To reach these conclusions, Chairman Pai accepts an alternative reality. For example, he appears to believe that interested parties report the actual costs of doing business to the last dollar. The Chairman takes as a fact the calculation made by the National Sheriffs’ Association that annual administration costs for jail-based calling amounted to $244,253,292 around 2012-13, but the FCC’s price cap/safe harbor rate would yield only $136,704,062 in revenue. See Dissenting Statement of Commissioner Ajit Pai, Re: Rates for Interstate Inmate Calling Services, WC Docket No. 12-375; available at: https://apps.fcc.gov/edocs_public/attachmatch/DOC-340632A5.pdf. He can conclude that the FCC would impose “confiscatory” rates on long suffering inmate calling companies should they have to reduce rates.
Let’s take a look at the U.S. inmate calling industry and its financial viability. Two privately owned companies, Global Tel*Link and Securus Technologies control 70% of the market. These companies pay massive commissions—some would say kickbacks—to jails and prisons. That surely contributed significantly to the Sheriffs’ $244.2 million calculation. Let’s call them franchise fees. No stakeholder, no one at the FCC, no one period has provided credible evidence that these inmate carrier costs plus franchise fees are compensatory vis a vis the cost of providing telephone service. Inmate calling companies operate as telecommunications service providers, subject to Title II common carrier regulation. Their rates have to be cost-compensatory, plus a reasonable profit. Fees of any sort have to relate to the cost of providing service and not doughnuts, boondoggle trips to conferences and kickbacks.
Chairman Pai has railed against voodoo economics and the absence of economics. Yet when it comes to inmate calling, he accepts the accounting of a stakeholder having every incentive to pad the cost calculation.
The Sheriffs’ calculation and Chairman Pai’s endorsement of it do not pass the smell test. Outside the penal environment, long distance telephone calls cost retail subscribers about 2-5 cents for interstate calls and about 10-15 cents for intrastate calls. For example, see http://www.phonedog.com/long-distance. Outside jail, telecommunications costs are so cheap that it makes financial sense to use cheap overseas labor to provide operator assistance. Operator assistance is also computerized.