-justified while the Bureau 
    reviews ICS provider rates and cost data submitted pursuant to the data 
    collection and evaluates the record in response to the Further Notice.
        79. The 2008 ICS Provider Data Submission represents an 
    appropriately conservative foundation for our collect call rate cap. 
    These data represent the highest cost of a per-minute collect call in 
    the record, and includes cost data from locations with varying cost and 
    call volume characteristics. The ICS Provider Data Submission states 
    that its purpose is to ``[p]rovide the basis for rates'' and to 
    ``[p]rovide cost information necessary to develop cost-based rate 
    levels and rate structures.'' Although from five years ago, the record 
    indicates continued support for such data, and, as an ICS provider-
    submitted cost study, it presumably ensures fair compensation to ICS 
    providers.
        80. We find that the 2008 ICS Provider Data Submission on which we 
    base our interim ICS collect rate cap likely overstates ICS providers' 
    costs in a number of respects. First, costs to provide interstate ICS 
    have, by many measures, declined since the ICS provider data was 
    submitted. Second, smaller, potentially higher-cost facilities are 
    over-represented in the data submission's sample, as compared with the 
    national distribution of sizes of correctional facilities. Third, the 
    sample does not include cost data from the largest ICS provider, which 
    cites economies of scale and efficiencies that it claims it enjoys, 
    making it one of the lowest cost ICS providers. The ICS Provider Data 
    Submission also uses a marginal location analysis similar to an 
    analysis that the Commission has used in the past to calculate payphone 
    rates and some commenters assert this data tends to overcompensate ICS 
    providers. Moreover, the rate is above the costs reported by Pay Tel, a 
    provider serving exclusively smaller facilities and jails. Further, as 
    we noted above, all ICS providers' transport and termination costs will 
    continue to decline pursuant to the Commission's intercarrier 
    compensation reform, further reducing interstate ICS providers' costs. 
    Finally, the record supports the notion that lower rates will increase 
    call volumes, providing an additional offset to compensation foregone 
    as a result of lower rates.
        81. We disagree with commenters who assert it is not feasible to 
    adopt uniform rates--in this instance our rate caps--for correctional 
    facilities generally. We base our rate caps on the highest cost data 
    available in the record, which we anticipate will ensure fair 
    compensation for providers serving jails and prisons alike. We note 
    that ICS providers themselves submitted a single set of costs for the 
    multiple providers participating in the ICS Provider Data Submission, 
    regardless of the differing sizes of the correctional institutions they 
    served. Petitioners assert that ``technical innovations in the 
    provision of prison phone services imply that variation in costs at 
    different facilities has largely been eliminated.'' Further, the 
    Commission previously has set a uniform rate for other interstate 
    telecommunications services, including for public payphones, the costs 
    of which also vary by location. Moreover, even if we were to attempt to 
    differentiate our rate caps on the basis of size or type of 
    correctional facility, the record contains conflicting assertions as to 
    what those distinctions should be. Some assert we
    
    [[Page 67967]]
    
    should distinguish between jails and prisons, while at least one other 
    commenter advocates distinguishing between larger and smaller jails and 
    between prison, jails and other ``specialty locations.'' Given the 
    interim nature of our rate caps and the accompanying Further Notice, 
    providers and other parties will have ample opportunity to assert that 
    we should establish different rate caps for different types of 
    providers and more precisely on what those distinctions should be 
    based.
    (ii) Waivers
        82. An ICS provider that believes that it has cost-based rates for 
    ICS that exceed our interim rate caps may file a petition for a waiver. 
    Such a waiver petition would need to demonstrate good cause to waive 
    the interim rate cap. As with all waiver requests, the petitioner bears 
    the burden of proof to show that good cause exists to support the 
    request. The following factors may be considered in a request to waive 
    the interim rate caps: costs directly related to the provision of 
    interstate ICS and ancillary services; demand levels and trends; a 
    reasonable allocation of common costs shared with the provider's non-
    inmate calling services; and general and administrative cost data.
        83. We reiterate that the interim rate caps are set at conservative 
    levels. Accordingly, we expect that petitions for waiver of the interim 
    rate caps would account for extraordinary circumstances. Further, we 
    will evaluate waivers at the holding company level. We conclude that 
    reviewing ICS rates at the holding company level is reasonable for 
    several substantive and administrative reasons. First, the 
    centralization of security and other functionalities provided by ICS 
    providers that serve multiple correctional facilities has significantly 
    reduced the cost incurred on an individual facility for some providers. 
    Moreover, the record indicates that ICS providers often obtain 
    exclusive contracts for several facilities in a state, rather than 
    specific rates per facility. Second, we have adopted interim interstate 
    safe harbor rates and interim interstate rate caps at conservative 
    levels to ensure that all providers are fairly compensated. As a 
    result, we believe it is appropriate to evaluate waivers at a holding 
    company level to obtain an accurate evaluation of the need for a 
    waiver. Additionally, reviewing petitions in this manner is 
    significantly more administratively feasible and will allow the 
    Commission to address waiver petitions more expeditiously. Unless and 
    until a waiver is granted, an ICS provider may not charge rates above 
    the interim rate cap and must comply with all aspects of this Order 
    including requirements that ancillary services charges must be cost-
    based as described.
        84. We delegate to the Wireline Competition Bureau (Bureau) the 
    authority to request additional information necessary for its 
    evaluation of waiver requests and to approve or deny all or part of 
    requests for waiver of the interim rate caps adopted herein. We note 
    that evaluation of these waiver requests will require rate setting 
    expertise, and that the Bureau is well suited to timely consider any 
    waiver requests that are filed. Because we will consider waiver 
    requests on a holding company basis, waiver requests from the three 
    largest ICS providers would cover over 90 percent of ICS provided in 
    the country. ICS provider waiver petitions may be accorded confidential 
    treatment as consistent with rule 0.459.
    c. Interim Rate Structure
        85. Some ICS rates include per-call charges--charges that are 
    incurred at the initiation of a call regardless of the length of the 
    call. The record indicates concerns that these per-call charges are 
    often extremely high and therefore unjust, unreasonable, and unfair for 
    a number of reasons. First, it is self-evident that per-call charges 
    make short ICS calls more expensive particularly if evaluated at the 
    effective per-minute rate. For example, several state departments of 
    correction allow $3.95 per-call and $0.89 per-minute charges for 
    collect interstate ICS calls. Under such an arrangement, the effective 
    per minute rate for a one minute call is $4.84, whereas the effective 
    per minute rate for a 15 minute call is $1.15, making the price for a 
    shorter call disproportionately high. Second, commenters raise issues 
    regarding per-call charges that may be unjust, unreasonable, and unfair 
    because callers are often charged more than one per-call charge for a 
    single conversation when calls are dropped, which the record reveals 
    can be a frequent occurrence with ICS. Although some ICS providers 
    contend that calls are usually terminated when callers attempt either 
    to set up a three-way call or to forward calls, practices that are 
    generally prohibited by correctional facilities, other commenters 
    maintain that calls are dropped because of faulty call monitoring 
    software or poor call quality, leaving consumers no alternative but to 
    pay multiple per-call charges for a single conversation. Finally, some 
    commenters question whether high per-call charges are justified by 
    cost. In particular, Petitioners state that ``[t]here are very few cost 
    components that change with the number of call initiations and that do 
    not vary with the length of the call,'' and recommend eliminating per-
    call charges.
        86. We are concerned about the evidence regarding current per-call 
    rates and associated practices. In particular, we are concerned that a 
    rate structure with a per-call charge can impact the cost of calls of 
    short duration, potentially rendering such charges unjust, unreasonable 
    and unfair. We have particular concerns when calls are dropped without 
    regard to whether there is a potential security or technical issue, and 
    a per-call charge is imposed on the initial call and each successive 
    call. As a result, we conclude that unreasonably high per-call charges 
    and/or unnecessarily dropped calls that incur multiple per-call charges 
    are not just and reasonable.
        87. At the same time, we recognize that states that have reformed 
    ICS rates and rate structures have addressed such concerns in different 
    ways. Indeed, not all such states have eliminated per-call charges. 
    Some have significantly reduced or capped such costs in seeking to 
    bring the overall cost of a call to just, reasonable and fair levels. 
    Many of these pioneering state efforts form the foundation of the 
    initial reforms we adopt today, and we are reluctant to disrupt those 
    efforts pending our further evaluation of these issues in the Further 
    Notice. As a result, we do not prohibit all per-call charges in this 
    Order. Nonetheless, because our questions about the ultimate necessity 
    and desirability of per-call charges remain, particularly as we seek 
    comment on further reforming ICS rates more generally, we ask questions 
    about whether rate structure requirements are necessary to ensure that 
    the cost of a conversation is reasonable in the Further Notice. We also 
    require ICS providers to submit data on the prevalence of dropped calls 
    and the reason for such dropped calls as part of their annual 
    certification filing.
        88. Our interim rate structure will help address concerns raised 
    about unreasonable per-call charges while we consider further reforms 
    in the Further Notice. As described above, we adopt interim safe harbor 
    rate levels and interim rate caps to ensure the overall cost of a 15-
    minute call is just, reasonable, and fair. ICS providers have the 
    flexibility to satisfy the safe harbor either through a certification 
    that the per-minute rate is at or below the safe harbor, or by 
    demonstrating that the cost of a 15-minute call (including any per-
    
