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SnN FRANCISCO 1.05 AYGCLCT UEZIYrn PAI.O AI.TO WALNUT CREEK SACRAMENTO CENTURY ORANGE COCNTY SAN DlECO Marlene H. Dortch MORRISON & FOERSTER LLP ATTORVEYS AT LAW 1Mn PENNSVLVAhlh AVENUE. XW WASHIkGTON. OC.2WIW I tltl'HDNt (2UZI Il-IM TELEFACS1MII.E OW1 RR7ma November 3,2003 RECEIVED NOV - 3 2003 STAMP AND RETURN Writer's Direct Contact fkrogh@nofo.com (202) 887-8743 FEOEIUL COMMUNIWlaw Secretary 445 12th Street, S.W. Room TW-A325 Washington, D.C. 20554 Federal Communications Commission OFFICE Cf THE S?mm Re: Petition for Rulemaking by Martha Wright, et al., on referral from Wrighf v. Corrections Corporation of America, CA No. 00-293 (GK) (D.D.C.) Dear Ms. Dortch Enclosed are an original and four copies of a Petiticn for Rulemaking or. in the Alternative, Petition to Address Refenal Issies in Pending Rulemaking ("Petition"), filed on behalf of Martha Wright and other prison inmate and non-inmate petitioners. This Petition is filed in response to an order entered in the above-captioned class action referring to the Commission petitioners' claims relating to the exorbitant long distance telephone service rates imposed on inmates at privately administered prisons and persons receiving collect calls from such inmates.' These excessive inmate service rates result from the exclusive service agreements entered into between prison administrators and telecommunications carriers and the payment of generous commissions to each prison facility by its monopoly service provider. As explained in the expert affidavit attached to the Petition, there are no security or other penological justifications for these exclusive service agreements. It would be technologically and economically feasible for multiple carriers to offer telephone services to inmates at any given prison while meeting all legitimate security and other penological needs. Accordingly, petitioners request that the Commission prohibit exclusive inmate calling service agreements at privately administered prisons and require such facilities to ~~~~~~ ~ ~ ' Wright v. Corrections Corporation ofAmerico. CA No. 00-293 (GK) (D.D.C. A%. 22.2001). MORRISON & FOERSTER LLP Marlene H. Dortch November 3,2003 Page Two ..- permit multiple long distance carriers to interconnect with prison telephone systems in the manner described in the expert affidavit. Service providers also should be required to offer debit card or debit account service as an alternative to collect calling services. Any questions about the Petition or supporting materials should be directed to the undersigned. Frank W. Krogh Enclosure CC: Christopher Libertelli Matthew Brill Jessica Rosenworcel Daniel Gonzalez Lisa Zaina William Maher Tamara Preiss Deena Shetler Daniel P. Struck Mark Schneider Frank R. Volpe Anita Wallgren Jay M. Vogelson Christopher R. Bjornson Charles Sullivan Kay Perry Lynn Powell Carol Finley Douglas Dawson dc-362764 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of Martha Wright, Dorothy Wade, Annette Wade, Ethel Peoples, Mattie Lucas, Laurie Nelson, Winston Bliss, Sheila Taylor, Gaffney & Schember, M. Elizabeth Kent, Katharine Goray, Ulandis Forte, Charles Wade, Earl Peoples, Darrell Nelson, Melvin Taylor, Jackie Lucas, Peter Bliss, David Hernandez, Lisa Hernandez and Vendella F. Oura Petition for Rulemaking or, in the Alternative, Petition to Address Referral Issues In Pending Rulemaking PETITION FOR RULEMAKING OR, IN THE ALTERNATIVE, PETITION TO ADDRESS REFERRAL ISSUES IN PENDING RULEMAKING Deborah M. Golden D.C. Prisoners? Legal Services Project, Inc. 2639 Connecticut Ave., N.W. Suite 225 Washington, D.C. 20008 (202) 775-0323 Suite 5500 Cheryl A. Tritt Frank W. Krogh Jennifer L. Kostyu Morrison & Foerster, LLP 2000 Pennsylvania Avenue, N.W. Washington, D.C. 20006 (202) 887-1510 Stephen G. Seliger Laurie S. Elkin Seliger & Elkin, Ltd. #500 155 North Michigan Avenue Chicago, IL 60601 (312) 616-4244 Barbara J. Olshansky Center for Constitutional Rights 666 Broadway, 7Ih Floor New York,NY 10012 (212) 614-6464 x 439 Dated: October 31,2003 TABLE OF CONTENTS Page I. INTRODUCTION AND SUMMARY ...................................................................... 2 11. BACKGROUND 4 ....................................................................................................... 111.. THE COMMISSION?S POLICY ALLOWING EXCLUSIVE DEALING ARRANGEMENTS IS BASED ON AN INCORECT ASSUMPTION, PREVENTS COMPETITION M THE INMATE CALLING SERVICE MARKET AND MUST BE RECONSIDERED ....................................................... 9 A. The Commission?s Policy Incorrectly Assumes That Security Conc?erns Preclude The Possibility of Competition In Inmate 9 Calling Services ................................................................................................ B. Competition In Inmate alling Services May Be Allowed Without Sacrificing Legitimate Security Or Other Penological Goals ......................... 11 C. Because Exclusive Dealing Arrangements And Restrictions That Limit Inmate Telephone Services To Collect Calling Are Not Justified, They Should Be Prohibited To Advance The Public 15 Interest In Reasonable Calling Rates .............................................................. D. The Commission Should Implement A Competitive Inmate Calling Policy By Issuing Basic Ground Rules ........................................................... 16 IV. CONCLUSION 21 ........................................................................................................ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: Martha Wright, Dorothy Wade, Annette Wade, Ethel Peoples, Mattie Lucas, Laurie Nelson, Winston Bliss, Sheila Taylor, Gaffney & Schember, M. Elizabeth Kent, Katharine Goray, Ulandis Forte, Charles Wade, Earl Peoples, Dane11 Nelson, Melvin Taylor, Jackie Lucas, Peter Bliss, David Hernandez, Lisa Hernandez and Vendella F. Oura Petition for Rulemaking or, in the Alternative, Petition to Address Referral Issues In Pending Rulemaking To the Commission: PETITION FOR RULEMAKING OR, IN THE ALTERNATIVE, PETITION TO ADDRESS REFERRAL ISSUES IN PENDING RULEMAKING I Martha Wright, Dorothy Wade, Annette Wade, Ethel Peoples, Mattie Lucas, Laurie Nelson, Winston Bliss, Sheila Taylor, Gaffney & Schember, M. Elizabeth Kent, Katharine Goray, Ulandis Forte, Charles Wade, Earl Peoples, Darrell Nelson, Melvin Taylor, Jackie Lucas, Peter Bliss, David Hernandez, Lisa Hernandez and Vendella F. Qua (collectively, ?Petitioners?) petition this Commission to address anticompetitive practices that result in excessive inmate telephone service rates at privately-administered prisons. Martha Wright and other Petitioners originally sought relief from these practices in Wrighr, er ai. v. Correciions Corporalion of America et 01. (?Wright?), which was referred to the Commission with the instruction that the parties ?file the appropriate pleadings with the FCC?.? Accordingly, pursuant to Section I .401 of the Commission?s rules: Petitioners request the Commission to initiate a notice and comment rulemaking proceeding to address certain of the referral issues as set forth below. I. lNTRODUCTION AND SUMMARY Prison inmates generally pay some of the highest long distance rates in the country, the result of the exclusive service agreements that prison administrators typically enter into with telecommunications carriers for inmate calling services. These arrangements usually involve the payment of generous commissions to the prison facility by the winning service provider, which recovers these costs by charging exorbitant rates. Prison officials assert that multiple telephone service providers would jeopardize prison security and anti-fraud measures and undermine other penological goals. These exclusive arrangements, however, preclude effective competition for inmate calling services and result in excessive calling rates. At some prison facilities, inmates also are limited to collect calling services and are not offered the cheaper alternative of debit card or debit account calling services. Petitioners are current or former prison inmates in facilities operated by the Corrections Corporation of America (?CCA?), a defendant in the Wright case, and family members, loved ones, legal counsel and others who receive and typically pay for interstate telephone calls from inmates. The Petitioners and other similarly situated persons are harmed by the inflated rates resulting from these exclusive service agreements, excessive commissions and ?collect call- only? requirements governing the provision of inmate telephone services at CCA facilities by the ? Wright v. Corrections Corp. ofAmerica, C.A. No. 00-293 (GK) (D.D.C. Aug. 22,20Ol), Order, slip op. at 1. 47 C.F.R. S 1.401. 2 long distance carrier defendants in the Wrighr case. The tremendous cost of long distance telephone calls from inmates, often located far from their relatives and legal counsel, harms the Petitioner inmates and other low income Petitioners paying these rates. Petitioners are forced to restrict their calling or acceptance of collect calls, effectively depriving Petitioner inmates and family members of their most reasonable means of communication and further straining the family and community ties necessary for released inmates? rehabilitation? Existing Commission rules and policy have long condoned these exclusive service arrangements and restrictions on inmate calling options based upon the assumption that security and other penological considerations justify these practices. As demonstrated in the attached expert affidavit of Douglas A. Dawson (?Dawson Affidavit?), however, that assumption is wrong. It is both technically and economically feasible for multiple carriers to offer telephone services to inmates at any given prison while meeting all legirirnare securiv and other penological needs. Accordingly, Petitioners request that the Commission prohibit exclusive inmate calling service agreements and collect call-only restrictions at privately-administered prisons and require such facilities to permit multiple long distance carriers to interconnect with prison telephone systems in the manner described in the Dawson Affidavit. Under that structure, the Commission would establish a benchmark access fee that the prison telephone system would be allowed to charge the long distance provider selected by the inmate. The Commission also should require inmate service providers to offer debit card or debit account service as an ? Petitioners? interests thus are directly affected by the Commission?s policies regarding inmate calling services. See 47 C.F.R. 1.401(d). alternative to collect calling service^.^ Because the penological justifications for exclusive inmate calling service agreements can no longer be substantiated and are pretextual? there is no longer any justification for such arrangements. 11. BACKGROUND In selecting inmate service providers, prison administrators commonly accept bids from multiple service providers and grant a monopoly to the winning bidder for a particular prison! Inmates, and the individuals they call, have access only to the monopoly service provider. Moreover, the services are typically limited to operator assisted collect calling and debit card or debit account calling services, and in some cases, collect calling services only. As part of the bidding process, competing service providers generally are expected to offer the administrators generous commissions for the right to provide exclusive service to the facilities? The winning bidder is typically the service provider that offers the highest commission rates, often exceeding Petitioners limit the scope of this Petition to inmate telephone services at private prison facilities in order to avoid any possible conflict with state laws regulating the administration of publicly administered correctional facilities. Moreover, Wright involves only a private prison administrator, the CCA. Petitioners do not concede thereby that state laws or regulations governing the administration of publicly administered correctional facilities could not be preempted by this Commission. See Justin Carver, An Efjiciency Analysis of Contracts for the Provision of Telephone Services to Prisons, 54 Fed. Comm. L.J. 591, 394 (2002) (?Carver?). A copy of the Carver article is attached as Exhibit 4 to the expert affidavit of Douglas A. Dawson, In the matter ofMartha Wright, et a]., Petition for Rulemaking or, in the Alternative, Petition to Address Referral Issues In Pending Rulemaking (?Dawson Affidavit?), appended hereto as Attachment A. Implementcrrion ojthe Pciy Telephone Reclassification ond Compensution Provisions of the Telecommimications Act of 1996, 17 FCC Rcd 3248,3252 (2002) (?Inmate Payphone NPRM?). ? Id. 45 percent and sometimes more than 60 percent of gross revenues.? The winning bidder then charges excessive rates for inmate calls in order to cover the huge commissions that it has agreed to pay to the prison administrator. The Commission itself has recognized that this approach to the selection of inmate calling services has the distorting effect of allowing competitive pressures to drive prices up, rather than down. ?[Plerversely, because the bidder who charges the highest rates can afford to offer the confinement facilities the largest location commissions, the competitive bidding process may result in higher rates.?? Thus, rather than awarding contracts to service providers based upon service quality and low rates, these contracts are awarded based upon the commission rate?s. For years, prison inmate advocates have pressed for regulatory mechanisms that would provide relief from the exorbitant rates and limited service options for inmate long distance calling services. Citizens United for Rehabilitation of Errants (?CURE?) and The Coalition of Families and Friends of Prisoners of the American Friends Service Committee (?AFSC?) have stressed the need to reduce the burden of oppressively high inmate calling rates, which is borne largely by economically disadvantaged relatives and friends of inmates, often located far from the facilities where the inmates are incarcerated. Not only do these exorbitant rates directly injure the non-inmates paying them, but, as studies cited by CURE and AFSC explain, they also work to the detriment of society by reducing rehabilitative ties that reduce recidivism, preserve Id. at 3253 n.34; Carver, 54 Fed. Comm. L.J. at 394,395 11.22. Id. at 3253: see also Billed Party Preference,for InterLATA O+ Calls, 13 FCC Rcd 6122,6156 (1998) (?O+ Second Repport?), modtfied, 16 FCC Rcd 22314 (2001); Carver, 54 Fed. Comm. L.J. at 194-96, attached as Exhibit 4 to the Dawson Affidavit. 9 5 families, ease prison tensions and promote societal efforts to rehabilitate ex-offenders.? Moreover, these exorbitant rates are imposed on a captive market that is unable to afford them, while all other consumers enjoy the benefits of increased competition and choices in telecommunications services. II Until now, the Commission has accepted the status quo based upon its assumption that competition in inmate services is incompatible with prison officials? legitimate security and other penological goals. The Dawson Affidavit, however, explains how competition in long distance inmate services can be structured to?accommodate those goals and demonstrates that withholding the benefits of competition from the inmate telephone service market can no longer be justified. This Petition arises from an order in Wright, a class action brought in the United States District Court for the District of Columbia by certain of the Petitioners and other individuals against the CCA. a private prison facility administrator for state and local governments, and five telecommunications carriers with exclusive contracts to provide inmate calling services at different CCA facilities. Petitioners allege in their federal court complaint in Wright that the defendants? exclusive dealing arrangements restrict telephone service choices for inmate calls, resulting in substantially increased rates for such services, thereby violating various Io See, e.g., CURE Comments on Second Further Notice of Proposed Rulemaking at 1-5, Billed Party Preference.for O+ InterLATA Calls, CC Docket No. 92-77 (July 16, 1996) (?CURE Comments?); Comments of Citizens United for Rehabilitation of Errants and The Coalition of Families and Friends of Prisoners of the American Friends Service Committee at 1-5, lniplementarion of rhe Pay Telephone Reclassificution and Compensation Provisions ofthe Telecommunications Act of 1996, CC Docket No. 96-128 (June 21, 1999) (?CUREIAFSC Comments?). ? CUREiAFSC Comments at 2-4. constitutional and statutory rights, including Section 201 (b) of the Communications Act of 1934, as amended (the ?Ac~?).?~ In an August 22,2001 Memorandum Opinion and Order, the federal district court dismissed the complaint and directed the parties ?to file the appropriate pleadings with the FCC to ensure that the issues raised in this lawsuit are presented to the FCC,? finding that such referral would ?assist the Court in its task of adjudicating these claims.?13 In an Order released on November 5, 2OOI,l4 the court granted Petitioners? Motion to Reconsider the dismissal ofthe complaint and stayed the federal cok action until the Commission considered the claims.? l2 47 U.S.C. 5 201(b). Petitioners also allege that these unjustifiable restrictions abridge inmates? First, Fifth and Fourteenth Amendment rights under the United States Constitution. l3 Wright v. Correciions Corp. ofAmerica, C.A. No. 00-293 (GK) (D.D.C. Aug. 22,2001), brder, slip op. at 1; Memorandum Opinion, slip op. at 13. The court?s Memorandum Opinion and Order are appended hereto as Attachments B and C. The court?s November 5,2001 Order is appended hereto as Attachment D. 14 Is Following the court?s referral, and pursuant to the Commission?s referral procedures, Petitioners? counsel cngaged in protracted discussions with the Enforcement Bureau (?EB?) staff and other parties to the district court case regarding: (a) the most appropriate procedural vehicle or vehicles to use to bring the referral claims before the Commission; and (b) the EB?s pre-filing mediation procedures in referral complaint cases. See FCC Public Notice, Primary Jurisdiclion Referrals Involving Common Curriers, 15 FCC Rcd 22449 (2000). The Public Notice states that ?primary jurisdiction referrals in cases involving common carriers are appropriately filed as formal complaints with the Enforcement Bureau pursuant to section 208 of the [Act]. There may be circumstances, however, in which this approach may not be appropriate.? Accordingly, the Public Notice directs parties to contact the Enforcement Bureau prior to filing any pleadings. The parties were in the middle of these procedural discussions and the complaint pre- filing process when the comment cycle for the fnrnaie Payphone NPRMclosed on June 24,2002. After further discussions and meetings, Petitioners reached an understanding with the EB and Wireline Competition Bureau (?WCB?) staff dividing the referral claims between a formal complaint to be filed with the EB, limited to claims regarding unreasonable inmate calling rates and related claims, and a petition to be filed with the WCB, challenging the Commission?s acceptance of exclusive service agreements and other restrictions in the provision of inmate long 1 Accordingly, based on the technical and economic analysis presented in the Dawson Affidavit and the legal discussion below, Petitioners request that the Commission reconsider, in the context of privately administered prison facilities, its assumption that exclusive dealing arrangements for the provision of interstate inmate telephone service are the only means of satisfying legitimate security and other penological goals. Because that assumption is incorrect, the Commission should reverse its policy and require such facilities to permit competition in the provision of long distance inmate calling services in the manner described in the Dawson Affidavit and allow inmates a choice between collect calling and debit card or debit account services. Specifically, the Commission should conclude that: the Commission?s previous assumption that prison security, anti-fraud and other penological goals can be met only when one carrier provides all telephone services to inmates in a prison is incorrect because it is technologically and economically feasible to permit prison inmates to choose among multiple carriers, consistent with all legitimate security and other penological concerns; . similarly, all legitimate security and other penological concerns can be met while offering inmates debit card or debit account calling services as an alternative to collect calling services; the excessive rates charged for inmate calling services result primarily from the lack of competition in the provision of inmate telephone services and the commissions that carriers pay to prison administrators as a part of their exclusive contracts to provide inmate calling services; such commissions are driving inmate calling rates up; accordingly, the Commission should require all privately administered prison facilities to permit competition in the provision of interstate long distance inmate calling services in the manner described in the Dawson Affidavit, allow inmates a choice between collect calling and debit card or debit account services and prohibit such commissions except to ?distance services. Accordingly, Petitioners also intend to file a formal complaint with the EB challenging the reasonableness of the inmate service rates charged by defendants. 8 the extent they are to reimburse the costs actually incurred by prison administrators in connection with the provision of telecommunications services to inmates. Because Petitioners seek a new regulatory regime for inmate services. including the ?ground rules?? discussed below, a notice of proposed rulemaking (??PRM?) will be required in order to address these issues. The pending Inmate Puyphone NPRM also involves related issues, but thc Commission assumes in that proceeding that exclusive arrangements are the only method by which prison administrators? security and other penological goals can be satisfied.?6 Full consideration of Petitioners? challenge to that policy assumption and the rules Petitioners seek to establish thus requires a further NPRM, either by enlarging the scope of the pending Inmare Payphone proceeding or initiating a new phase of CC Docket No. 96-128.? 111. , THE COMMISSION?S POLICY ALLOWING EXCLUSIVE DEALING ARRANGEMENTS IS BASED ON AN INCORRECT ASSUMPTION, PREVENTS COMPETITION IN THE INMATE CALLING SERVICE MARKET AND MUST BE RECONSIDERED A. The Commission?s Policy Incorrectly Assumes That Security Concerns Preclude The Possibility of Competition In Inmate Calling Services The Commission?s policy accepting exclusive service arrangements derives not from any statutory prohibition against competition in inmate services, but, rather, is based entirely on a factual assumption that, as explained below, is incorrect. The Commission historically has recognized that security concerns differentiate inmate calling services from other types of telecommunications services, such as payphone services that are available to the public at large l6 Inmute Puyphone NPRM, 17 FCC Rcd at 3276. ? See Sprint Corp. v. FCC, 3 15 F.3d 369,374-77 (D.C. Cir. 2003) (when an agency changes, rather than clarifies, a rule, NPRM published in the Federal Register is required; public notice and comment are not sufficient). and aggregator services.? The Commission has assumed, based on those considerations, that ?an outbound calling monopoly ... serving [a] particular prison? is necessary ?to recognize the special security requirements applicable to inmate calls.??g Most recently, the Commission assumed in the Inmate Payphone NPRM that ?legitimate security considerations preclude reliance on competitive choices, and the resulting market forces, to constrain rates for inmate calling.?20 Thus, the Commission?s policy of approving exclusive inmate service arrangements is based entirely upon the untested factual assumption that inmate service monopolies are necessary to meet prison administrators? legitimate security and other penological goals. The Commission has recognized that the market structure resulting from this policy works in reverse from the traditional telecommunications market, where competitive pressures drive prices down?? Nevertheless, the Commission has not questioned whether there might be other means to satisfy the security and other penological goals of prison administrators. See Inniute Payphone NPRM, 17 FCC Rcd at 3252-53; Billed Party Preference for InterLATA O+ Calls, Second Order on Reconsideration, 16 FCC Rcd 22314,22322. n. 41 (2001) (?O+ Second Reconsideration Order?); O+ Second Report, 13 FCC Rcd at 61 56; Policies and Rules Concerning Operator Service Providers, 6 FCC Rcd 2744,2752 (1991) (?Operator Service Order?), urd, 7 FCC Rcd 3882 (1992). l9 O+ Second Report, 13 FCC Rcd at 61 56; see also O+ Second Reconsideration Order, 16 FCC Rcd at 22323, n.45 (?Recognizing the security needs of prisons, the Commission does not require them to grant inmates access to multiple OSPs.?); Amendment of Policies and Rules Concerning Operator Service Providers and Cull Aggregators, 11 FCC Rcd 4532,45474 (1 996) (?Amended Operator Service Order?). 2o Inmate Payphone NPRM, 17 FCC Rcd at 3276 (emphasis added). 21 Id. at 3253; see also O+ Second Report, 13 FCC Rcd at 6144,6156. As explained in the Dawson Affidavit, commissions typically add more than 40 percent to the total costs, before commissions, of inmate telephone services. Dawson Affidavit at 1 67. Thus, the theory of contestable markets does not apply to the market for inmate calling services, and the rates of inmate service providers are inflated as a result of the exclusive service contracts and excessive IO B. Competition In Inmate Calling Services May Be Allowed Without Sacrificing Legitimate Security Or Other Penological Goals The factual assumption underlying the Commission?s policy is incorrect because exclusive dealing arrangements and collect call-only restrictions are not necessary in order to enforce prison security or to carry out related penological goals. As explained in the Dawson Affidavit, call monitoring, blocking calls to certain telephone numbers, preventing fraud and other security functions can operate consistently with a choice of multiple carriers. Private prison administrators can implement necessary security functions whether or not operator assisted collect calling is used, whether a debit card or debit account is used, or whether or not the telephone company has an exclusive service agreement.22 Exclusive service arrangements thus serve only to allow carriers to maximize profits from persons trapped in a captive market without options available to other consumers and to allow private prison administrators to reap excessive commissions from the carriers. As explained in the Dawson Affidavit, it is technically and economically feasible to permit multiple carriers to provide inmate calling services at any given prison while meeting all legitimate security and other penological needs. Inmate service competition could be implemented by allowing multiple long distance carriers to interconnect directly with the telephone system in a prison facility. This service configuration, under which the competitive carriers would pay a usage charge to the party installing and operating the prison telephone system, would be technically and economically feasible. Thus, there would be two components commissions they pay to the prison administrators. See Carver, 54 Fed. Comm. L.J. at 394-96, attached as Exhibit 4 to the Dawson Affidavit. 22 See Dawson Affidavit at vv 19-49. I1 to the competitive system described in the Dawson Affidavit -- an underlying prison telephone system with a switch to control the routing of outgoing calls to different carriers and two or more long distance carriers interconnected with the prison switch?? As demonstrated in the Dawson Affidavit, the underlying prison telephone system could be operated profitably for a fee as low as 4.4 to 5.9 cents per minute, to be paid to the underlying system operator by the interconnecting long distance company carrying a given clear from the Dawson Affidavit that the long distance ?segment? would add less than another $0. I5 per minute, assuming that both debit calling and collect calling were provided. Competition will quickly bring the rates charged by competitive long distance carriers down to their actual efficient costs? It is also Moreover, the cost of the long distance segment would be still lower if only debit card or debit account service were provided. In its O+ Second Report, the Commission stated that: prisons may allow inmates . . . as the Florida Commission has done, . .. to use pre-paid debit cards. Such options would exert downward pressure on high interstate rates for O+ calls from inmate phones, diminish the ability of a prison and its Lpresubscribed long distance carrier] to set supracompetitive rates, and thus lessen or obviate the need for further federal regulations concerning O+ rates in this submarket.26 In its comments in that proceeding, the Florida Public Service Commission (?FPSC?) asserted that debit cards would prevent ??rate shock? because they could be purchased in advance at a 23 See id. at 17 39-49. It should be noted that the interconnecting competitive carriers could also provide local and other intrastate services for inmates. This Petition, however, addresses only the interstate long distance services directly under the jurisdiction of this Commission. 24 Id. at 17 50-7 I. ?j Id. at 71 43-44,50-69. 26 O+ Second Report, 13 FCC Rcd at 6156 (citation omitted). 12 predetermined rate. The FPSC noted that the use of debit cards would still allow prison administrators to ?exercise security measures by screening the access number the inmate would use to place the call before allowing the card to be used.?*? The FPSC also recognized that customer-premises equipment was readily available to control fraud. 20 [I]t is appropriate to review the justification for restricting all inmate outbound calls to a single provider. If, after investigation, it is determined that instrument implemented fraud control devices satisfactorily restrict inmate access and prevent abuse of the telephone network, there may be justification ... to provide some competition for inmate services where none exists today. 29 According to the FPSC, allowing competition in the inmate calling services market may offer benefits such as ?savings to inmate families, legal counsel and public defenders from reduced telephone charge^."^' The Dawson Affidavit confirms these findings. If only long distance debit card or debit account calling is provided, the resulting elimination of billing costs and uncollectible charges from the cost of the long distance segment of the configuration described in the Dawson Affidavit would reduce the overall cost of inmate long distance service by more than $0.06 per minute.? *? Comments of the Florida Public Service Commission at 10-1 1, Billed Parry Preferencefor InterLATA O+ Crills, CC Docket No. 92-77 (July 16, 1996). 28 Id. ly Id. at 11-12. ?Id. at 12 (citation omitted). See Dawson Affidavit at 7 74. 31 13 That exclusive service arrangements and restrictions on the use of debit card or debit account services cannot be justified by legitimate security needs or other penological goals is underscored by a policy statement adopted in early 2001 by the American Correctional Association (?ACA?), the organization of prison and jail administrators throughout the United States. That statement, a ?Public Correctional Policy on Inmate/Juvenile Offender Access to Telephones,? provides in relevant part: [I]nmates/juvenile offenders should have access to a range of reasonably priced telecommunications services. Correctional agencies should ensure that: Contracts are based on rates and surcharges that are commensurate with those charged to the general public for like services. Any deviation from ordinary consumer rates should reflect actual costs associated with the provision of services in a correctional setting; and Contracts for inmateijuvenile offender telecommunications services provide the broadest range of calling options determined to be consistent with the requirements of sound correctional management?2 Because multiple types of telecommunications services could be provided to inmates at rates much lower than the exorbitant rates that are currently available to inmates, the exclusive dealing arrangements. excessive commissions and collect call-only restrictions that generate those excessive rates thus conflict with the above-stated policies of the ACA. Petitioners are forced to accept the calling rates and practices imposed by the monopoly inmate calling service provider if they wish to talk to their loved ones or attorneys. As CURE and AFSC have pointed out, because inmates and their families often cannot afford these rates, inmates are forced to limit the 32 Policy adopted by the American Correctional Association Delegate Assembly on Jan. 24,2001 at the Winter Conference in Nashville Tennessee, a copy of which is appended hereto as Attachment E. amount of time spent communicating with their family members, which discourages the maintaining of family and community ties, further handicapping Petitioner inmates in their efforts to successfully reenter society upon C. Because Exclusive Dealing Arrangements And Restrictions That Limit Inmate Telephone Services To Collect Calling Are Not Justified, They Should Be Prohibited To Advance The Public Interest In Reasonable Calling Rates One of the principal goals of the Act is ?to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers.?34 Section 201(b) of the Act specifically provides that ?[a]ll charges, practices, classifications, and regulations for and in connection with such communication service, shall be just and rea~onable.?~~ Because exclusive dealing arrangements between providers of inmate calling services and private prison administrators and collect call-only limitations are not justified by any legitimate security or other penological goals, such restraints are unreasonably anticompetitive. They unjustifiably deny Petitioners the freedom to use other carriers and the opportunity for other carriers to compete for the provision of inmate services. The Commission accordingly should bar exclusive dealing arrangements for the provision of interstate inmate calling services and collect call-only restrictions to ensure that interstate inmate calling rates are reasonable under Section 201(b) of the 33 CURE Comments at 1-5; CURE/AFSC Comments at 1-5. ?? Telecommunications Act of 1996, Pub. L. No. 104-04, purpose statement, 110 Stat. 56, 56 (1996). ?47 U.S.C. 5 201(b). See TRAC Cummtmicalions, Inc. v. Detroit Celliilur Telephone Co., 4 FCC Rcd 3769 (1989) (exclusivity provision in cellular service resale agreement impeded complainant from reselling 36 Acting under its Section 201 (b) authority, the Commission has prohibited exclusive dealing arrangements and imposed other types of requirements on carriers in a wide variety of situations to ensure that consumers are afforded reasonable rates. For example, in its Competiiive Networks proceeding, the Commission adopted various measures to promote competitive access to telecommunications services in multiple tenant environments (?MTEs?) and to ensure reasonable rates and practices in such locations.? One of those measures included prohibiting carriers from entering into exclusive contracts with owners or managers of commercial MTEs for the provision of telecommunications services to the MTEs. In terms paralleling the circumstances presented in the inmate service context, the Commission concluded that such MTE agreements effectively restrict premises owners or their agents from permitting access to other telecommunications service providers. The use of exclusive contracts in commercial settings poses a risk of limiting the choices of tenants in MTEs in purchasing telecommunications services, and of increasing the prices paid by tenants for telecommunications services.?* The Commission noted that an exclusive dealing agreement between a carrier and the owner or manager of an MTE ?may essentially constitute a device to preserve existing market power . . . and may impede the development of competition in the market for local telecommunications services of other cellular carriers and had anticompetitive effect, violating Section 201 (b)), afd, 5 FCC Rcd 4647 (1 990). Promotion of Competiiive Networks in Local Telecommunications Markets, 15 FCC Rcd 37 22983 (2000) (?Competitive Nehvorks?). ?* Id. at 22996-97 (citations omitted). ~ervice.?~? The Commission asserted its authority to prohibit these exclusive dealing arrangements under Section 201(b) of the Act, which bars unreasonable rates and practice^.^' Furthermore, the Commission has required carriers to take affirmative steps to ensure competition in the telecommunications market even though such steps require the expenditure of significant capital resources to meet the Commission?s mandate. For example, the Commission required the provision of payphone call tracking by long distance carriers in order to ensure fair payphone compensation, notwithstanding their objections that the installation of tracking mechanisms would require significant expenditures of capital:? Accordingly, the Commission should ban exclusive dealing agreements, and the commissions paid to secure such arrangements, for the provision of interstate telephone services for inmates in privately administered prisons and should require such prisons to allow competition in the manner set forth herein and service providers to offer debit card or debit account services as an alternative to collect calling in order to ensure that interstate inmate calling services are reasonably priced under Section 201(b) of the Act:* It is especially 39 Id. at 22997-98. The Commission also stated that the adoption of this prohibition ?will reduce the likelihood that incumbent LECs can obstruct their competitors? access to MTEs, as well as address particular potentially anticompetitive actions by premises owners and other third parties.? Id. at 23038-39. 40 ~ci. at 23000. 4? Implementrilion ofthe Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 11 FCC Rcd 20541,20588,20590-91 (1996) (subsequent history omitted). See also Policy and Rules Concerning Rates for Dominant Carriers, 5 FCC Rcd 6786 (1990), modfied on recon., 6 FCC Rcd 2637 (1991), offdsiib nom., Nat ?I Rurul Telecom Ass ?n v. FCC, 988 F.2d 174 (D.C. Cir. 1993) (?LEC Price Cap Order?) (establishing price cap regulation of dominant local exchange carriers under Section 201(b) to produce rates within a zone of reasonableness). incumbent on the Commission to modify its policy because, in light of the Dawson Affidavit, there is no longer any rational relationship between exclusive service agreements and prison officials? legitimate penological goals. The Dawson Affidavit demonstrates that there is no rational basis for the Commission?s past policy of allowing such arrangements, and such ?changes in factual and legal circumstances may impose upon the agency an obligation to reconsider a settled policy?43 and render any continuation of that policy arbitrary and capricious under cases such as BechleP4 and G~ller.~? That a variety of competitive calling services and rates could be available to inmates without sacrificing prison administrators? security or other penological goals invalidates the current policy. D. The Commission Should Implement A Competitive Inmate Calling Policy By Issuing Basic Ground Rules The proposed competitive inmate calling regime would have two components: (I) an underlying inmate telephone system; and (2) interconnecting competitive long distance carriers. Because one entity would provide the underlying telephone system under this proposal, a partial monopoly in inmate calling service would continue to exist. In order to ensure that the telephone system provider charges the interconnecting long distance carriers reasonable rates, the Commission should treat prison telephone system providers as common carriers and place some requirements on their charges in order to ensure reasonable prison telephone system rates. 