New law threatens private equity profits from “exorbitant” prison communications fees

In December 2022, Congress approved the The Martha Wright-Reed Just and Reasonable Communications Act after a decades-long fight to make prison communications more affordable.[1] It has since been signed into law.[2] Named for a woman who sued Corrections Corporation of America (now CoreCivic) in 2000 after paying thousands of dollars to call her grandson, the bill gives the Federal Communications Commission (FCC) the authority to regulate costs of phone calls and other communications between incarcerated people and their loved ones.[3] Though the FCC already had the power to regulate prices for calls between states, the Commission did not have authority to do so within states.[4] Furthermore, the bill extends the FCC’s authority to all forms of communication, as video calling has become increasingly popular in the last decade and has been used by some jails and prisons to replace physical visits since at least 2016.[5]

This bill will almost certainly affect revenues for prison telecommunications services, the largest of which are owned by private equity firms. Securus, owned by Platinum Equity, and ViaPath (formerly Global Tel Link), owned by American Securities, dominated an estimated 74 to 83 percent of the market as of 2019 while no other competitors controlled more than 3 percent.[6] Prisons and jails contract with a single provider, allowing companies to charge ridiculous prices in what is literally a captive market. In 2018, Securus charged as much as $22.56 for a 15-minute phone call, while ViaPath charged as much as $16.50.[7] On top of the base per-minute charges for calls, companies tack on additional fees for things like adding funds to an account or making a call without an account.[8]

These high fees charged to incarcerated people and their families have been lucrative for private equity – American Securities, for example, collected a $215 million dividend from ViaPath in February 2022.[9]

Families and loved ones of incarcerated people are usually stuck with the bill, leading to impossible choices – for example, an Oklahoma woman who is unable to work due to health issues struggles to come up with the money to speak to her husband: “We have to make a decision either be behind on bills or be able to communicate with our loved ones.”[10]

Beyond easing burdens for people both inside and outside of jails and prisons, the bill will likely interrupt and possibly reverse consolidation in the prison communications sector, which has been driven by private equity firms like Platinum Equity and American Securities. According to Senator Tammy Duckworth, the bill’s lead sponsor, “the existing market has failed to produce adequate competition to protect inmates and detainees, their families, and law enforcement.[11] The bill addresses this market failure (“localized monopolies”) that limits competition at facilities.” This is a problem that the FCC has been concerned with for years; in 2017, former FCC Commissioner Mignon Clyburn called the sector “the clearest, most glaring type of market failure I’ve ever seen as a regulator.”[12]

Now, recent declines in the value of both Securus’ or ViaPath’s debt suggest that investors see a greater likelihood that they be headed for defaults. Securus’ $1.3 billion in debt traded for as little as 56 cents on the dollar as of February 2, 2023, down from 96 cents on the dollar a year ago.[13] In December 2022, credit rating agency S&P downgraded Securus parent Aventiv Technologies. One of its loans fell to around 77 cents on the dollar from about 84 cents in a matter of hours.[14]

ViaPath’s $1.4 billion in debt traded for as little as 76 cents on the dollar as of February 2, 2023, down from 96 cents on the dollar a year ago.[15]

While prison telecom companies and the private equity firms that own them profit from high rates, county sheriff offices and state corrections departments often receive “commissions” (a form of legal kickbacks) from calls. Though these kickbacks could be used to improve conditions for incarcerated people, investigations have revealed that departments have used kickbacks to provide perks for jail staff. Dauphin County, PA, where calls cost more than $3 each, has collected $3.4 million in kickbacks since 2019. With this money, the county purchased 480 gun range memberships (despite having fewer than 300 jail employees), uniforms, and employee appreciation meals.[16] The Prison Policy Initiative notes that kickbacks are fundamental to the current industry business model: “jails and prisons often choose their telecom providers on the basis of which company will pay the facility the most money in kickbacks.”[17]

Without the ability to charge higher fees and offer greater kickbacks, companies would need to make efficient, innovative communications systems for affordable prices to beat the  competition. Given private equity’s commitment to prioritizing return on investment, firms may seek to exit the sector before the FCC caps rates in 2024. Platinum Equity has already been subject to scrutiny for its investment in Securus in recent years as pressure from incarcerated people, their loved ones, and advocates garnered media attention.[18] Despite facing clear calls to exit the investment, Platinum Equity continues to hold Securus in its portfolio.[19]

Some states have already taken action to reduce or eliminate prison communications costs – at least 11 states have banned kickbacks,[20] while calls are free in California[21] and Connecticut[22]. The Act requires the FCC to implement maximum service rates between 18 and 24 months from the enactment, meaning that new rates will go into effect in the second half of 2024.[23]

The Martha Wright-Reed Act is a monumental victory for communities across the country. As noted by Worth Rises Executive Director Bianca Tylek, “This legislation will bring extraordinary relief to families with incarcerated loved ones – parents and children especially – who need to stay connected. Those connections are important to the strength of families, well-being of people inside, and their mutual success upon reentry. Their success benefits us all.”[24]

[1] Senator Tammy Duckworth. “The Martha Wright-Reed Just and Reasonable Communications Act.” https://www.duckworth.senate.gov/imo/media/doc/White%20Paper%20-%20Martha%20Wright-Reed%20J&R%20Communications%20Act.pdf.

[2] Bertram, Martha. “Since You Asked: What’s next for prison and jail phone justice now that the Martha Wright-Reed Just and Reasonable Communications Act is law?” Prison Policy Institute, January 19, 2023. https://www.prisonpolicy.org/blog/2023/01/19/martha-wright-reed-act/

[3] Hayes, Myaisha. “Prison Phone Justice is a Gender Justice Issue: The Legacy of Mrs. Martha Wright-Reed,” MediaJustice, March 8, 2019. https://mediajustice.org/news/prison-phone-justice-is-a-gender-justice-issue-the-legacy-of-mrs-martha-wright-reed/.