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    connection charges) is at or below the safe harbor per-minute rate 
    times 15. Thus, where an ICS provider elects to take advantage of the 
    interim safe harbor rate levels described above, we allow the provider 
    flexibility to determine whether its rate structure should include per-
    call charges. Specifically, we allow ICS providers to calculate whether 
    their rates are at or below the interim safe harbor levels or the 
    interim rate caps by calculating their compliance on the basis of a 15-
    minute call. Because our interim safe harbors constrain the cost of a 
    15-minute conversation to a level we find to be just, reasonable, and 
    fair, we find it is appropriate to afford ICS providers such 
    flexibility.
        89. Providers electing not to use the safe harbor but to charge 
    rates at or below the interim rate cap will have similar flexibility 
    but will not benefit from the presumption that the rates and charges 
    are just and reasonable and, as a result, could be required to pay 
    refunds in any enforcement action.
    d. Ancillary Charges
        90. In the 2012 ICS NPRM, the Commission observed that ``there are 
    outstanding questions with prepaid calling such as: how to handle 
    monthly fees; how to load an inmate's account; and minimum required 
    account balance.'' 78 FR 4369, Jan. 23, 2013. The record indicates that 
    ICS providers also impose ancillary or non-call related charges on end 
    users to make ICS calls, for example to set up or add money to a debit 
    or prepaid account, to refund any outstanding money in a prepaid or 
    debit account, or to deliver calls to a wireless number. These 
    additional charges represent a significant cost to consumers. For 
    example, prepaid account users who accept calls from prisoners and 
    detainees in certain facilities may incur a $4.95 monthly ``inactivity 
    fee'' if their account ``exceeds 180 days of no call activity until the 
    funds have been exhausted or the call activity resumes.'' End users may 
    also be assessed a $4.95 fee to close their account, and a $4.95 
    ``refund fee'' when requesting a refund of money remaining in an 
    account. We question whether such charges are reasonable in and of 
    themselves and note that the levels of such charges do not appear to be 
    cost-based.
        91. Although we are unable to find ancillary charges per se 
    unreasonable based on the record, we have sufficient information and 
    authority to reach several conclusions regarding ancillary charges. 
    First, as stated earlier, interstate ICS rates must be cost-based, and 
    to be compensable costs must be reasonably and directly related to 
    provision of ICS. Ancillary service charges are no exception; they also 
    fall within this standard and the Commission has the jurisdiction and 
    authority to regulate them. Section 201(b) of the Act requires that 
    ``all charges, practices, classifications, and regulations for and in 
    connection with'' communications services be just and reasonable. 
    Section 276 of the Act defines ``payphone service'' to encompass ``the 
    provision of inmate telephone service in correctional institutions, and 
    any ancillary services,'' and requires that providers be ``fairly 
    compensated.'' The services associated with these ancillary charges are 
    ``in connection with'' the inmate payphone services for purposes of 
    section 201(b) and ``ancillary'' for purposes of section 276. As such, 
    they fall within the standards we articulate above for determining 
    which costs are compensable through interstate ICS rates. Therefore, 
    even if a provider's interstate ICS rates are otherwise in compliance 
    with the requirements of this Order, the provider may still be found in 
    violation of the Act and our rules if its ancillary service charges are 
    not cost-based.
        92. Therefore, parties concerned that any ancillary services charge 
    is not just, reasonable and fair can challenge such charges through the 
    Commission's complaint process. The ICS provider will have the burden 
    of demonstrating that its ancillary services charges are just, 
    reasonable, and fair. We also caution ICS providers that the Bureau 
    will review data submissions critically to ensure that providers are 
    not circumventing our reforms by augmenting ancillary services charges 
    beyond the costs of providing such services.
        93. In addition, we will take additional steps to gather further 
    information that will inform how we address ancillary services. As part 
    of the mandatory data request we initiate below, we require ICS 
    providers to submit information on every ancillary services charge, and 
    identify the cost basis for such charges. In our accompanying Further 
    Notice, we seek comment on additional steps the Commission can take to 
    address ancillary services charges and ensure that they are cost-based. 
    We note that section 201 governs unjust and unreasonable practices and 
    section 276 governs payphones, which expressly includes ancillary 
    services, and seek comment in the Further Notice as to whether the 
    imposition of ancillary services charges is a just, reasonable, and 
    fair practice.
    
    D. Inmate Calling Services for the Deaf and Hard of Hearing
    
        94. The Commission sought comment in the 2012 ICS NPRM on deaf or 
    hard of hearing inmates' access to ICS during incarceration. 78 FR 
    4369, Jan. 23, 2013. Our actions today will be of significant benefit 
    to deaf and hard of hearing inmates and their families. First, the per-
    minute rate levels we adopt in this Order will result in a significant 
    rate reduction for most, if not all, interstate calls made by deaf and 
    hard of hearing inmates.
        95. Second, we clarify that ICS providers may not levy or collect 
    an additional charge for any form of TRS call. Such charges would be 
    inconsistent with section 225 of the Act, which requires that ``users 
    of telecommunications relay services pay rates no greater than the 
    rates paid for functionally equivalent voice communication services 
    with respect to such factors as the duration of the call, the time of 
    day, and the distance from point of origination to point of 
    termination.''
        96. Third, we seek comment in the Further Notice below on 
    additional issues relating to ICS for the deaf and hard of hearing, 
    including: (i) Whether and how to discount the per-minute rate for ICS 
    calls placed using TTYs, (ii) whether action is required to ensure that 
    ICS providers do not deny access to TRS by blocking calls to 711 and/or 
    state established TRS access numbers, (iii) the need for ICS providers 
    to receive complaints on TRS service and file reports with the 
    Commission, and (iv) actions the Commission can take to promote the 
    availability and use of Video Relay Service (VRS) and other assistive 
    technologies in prisons.
        97. We decline to take other actions related to deaf and hard of 
    hearing inmates requested by commenters at this time. While we strongly 
    encourage correctional facilities to ensure that deaf and hard of 
    hearing inmates are afforded access to telecommunications that is 
    equivalent to the access available to hearing inmates, we decline at 
    this time to mandate the number, condition, or physical location of TTY 
    and other TRS access technologies (e.g., devices and/or applications 
    used to access VRS) or the times they are physically available to 
    inmates, allowed call durations for deaf and hard of hearing inmates, 
    or the types of TRS access technologies made available to inmates.
    