43 Bechlel v. FCC, 957 F.2d 873, 881 ( D.C. Cir. 1992), cert. denied Galay Communications v. FCC, 506 U.S. 81 6 (1992), remanded by Bechrel v. FCC, 10 F.3d 875 (D.C. Cir. 1993) (?Bechrel?). iw Id ?I5 Geller v. FCC, 610 F.2d 973 ( D.C. Cir. 1979) (?Geller?). Petitioners suggest that the Commission impose a ?safe harbor? benchmark rate analogous to the benchmark established for competitive local exchange carriers (?CLECs?) in the Access Charge Reform Order.46 Just as the access service market ?does not appear to be structured in a manner that allows competition to discipline rates,? enabling CLECs ?to impose excessive access charges,? a prison telephone system provider could charge competing carriers excessive rates to interconnect with the system in order to carry inmate long distance calls.47 It would therefore be appropriate to establish a benchmark rate above which the system provider may not charge an interconnecting long distance carrier unless the carrier agrees to a higher negotiated rate.48 In the absence of an agreed-upon higher charge, the system provider would be required to allow a long distance carrier to interconnect with the prison system and pay the benchmark rate, which would be presumed reasonable and would be tariffed. In the Access Chnrge Reform Order. the Commission initially pegged the benchmark access rate at 2.5 cents per minute, gradually declining to the composite switched access rate charged by the incumbent local exchange carrier (?ILEC?) with which the CLEC competes.49 In the case of prison telephone systems, there is no comparable valid service rate that could be used as a benchmark. Based on the cost showing in the Dawson Affidavit, however, the Commission should set the benchmark rate at seven cents per minute. which is about one cent per minute Access Charge Reform: Refbrm of Access Churges Imposed by Competi~ive Local Exchange 46 Carriers, 16 FCC Rcd 9923 (2001) (??Access Charge Reform Order.?). 47 See id. at 9935-36. Id at 9925, 9938-40. 49 Id. at 994 1. 19 above the high end estimate in the Dawson Affidavit for total prison telephone system costs, not including the long distance segment.50 In the alternative. if a prison telephone system provider did not want to be subject to the benchmark limit, it would be allowed to charge a rate higher than the benchmark if it could show that its costs justified such a rate. The Commission might also consider alternative measures to help ensure reasonable prison telephone system rates. The establishment of a benchmark rate, cost justification requirement or other pricing requirement for the underlying telephone system should eliminate any need for price regulation of the long distance segment of the inmate service or of overall inmate service rates. If a long ' distance provider charges more than its actual costs, including profit, other long distance providers will request interconnection until competition reduces long distance rates to actual costs. In order to ensure that there are no impediments io competition, the underlying system provider at each prison facility should be required to permit a reasonable number of competitive carriers to interconnect and offer the long distance segment of the inmate service. The underlying provider should be permitted to offer the long distance segment as well, but if it does so, it should be required to offer exactly the same interconnection terms and technical conditions to other competitive carriers as it provides to its own long distance operation at a given facility. The underlying system provider should also be required to charge itself the same underlying system rate that it charges to the other long distance competitors, whether that is a benchmark io Dawson Affidavit at 17 50-71. 20 ~ .-- rate or some other rate. These simple rules will facilitate the transition to competition that is needed in inmate long distance calling services.? IV. CONCLUSION For the reasons set forth above, Petitioners request that the Commission grant this petition and reexamine its long-standing policy that security reasons preclude the competitive provision of interstate telecommunications services to inmates in privately administered correctional facilities and that such services may be limited to collect calling. The Commission should find that private prison administrators must permit competition in the provision of inmate calling services in the manner set forth in the Dawson Affidavit and allow inmates to use debit ? cards or debit account services as an alternative to collect calling. The Commission should acknowledge that it is technologically and economically feasible to permit prison inmates to choose among multiple carriers and that a prison?s security and other penological goals can be met when multiple carriers offer long distance services to a prison facility. Given the lack of any justification for exclusive dealing arrangements for inmate telephone services, Section 201(b) of the Act requires that inmate telephone service rates be restructured to permit competition. The Commission also should find that commission payments, which drive inmate calling rates up, are justifiable only to the extent that they reimburse the costs incurred by prison administrators in connection with the provision of telephone services to inmates. The current use of commissions as a general slush fund cannot be squared with the public interest in reasonable Because of the unavoidable inefficiencies of serving extremely small facilities, see Dawson Affidavit at 7 68 11.46, it may not be feasible to apply these rules to low-capacity prisons. Most such facilities, however, are locally-administered jails. Privately administered facilities, which typically house at least several hundred prisoners, are large enough for multiple carriers to serve efficiently. 51 21 rates under Section 201(b).j2 Accordingly. in order not to frustrate a properly functioning competitive inmate service regime, the Commission should also prohibit the imposition and payment of commissions by inmate telephone service providers except to the extent that the commissions cover legitimate costs directly incurred by the prison administrators in implementing and carrying out legitimate security and other penological goals in connection with the provision of inmate telephone services. In order to facilitate the transition to competition, the Commission should provide for a one-year period in which current exclusive dealing arrangements and commission agreements would have to be modified to permit competition in the manner set forth in the Dawson Afidavit and to limit commission payments as requested above.j3 The Commission also should prohibit carriers and private prison administrators from extending existing exclusive dealing arrangements or entering into new exclusive dealing arrangements. Finally, the Commission should establish a benchmark service rate or cost justification requirement for the underlying 52 See Inmate Payphone NPRM, 17 FCC Rcd at 3277 (noting that Commission proceeds typically used for inmate services or assigned to the state?s general revenue fund); see also Carver, 54 Fed. Comm. L.J. at 400-01, attached as Exhibit 4 to the Dawson Affidavit. The Commission recognized in the Competitive Nework.7 proceeding that it has ?authority to modify provisions of private contracts when necessary to serve the public interest.? 15 FCC Rcd at 23001; see also Western Union Telegraph Co. v. FCC, 815 F.2d 1495,1501 (D.C. Cir. 1987) (?the Commission has the power to . , , modify . .. private contracts when necessary to serve the public interest.?); Competition in the Inrersrate Interexchange Markerplace, 6 FCC Rcd 5880, 5906(1991). 13 22 inmate telephone system at private prison facilities and rules governing long distance carrier interconnections with the underlying inmate telephone system as discussed above and in the Dawson Affidavit. Respectfully submitted, Martha Wright, ef al. D.C. Prisoners? Legal Services Project, Inc. 2639 Connecticut Ave., N.W. Suite 225 Washington, D.C. 20008 Frak W. Krogh Jennifer L. Kostyu Morrison & Foerster, LLP 2000 Pennsylvania Avenue, N.W. (202) 775-0323 Stephen G. Seliger Laurie S. Elkin Seliger & Elkin, Ltd. I55 North Michigan Avenue Suite 500 Chicago, IL 60601 (312) 616-4244 Barbara J. Olshansky Center for Constitutional Rights 666 Broadway, 7?h Floor New York, NY 10012 (212) 614-6464 x 439 Suite 5500 Washington, D.C. 20006 (202) 887-1500 (Voice) (202) 887-0763 (Fax) Dated: October 3 I, 2003 Attachments dc-343057 23 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: Martha Wright, Dorothy Wade, Annette Wade, Ethel Peoples, Mattie Lucas, Laurie Nelson, Winston Bliss, Sheila Taylor, Gaffney & Schember, M. Elizabeth Kent, Katharine Goray, Ulandis Forte, Charles Wade, Earl Peoples, Darrell Nelson, Melvin Taylor, Jackie Lucas, Peter Bliss, David Hernandez, Lisa Hernandez and Vendella F. Oura Petition for Rulemaking or, in the Alternative, Petition to Address Referral Issues In Pending Rulemaking AFFIDAVIT OF DOUGLAS A. DAWSON STATE OF MARYLAND COUNTY OF PRINCE GEORGES: ss Douglas A. Dawson, being duly sworn, deposes and says: I. INTRODUCTION 1. My name is Douglas A. Dawson, and I am the President of CCG Consulting, Inc. (?CCG?), located at 681 1 Kenilworth Ave., Suite 300, Riverdale, Maryland, 20737. CCG is a general telephone consulting firm. CCG works for over 250 communications companies, which include local exchange carriers (?LECs?), competitive LECs (?CLECs?), cable TV providers, electric utilities, wireless providers, paging companies, municipalities and other governments and interexchange carriers C?IXCs??). 2. I submit this affidavit in support of the above-captioned petition to have the Federal Communications Commission (?Commission? or ?FCC?) address certain issues involving prison inmate calling services referred to the Commission by the United States District Court for the District of Columbia in Wright, et a/. v. Corrections Corporation of America, et al. (?Wright?).? I have specific experience and expertise relevant to the issues in this proceeding, which involves the provisioning of long distance calling for prison inmates. 1 have assisted in the launch of over 50 long distance companies in my career. In that role, I have done virtually everything associated with creating or running long distance businesses. 1 am also familiar with all regulatory aspects of long distance, including the development of rates and costs and the preparation and filing of tariffs. I have helped numerous companies select switching hardware for long distance service, and I know the capabilities and technical specifications of such hardware. I have negotiated numerous wholesale long distance service agreements between facilities-based IXCs such as Sprint, Frontier, Qwest and WorldCom, and resale carriers, and I understand the underlying long distance networks and issues associated with using them. I have had extensive experience with, and, consequently, have an in-depth understanding of, the capabilities and configurations of the network switching systems that lie at the heart of all telephone systems. I also have helped numerous companies with the provisioning of ancillary long distance products such as calling cards, operator services, prepaid cards, international toll and Internet telephony. My CV, including prior testimony, is appended as Exhibit 1. 11. PURPOSE OF THIS TESTIMONY 3. In this affidavit, I have been asked to examine whether competition would work in the prison calling environment. Because the Wright case focuses largely on inmate calling at three specific prisons operated by the Corrections Corporation of America (?CCA?) - the Central Arizona Detention Center (?CADC?) in Florence, Arizona, the Torrence County Detention Facility (?TCDF?) in Estancia, New Mexico, and the Northeast Ohio Correction Center (?NOCC?) in Youngstown, Ohio - during a period when inmate calling services were ? CA No. 00-293 (GK) (D.D.C.). 2 provided there by Evercom Systems, Inc. of Irving, Texas (?Evercom?), I will use data relating to those facilities and Evercom to illustrate the points I want to make.2 Evercom?s inmate calling services to those prisons are typical, with regard to the rates and the methods used to bill long distance calls by prisoners, of most prison inmate calling services. The issue of inmate service competition is a generic question, and the conclusions drawn in this analysis would apply to all prison calling systems. CCA and Evercom controlled, and, in the case of the CADC and TCDF, still control, inmate calling on a monopoly basis from those three prisons and have permitted only a limited set of very expensive options for making long distance calls. 1 will analyze how competition could be brought to bear in inmate calling and demonstrate how it could lower inmate calling rates. 4. For the reasons set forth in this affidavit and based on my extensive background in the telecommunications field, I conclude that there are competitive alternatives to the monopoly environment found in these prisons. I will demonstrate a way that any prison system could allow open access to competition and still meet all of the security and other penological requirements of the prisons. 5. In brief, in this affidavit, I will: a) describe the history and development of telephone systems - both generally as well as specifically for prison systems; b) discuss the various penological requirements that must be satisfied by a prison calling system; c) discuss specifically the current payment methods that are used with prison calling systems; d) demonstrate that there are no justifications for prison administrators not to allow debit card or debit account calling or for inmate service providers not to offer debit card or debit account calling; and e) demonstrate the feasibility and reasonableness of opening inmate calling services to competition, so that inmates have a choice of carriers. On information and belief, Evercom is still providing inmate calling services to the CADC and TCDF. 3 111. PRISON TELEPHONE SYSTEMS 6. Since I will be discussing specific details of the various telephone systems used in prisons, such as debit systems and collect call systems, I will first discuss telephone systems generally and describe how they work. I will then discuss the specific attributes of the prison systems that relate to this proceeding. 7. Historically, all telephone systems in the U.S. began with operator assisted calling. Every call required an operator to complete a call using the large plug panels that we have all seen in movies. Even today, it is still possible to use a live operator to complete a call. In the late 1930s and into the I940s, local switches were developed that allowed some automation in completing local calls; that is, a caller could complete some calls without using a, live operator, as long as the called party was connected to the same local switch. However, all long distance calls, or even calls to other switches in the same city, still required live operators. Beginning in the 1940s and into the 1950s, automated switches were introduced that allowed for the automatic switching of calls between local switches, and this allowed for the long distance network in place today, where dialing ?I? plus the long distance number allows a caller to directly dial long distance calls without the intervention of an operator. The early local and long distance switches were electromechanical. They worked by creating a mechanical connection between the called and calling party, much as operators had done mechanically before that. These electromechanical switches were not very sophisticated, and they could not perform very many functions beyond connecting calls. 8. In the late 1960s, computer technology was introduced into telephone networks. With the advent of computers, a new set of telephone services, referred to as vertical features, was developed. Vertical features are computerized functions that provide callers more sophisticated services than simply the completion of calls, such as call waiting, call forwarding, call hold and speed dialing. These features relied on the new computer core of the switch to perform logical processes. With these new switches, the old electromechanical portions of the 4 switch used for basic call completion were replaced with computerized hardware. During this same period, the hardware that was used by the remaining operators was also computerized, and terminals that automated many of the operator?s tasks replaced the old manual plug panels. However, even with computer assistance, collect and other similar calls still required live operators in order to be completed. 9. The next big breakthrough in telephone switching systcms came in the early 1980s and was referred to as Signaling System 7 (?SS7?). SS7 is a technology that provides a second electrical path in the telephone network. The original path, referred to as the voice path, is where the electrical voice signal is sent across the network to complete calls. This new second signal, the SS7 signal, uses a different frequency and allows the switching system to communicate and perform tasks without disrupting the voice path. For example, the SS7 signal is the mechanism used to transmit the telephone number of the calling party and is what enables a new service like caller ID, which allows a called party to see the caller?s phone number. The new telephone products that were enabled by SS7 were referred to generically as ?CLASS? (Custom Local Area Signaling Services) features. The SS7 system allowed for many of the features present in the prison telephone systems in place today. For example, SS7 allows for prison officials to monitor the numbers that prisoners dial. Many of the new CLASS Features using SS7 required computerized databases, and these were introduced into the network in the early 1980s along with SS7. 10. The next technology breakthrough that is relevant to this case is the introduction of dial pulse recognition. With dial pulse recognition, any caller with a touchtone phone is able to give feedback to questions asked by a mechanized recording. For example., in the prison system, a mechanized recording may say ?You have a call from prisoner X. To accept this cdl dial 5.? The technology needed to do this on an automated basis was created in the late 1980s. This was a significant technological breakthrough in that, for the first time, collect calls and other similar types of calls could be completed without utilizing a live operator. This 5 technology relied on two technologies to be implemented. First, a phone company needed to update each subscriber line card so that a given subscriber could dial using a touch-tone phone. This required significant capital outlay and was usually done as part of updating and replacing the entire switch. Second, the phone company had to update the switch core itself to be able to recognize dial pulses. 11. There are recent technological changes that also impact prison telephone systems. The most recent breakthrough is voice recognition. Voice recognition just entered the market in a useable format in the late 1990s. Voice recognition technology allows the phone system to elicit responses from customers verbally without requiring them to dial digits, as is needed with dial pulse recognition. For example, a customer may be asked to answer ?yes? or ?no? to a question, and the voice recognition software is set to recognize one of these two answers. This technology is now widely used in the marketplace in various collect calling systems. Today, technology has taken another leap forward, and there are now switching systems that can recognize a person by his or her voice print using voice recognition software, thus eliminating the need for PIN numbers or the use of dial pulse recognition. 12. There is one additional technology that has evolved over time that is key to prison telephone systems, and that is recording technologies that make it possible to record and monitor calls. For most of the history outlined above, no widespread technology was available to record and monitor calls on an automated basis. It has been possible for a very long time to monitor calls by having a person tap into the calls and listen to them. The ability to record calls and to later listen to them, as prison officials require, is now a key penological requirement. The first hardware that could record calls on a wide-scale basis was available in the early 1970s. This consisted of little more than a bank of tape recorders that could allow for the simultaneous recording of many calls. Such a system required a massive storage of computer tapes, and it was not easy in such a system to pinpoint or retrieve a specific call from a specific inmate. Newer recording technology is available that solves such problems. Modem recording systems 6 use computer drum storage, much as is done for the storage of data on a commercial company's local area network. Such storage is done digitally, and a digital record is made of each call, thus making it easy to later retrieve specific recorded calls. The size and cost of the storage devices that can be used for such a purpose have drastically decreased over time, and the cost continues to decline as digital storage techniques improve year after year, with a seeming doubling in storage capacity per dollar every 18 months or so. 13. Because of the need to satisfy penological requirements, there are unique features of prison calling systems that, in combination, differentiate them from other types of telephone systems. For many years, prison systems were at the cutting edge of technology, as prisons tried to meet their requirements with the latest available technologies. However, with the advent of modem switching technologies, technology has finally caught up to the penological requirements, and there are now many different switching platforms that can be modified to meet the requirements of prison systems. 14. A prison calling system is comprised of four basic components. First is the switching platform referred to above. This is essentially a piece of hardware that allows for the dialing and completion of calls along with a core computer logic system that allows for the creation of specific features and functions that, taken together, are unique to prison calling requirements. The second requirement for a prison telephone system is a recording storage system that allows for the easy monitoring, recording and retrieval of prisoner calls as needed. The ideal prison recording system records calls automatically and also allows authorities to easily listen to calls later. Third, the prison telephone system requires a master control system that allows the authorities to quickly intervene and modify prison calling patterns as needed. Such a master control system is basically a terminal with an easy interface into the switching system software, where authorities can make quick changes to such functions as the list of numbers that a specific prisoner is permitted to call. All modem switching systems have such control interfaces. The last component of a prison telephone system is the software 7 programming that enables the features that are unique to the prison system. For example, a feature allowing a called party to request to be automatically removed from a prisoner's calling list is unique to the prison system. Such a feature is created by specific software developed by a prison switch vendor to meet this specific requirement. 15. Prison telephone systems have evolved over the years in response to two trends. First, such systems have evolved to introduce new functions and features in response to the availability of new technology, as outlined above. To illustrate, consider the example of one specific penological requirement: that prison telephone systems allow prison administrators to restrict prisoners to a relatively short list of pre-approved telephone numbers that they may call. This particular requirement was not feasible until the late 1960s, when similar features were introduced into commercial telephone switching systems. As switches became more like computers, it became technically possible to devise a system that could limit prisoner calls to specific numbers. Thus, each separate penological requirement for prison telephone switching systems has only been made possible, and thus really created, in response to changes in technology. In summary, technology has expanded the ability to provide more hnctions with a switch, and the basic requirements for prison switching systems have constantly evolved to exploit these technical capabilities. 16. The second trend that affected the development of prison switching systems W~U the expansion of prisoner calling rights. For a long time, prisoners were allowed to make very few calls. However, as prisoners won greater calling rights, prison telephone systems were developed to respond to these expanded calling rights while meeting penological requirements. As prisoners called more, the penological requirements for the prison systems have grown to meet the evolving challenges presented by prisoners. 17. For many years, all prison inmate calls were collect calls. This was largely due to the fact that only a live operator could satisfy the basic penological requirement that prisoners could not make calls to those who did not wish to talk to them. There was no other way 8 historically to automate this function, and thus the intervention of a live operator and the use Of collect calling was necessary to ensure against the harassment of witnesses and other similar abuses. Live operators are no longer needed to meet this requirement. With easily programmable switches, very complex features can be introduced today, and if a switching requirement can be imagined, it probably can be programmed. 18. The three prison facilities under examination in this proceeding -- the CADC, the TCDF and the NOCC -- have used or now use Evercorn?s telephone calling systems and services for inmate calling. Evercom specializes in prison calling systems and services. According to Evercom?s year-end 2000 10-K Report (?10-K Report?), it served almost 2000 prisons in the United States as of December 31,2000.? Evercom refers to its product as CAM (Inmate Call Access Management).? The Evercom CAM system can meet all of the penologicd requirements described in this affidavit. Note that Evercom is not the only provider of prison telephone systems. There are several other prison switch providers, but Evercom is the predominant supplier of prison calling systems in the U.S. marketplace today. IV. PENOLOGICAL REQUIREMENTS OF PRISON CALLING SYSTEMS 19. The following description of the penological requirements of prison inmate telephone systems is derived from various documents gathered from the manufacturers of such systems. Additionally, these requirements are usually specified in great detail in the various periodic Requests for Proposal (?RFPs?) issued by the prison administrators when they are seeking a new telephone service provider. For example, these requirements are specified in detail by the Federal Bureau of Prisons (?BOP?) in its 1997 Request for Proposal for its inmate Evercom, Inc., SEC Form lO-K, Part 11, Item 7, at ?Overview? (filed June 1,2001 for the fiscal year ended December 3 1,2000) (?1 0-K Report?). The relevant portions of the 10-K Report ax attached hereto as Exhibit 2. Id. at Part 1, Item 1, ?Systems.? 9 telephone system, relevant portions of which are attached hereto as Exhibit 3 (?BOP RFP?).? I also understand from a technical perspective how all of these penological requirements can be made to work in a prison calling system. These penological requirements for a prison calling system can be broken down into the major categories listed below. Different prisons have selected different subsets of these requirements, but overall, most prison systems are designed to fulfill the same basic list of penological requirements, which are: Number Control Personal Allowed Numbers (?PAN) Voice Prompts Personal Identification Numbers (?PIN) Monitoring Recording and Playback Reporting Calling as a Commodity Individual Phone and Phone Group Definitions 20. Number Control consists of those telephone features, such as blocking, unblocking, validation and the defining of telephone numbers, that allow the prison to control the telephone calls that can be placed by prisoners. With number control, prisons can satisfy various penological requirements. One almost universal use of number control is the prohibition against inmate calls to certain types of numbers, such as 800 or other toll-free numbers or 900 numbers. This stops prisoners from re-originating calls. It is possible, when dialing 800 or other toll-free access numbers that terminate to a non-prison telephone switch, to connect with call systems that allow the caller to get an additional dial tone and then re-originate the call to another number. The blocking of 800 and 900 calls greatly reduces the chances Of ? Federal Bureau of Prisons, Request for Proposal, June 2,1997 (?BOP my). 10 call re-origination. In a modem switch, numerous types of blocking can be performed. Universal blocking rules block certain categories of calls for all inmates, such as not allowing any prisoner to call an 800 number. Individual blocking rules can also be applied, allowing certain categories of calls to be blocked for certain prisoners. Blocking can be made very specific. For example, a prison can prevent calls to an individual number, and many prison systems allow outsiders to elect not to receive calls from prisoners. 21. A related feature to blocking is Personal Allowed Numbers (?PAN?). PAN is a penological requirement that enables prison administrators to restrict inmate calling to a pre- approved list of telephone numbers. A PAN system thus prevents harassing calls and fraudulent telephone schemes involving calls to non-approved numbers. Any attempt to dial a number not on a PAN list is blocked by the switch. 22. Another important set of penological tools is Individual Phone and Phone Group Definitions. This means that prisons can control calling in any manner they choose. For example, they can limit the duration of calls. They can track the time used by a given prisoner and cap his total usage at some fixed ceiling amount per day. The prison can restrict the hours of phone usage, either universally or by prisoner. Phone Group Definitions give prison administrators control over the basic functioning of the phone system. 23. Voice Prompts is a series of hnctions that allow the prison to control how prisoners can place and use calls. For example, voice prompts can be used to warn prisoners that a call will soon be terminated if it is running too long. One penological use of voice prompts is the use of a pre-recorded announcement to let a called party know the name of the inmate making the call. Voice prompts also allow the called party to accept or reject the call before the prisoner comes on the line. The announcements now provided by voice prompts were historically provided by live operators, but these functions have been replaced today with a mechanized and computerized series of recordings designed to meet every possible and allowable type of call. 24. Another penological concern is that each inmate should have a unique Personal Identification Number (?PIN?) that must be used in order to initiate calls. PINs ensure that inmates are identified and tracked individually. Every call can be tracked and traced to an individual inmate. The use of PINs also enables administrators to provide different telephone privileges to each inmate. The prison can place restrictions on any aspect of calling, from who can be called to how long calls last, by having all calls use the PIN system for access. The use of PINs is widespread in the telephone industry outside of prisons. PINs are used routinely for credit card calls, debit card calls, pre-paid card calls, international callback calls, within the PBXs of many large companies and in many other applications. PIN verification works by using a lookup table. In the prison example, the lookup table is a very simple one that consists ofjust one PIN for each prisoner. If the prisoner attempts to use a PIN that is not in the table, a call cannot be completed, and, usually, the prison is notified of the fraudulent attempt. 25. Modem prison telephone systems also require Monitoring. Monitoring allows prison officials to listen to calls on a real-time basis. Prisons routinely monitor inmate calls to make certain that no crimes are being committed or that people are not being harassed. A monitoring system allows the prison administrators to listen at any time to specific prisoners or to choose calls at random to monitor. Many prison telephone systems include camera surveillance of telephones along with voice monitoring. This allows the prison officials to see who is making the call while listening to the conversation. 26. Another requirement of modem prison telephone calling systems is Recording and Playback. This allows prison officials to listen to calls that were made in the past. For example, should a prison administrator discover a case oftelephone fraud, the administrator can listen to phone calls made by the same prisoner in the past. The recording of calls is done by separate hardware that is not an integrated part of the switching system. Modem telephone recording systems usually use drum storage devices to capture and store calls, and the number of calls and the length of retention of recorded calls is limited only by the size of the storage 12 system chosen. Such storage devices can be programmed to allow for instant retrieval of recorded messages by the authorities, much as is done by voice mail systems widely in use. In order to control the costs, most recording systems also allow the calls to be moved from drum storage to more permanent media for long-term retention. 27. Another penological requirement is Reporting, which allows the prison officials to create rules for calling and then to report any violations. For examgle, a system might record instances when a prisoner does not know his PIN on the first try. This will help identify any prisoner who is fishing for valid PINS by trial and error. The same sort of system can be used to track sequence calling by an inmate, that is, in calling numbers that are close to each other numerically. Such calling patterns are often associated with attempts at fraud. Reporting can also show when prisoners try to call people whose numbers are blocked for them, such as witnesses and judges. Modem reporting systems have become quite sophisticated in response to the demands placed upon the telephone system by prisoners. 28. A final penological requirement is one that is not directly related to the phone system hardware. Prisons prefer to have an inmate calling system that does not create 8 commodity, and thus is not subject to coercion or extortion among prisoners! Typically, any system that involves funds or a commodity that can be used by prisoners can be subject to these types of abuses. No calling system - be it collect only or a debit system -can completely eliminate such problems in a prison. The ideal system will have stringent enough rules to make calling reasonably unattractive as a commodity. For example, closely scrutinizing the pre-approved list of telephone numbers that each prisoner is allowed to call greatly reduces the attractiveness of another prisoner?s account, particularly if such scrutiny is combined with blocking that precludes the re-origination of calls. This issue is not unique to a prison?s telephone system, inasmuch as inmates routinely maintain 6 commissary accounts for the purchase of sundry items. 13 29. These penological requirements, taken together, are unique to a prison calling system.? Many of these features are used individually elsewhere in the telephony world, but only the prison systems brings all of these unique attributes together as a package. There is a definite incremental cost of providing these features. These are costs that should be recoverable by the provider of the prison calling system. V. COST ISSUES 30. Historically prison inmate calling required collect calls using live operators. Only a live operator could make sure that prisoners were limited to the types of calling that the prison authorities allowed. But with today?s technology, there is no longer any reason to use only collect calling for prison calls. For example, the Evercom system in the three sample prisons it serves or has served allows for at least two types of calling. First, it offers an automated collect call, meaning that the called party pays for the call. Second, it offers a debit product, meaning that the call is pre-paid before being placed. 3 1. As described above, collect calling systems historically required live operators. Ascertaining whether the called party was willing to accept charges for a call required a live operator because there was no technology available to automate such a function. Today, the vast majority of commercial collect calls are performed entirely by computers and do not require a live operator. There are a number of automated collect call products available to the general public such as 1-800-COLLECT and 1-800-CALLATT. To a large degree, except for the extra layer of penological functions, these commercial collect systems operate much like the prison collect system. To place a prison collect call, a prisoner must first dial a desired number. The prison system then maintains complete control of the call. Typically, it mutes out the prisoner so that he cannot hear the called party being queried by the automated prompts. The computerized system connects to the desired number, and when the called party answers, a The requirements discussed above are also reflected in the portions of the BOP RFP attached 7 hereto as Exhibit 3. 14 voice prompt will ask whether the called party wishes to accept the charges for a call from the prisoner. Because the prisoner is muted, the system uses a recording of the prisoner?s name to announce the request. The called party is given instructions on how to accept the call if he or she wishes to pay for it. In some newer systems, the called party can accept the call by verbally saying ?yes,? using voice recognition software that recognizes simple words. In most prison systems, the called party will be asked to dial a digit on the phone, for example, ?Did 5 if you want to accept charges for this call.? When the system receives an affirmation that the call will be paid for, the prisoner is taken off of mute, and the call is completed. 32. The network process required for completing a prison pre-paid debit call is almost identical to the processing of a collect call. In a debit system, a prisoner will also dial the desired number. The system will then put the prisoner on hold until it determines that there are enough funds available to pay for the desired call. Once it has been determined that sufficient hds exist, the call is completed. A debit platform is virtually identical to a collect system. The debit system requires the same major components -- a switching platform, a storage device with a voice mail-like system, a master control system and unique software. The only real difference between the prison collect call product and the pre-paid debit product is who pays for the calls and hence how payment is made. 33. This is a very important distinction and something that has been brought about by the convergence of technology. For most of the history of the industry, collect calls were very different from other types ofcalls. They required unique equipment and the use of live operators. As such, collect calls were billed under unique rate structures. However, the unique nature of collect calling has now disappeared. As can be seen in these prison systems, there is no practical difference between a prison debit call and a prison collect call, except for the decision of who is going to pay and how payment will be made. Moreover, because, discussed below, debit calling eliminates the significant amounts of uncollected revenues that service providers experience with collect calls, debit calls ought to be the preferred prison calling methodology. Both debit and collect calls meet all of the same penological requirements and use the same equipment. From a network perspective, the only difference is a very minor one related to call routing in the case of debit calling in order to verify that there are existing funds for the call -- a change that does not add cost to the call processing, Because debit card calling meets all of the same penological requirements as collect calling, there is no justification for restricting inmates to collect calling. All prisons thus should be required to allow debit calls. Such calls are less expensive for the providers, by definition, and should thus cost less for prisoners and families of prisoners. 