[4] Sharman, Chuck. “FCC Takes Further Action on Prison and Jail Phone Rates,” Prison Legal News, September 1, 2021. https://www.prisonlegalnews.org/news/2021/sep/1/fcc-takes-further-action-prison-and-jail-phone-rates/.

[5] Lewis, Danny. “Video Calls Are Replacing In-Person Visits at Some Prisons,” Smithsonian Maganize, May 9, 2016. https://www.smithsonianmag.com/smart-news/video-calls-are-replacing-in-person-visits-at-some-prisons-180959025/.

[6] “Victory for phone justice: Securus and ICSolutions abandon attempted merger,” Prison Policy Initiative, April 2, 2019. https://www.prisonpolicy.org/blog/2019/04/02/securus-ics-merger/.

[7] “Phone rates and average daily population in Michigan jails,” Prison Policy Initiative, https://www.prisonpolicy.org/phones/appendix_table_7.html.

[8] Wagner, Peter and Wanda Bertram. “State of Phone Justice 2022,” Prison Policy Initiative, December 2022. https://www.prisonpolicy.org/phones/state_of_phone_justice_2022.html#feesprogress.

[9] “Moody’s affirms Viapath’s B3 CFR, upgrades first lien to B1,” Moody’s, February 7, 2022. https://www.moodys.com/research/Moodys-affirms-Viapaths-B3-CFR-upgrades-first-lien-to-B1–PR_462404

[10] Huffman, Ashlynd. “Relief is Coming for Families of the Incarcerated, but Will Oklahomans Feel It?,” Oklahoma Watch, January 19, 2023. https://oklahomawatch.org/2023/01/19/relief-is-coming-for-families-of-the-incarcerated-but-will-oklahomans-feel-it/.

[11] Senator Tammy Duckworth. “The Martha Wright-Reed Just and Reasonable Communications Act.” https://www.duckworth.senate.gov/imo/media/doc/White%20Paper%20-%20Martha%20Wright-Reed%20J&R%20Communications%20Act.pdf.

[12] Coldeway, Devin. “The FCC can finally hammer predatory prison phone call companies, thanks to just-passed bill,” TechCrunch, December 22, 2022. https://techcrunch.com/2022/12/22/the-fcc-can-finally-hammer-predatory-prison-phonecall-companies-thanks-to-just-passed-bill/?guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAL2h8RIu3JEGzNhFtMiepAdNGOdv9Kx23oEuTvUkuZXpfPkGXdCsnZDnL3xKSEM6FQdmFj3huBL5SObA6zBoKMS0kcg585cIFR92Uzi2sjE7NGXzcbes9q61BGx79ff0ewWSEvjE4Q1DUWGYyjtHpI25E2IrlRL_6r2aUyO_fKjD&guccounter=2.

[13] [13] Bloomberg terminal, accessed February 2, 2023.

[14] Arroyo, Carmen. “Debt Investors Are Bracing for Trouble, and Pushing Risky Loan Prices to Extremes,” Bloomberg, December 22, 2022. https://www.bloomberg.com/news/articles/2022-12-22/clos-bracing-for-trouble-are-pushing-loan-prices-to-extremes

[15] Bloomberg terminal, accessed February 2, 2023.

[16] Vaughn, Joshua. “Dauphin County made millions on jail phone calls and spent it on staff perks, contractors,” PennLive, January 10, 2023. https://www.pennlive.com/news/2023/01/dauphin-county-made-millions-on-jail-phone-calls-and-spent-it-on-staff-perks-contractors.html.

[17] Wagner, Peter and Wanda Bertram. “State of Phone Justice 2022,” Prison Policy Initiative, December 2022. https://www.prisonpolicy.org/phones/state_of_phone_justice_2022.html.

[18] “LA Times series on Platinum Equity owner Tom Gores highlights headline risk of Securus prison phone investment,” Private Equity Stakeholder Project, October 24, 2019. https://pestakeholder.org/news/la-times-series-on-platinum-equity-owner-tom-gores-highlights-headline-risk-of-securus-prison-phone-investment/.

[19] Letter to Platinum Equity from Worth Rises. https://pestakeholder.org/wp-content/uploads/2019/04/2019.03.19-Platinum-Equity-Securus-Commitment.pdf. https://www.platinumequity.com/our-company/aventiv/, accessed February 2, 2023.

[20] “Intrastate (in-state) Collect Prison Phone Rates,” Prison Phone Justice, https://www.prisonphonejustice.org.

[21] “CDCR Launching Free Audio Calls for Incarcerated Population,” California Department of Corrections and Rehabilitation, December 30, 2022. https://www.cdcr.ca.gov/news/2022/12/30/cdcr-launching-free-audio-calls-for-incarcerated-population/.

[22] Johnston, Taylor. “Now free, phone calls in Connecticut prisons soar,” CT Insider, November 3, 2022. https://www.ctinsider.com/news/article/free-phone-calls-CT-prisons-increased-17553263.php.

[23] United States Congress. S.1541 – Martha Wright-Reed Just and Reasonable Communications Act of 2022. https://www.congress.gov/bill/117th-congress/senate-bill/1541/text.

[24] “Congress Passes Legislation Granting FCC Authority to Address Exorbitant Cost of All Prison and Jail Phone and Video Calls,” Worth Rises, December 22, 2022. https://worthrises.org/pressreleases/martha-wright-reed.