    E. Existing ICS Contracts
    
    1. Background
        98. The record indicates that contracts for the provision of ICS 
    usually are
    
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    exclusive contracts between ICS providers and correctional facilities 
    to serve the relevant correctional facility. The ICS end users (i.e., 
    the inmates and outside parties with whom they communicate via ICS) are 
    not parties to such agreements. Contracts between ICS providers and 
    facilities typically establish an initial term of three to five years, 
    with one-year extension options. Such contracts may include change-of-
    law provisions, although some such provisions can be vague. In the 2012 
    ICS NPRM, the Commission sought comment on whether it would be 
    appropriate to mandate a ``fresh look'' period for existing contracts, 
    or whether any new ICS rules should apply only to contracts entered 
    into after the adoption of the new rules. 78 FR 4369, Jan. 23, 2013. 
    The Commission also sought comment on typical ICS contract terms, as 
    well as how change-of-law contract provisions would interact with any 
    new Commission rules or obligations.
        99. The record in response was mixed. Several commenters advocate 
    for a ``fresh look'' period to review and renegotiate existing 
    contracts; some urge us to avoid delaying rate reform; and others 
    assert that any new rules should apply only to contracts entered into 
    after the effective date of the rules.
    2. Discussion
        100. The reforms we adopt today are not directed at the contracts 
    between correctional facilities and ICS providers. Nothing in this 
    Order directly overrides such contracts. Rather, our reforms relate 
    only to the relationship between ICS providers and end users, who, as 
    noted, are not parties to these agreements. Our statutory obligations 
    require us to ensure that rates and practices are just and reasonable, 
    and to ensure that payphone compensation is fair both to end users and 
    to providers of payphone services, including ICS providers. We address, 
    for example, ICS providers' responsibility to charge just, reasonable 
    and fair rates to inmates and the friends and family whom they call via 
    ICS, and we find that certain categories of charges and fees are not 
    compensable costs of providing ICS reasonably and directly related to 
    the provision of ICS and hence may not be recovered in ICS rates.
        101. Agreements between ICS providers and correctional facilities--
    to which end users are not parties--cannot trump the Commission's 
    authority to enforce the requirements of the Communications Act to 
    protect those users within the Commission's jurisdiction under sections 
    201 and 276. We thus do not, by our action, explicitly abrogate any 
    agreements between ICS providers and correctional facilities. To the 
    extent that any particular agreement needs to be revisited or amended 
    (a matter on which we do not take a position), such result would only 
    occur because agreements cannot supersede the Commission's authority to 
    ensure that the rates paid by individuals who are not parties to those 
    agreements are fair, just, and reasonable.
        102. To the extent that any contracts are affected by our reforms, 
    we strongly encourage parties to work cooperatively to resolve any 
    issues. For example, ICS providers could renegotiate their contracts or 
    terminate existing contracts so they can be rebid based on revised 
    terms that take into account the Commission's requirements related to 
    inmate phone rates and services. We find that voluntary renegotiation 
    would be in the public interest, and observe that the record reflects 
    that, at least in some instances, contracts between ICS providers and 
    correctional and detention facilities are updated and amended with some 
    regularity. To the extent that the contracts contain ``change of law'' 
    provisions, those may well be triggered by the Commission's action 
    today. We further note that the reforms we adopt today will not take 
    effect immediately but, rather, will take effect 90 days after the 
    Order and FNPRM are published in the Federal Register. Parties 
    therefore will have time to renegotiate contracts or take other 
    appropriate steps.
    
    F. Commission Action Does Not Constitute a Taking
    
        103. We reject arguments that our reforms adopted herein effectuate 
    unconstitutional takings. It is well established that the Fifth 
    Amendment does not prohibit the government from taking lawful action 
    that may have incidental effects on existing contracts. Although we do 
    not concede that any incidental effects would ``frustrate'' the 
    contractual expectations of ICS providers, even if that were the case, 
    such ``frustration'' would not state a cognizable claim under the Fifth 
    Amendment. In Huntleigh USA Corp. v. United States, for instance, the 
    court found that Congress's decision to create the Transportation 
    Security Agency ``had the effect of `frustrating' [a private security 
    company's] business expectations, which does not form the basis of a 
    cognizable takings claim.'' The court reached this finding even though 
    the relevant legislation effectively eliminated the market for private 
    screening services. Here, far from eliminating the ICS market, our 
    regulations are designed to allow providers to recover their costs of 
    providing ICS, including a reasonable return on investment. In this 
    context, any incidental effect on providers' contractual expectations 
    does not constitute a valid property interest under the Fifth 
    Amendment.
        104. Moreover, even assuming, arguendo, that a cognizable property 
    interest could be demonstrated by ICS providers, we still conclude that 
    our actions would not give rise to unconstitutional takings without 
    just compensation. As an initial matter, our ICS regulations do not 
    involve the permanent condemnation of physical property and thus do not 
    constitute a per se taking. Nor do our actions represent a regulatory 
    taking. The Supreme Court has stated that in evaluating regulatory 
    takings claims, three factors are particularly significant: (1) The 
    economic impact of the government action on the property owner; (2) the 
    degree of interference with the property owner's investment-backed 
    expectations; and (3) the ``character'' of the government action. None 
    of these factors suggests a regulatory taking here.
        105. First, our regulation of end-user ICS rates and charges will 
    have minimal adverse economic impact on ICS providers. As explained 
    elsewhere in this Order, ICS providers are entitled to collect cost-
    based rates and will have opportunities to seek waivers to the extent 
    the framework adopted in this Order does not adequately address their 
    legitimate costs of providing ICS. Under these circumstances, any 
    cognizable economic impact will not be sufficiently significant to 
    implicate the takings clause. Even beyond that, the record supports the 
    notion that lower rates are likely to stimulate additional call volume, 
    enabling ICS providers to offset some of the impacts of lower rates 
    without incurring commensurate added costs.
        106. Second, our actions do not improperly impinge upon investment-
    backed expectations of ICS providers. The Commission has been examining 
    new ICS regulations for years, and various proposals--including rate 
    caps and the elimination of compensation in ICS rates for site 
    commissions--have been raised and debated in the record. In addition, 
    some states have already taken action consistent with what we adopt 
    here today. Given this background, any investment-backed expectations 
    cannot reasonably be characterized as having been upset or impinged by 
    our actions today.
        107. Third, our action today substantially advances the legitimate 
    governmental interest in protecting end-user consumers from unjust,
    
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    unreasonable and unfair interstate ICS rates and other unjust and 
    unreasonable practices regarding interstate ICS--an interest Congress 
    has explicitly required the Commission to protect. Moreover, the 
    Commission is taking a cautious approach in lowering end-user ICS 
    rates, and is carefully calibrating that approach to ensure that all 
    parties are compensated fairly for their part of the ICS while 
    simultaneously lowering ICS rates for all end users. In short, the 
    rules at issue here are consistent with takings jurisprudence and will 
    not wreak on ICS providers the kind of ``confiscatory'' harm--i.e., 
    ``destroy[ing] the value of [providers'] property for all the purposes 
    for which it was acquired''--that might give rise to a tenable claim 
    under the Fifth Amendment's Takings Clause.
    