34. Some prisons have not allowed debit calling, typically, on the grounds that the administrators do not want the extra administrative burdens of handling the cash for the debit , payments! Prison administrators claim that creating an additional source of prisoner funds might generate an additional possibility of extortion among prisoners. However, there are many options for establishing a debit calling system that can overcome these objections. For example, the federal prison system has had a debit product for prisoners for many years. One way to avoid having an extortable commodity is to have a debit system where the called parties (the families) control the funds. In such a system, a family member would purchase a debit account under his or her own name and control. A prisoner would be allowed to call this family member as long as there were funds in the pre-paid account. Removing the cash from prisoner control will remove most ofthe penological concern and eliminate any additional administrative costs for the prison in handling debit accounts. As will be demonstrated below, the collect calls initiated from the sample prison systems are quite expensive. At the end of the day, it is the families and acquaintances of the prisoners who pay for collect calls. Given a choice, many of these called parties would much rather establish a personal debit fund if the calls could be cheaper. * Upon information and belief, one of the CCA facilities involved in the Wright case, the Northfork Correctional Facility located in Sayre, Oklahoma, did not allow inmates to make debit card or debit account calls; they were provided only the option of collect calling. 16 35. A debit system that allows families to pay for calls instead of having the prisoners pay would not increase costs or administrative burdens for the prison. In most contracts between prisons and providers that I have seen, the carrier usually absorbs all of the costs Of running the prison telephone system, including the switch and the software. In this case, of course, Evercom also bills everyone who accepts collect calls. As long as the service provider is responsible for the cost of maintaining external family debit systems, there should be no additional cost or burdens for the prisons. 36. In the telephone industry, revenues that are billed but not collected ftom customers are classified as uncollectibles. A significant number of people who accept collect calls from prisoners subsequently refuse or are unable to pay for the calls. The underlying . prison calling provider must absorb the lost revenues from any calls that are not collected. The uncollectible rate for inmate collect calls can be very high. According to its year-end 2000 10-K Report, Evercom states that it has always had high uncollectible revenues from inmate collect ~alling.~ However, Evercom should experience very little, if any, uncollectibles from debit calls. In a debit system, the calls are pre-paid, and when a call is placed, the service provider can instantly collect from the debit card account. Accordingly, uncollectibles in a debit system should be virtually zero. A debit system would also allow the service provider to collect the cash from calls in advance -- at least thirty days earlier than with collect calling -- which is a big plus for any telecom provider. 37. Prison administrators have argued that debit calling does not offer as many penological safeguards as collect calling. In particular, they point to the penologicd requirement that telephone privileges not become a commodity. They suggest that allowing prisoner debit accounts can create a currency or credit that can be sold or extorted. The federal system, however, which allows debit calling, has taken several steps to reduce the possibility Evercom?s 10-K Report, which is attached hereto as Exhibit 2, states, in Part I, Item 1, at 9 ?Federal Regulation,? that ?[blad debt is substantially higher in the inmate telephone industry than in other segments of the telecommunications industry.? 17 that debit calling might result in the creation of a commodity. The Federal BOP has very strict rules concerning the ability of prisoners? families to replenish the hds in a debit account. They restrict such debit fund payments to a small list of outside parties that includes lawyers and direct family members. Other penological tools also help to reduce the possibility of creating a commodity. For example, strictly limiting the calling for each prisoner to apre- approved list of telephone numbers greatly reduces the attractiveness of any other inmate?s account, particularly if this technique is combined with the inability to re-originate calls. It should also be kept in mind that a collect calling system can be abused as much as a debit calling system. Whatever value can be extorted from another inmate?s debit account could also be extorted from his collect calling PIN. If implemented properly, as has been done in many prisons, there is no specific advantage to collect calling over a debit system. 38. In summary, a debit card system can meet all ofthe same penological requirements as a collect system. The only real difference between the two systems is who pays for calls and how they pay. In a properly designed debit system, there is no additional burden for prison officials. There also does not have to be an additional source of funds available to prisoners that can be extorted. The only real difference between a well-designed debit system and a collect system is how the prisoners or the families of prisoners pay for calls. There is therefore no penological justification for limiting inmates to collect calling services, rather than providing a choice between collect and debit calling. VI. COMPETITION IN PRISON CALLING 39. Many prison inmates and families of prisoners, including the petitioners in this proceeding, have asked for the introduction of competition into inmate calling services. In every other segment of the telephone industry, competition has very effectively lowered the cost of long distance calling. The cost of calling has tumbled everywhere over the last few decades except within prisons like the ones in the referral case. This asdavit will demonstrate that it would be economically and technologically feasible to introduce competition into prison inmate 18 calling services, consistently with all legitimate security and other penological requirements, thereby allowing for more options for families and ultimately resulting in lower rates. AS Other observers have noted, the penological justifications for exclusive inmate calling service arrangements are factually unsubstantiated and pretextual." 40. The best way to get competition into inmate cal!ing services, and thereby benefit prisoners' families or other telephone service bill payers receiving calls from prisoners, vould be to allow inmates to choose among different IXCs; in effect, to create an equal access multi- carrier platform for each prison calling system. One possible mechanism for such a system will be discussed in more detail below. One question that is routinely asked by family members is why the prisons do not allow the use of commercial calling products, such as I-800-COLLECT or commercial debit cards. As described above, these commercial products allow the re- origination of calls. Prison administrators claim that the prison system needs to maintain control of the call from beginning to end for security reasons and that if a prisoner were allowed to use a commercial calling platform that allows the re-origination of calls, many of the penological safeguards discussed above would be bypassed, thereby making abuses possible. Leaving aside the merits of such claims and the potential use of techniques to maintain control over re- originated calls, it would be feasible to allow multiple lXCs to offer services to any given pnson facility, and thereby bring the benefits of competition to prison inmate calling, while meeting all of these objections to the use of standard commercial calling products. , 41. Following is one such mechanism that could be used to allow multiple carriers to compete within a prison calling system. There may be other mechanisms that will work, but the goal of this example is to demonstrate that competition is technologically and economically feasible, consistent with all of the security and other penological concerns discussed above. The lo See Justin Carver, An Eficiency Analysis ofContractsfor rhe Provision ofTelephone Services to Prisons, 54 Fed. Comm. L.J. 391,394 (2002) ("Carver"). A copy ofthis article is attached Exhibit 4 hereto. 19 primary reason to provide for multiple carriers is to allow choice, thereby creating competition and the resultant lower rates. The FCC has spent considerable effort in the last twenty years to ensure that consumers everywhere have choice, and the presumption has always been that choice is beneficial. The evolution to more choices for long distance and local calling has led to lower prices, creative new products and overall greater satisfaction among telephone subscribers in the U.S. However, the families of prisoners in the CCA and other prison systems are the last group of telephone consumers in the U.S. who are still being denied choice. 42. One way to allow competition in prison inmate long distance calling services would be to authorize a multi-carrier platform provided by an underlying service provider in each prison that would supply the prison telephone system hardware and software. This underlying, provider would supply the switch and software, the phones, the management control system and any other required components of the prison calling system. The various carriers offering competitive long distance services to the inmates would interconnect with the underlying carrier?s prison telephone system. The underlying sewice provider could be compensated for providing the prison telephone system by a charge imposed on the interconnecting competitive carriers, based on the costs of installing and operating the prison system. This charge would compensate the underlying carrier for the switch, software, maintenance and operating costs for providing the system, but would not include the cost of providing the long distance transmission. The underlying provider could recover its costs through a per minute charge levied against all long distance calls placed from the prison and carried by one of the competitive service providers. As discussed below, these costs would range from 4.4 to 5.9 cents per minute. 43. In order to implement a long distance multi-carrier choice through a prison telephone system switch, each competitive carrier should be required, at its own cost, to provide long distance transport facilities to the prison switch. These facilities would typically consist of T-1 trunks (a digital transmission link with a capacity of 1.544 Mbps, enough for 24 simultaneous voice conversations), that go from the prison switch to the IXC?s point of presence 20 (?POP?). Each 1XC also would be required to pay the underlying carrier for the fixed cost per minute of providing the prison system. Each 1XC would then be free to compete on pnce and service to get the prison calling business. Each 1XC would be free to charge any rate it chose as long as it agreed to first pay the underlying provider to interconnect with the prison system. In such a competitive system, the underlying provider could also be allowed to offer a competitive long distance product along with the other competitive camiers, as long as it also covered its basic per minute system fee on an imputed basis. 44. In this way, prisoners, or the prisoners? families, would be able to select the carrier of choice from a menu of available interconnecting carriers. Today, the prisoners get a prompt in most prisons to choose between debit calls and collect calls. In the competitive environment, they would get an additional prompt asking them to select a carrier for whichever type of call they elected to use. Prisoners could also be allowed to ?choose? a carrier on a more permanent basis in order to avoid going through the camer selection screen for each call. The competitive carriers would be free to market directly to the people who actually pay for the long distance calls made by prisoners -- in most cases, the families. Families could elect to purchase calling products from the competitive carriers offering the best deals. Since there is such a large volume of calls made from prisons, a number of different carriers could be expected to compete for the business from each prison. There is little doubt that such side-by-side competition among multiple IXCs would lead to much lower long distance rates than those in place in these prisons today. 45. It is important to note that even in such a multiple-provider system, all of the penological requirements discussed above would continue to be met. The software in the prison telephone system switch would continue to provide all of the necessary security functions, just as it does today. Adding a choice of carrier to the calling process would not affect or modify any of the penological safeguards built into today?s systems. Prisoners would still place calls under the complete control of the prison phone system. This system would maintain control of the entire 21 call using all of the rules and safeguards in place today. A call would only be completed after it could be ascertained that the prisoner was not making unauthorized calls and that the carrier was being paid for the call. Because the long distance provider carrying the call would be interconnected at the prison system switch, control over the entire call could be maintained, just as it is today. At the end of each call, the underlying service provider would assess the system fee to the IXC canying the call. The IXC that handled the call would then charge the inmate?s debit account for the call, including the underlying system fee. 46. There have been other proposals in the past that have suggested ways to offer competitive calling in prisons. Some of them involve handing off inmate calls to another network not directly interconnected with the prison telephone system. The proposal set forth in this affidavit would require that the underlying carrier process a call up to the point where the call was handed off to an IXC for completion. That hand-off would take place at the switch exclusively serving, and under the administrative control of, the prison. There would be a requirement that calls remain under the control of the initial switch for the entire duration of the call. Competitive carriers would be prohibited from transferring any inmate calls to other IXCS or to any carriers other than the terminating LEC serving the called party. The interconnecting carriers thus would be in the business of completing long distance calls, but, because they would take the calls at the prison system switch and deliver them to terminating LECs, they would not have the ability to bypass any of the penological requirements of each prison, which would be implemented and enforced by the underlying switch provider, just as Evercom enforces those requirements today. 47. As demonstrated above, this competitive proposal would be technically feasible and would not be a major burden for carriers, it would safeguard the rights of consumers, and it would maintain all of today?s penological safeguards. It would also attract numerous additional competitive IXCs to compete for long distance inmate calling service. Most IXCs would view a 22 prison system, with its many concentrated minutes, to be a premium opportunity to be pursued. If we build a competitive environment, the carriers will come. 48. Implementing such a competitive system would cause a hndamental change in the way that the underlying provider does business. Allowing multiple carriers to compete would require some hardware and software changes to the prison calling systems. While these changes are relatively minor, there would be some small incremental start-up costs in implementing competition. In the past, the FCC has not hesitated to impose requirements that increase carriers? short run costs when such changes were necessary to facilitate competition. There are numerous examples of FCC orders that have required caniers to expend money for capital and software. In recent years, we have seen orders requiring the provision of ?LIDB (line information database) functions,? payphone call tracking?? and others. As will be demonstrated below, the capital required to implement a competitive solution is too insignificant to be a barrier to change, especially given that the underlying telephone system provider would be able to recover the complete cost of providing the prison calling system from each call, including a reasonable profit. 49. There is no question that introducing competition into the prison calling system is in the public interest. Regulatory bodies have often assumed that exclusive inmate calling service arrangements were required in order to meet legitimate security and other penological ? See generally Policies and Rules Concerning Local Exchange Carrier Validalion and Billing Information for Joint Use Calling Cards, 7 FCC Rcd 3528 (1992) (subsequent history omitted) (requiring LECs to provide non-discriminatory access to the validation and screening information located in the LECs? line information database so that IXCs can accept and complete calling card calls). l2 See Implementation ofrhe Pay Telephone Reclassification and Compensation Provisions of the Te[ecommunicationsAct of I996,l I FCC Rcd 20541,20588,20590-91 (1996) (subsequent history omitted) (requiring IXCs to track calls they receive from payphones in order to ensure fair compensation for each payphone call, despite the IXCs? claims that implementing tracking mechanisms would require significant expenditures of capital). 23 requirements, and this assumption has contributed to past rulings that have upheld the current prison inmate calling regime. In the past, that assumption might have been valid. At this point, however, as explained above, it is clear that competitive long distance inmate calling services are perfectly compatible with security, antifraud and other penological requirements. Given that it is typically non-inmates -- families and attorneys -- that ultimately pay for inmate long distance calls, it must be concluded that these consumers deserve the same rights to choice as do all other callers. Moreover, lowering the cost of prison inmate calling would bring about penological benefits, such as improving family relations for prisoners and improving the chance of successful rehabilitation and integration into the community after the sentence is completed. Finally, as demonstrated below, the competitive system envisioned here would be economically feasible. VII. THE COST OF PRISON INMATE CALLING 50. This section will explore the potential cost of providing the competitive prison system described above. The goal in this section is not to specifically identify the precise costs of providing inmate long distance calling services. Rather, this section is intended to examine whether such a system would be economically feasible by analyzing the potential range of costs, particularly the costs of the underlying system that would be used by all of the competitive IXCs.? As will be demonstrated, even the most conservative estimate of the cost of implementing this proposal is so reasonable that any objections to it based on cost burdens could not be valid. Several different sources have been reviewed in analyzing the costs that would be incurred by the underlying system provider, including Evercom?s public financial data. Evercom is a useful source of data, not only because it is the primary provider involved in the referral case, but also because it is one of the largest prison inmate calling service providers in the country. l3 The cost of providing the long distance segment of the service will also be discussed, but only as a comparison with other estimates filed with the FCC by inmate service providers. The primary focus of this analysis will be the costs of providing the underlying telephone system. The costs of the long distance segment ?wash out? of any economic feasibility analysis because competition in the provision of the long distance segment of the inmate service will quickly reduce the rates charged by the competitive long distance carriers to the most efficient cost. 24 Cost data provided to the FCC in filings by inmate telephone calling service providers also provide confirmation of the conclusions reached below. 51. The following calculations are intended to quantify a range of rates that would need to be charged by the underlying system provider under the proposal. These rates are intended to be profitable for the underlying system provider; thus, the rates include a profit margin in addition to costs. Because Evercom is the primary provider in the prisons under examination, the first set of calculations is based upon Evercom?s costs as an example of how such costs might be calculated. The costs for other experienced providers should be similar. 52. Based on my knowledge of the industry, financial reports from Evercorn,? and evidence about Evercom?s and other inmate service providers? costs from the public record in other cases, the basic components of prison system costs are defined below. The costs of a prison calling system include the hardware that makes up the prison phone system, maintenance, billing, administration and sales, uncollectibles, and the cost of providing long distance transmission and local termination. 53. The hardware in a prison calling system consists of the switch, the recording system, the monitoring interface and the cost of telephones in those cases where the phones are not provided by the prison, The cost of switching hardware has dropped tremendously over the past few years. There are two primary types of switches that can be purchased -- carrier class switches and enterprise switches.? A carrier class switch must be able to interface with the l4 Evercom?s December 31,2000 Independent Auditor?s Report by Deloitte & Touche LLP is an attachment to the 10-K Report, relevant portions of which are attached as Exhibit 2 hereto. I have also reviewed Evercom?s 10-Q Report for the quarter ended September 30,2001, Evercom?s 10-K Report for 2000 is the most recent SEC report covering a full year, however. Because the September 30,2001 10-Q Report covers only one quarter and shows little change from the data in the 10-K Report relevant to this analysis, this affidavit relies on the more complete IO-K Report. As used in fhis discussion, the term ?enterprise switch? has a different meaning from the way that term is used in the FCC?s Triennial Review Order. See Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, Report and Order and Order on 25 I5 larger public switched telephone network and is generally used only by LECs. The switches required for prisons are enterprise switches, and are somewhat analogous to the large PBXs used by many businesses. Because enterprise switches are smaller and simpler than carrier class switches, they are far less expensive. A switch has several major components -- the line side connections, the trunk side connections, the operating software and a user interface. The line side connection is the hardware that interfaces with the telephone sets that use the switch. From the line side perspective, prison switches are relatively small switches. According to data included in the June 2,1997 BOP RFP, the average federal prison has just under 44 telephone sets.16 The trunk side connection is the interface to the public telephone network. As described elsewhere in this paper, these switches today only require only a handful of T-1 connections to the public switched telephone network -- making these relatively small switches. The most costly feature on a prison switch is the specific software that allows the switch to meet the various penological requirements listed earlier. If one were to develop such a switch for only one prison, such software would be quite expensive. However, most prison providers supply switching to many prisons, thus lowering the cost of this software on a per location basis. Evercom supplies switches to about 2,000 prisons, and thus its software cost is spread over many locations and is relatively inexpensive per switch. 54. The cost of switching has dropped drastically over the last few years. As an example, a small Class 5 carrier grade switch that can handle 5,000 lines would have cost $2 million - $3 million just a few years ago. In the last several months, such switches have been available from every major switch manufacturer -- Lucent, Nortel and Siemens, plus a number of the new soft switch manufacturers -- for under $600,000, due in part to the collapsing of the Remand and Further Notice of Proposed Rulemaking, CC Docket No. 01 -338, FCC 03-36 (Aug. 21,2003). There, ?enterprise switch,? see id at q 428 n. 1335, refers not to a type of switch but to any carrier class switch used by a CLEC to serve large business customers. Id at nI419-22. Here, it refers to the type of switch used by large non-carrier entities. l6 See BOP RFP, Exhibit J-1, attached hereto as Exhibit 5 (3850 telephones in 88 prisons). 26 lelecom sector and resulting overcapacity. Even as far back as 1999, this Commission calculated that camer class switches cost less than $500,000.?? Switch costs have fallen considerably since then, and especially since the collapse of the high-tech bubble. Recently, observers have found carrier switches advertised for as little as $lOO,OOO.?* As noted above, enterprise switches are far simpler and less expensive than carrier switches. Based on my recent experience in pricing switches for clients, a conservative current estimate for an enterprise switch with the features needed for a prison telephone system, including monitoring and recording equipment, would be approximately %350,000. 55. Moreover, there is a trend in the switching world that is going to lower the cost of switching even further in the near future, and this innovation is particularly relevant to prison calling systems. There are a number of new switches in the market referred to as soft switches. A soft switch is a switching device that separates the various switching functions into separate components. The major components of a soft switch are referred to as the call processor, the media gateway, the signaling gateway and the feature sewer. The call processor is the same as the core of the older switches and is the device that actually switches and routes calls. The media gateway is a device that allows for the interface to various other switching platforms. There is no real analog to the media gateway in older switches -- they were proprietary and self-contained. The signaling gateway allows the switch to interface with the SS7 network and thus use advanced features such as caller ID. Finally, the call feature server is the device that contains the unique systems and programs that operate the various features on the switch. The feature server in a soft switch would contain all of the unique penological features that distinguish prison I? See Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, Third Report and Order and Fourth Further Notice of Proposed Rulemaking, 15 FCC Rcd 3696,3812-13 (1999). ?State Regulators Courted by ILECs and IXCs on WE-P Role,? Communications Daily, Apnl 28,2003, at 2 (comment attributed to Link Hoewing, Verizon Assistant Vice President-Internet), attached hereto as Exhibit 6. 27 switching systems from other systems. The availability of soft switches is relevant because they will allow a further large reduction in the cost of providing prison calling. With a soft switch platform, a prison provider could serve many prisons from one switching platform. For example, it would need only one feature server and one signaling gateway at some central site in the U.S. At each prison, it would need only the call processor. Such a distributed network would probably represent an additional 50 percent reduction over today?s cost of switching, and this distributed architecture is ideally suited for applications like prison calling that require services at many different locations. Thus, any costs quoted in this paper can be expected to further decrease over time as technology takes yet another leap forward. 56. Service providers like Evercom are often required to provide the telephone sets as part of providing service to a prison. The phones used by prisons are more expensive than the average phones used by most business and residential users. Prison phones are more like payphone sets, in that they are built to stand up to heavy use. There are a vast number of types of payphones available in the marketplace. Payphones vary in the functions they must perform and in the ruggedness of the environment for which they are constructed. Prison payphones can be of the ?dumb? variety, ie., they do not need to be able to perform such functions as coin counting. ?Smart? telephones that process coins cost more than dumb phones that do not. Additionally, a prison phone does not need any of the advanced features often seen on payphones today, such a scanner that can read in calling card information from a caller. Prison payphones can be ofthe most basic type, in that they require a keypad on which to dial the desired numbers, and, in the case of the competition proposal presented in this affidavit, to choose the desired IXC, but very little else. The payphone industry is very competitive, and there are a large number of manufacturers and thus a wide range of prices. Eased on recent market research, there are 28 payphones that would work in a prison environment that are available from as low as $280 up to $550, with an average prison payphone price of 57. In order to translate that per-phone set estimate into an estimated payphone equipment cost for a typical prison, it is necessary to examine prison inmate telephone data. The data in the BOP RFP shows that the federal prison system has one telephone for every 25 prisoners?? Using a subset of the federal data, an attachment to a report from the Virginia State Corporation Commission? shows a ratio of 1 telephone per 26 inmates?2 The three sample CCA prisons served by Evercom have an average capacity of 1,743 prisoners2? Using that sample, applying a ratio of one phone per 25 inmates yields an average of 70 telephones per prison. Applying the $400 average payphone cost to the estimate of 70 phones per sample prison yields a total payphone cost of $28,000 per prison. Adding that cost to the $350,000 switch estimate above results in an average total equipment cost per prison of $378,000. l9 Attached as Exhibit 7 are sample advertisements from payphone websites for equipment that would be suitable for inmate services showing prices as low as $149. An estimate of $400 for an inmate telephone set is also consistent with the Commission?s estimate of $225 for a coinless payphone for general use in the Third Report and Order, and Order on Reconsideration of the Second Report and Order, Implementation ofthe Pay Telephone Reclassification and Compensation Provisions of rhe Telecommunications Act of 1996,14 FCC Rcd 2545,2622,2634 11.404 (1999), affdsub nom. American Pub. Communications Council v. FCC, 215 F.3d 51 (D.C. Cir. 2000). 2o See BOP RFP, Exhibit J-1, attached hereto as Exhibit 5. The total number of federal prisoners shown in this chart is 97,579, and the total number of phones is 3,850, or 25.35 prisoners per phone. *? Div. of Communs., Virginia State Corp. Comm?n, Report on Rates Charged to Recipients of Inmate Long Distance Calls (2000) (?Virginia Inmate Report?), attached hereto as Exhibit 8. 2z Analysis of the Federal Bureau of Prisons Inmate Telephone System and Applicability to the California Department of Corrections, Executive Summary at 1 (?CDC Report?) (attached to Virginia Inmate Report) (see Exhibit 8). ? The three prisons are as follows: Central Arizona Detention Center - 2,304, Torrence County Detention Facility - 910, and Northeast Ohio Correction Center - 2,016. See Correctional Corporation of America web site, at http://www.correctionscorp.com/map.html. 29 58. In deriving an estimate of total operating costs, the cost of the switch and the telephones is reflected as depreciation expense. Evercom?s audited financial statements show that it uses straight-line depreciation and that it uses depreciation lives ofbetween 3.5 years and 7.5 years for telephone system eq~ipment.?~ In the cost calculation set forth below, a depreciation life of 5.5 years is used, which is in the middle of Evercom?s range of depreciation lives. This depreciation life also aligns very well with the typical length of a typical inmate service provider contract with a prison system, which is approximately five years,2? and with data filed by the Inmate Calling Services Providers Coalition (?Coalition?): of which Evercom is a member.2? 59. Another major cost of providing service is maintenance expense. Maintenance expense includes spare parts, repairs and the personnel required to answer customer questions and keep the systems working. Most companies budget maintenance as a percentage of equipment costs. This ratio can be used for Evercom by taking the maintenance expense figure set forth in its 10-K Report. There, Evercom states that its maintenance expense has been steady 24 See 10-K Report at Part 11, Item 8, Notes to Consolidated Financial Statements, Note 1, ?Property and Equipment,? attached hereto as Exhibit 2. See Carver, 54 Fed. Comm. L.J. at 395 n.20, attached as Exhibit 4 hereto. The Coalition uses a depreciation life of five years in its calculations of equipment costs. See, e.g., Don J. Wood et ai., ?Inmate Phone Local Call Cost Study? D.3.3 (May 24,2002) (%mate Cost Study?) (attached to Comments of the Inmate Calling Service Providers Coalition, Implementation of the Pay Telephone Reclass fleation and Compensation Provisions ofthe Telecommunications Act of1996 CC Docket No. 96-128 (May 24,2002) (?2002 Coalition Comments?)). The relevant portions of the 2002 Coalition Comments are attached hereto as Exhibit 9. 25 26 See exparte letter from Robert F. Aldrich, Counsel to the Inmate Calling Service Providers 27 Coalition, to Magalie Roman Salas, Secretary, FCC, at attachment captioned ?Independent Inmate Phone Service Providers (as of May, 2000)? (May 9,2000), the relevant portions of which are attached as Exhibit 10 hereto. 30 and varies little over time?? The amount of maintenance expense equates to approximately 13.2 percent of equipment c0sts.2~ This is the ratio used for estimating maintenance expense in the operating cost calculations set forth below. 60. Another cost that prison providers face is billing costs. Most inmate calling service providers do not have direct billing relationships with the family members of prisoners, or others receiving collect calls from prisoners, across the U.S. Instead, the inmate service providers typically pay a third party, usually the Regional Bell Operating Company or other LEC serving the party paying for an inmate call, to bill such parties for them. In its 10-K Report, Evercom states that billing costs paid to third parties vary between 2 percent and 3 percent of the revenues billed?? Accordingly, in the cost calculations set forth below, a figure equivalent to 2.5 percent of revenues is used to estimate billing costs, It should be noted that significant billing costs apply only to collect calling. The only billing cost required for a debit call is the cost of electronically extracting revenues from the pre-paid debit account, an insignificant expense per transaction. Given that Evercom provides both collect and debit calling to inmates, its reported billing costs represent an average for both types of services. Thus, its actual billing costs for collect calling only are probably much higher than 2.5 percent of collect calling revenues. 61. In order to derive an estimate of billing costs, it is necessary to compute a composite average per-minute revenue amount to which the 2.5 percent ratio can be applied. The ratio of collect to debit calling varies from prison to prison, although there is still more collect calling than debit calling. For simplicity, it is assumed that, once this competitive *? 10-K Report at Part 11, Item 7, ?Field Operations and Maintenance,? attached hereto as Exhibit 2. Evercom?s 10-K Report shows maintenance expense of $6.67 million (in Part 11, Item 6) and total equipment costs of $50.39 (in Part 11, Item 8, Note 4 to Consolidated Financial Statements, ?Property and Equipment?), a ratio of 13.2 percent ($6.67M/ 650.39M). See Exhibit 2. 29 Id. at Part 1, Item 1, ?Billing Arrangements.? IO 31 . proposal is adopted, it would be reasonable to expect that half of the calls will be debit calls and half will be collect. Using Evercom?s tariffed rates during a portion of the period it was providing service to the CADC, TCDF and NOCC -- a debit card rate of $0.65 per minute and a collect calling rate of $0.59 per minute plus a $3.95 per collect call charge -- and assuming a ten- minute call, the composite calling rate charged to inmates would be $0.82 per minute in the cost calculation below.?? If prisons were to switch to debit calling only for inmate calls, billing costs would essentially disappear. 62. Another major cost for inmate service providers offering collect calling is the cost of uncollectibles, as mentioned previously. Evercom does not show uncollectibles as a separate item in the financial statements in its 10-K Report. Evercom does state in the 10-K Report, however, that although inmate prepaid calling services have minimal uncollectible expenses:? called parties? failure to pay for inmate collect calls place unique demands on this sector of the industry.?-? Data provided by the Coalition in an exparfe letter filed in April 2000 with an During the period from September 14, 1999 to the detarifing of Evercom?s rates onJune 27, 2000, Evercom?s standard tariffed debit card service rate, which applied to its Inmate-only Debit Account Service, was $0.65 per minute. See Evercom Systems, Inc. Tariff FCC No. 1, Section 3.4.1 (effective Sept. 14, 1999), and FCC Public Notice, Tariff Transmittal Public Reference Log (June 29, 2000), and its standard tariffed rate for interstate, interexchange operator assisted inmate calls, including collect calls, was $0.59 per minute plus a $3.95 service charge. See Evercom Systems, Inc. Tariff FCC No. 1, Section 3.5 (effective Sept. 14, 1999). For a ten- minute collect call, that comes to $0.99 per minute for collect calls. The average of $0.65 and $0.99 is $0.82 per minute. The relevant portions of Evercom?s Tariff No. 1 are attached as Exhibit 11 hereto. 31 It should be noted that in the event that this competitive proposal is adopted, actual inmate rates will be far lower than they have been in the recent past. The 82 cent rate is used here purely as a conservative estimate. As demonstrated below, the cost of billing drops out in deriving the cost of providing the underlying inmate telephone system. 32 10-K Report at Part I, Item 1, ?Products and Services? (?Prepaid Services?), attached hereto BS Exhibit 2. Id. at Part I, Item 1, ?Industry Overview.? 33 32 attached analysis of the cost of providing a 12-minute local inmate collect call (?Coalition Cost Analysis?), show a typical uncollectibles rate for inmate collect calling of 14 percent of revenues, and, in some cases, over 23 percent?4 Accordingly, the cost calculation below uses a 15 percent uncollectibles rate to apply to collect calling. Because there are virtually no uncollectibles from debit calls, for which revenue is collected directly from prepaid accounts, however, the overall uncollectibles rate must be adjusted to take into account a mix of collect and debit calling. Using the assumption discussed above that half of the calls will be debit calls and half will be collect, the composite uncollectible rate would be 7.5 percent oftotal revenue, and that rate is applied to an assumed composite calling rate of 82 cents per minute in the cost calculation below?5 One of the largest costs incurred by inmate calling service providers is the . 63. category of ?Administration, General and Sales? expenses. On Evercom?s financial statements, this includes a broad category of costs. In addition to the cost of the salespeople who sell to prisons and related expenses, it includes the following types of costs: executive salaries, board of director expenses, accounting, legal, human resources, computer networks, insurance, the cost of running corporate headquarters and other overhead costs. In Evercom?s case, for 2000, these costs were roughly 2.6 times greater than maintenance co~ts.)