FCC Chairman Pai’s Alternative Personalities, Facts, Economics and Law—Part One

            FCC Chairman Pai has launched a charm offensive showcasing his commitment to transparency and regulatory restraint.  However, behind the scenes, he ignores due process, the rule of law, FCC tradition, bipartisanship and fair play to shut down previous FCC initiatives of which he disapproves. 

            For example, this bi-polar personality makes it possible for the Chairman to claim how much he cares about curbing extraordinarily gouging long distance telephone rates borne by the “captive” 2.2 million inmates in the U.S. even as he instructs his General Counsel to abandon any participation in an ongoing judicial review of prior FCC decision which resulted in rules.  See New Chairman Orders FCC To Abandon Court Defense Of Rule Limiting Prison Phone Rates; https://consumerist.com/2017/02/02/new-chairman-orders-fcc-to-abandon-court-defense-of-rule-limiting-prison-phone-rates/. By ordering his counsel’s no show,—akin to the Democratic Senators’ boycotts of Trump Cabinet nominee confirmation hearings—Chairman Pai facilitates maintenance of the status quo.

            Ironically, the Chairman has acknowledged the inmate calling marketplace fails to support his heartfelt belief that markets usually are infallible and efficient:

I believe that the government should usually stay its hand in economic matters and allow the price of goods and services to respond to consumer choice and competition. But sometimes the market fails, and government intervention carefully tailored to address that market failure is appropriate. Dissenting Statement of Commissioner Ajit Pai as Delivered at the August 9, 2013 Open Agenda Meeting, Re: Rates for Interstate Inmate Calling Services, WC Docket No. 12-375; available at: https://apps.fcc.gov/edocs_public/attachmatch/DOC-322749A4.pdf.

            On the other hand, Chairman Pai willingly works to prevent the consequences of market failure and the need for remedies, if the FCC errs in any way that he believes might establish a precedent for jurisdiction and overreach where market self-regulation suffices.  Better to eliminate in its entirety a ruling containing Pai-identified flaws than subject it to a court test, and refinements under his administration.

            The Pai-identified flaws are based on alternative facts, economics, accounting and law.

The Chairman has determined that the FCC’s prescribed per minute caps would prevent inmate calling companies from recouping costs.  He has interpreted Sec. 276 of the Communications Act as foreclosing any FCC jurisdiction over intrastate calling by inmates.  Additionally, the Chairman reads Sec. 276 as authorizing the FCC to remedy the unlikely instances of below cost rates, but prohibiting the Commission from remedying the far more likely scenario of rate gouging.

            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.

            I don’t believe the Sheriffs have made a credible calculation, nor do I believe their threat to yank out phones if the FCC’s 13 cent rate cap were implemented.  If a jail’s phones accrue $2 million in phone commissions annually, which would management choose: $0, or $1.5 million?  Similarly, I have seen no evidence that jailors are spending millions policing, monitoring, and safeguarding the payphones.

            I readily accept that jails house a lot of “bad dudes,” foreign and domestic.  They have to pay a debt to society, but it does not have to include $15 for a 10 minute telephone call.        

            In this time of alternative realities, apparently the Chairman can be all things to all people.  It simply depends on your selective perception.

One Minute on How Washington and the Law Screw the Powerless

            Start the clock.

            After neglecting the issue for years, the FCC Democrats seek to reduce rip off in-mate calling rates to between 11 and 14 cents per minute.  See https://www.fcc.gov/document/fcc-takes-next-big-steps-reducing-inmate-calling-rates; https://www.fcc.gov/consumers/guides/inmate-telephone-service; http://arstechnica.com/tech-policy/2016/03/in-blow-to-inmates-families-court-halts-new-prison-phone-rate-caps;

 

            The two major inmate calling companies, which had offered incredibly lucrative kickbacks to jails, retain the services of the best counsel money can buy, roughly $600 an hour. 

            These quite talented counsel, one of whom I worked with many years ago, seek and secure an injunction on grounds that the FCC lacks lawful authority to interfere with the sweetheart contracts with jail administrators.

            The grant of an injunction typically means the court buys the telephone company’s legal arguments.  Put another way, the court won’t reject incredible rip off, kickbacks as unconscionable and void against public policy.  So it’s appears that if you’re in jail, you should have to pay up to $17 in fees for the privilege of making a telephone call and the rate should gross exceed by one cent per minutes or less cost of the call to people outside the pen.  How dare the FCC interfere with the “sanctity of contract!”

 

            Add to the mix a snarky and mean-spirited “I told you so” by a righteously indignant Republican FCC Commissioner. See https://www.fcc.gov/document/commissioner-pai-dc-circuit-staying-inmate-calling-rate-regulation

            Get the picture?

Why Should We Care? 

            We should care, because of the reverse logic used by counsel and accepted by the D.C. Circuit.  It goes like this: inmate calling services can offer incredibly generous kickbacks to jails, because they can charge incredible rates.  The FCC has no rate ceiling on interstate long distance calls having eliminated such a consumer safeguard based on a finding that robust competition would generate fair and cost-based rates.  Of course there are in jail monopolies which can charge anything they want in light of the now eliminated caps.  If the telephone companies offer a kickback, then no one complains other than the inmates and their families and why should we care about them.  They are convicted criminals and family members of convicted criminals.

 

            An FCC attempt to supersede a lawful contract exceeds the Commission’s lawful authority having deregulated long distance telephone service.  So the argument goes around in circles with no one apparently looking at the rates vis a vis the kickbacks.

            No one can argue that the rates are cost based and fair, but of course that doesn’t stop the Attorney General of Arkansas and others from cheering on the kickbacks. See  http://arkansasag.gov/news-and-consumer-alerts/details/rutledge-d.c.-circuit-grants-stay-of-costly-fcc-order.

            Instead they can make the argument that once willing parties have entered into a binding contract, the FCC cannot subvert it by identifying how cruel, unusual, harmful and the contract is.