    G. Collect Calling Only and Billing-Related Call Blocking
    
        108. In the First Wright Petition, the Petitioners requested that 
    the Commission require ICS providers and prison administrators to offer 
    debit calling, the rates for which Petitioners assert are typically 
    lower than collect calling. In the 2012 ICS NPRM, the Commission 
    requested comment on various issues related to prepaid calling and 
    debit calling issues, including issues related to the security of debit 
    calling and any increased cost or administrative workload associated 
    with debit and prepaid calling. 78 FR 4369, Jan. 23, 2013. Calling 
    options other than collect calling appear to have increased since the 
    Alternative Wright Petition was filed. The record indicates that some 
    facilities require the ICS provider to offer debit or prepaid calling 
    for inmates, and other facilities or jurisdictions preclude options 
    other than collect calling.
        109. The 2012 ICS NPRM also sought comment on Petitioners' claims 
    that ICS providers block collect calls to numbers served by terminating 
    providers with which they do not have a billing arrangement. 78 FR 
    4369, Jan. 23, 2013. The 2012 ICS NPRM noted that in facilities where 
    collect calling is the only calling option available, inmates may be 
    unable to complete any calls. For example, if an inmate tries to call a 
    family member whose phone service provider does not have a billing 
    relationship with the ICS provider, then the ICS provider will prevent 
    the call from going through, and the inmate cannot call his or her 
    family member. The 2012 ICS NPRM asked if this blocking practice 
    existed and whether there are ways, while other than mandating debit 
    calling, to prevent billing-related call blocking. 78 FR 4369, Jan. 23, 
    2013. Commenters agreed that billing-related call blocking occurs.
        110. Availability of Debit and Prepaid Calling. We believe the 
    availability of debit and prepaid calling in correctional facilities 
    will address the problem of call blocking associated with collect 
    calling by enabling service providers to collect payment up front, 
    which eliminates the risk of nonpayment and renders billing-related 
    call blocking unnecessary. We find that debit or prepaid calling yield 
    significant public interest benefits and facilitate communication 
    between inmates and the outside world. For example, the record 
    indicates that debit and prepaid calling can be less expensive than 
    collect calling because they circumvent the concerns of bad debt 
    associated with collect calling and the expense of subsequent 
    collection efforts. We establish lower interim rate caps and safe 
    harbor rate levels for debit and prepaid calling herein. Additionally, 
    the use of prepaid calling helps the called parties to better manage 
    their budget for ICS, thus making inmate contact with loved ones more 
    predictable. We note that the record indicates the increased 
    availability of calling options other than collect calling. In the 
    accompanying Further Notice we seek comment about these options. 
    Additionally, we strongly encourage correctional facilities to consider 
    including debit calling and prepaid calling as options for inmates, so 
    they can more easily and affordably communicate with friends and 
    family.
        111. Call Blocking. The Commission has a long-standing policy that 
    largely prohibits call blocking. Specifically, the Commission has 
    determined that the refusal to deliver voice telephone calls 
    ``degrade[s] the nation's telecommunications network,'' poses a serious 
    threat to the ``ubiquity and seamlessness'' of the network, and can be 
    an unjust and unreasonable practice under section 201(b) of the 
    Communications Act. Throughout this proceeding ICS providers have 
    offered various justifications for their blocking practices.
        112. Some ICS providers claim that they block calls to terminating 
    providers with whom they do not have prior billing relationships to 
    avoid potentially significant uncollectibles. They assert that 
    uncollectible revenue associated with collect calls drives up 
    providers' costs, which are ultimately passed along through ICS rates 
    charged to consumers. Some commenters suggest that encouraging debit or 
    prepaid calling is necessary to eliminate the issue of billing-related 
    call blocking. Other ICS providers note, however, that due to technical 
    advancements and new product developments, they do not block calls due 
    to lack of a billing arrangement, and describe solutions they have 
    implemented to address the problem of billing-related call blocking. 
    For example, Pay Tel offers a ``prepaid collect'' service which allows 
    an inmate to initiate a free call and at its conclusion, Pay Tel offers 
    to set up a direct billing arrangement with the call recipient to pay 
    for any future calls. Securus has implemented a similar strategy by 
    allowing ``a short conversation with the called party, after which the 
    called party is invited to set up a billing arrangement with Securus 
    via oral instructions. CenturyLink has implemented a similar ``prepaid 
    collect'' solution.
        113. Based on the availability of these ``prepaid collect'' 
    services, the Commission's long-standing position against unreasonable 
    call blocking, and the public interest benefits realized from 
    encouraging inmates connecting with friends and families, we find 
    billing-related call blocking by interstate ICS providers that do not 
    offer an alternative to collect calling to be an unjust and 
    unreasonable practice under section 201(b). As such, we prohibit ICS 
    providers from engaging in billing-related call blocking of interstate 
    ICS calls unless the providers have made available an alternative means 
    to pay for a call, such as ``prepaid collect,'' that will avoid the 
    need to block for lack of a billing relationship or to avoid the risk 
    of uncollectibles. We also note that the rates for these types of calls 
    are subject to the debit/prepaid interim rate caps or safe harbor rate 
    levels adopted in this Order. We expect this prohibition to have less 
    of an impact on ICS providers serving facilities that make prepaid and 
    debit calling available as an alternative means to pay for a call than 
    it will have on ICS providers serving facilities where collect calling 
    is the only option offered.
        114. Absent these requirements, inmates at facilities that impose 
    collect-only restrictions and are served by ICS providers that block 
    calls to providers with whom they do not have a billing relationship 
    would have no way to place calls to friends or family served by 
    providers lacking such a billing relationship. The Commission has the 
    authority to mandate that ICS providers implement solutions to address 
    billing-related call blocking under section 201(b). The ``prepaid 
    collect'' requirement regulates the manner in which ICS providers bill 
    and collect for inmate calls. With regard to common carriers, the 
    Commission and courts have routinely indicated that billing and 
    collection services provided by a
    
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    common carrier for its own customers are subject to Title II.
    
    H. Enforcement
    
        115. In this section, we explain the enforcement procedures to 
    ensure compliance with the Act, our rules, and requirement that all ICS 
    interstate rates and charges, including ancillary charges, be cost-
    based. First, we require that ICS providers file annually with the 
    Commission information on their ICS rates as well as a certification of 
    compliance with the requirements set forth in this Order. Second, we 
    remind ICS providers of the requirement to comply with existing 
    Commission rules. Finally, we remind parties that our enforcement and 
    complaint process may result in monetary forfeiture and/or refunds to 
    ICS end users.
    1. ICS Provider Certification Requirement
        116. We establish annual certification requirements to facilitate 
    enforcement and as an additional means of ensuring that each and every 
    ICS providers' rates and practices are just, reasonable, and fair and 
    remain in compliance with this Order. First, we require all providers 
    of ICS to file annually by April 1st data regarding their interstate 
    and intrastate ICS rates, with local or other categories of rates 
    broken out separately to the extent they vary, and minutes of use by 
    correctional facility, as well as average duration of calls. Having 
    comprehensive ICS rate information available in a common format will 
    simplify the Commission's task of reviewing these rates and will 
    provide consumers and advocates with an additional resource for 
    understanding them. We require ICS providers to submit annually, by 
    state, their overall percentage of calls disconnected by the provider 
    for reasons other than expiration of time, such as security, versus 
    calls that the inmate or called party disconnected voluntarily. We also 
    require ICS providers to file with the Commission their charges to 
    consumers that are ancillary to providing the telecommunications piece 
    of ICS. These include, for example, charges to open a prepaid account, 
    to add money to a prepaid account, to close a prepaid account, to 
    receive a paper statement, to receive ICS calls on a wireless phone, or 
    any other charges to inmates or other end users associated with use of 
    ICS. These data will assist the Commission in monitoring the 
    effectiveness of the reforms we adopt today and in addressing the 
    issues raised in the attached Further Notice.
        117. We further require an officer or director of each ICS provider 
    annually to certify the accuracy of the data and information in the 
    certification, and the provider's compliance with all portions of this 
    Order, including the requirement that ICS providers may not levy or 
    collect an additional charge for any form of TRS call, and the 
    requirement that ancillary charges be cost-based. We find this to be a 
    minimally burdensome way to ensure compliance with this Order. To 
    ensure consistency with other reporting requirements and to minimize 
    burden on ICS providers, we delegate to the Bureau the authority to 
    adopt and implement a template for submitting the required data, 
    information, and certifications.
    2. Compliance With Existing Rules
        118. We remind ICS providers of their ongoing responsibilities to 
    comply with our existing rules. For example, providers of inmate 
    operator services are required to make certain oral disclosures prior 
    to the completion of the calls. Specifically, section 64.710 of our 
    rules requires providers of inmate operator services to disclose to the 
    consumer the total cost of the call prior to connecting it, including 
    any surcharges or premise-imposed fees that may apply to the call as 
    well as methods by which to make complaints concerning the charges or 
    collection practices. Additionally, ICS providers that are non-dominant 
    interexchange carriers must make their current rates, terms, and 
    conditions available to the public via their company Web sites. Any 
    violation of such responsibilities or failure to comply with existing 
    rules may subject ICS providers to enforcement action, including, among 
    other penalties, the imposition of monetary forfeitures. In the case of 
    carriers, such penalties can include forfeitures of up to $160,000 for 
    each violation or each day of a continuing violation, up to a maximum 
    of $1,575,000 per continuing violation. Where the Commission deems 
    appropriate, such as in particularly egregious cases, a carrier may 
    also face revocation of its section 214 authorization to operate as a 
    carrier. We caution ICS providers that, in order to avoid the potential 
    imposition of these and other penalties, they must comply with all 
    existing rules and requirements.
    3. Investigations
        119. In this Order, we require ICS providers to charge cost-based 
    rates and charges to inmates and their families, and establish ``safe-
    harbor'' rates at or below which rates will be presumed just and 
    reasonable. Specifically, we adopt interim safe harbor rates of $0.12 
    per minute for debit and prepaid interstate calls and $0.14 per minute 
    for collect interstate calls. Based on the evidence in this record, we 
    also set an interim hard cap on ICS providers' rates of $0.21 per 
    minute for interstate debit and prepaid calls, and $0.25 per minute for 
    collect interstate calls. This upper ceiling ensures that the highest 
    rates are reduced without delay. Although we expect the vast majority 
    of providers to be at or below our safe harbor rate levels, we provide 
    this cap to accommodate unique circumstances. ICS providers may elect 
    to charge cost-based rates between the interim safe harbor and the 
    interim cap. We delegate to the Bureau the authority to investigate ICS 
    provider rates and take appropriate actions in such investigations, 
    including the ordering of refunds.
    4. Complaints
        120. As discussed above, we require all interstate ICS rates and 
    charges to be cost-based, including ancillary charges, per-call or 
    connection charges, and per-minute rates. We note that ICS providers' 
    interstate rates that are at or below the relevant safe harbor rate 
    levels will be treated as lawful until the Commission has issued a 
    decision finding otherwise. Parties can file a complaint challenging 
    the reasonableness of interstate ICS rates and ancillary charges under 
    sections 201 and 276 of the Act, but to the extent that any such 
    complaint challenges rates that are within our safe harbor, the 
    complainant must overcome a rebuttable presumption that such rates are 
    just, reasonable, and fair. Accordingly, those rates may be challenged 
    but any rate prescription rising out of such a proceeding will be 
    forward-looking and will not include refunds.
        121. Formal Complaints. Complaints against ICS providers under the 
    rules we adopt herein should follow the process set forth in the 
    Commission's formal complaint rules. Compliance with our safe harbor 
    ICS rates will establish a presumption that such rates are just, 
    reasonable, and fair. An ICS provider will bear the burdens of 
    production and persuasion in all complaints challenging whether its ICS 
    rates and/or ancillary charges are just, reasonable, and fair in 
    compliance with sections 201 and 276 of the Act.
        122. Informal Complaints. Parties may submit informal complaints to 
    the Commission pursuant to section 1.41 of the Commission's rules. 
    Unlike formal complaints, no filing fee is required. We recommend that 
    complaining parties submit any complaints through the Commission's Web 
    site, at http://
    