~ Accordingly, a ratio of 2.6 times Exparre letter from Jacob S. Farher, Counsel to the Inmate Calling Service Providers Coalition, to Magalie Roman Salas, Secretary, FCC, at attachment, ?Inmate Service Fee - 12 Minute Local Call Cost Analysis? (April 6,2000) (uncollectibles rate for inmate collect calls of 14 percent) (?Coalition Cost Analysis?), attached hereto as Exhibit 12. See also, 2002 Coalition Comments at 3-4; Inmate Cost Study at Workpapers labelled Input C, Input G, Input H, Input N, Input 0 and Input P (showing inmate collect uncollectibles rate of over 23 percent), and Input Q (showing uncollectibles rate ofover 19 percent), attached hereto as Exhibit 9. ?? As explained below, the cost of uncollectibles, like billing costs, drops out in deriving the cost of providing the underlying inmate telephone system, since the underlying system operator recovers its costs through rates charged to the competitive interconnected long distance carriers terminating each call, obviating any billing or uncollectibles costs. 36 IO-K Report at Part 11, Item 6 (showing maintenance costs of $6.7 million and selling, general and administrative costs of $17.7 million). See Exhibit 2. 33 maintenance costs is used to represent an allocation for administration, general and sales expenses in the cost calculation below. It should also be noted that the Coalition has represented overhead expenses to be just slightly less than 2.5 times maintenance expenses in their filings with the FCC.? 64. Another cost of providing long distance inmate calling service is the cost incurred in the transmission and termination of the calls, Le., the cost of long distance transport to the called party?s local calling area and the cost of terminating each long distance minute at the final destination. In the competitive scheme described here, this cost would be borne by the competitive interconnecting carriers, rather than the underlying inmate telephone system provider. For long distance transport, carriers typically use T-1s or larger circuits. In this case, such circuits would begin at each prison switch and reach to the nearest POP on the interconnecting carrier?s toll network. Using the average of 70 telephones in each prison, discussed above, a service provider would need approximately three T-1 s for transport to its long distance network. Because a single T-1 has 24 voice channels available, three T-1s would allow for 72 simultaneous calls. Based on my recent experience, an average T-1 circuit costs around $400 per month. T-1 costs vary drastically across the U.S. by market, but $400 is a conservatively high estimate of the composite monthly cost of T-1s across the country. Accordingly, an annual transport cost of $14,400 is used in the cost calculation below.? 65. Evercom, like most inmate service providers and other 1x0, does not own a nationwide long distance network. It therefore has to pay a wholesale IXC to cany each long distance inmate call to the recipient?s local calling area and to arrange for local terminating 3? See Coalition Cost Analysis (showing overhead -- $0.224 per call -- equal to 2.49 times maintenance -- $0.09 per call -- for an inmate local collect call), attached hereto as Exhibit 12. Four hundred dollars per month for an average T-1 circuit is a rate that would be available OdY 38 to a carrier purchasing a fairly large volume of capacity. That rate multiplied by three circuits multiplied by 12 months equals $14,400. 34 ~ .. -- access to the recipient. Such wholesale long distance contracts are routine for long distance resellers like Evercom, which typically use the underlying network of one or more large IXCs, such as AT&T, MCI (formerly known as WorldCom) or Sprint.? A carrier would have to pay no more than 2.5 cents per minute to get long distance calls terminated through one of these facilities-based 1XCs. As far back as 1996, the Coalition estimated that its members? long distance transmission cost was approximately 2.5 cents per minute.?O Since then, long distance wholesale costs have declined drastically, and wholesale long distance terminating rates, including terminating access charges paid to the terminating LEC, are now as low as 1.8 cents per minute for large volume users,4? Accordingly, the 2.5 cents per minute rate will be used as a conservative estimate of long distance transmission plus termination in the cost calculation below, although these costs are certainly lower today. 66. Finally, it is necessary to estimate the volume of long distance usage from the average prison. Based on available data, a low and a high estimate of calling volume can be derived in order to develop a range of possible per-minute costs. This exercise also shows that costs decrease with increased calling volume. The low estimate assumes that each prisoner averages one hour of calling per week, and the high estimate assumes that each prisoner averages 39 It should be noted that, although resellers obtain facilities from other carriers, a reseller carrying an inmate call would nevertheless be fully capable of retaining complete control over the entire transmission of the call. See Comments of Inmate Calling Services Providers Coalition at 8 n.14, Implementation of the Pay Telephone Reclasslfication and Compensation Provisions ofrhe Telecommunications Act of 1996, CC Docket No. 96-128 (July 1, 1996) (?1996 Coalition Comments?), attached hereto as Exhibit 13. AmeriTel Pay Phones, Inc. and lnVision Telecom, Inc., see id. at 1 n.1, were predecessors to Evercom. See 10-K Report at Part I, Item 1, ?General,? attached hereto as Exhibit 2. ? Of that 1.8 cents per minute, only .71 cents per minute was accounted for by local terminating access charges as of June 2003. See Industry Analysis and Technology Division, Wireline Competition Bureau, Federal Communications Commission, Trends in Telephone Service at Table 1.2 (August 2003). The relevant portions of the FCC?s report are attached hereto as Exhibit 14. 4n 35 1.5 hours of calling per week. The low estimate is derived from a report prepared by the California Department of Corrections concerning the BOP inmate telephone system, which estimated that BOP inmates average 242 minutes of calling per month (approximately one hour per week).? The higher estimate is derived from the BOP RFP discussed above, which indicates that the average federal prisoner makes 1.4 hours of long distance calls per week.? 67. There is one additional cost of prison calling that is not included in these cost figures. Many prison systems charge a commission to inmate service providers as a cost of doing business in the prison. As this Commission reiterated in the Inmate Payphone NPRM, location rents (i.e., commissions) are not legitimate costs of providing service; rather, they are an element of profit.? Additionally, not all prisons systems charge commissions. For these reasons, commissions have been excluded from these cost calculations. Commissions have also been removed from the comparable costs figures cited from other FCC filings discussed throughout this affidavit. It should be noted that, although commissions are not a legitimate expense of inmate calling services, as a practical matter, they nevertheless inflate the rates charged by Evercom and other service providers. According to the Coalition Cost Analysis, commissions amount to 30 percent of the total cost of inmate calls, including all profit.?5 If that is true, commissions add another 43 percent (ie., 30% / 70%), to total costs before commissions, which must be presumed to exert a commensurate upward pressure on calling rates. CDC Report, Executive Summary at 1 (attached to Virginia Inmate Report) (attached hereto as 42 Exhibit 8). Exhibit 5-2 of the BOP RFP shows an average of 4,991 minutes per year of telephone usage per inmate, of which 749 minutes are local calls, for an average of 4,242 long distance minutes per year, which is slightly under 1.4 hours per week of long distance calling. Exhibit 5-2 is attached hereto as Exhibit 15. Order on Remand & Notice of Proposed Rulemaking, Implementation of fhe Pay Telephone Reclassijication and Compensation Provisions of the Telecommunications Act of 1996, 17 FCC Rcd 3248,3255 & n.49 (2002) (?Inmate Payphone NPRW). 45 See Coalition Cost Analysis, attached hereto as Exhibit 12. 44 36 68. Following is a calculation of the total cost per minute of running a prison calling system using all ofthe assumptions and inputs discussed above. Because costs vary by call volume, one can easily postulate that costs also vary by prison size, with larger prisons having lower per minute costs. As noted above, the three sample CCA prisons currently or previously served by Evercom have an average population of 1,743 prisoners. The cost calculation is set forth in two columns, with the first column showing low prisoner calling at one hour per prisoner per week and the second column showing 1.5 hours of calling per prisoner per week. Each entry will first be calculated on an annualized basis, rounded off to the nearest thousands of dollars, and then divided by the low and high call volume estimates in order to derive low and high per- minute co~ts.~ Estimate of Evercom Costs Average Number of Prisoners Average Calling Per Prisoner Per Week Calling Hours Per Week Annual Minutes Operating Costs Wholesale Long Distance and Termination4? Transport Total Long Distance Costs 46 Because of the unavoidable ineficiencit Low High Estimate Estimate 1,743 1,743 1.ohr 1.5 hr 1,743 2,615 5,438K 8,157K $ 136K $ 204K $ 14K $ 14K $ 150K $ 218K ring extremely small facilities, this analysis may not apply to locally-administered jails and other low-capacity prison facilities. The estimated wholesale cost of long distance transmission and termination of 2.5 cents per 47 minute was multiplied by the low and high annual estimated minutes to derive low and high annualized totals. 37 Depreciation4* Maintenan~e~~ Billing*' Uncolle~tibles~' Administration & SalesJ2 $ 69K $ 69K $ 50K $ 50K $ lllK $ 167K $ 334K $ 502K $ 130K $ 130K Total Expenses $ 844K $1 ,I 36K Total Cost per Minute $ 0.155 S 0.139 69. This demonstrates that the total cost of providing long distance inmate calling service, before profit and taxes, is somewhere between 13.9 cents and 15.5 cents per minute. This is far below the revenues providers like Evercom collect for interstate calling, as discussed above. 70. From these total cost estimates, it is then possible to break out the cost of providing just the underlying inmate telephone system by eliminating the long distance and other As described in paragraph 58, depreciation is based on an average useful life for all equipment 48 of 5.5 years. The equipment costs are as follows: Hardware Switch $ 350K Telephones $ 28K Total Hardware $ 378K ($378,000/5.5 = $69,000). As described in paragraph 59, maintenance is estimated at 13.2 percent of the total equipment 49 costs. Billing costs are estimated to be 2.5 percent of billed revenues per paragraph 60. These so amounts were calculated by assuming that average billing is 82 cents per minute for the assumed minutes multiplied by 2.5 percent. " As explained in paragraph 62, uncollectibles are calculated by taking 7.5 percent of total revenues, based on a composite revenue estimate of 82 cents per minute. I2 As explained in paragraph 63, general, administration and sales expenses are estimated by multiplying maintenance expenses by 2.6. 38 costs that could be avoided by a firm acting solely as the provider of the underlying system. For example, the actual cost of providing the long distance transmission -- both the network costs per minute and the transport -- would become the responsibility of each competing interconnecting IXC. Also, under the system described here, because the underlying system provider would bill its per-minute charge to the competitive interconnected IXC terminating each call, the underlying system provider would have no billing or uncollectibles costs. Moreover, because most calls would become prepaid debit calls under a competitive system, the cost of billing and uncollectibles would largely disappear in any e~ent.?~ Eliminating the avoided costs, the costs of providing the underlying inmate telephone system for long distance service is as follows: Low High Estimate Estimate Total Expenses (from above) $ 844K $1,136K Less Avoided Costs Less Long Distance Costs $ 150K f 218K Less Billing $ lllK $ 167K Less Uncollectibles $ 334K $ 502K Total Underlying System Costs $ 249K $ 249K Underlying System Cost per Minute $ 0.031 This demonstrates a range of costs for the underlying system provider of 3.1 cents to 4.6 cents per minute. Note that the cost per minute decreases with a greater calling volume. 71. There are two possible categories of costs to add to these figures. First, it is reasonable to allow the underlying system provider to make a profit. In the wholesale long distance business, a reasonable profit for most carriers, after all costs, is roughly one cent per ?? It should be noted that in the BOP inmate telephone system, 92 percent of the long distance calls are prepaid debit calls, and the rest are collect. Virginia Inmate Report at 14, attached hereto as Exhibit 8. 39 minute. This estimate of profit compares well with the profit estimated by the Coalitions4 and thus is a reasonable profit component. Along with profit comes the need to recognize the cost of income taxes. Evercom is a relatively young company and, as such, it has yet to pay any significant income taxes.? For other providers, however, and, eventually, for Evercom, there would be income taxes to be recovered. While taxes for most providers are theoretically as much as 40 percent (when using the maximum possible tax rate), most telecommunications carriers pay less than a full tax rate because of various tax loopholes and write-offs. A tax level of 25 percent is typical for the industry over the long run. Accordingly, assuming profit of one cent per minute, income taxes might eventually be around $0.0025 per minute, or $0.003 per minute, rounded off to the nearest tenth of a cent. Adding $0.013 per minute for income taxes and profit, the reasonable rate for providing the underlying inmate telephone system is calculated to be between $0.044 and $0.059 per minute. 72. These calculated costs are comparable to the costs of providing inmate calling services as reflected in the Coalition Cost Analysis, which is attached hereto as Exhibit 12. That analysis shows a total cost, less commissions, of $1.508 for a 12-minute local call, or $0.126 per minute.56 The basic costs for providing local inmate collect calls are very similar to the costs of providing long distance inmate collect calls. The difference between the two categories, from a cost perspective, is the difference between the cost of transport and termination of the long distance call and the local service charge for canying the local call to the public telephone ? See Coalition Cost Analysis (showing profit of 8.2 cents on a 12 minute local inmate collect call), attached hereto as Exhibit 12. See, e.g., 10-K Report at Part 11, Item 6 (income taxes for 2000 -- $553,000 -- slightly above JS one quarter of one percent of total operating expenses of $218,804,000), attached hereto as Exhibit 2. As explained above, commission payments to prisons are not a legitimate expense. The commissions cost of $0.647 for a 12 minute local inmate call has therefore been removed from the Coalition?s total cost estimate of $2.155 in the Coalition Cost Analysis, attached hereto as Exhibit 12. S6 40 network. In the Coalition Cost Analysis, the Coalition indicates that the LEC service charges for carrying a 12-minute local inmate collect call to the public telephone network are $0.243, or $0.020 per minute.? In order to use the Coalition?s data in an apples-to-apples comparison with the long distance inmate service cost calculations presented in this affidavit, the cost of the long distance transmission and termination plus the cost of transport to the long distance carrier must be substituted for the Coalition?s local service charges. In the long distance cost calculations presented above, the costs of long distance transport and termination equate to about $0.027 per minute.? Substituting that figure for the Coalition?s local service charge in its cost analysis yields the following: Adiusted Coalition Costs Long Distance Costs (substituted for local costs) Billing & Validation Maintenance Depreciation Overheads Profit Uncollectibles Total Cost 12-Minute Call $0.324 $0.350 $0.090 $0.1 10 $0.224 $0.082 $1.590 $0.410 I-Minute Call $0.027 $0.029 $0.008 $0.009 $0.019 $0.007 $0.133 %0.034 It should be noted that the Coalition?s adjusted cost of $0.133 per minute is even less than the lower estimate of the cost of inmate calling presented above, or $0.139 per minute, which does not include profit or taxes. It must be assumed that, in light of the inmate calling service providers? interest in higher rates, the Coalition data does not understate the cost of providing 57 Coalition Cost Analysis, attached hereto as Exhibit 12. Dividing the ?low estimate? long distance costs of $150,000 by the low annual traffic estimate of 5,438,000 minutes yields a per-minute cost of $0.02758. Dividing the ?high estimate? long distance costs of $218,000 by the high annual traffic estimate of 8,157,000 minutes yields a pa- minute cost of $0.02672, for an overall estimate of slightly over $0.027 per minute. 41 inmate telephone service. Because the adjusted Coalition-based data results in a lower cost estimate than the low estimate calculated above from Evercom data, the cost of providing the underlying inmate telephone system is likely to be at the low end of the range of costs calculated above, if not even lower. Moreover, the cost analysis presented here allows the underlying provider a greater profit per minute than is claimed in the Coalition figures, further confirming that the cost estimates presented here might overstate, but certainly do not understate, the costs of inmate calling. 73. In order to compare the adjusted Coalition estimate to the estimated cost of providing the underlying inmate telephone system presented above, it is necessary to remove the avoided costs of long distance, billing and the uncollectibles to arrive at the cost ofthe underlying system, as follows: 12-minute Per Call Minute Adjusted Coalition Total Costs $1.590 $0.133 Less Avoided Costs Long Distance Costs $0.324 $0.027 Billfng & Validation $0.350 $0.029 Underlying System Costs $0.506 $0.043 Uncollectibles $0.410 %0.034 The adjusted Coalition data demonstrates a cost of $0.506 for a 12-minute call, or $0.043 per minute. This is even lower than the low end of the estimates of the cost of providing the underlying system presented above, which range between $0.044 and $0.059 per minute, thereby confirming the conservative nature of the cost calculations presented here. 74. Finally, As explained previously, the estimates of the total cost of providing inmate long distance calling service presented above -- $0.139 to $0.155 per minute before profit and taxes -- are a composite of debit and collect calling costs. As also explained above, billing costs and uncollectibles virtually disappear in the case of debit account or debit card calling. 42 Because billing costs and uncollectibles account for such a large portion of the total cost of providing inmate long distance calling service, debit calling could be provided much more cheaply than collect calling. Removing billing and uncollectibles costs from the composite total cost estimates reduces them by over six cents per minute, which is a tremendous proportion of the total cost of providing inmate long distance debit and collect services. Thus, long distance inmate debit calling could be provided at much lower rates than long distance inmate collect calling service. 75. Taken together, the analysis presented here and the comparison with the Coalition?s data demonstrate that there exists a reasonable range of rates at which an inmate telephone system provider could operate an inmate calling system, make a reasonable profit and still leave room for multiple interconnecting long distance carriers to compete for inmate long distance calling. The range of estimates reflects the economies of scale in providing prison inmate calling and the different possible methods of calculating costs. These estimates demonstrate that a competitive prison inmate calling system of the type described in this aflidavit is technologically and economically feasible and would result in much more affordable calling for prisoners. Moreover, as explained in Part VI above, such a system would meet all legitimate security, anti-fraud and other penological goals. DOUGLAS A. DAWSON R Sworn to before me this 29 day of October, 2003. SHERRI N. SPENQ My Commission Expires August 14,2007 fdOfARY PUBLIC SrpJE OF MARYUND 43 ATTACHMENT A Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: Martha Wright, Dorothy Wade, Annette Wade, Ethel Peoples, Mattie Lucas, Laurie Nelson, Winston Bliss, Sheila Taylor, Gaffney & Schember, M. Elizabeth Kent, Katharine Goray, Ulandis Forte, Charles Wade, Earl Peoples, Darrell Nelson, Melvin Taylor, Jackie Lucas, Peter Bliss, David Hernandez, Lisa Hernandez and Vendella F. Oura Petition for Rulemaking or, in the Alternative, Petition to Address Referral Issues In Pending Rulemaking AFFIDAVIT OF DOUGLAS A. DAWSON STATE OF MARYLAND COUNTY OF PRINCE GEORGES: ss Douglas A. Dawson, being duly sworn, deposes and says: I. INTRODUCTION 1. My name is Douglas A. Dawson, and I am the President of CCG Consulting, Inc. (?CCG), located at 681 1 Kenilworth Ave., Suite 300, Riverdale, Maryland, 20737. CCG is a general telephone consulting firm. CCG works for over 250 communications companies, which include local exchange carriers (?LECs?), competitive LECs (?CLECs?), cable TV providers, electric utilities, wireless providers, paging companies, municipalities and other governments and interexchange carriers (?IXCs?). 2. I submit this affidavit in support of the above-captioned petition to have the Federal Communications Commission (?Commission? or ??FCC?) address certain issues involving prison inmate calling services referred to the Commission by the United States District Court for the District of Columbia in Wright, et a/. v. Corrections Corporation of America, et al. (?Wright?).? I have specific experience and expertise relevant to the issues in this proceeding, which involves the provisioning of long distance calling for prison inmates. I have assisted in the launch of over 50 long distance companies in my career. In that role, I have done virtually everything associated with creating or running long distance businesses. I am also familiar with all regulatory aspects of long distance, including the development of rates and costs and the preparation and fling of tariffs. I have helped numerous companies select switching hardware for long distance service, and I know the capabilities and technical specifications of such hardware. I have negotiated numerous wholesale long distance service agreements between facilities-based IXCs such as Sprint, Frontier, Qwest and WorldCom, and resale carriers, and I understand the underlying long distance networks and issues associated with using them. I have had extensive experience with, and, consequently, have an in-depth understanding of, the capabilities and configurations of the network switching systems that lie at the heart of all telephone systems. I also have helped numerous companies with the provisioning of ancillary long distance products such as calling cards, operator services, prepaid cards, international toll and Internet telephony. My CV, including prior testimony, is appended as Exhibit 1. 11. PURPOSE OF THIS TESTIMONY 3. In this affidavit, I have been asked to examine whether competition would work in the prison calling environment. Because the Wright case focuses largely on inmate calling at three specific prisons operated by the Corrections Corporation of America (?CCA?) - the Central Arizona Detention Center (?CADC?) in Florence, Arizona, the Torrence County Detention Facility (?TCDF?) in Estancia, New Mexico, and the Northeast Ohio Correction Center V?NOCC??) in Youngstown, Ohio - during a period when inmate calling services were I CA NO. 00-293 (GK) (D.D.C.). 2 provided there by Evercom Systems, Inc. of Irving, Texas (?Evercorn?), 1 will use data relating to those facilities and Evercom to illustrate the points I want to make? Evercom?s inmate calling services to those prisons are typical, with regard to the rates and the methods used to bill long distance calls by prisoners, of most prison inmate calling services. The issue of inmate service competition is a generic question, and the conclusions drawn in this analysis would apply to all prison calling systems. CCA and Evercom controlled, and, in the case of the CADC and TCDF, still control, inmate calling on a monopoly basis from those three prisons and have permitted only a limited set of very expensive options for making long distance calls. I will analyze how competition could be brought to bear in inmate calling and demonstrate how it could lower inmate calling rates. 4. For the reasons set forth in this affidavit and based on my extensive background in the telecommunications field, I conclude that there are competitive alternatives to the monopoly environment found in these prisons. I will demonstrate a way that any prison system could allow open access to competition and still meet all of the security and other penological requirements of the prisons. 5. In brief, in this affidavit, I will: a) describe the history and development of telephone systems -both generally as well as specifically for prison systems; b) discuss the various penological requirements that must be satisfied by a prison calling system; c) discuss specifically the current payment methods that are used with prison calling systems; d) demonstrate that there are no justifications for prison administrators not to allow debit card or debit account calling or for inmate service providers not to offer debit card or debit account calling; and e) demonstrate the feasibility and reasonableness of opening inmate calling services to competition, so that inmates have a choice of carriers. On information and belief, Evercom is still providing inmate calling services to the CADC and TCDF. 3 111. PRISON TELEPHONE SYSTEMS 6. Since I will be discussing specific details of the various telephone systems used in prisons, such as debit systems and collect call systems, I will first discuss telephone systems generally and describe how they work. I will then discuss the specific attributes of the prison systems that relate to this proceeding. 7. Historically, all telephone systems in the U.S. began with operator assisted calling. Every call required an operator to complete a call using the large plug panels that we have all seen in movies. Even today, it is still possible to use a live operator to complete a call. In the late 1930s and into the 1940s, local switches were developed that allowed some automation in completing local calls; that is, a caller could complete some calls without using a live operator, as long as the called party was connected to the same local switch. However, all long distance calls, or even calls to other switches in the same city, still required live operators. Beginning in the 1940s and into the 1950s, automated switches were introduced that allowed for the automatic switching of calls between local switches, and this allowed for the long distance network in place today, where dialir4g ?I? plus the long distance number allows a caller to directly dial long distance calls withbut the iniervention of an operator. The early local and long distance switches were electromechanical. They worked by creating a mechanical connection between the called and calling party, much as operators had done mechanically before that. These electromechanical switches 4ere not very sophisticated, and they could not perform very many functions beyond connecting Calls. ! 8. In the late 1960s, coqputer technology was introduced into teIephone networks. With the advent of computers, a new set of telephone services, referred to as vertical features, was developed. Vertical features are computerized functions that provide callers more sophisticated services than simply the completion of calls, such as call waiting, call forwarding, call hold and speed dialing. These features relied on the new computer core of the switch to perform logical processes. With th se new switches, the old electromechanical portions of the switch used for basic call completio were replaced with computerized hardware. During this same period, the hardware that was sed by the remaining operators was also computerized, and terminals that automated many of the However, even with computer assistime, operators in order to be completed. 9. The next big breakthrough 1980s and was referred to as Signaling second electrical path in the telephore is where the electrical voice signal is second signal, the SS7 signal, uses a communicate and perform tasks wittout is the mechanism used to transmit th: a new service like caller ID, which a new telephone products that were operator?s tasks replaced the old manual plug panels. collect and other similar calls still required live in telephone switching systcms came in the early System 7 (?SS7?). SS7 is a technology that provides a network. The original path, referred to as the voice path, sent across the network to complete calls. This new different frequency and allows the switching system to? disrupting the voice path. For example, the SS7 signal telephone number of the calling party and is what enables lows a called party to see the caller?s phone number. The enabled by SS7 were referred to generically as ?CLASS? (Custom Local Area Signaling Services) features present in the prison telephcne prison officials to monitor the numb:rs using SS7 required computerized early 1980s along with SS7. 10. The next technology of dial pulse recognition. With dial to give feedback to questions asked system, a mechanized recording may dial 5.? The technology needed to This was a significant technological other similar types of calls could be features. The SS7 system allowed for many of the systems in place today. For example, SS7 allows for that prisoners dial. Many of the new CLASS Features databases, and these were introduced into the network in the breakthrough that is relevant to this case is the introduction pulse recognition, any caller with a touchtone phone is able by a mechanized recording. For example, in the prison say ?You have a call from prisoner X. To accept this call do this on an automated basis was created in the late 1980s. breakthrough in that, for the first time, collect calls and completed without utilizing a live operator. This technology relied on two technolo update each subscriber line card s( This required significant capital 01 the entire switch. Second, the phc recognize dial pulses. 11. There are recent tec? The most recent breakthrough is in a useable format in the late 199 elicit responses from customers vt dial pulse recognition. For exam1 question, and the voice recognitio technology is now widely used in technology has taken another leap recognize a person by his or her v the need for PIN numbers or the I 12. There is one additic telephone systems, and that is rec monitor calls. For most of the hi to record and monitor calls on an monitor calls by having a person and to later listen to them, as prir The first hardware that could rec This consisted of little more thiu recording of many calls. Such a was not easy in such a system to Newer recording technology is a to be implemented. First, a phone company needed to a given subscriber could dial using a touch-tone phone. and was usually done as part of updating and replacing Impany had to update the switch core itself to be able to jgical changes that also impact prison telephone systems. recognition. Voice recognition just entered the market Joice recognition technology allows the phone system to ly without requiring them to dial digits, as is needed with customer may be asked to answer ?yes? or ?no? to a tware is set to recognize one of these two answers. This narketplace in various collect calling systems. Today, vard, and there are now switching systems that can print using voice recognition software, thus eliminating f dial pulse recognition. echnology that has evolved over time that is key to prison ig technologies that make it possible to record and outlined above, no widespread technology was available mated basis. It has been possible for a very long time to nto the calls and listen to them. The ability to record calls fficials require, is now a key penological requirement. alls on a wide-scale basis was available in the early 1970s. mk of tape recorders that could allow for the simultaneous :m required a massive storage of computer tapes, and it oint or retrieve a specific call from a specific inmate. ble that solves such problems. Modem recording systems 6 use computer drum storage, muc local area network. Such storag making it easy to later retrieve s that can be used for such a purp to decline as digital storage tec storage capacity per dollar eve done for the storage of data on a commercial company's e digitally, and a digital record is made of each call, thus ecorded calls. The size and cost of the storage devices drastically decreased over time, and the cost continues prove year after year, with a seeming doubling in 13. Because ofthe ogical requirements, there are unique features rentiate them from other types of telephone e cutting edge of technology, as prisons able technologies. However, with the of prison calling systems that systems. For many years, pri tried to meet their requireme advent of modem switching requirements, and there are meet the requirements of p has finally caught up to the penological ing platforms that can be modified to four basic components. First is the ly a piece of hardware that allows for the uter logic system that allows for the gether, are unique to prison calling phone system is a recording storage switching platform referre dialing and completion of creation of specific featu requirements. The seco system that allows fort The ideal prison record easily listen to calls lat that allows the authori Such a master control system software, whe numbers that a speci control interfaces. d retrieval of prisoner calls as needed. cally and also allows authorities to stem requires a master control system fi prison calling patterns as needed. an easy interface into the switching es to such functions as the list of odem switching systems have such e system is the software I programming that enables the featui feature allowing a called party to rei list is unique to the prison system. ! prison switch vendor to meet this SF 15. Prison telephone systc First, such systems have evolved to availability of new technology, as o specific penological requirement: tb restrict prisoners to a relatively shoi This particular requirement was no introduced into commercial telepho computers, it became technically p( specific numbers. Thus, each sepa systems has only been made possib technology. In summary, technolo, switch, and the basic requirements exploit these technical capabilities. 16. The second trend tha the expansion of prisoner calling ri few calls. However, as prisoners v developed to respond to these expz As prisoners called more, the pena meet the evolving challenges presc For many years, all : the fact that only a live operator c( could not make calls to those who 17. that are unique to the prison system. For example, a est to be automatically removed from a prisoner's calling ch a feature is created by specific software developed by a ific requirement. IS have evolved over the years in response to two trends. troduce new functions and features in response to the lined above. To illustrate, consider the example of one prison telephone systems allow prison administrators to ist of pre-approved telephone numbers that they may call. easible until the late 1960s, when similar features were switching systems. As switches became more like ible to devise a system that could limit prisoner calls to penological requirement for prison telephone switching , and thus really created, in response to changes in has expanded the ability to provide more hctions with a r prison switching systems have constantly evolved to ffected the development of prison switching systems was its. For a long time, prisoners were allowed to make very n greater calling rights, prison telephone systems were led calling rights while meeting penological requirements. gical requirements for the prison systems have grown to ed by prisoners. son inmate calls were collect calls. This was largely due to Id satisfy the basic penological requirement that prisoners d not wish to talk to them. There was no other way 8 historically to automate this func collect calling was necessary to abuses. Live operators are no I programmable switches, very c requirement can be imagined, i 18. The three prison d thus the intervention of a live operator and the use of ainst the harassment of witnesses and other similar ed to meet this requirement. With easily tures can be introduced today, and if a switching an be programmed. er examination in this proceeding -- the CADC, the se Evercom?s telephone calling systems and lizes in prison calling systems and services. TCDF and the NOCC -- have services for inmate calling. E According to Evercom?s year prisons in the United States a (Inmate Call Access Manage requirements described in th telephone systems. There predominant supplier of p IV. PENOLOGICA S OF PRISON CALLING SYSTEMS Report (? 10-K Report?), it served almost 2000 1,2000.? Evercom refers to its product as CAM rcom CAM system can meet all of the penological that Evercom is not the only provider of prison ison switch providers, but Evercom is the s in the U.S. marketplace today. 19. The follo penological requirements of prison inmate telephone systems is d systems. Additionall periodic Requests fo seeking a new telep detail by the Feder uments gathered from the manufacturers of such usually specified in great detail in the various d by the prison administrators when they are example, these requirements are specified in ?) in its 1997 Request for Proposal for its inmate ? Evercom, Inc., year ended Dece attached hereto as Exhibit 2. , at ?Overview? (filed June 1,2001 for the fiscal . The relevant portions of the 10-K Report are Id at Part I, Item 1, ?Systems.? 4 9 telephone system, relevant portions of which are attached hereto as Exhibit 3 (?BOP RFP?).? I also understand from a technical perspective how all of these penological requirements can be made to work in a prison calling system. These penological requirements for a prison calling system can be broken down into the major categories listed below. Different prisons have selected different subsets of these requirements, but overall, most prison systems are designed to hlfill the same basic list of penological requirements, which are: Number Control Personal Allowed Numbers (?PAN?) Voice Prompts Personal Identification Numbers (?PIN) Monitoring Recording and Playback Reporting Calling as a Commodity Individual Phone and Phone Group Definitions 20. Number Control consists of those telephone features, such as blocking, unblocking, validation and the defining of telephone numbers, that allow the prison to control the telephone calls that can be placed by prisoners. With number control, prisons can satisfy various penological requirements. One almost universal use of number control is the prohibition against inmate calls to certain types of numbers, such as 800 or other toll-free numbers or 900 numbers. This stops prisoners from re-originating calls. It is possible, when dialing 800 or other toll-free access numbers that terminate to a non-prison telephone switch, to connect with call systems that allow the caller to get an additional dial tone and then re-originate the call to another number. The blocking of 800 and 900 calls greatly reduces the chances of ? Federal Bureau of Prisons, Request for Proposal, June 2, 1997 (?BOP RFP?). 10 call re-origination. In a modem swiich, Universal blocking rules block certa any prisoner to call an 800 number. certain categories of calls to be bloc1:ed specific. For example, a prison can systems allow outsiders to elect not 21. A related feature to penological requirement that enabler approved list of telephone numbers. telephone schemes involving calls tc on a PAN list is blocked by the switch. 