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    esupport.fcc.gov/complaints.htm. The Consumer and Governmental Affairs 
    Bureau will also make available resources explaining these rules and 
    facilitating the filing of informal complaints. Although individual 
    informal complaints will not typically result in written Commission 
    orders, the Enforcement Bureau will examine trends or patterns in 
    informal complaints to identify potential targets for investigation and 
    enforcement action.
        123. If, after investigation of an informal or formal complaint, it 
    is determined that ICS providers interstate rates and/or charges, 
    including ancillary charges, are unjust, unreasonable or unfair under 
    sections 201 and 276 lower rates will be prescribed and ICS providers 
    may be ordered to pay refunds. In addition to refunds, providers may be 
    found in violation of our rules and face additional forfeitures. We 
    also interpret the language in section 276 that ICS providers be 
    ``fairly compensated'' for each and every completed call to require 
    that an ICS provider be fairly compensated on the basis of either the 
    whole of its ICS business or by groupings that reflect reasonably 
    related cost characteristics, and not on the basis of a single facility 
    it serves. Indeed, we doubt that a party could reasonably claim that 
    the Commission must individually determine the costs of each call. Some 
    averaging of costs must occur, and there is no logical reason that it 
    must occur at the facility level. Finally, we note that this approach 
    is consistent with our traditional means of evaluating providers' costs 
    and revenues for various types of communications services.
    
    I. Mandatory Data Collection
    
        124. To enable the Commission to take further action to reform 
    rates, including developing a permanent cap or safe harbor for 
    interstate rates, as well as to inform our evaluation of other rate 
    reform options in the Further Notice, we require all ICS providers to 
    file data regarding their costs to provide ICS. All such information 
    should be based on the most-recent fiscal year data at the time of 
    Office of Management and Budget approval, may be filed under protective 
    order, and will be treated as confidential. Such information will also 
    ensure that rates, charges and ancillary charges are cost-based.
        125. Specifically, we require all ICS providers to provide data to 
    document their costs for interstate, intrastate long distance and 
    intrastate local ICS for the past year. The collection of intrastate 
    data is necessary to allow us to assess what costs are reasonably 
    treated as jurisdictionally interstate. We have identified five basic 
    categories of costs that ICS providers incur: (1) Telecommunications 
    costs and interconnection fees; (2) equipment investment costs; (3) 
    equipment installation and maintenance costs; (4) security costs for 
    monitoring, call blocking; (5) costs of providing ICS that are 
    ancillary to the provision of ICS, including any costs that are passed 
    through to consumers as ancillary charges; and (6) other relevant cost 
    data as outlined in the data template discussed below. For each of the 
    first four categories, we require ICS providers to identify the fixed 
    costs, the per-call costs and the per-minute costs. Furthermore, for 
    each of these categories (fixed, per-call and per-minute costs), we 
    require ICS providers to identify both the direct costs, and the joint 
    and common costs. For the joint and common costs, we require providers 
    to explain how these costs, and rates to recover them, are apportioned 
    among the facilities they serve as well as the services that they 
    provide. For the fifth category, we require ICS providers to provide 
    their costs to establish debit and prepaid accounts for inmates in 
    facilities served by them or those inmates' called parties; to add 
    money to those established debit or prepaid accounts; to close debit or 
    prepaid accounts and refund any outstanding balance; to send paper 
    statements; to send calls to wireless numbers; and of other charges 
    ancillary to the provision of communications service. We also require 
    ICS providers to provide a list of all ancillary charges or fees they 
    charge to ICS consumers and account holders, and the level of each 
    charge or fee. We require all ICS providers to provide data on their 
    interstate and intrastate long distance and local demand (i.e., minutes 
    of use) and to apportion the minutes of use between interstate and 
    intrastate calls. Finally, we will require ICS providers to submit 
    forecasts, supported by evidence, of how they expect costs to change in 
    the future.
        126. These data will guide the Commission as it evaluates next 
    steps in the Further Notice. To ensure consistency and to minimize the 
    burden on ICS providers, we delegate to the Bureau the authority to 
    adopt a template for submitting the data and provide instructions to 
    implement the data collection. We also delegate to the Bureau authority 
    to require an ICS provider to submit additional data that the Bureau 
    deems necessary to determine cost-based rate levels for that provider.
    
    IV. Severability
    
        127. All of the rules that are adopted in this Order are designed 
    to work in unison to ensure just, reasonable, and fair interstate ICS 
    rates. However, each of the reforms we undertake in this Order serves a 
    particular function toward this goal. Therefore, it is our intent that 
    each of the rules adopted herein shall be severable. If any of the 
    rules is declared invalid or unenforceable for any reason, it is our 
    intent that the remaining rules shall remain in full force and effect.
    
    V. Procedural Matters
    
    A. Paperwork Reduction Act Analysis
    
        128. This Report and Order contains new or modified information 
    collection requirements subject to the Paperwork Reduction Act of 1995 
    (PRA), Public Law 104-13. It will be submitted to the Office of 
    Management and Budget (OMB) for review under section 3507(d) of the 
    PRA. OMB, the general public, and other Federal agencies are invited to 
    comment on the new or modified information collection requirements 
    contained in the proceeding. In addition, we note that pursuant to the 
    Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 
    U.S.C. 3506(c)(4), we previously sought comment on how the Commission 
    might further reduce the information collection burden for small 
    business concerns with fewer than 25 employees.
    
    B. Congressional Review Act
    
        129. The Commission will send a copy of this Report and Order and 
    Further Notice of Proposed Rulemaking in a report to be sent to 
    Congress and the Government Accountability Office pursuant to the 
    Congressional Review Act (CRA). See 5 U.S.C. 801(a)(1)(A).
    
    C. Final Regulatory Flexibility Analysis
    
        130. The Regulatory Flexibility Act (RFA), requires that an agency 
    prepare a regulatory flexibility analysis for notice and comment 
    rulemakings, unless the agency certifies that ``the rule will not, if 
    promulgated, have a significant economic impact on a substantial number 
    of small entities.'' Accordingly, we have prepared a Final Regulatory 
    Flexibility Analysis (FRFA) concerning the possible impact of the 
    Report and Order on small entities.
        131. As required by the Regulatory Flexibility Act of 1980, as 
    amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
    incorporated in the Notice of Proposed Rulemaking (NPRM) in WC Docket 
    12-375. The Commission sought written public comment on the proposals 
    in the NPRM, including
    
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    comment on the IRFA. The Commission did not receive comments directed 
    toward the IRFA. This Final Regulatory Flexibility Analysis (FRFA) 
    conforms to the RFA.
    1. Need for, and Objectives of, the Report and Order
        132. The Report and Order (Order) adopts rules to ensure that 
    interstate inmate calling service (ICS) rates in correctional 
    institutions are just, reasonable, and fair. In the initiating NPRM, 
    the Commission sought information on issues related to the ICS market, 
    ICS rates, and provider costs and ancillary fees. In this Order, the 
    Commission addresses interstate ICS rates, site commission payments, 
    ancillary fees, ICS for deaf and hard-of-hearing inmates, ICS call 
    types, and enforcement and data collection requirements.
        133. Evidence in the Commission's record demonstrates that ICS 
    rates today vary widely, and in far too many cases greatly exceed the 
    reasonable costs of providing the service. In the Order, the Commission 
    has found that a significant factor driving these excessive rates is 
    site commission payments: Fees paid by ICS providers to correctional 
    facilities or departments of corrections in order to win the exclusive 
    right to provide ICS. The Commission's actions in the Order are 
    required by the Communications Act, which mandates that the Commission 
    ensure that interstate rates are just and reasonable for all Americans. 
    Similarly, Congress made clear in the Act that any compensation under 
    Section 276 should be fair and ``benefit . . . the general public,'' 
    not just some segment of it.
        134. In the Order, the Commission sets an interim cap on interstate 
    ICS rates and establishes safe harbor rates. Additionally, the 
    Commission mandates that any site commission payments recovered in end-
    user rates must be based upon ICS related costs. Similarly, in the 
    Order, the Commission concludes that ancillary charges, such as account 
    set-up fees, fees to receive a paper statement, or fees to refund an 
    outstanding account balance, must also be cost-based. The Further 
    Notice of Proposed Rulemaking (FNPRM) seeks comment on additional ICS 
    issues.
    2. Summary of Significant Issues Raised by Public Comments in Response 
    to the IRFA
        135. The Commission did not receive comments specifically 
    addressing the rules and policies proposed in the IRFA.
    3. Description and Estimate of the Number of Small Entities to Which 
    Rules Will Apply
        136. The RFA directs agencies to provide a description of, and, 
    where feasible, an estimate of, the number of small entities that may 
    be affected by the rules adopted herein. The RFA generally defines the 
    term ``small entity'' as having the same meaning as the terms ``small 
    business,'' ``small organization,'' and ``small governmental 
    jurisdiction.'' In addition, the term ``small business'' has the same 
    meaning as the term ``small business concern'' under the Small Business 
    Act. A ``small business concern'' is one which: (1) Is independently 
    owned and operated; (2) is not dominant in its field of operation; and 
    (3) satisfies any additional criteria established by the Small Business 
    Administration (SBA).
        137. Small Businesses. Nationwide, there are a total of 
    approximately 27.9 million small businesses, according to the SBA.
        138. Wired Telecommunications Carriers. The SBA has developed a 
    small business size standard for Wired Telecommunications Carriers, 
    which consists of all such companies having 1,500 or fewer employees. 
    According to Census Bureau data for 2007, there were 3,188 firms in 
    this category, total, that operated for the entire year. Of this total, 
    3,144 firms had employment of 999 or fewer employees, and 44 firms had 
    employment of 1,000 employees or more. Thus, under this size standard, 
    the majority of firms can be considered small.
        139. Local Exchange Carriers (LECs). Neither the Commission nor the 
    SBA has developed a size standard for small businesses specifically 
    applicable to local exchange services. The closest applicable size 
    standard under SBA rules is for Wired Telecommunications Carriers. 
    Under that size standard, such a business is small if it has 1,500 or 
    fewer employees. According to Commission data, 1,307 carriers reported 
    that they were incumbent local exchange service providers. Of these 
    1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and 
    301 have more than 1,500 employees. Consequently, the Commission 
    estimates that most providers of local exchange service are small 
    entities that may be affected by the Commission's action.
        140. Incumbent Local Exchange Carriers (incumbent LECs). Neither 
    the Commission nor the SBA has developed a size standard for small 
    businesses specifically applicable to incumbent local exchange 
    services. The closest applicable size standard under SBA rules is for 
    Wired Telecommunications Carriers. Under that size standard, such a 
    business is small if it has 1,500 or fewer employees. According to 
    Commission data, 1,307 carriers reported that they were incumbent local 
    exchange service providers. Of these 1,307 carriers, an estimated 1,006 
    have 1,500 or fewer employees and 301 have more than 1,500 employees. 
    Consequently, the Commission estimates that most providers of incumbent 
    local exchange service are small businesses that may be affected by the 
    Commission's action.
        141. The Commission has included small incumbent LECs in this 
    present RFA analysis. As noted above, a ``small business'' under the 
    RFA is one that, inter alia, meets the pertinent small business size 
    standard (e.g., a telephone communications business having 1,500 or 
    fewer employees), and ``is not dominant in its field of operation.'' 
    The SBA's Office of Advocacy contends that, for RFA purposes, small 
    incumbent LECs are not dominant in their field of operation because any 
    such dominance is not ``national'' in scope. The Commission has 
    therefore included small incumbent LECs in this RFA analysis, although 
    it emphasizes that this RFA action has no effect on Commission analyses 
    and determinations in other, non-RFA contexts.
        142. Competitive Local Exchange Carriers (competitive LECs), 
    Competitive Access Providers (CAPs), Shared-Tenant Service Providers, 
    and Other Local Service Providers. Neither the Commission nor the SBA 
    has developed a small business size standard specifically for these 
    service providers. The appropriate size standard under SBA rules is for 
    the category Wired Telecommunications Carriers. Under that size 
    standard, such a business is small if it has 1,500 or fewer employees. 
    According to Commission data, 1,442 carriers reported that they were 
    engaged in the provision of either competitive local exchange services 
    or competitive access provider services. Of these 1,442 carriers, an 
    estimated 1,256 have 1,500 or fewer employees and 186 have more than 
    1,500 employees. In addition, 17 carriers have reported that they are 
    Shared-Tenant Service Providers, and all 17 are estimated to have 1,500 
    or fewer employees. In addition, 72 carriers have reported that they 
    are Other Local Service Providers. Of the 72, 70 have 1,500 or fewer 
    employees and two have more than 1,500 employees. Consequently, the 
    Commission estimates that most providers of competitive local exchange
    
    [[Page 67974]]
    