22. Another important s Group Definitions. This means t For example, they can limit the d prisoner and cap his total usage the hours of phone usage, either prison administrators control o 23. Voice Prompts prisoners can place and use ca that a call will soon be termin prompts is the use of a pre-re inmate making the call. Voi before the prisoner comes o were historically provided mechanized and compute allowable type of call. penological tools is Individual Phone and Phone risons can control calling in any manner they choose. n of calls. They can track the time used by a given fixed ceiling amount per day. The prison can restrict ally or by prisoner. Phone Group Definitions give sic functioning of the phone system. of functions that allow the prison to control how ample, voice prompts can be used to warn prisoners running loo long. One penological use of voice uncement to let a called party know the name of the Is0 allow the called party to accept or reject the call e announcements now provided by voice prompts rs, but these functions have been replaced today with a cordings designed to meet every possible and numerous types of blocking can be performed. n categories of calls for all inmates, such as not allowing Individual blocking rules can also be applied, allowing for certain prisoners. Blocking can be made very )revent calls to an individual number, and many prison o receive calls from prisoners. blocking is Personal Allowed Numbers (?PAN?). PAN is a prison administrators to restrict inmate calling to a pre- A PAN system thus prevents harassing calls and fraudulent non-approved numbers. Any attempt to dial a number not 11 24. Another penological Identification Number (?PIN?) t inmates are identified and tracked individual inmate. The use of P privileges to each inmate. The can be called to how long calls of PINs is widespread in the tel credit card calls, debit card call PBXs of many large companie using a lookup table. In the pr of just one PIN for each priso call cannot be completed, an rn is that each inmate should have a unique Personal st be used in order to initiate calls. PINs ensure that ually. Every call can be tracked and traced to an nables administrators to provide different telephone place restrictions on any aspect of calling, from who ing a11 calls use the PIN system for access. The use stry outside of prisons. PINs are used routinely for d calls, international callback calls, within the other applications. PIN verification works by e lookup table is a very simple one that consists r attempts to use a PIN that is not in the table, a n is notified of the fraudulent attempt. 25. Modem priso also require Monitoring. Monitoring allows prison officials to listen to make certain that no crime monitoring system allows to choose calls at random surveillance of telephone who is making the call w asis. Prisons routinely monitor inmate calls to or that people are not being harassed. A rs to listen at any time to specific prisoners or n telephone systems include camera oring. This allows the prison officials to see 26. Another re one calling systems is Recording that were made in the past. For ephone fraud, the administrator can recording of calls is done by system. Modem telephone and Playback. This all example, should a priso listen to phone calls ma separate hardware that recording systems usu of calls and the length d store calls, and the number y by the size of the storage system chosen. Such storage devices can be programmed to allow for instant retrieval of recorded messages by the authorities, much as is done by voice mail systems widely in use. In order to control the costs, most recording systems also allow the calls to be moved from drum storage to more permanent media for long-term retention. 27. Another penological requirement is Reporting, which allows the prison officials to create rules for calling and then to report any violations. For example, a system might record instances when a prisoner does not know his PIN on the first try. This will help identify any prisoner who is fishing for valid PINS by trial and error. The same sort of system can be used to track sequence calling by an inmate, that is, in calling numbers that are close to each other numerically. Such calling patterns are often associated with attempts at fraud. Reporting can also show when prisoners try to call people whose numbers are blocked for them, such as witnesses and judges. Modern reporting systems have become quite sophisticated in response to the demands placed upon the telephone system by prisoners. 28. A final penological requirement is one that is not directly related to the phone system hardware. Prisons prefer to have an inmate calling system that does not create a commodity, and thus is not subject to coercion or extortion among prisoners: Typically, any system that involves funds or a commodity that can be used by prisoners can be subject to these types of abuses. No calling system - be it collect only or a debit system - can completely eliminate such problems in a prison. The ideal system will have stringent enough rules to make calling reasonably unattractive as a commodity. For example, closely scrutinizing the pre-approved list of telephone numbers that each prisoner is allowed to call greatly reduces the attractiveness of another prisoner?s account, particularly if such scrutiny is combined with blocking that precludes the re-origination of calls. This issue is not unique to a prison?s telephone system, inasmuch as inmates routinely maintain 6 commissary accounts for the purchase of sundry items. 13 29. These penological requirements, taken together, are unique to a prison calling system.? Many of these features are used individually elsewhere in the telephony world, but only the prison systems brings all of these unique attributes together as a package. There is a definite incremental cost of providing these features. These are costs that should be recoverable by the provider of the prison calling system. V. COST ISSUES 30. Historically prison inmate calling required collect calls using live operators. Only a live operator could make sure that prisoners were limited to the types of calling that the prison authorities allowed. But with today?s technology, there is no longer any reason to use only collect calling for prison calls. For example, the Evercom system in the three sample prisons it serves or has served allows for at least two types of calling. First, it offers an automated collect call, meaning that the called party pays for the call. Second, it offers a debit product, meaning that the call is pre-paid before being placed. 3 1. As described above, collect calling systems historically required live operatoe. Ascertaining whether the called party was willing to accept charges for a call required a live operator because there was no technology available to automate such a function. Today, the vast majority of commercial collect calls are performed entirely by computers and do not require a live operator. There are a number of automated collect call products available to the general public such as 1-800-COLLECT and 1-800-CALLATT. To a large degree, except for the extra layer of penological functions, these commercial collect systems operate much like the prison collect system. To place a prison collect call, a prisoner must first dial a desired number. The prison system then maintains complete control of the call. Typically, it mutes out the prisoner so that he cannot hear the called party being queried by the automated prompts. The computerized system connects to the desired number, and when the called party answers, a The requirements discussed above are also reflected in the portions of the BOP RFP attached 1 hereto as Exhibit 3. 14 voice prompt will ask whether the called party wishes to accept the charges for a call from the prisoner. Because the prisoner is muted, the system uses a recording of the prisoner?s name to announce the request. The called party is given instructions on how to accept the call if he or she wishes to pay for it. In some newer systems, the called party can accept the call by verbally saying ?yes,? using voice recognition software that recognizes simple words. In most prison systems, the called party will be asked to dial a digit on the phone, for example, ?Dial 5 if you want to accept charges for this call.? When the system receives an affirmation that the call will be paid for, the prisoner is taken off of mute, and the calf is completed. 32. The network process required for completing a prison prepaid debit call is almost identical to the processing of a collect call. In a debit system, a prisoner will also dial the desired number. The system will then put the prisoner on hold until it determines that there are enough funds available to pay for the desired call. Once it has been determined that suficient funds exist, the call is completed. A debit platform is virtually identical to a collect system. The debit system requires the same major components -- a switching platform, a storage device with a voice mail-like system, a master control system and unique software. The only real difference between the prison collect call product and the prepaid debit product is who pays for the calls and hence how payment is made. 33. This is a very important distinction and something that has been brought about by the convergence of technology. For most of the history of the industry, collect calls were very different from other types of calls. They required unique equipment and the use of live operators. As such, collect calls were billed under unique rate structures. However, the unique nature of collect calling has now disappeared. As can be seen in these prison systems, there is no practical difference between a prison debit call and a prison collect call, except for the decision of who is going to pay and how payment will be made. Moreover, because, BS discussed below, debit calling eliminates the significant amounts of uncollected revenues that service providers experience with collect calls, debit calls ought to be the preferred prison 15 calling methodology. Both debit and collect calls meet all of the same penological requirements and use the same equipment. From a network perspective, the only difference is a very minor one related to call routing in the case of debit calling in order to verify that there are existing funds for the call -- a change that does not add cost to the call processing. Because debit card calling meets all of the same penological requirements as collect calling, there is no justification for restricting inmates to collect calling. All prisons thus should be required to allow debit calls. Such calls are less expensive for the providers, by definition, and should thus cost less for prisoners and families of prisoners. 34. Some prisons have not allowed debit calling, typically, on the grounds that the administrators do not want the extra administrative burdens of handling the cash for the debit payments! Prison administrators claim that creating an additional source of prisoner funds might generate an additional possibility of extortion among prisoners. However, there are many options for establishing a debit calling system that can overcome these objections. For example, the federal prison system has had a debit product for prisoners for many years. One way to avoid having an extortable commodity is to have a debit system where the called parties (the families) control the funds. In such a system, a family member would purchase a debit account under his or her own name and control. A prisoner would be allowed to call this family member as long as there were funds in the prepaid account. Removing the cash from prisoner control will remove most of the penological concern and eliminate any additional administrative costs for the prison in handling debit accounts. As will be demonstrated below, the collect calls initiated from the sample prison systems are quite expensive. At the end of the day, it is the families and acquaintances of the prisoners who pay for collect calls. Given a choice, many of these called parties would much rather establish a personal debit fund if the calls could be cheaper. Upon information and belief, one of the CCA facilities involved in the Wright case, the 8 Northfork Correctional Facility located in Sayre, Oklahoma, did not allow inmates to make debit card or debit account calls; they were provided only the option of collect calling. 16 35. A debit system that allows families to pay for calls instead of having the prisoners pay would not increase costs or administrative burdens for the prison. In most contracts between prisons and providers that I have seen, the carrier usually absorbs all of the costs of running the prison telephone system, including the switch and the software. In this case, of course, Evercom also bills everyone who accepts collect calls. As long as the service provider is responsible for the cost of maintaining external family debit systems, there should be no additional cost or burdens for the prisons. 36. In the telephone industry, revenues that are billed but not collected from customers are classified as uncollectibles. A significant number of people who accept collect calls from prisoners subsequently refuse or are unable to pay for the calls. The underlying ? prison calling provider must absorb the lost revenues from any calls that are not collected. The uncollectible rate for inmate collect calls can be very high. According to its year-end 2000 10-K Report, Evercom states that it has always had high uncollectible revenues from inmate collect calling? However, Evercom should experience very little, if any, uncollectibles from debit calls. In a debit system, the calls are pre-paid, and when a call is placed, the service provider can instantly collect from the debit card account. Accordingly, uncollectibles in a debit system should be virtually zero. A debit system would also allow the service provider to collect the cash from calls in advance -- at least thirty days earlier than with collect calling -- which is a big plus for any telecom provider. 37. Prison administrators have argued that debit calling does not offer as many penological safeguards as collect calling. In particular, they point to the penological requirement that telephone privileges not become a commodity. They suggest that allowing prisoner debit accounts can create a currency or credit that can be sold or extorted. The federal system, however, which allows debit calling, has taken several steps to reduce the possibility Evercom?s 10-K Report, which is attached hereto as Exhibit 2, states, in Part I, Item 1, at 9 ?Federal Regulation,? that ?[blad debt is substantially higher in the inmate telephone industry than in other segments of the telecommunications industry.? 17 that debit calling might result in the creation of a commodity. The Federal BOP has very strict rules concerning the ability of prisoners? families to replenish the hnds in a debit account. They restrict such debit fund payments to a small list of outside parties that includes lawyers and direct family members. Other penological tools also help to reduce the possibility of creating a commodity. For example, strictly limiting the calling for each prisoner to apre- approved list of telephone numbers greatly reduces the attractiveness of any other inmate?s account, particularly if this technique is combined with the inability to re-originate calls. It should also be kept in mind that a collect calling system can be abused as much as a debit calling system. Whatever value can be extorted from another inmate?s debit account could also be extorted from his collect calling PIN. If implemented properly, as has been done in many prisons, there is no specific advantage to collect calling over a debit system. 38. In summary, a debit card system can meet all of the same penological requirements as a collect system. The only real difference between the two systems is who pays for calls and how they pay. In a properly designed debit system, there is no additional burden for prison officials. There also does not have to be an additional source of funds available to prisoners that can be extorted. The only real difference between a well-designed debit system and a collect system is how the prisoners or the families of prisoners pay for calls. There is therefore no penological justification for limiting inmates to collect calling services, rather than providing a choice between collect and debit calling. VI. COMPETITION IN PRISON CALLING 39. Many prison inmates and families of prisoners, including the petitioners in this proceeding, have asked for the introduction of competition into inmate calling services. In every other segment of the telephone industry, competition has very effectively lowered the cost of long distance calling. The cost of calling has tumbled everywhere over the last few decades except within prisons like the ones in the referral case. This affidavit will demonstrate that it would be economically and technologically feasible to introduce competition into prison inmate 18 calling services, consistently with all legitimate security and other penological requirements, thereby allowing for more options for families and ultimately resulting in lower rates. As other observers have noted, the penological justifications for exclusive inmate calling service arrangements are factually unsubstantiated and pretextual." 40. The best way to get competition into inmate cal!ing services, and thereby benefit prisoners' families or other telephone service bill payers receiving calls from prisoners, would be to allow inmates to choose among different IXCs; in effect, to create an equal access multi- carrier platform for each prison calling system. One possible mechanism for such a system will be discussed in more detail below. One question that is routinely asked by family members is why the prisons do not allow the use of commercial calling products, such as 1-100-COLLECT or commercial debit cards. As described above, these commercial products allow the re- origination of calls. Prison administrators claim that the prison system needs to maintain control of the call from beginning to end for security reasons and that if a prisoner were allowed to use a commercial calling platform that allows the re-origination of calls, many of the penological safeguards discussed above would be bypassed, thereby making abuses possible. Leaving aside the merits of such claims and the potential use of techniques to maintain control over re- originated calls, it would be feasible to allow multiple lXCs to offer services to any given prison facility, and thereby bring the benefits of competition to prison inmate calling, while meeting all of these objections to the use of standard commercial calling products. 41. Following is one such mechanism that could be used to allow multiple carriers to compete within a prison calling system. There may be other mechanisms that will work, but the goal ofthis example is to demonstrate that competition is technologically and economically feasible, consistent with all of the security and other penological concerns discussed above. The See Justin Carver, An Efiiciency Analysis of Contracts for the Provision of Telephone Services to Prisons, 54 Fed. Comm. L.J. 391,394 (2002) ("Carver"). A copy of this article is attached as Exhibit 4 hereto. 10 19 primary reason to provide for multiple carriers is to allow choice, thereby creating competition and the resultant lower rates. The FCC has spent considerable effort in the last twenty years to ensure that consumers everywhere have choice, and the presumption has always been that choice is beneficial. The evolution to more choices for long distance and local calling has led to lower prices, creative new products and overall greater satisfaction among telephone subscribers in the U.S. However, the families of prisoners in the CCA and other prison systems are the last group of telephone consumers in the U.S. who are still being denied choice. 42. One way to allow competition in prison inmate long distance calling services would be to authorize a multi-carrier platform provided by an underlying service provider in each prison that would supply the prison telephone system hardware and sohare. This underlying provider would supply the switch and software, the phones, the management control system and any other required components of the prison calling system. The various camers offering competitive long distance services to the inmates would interconnect with the underlying carrier?s prison telephone system. The underlying service provider could be compensated for providing the prison telephone system by a charge imposed on the interconnecting competitive carriers, based on the costs of installing and operating the prison system. This charge would compensate the underlying carrier for the switch, software, maintenance and operating costs for providing the system, but would not include the cost of providing the long distance transmission. The underlying provider could recover its costs through a per minute charge levied against all long distance calls placed from the prison and carried by one of the competitive service providers. As discussed below, these costs would range from 4.4 to 5.9 cents per minute. 43. In order to implement a long distance multi-carrier choice through a prison telephone system switch, each competitive carrier should be required, at its own cost, to provide long distance transport facilities to the prison switch. These facilities would typically consist of T-l trunks (a digital transmission link with a capacity of 1.544 Mbps, enough for 24 simultaneous voice conversations), that go from the prison switch to the IXC?s point ofpresence 20 (?POP?). Each IXC also would be required to pay the underlying carrier for the fixed cost per minute of providing the prison system. Each IXC would then be free to compete on price and service to get the prison calling business. Each IXC would be free to charge any rate it chose as long as it agreed to first pay the underlying provider to interconnect with the prison system. In such a competitive system, the underlying provider could also be allowed to offer a competitive long distance product along with the other competitive carriers, as long as it also covered its basic per minute system fee on an imputed basis. 44. In this way, prisoners, or the prisoners? families, would be able to select the carrier of choice from a menu of available interconnecting carriers. Today, the prisoners get a prompt in most prisons to choose between debit calls and collect calls. In the competitive environment, they would get an additional prompt asking them to select a carrier for whichever type of call they elected to use. Prisoners could also be allowed to ?choose? a carrier on a more permanent basis in order to avoid going through the carrier selection screen for each call. The competitive carriers would be free to market directly to the people who actually pay for the long distance calls made by prisoners -- in most cases, the families. Families could elect to purchase calling products from the competitive carriers offering the best deals. Since there is such a large volume of calls made from prisons, a number of different carriers could be expected to compete for the business from each prison. There is little doubt that such side-by-side competition among multiple IXCs would lead to much lower long distance rates than those in place in these prisons today. 45. It is important to note that even in such a multiple-provider system, all ofthe penological requirements discussed above would continue to be met. The software in the prison telephone system switch would continue to provide all of the necessary security functions, just as it does today. Adding a choice of carrier to the calling process would not affect or modify any of the penological safeguards built into today?s systems. Prisoners would still place calls under the complete control of the prison phone system. This system would maintain control of the entire 21 call using all of the rules and safeguards in place today. A call would only be completed after it could be ascertained that the prisoner was not making unauthorized calls and that the carrier was being paid for the call. Because the long distance provider carrying the call would be interconnected at the prison system switch, control over the entire call could be maintained, just as it is today. At the end of each call, the underlying service provider would assess the system fee to the IXC carrying the call. The IXC that handled the call would then charge the inmate?s debit account for the call, including the underlying system fee. 46. There have been other proposals in the past that have suggested ways to offer competitive calling in prisons. Some of them involve handing off inmate calls to another network not directly interconnected with the prison telephone system. The proposal set forth in this affidavit would require that the underlying carrier process a call up to the point where the call was handed off to an IXC for completion. That hand-off would take place at the switch exclusively serving, and under the administrative control of, the prison. There would be a requirement that calls remain under the control of the initial switch for the entire duration of the call. Competitive carriers would be prohibited from transferring any inmate calls to other IXCS or to any carriers other than the terminating LEC serving the called party. The interconnecting carriers thus would be in the business of completing long distance calls, but, because they would take the calls at the prison system switch and deliver them to terminating LECs, they would not have the ability to bypass any of the penological requirements of each prison, which would be implemented and enforced by the underlying switch provider, just as Evercom enforces those requirements today. 47. As demonstrated above, this competitive proposal would be technically feasible and would not be a major burden for carriers, it would safeguard the rights of consumers, and it would maintain all of today?s penological safeguards. It would also attract numerous additional competitive lXCs to compete for long distance inmate calling service. Most IXCs would view a 22 prison system, with its many concentrated minutes, to be a premium opportunity to be pursued. If we build a competitive environment, the carriers will come. 48. Implementing such a competitive system would cause a fundamental change in the way that the underlying provider docs business. Allowing multiple carriers to compete would require some hardware and software changes to the prison calling systems. While these changes are relatively minor, there would be some small incremental start-up costs in implementing competition. In the past, the FCC has not hesitated to impose requirements that increase carriers? short run costs when such changes were necessary to facilitate competition. There are numerous examples of FCC orders that have required carriers to expend money for capital and software. In recent years, we have seen orders requiring the provision of ?LIDB? (line information database) hnctions,? payphone call tracking? and others. As will be demonstrated below, the capital required to implement a competitive solution is too insignificant to be a barrier to change, especially given that the underlying telephone system provider would be able to recover the complete cost of providing the prison calling system from each call, including a reasonable profit. 49. There is no question that introducing competition into the prison calling system is in the public interest. Regulatory bodies have often assumed that exclusive inmate calling service arrangements were required in order to meet legitimate security and other penological ?I See generally Policies and Rules Concerning Local Exchange Carrier Validation and Billing Information for Joint Use Calling Cur& 7 FCC Rcd 3528 (1992) (subsequent history omitted) (requiring LECs to provide non-discriminatory access to the validation and screening information located in the LECs? line information database so that IXCs can accept and complete calling card calls). 12 See Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996,ll FCC Rcd 20541,20588,20590-91 (1996) (subsequent history omitted) (requiring IXCs to track calls they receive from payphones in order to ensure fair compensation for each payphone call, despite the IXCs? claims that implementing tracking mechanisms would require significant expenditures of capital). 23 requirements, and this assumption has contributed to past rulings that have upheld the cment prison inmate calling regime. In the past, that assumption might have been valid. At this point, however, as explained above, it is clear that competitive long distance inmate calling services are perfectly compatible with security, antifraud and other penological requirements. Given that it is typically non-inmates -- families and attorneys -- that ultimately pay for inmate long distance calls, it must be concluded that these consumers deserve the same rights to choice as do all other callers. Moreover, lowering the cost of prison inmate calling would bring about penological benefits, such as improving family relations for prisoners and improving the chance of successful rehabilitation and integration into the community after the sentence is completed. Finally, as demonstrated below, the competitive system envisioned here would be economically feasible. VII. THE COST OF PRISON INMATE CALLING 50. This section will explore the potential cost of providing the competitive prison system described above. The goal in this section is not to specifically identify the precise costs of providing inmate long distance calling services. Rather, this section is intended to examine whether such a system would be economically feasible by analyzing the potential range of costs, particularly the costs of the underlying system that would be used by all of the competitive IXCs.? As will be demonstrated, even the most conservative estimate of the cost of implementing this proposal is so reasonable that any objections to it based on cost burdens could not be valid. Several different sources have been reviewed in analyzing the costs that would be incurred by the underlying system provider, including Evercom?s public financial data. Evercom is a useful source of data, not only because it is the primary provider involved in the referral case, but also because it is one of the largest prison inmate calling service providers in the country. The cost of providing the long distance segment of the service will also be discussed, but only 13 as a comparison with other estimates filed with the FCC by inmate service providers. The primary focus of this analysis will be the costs of providing the underlying telephone system. The costs of the long distance segment ?wash out? of any economic feasibility analysis because competition in the provision of the long distance segment of the inmate service will quickly reduce the rates charged by the competitive long distance carriers to the most efficient cost. 24 Cost data provided to the FCC in filings by inmate telephone calling service providers also provide confirmation of the conclusions reached below. 5 1. The following calculations are intended to quantify a range of rates that would need to be charged by the underlying system provider under the proposal. These rates are intended to be profitable for the underlying system provider; thus, the rates include a profit margin in addition to costs. Because Evercom is the primary provider in the prisons under examination, the first set of calculations is based upon Evercom?s costs as an example of how such costs might be calculated. The costs for other experienced providers should be similar. 52. Based on my knowledge of the industry, financial reports from Ever~om,?~ and evidence about Evercom?s and other inmate service providers? costs from the public record in other cases, the basic components of prison system costs are defined below. The costs of a prison calling system include the hardware that makes up the prison phone system, maintenance, billing, administration and sales, uncollectibles, and the cost of providing long distance transmission and local termination. 53. The hardware in a prison calling system consists of the switch, the recording system, the monitoring interface and the cost of telephones in those cases where the phones are not provided by the prison. The cost of switching hardware has dropped tremendously over the past few years. There are two primary types of switches that can be purchased -- canier class switches and enterprise switche~.?~ A carrier class switch must be able to interface with the l4 Evercom?s December 3 1,2000 Independent Auditor?s Report by Deloitte & Touche LLP is an attachment to the 10-K Report, relevant portions of which are attached as Exhibit 2 hereto. I have also reviewed Evercom?s 10-0 Report for the quarter ended September 30,2001. Evercom?s IO-K Report for 2000 is the most recent SEC report covering a full year, however. Because the September 30,2001 IO-Q Report covers only one quarter and shows little change from the data in the 10-K Report relevant to this analysis, this affidavit relies on the more complete 10-K Report. that term is used in the FCC?s Triennial Review Order. See Review ofrhe Seclion 251 As used in this discussion, the term ?enterprise switch? has a different meaning from the way Unbundling Obligaiions of Incumbent Local Exchange Carriers, Report and Order and Order on 25 IS larger public switched telephone network and is generally used only by LECs. The switches required for prisons are enterprise switches, and are somewhat analogous to the large PBXS used by many businesses. Because enterprise switches are smaller and simpler than carrier class switches, they are far less expensive. A switch has several major components -- the line side connections, the trunk side connections, the operating software and a user interface. The line side connection is the hardware that interfaces with the telephone sets that use the switch. From the line side perspective, prison switches are relatively small switches. According to data included in the June 2, 1997 BOP FSP, the average federal prison has just under 44 telephone sets.? The trunk side connection is the interface to the public telephone network. As described elsewhere in this paper, these switches today only require only a handful of T-1 connections to the public switched telephone network -- making these relatively small switches. The most costly feature on a prison switch is the specific software that allows the switch to meet the various penological requirements listed earlier. If one were to develop such a switch for only one prison, such software would be quite expensive. However, most prison providers supply switching to many prisons, thus lowering the cost of this software on a per location basis. Evercom supplies switches to about 2,000 prisons, and thus its software cost is spread over many locations and is relatively inexpensive per switch. 54. The cost of switching has dropped drastically over the last few years. As an example, a small Class 5 carrier grade switch that can handle 5,000 lines would have cost $2 million - $3 million just a few years ago. In the last several months, such switches have been available from every major switch manufacturer -- Lucent, Nortel and Siemens, plus a number of the new soft switch manufacturers -- for under $600,000, due in part to the collapsing of the Remand and Further Notice of Proposed Rulemaking, CC Docket No. 01-338, FCC 03-36 (Aug. 2 1,2003). There, ?enterprise switch,? see id. at 1 428 n. 1335, refers not to a type of switch but to any canier class switch used by a CLEC to serve large business customers. Id. at 11 419-22. Here, it refers to the type of switch used by large non-carrier entities. l6 See BOP RFP, Exhibit J-1, attached hereto as Exhibit 5 (3850 telephones in 88 prisons). 26 telecom sector and resulting overcapacity. Even as far back as 1999, this Commission calculated that carrier class switches cost less than $SOO,OOO.? Switch costs have fallen considerably since then, and especially since the collapse of the high-tech bubble. Recently, observers have found carrier switches advertised for as little as $100,000.?* As noted above, enterprise switches are far simpler and less expensive than carrier switches. Based on my recent experience in pricing switches for clients, a conservative current estimate for an enterprise switch with the features needed for a prison telephone system, including monitoring and recording equipment, would be approximately $350,000. 55. Moreover, there is a trend in the switching world that is going to lower the cost of switching even fbrther in the near future, and this innovation is particularly relevant to prison calling systems. There are a number of new switches in the market referred to as soft switches. A soft switch is a switching device that separates the various switching functions into separate components. The major components of a soft switch are referred to as the call processor, the media gateway, the signaling gateway and the feature server. The call processor is the same as the core of the older switches and is the device that actually switches and routes calls. The media gateway is a device that allows for the interface to various other switching platforms. There is no real analog to the media gateway in older switches -- they were proprietary and self-contained. The signaling gateway allows the switch to interface with the SS7 network and thus use advanced features such as caller ID. Finally, the call feature server is the device that contains the unique systems and programs that operate the various features on the switch. The feature server in a soft switch would contain all of the unique penological features that distinguish prison ~ See Implementation ofthe Local Competition Provisions of the Telecommunications Act of 1996, Third Report and Order and Fourth Further Notice of Proposed Rulemaking, I5 FCC Rcd I7 3696,3812-13 (1999). ?State Regulators Courted by ILECs and IXCs on UNE-P Role,? Communications Daily, April 28,2003, at 2 (comment attributed to Link Hoewing, Verimn Assistant Vice President-Intemet), attached hereto as Exhibit 6. 27 switching systems from other systems. The availability of soft switches is relevant because they will allow a further large reduction in the cost of providing prison calling. With a soft switch platform, a prison provider could serve many prisons from one switching platform. For example, it would need only one feature server and one signaling gateway at some central site in the U.S. At each prison, it would need only the call processor. Such a distributed network would probably represent an additional 50 percent reduction over today?s cost of switching, and this distributed architecture is ideally suited for applications like prison calling that require services at many different locations. Thus, any costs quoted in this paper can be expected to Mer decrease over time as technology takes yet another leap forward. 56. Service providers like Evercom are often required to provide the telephone sets as part of providing service to a prison. The phones used by prisons are more expensive than the average phones used by most business and residential users. Prison phones are more like payphone sets, in that they are built to stand up to heavy use. There are a vast number of types of payphones available in the marketplace. Payphones vary in the functions they must perform and in the ruggedness of the environment for which they are constructed. Prison payphones can be of the ??dumb?? variety, ie., they do not need to be able to perform such functions as coin counting. ?Smart? telephones that process coins cost more than dumb phones that do not. Additionally, a prison phone does not need any of the advanced features often seen on payphones today, such as a scanner that can read in calling card information from a caller. Prison payphones can be of the most basic type, in that they require a keypad on which to dial the desired numbers, and, in the case of the competition proposal presented in this affidavit, to choose the desired IXC, but very little else. The payphone industry is very competitive, and there are a large number of manufacturers and thus a wide range of prices. Based on recent market research, there are 28 payphones that would work in a prison environment that are available from as low as $280 up to $550, with an average prison payphone price of $400.19 57. In order to translate that per-phone set estimate into an estimated payphone equipment cost for a typical prison, it is necessary to examine prison inmate telephone data. The data in the BOP RFP shows that the federal prison system has one telephone for every 25 prisoners2? Using a subset of the federal data, an attachment to a repod from the Virginia State Corporation Commission2? shows a ratio of 1 telephone per 26 inmates?2 The three sample CCA prisons served by Evercom have an average capacity of 1,743 prisoners*? Using that sample, applying a ratio of one phone per 25 inmates yields an average of 70 telephones per prison. Applying the $400 average payphone cost to the estimate of 70 phones per sample prison yields a total payphone cost of $28,000 per prison. Adding that cost to the $350,000 switch estimate above results in an average total equipment cost per prison of $378,000. l9 Attached as Exhibit 7 are sample advertisements from payphone websites for equipment that would be suitable for inmate services showing prices as low as $149. An estimate of $400 for an inmate telephone set is also consistent with the Commission?s estimate of $225 for a coinless payphone for general use in the Third Report and Order, and Order on Reconsideration of the Second Report and Order, Implementation oflhe Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 14 FCC Rcd 2545,2622,2634 n.404 (1999), affdsub nom. American Pub. Communicafions Council v. FCC, 215 F.3d 51 (D.C. Cir. 2000). 