    service, competitive access providers, Shared-Tenant Service Providers, 
    and Other Local Service Providers are small entities that may be 
    affected by the Commission's action.
        143. Interexchange Carriers (IXCs). Neither the Commission nor the 
    SBA has developed a size standard for small businesses specifically 
    applicable to interexchange services. The closest applicable size 
    standard under SBA rules is for Wired Telecommunications Carriers. 
    Under that size standard, such a business is small if it has 1,500 or 
    fewer employees. According to Commission data, 359 companies reported 
    that their primary telecommunications service activity was the 
    provision of interexchange services. Of these 359 companies, an 
    estimated 317 have 1,500 or fewer employees and 42 have more than 1,500 
    employees. Consequently, the Commission estimates that the majority of 
    interexchange service providers are small entities that may be affected 
    by the Commission's action.
        144. Local Resellers. The SBA has developed a small business size 
    standard for the category of Telecommunications Resellers. Under that 
    size standard, such a business is small if it has 1,500 or fewer 
    employees. According to Commission data, 213 carriers have reported 
    that they are engaged in the provision of local resale services. Of 
    these, an estimated 211 have 1,500 or fewer employees and two have more 
    than 1,500 employees. Consequently, the Commission estimates that the 
    majority of local resellers are small entities that may be affected by 
    the Commission's action.
        145. Toll Resellers. The SBA has developed a small business size 
    standard for the category of Telecommunications Resellers. Under that 
    size standard, such a business is small if it has 1,500 or fewer 
    employees. According to Commission data, 881 carriers have reported 
    that they are engaged in the provision of toll resale services. Of 
    these, an estimated 857 have 1,500 or fewer employees and 24 have more 
    than 1,500 employees. Consequently, the Commission estimates that the 
    majority of toll resellers are small entities that may be affected by 
    the Commission's action.
        146. Other Toll Carriers. Neither the Commission nor the SBA has 
    developed a size standard for small businesses specifically applicable 
    to Other Toll Carriers. This category includes toll carriers that do 
    not fall within the categories of interexchange carriers, operator 
    service providers, prepaid calling card providers, satellite service 
    carriers, or toll resellers. The closest applicable size standard under 
    SBA rules is for Wired Telecommunications Carriers. Under that size 
    standard, such a business is small if it has 1,500 or fewer employees. 
    According to Commission data, 284 companies reported that their primary 
    telecommunications service activity was the provision of other toll 
    carriage. Of these, an estimated 279 have 1,500 or fewer employees and 
    five have more than 1,500 employees. Consequently, the Commission 
    estimates that most Other Toll Carriers are small entities that may be 
    affected by the Commission's action.
        147. Payphone Service Providers (PSPs). Neither the Commission nor 
    the SBA has developed a small business size standard specifically for 
    payphone services providers. The appropriate size standard under SBA 
    rules is for the category Wired Telecommunications Carriers. Under that 
    size standard, such a business is small if it has 1,500 or fewer 
    employees. According to Commission data, 535 carriers have reported 
    that they are engaged in the provision of payphone services. Of these, 
    an estimated 531 have 1,500 or fewer employees and four have more than 
    1,500 employees. Consequently, the Commission estimates that the 
    majority of payphone service providers are small entities that may be 
    affected by the Commission's action.
    4. Description of Projected Reporting, Recordkeeping, and Other 
    Compliance Requirements for Small Entities
        148. Monitoring and Certification. The Order takes steps to reform 
    ICS by requiring providers to charge cost-based rates, adopting interim 
    rate caps for collect calling and prepaid and debit calling, and 
    adopting safe-harbor rates, at or below which ICS rates will be 
    presumed to be just, reasonable, and fair. The Order requires that all 
    ICS providers file annually data on their interstate and intrastate ICS 
    rates and minutes of use. The adopted monitoring requirements will 
    facilitate enforcement and act as an additional means of ensuring that 
    ICS providers' rates and practices are just, reasonable, fair and in 
    compliance with the Order. The Commission also requires ICS providers 
    to submit annually their overall percentage of dropped calls versus 
    completed calls, as well as the number of dropped calls by state. The 
    Commission also requires ICS providers to file their charges to 
    consumers that are ancillary to providing the telecommunications 
    portion of ICS. The Commission further requires each provider to 
    annually certify its compliance with other portions of the Order, 
    including that ICS providers may not levy or collect an additional 
    charge for any form of TRS call and that ancillary service charges be 
    cost-based.
        149. Data Collection. In order to allow the Commission to establish 
    a permanent cap on interstate rates and to inform the Commission's 
    evaluation of other rate reform options in the Further Notice, the 
    Commission requires all ICS providers to file data regarding their 
    costs to provide ICS. All such information should be based on the most-
    recent fiscal year at the time of Office of Management and Budget 
    approval, may be filed under protective order, and will be treated as 
    confidential.
        150. The Commission has identified five basic categories of costs 
    that ICS providers incur: (1) Telecommunications costs, or 
    interconnection fees; (2) equipment investment costs; (3) equipment 
    installation and maintenance costs; (4) security costs for monitoring, 
    call blocking, (5) costs that are ancillary to the provision of 
    telecommunications service and (6) other relevant cost data as outlined 
    in the Bureau-produced data template discussed below. For each of the 
    first four categories, ICS providers must identify the fixed costs, the 
    per-call costs and the per-minute costs to provide each of these cost 
    categories of ICS. Furthermore, for each of these categories (fixed, 
    per-call and per-minute costs), ICS providers must identify both the 
    direct costs, and the joint and common costs. For the joint and common 
    costs, providers must explain how these costs, and recovery of them, 
    are apportioned among the facilities they serve, as well as the 
    services to which they provide. For the fifth category, we require ICS 
    providers to provide their costs to establish debit and prepaid 
    accounts for inmates in facilities served by them or those inmates' 
    called parties; to add money to those established debit or prepaid 
    accounts; to close debit or prepaid accounts and refund any outstanding 
    balance; to send paper statements; to send calls to wireless numbers 
    and other charges ancillary to the provision of telecommunications 
    service. We also require ICS providers to provide a list of all 
    ancillary charges or fees they charge to ICS consumers and account 
    holders, and the level of each charge or fee. All ICS providers must 
    provide data on their interstate and intrastate demand and to apportion 
    the minutes of use between interstate and intrastate calls. The 
    Commission delegates to the Wireline Competition Bureau (Bureau) the 
    authority to adopt a template for submitting the data.
    
    [[Page 67975]]
    
    5. Steps Taken To Minimize the Significant Economic Impact on Small 
    Entities, and Significant Alternatives Considered
        151. The RFA requires an agency to describe any significant, 
    specifically small business, alternatives that it has considered in 
    reaching its proposed approach, which may include the following four 
    alternatives (among others): ``(1) the establishment of differing 
    compliance or reporting requirements or timetables that take into 
    account the resources available to small entities; (2) the 
    clarification, consolidation, or simplification of compliance and 
    reporting requirements under the rules for such small entities; (3) the 
    use of performance rather than design standards; and (4) an exemption 
    from coverage of the rule, or any part thereof, for such small 
    entities.''
        152. The Commission needs access to data that are comprehensive, 
    reliable, sufficiently disaggregated, and reported in a standardized 
    manner. The Order recognizes, however, that reporting obligations 
    impose burdens on the reporting providers. Consequently, the Commission 
    limits its collection to information that is narrowly tailored to meet 
    its needs.
        153. Monitoring and Certification. The Commission requires ICS 
    providers to submit annually their overall percentage of dropped calls 
    versus completed calls, as well as the number of dropped calls by 
    state. The Commission requires ICS providers to file their charges to 
    consumers that are ancillary to providing the telecommunications piece 
    of ICS. Providers are currently required to post their rates publicly 
    on their Web sites. Thus, this additional filing requirement should 
    entail minimal additional compliance burden, even for the largest ICS 
    providers.
        154. The information on providers' Web sites is not certified and 
    is generally not available in a format that will provide the per-call 
    details that the Commission requires to meet its statutory obligations. 
    Thus, the Commission further requires each provider to annually certify 
    its compliance with other portions of the Order, including the 
    requirement that ICS providers may not levy or collect an additional 
    charge for any form of TRS call, and that ancillary service charges are 
    cost-based. The Commission finds that without a uniform, comprehensive 
    dataset with which to evaluate ICS providers' rates, the Commission's 
    analyses will be incomplete. The Commission recognizes that any 
    information imposes burdens, which may be most keenly felt by smaller 
    providers, but concludes that the benefits of having comprehensive data 
    substantially outweigh the burdens. Additionally, some of these 
    potential burdens, such as the filing of rates currently required to be 
    posted on an ICS provider's Web site, are minimally burdensome.
        155. Data Collection. The Commission requires ICS providers to 
    provide their costs for five basic categories of ICS costs. These data 
    will provide the Commission with sufficient information to establish 
    permanent ICS rate caps. The Commission delegates to the Bureau the 
    authority to adopt a template for submitting the data.
        156. The Commission is cognizant of the burdens of data 
    collections, and has therefore taken steps to minimize burdens, 
    including directing the Bureau to adopt a template for filing the data 
    that minimizes burdens on providers by maximizing uniformity and ease 
    of filing, while still allowing the Commission to gather the necessary 
    data. The Commission also finds that without a uniform, comprehensive 
    dataset with which to evaluate ICS providers' costs, its analyses will 
    be incomplete, and its ability to establish rate permanent ICS rate 
    caps in the future will be severely impaired. The Commission thus 
    concludes that requiring ICS providers to report this cost data 
    appropriately balances any burdens of reporting with the Commission's 
    need for the data required to carry out its statutory duties.
    6. Report to Congress
        157. The Commission will send a copy of the Order, including this 
    FRFA, in a report to be sent to Congress pursuant to the Small Business 
    Regulatory Enforcement Fairness Act of 1996. In addition, the 
    Commission will send a copy of the Order, including this FRFA, to the 
    Chief Counsel for Advocacy of the Small Business Administration. A copy 
    of the Order and FRFA (or summaries thereof) will also be published in 
    the Federal Register.
    