2o See BOP RFP, Exhibit J-1, attached hereto as Exhibit 5. The total number of federal prisoners shown in this chart is 97,579, and the total number of phones is 3,850, or 25.35 prisoners per phone. Div. of Communs., Virginia State Corp. Comm?n, Report on Rates Charged to Recipients of 21 Inmate Long Distance Calls (2000) (?Virginia Inmate Report?), attached hereto as Exhibit 8. Analysis of the Federal Bureau of Prisons Inmate Telephone System and Applicability to the 12 California Department of Corrections, Executive Summary at 1 (?CDC Report?) (attached to Virginia Inmate Report) (see Exhibit 8). ?? The three prisons are as follows: Central Arizona Detention Center - 2,304, Torrence County Detention Facility - 910, and Northeast Ohio Correction Center - 2,016. See Correctional Corporation of America web site, af http://www.correctionscorp.codmap.html. 29 58. In deriving an estimate of total operating costs, the cost of the switch and the telephones is reflected as depreciation expense. Evercom?s audited financial statements show that it uses straight-line depreciation and that it uses depreciation lives of between 3.5 years and 7.5 years for telephone system equipment?? In the cost calculation set forth below, a depreciation life of 5.5 years is used, which is in the middle of Evercom?s range of depreciation lives. This depreciation life also aligns very well with the typical length of a typical inmate service provider contract with a prison system, which is approximately five years:? and with data filed by the Inmate Calling Services Providers Coalition (?Coalition?),26 of which Evercom is a member.? 59. Another major cost of providing service is maintenance expense. Maintenance expense includes spare parts, repairs and the personnel required to answer customer questions and keep the systems working. Most companies budget maintenance as a percentage of equipment costs. This ratio can be used for Evercom by taking the maintenance expense figure set forth in its IO-K Report. There, Evercom states that its maintenance expense has been steady See 10-K Report at Part 11, Item 8, Notes to Consolidated Financial Statements, Note 1, 14 ?Property and Equipment,? attached hereto as Exhibit 2. l5 See Carver, 54 Fed. Comm. L.J. at 395 n.20, attached as Exhibit 4 hereto. The Coalition uses a depreciation life of five years in its calculations of equipment costs. See, e.g., Don J. Wood et ai., ?lnmate Phone Local Call Cost Study? D.3.3 (May 24,2002) (?Inmate Cost Study?) (attached to Comments of the Inmate Calling Service Providers Coalition, Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, CC Docket No. 96-128 (May 24,2002) (?2002 Coalition Comments?)). The relevant portions of the 2002 Coalition Comments are attached hereto as Exhibit 9. 2?See exparte letter from Robert F. Aldrich, Counsel to the Inmate Calling Service Providers Coalition, to Magalie Roman Salas, Secretary, FCC, at attachment captioned ?Independent Inmate Phone Service Providers (as of May, 2000)? (May 9,2000), the relevant portions of which are attached as Exhibit 10 hereto. 16 30 and varies little over time?? The amount of maintenance expense equates to approximately 13.2 percent of equipment operating cost calculations set forth below. This is the ratio used for estimating maintenance expense in the 60. Another cost that prison providers face is billing costs. Most inmate calling service providers do not have direct billing relationships with the family members of prisoners, or others receiving collect calls from prisoners, across the U.S. Instead, the inmate service providers typically pay a third party, usually the Regional Bell Operating Company or other LEC serving the party paying for an inmate call, to bill such parties for them. In its 10-K Report, Evercom states that billing costs paid to third parties vary between 2 percent and 3 percent of the revenues billed.?? Accordingly, in the cost calculations set forth below, a figure equivalent to 2.5 percent of revenues is used to estimate billing costs, It should be noted that significant billing costs apply only to collect calling. The only billing cost required for a debit call is the cost of electronically extracting revenues from the pre-paid debit account, an insignificant expense per transaction. Given that Evercom provides both collect and debit calling to inmates, its reported billing costs represent an average for both types of services. Thus, its actual billing costs for collect calling only are probably much higher than 2.5 percent of collect calling revenues. In order to derive an estimate of billing costs, it is necessary to compute a 61. composite average per-minute revenue amount to which the 2.5 percent ratio can be applied. The ratio of collect to debit calling vanes from prison to prison, although there is still more collect calling than debit calling. For simplicity, it is assumed that, once this competitive ** 10-K Report at Part 11, Item 7, ?Field Operations and Maintenance,? attached hereto as Exhibit 2. Evercom?s 10-K Report shows maintenance expense of $6.67 million (in Part 11, Item 6) and total equipment costs of $50.39 (in Part 11, Item 8, Note 4 to Consolidated Financial Statements, ?Property and Equipment?), a ratio of 13.2 percent (56.67W S50.39M). See Exhibit 2. 29 Id. at Part I, Item 1, ?Billing Arrangements.? 30 31 proposal is adopted, it would be reasonable to expect that half of the calls will be debit calls and half will be collect. Using Evercom?s tariffed rates during a portion of the period it was providing service to the CADC, TCDF and NOCC -- a debit card rate of $0.65 per minute and a collect calling rate of $0.59 per minute plus a $3.95 per collect call charge -- and assuming a ten- minute call, the composite calling rate charged to inmates would be $0.82 per minute in the cost calculation below.? If prisons were to switch to debit calling only for inmate calls, billing costs would essentially disappear. 62. Another major cost for inmate service providers offering collect calling is the cost of uncollectibles, as mentioned previously. Evercom does not show uncollectibles as a separate item in the financial statements in its 10-K Report. Evercorn does state in the 10-K Report, however, that although inmate prepaid calling services have minimal uncollectible expenses,?2 called parties? failure to pay for inmate collect calls place unique demands on this sector of the industry.?] Data provided by the Coalition in an exparie letter filed in April 2000 with an During the period from September 14, 1999 to the detarifing of Evercom?s rates on June 27, 2000, Evercom?s standard tariffed debit card service rate, which applied to its Inmate-only Debit Account Service, was $0.65 per minute. See Evercom Systems, Inc. Tariff FCC No. 1, Section 3.4.1 (effective Sept. 14, 1999), and FCC Public Notice, Tariff Transmittal Public Reference Log (June 29,2000), and its standard tariffed rate for interstate, interexchange operator assisted inmate calls, including collect calls, was $0.59 per minute plus a $3.95 service charge. See Evercom Systems, Inc. Tariff FCC No. 1, Section 3.5 (effective Sept. 14,1999). For a ten- minute collect call, that comes to $0.99 per minute for collect calls. The average of $0.65 and $0.99 is $0.82 per minute. The relevant portions of Evercom?s TariffNo. 1 are attached as Exhibit 11 hereto. 31 It should be noted that in the event that this competitive proposal is adopted, actual inmate rates will be far lower than they have been in the recent past. The 82 cent rate is used here purely as a conservative estimate. As demonstrated below, the cost of billing drops out in deriving the cost of providing the underlying inmate telephone system. 10-K Report at Part 1, Item 1, ?Products and Services? (?Prepaid Services?), attached hereto as 12 Exhibit 2. Id. at Part I, Item 1, ?Industry Overview.? 33 32 attached analysis of the cost of providing a 12-minute local inmate collect call (?Coalition Cost Analysis?), show a typical uncollectibles rate for inmate collect calling of 14 percent of revenues, and, in some cases, over 23 pe~cent?~ Accordingly, the cost calculation below uses a 15 percent uncollectibles rate to apply to collect calling. Because there are virtually no uncollectibles from debit calls, for which revenue is collected directly from prepaid accounts, however, the overall uncollectibles rate must be adjusted to take into account a mix of collect and debit calling. Using the assumption discussed above that half of the calls will be debit calls and half will be collect, the composite uncollectible rate would be 7.5 percent of total revenue, and that rate is applied to an assumed composite calling rate of 82 cents per minute in the cost calculation below.?? One of the largest costs incurred by inmate calling service providers is the . 63. category of ?Administration, General and Sales? expenses. On Evercom?s financial statements, this includes a broad category of costs. In addition to the cost of the salespeople who sell to prisons and related expenses, it includes the following types of costs: executive salaries, board of director expenses, accounting, legal, human resources, computer networks, insurance, the cost of d running corporate headquarters and other overhead costs. In Evercom?s case, for 2000, these costs were roughly 2.6 times greater than maintenance costs.? Accordingly, aratio of 2.6 times 34 Exparte letter from Jacob S. Farber, Counsel to the Inmate Calling Service Providers Coalition, to Magalie Roman Salas, Secretary,? FCC, at attachment, ?Inmate Service Fee - 12 Minute Local Call Cost Analysis?? (April 6,2000) (uncollectibles rate for inmate collect calls of 14 percent) (?Coalition Cost Analysis?), attached hereto as Exhibit 12. See also, 2002 Coalition Comments at 3-4; Inmate Cost Study at Workpapers labelled Input C, Input G, Input H, Input N, Input 0 and Input P (showing inmate collect uncollectibles rate of over 23 percent), and Input Q (showing uncollectibles rate ofover 19 percent), attached hereto as Exhibit 9. 35 AS explained below, the cost of uncollectibles, like billing costs, drops out in deriving the cost of providing the underlying inmate telephone system, since the underlying system operator recovers its costs through rates charged to the competitive interconnected long distance carriers terminating each call, obviating any billing or uncollectibles costs. 36 10-K Report at Part 11, Item 6 (showing maintenance costs of $6.7 million and selling, general and administrative costs ofs17.7 million). See Exhibit 2. 33 maintenance costs is used to represent an allocation for administration, general and sales expenses in the cost calculation below. It should also be noted that the Coalition has represented overhead expenses to be just slightly less than 2.5 times maintenance expenses in their filings with the FCC.? 64. Another cost of providing long distance inmate calling service is the cost incurred in the transmission and termination of the calls, ie., the cost of long distance transport to the called party?s local calling area and the cost of terminating each long distance minute at the final destination. In the competitive scheme described here, this cost would be borne by the competitive interconnecting carriers, rather than the underlying inmate telephone system provider. For long distance transport, carriers typically use T-1s or larger circuits. In this case, such circuits would begin at each prison switch and reach to the nearest POP on the interconnecting carrier?s toll network. Using the average of 70 telephones in each prison, as discussed above, a service provider would need approximately three T-1 s for transport to its long distance network. Because a single T-1 has 24 voice channels available, three T-Is would allow for 72 simultaneous calls. Based on my recent experience, an average T-1 circuit costs around $400 per month. T-1 costs vary drastically across the US. by market, but $400 is a conservatively high estimate of the composite monthly cost of T-Is across the country. Accordingly, an annual transport cost of $14,400 is used in the cost calculation below?* 65. Evercom, like most inmate service providers and other IXCs, does not own a nationwide long distance network. It therefore has to pay a wholesale IXC to carry each long distance inmate call to the recipient?s local calling area and to arrange for local terminating See Coalition Cost Analysis (showing overhead -- $0.224 per call -- equal to 2.49 times 31 maintenance -- $0.09 per call -- for an inmate local collect call), attached hereto as Exhibit 12. Four hundred dollars per month for an average T-1 circuit is a rate that would be available only to a carrier purchasing a fairly large volume of capacity. That rate multiplied by three circuits multiplied by 12 months equals $14,400. 34 access to the recipient. Such wholesale long distance contracts are routine for long distance resellers like Evercom, which typically use the underlying network of one or more large IXCs, such as AT&T, MCI (formerly known as WorldCom) or Sprint.? A carrier would have to pay no more than 2.5 cents per minute to get long distance calls terminated through one of these facilities-based IXCs. As far back as 1996, the Coalition estimated that its members? long distance transmission cost was approximately 2.5 cents per minute.? Since then, long distance wholesale costs have declined drastically, and wholesale long distance terminating rates, including terminating access charges paid to the terminating LEC, are now as low as 1.8 cents per minute for large volume users.? Accordingly, the 2.5 cents per minute rate will be used as a conservative estimate of long distance transmission plus termination in the cost calculation below, although these costs are certainly lower today. 66. Finally, it is necessary to estimate the volume of long distance usage from the average prison. Based on available data, a low and a high estimate of calling volume can be derived in order to develop a range of possible per-minute costs. This exercise also shows that costs decrease with increased calling volume. The low estimate assumes that each prisoner averages one hour of calling per week, and the high estimate assumes that each prisoner averages It should be noted that, although resellers obtain facilities from other carriers, a reseller 39 carrying an inmate call would nevertheless be llly capable of retaining complete control over the entire transmission of the call. See Comments of Inmate Calling Services Providers Coalition at 8 11.14, Implemenfafion of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, CC Docket No. 96-128 (July 1, 1996) (?1996 Coalition Comments?), attached hereto as Exhibit 13. AmeriTel Pay Phones, Inc. and InVision Telecom, Inc., see id. at 1 n.1, were predecessors to Evercom. See 10-K Report at Part I, Item 1, ?General,? attached hereto as Exhibit 2. 40 Of that 1.8 cents per minute, only .71 cents per minute was accounted for by local terminating 41 access charges as of June 2003. See Industry Analysis and Technology Division, Wireline Competition Bureau, Federal Communications Commission, Trends in Telephone Service at Table 1.2 (August 2003). The relevant portions of the FCC?s report are attached hereto as Exhibit 14. 35 1.5 hours of calling per week. The low estimate is derived from a report prepared by the California Department of Corrections concerning the BOP inmate telephone system, which estimated that BOP inmates average 242 minutes of calling per month (approximately one hour per that the average federal prisoner makes 1.4 hours of long distance calls per week." The higher estimate is derived from the BOP RFP discussed above, which indicates 67. There is one additional cost of prison calling that is not included in these cost figures. Many prison systems charge a commission to inmate service providers as a cost of doing business in the prison. As this Commission reiterated in the Inmafe Payphone NPRM, location rents (Le., commissions) are not legitimate costs of providing service; rather, they are an element of profit." Additionally, not all prisons systems charge commissions. For these reasons, commissions have been excluded from these cost calculations. Commissions have also been removed from the comparable costs figures cited from other FCC filings discussed throughout this affidavit. It should be noted that, although commissions are not a legitimate expense of inmate calling services, as a practical matter, they nevertheless inflate the rates charged by Evercom and other service providers. According to the Coalition Cost Analysis, commissions amount to 30 percent of the total cost of inmate calls, including all profit!5 If that is true, commissions add another 43 percent (i.e,, 30% / 70%), to total costs before commissions, which must be presumed to exert a commensurate upward pressure on calling rates. 42 CDC Report, Executive Summary at 1 (attached to Virginia Inmate Report) (attached hereto as Exhibit 8). 43 Exhibit 5-2 of the BOP RFP shows an average of 4,991 minutes per year of telephone usage per inmate, of which 749 minutes are local calls, for an average of 4,242 long distance minutes per year, which is slightly under 1.4 hours per week of long distance calling. Exhibit J-2 is attached hereto as Exhibit 15. Order on Remand & Notice of Proposed Rulemaking, Implementafion offhe Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996.17 FCC Rcd 3248,3255 4 11.49 (2002) ("Inmate Payphone NPRA4"). "See Coalition Cost Analysis, attached hereto as Exhibit 12. 44 36 68. Following is a calculation of the total cost per minute of running a prison calling system using all of the assumptions and inputs discussed above. Because costs vary by call volume, one can easily postulate that costs also vary by prison size, with larger prisons having lower per minute costs. As noted above, the three sample CCA prisons currently or previously served by Evercom have an average population of 1,743 prisoners. The cost calculation is set forth in two columns, with the first column showing low prisoner calling at one hour per prisoner per week and the second column showing 1.5 hours of calling per prisoner per week. Each entry will first be calculated on an annualized basis, rounded off to the nearest thousands of dollars, and then divided by the low and high call volume estimates in order to derive low and high per- minute costs.'6 Estimate of Evercorn Costs Average Number of Prisoners Average Calling Per Prisoner Per Week Calling Hours Per Week Annual Minutes Operating Costs Wholesale Long Distance and Terminati~n'~ Transport Total Long Distance Costs Low Estimate 1,743 1.ohr 1,743 5,4383 $ 136K S 14K $ 150K High Estimate 1,743 1.5 hr 2,615 8,157K $ 204K S 14K S 218K Because of the unavoidable inefficiencies of serving extremely small facilities, this analysis 46 may not apply to locally-administered jails and other low-capacity prison facilities. The estimated wholesale cost of long distance transmission and termination of 2.5 cents per 47 minute was multiplied by the low and high annual estimated minutes to derive low and high annualized totals. 37 Depreciation4? Maintenance4? Billingso Uncollectibles? Administration & Saless? Total Expenses Total Cost per Minute $ 69K $ 50K $ lllK $ 334K $ 130K $ 844K $ 0.155 $ 69K $ 50K $ 167K $ 502K $ 130K %1,136K $ 0.139 69. This demonstrates ... at the total cost of providing ..mg distance inmate calling service, before profit and taxes, is somewhere between 13.9 cents and 15.5 cents per minute. This is far below the revenues providers like Evercom collect for interstate calling, as discussed above. 70. From these total cost estimates, it is then possible to break out the cost of providing just the underlying inmate telephone system by eliminating the long distance and other ?? As described in paragraph 58, depreciation is based on an average useful life for all equipment of 5.5 years. The equipment costs are as follows: Hardware Switch Telephones Total Hardware $ 350K $ 28K $ 378K ($378,000/5.5 = $69,000). As described in paragraph 59, maintenance is estimated at 13.2 percent of the total equipment 49 costs. Billing costs are estimated to be 2.5 percent of billed revenues per paragraph 60. These sa amounts were calculated by assuming that average billing is 82 cents per minute for the assumed minutes multiplied by 2.5 percent. As explained in paragraph 62, uncollectibles are calculated by taking 7.5 percent of total revenues, based on a composite revenue estimate of 82 cents per minute. As explained in paragraph 63, general, administration and sales expenses are estimated by 32 multiplying maintenance expenses by 2.6. 38 costs that could be avoided by a firm acting solely as the provider of the underlying system. For example, the actual cost of providing the long distance transmission -- both the network costs per minute and the transport -- would become the responsibility of each competing interconnecting IXC. Also, under the system described here, because the underlying system provider would bill its per-minute charge to the competitive interconnected IXC terminating each call, the underlying system provider would have no billing or uncollectibles costs. Moreover, because most calls would become prepaid debit calls under a competitive system, the cost of billing and uncollectibles would largely disappear in any event.J? Eliminating the avoided costs, the costs of providing the underlying inmate telephone system for long distance service is as follows: Low High Estimate Estimate Total Expenses (from above) $ 844K $1,136K Less Avoided Costs Less Long Distance Costs $ 150K $ 218K Less Billing $ lllK $ 167K Less Uncollectibles $ 334K S 502K Total Underlying System Costs $ 249K S 249K Underlying System Cost per Minute $ 0.046 u03 1 This demonstrates a range of costs for the underlying system provider of 3.1 cents to 4.6 cents per minute. Note that the cost per minute decreases with a greater calling volume. 71. There are two possible categories of costs to add to these figures. First, it is reasonable to allow the underlying system provider to make a profit. In the wholesale long distance business, a reasonable profit for most carriers, after all costs, is roughly one cent per J? It should be noted that in the BOP inmate telephone system, 92 percent of the long distance calls are prepaid debit calls, and the rest are collect. Virginia Inmate Report at 14, attached hereto as Exhibit 8. 39 minute. This estimate of profit compares well with the profit estimated by the CoalitionU and thus is a reasonable profit component. Along with profit comes the need to recognize the cost of income taxes. Evercom is a relatively young company and, as such, it has yet to pay any significant income taxes?' For other providers, however, and, eventually, for Evercom, there would be income taxes to be recovered. While taxes for most providers are theoretically as much as 40 percent (when using the maximum possible tax rate), most telecommunications carriers pay less than a full tax rate because of various tax loopholes and write-offs. A tax level of 25 percent is typical for the industry over the long run. Accordingly, assuming profit of one cent per minute, income taxes might eventually be around $0.0025 per minute, or $0.003 per minute, rounded off to the nearest tenth of a cent. Adding $0.013 per minute for income taxes and profit, the reasonable rate for providing the underlying inmate telephone system is calculated to be between $0.044 and $0.059 per minute. 72. These calculated costs are comparable to the costs of providing inmate calling services as reflected in the Coalition Cost Analysis, which is attached hereto as Exhibit 12. That analysis shows a total cost, less commissions, of $1.508 for a 12-minute local call, or $0.126 per minute." The basic costs for providing local inmate collect calls are very similar to the costs of providing long distance inmate collect calls. The difference between the two categories, from a cost perspective, is the difference between the cost of transport and termination of the long distance call and the local service charge for carrying the local call to the public telephone See Coalition Cost Analysis (showing profit of 8.2 cents on a 12 minute local inmate collect '4 call), attached hereto as Exhibit 12. "See, e.g., 10-K Report at Part 11, Item 6 (income taxes for 2000 -- $553,000 -- slightly above one quarter of one percent of total operating expenses of $218,804,000), attached hereto as Exhibit 2. As explained above, commission payments to prisons are not a legitimate expense. The commissions cost of $0.647 for a 12 minute local inmate call has therefore been removed from the Coalition's total cost estimate of $2.155 in the Coalition Cost Analysis, attached hereto BS Exhibit 12. 56 40 network. In the Coalition Cost Analysis, the Coalition indicates that the LEC service charges for carrying a 12-minute local inmate collect call to the public telephone network are $0.243, or $0.020 per minute.? In order to use the Coalition?s data in an apples-to-apples comparison with the long distance inmate service cost calculations presented in this affidavit, the cost of the long distance transmission and termination plus the cost oftransport to the long distance carrier must be substituted for the Coalition?s local service charges. In the long distance cost calculations presented above, the costs of long distance transport and termination equate to about $0.027 per minute.? Substituting that figure for the Coalition?s local service charge in its cost analysis yields the following: Adjusted Coalition Costs Long Distance Costs (substituted for local costs) Billing & Validation Maintenance Depreciation Overheads Profit Uncollectibles Total Cost 12-Minute 1 -Minute Call Call $0.324 $0.027 $0.350 $0.029 $0.090 $0.008 $0.110 $0.009 $0.224 $0.019 $0.082 $0.007 $1.590 $0.133 50.410 $0.034 It should be noted that the Coalition?s adjusted cost of $0.133 per minute is even less than the lower estimate of the cost of inmate calling ptesented above, or $0.139 per minute, which does not include profit or taxes. It must be assumed that, in light of the inmate calling service providers? interest in higher rates, the Coalition data does not understate the cost of providing ? Coalition Cost Analysis, attached hereto as Exhibit 12. ?* Dividing the ?low estimate? long distance costs of $150,000 by the low annual traffic estimate of 5,438,000 minutes yields a per-minute cost of $0.02758. Dividing the ?high estimate? long distance costs of $218,000 by the high annual traffic estimate of 8,157,000 minutes yields a per- minute cost of $0.02672, for an overaIl estimate of slightly over $0.027 per minute. 41 inmate telephone service. Because the adjusted Coalition-based data results in a lower cost estimate than the low estimate calculated above from Evercom data, the cost of providing the underlying inmate telephone system is likely to be at the low end of the range of costs calculated above, if not even lower. Moreover, the cost analysis presented here allows the underlying provider a greater profit per minute than is claimed in the Coalition figures, further confirming that the cost estimates presented here might overstate, but certainly do not understate, the costs of inmate calling. 73. In order to compare the adjusted Coalition estimate to the estimated cost of providing the underlying inmate telephone system presented above, it is necessary to remove the avoided costs of long distance, billing and the uncollectibles to arrive at the cost of the underlying system, as follows: 12-minute Call Adjusted Coalition Total Costs $1.590 Less Avoided Costs Long Distance Costs $0.324 Billing & Validation $0.350 Underlying System Costs $0.506 Uncollectibles $0.410 Per Minute $0.133 $0.027 $0.029 The adjusted Coalition data demonstrates a cost of $0.506 for a 12-minute call, or $0.043 p~ minute. This is even lower than the low end of the estimates of the cost of providing the underlying system presented above, which range between $0.044 and $0.059 per minute, thereby confirming the conservative nature of the cost calculations presented here. 74. Finally, As explained previously, the estimates of the total cost of providing inmate long distance calling service presented above -- $0.139 to $0.1 55 per minute before profit and taxes -- are a composite of debit and collect calling costs. As also explained above, billing costs and uncollectibles virtually disappear in the case of debit account or debit card calling. 42 Because billing costs and uncollectibles account for such a large portion of the total cost of providing inmate long distance calling service, debit calling could be provided much more cheaply than collect calling. Removing billing and uncollectibles costs from the composite total cost estimates reduces them by over six cents per minute, which is a tremendous proportion of the total cost of providing inmate long distance debit and collect services. Thus, long distance inmate debit calling could be provided at much lower rates than long distance inmate collect calling service. 75. Taken together, the analysis presented here and the comparison with the Coalition?s data demonstrate that there exists a reasonable range of rates at which an inmate telephone system provider could operate an inmate calling system, make a reasonable profit and still leave room for multiple interconnecting long distance carriers to compete for inmate long distance calling. The range of estimates reflects the economies of scale in providing prison inmate calling and the different possible methods of calculating costs. These estimates demonstrate that a competitive prison inmate calling system of the typ described in this affidavit is technologically and economically feasible and would result in much more affordable calling for prisoners. Moreover, as explained in Part VI above, such a system would meet all legitimate security, anti-fraud and other penological goals. /@A L DOUGLAS A. DAWSON STATE OF rnary14n J CITY OF h,~rdA(Q 4l Sworn to before me this day of October, 2003. SHERRI N. WNCE NOTARY PUBLK STATE OF MARYLAM) My Cmmhrion Expires August 14,2007 43 ATTACHMENT A EXHIBIT 1 CV of Douglas A. Dawson I received a Bachelor of Science in Accounting from the University of Maryland in 1977 and a Masters degree in Mathematics from the University of California at Berkeley in 1985. I began my telephone career in 1975 as a test technician building telephone switches for Litton Industries in College Park, Maryland. In this position I did system integration testing and learned in detail how early digital switches operate. My next telephone job began in 1978 with John Staurulakis, Inc. ("JSI"). JSI is a telephone consulting firm that specializes in consulting for independent telephone companies (those smaller telephone companies that were not part of the Bell System). In this job, I worked on separations cost of service studies for independent telephone companies. In this role, I had my first detailed exposure to developing the costs of providing telephone service. Additionally, I performed numerous traffic studies for switches. These studies were used to determine the patterns of customer usage for switches and costs, as well as the most efficient way to configure the switch and the ne~ork. Next, in 198 1, I became a Staff Manager of Industry Relations at Southwestern Bell Telephone Company, now known as SBC, in St. Louis, Missouri, My functions there included tracking issues that impacted Bell's relationships with the independent telephone industry, calculating and negotiating vaious interconnection and settlement rates between companies for local calling and other network arrangements, and overseeing the review of an independent telephone company's trafic and toll cost studies. In performing the traffic studies, I had hands on experience working with measuring usage on a number of different brands of switches. I also served for a period of time as a member of the rate casc team for the Missouri operations. In working on rate cases, I further developed my knowledge of calculating and developing telephone costs. ! in my next psition, beginning in 1984,l gained operating telephone company experience at CP National in Concord, California. CP National was a holding company that owned, among other entities, 13 telephone companies. I had several jobs with increasing responsibility and ended as Director of Revenues. In that capacity, I oversaw a large group that performed telephone accounting, separations and traffic engineering studies for a seven-state area. My group also monitored earnings. developed access and local rates, maintained tariffs, filed rate cases, and monitored and commented in state and federal regulatory proceedings. In this role, I was directly responsible for setting rates and for defending those rates in front of various regulatory authorities. Thus, I testified in a number of rate-making cases and regulatory proceedings in California, Texas, Nevada, Oregon, Arizona and New Mexico. Part of my responsibility at CP National included calculating costs and setting rates for four separate operator centers where the company maintained telephone operators for completing collect and other types of operator-assisted calls. While at CP National, I also became responsible for earnings monitoring and rate case development for electric, gas and water properties. In my next position, in 1991, I again joined John Staurulakis, Inc. in various capacities. My final . position there was as Director of Special Projects. In that capacity, I oversaw all projects and clients who were not historically pari of JSI's core cost separations business. Some of the projects I worked on included assisting clients in launching long distance companies and Internet service providers; studying and implementing traditional and measured local calling plans; developing optional toll and local calling plans; performing embedded, Total Element Long-Run Incremental Cost ("TELRIC") and incremental cost studies for products and services; assisting in local rate case preparation and defense; and conducting cross-subsidy studies determining the embedded overlap between telephone services. In this role, I gained more in-depth experience in long distance rate setting and the regulatory process. I also became thoroughly familiar with the underlying costs of running a long distance company and providing telephone service. In 1997, I became a founder and owner of Competitive Communications group, LLC. My title at CCG is President and Chief Technical Officer, and I am directly responsible for all of the consulting work performed by our company. The company began with 3 employees in April 1997 and currently has 18 employees. 2 As a firm, we offer the following telephone consulting products and services that are needed by companies that are launching new ventures or entering new markets, all under my direct control and supervision: 0 Engineering services. including: analysis of telephone hardware for switching and networks; detailed network design and development; developing switching specifications and provisioning new switches into service; developing RFPs and analyzing vendors; Development of financial business plans; Market segmentation studies to better understand customers; Competitive research, including rates and services of other providers; 0 0 0 0 Strategic analysis and planning; 0 Marketing plans; 0 Regulatory work, including: certification of companies to provide service; development and filing of tariffs; and regulatory compliance oversight; Implementation assistance for start-up companies, including: negotiating interconnection agreements with carriers; negotiating network implementation and collocation of equipment with other carriers; choosing vendors for billing, back office, operator services and other external requirements; ordering trunks (telephone lines that go between different networks); detailed hands-on project management; Assistance in developing and implementing accounting systems; 0 0 Development of rates; and Calculation of costs. Previous Testimony Illinois Commerce Commission. 2003. Docket No. 02-147. Complaint against Verizon concerning Interconnection Issues and Sharing of Facilities. West Virginia Public Service Commission. 2002. Case No 02-0809-T-P. Verizon 271 Proceeding. 3 West Virginia Public Service Commission. 2002. Case No 02-0254-T-C. Complaint against Verizon concerning the Use of Numbers and the Sharing of Facilities. Maryland Public Service Commission. 2002. Case No 8910. Complaint against Verizon concerning the Availability of Dark Fiber. Maryland Public Service Commission. 2002. Case No 891 1. Verizon 271 Proceeding. Maryland Public Service Commission. 2001. Case No 8881. Complaint against Verizon concerning the Sharing of Facilities. Washington Public Service Commission. 2001. Docket Number UT-000883. Investigation into Rate Zones and Loop Pricing. New York Public Service Commission. 2001. Investigation into Unbundled Loop Pricing. New York Public Service Commission. 2000. Case No. 99-'2-1337. Dispute concerning Unbundled Network Pricing between ALLTEL and Fairpoint Communications, Inc. New York, Court of Claims. 2001. Case No. 103138. Competition in Prison Calling. Federal Communications Commission. 2002. Docket CC-01-338. Facts and Data supporting CLEC Competition. Prior to these proceedings, I also testified approximately 50 times in the mid-1980's at the state Commissions in California, Nevada, Oregon, Washington, Texas, New Mexico? Arizona and Utah. These filings were all done on behalf of CP National, a regulated telephone company. Filings included such topics as the establishment of access charge rates, the setting of rates in local rate cases, the deregulation of CPE, payphone issues, inside wiring and other issues. 4 ATTACHMENT A EXHIBIT 2 I SECURITIES AND EXCHANGE COMHISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 10 OR 151d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 (Mark One1 [XI ANNUAL REPORT PURSUANT TO SECTION 13 OR 151dl OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 Or 1-1 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15Idl OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period to Commission File Number 333-33639 EVERCOM, INC. (Exact Name of Registration as Specified in its Charter) Delaware (State or Other Jurisdiction of Incorporated or Organization) 8201 Tristar Drive Irving, Texas (Address of Principal Executive Offices) 75-2680266 (I.R.S. Employer Identification Number) 75063 (Zip Code) Registrant's telephone number, including area code-972.988.3737 Securities registered pursuant to Section 12 (b) of the Act. None (Title of Each Class) Securities registered pursuant to Section 1219) of the Act. ! None (Title of Class1 , EVERCOM, INC. Table of Contents Form 10-K Report Oecember 31, 2000 PART I: Item 1.Business .............................................................. 5 Item 2.Properties ............................................................ 15 Item 3.Legal Proceedings ..................................................... 15 Item 4.Submission of Matters to a Vote of Security Holders..... .............. 15 PART 11: Item 5.Market for Registrant's Cpmmon Equity and Related Stockholders Matters .................................................. 16 Item 6.Selected Financial Data ............................................... 17 Item 7.Macegement's Discussion and Analysis of Financial Condition and Results of Operations ................................... 19 Item 7aVuantitative and Oualitative Disclosures About Market Risk ........................................................... 36 Item 8.Financial Statements and Supplementary Data. .......................... 37 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................................... 63 PART 111: Item 10.Directors and Executive Officers of the Rejiscrant .................... 64 Item 11.Executive Compensation ................................................ 68 Item 12.Security Ownership of Certain Beneficial Owners and Management ........................................................ 14 Item 13.Certain Relationships and Related Transactions ........................ 77 PART IV: Item 14.Exhibits. Financial Statement Schedules, and Reports on Form 8-K ................................................... 79 Signatures ............................................................... 84 PAST I ITEM 1. BUSINZSS General Svercom, Inc. Ithe "Company") is an independent provider of collect and prepaid calling services to local, county. state, federal and private correctional facilities in the U.S. The Company derives substantially all Cf its revenues from its operation of inmate telecomnunications systems located in correctional facilities in 43 states and the Discrict of Columbia. The company-6 inmate telecommunications business consists of owning, operating, servicing, and maintaining a system of automated operator switches and telephones located in correctional facilities. Generally, inmates may make Only collect or prepaid calls frcq correctional facilities. The Company generally enters into multi-year agreements wir.h correctjonal facilities pursuant to which the Company serves as exclusive provider of telecommunications services to inmates within the facility. In exchange for the exclusive service rights. the Company pays a percexage of its revenues from each ccrrec:ional facility to that facility as a commission. Typically, the Company installs and retains ownership of the telephones and related equipment. Significant costs rypically associated with providing telecommunication services to correctional facilities include uncollectible accounts, network, and billing expenses. The Company has developed an integrated call management and billing system to help control these expenses. This system limits inmates to collect or prepaid calls: validates and evaluates the payocnt history and account status of each number dialed; confirms that the destination number has not been blocked; and processes call records for billing through a third party. TO facilitate billing, rhe Company has encered into 29 separate agreements with regional bell operating companies I"RBOCs"1 and local exchange carriers I"LECs"1, allowing the Company to primarily bill directly through the BOCs and LECs although the Company utilizes third party billing services to a limited extent. The Company uses ics experience in billing, collection, and control of uncollectible accounts to offer specialized billing and collection semices to other inmate telecommunications service providers. These services are referred to as the Company's "Solutions" services. The Company provides Solutionr services to a major RBOC. under which the Company perfoms all of the validation, billing, and collection services for the RBOC's inmate calls. The Company provides similar services to several other inmate telecommunications providers. The Company was formed in December 1996 to consummate the acquisitions of AmeriTcl Payphones, Inc. ("AmeriTel-I and Talton Telecommunications Corporation and it3 subsidiary I"Ta1ron Telecommunications"). In addition to the acquisition of its predecessors. AmeriTel and Talton Telecommunications. the Company also acquired the operations of Tri-T, Inc. l"Tacaka"1 on April 2, 1997. securicy Telecom Corporation ["STC") on June 27, 1991, Correctional Communications Corporation l"CCC"1 on July 31, 1997, the inmate telecommunications division Of Comnuications Ccntral, Inc. l"InVision*l on October 6, 1997. the inmate telccomrmnications division of North American InTelcCom i"NAI"1 on December 1, 1991. tht inmate telecommunications division of Peoples Telephone Company. ("PTC") on December 18, 1997, the inmace telecommunications division of ILD Teleservices, Inc. I"ILD"1 on January 1. 1998. MOO Communications, Inc. ("MOC"1 on February 1, 1998. sarstoga Telephone Co.. Inc. ("Ssratoga") on July 1. 1998. and the inmate telecommunications divisions of Alliance Tsl-Corn. Inc., KRLK Communicacions. Inc., U.S. Connect. Inc.. Tele-Communications. Inc., and Lake-Tel. Inc. lcollectively, "Alliancc"1 on June 1, 1999, lcollectively the '"Acquisitions.). Special Note Regarding Forward-Looking Information Certain statements in this Annual Report on Form 1OK consri:ute forward-looking statements. These forward-looking statements are all statements that are not statements of historical fact or that might otherwise be considered opinion, belief, or projection. These forward-looking .statements involve known and unknown risks. uncertainties, and other factors that may cause the actuai results. levels of activity, performance. or achievements of the Corr.pany. or industry results. to be materially different from any future results. levels Of activity, performance, or achievements expressed or implied by su:h forward-looking scatements. The risks. uncertainties, and other faccors to which forward looking statements are subject include, among others, those set forth under the caption "Risk Factors". All subsequent written or oral forward-looking Statements attributable to the Company or persons acting on its behalf are expressly qualified in their enritety by such faccors. In some cases, forward-looking statements can be identified by terminology such as "may,' "will," "should," "expeccs." "plans." "anticipates," "believes." "estimates," "predicts," '*potenrial," or "continue" or the negative of such terms or other comparable terminology. Although the Company believes that the assumptions and expectations reflected in such forward-looking statements arc reasonable. as a result of the foregoing and other factors, no assurance can be given as to future results, levels of activity, performance, or achievements, and neither the Company nor any ocher person assumes responsibility for ttie acccracy and completeness of , .such forward-looking statements. All forward-looking statements included in this Annual Report on Form 10-K are based on information available to the Company on the date hereof, and the Company is under no duty to update any of the forward-looking statements after the date hereof. Industry Overview The U.S. has one of the highest incarceracion rates of any country in the world. According to the United States Bureau of Justice Statistics, the number of inmates incarcerated in federal and state prisons and in city and county correctional facilities increased from 1.1 million at June 30. 1990 to approximately 1.9 million at June 30. 2000. Of this total, the Company estimates approximately two-thirds were housed in state and federal prisons, with the remainder in city and county facilities. The United States Bureau of Justice Statistics also reports that the number of inmates incarcerated in the U.S. increased by 3% between 1999 and 2000. The inmate telecommunications industry places unique demands on telecommunications systems and service providers. Security and public safety concerns associated with inmace telephone use require that correctional facilities use call processor technology, which allows the facilities to control inmate access to certain telephone numbers and to monitor inmate telephone activity. In addition, concerns regarding fraud and the called parties' failure to pay for inmate collect calls require systems and procedures unique to this industry. Inmate telephones in the U.S. are operated by a large and diverse group of service providers. Large telecommunications companies such as RBOCs, other LECs, and incerexchange carriers l"IXCs"1 such as AThT Corp. I"ATLT"1, MCI WorldCom, and Sprint corporation provide inmate telecommunications in addicion to other services. In addition, independent public pay telephone and inmate telephone companies also focus on this market segment. The Company estimates that. as of December 31. 2000, the Products and Services The Company has developed its products and services to meet the needs of che inmate telecommunications market. The Company offers the following products and services as part of its core inmate telecommunications business: (a) Inmate Collect Call Services. The Company provides collect call services on an exclusive basis to its inmate facility customers during the term of the facility's contract. The majority of calls made by inmates from correctional facilities are collect calls, with the balance of the calls being prepaid which in combination comprise a majority of the Company's total revenues. (b) Prepaid Services. The Company provides prepaid services to inmates and called parties. Prepaid services either allow the recipient of an inmate call to pay in advance for collect calls placed to the recipient or allow inmates to pay in advance for telephone calls placed by that inmate. The Company sells prepaid accounts directly to the called parties. The Company also sells prepaid accounts to correctional facilities at a discount to theii face value, which facilities in turn sell at face value to inmates at those facilities. Prepaid services have minimal associated uncollectible account expenses and minimal billing and collection costs. The Company's 'prepaid services revenues comprise a small percentage of the company',^ fevenues, but these revenues have been increasing and are expected to continue increasing as a percentage of total revenue due to the Company's prepaid sales initiatives and overall increasing popularity. IC) Solutions Services. The Company uses its experience in billing and collections and management of uncollectible accounts to offer specialized Solutions services for other inmate telecommunications service providers. The company is pursuing opportunities to market these services to RBOCs, LECs, IXCs. and other inmate telecommunications providers. The Company currently provides Solutions services to a major RBOC, under which the Company performs all of the validation, billing, and collection services for the RBOC's inmate calls. Under the terms of the agreement, the Company acquires at a discount the related accounts receivable from the RBOC for the calls that che Company processes. When the receivables are purchased, the Company accepts responsibility for all validation, uncollectible accounts, billing and collections costs, with no recourse to the RBOC. However, under the terms of the agreement, all purchased receivables must be processed and validated through the Company's call management and billing system. The Campany's revenues from this service equal the difference between the face value of the receivables purchased and the amount it pays the RBOC for the discounted accounts receivable. The contract term is through January 31, 2003 and has no minimum volume commitment. In February 2001, the RBOC notified the Company of its plans to exit the inmate market by the end of 2002 and consequently, the Company expects its revenues to gradually decline from this contract over the next two years. The Company may not have the ability to replace this revenue although it is reasonable to expect that some portion of this RBOC'B customers will be converted to Evercorn's traditional inmate business. The Company provides similar Solutions services to several other inmate telecommunications providers. (d) Call Processor Services. The company has developed proprietary call processor technology to service iKs correctional facility accounts. The Company also markets this technology to other inmate telecommunications providers and derives revenue from the technology in the form of hardware and software sales. Billing Arrangement 8 The company uses direct and third party billing agreements to bill and collect phone charges. Under direct billing aareements with LECs, the LPC includes collect call charges for the Company's sexices on the local telephone bill sent to the called party. The Company generally receives payment from the LZC for such calls 30 KO 60 days afrer the end of the month in which :he calls are submitted to the LEC for billing. The paymenr received by the Company is net of a service fee, write-offs of uncollectible accounts. and an estimated reserve for future uncollectible accounts. Unlike many smaller independent semice providers with lover telecommunications traffic, che Company has been able co enter into direct billing agreements with local exchange carriers ("LECs") in most of its markets because of the Company's high market penetration. The Company's increased telecommunications traffic has enabled the Coqany to enter into 29 direct billing arrangements that allor the company to direct bill approximately 95t of its collect call revenues in December 2000. In the absence of e, direct billing arrangement. che Company bills and collects its fees through a third-party billing and collection clearinghouse that in turn has a billing and collection agreement with the LEC. When the Company employs a third-party billing and colleccion clearinghouse. the account proceeds are forwarded by the various LECs to the clearinghouse. which then forwards the proceeds to the Company, less a processing fee that varies from 2t KO 38 of billed xevenues. .. The Company's specialized call management and billing system integrates its direct billing arrangements with LECs vith its call blocking, validation, and customer inquiry procedures. This system has also provided the Company with the opportunity to market its billing and collection services to third parties under its Solutions services. systems The Company utilizes a call management and billing system that consists of purchased and internally developed software applications and specialized equipment. This system limits inmates to collect or prepaid calls, validates and verifies the payment history and account status of each number dialed for billing purpoees, and confirms that the destination number has not been blocked. The Company installs its internally developed Call management system ("CRM'I within facilities that provides features such as call monitoring and recording capability. The Company also installs third party call processor technology primarily in smaller facilities. The Company's database of telephone numbers and call activity provides valuable daca to assist the Company in reducing uncollectible accounts and allows the Company to provide extensive call accivicy reports co corrcccional facilities and law enforcement authorities. These include reports of frequently called numbers, calls of longer than normal duration, and calls by more than one inmate to the same number, which can assist law enforcement authoritiei in connection with ongoing investigations. Other Operations The Company oms, operates. services. and maintains a system of microprocessor controlled public pay telephones that are ancillary to its inmate telecommunications business, and occasionally installs public pay telephones as an accommodation to, or pursuant to a contract requirement lmposed by. its correctional facility customers. Competition In the inmate telecommunications business. the Company competes vici numerous independent providers of inmate telephone systems, including XBOCs. LECs. and IXCs. Many of the Company's competitor6 are larger and betcer capitalized virh significantly greater financial resources than the CoRpany. ?he Company believes that the principal competitive factozs in the inmace telecommunications industry are (il rates of commissions paid to che correctional facilities; liil system features and functionality; Iiiib system reliability and service; livl the ability to customize inmate call processing systems to the specific needs of the particular correctional facility: and IY! relationships vith correctional facilities. telephones in the U.S. are operated by a large and diverse group of service providers. Large telecommunications companies such as RBOCs. other LECs, and IXCs such as ATST. MCI Worldcon. and Sprinr Corporation provide inmace telecomynications In addition to other services. In addition, independent public pay telephone and inmate telephone companies also focus on this market segment. Regulation Inmate The inmate telephone industry is regulated at the federal level by rhe , Federal Communications Commission (the "FCC"I and at the state level by the public utility commissions of the various states. In addition, from time to time. legislatures that affects the telecomunications industry generally and the inmate telephone indusczy specifically. Court decisions interpreting applicable laws and regulations may also have a significant effect on the inmate telephone industry. Changes in existing laws and regulations, as vel1 as the adoption of nev laws and regulations applicable to the activities of che Company or ocher telecommunications business could have a material adverse effect on the Company. Federal Regulation legislation may be enacted by Congress or the various state Prior to 1996. the federal governmenc's role in the regulation of the inmate telephone industry was limited. The enactment of the Telecommunications Act of 1996 (the "Telecom Act"I, however. marked a significant change in the scope of federal regulation of inmate telephone service. Section 276 of the Telecom Act directed the FCC to implement rules to overhaul the regulation of the provision of pay telephone service, vhich Congress defined to include the provision of inmate telephone service. Before adoption of the Telecom Act, LECs generally included inmate telephone operations as part of their regulated local exchange telephone company operations, This allowed the LECs to pool revenue and expenses from their monopoly local exchange operations vith revenue and expenses from their inmate telephone operations. This commingling of operations made possible the subsidization of the LECs' inmate operations through other regulated revenues. The LECs vere also able to shifc certain costs from their inmace operations to their local exchange monopoly accounta. In parricular, the LECs vere able to pool the bad debt from their inmate operations vith their ocher bad debt. Because independent inmate telephone service providers acr as their om carrier, they bear the risk of fraudulent calling and uncollectible calls and other bad debt. Bad debt is substantially higher in the inmate telephone industw than in other segments of the telecommunications industry. The LECS' practice of pooling bad debt shifts the high costs of bad debt from inmate telephone operations to the expense accounts of other LEC operations. presenting a vehicle for the cross-subsidization of the LECs' inmate operations. Thia. in turn. has allowed the LECs to offer commissions to correctional facilities that are PART XI ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCWOLDER MATTERS There is currently no established public trading marke: for the Registrant's issued and Outstanding capital stock. As of December 31, 2000. there were fifty-two holders of the Company's Class "A" common stock (the "Common Stock") and four holders of rhe Company's Class "8" common stock (the Class "B" Common Stock). There have been no cash dividends declared on the Common Stock from the period January 1, 1096. through December 31. 2000. The Indenture (the "Indenture") governing rhe Company's Series "A" and Series "8" Senior notes Due 2007 and the Company's senior credit facility. as amended and restated (the "Senior Credit Facility") contain certain restrictive covenants that are likely to materially limit the future payment of dividends on the Common Stock. see "Management's Discussion and Analysis of Financial Condition and Results of Operations." The following table sets forth information with respect to all securities , sold by the Company for the Company.'s. last fiscal year that were not registered under the Securities Act of 1933, as amended (the "Securities Act"). All securities sold and not registered were sold in transactions not involving a public offering under Section 4 (2) of the Securities Act. Tern8 Of Date Acqulrlng Amount Cansideracion Proceed# Exercinc Securities sold Person use or Conversion of S.CYI1t1C. ITEM 6: SELECTED FINANCIAL DATA - (in thousands) The following selected consolidated financial data of the Company and its combined predecessors for each of the five years in the period ended December 31. 2000, have been derived from the Company's audited financial statements. The selected financial data should be read in conjunccion with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the noces thereto included elsewhere in this Form 10-K. op=r.txng 0.t.: Opclatlng IleVCnYI. ............... 0prr.ring Fxprn...: F.dlrry CO"~.,..iO". ........ rn.l"t."."C. ................ TtlcCOmmIcation costs ..... Pltld operaL10ns an6 ...................... Total OTh*r linconel expen.. .......... Net lncone 1Loe.I ................ omm DILTA~ EBlIDA 111 ....................... Net carh provided by $vied in) Epe*.rl"g .Ctl"itl.. ........... Net cash U..d in Invearing aCciVitie. ..................... Net Cash provided by <used in1 fln.ncin9 .CtI"iCL.. ........... C.plt.1 srprndlcures 11) ......... Ratlo Of earn'ngs Lo I1r.d charge. 111 .................... Deficiency of earning. to 1lx.d charge. ........................ COnblntd PI.dCC...OT. The c0mp.n). ..................................................................... ElLVen Month. an. llonrh Ended Ended Y-5 ENDED DECEHSER 11. NO\' IO. DCC 31. 1991 1996 1991 1998 1999 :001 I 51.661 5 5.506 S 91.771 S115.293 1116,101 1114.510 1I.lli :.199 17.171 99.841 101.176 95.622 13.962 1,455 15.71. 71.106 71,159 75.70: 1.116 219 4.5.3 7.117 6.411 6.66s 3.911 171 B.540 17.6'1 1?,11, If.14. 1.511 111 a.m 6.691 7.200 1.1.4 1,746 741 14.141 26.139 21.527 14,920 46.914 5.197 91.540 111,101 211.035 111.804 614 400 1.743 101 ...................................................... ...................................................... 6.679 I09 11.7671 16.0011 1.766 15.706 1.169 612 11.131 l9.63l 19.451 13.362 17 1201 1'61 Ill61 171 I551 ...................................................... 1.19' 591 11.061 19,.02 19,451 19.107 ...................................................... 13.6011 5.111 12111 lll.1119l 115.4lDI 110.6851 1.917 51 . ,7'0 1111 16111 476 450 551 ...................................................... S 3.114 IS 1601 lSl6.9171 1515.8161 1111.1151 iI1.151l .................................... ....._... ......... 517.159 517.500 s10,125 7.300 11.4191 6.0.. 4.151 15.191 10.109 S 9.916 S 1.181 S11.771 17.5151 147.1521 i90.7571 111,1141 111.1191 112.1611 15.7, 48.9'6 91.191 13.01, 11.4611 15.1411 2.1101 169 11.061 13.591 1.19- 1o.aza 1.1 sao 511.829 515,410 Sl0.685 S1.601 I 511 I 194 I 7.m I 1.692 I 1.m s t.195 S I*.lQa 5 80.134 S 189.111 5 131.466 S 172.109 5 162.456 5 14.815 S 61.315 5 166.716 5 110.401 S 172.666 5 166,627 S 9.161 I 6.411 IS 10.0101 IS 36.1111 IS 41.99Bl IS 4I.010 ! (1) For the purpose of r5is Form 10-K. EEITDA means income before inte?es:, income taxes, depreciation, and amortization. Althougt: EBITDA IS not a measure of performance calculated in accordance with generally accepted accounting principles, trie Cortpan)' has included informacion concerring EBITDA in this Form 10-X because it is commonly investors and analysts as a measure of a company's ability to service its debt obligations and is a component of the Company's debt compliance ra:ios. EBITDA should not be used as an alternative to, or be considered more meaningful than operating income, net income, or cash flow as an indicator of the Company's operating performance. 121 Capital expenditures include only amounts expended for purchases Of property and equipment and the implementation of facility contracts and excludes cash outflows for acquisitions. (3) Earnings are defined as earnings lloss1 before income taxes from continuing operations and fixed charges. Fixed charges are defined as interest expense and a portion of rental expense representing the interest factor, which the Company estimates to be one-third of rental expense. and amortization of deferred financing expense. This calculation is a prescribed earnings coverage ratio intended to present the extent to which earnings are sufficient to cover fixed charger, as defined. used by certain ITEM 7: MANAGEMENT'S DISCUSSION RND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and.ana1ysis of the Company's ?inancia1 condition and results of operations should be read in conjunction with the financial Statements and the notes thereto contained elsewhere in this report. Certain information ccncaincd in the discussion and analysis set forth below includes foward-looking statements that involve risks and uncertainties. See "--Special Note Regarding Forward-Looking Information." overview The Company is an independent provider of collect and prepaid calling services to local, county, state, and private correctional facilities in the U.S. The Company derives substantially all of its revenues from its operation Of inmate telecommunications systems located in correctional facilities in 43 states and the DisKxict of Columbia. AS of December 31. 2000, the Company served 1.936 correctional facilities. The Company's inmate telecommunications services consist of collect call and prepaid services. The Company enters into multi-year agreements (generally three to five years1 with the correctional facilities, pursuant to which the Company serves as the exclusive provider of telecommunications services to inmates within each facility. In exchange for the exclusive service rights, the Company pays a percentage of its revenue from each correctional facility as a commission to that LaciliKy. Typically. che Company installs and retains ownership of the telephones and related equipment and provides additional services to COrrecKiOnal facilities that are tailored to the specialized needs of the correctional industry and to the requirements of the individual correctional facility, such as call activity reporting and call blocking. The Company also generatem revenues from public pay telephones Khat are ancillary to its inmate telephone business. The Company accumulates call activity data from its various installation; and bills it8 revenues related to this call activity through LECs or through third-party billing services. In addition, the Company accrues the related telecommunications costs for validating, transmitting, billing and collection, and allowances for uncollectible accounts based on historical experience. period. from 33.7% in 1998 to 35.15 in 2000. This increase is due primarily to higher facility commissions on contracts obtained by :he Company rhrouph acquisitions. competition for larger facilities, an6 increased commission rates on renewals. Commission rates are expected to gradually increase as a percentage of revenues in the future. The overall commission percentage to to:al revenues Of 32.3% in 2000 includes the effect of the Solutions services provided under the Company's agreements with a major RBOC and other inmate telecomnunicationr carriers, under which no commissions are paid. Field Operations and Maintenance. Field operations and maintenance consist of maintenance costs associated vith inmate phones and related equipment. These costs are relatively small and more constant components of operating expense. Selling, General, and Administrative. SGU expenses consist of corporate overhead and selling expense. These costs are also relatively small and more constant components of operating expenses. Restructuring Costs. The Company integrated its acquired operations into its existing operations. which resulted in a restructuring charge of $1.2 million in 1998. Company History. The Company became the holding company for the operations Of its predecessors. AmeriTel and Talton Telecommunications, effeccive December 1. 1996. The Company also acquired.che operations of Tataka on April 2, 1997, STC on June 27, 1997, CCC on July 31, 1997, InVision on October 6. 1997. NAI on December 1, 1997, PTC on December 16. 1997. ILD on January 1, 1998. MOC on February 1. 1996. Saratoga on July 1, 1998. and Alliance on June 1, 1999. The Company has completed the Acquisitions, which have been accounted for using the purchase method of accounting and the Company's results of operations therefore reflect the operations of these companies only subsequent to the effective dates of their respective acquisitions. The Company's overall telecommunications costs as a percentage of revenues of 40.8% for 2000 and 44.1% for 1099 include the effect of the Company's Solutions services provided to a major RBOC and other inmate telecomnunications carriers as discussed in "Overview." These Solutions senices exxbit higher' telecommunication costs as a percentage of revenue than the Company's traditional inmate business. Facility commissions increased by 54.3 million, from $71.4 million in 1999 to $75.7 million in 2000. Facility commissions represented 30.18 of opcra::ng revenues in 1999 and 32.3t in 2000. an increase of 2.2*. The overall commission percentage to total revenue includes the effect of the billing and collection services provided to a major RBOC as discussed in "Ovemiew.' Commission expenses as a percentage of revenue for the Company's traditional inmate collect business vas 33.8% and 35.7% for the years ended December 31, 1999 and 2000, respectively. Facility commissions are expected to gradually increase as a percentage of revenue in the future. Field operations and maintenance costs increased by $0.3 million, from 56.4 million in 1999 to $6.7 million in 2000. Field operations and maintenance costs represented 2.7% of operating revenues in 1999 and 2.88 of operating revenues sn 2000. an increase of 0.1%. The Company has substantially completed ita consolidation and integration of its acquisitions. Consequently. field operations and maintenance costs are expected to be a relatively constant component of the Company's cost stmcture. SGM costs increased by $0.5 million, from $17.2 million in 1999 to 517.7 million in 2000. SGM represented 7.11 of operating revenues in 1999 and 7.6t of Operating revenues in 2000. an increase of 0.3t. This increase is primarily due to increased staffing to support enhancements to the Company's information systems and to execute new sales initiatives. Total depreciation and amortization costs decreased by 55.6 million, from 528.7 million in 1999 to $23.1 million in 2000. Depreciation and amortization costs represented 12.1\ of operating revenues in 1999 and 9.8% of operating revenues in 2000, a decrease of 2.3t. The decrease as a percentage of operating revenues is primarily due to amortization associated with the acquisitions of inmate facility contracts by the Company. The Company amortizes acquired inmate facility contracts over each contract's remaining term at the acquisition date. As the contract terms expire, the acquired inmate facility contracts becomc fully amortized and overall amortization expense declines. Amortization expense will continue to be a substantial portion of the Company's operating expenses. Other (income) expense, consis:ing primarily of interest expense, remained relatively constant at $19.5 million in 1999 and 519.3 million in 2000. Net Loss. The Company's net loss decreased by 57.0 million, from $11.1 million in 1999 to $4.2 million in 2000 as a result of the factors described above. EBITDA increased by $1.3 million from $31.5 million in 1999 LO $38.8 million in 2000. EBITDA as a percentage of operating revenues increased from 15.8% in 1999 to 16.6% in 2000 due to the factors described above. Although EBITDA i# not a measure of performance calculated in accordance with generally accepted accounting principle.. the Company has included infomtion concerning EBITDA in this Fonn 10-K because it is commonly used by certain investors and analysts as a measure of a company's ability to service it8 debt obligations and is a component of the Company's debt compliance ratios. EBITDA should not be used as an alternative to, or be considered more meaningful than, operating income, net income or cash flows as an indicator of the Company's operating performance. Several of the Company's subsidiaries are subject to i ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements and Schedules Evercom, Inc. and Subsidiaries ......................... Independent Auditors' Report ........................... Consolidated Balance Sheets at December 31. 1999 and 2000 ................................... Page ............... 30 ............... 39 Consolidated Statements of Operations for each of the three years in the period ended December 31. 2000 .............................. *n Consolidated Statements of Stockholders' Equity (Deficit) For each of the three years in the period ended December 31. 2000 ...................................................... 41 Consolidated Statements of Cash Flows for each of the three years. in the period ended December 31, ZOO0 ............................ I2 Notes to Consolidated Financial Statements. ............................... 43 SUPPLEMENTARY DATA: Consolidated Valuation and Qualifying Accounts for each of the three years in the period ended December 31. 2000 .................. 62 . 'i INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Evercom. Inc.. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Evercom, Inc., and subsidiaries (the "Company"1as of December 31. 2000 and 1999, and :he related consolidated statements of operations, stockholders' equity iseficitl and cash flows for each of the three years in the period ended December 31. 2000. Our audits also included the financial statement schedule listed in the Index at Item 8. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits. We conducted our au6its in acccrdince with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis. evidence supporting the amounts and disclosures in the financial statemencs. An audit also includes assessing the accounting principles used and significant estimates made'by management. as well as evaluating the overall financial Statement presentation. We believe that our audits provide a reasonable basis for our In Our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Also. in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth cherein. opicion. .. DELOITTE h TOUCHE LLP Dallas, Texas June 1. 2001 -W??COM, INC.A"D SUBSIDIARIES NOTES TO CONSOLIDATED FINiuJCIAL STATEMENTS 1. BUSINESS AND SUMMRRY OF SIGNIFICANT ACCOUNTING eomm BUSINESS - Evercom. Inc. and Subsidiaries (the "Company") oms, operates and maintains telephone systems under contracts uith correctional facilities In 43 states and the District of Columbia. The Company was incorporated on NOveIrDer 20. 1996, and effective December 1, 1996, acquired all of the outstanding equity inrerests of Talton Telecommunications Corporation and AmeriTel Pay Phones, Inc. The Company has grown through numerous subsequent acquisitions, as discussed in Note 2. The Company accumulates call activity from its various installations and bills its revenues related to this call activity through major local exchange carriers ('LECs") or through third-party billing services for smaller volume LECS. all of which are granted credit in the normal course of business with terms of between 30 and 60 days. The Company also provides Solutions services in the form of validation, billing and collection services for the inmare calls of a major regional bell operating company and several other inmate telecommunication carriers. The Company perfonns ongoing credit evaluations of its customers and maintains allowances for unbillable and uncollectible losses bqsed on historical experience. .. The Company operates in only one business segment. as its operating activities are related to the operation and processing of collect and prepaid calling services to local, county, state and private correctional facilities in the United States. PREPARATION OF FINANCIAL STATEMENTS - The preparation of financial statements in conformity with accounting principles. generally accepted in the United states, requires management to make estimates and assumptions, such as estimates of allowances and reserves for unbillable and uncollectible chargebacks that affect the reported amounts of assets and liabilities at the date of the financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION ~ The accompanying consolidated financial statements include the accounes of the Company and its wholly owned subsidiaries, Evercom Systems, Inc. and EverConnect. Inc. As of January 1, 1999, the company merged most of its then existing subsidiaries into Talton Invision. Inc.. also a wholly owned subsidiary at that time. Concurrent with the merger, the Company amended Talton Invision, Inc.'s Certificate of Incorporation to continue its existence as Evercom Systems, Inc. CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on hand and investments with a remaining maturity at date of purchase of three months or less. ACCOUNTS RECEIVABLE - Trade accounts receivable represent amounts billed telephone systems to the various LECs or for calls placed through the Company's third-party billing services, net of advance payments received, and an allowance for unbillable and uncollectible calls. based on historical experience, for estimated chargebacks to be made by the LECs. Under account advance agreements with various third-party billing services, advance payments equal to a percentage of the outstanding billed receivables are remitted to the Company when calls are submitted to the third-party billing service, and the Company grants a lien to the third-party billing service on the related accounts receivable for the advance. The remainder of the billed receivable is paid to the Company, net of the advance amounts, after :he third-party billing service has collected the amounts receivable from the respective LECs. Interest is charged on the advance payment at varying rates. INVENTORIES - Inventories are stated at the lower of cost, as determined primarily using the weighted average cost method. or market. Inventory is primarily composed of equipment for installation on new contracts and supplies and parts.for the telephone systems serviced by the Company. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation and amortization is provided on a straight-line basis over the estimated useful lives of the related assets. The following is a summary of useful lives for major categories of property and equipment. .. ASSET USEFUL LIFE Leasehold improvements Telephone system equipment Vehicles Office equipment Lesser of life or lease term 3.5 to 7.5 years 3 years 3 to 7 years Maintenance and repairs are expensed when incurred and major repairs that extend an asset's useful life are capitalized. When items are retired or disposed, the related carrying value and accumulated depreciation are removed from the respective accounts, and the net difference less any amount realized from the disposition is reflected in earnings. INTANGIBLE AND OTHER ASSETS - Intangible and other assets primarily include amounts allocated to acquired facility contracts, non-compete agreements, goodwill and other intangible assets, which are stated at cost, along with the long-term portion of customer advances. Amortization of intangible assets is provided on a straight-line basis over the estimated useful lives of the related assets. The following is a summary of useful lives for major categories of intangible assets: ASSET USEFUL LIFE Acquired facility contracts Non-compete agreements Deferred loan costs Other assets and intangibles Goodwill Contract term Agreement term Loan term 2 to 5 years 20 years 4. PROPERN AND EQUIPMPK Property and equipment consist of the following: Leasehold improvcnenrs Telephone eysrcn equipment vehicles Off ice equipmtnt Less accumulrrcd deprecilcion 1999 5913.420 39,666,657 429.460 1.510.115 43,549,761 111,171,4051 $20,375,357 ~ _.__-. ____ _____-..--. 3:. :ooo 5944,292 16,285.050 430.541 2,127,911 50,381.801 (23,318,5561 ___.--.____ .___-..___. $27,069.a45 .-.. ....... DEPRECIATION AND IMPAIWENT - Depreciacion and impairment in 1998, 1999 and ' 2000 includes depreciation expense of $5,996,816: $7,199,737; and 5 8.144.151, respectively. Also included in -dapreciation and impaiment in 1998 is an impairment loss of $695,138, representing the net book value of telephone system equipment that vas removed from service. 5. INTANGIBLE AND OTHER ASSETS Intangible and other assecs consist of rhe following: Intangible and other asliet. Acquired telephone contract. NOnCompete agreements Deferred loan costs Goodrill Ocher intangibles Lea8 accumulated amortization Deccrher 31, ' 1999 ZOO0 567,761,060 568.611 162,263,066, 165.195.703t 571,566,711 S68.611 9.042.241 04,730,834 703,096 166,691.506 (81,221,378) ___..____._ _-_---___._ 85.169.51a 418,150 101,104 .--_..-____ 585.991.302 .