    VI. Ordering Clauses
    
        158. Accordingly, it is ordered that pursuant to sections 1, 4(i), 
    4(j), 201, 225, 276, and 303(r) of the Communications Act of 1934, as 
    amended, 47 U.S.C. 151, 154(i)-(j), 201, 225, 276, 303(r), the Report 
    and Order and FNPRM in WC Docket No. 12-375 are adopted, effective 90 
    days after publication in the Federal Register, except those rules and 
    requirements involving Paperwork Reduction Act burdens, as discussed 
    below.
        159. It is further ordered that Part 64 of the Commission's Rules, 
    47 CFR Part 64, is amended as set forth in Appendix A. These rules 
    shall become effective 90 days after publication in the Federal 
    Register, except for Sec.  64.6060 of the Commission's Rules and the 
    Mandatory Data Collection requirement as discussed in Section I of the 
    Order, which will become effective immediately upon announcement in the 
    Federal Register of OMB approval.
        160. It is further ordered that the Commission's Consumer and 
    Governmental Affairs Bureau, Reference Information Center, shall send a 
    copy of this Order and FNPRM, including the Final Regulatory 
    Flexibility Analysis and Initial Regulatory Flexibility Analysis, to 
    the Chief Counsel for Advocacy of the Small Business Administration.
    
    List of Subjects in 47 CFR Part 64
    
        Inmate calling services, Telecommunications.
    
    Federal Communications Commission.
    Marlene H. Dortch,
    Secretary.
    
        In consideration of the foregoing, the Federal Communications 
    Commission amends 47 CFR part 64 as follows:
    
    PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS
    
    0
    1. The authority citation for part 64 continues to read as follows:
    
        Authority:  47 U.S.C. 154, 254(k); 403(b)(2)(B), (c), Pub. L. 
    104-104, 110 Stat. 56. Interpret or apply 47 U.S.C. 201, 218, 222, 
    225, 226, 227, 228, 254(k), 616, 620, and the Middle Class Tax 
    Relief and Job Creation Act of 2012, Pub. L. 112-96, unless 
    otherwise noted.
    
    0
    2. Add new subpart FF to part 64 to read as follows:
    Subpart FF--Inmate Calling Services
    Sec.
    64.6000 Definitions.
    64.6010 Cost-based rates for inmate calling services.
    64.6020 Interim safe harbor.
    64.6030 Inmate calling services interim rate cap.
    64.6040 Rates for Telecommunications Relay Service (TRS) calling.
    64.6050 Billing-related call blocking.
    64.6060 Annual reporting and certification requirement.
    
    Subpart FF--Inmate Calling Services
    
    
    Sec.  64.6000  Definitions.
    
        As used in this subpart:
        Ancillary charges mean any charges to Consumers not included in the 
    charges assessed for individual calls and that Consumers may be 
    assessed for the use
    
    [[Page 67976]]
    
    of Inmate Calling Services. Ancillary Charges include, but are not 
    limited to, fees to create, maintain, or close an account with a 
    Provider; fees in connection with account balances, including fees to 
    add money to an account; and fees for obtaining refunds of outstanding 
    funds in an account;
        Collect calling means a calling arrangement whereby the called 
    party agrees to pay for charges associated with an Inmate Calling 
    Services call originating from an Inmate Telephone;
        Consumer means the party paying a Provider of Inmate Calling 
    Services;
        Debit calling means a calling arrangement that allows a Consumer to 
    pay for Inmate Calling Services from an existing or established 
    account;
        Inmate means a person detained at a correctional institution, 
    regardless of the duration of the detention;
        Inmate calling services means the offering of interstate calling 
    capabilities from an Inmate Telephone;
        Inmate telephone means a telephone instrument or other device 
    capable of initiating telephone calls set aside by authorities of a 
    correctional institution for use by Inmates;
        Prepaid calling means a calling arrangement that allows Consumers 
    to pay in advance for a specified amount of Inmate Calling Services;
        Prepaid collect calling means a calling arrangement that allows an 
    Inmate to initiate an Inmate Calling Services call without having a 
    pre-established billing arrangement and also provides a means, within 
    that call, for the called party to establish an arrangement to be 
    billed directly by the Provider of Inmate Calling Services for future 
    calls from the same Inmate;
        Provider of Inmate Calling Services, or Provider, means any 
    communications service provider that provides Inmate Calling Services, 
    regardless of the technology used.
    
    
    Sec.  64.6010  Cost-based rates for inmate calling services.
    
        All rates charged for Inmate Calling Services and all Ancillary 
    Charges must be based only on costs that are reasonably and directly 
    related to the provision of ICS.
    
    
    Sec.  64.6020  Interim safe harbor.
    
        (a) A Provider's rates are presumptively in compliance with Sec.  
    64.6010 (subject to rebuttal) if:
        (1) None of the Provider's rates for Collect Calling exceed $0.14 
    per minute at any correctional institution, and
        (2) None of the Provider's rates for Debit Calling, Prepaid 
    Calling, or Prepaid Collect Calling exceed $0.12 per minute at any 
    correctional institution.
        (b) A Provider's rates shall be considered consistent with 
    paragraph (a) of this section if the total charge for a 15-minute call, 
    including any per-call or per-connection charges, does not exceed the 
    appropriate rate in paragraph (a)(1) or (2) of this section for a 15-
    minute call.
        (c) A Provider's rates that are consistent with paragraph (a) of 
    this section will be treated as lawful unless and until the Commission 
    or the Wireline Competition Bureau, acting under delegated authority, 
    issues a decision finding otherwise.
    
    
    Sec.  64.6030  Inmate calling services interim rate cap.
    
        No provider shall charge a rate for Collect Calling in excess of 
    $0.25 per minute, or a rate for Debit Calling, Prepaid Calling, or 
    Prepaid Collect Calling in excess of $0.21 per minute. A Provider's 
    rates shall be considered consistent with this section if the total 
    charge for a 15-minute call, including any per-call or per-connection 
    charges, does not exceed $3.75 for a 15-minute call using Collect 
    Calling, or $3.15 for a 15-minute call using Debit Calling, Prepaid 
    Calling, or Prepaid Collect Calling.
    
    
    Sec.  64.6040  Rates for Telecommunications Relay Service (TRS) 
    calling.
    
        No Provider shall levy or collect any charge in addition to or in 
    excess of the rates for Inmate Calling Services or charges for 
    Ancillary Charges for any form of TRS call.
    
    
    Sec.  64.6050  Billing-related call blocking.
    
        No Provider shall prohibit or prevent completion of a Collect 
    Calling call or decline to establish or otherwise degrade Collect 
    Calling solely for the reason that it lacks a billing relationship with 
    the called party's communications service provider unless the Provider 
    offers Debit Calling, Prepaid Calling, or Prepaid Collect Calling.
    
    
    Sec.  64.6060  Annual reporting and certification requirement.
    
        (a) All Providers must submit a report to the Commission, by April 
    1st of each year, regarding their interstate and intrastate Inmate 
    Calling Services for the prior calendar year. The report shall contain:
        (1) The following information broken out by correctional 
    institution; by jurisdictional nature to the extent that there are 
    differences among interstate, intrastate, and local calls; and by the 
    nature of the billing arrangement to the extent there are differences 
    among Collect Calling, Debit Calling, Prepaid Calling, Prepaid Collect 
    Calling, or any other type of billing arrangement:
        (i) Rates for Inmate Calling Services, reporting separately per-
    minute rates and per-call or per-connection charges;
        (ii) Ancillary charges;
        (iii) Minutes of use;
        (iv) The average duration of calls;
        (v) The percentage of calls disconnected by the Provider for 
    reasons other than expiration of time;
        (vi) The number of calls disconnected by the Provider for reasons 
    other than expiration of time;
        (2) A certification that the Provider was in compliance during the 
    entire prior calendar year with the rates for Telecommunications Relay 
    Service as required by Sec.  64.6040;
        (3) A certification that the Provider was in compliance during the 
    entire prior calendar year with the requirement that all rates and 
    charges be cost-based as required by Sec.  64.6010, including Ancillary 
    Charges.
        (b) An officer or director from each Provider must certify that the 
    reported information and data are accurate and complete to the best of 
    his or her knowledge, information, and belief.
    
    [FR Doc. 2013-26378 Filed 11-12-13; 8:45 am]
    BILLING CODE 6712-01-P
    
    
    
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