=......... ATTACHMENT A EXHIBIT 3 SECTION C STATEMENT OF WORK C.1 INTRODUCTION This section describes the cunent functional and technical environments within the Federal Bureau of Prisons (BOP) and specifies the work to be performed by a new Inmate Telephone System (ITS-11) which will replace the existing hate Telephone System (ITS). Offerors are to submit proposals for the complete system as described within this Statement of U'ork (SOH') .UI requirements within this SOW are the responsibility of the contracror. C.l.l Structure of Section C This subsection provides the structure of Section C . tlon KJ) : This section describes the mission of the BOP, its organizational structure. and provides background information about the federal correctional environment. This section also describes the services and functionality of the cunent the ITS, as well as the BOP'S concept of operations for the new ITS-11. p: This section describes the hnctional requirements of ITS4 including services. operations. infrastructure, and system components. These requirements are segmented into the following general categories: inmate Telephone Service Requirements Management of Inmate Telephone Accounts Administrative Requirements 8 System Requirements : This section describes the requirements for the ITS41 transition process and implementation. p: This section describes the requirements for ongoing maintenance suppon of the ITS-Il operations. including the maximum downtime allowed, escalation plans. and monthly repons -: This section describes the requirements to provide training and documentation -: This section describes the requirements in areas such as project and confipration management. quality assurance, and compliance with applicable ). .. - standards and regulations . --- - r. c- 1 e c.1.1.1 General Overview The onlv purpose of this section is to provide potential offerors general infomarion on the environment of the BOP and the inmate community. and general requirements of the'ITS-I1 Offerors shall not provide responses'to information within this section. Federal Bureau of Prisons The BOP is a bureau within the Depanment of Justice (DOJ). The contract that uill potentiall! rcsuh from this procuremcni will be administered and overseen by the BOP. Throughout the life. ofthe conrract. the BOP shall remain the sole authority and point of contact with the successful offeror. mn of the BOe . The mission of the BOP is to protect society by confining offenders in controlled environments of prisons and community-based facilities that are safe. humane. and appropriately secure. and that provide work and other self-improvement opponunities to assist offenders in becoming law-abiding citizens buion ol the Trust FU r . The Trust Fund Branch is a component of the BOP. and is pan of ihe BOP Central Ofice located in Washinson. DC. The mission ofthe Twst Fund Branch is to provide management and senice to the BOP. consistent with maintaining stability and financial integrity of the Trust Fund and Inmate Deposit Fund. This branch oversees the operation of the BOP'S Cornmissan. ITS. Warehouse. Laundry. and Clothing Issue operations %sion OlihrJrurt F- i . The ITS Section is a component of the Tmsi Fund Branch. located in M'ashinLion. DC The ITS Section is responsible for the Bureau-wide and on-siie implementation of the ITS-II. including development of policy and procedures. oversight of daily operations. training. and continuing technical suppon. . .. . BOP conectional facilitv sraff work in individual 1 ROP correctional facilities. located throughout the bnited States BOP correctional facility ITS starnarc responsible for creating. changing and deleting inmate accounts: updating inmaie calling paramcirrs. using the ITS to pencraie and analyze call records. training the inmares on how to use the ITS. and oiher ncccssay local adrninisiraiive funciions .. -En\ironmtnl. The following paragraphs provide informaiion regarding the corre:uonal rnwonment in which the ITS4 will operate , -. The BOP currently operates approximately 90 federal prisons throughout rhc Lniied States and Pueno Rico Each comecnonal facility houses between 300 and 4.500 inmaies. with an average population of slightly over 1.000 inmates per correctional facility and a toial populaiion of approximatch 100.000 inmates See Exhibit J-I. Correctional Faritit? Information for detailed information regarding correctional facilities and inmate populations C-2 .:I , .. ._... . . ,..- --. . . a , Provided below is information on the BOP Central Office, BOP Regional Offices. BOP j Mananemen! and Specialty Tramng Center (MSTC). and the correctional facilities uithin the BOP - -I Omu. The BOP Central Office is located in Washinpon. DC The BOP Central' Office is the locarion for the administrarive headquaners for the agency and for the operation of the ITS An inmate telephone system is installed at the BOP Central Office and used by BOP Central Office. Trust Fund Branch. ITS Section staff for adrninisrrarive. testing. and training - purposes. &gj a1 OKica . The BOP is currently divided into six regional districts. each with a Regional Oflice. The six ReZions are: Mid-Atlantic. North Central. Northeast. South Central. Southeast. and Western Each operates under the direction ofthe Director ofthe BOP. These six Regional Oflices do not currently play a direct role in the operation of the ITS. m. The BOP MSTC is located in Aurora. Colorado. The BOP provides staff training on the :, policies and operation of the ITS at this facility. An inmate telephone system is installed ai the MSTC for these rraining purposes .. nal Farilk& Federal correctional facilities are divided into classifications according IO secunty level It is imponant to recopize that inmates' use ofthe ITS (and therefore system traffic) may differ depending - on the security level ofthe specific correctional facility and on the BOP'S administrative requirements for specific facilities. Inmates incarcerated at higher security correctional facilities will rypically have less calling privileges than inmates at lower securiry conectional facilities Exhibiis within this SOU' refer to correctional facilities with designators identifying the level of sccuntv The following security level definitions are intended to aid the offeror in understanding these designations and to probide some general information which may or may not impaci ITS-I1 usage Low: Lou designates the lowest level of security These facilities house predominantly low secuni\ level inmates Some of these faciliiies function as independent facilities and others operate as a satellite camp to a hiyher secunty level correctional facility. Low correctional facilitics ma\ be designated as a Federal Prison Camp (FPC). Federal Correctional Institution Low (FCI Lou). or Lou Secunty Conccrional Instirution (LSCI) These low security level correctional facilities typically allou inmates greater calling privileges than higher securiry level facllllle, 3lcdiurn: Sledium designares a medium level of secunty These facilities house predominanrly medium secunty level inmates and sometimes perform the administrative Functions. including ITS operaiions. for a sateliire camp Aicdium sccurii); level correctional facilities may be designated as a Skdium Secunty Correctional Institution (MSCI). or Federal Correctional lnstiiution IFCI) Inmaic access to the telephones at these facilities is typically more restricted C-3 1- - than lower security facilities. m High: High designates a high level of security These facilities house hinh securitv leve; inmates and sometimes perform the administrative hncrions. including ITS operation;, for a satellite camp. High security level facilities may be designated as a High Securiry Correctional - Institution (HSCI) or United Slates PenitcnIiq WP). Inmates at these facilities typically have restricted access to telephones at night. - AD-MAX: Ad-Max designates the highest level of security in the federal svstem. Inmate access to telcphones is exlrernely restricted Only one correctional facility in Fiorence. Colorado is currently dcsignared as Ad-Max Detention Centers: Detention Centers typically house inmates for a shon period of time. Inmate turnover is high at these facilities. Detention Centers may be designated as a Mctropolitan Corrcnional Center (MCC). Federal Detention Center (FDC), Metropolitan Detention Center (MDC). or Federal Transfer Center (FIT). Due to the amount of inmate turnover at these facilities. it is anticipated that inmates at these facilities will predominantly use collect callinq telephone services. However. diren dial calling capabilities shall be made available by the contractor ar all fzcilities. .. = Medical Centers: Medical centers typically house all security levels of inmates. These correctional facilities may be designated as a United States Medical Center for Federal Prisoners (CSMCFP) or Federal Medical Center (FMC) Federal Correctional Complexes (FCC): The BOP has several FCCs which consolidate multiple levels of security and several facilities in one general location. Although the facilities maintain some indcpcndenr functionality. some ITS-I1 procedures could be consolidated for complex facilities For example. if technically sound and if deemed appropriate from a functional point of vim. telecommunications equipment could be configured to suppon a complex of three or four correctional facilities within the same peosraphical location Of the approximately 100 correctional facilities f not including satellite camp environments) in use within the federal system. apprownately 10 percent are pan of a comples Intensive Confinement Cenier (ICCI: lCCs provide inmates with a strict regimen of actintics and place restrictions on inmate access to telephone calls. Currently all BOP lCCs operate as satellite facilities IO higher secunt). correciional facilities C-4 C.1.1.2 Currently the BOP has three basic systems installed Description of the Current ITS . m Collect systems offering only collect calling; ITS offering predominantly direct dial calling: Automated Collect Call Operator MCCO) ITS system with ACCO offering both cdlleci and direct dial calling Exhibit J-1, Correctional Faciliv Information contains information on each correctional facility. including the type of telephone system insidled and other statistics. lnmate WI ine Patterns . Telephone service provisioning information for each correctional facility is presented in Exhibit J-1. Correctional Facility Information. Current estimates of inmate traffic volumes are presented in Exhibit J-2. Tramc Volume Es:irnates. Traffic volumes presented in Exhibit J-2 are provided as estimates only These estimates are derived from past history only and do not imply a guarantee of future traffic volume to the contractor. w. The present ITS provides instanianeous detailed call information for each inmate and each call Using this information. the ITS provides the BOP with approximately 25 standard rtpons conncrtivib. The existing ITS consists of stand-alone systems that do not provide any system- %ride capabilities Switches within each corrccti,onal facility operate independently; no data is passed to a central location (whether logical or physical) or 10 any other correctional facility. Intrrfu. The ITS receives data input from the Trust Fund Commissary system which is referred to as the Federal Prison Point of Sale (FPPOS) System. sends call record data to the .Automated Intelligence Management System (AIMS) used by correctional facility investigative star. and interfaces with a Dictaphone voice recorder provided by the government The ITS is connected in a receive-only manner with the FPPOS System. dictated by the need to receive Commissary credits and perform other transactions of an accounting nature The ITS IS connected in a send-only manner with the AlhlS. under the control of a BOP stad member called the Special Investigative Supervisor (SIS) The ITS transmits call record data to the .AlSIS upon request from SIS Refer to Exhibit 5-3. Current ITS Arrhilcrture C-S r r m Componcn& The following paragraphs in rhis section provide M OVC&U. ofthe system components that provide ITS functionality Hardwart. The hardware design of each cunenr ITS includes Ihe following. - m Telephone handsets. m Telephone switch. m Central processing unit (CPU) and database m Local and remote terminals. m Printers. w Modems. Voice processing unit (VPU) . $ofwart.. The cunenf ITS operaring system is a UNlX-based. multitasking operating system. although ITS users do not interact directly with UNIX. System software controls events occurring fiom the 1irne.m inmate telephone goes off-hook until the call is t:miinated. The software steps through a sequence of events during each call which includes. but is not limited to: m Checking the inmate's personal identifier and calling parameters. a Checking the camcr rate tables Directing the switch to either connect or not connect a call. Supponing real-time accountin_n funcrions. including debiting an inmate's account m Providing a derailed audir trail of inmate calls. Providing a detailed audit repon of deposits and withdrawals SI.stcmBackuo. A complete system tape backup is performed daily at each correctional facility. These tapes are kepi for five days before the information is erased and the tapes are reused.' In the e\m of a catastrophic failure. such as corrupt backup files. a printout performed for each call provides [he BOP with information to manually re-key call account information into the ITS. C-6 .. . . C.1.1.3 Description of fhe Kcw. ITS (ITS-fl) The purpose of this section is to provide offerors with a high level general description ofthe purpose and scope of this procurement. including major ITS-I1 features and capabilities and role< and responsibilities of the successful offeror. The emphasis is on providins an ovenieu of maior ITS41 characteristics and to provide an overall context to help offerors understand the scope of this procurement. This section is for informational purposes only, it does not address all ITS-II requirements. nor does it require responses from offerors. ITS11 Overview The purpose ofthe ITS-I1 is to provide inmates in federal correnional facilities operated by thc BOP with outbound telephone services and IO provide the BOP with the means to ensure the proper and lawful use of this system by inmates Insofar as the availability of such senices is imponant to inmate morale and hence correctional facility security. the ITS-I1 is considered by the BOP to be a criiical service element with stringent availability and quality of service objectives The ITS-ll .. will consisi of thc.following componenrr. .. a A centralized database. neiwork based management system Refer to Exhibit J-4. ITS-II Concept Design. for one possible design One type of system for all BOP facilities which can be configured independently at each correctional facility Telecommunications capabilities locaied at each correctional facility which provide outbound direct dial and collecr calling services to inmates and administrative capabilities to BOP personnel a .4dministrative and system suppon and training capabilities at the BOP Central Office in U'ashinscon DC and the MSTC in Aurora. Colorado A Central Operations Facility (COF) located at a contractor provided siie a m Direct dial and collcct call capabilities Wide area network facilities to link ITS-I1 components at correctional facilities with BOP administrative systems and contractor mainienance and management systems. The scopc of this procurement is a nationwide deplovment of the ITS-I1 IO federal correctional facilities in the Unites States. Pueno Rico. !he BOP Central Office in Washington DC. and the MSTC in Aurora. Colorado The 1T.S-I1 will provide telephone service to federal inmates. The obieaive' of !his procurement is to have a contractor provide a network based centralized database management svstcm capable of providing a complete array of outbound calling services C-7 10 the BOP for use by its inmates The Contractor shall innall and maintain all ITS-11 hardware and sofiware at all BOP facilities The BOP will not leap equipmcnl. SOfrware. Or Senices ffom the contractor except as identified in Section B-4. ITS11 Direct Dial and Collect Inmate Calling Services The BOP will establish an ITS4 account for each inmate to place calls. Inmates will be capable of transferring funds from their Cornmissan. accounts io the ITS-11. The ITS4 shall provide a voice response interface which will prompt an inmate through this transfer process. These transferred funds are purely representative of actual funds held in accounts by the BOP The transferred funds will be added to the inmate's ITS-I1 account to create an individual inmate telephone account balance. It is this account balance which will be automatically and immediately reduced by ITS-11 as direct dial calls are taking place. ITS-I1 will not allow this account balance to reach a negative balance. The ITS4 will process local, long distance. and international direct dial and collect calling services for inmates at federal correctional facilities (Intemational collet~ is optional). The ITS-11 contractor shall be responsible for providing local and international service using carriers it selects for these services All long distance direct dial calls to areas within the U.S. and Pueno Rico orillinacing - in the L!.S will be routed over FTS circuits provided by the BOP. Collect calling services will be fully automated and will not involve the use of a human operator at any stage of a collect call. unless agreed to by the BOP in extraordinarv circumstances. The ITS- II contractor will provide caniers for all local. long distance. and iniernational collect. calls The ITS-ll contractor will provide all senices associated with colleci services such as billing and out- cleanny The contractor shall. if' ordered by the BOP. transiiion the BOP correctional facilities thai currently provide non-ITS collect only service to the contractor's collect service until the contractor's full direct diaUcollect svstem can be implemented. Once the ITS-I1 is fully installed. collect calls placed by inmates will be processed through the system in the same manner as direct dial calls The BOP'S inlention is to allou inmates the opponuniiy to place up to 120 minutes of collect calls per month for a four year penod follouinf the award ofihis contraa At the end of this four year penod. ihe BOP may re-evaluate its collect call requtrements The BOP currently has no ). senera1 restnction on direct dial calls. but as uith many coneciional programs. telephone access is under consiant revieu and subject to change ITS-11 Administrativc Capabilities In addition IO inmate direct dial and collect call senices. the BOP requires various admininraiive capabilities io ensure the financial inieynty of the inmate Trust Fund These capabilities are. inmate account manayemcnl. audit trails. transaciion repons. centralized management and rcpon C-8 I , ,. .., . .. _._ . capabilities. capabiliries to detect and eliminate fraud in order to protect the financial integni\. oj the inmate Tmn Fund and the public .. Quality of Service Because of the imponance of ITS4 in maintaining inmate morale at a conectional facility. the BOP seeks to obtain a very reliable. hishl! available senice for federal inmates through this procurement. The quality of system reliability and voice transmission on all ITS-11 calls must be in conformance with all appropriate indusrc? standards for voice communications in office environments . ITS11 Contractor Responsibilities The contractor has the sole responsibility for ensuring the ITS4 meets the requirements of this contract at all BOP conenional facilities and locations on a daily basis. The contractor is responsible for managing all subcontractors. including hardware and software providers. carriers. and other service pioviders involved in supporting the ITS-I1 service throughout the term of the conrran . The contractor will manage all aspects of ITS-II installation at BOP locations. manage and coordinate all aspects of sibcontractor activity during installation. respond to calls from BOP sraff regarding system problems and assume complete responsibility for compliance with BOP maintenance requirements. The ITS-I1 contractor will be solely responsible for payment of all subcontractors and for the performance and conduct of all subcontractors involved with supponing the ITS-I1 The ITS-II contractor shall consider FTS senices and access facilities to be "government furnished equipment". and will not be responsible for paying the FTS vendor for Ions distance sewice used in proiiding long distance direct dial service to BOP inmates. However. the contractor will be responsible for coordinating with the FTS vendor and the BOP as necessary to help resolve all senice problems C.l.l.4 Contrnct Structure * The obpxtive of the BOP in this procurement is noi to purchase or lease the ITS-11. but to enter inin a relationship with the successful contractor in which the contractor provides ITS-11 services IO the BOP in etchange for ponions of the revenues collected from direct dial and collect talk > I c-9 C.2 FUNCTIONAL REQUIREMENTS This section defines requiremcnts which shall be provided by ITS-11. Unless othcMise stated. each requirement is mandatory and shall be evaluaied as such. The contractor shall provide the detailed technological and procedural methods of satisfying all funnional requirements. These methods will be evaluated as pan of the competitive award process to ensure that the ITS-I1 as procured provides the required functionality using sound technical methods. C.2.1 Inmate Telephone Service Requirements The ITS-I1 shall provide inmates with access to direct dial and collect call services as described within this section. These services shall suppon a present inmate population of approximately 100.000 and anticipated growth to a future population of approximately 150.000 inmates in the next 10 years. The contractor shall provide an ITS-11 which is capable of operating in 150 correctional facilities in the United States and heno Rico. Correctional facility information and traffic volume estimates are provided in Exhibits 1- 1 and J-2. .C.Z.I.I 'Compliance with Rqulntory Agencies ' The contractor shall be responsible for compliance with all regulatory requirements imposed by local. state. and federal regulatory agencies for all systems and services provided throushout the pcrformancc period of this contract C.Z.l.2 Meeting New Indusiq Standards The contractor shall be responsible for making all system modifications necessary to allow inmates to place calls as industy dialing requirements change. at no additional cost to the BOP The contractor shall be responsible for complying with and updating the ITS-II for any regulatory changes and requirements during the life of the contract. These regulatory changes include federal. siatc. county. and municipal modifications These chanses shall be made at no additional cost IO the BOP C.Z.1.3 Call Processing lnlormriion ,411 call processing and call rating information shall be kept currenr by the contractor 10 ensure inmates can place calls to dl approved numbers This informalion includes but is not limited IO local exchanges. area codes. countv codes. venical and horizontal coordinates. and any othn information necessam to accurately process and rate calls The contractor shall provide the BOP with rating infonation for all calls when requested by the BOP ,. .. - .. c- 10 i C.2.1.4 Kurnber Blocking In addition to other methods of blocking calls as stated elsewhere in this SOW. the contractor shall be responsible for blocking all calls made 10 telephone numbers which incur excess charges - such as 972. 976, etc The contractor shall also be responsible for blockine - inmate calls to lone - distance carrier access numbers (Le.. 10333. 10288). The contractor shall also be responsible for blocking all local numbers which access long distance carriers such as 950-XXiX C.2.1.5 Communications Interfaces The ITS-II shall suppon all industry accepted telecommunications network interfaces required for connectivity to telecommunications camers to suppon all ou:bomd calling services. The ITS-ll shall specifically suppon all interfaces required for connection to BOP provided FTS services. The cont;actor shall be capable of interfacing with BOP provided internal telephone Grins via Amphenol connectors. ,. C.2.1.6 .. Direct T-1 Digital Interface .. Due IO space limitations. the ITS-I1 shall be capable of accepting multiple direct T- I disital circuits for the voice services necessay to fulfill the requirements of this contract. This requirement shall not be fulfilled through the use of an ememal channel bank. The contractor may providea limited amount of services over individual analog lines if 12 or less lines are required to complete the amount of circuits necessar\. IO provide :he required service. Thc BOP uill provide digital T-l circuits as necessar). for processing direct dial long distance calls through the ITS-I1 via the FTS The contractor shall provide digital T-1 circuits for their required senices. where available through the local telephone company. This requirement shall be waived ai those sites which the contractor is providing the Special Interim Collect Service dcscnbed elsewhere in this RFP ' c.2. I .f The ITS-ll shall allow inmates to process only outbound calls Inbound calls shall not be processed h\ thc system C.2.I.8 Second Dial Tone Outbound Only Calls i I The ITS-I1 shall not allou- an inmate to obtain a second dial lone without hanging up the telephone aficr !he first call c2.1.9 Time 10 Dial Tone The ITS-ll shall not take more than tu0 seconds to provide a dial tone to the telephone once the c-l I receiver is-lifted off of the hook C.Z.l.10 The ITS-I1 shall take a rnkvimum oft;? seconds 10 process a call. fiom the Ian digit dialed from the telephone keypad until the last di_nit is sent IO the service provider C.2.1.11 hlnximum Ring Time The ITS-I1 shall provide a maximum ring time. for all calls, of two minutes prior to disconnecting a call. The amount of nng time may be adjusted with the concurrence of the BOP COTR C.2.1.12 Call Process h?otificntion Call Setup and Process Time The ITS-I1 shdl provide notification to an inmaie of the call status (i.e., ringing. busy). This notification may either be in the form of ringing and busy tones or appropriate messages at rinsing intervals. This requirement is for both direct dial and collect calls. C.2.1.13 Call Answer Notification .. Once a call has been answered by the called pany. the ITS4 shdl immediately begin playing the necessary voice interaction scripts and replay them until the called pany responds or the time limit for responses expires. This requirement is for both direct dial and collect calls. (c.2.1.14 Separation oTVoice Path Until Call Acceptance The ITS-ll shall not allow the called pany or the calling pany to speak to or hear the other pany except for the prerecorded name. until ihe call has been accepted. This requirement is for both dicect dial and collect calls C.2.1.15 Electrical Conditioning The contracior shall be responsible for sewice outages due to electrical surges or reduced vollspes in any ponion of the system or sewice These include outages or reduced voltages dut to Iighining or poor elccrrical qualities provided from the correctional facility. h C.2.I.I 5.1 Ii shall be the coniractor?s responsibility IO provide electrical conditionins and protection. such as Universal Power Supplies and surge proiecrion strips to protect dl ITS-I I equipment against power outages. electrical surges, reduced voltages. an&or poor electrical qualities provided from the correctional facility. changes to the physical structure of a conectional facility for the installation of these condiiioning and proiection devices must be approved by and coordinated with the BOP Any c-12 ...;. . 0 C.Z.1.15.2 The ITS-I1 shall be capable of recovering from a power outage automaticdlv or remotely once power is restored. Called Party Voice Message Announcemenfr C.2.1.16 . The ITS-I1 shall have the capability to make the following rypes ofvoice message announcements The exact announcements and lanpage Will be determined by the BOP der award of contract C.2.l.lb.l The ITS4 shall provide the called pany with an opportunity to deny all future calls of that same type from an inmate by responding to a voice response prompt when answering a call This feature shall be available for both debit and collect calls The BOP shall have the capability to turn this feature on or off The ITS-II shall have the capability to provide automated messages to the called parry in the laneuage specified (English or Spanish) by the inmate for that called number This Gature shall be available for both debit and collect calls C.2.1.16.2 C.Z.1.16.3 . The ITS-Il shall have!he capability to accept ihe called pany's response via keypad input from the telephone or a voice response and shall accept rotary dialed responses. The ITS-II shall have the capability to interject messages into a telephone call at random intervals (e.g,. "this call is from a federal correctional facility") as deemed necessary by the BOF and at BOP determined intervals. This feature shall be available for borh direct dial and collect calls. The BOP shall have the capability to turn this feature on or off C.2.1.16.4 C.2.1.16.5 The ITS-Il shall be capable of announcing to the called pany that the call is collect or direct dial. as appropriate The BOP shall have the capability to turn this feature on or off C.2.1.16.6 The ITS-Il shall be capable of providing an announcement message to the called pany that the call is from a Federal Prison. confipurable by the BOP, and used as determined by the BOP This feature shall be available for both direct dial and collect calls The BOP shall have the capability to turn this feature on or off ' C.2.1.16.7 The ITS-ll shall be capable of announcing to the called party the name of the calling pany Offcrors are encouraged but not required to provide a mechanism to record an inmate's name one time to be used each time this announcement is required. The BOP shall have the capability to turn this feature on or off for direct dial and/or collect calls h C.2.1.16.8 The ITS-II shall be capable ofannouncing to the called pany how to accept calls This feature shall be available for both direct dial and collect calls. c-1: ..... C.2.1.16.9 The ITS-I1 shall be capable ofannouncing to the called pany an instnrction 10 proceed talking. This feaiure shall be available for both direct dial and collect calls C.2.1.16.10 The ITS-I1 shall be capable of announcins to the called pany the collcci call rate. * prior to acceptance. when a collect call is placed. c.2, C.Z. C.2.1 .I7 c.z.1.17.1 C.2.1.17.2 c.2.i. 18 c.2. I. 18.1 .18.2 .IS.) C.Z. 1.19 C.2.1.19.l C.2.1.19.2 Trunk Group Availabiliv The contractor shall provide sufficient equipment and outgoing trunks to ensure that the probability of blocking a call made by an inmate does not exceed ten percent during the busies hour at any institution. The BOP will provide all FTS circuits requested by the contractor to meet this requirement for direct dial Ions distance Calk. The contractor shall evaluate the percentage of calls blocked by call type for each institution on a monthly basis and shall increase the systemkervice capabilities within 30 days. to meet the minimum of ten percent call blocking. Trunk Rotation The contraaor shall provide the ITS-I1 so that when a trunk is unavailable. the call shall be autorna~ically reroured to the next available trunk. Trunks shall not be permanently assigned or affixed to an individual telephone or station Telephone siarions shall access the next available trunk on a rotating basis The contractor shall provide the BOP with a flow chan(s) of call processes including voice response decision branches which the ITS-11 will be required to follow. This flow chan(s) shall be maintained current throughout the life of this contract and provided to the BOP as changes are made I'oicc Quality The quality of voice connections provided by the ITS4 shall mem or exceed appropriate industry standards in use in the United States and enacted by appropriate standards organizations (Bellcore. IEEE. ANSI. NIST. FIPS) for transmitted and received levels. noise. cross-talk. and frequency range The contractor shall provide the BOP with the standard to which their ITS-II will adhere. This voice quality level shall be in place for all telephone services at all stages of a call and shall no1 be affected by any orher ITS4 feature. funclion, or capability. C-I4 C.2.1.20 Direct Dial Service The ITS-I1 shall process direct dial calls through senices proided by the contractor and the BOP. The contractor will not bill inmates for direct dial services. . c.2.1.20.1 Rater The telephone rates used to generate revenue for direct dial calls shall be established in the following manner: m The ITS-I1 contractor shall propose a per minute rate which will be charged to the BOP for each direct dial call type within each maimcnance service level. m The contractor shall charge the BOP the rate which corresponds to the maintenance service level chosen by the BOP (refer to Section C 4 for a description of maintenance levels) The BOP will choose the same maintenance service level for both direct dial and collect calls and will choose one maintenance service level for all facilities. .. The BOP will add a per minute charge io each direct dial call type within the maintenance service level chosen. This charge plus the contractor's per minute rate within the maintenance service level chosen by the BOP shall'constitute the total amount charsed by the ITS-11 to the inmate account for each direct dial call minute. The ITS-11 shall provide the BOP with an input field for each direct dial call type to allow the BOP IO enter a per minute charge which will be added to the contractor's direct dial rates being charged The ITS-ll shall reduce inmate accounts in whole minute increments for all direct dial calls m C.2.1.20.2 Revenues The contractor will be compensated by the BOP on a per minute basis for all completed direct dial calls placed by inmates over the ITS41 Monthly. the contractor shall invoice the BOP for the number of direct dial minutes times the contractor's direct dial raie for the rnainienance service level chosen by the BOP lfthe contractor's maintenance level for that month IS not met and is less than that level chosen by the BOP. the contractor shall only invoicc the BOP at the rates which correspond to the actual Iowa maintenance level met c-IS 5 c I L 'ur C.2.1.20.3 General Direct Dial Service Requirements A. B. C. Call charges for inmates shalls not begin until the called pany has accepted the call. t . Call charges shall stop when either the calling or called pany hang up. The ITS-I1 shall be capable of dialing a pre-pro-nrammed authorization code to access FTS circuits prior to initiating a call. This code is confrgurable by the BOP, may consist of eight to eleven digits. and may be activated or deactivaied by (he BOP on a correctional facilit\. by correctional facility basis This code shall be capable of being changed a1 each correctional facility by BOP Central Office staffas needed. Inmates shall not be charged for calls which result in Special Information Tones (SIT) The BOP will provide FTS circuits for processing direct dial long distance calls through the ITS-11. This service will be available through the existing GSA FTS2000 contract as well as any post-FTSZOOO contract. The contractor's ITS-If shall use this senice and . , D. E. .. . meet all requirements ofthe SOW. .. C.2.1.20.4 Local Direct Dial Service The contractor shall provide local direct dial telephone service at all correctional facilities where the ITS-I1 is installed. The local calling area shall be equivalent to the local calling public pay phone area at each correctional facility. The contractor shall be responsible for installing and maintaining all telephone circuits necessary to provide this service through the ITS-11. .The contracior shall assure the ITS-11 is capable of identifying a dialed number as local, based on the payphone calling area. and correctly rate and route the call. C.t.I.20.5 The contracior is no1 responsible for providins long distance diren dial telephone circuits. Long distance direct dial. for purposes of this contraci. is defined as any call no1 within the local area defined in C.2. I .20 4 and not considered international These telephone circuits will be provided by the government using services available from the then current FTS contract. The ITS-I1 shall process all long distance direct dial telcphonc calls placed by inmates over these government provided circui~s Long Distance Dircci Dial Service C.2.1.20.6 International Direct Dial Service The contractor shall provide International direct dial telephone service at all conectional facilities where the ITS-Il is installed The contractor shall be responsible for installing and maintaining all telephone circuits necessary to provide this service through the ITS-II. i i C-16 C.2.1.20.7 Toll Free Access The ITS-I1 shall be capable of protlding limited toll free access calls to inmates as configured b\ the BOP through contractor provided access lines . The BOP allows cenain inmates the capability to place calls to designated toll fiee numbers for security purposes and other various reasons The BOP does not allow inmates to place calls to personal toll free numbers or telephone semce provider access numbers. Therefore. the ITS-11 shall be capable of allowing BOP identified inmates 10 place calls to only those loll free numbers approved by the BOP, over contractor provided trunks. AI1 other toll free numbers. inchdins local access toll fiee numbers. shall be capable of being blocked. The ITS-I1 shall provide a repon of the ITS-I1 accounis with toll free access numbers on their approved lists including the Telephone number and a repon for toll free numbers called by inmates. as requested by the BOP C.2.1.21 Collect Call Service The contractor shall provide the collect call services listed below through the use of an Au:omared Operator. c.2.1.21.1 Rates .. The contracior?s rates charged to the called pany for collect calls regulated by the State regulaton. commission shall not exceed that regutatop commissioning body?s rate cap Tor rcsidcntial collect call rates. In those slates which the State regulatory commission does not provide a rate cap for residential collect call raies. the contractor?s rates charged to the called pan\ for collect calls shall not exceed the highest residential collect call rate being charged in that state by a telephone company other than the ITS4 contractor. The contractor shall charge :o the called pany those rates proposed in Section B The contractor?s rates charged to the called party for collect calls regulated by the Federal Communications Commission (FCCI shall not exceed the Message Toll rates for collect long distance calls and the sewice charge for residential Operator Station Collect set by the inter- exchange camer uirh the highest yearly domestic long distance toll revenues (currently AT&T) Thc contractor shall charge to ihe called pany those rates proposed in section B. C.2.1.2 1.2 Rrvcnues Thc coniracior uill collect all revenue from the called pany for collect calls placed by inmates. The contractor shall credil the BOP on the same monthly invoice as direct dial calls an amount equal to the percent of gross billable collect call revenue for the maintenance service level chosen by the BOP However. if the coniractor?s maintenance level for the month is no: met and is less than that level chosen by the BOP. the contractor shall credii thr BOP for the percent ofgross billable collect call revenue for the louer maintenance service level actually met C-17 W Qli C.2.1.21.3 General Collect Call Requirements A B. C. D. E. . F. G Human operators shall nor be used at any point during a collen call except under enraordinary circumsianccs and as agreed io by the BOP COTR. The contranor's capability io provide human operaiors during earaordinm circumstances is a desired optional feature. This is a non-rnandaton, requirement Collect calls shall not be connected nor shall billing commence until the called panv indicates acceptance of the call . Billing for the called pmy shall SIOP when either the called or calling pany hangs up. The contractor shall provide all services associated with collect call services such as billing. out-clearing. and line information database (LIDB) verification. The ITS-I1 contractor shall assume all responsibility for billing called panics receiving ITS-II collecr calls. and collecting payments for these calls. The contractor shall provide'a toll fret number which will be clearly shown on the called pany's bill for assistance in billing marterr The contractor shall provide the BOP with a written copy ofall collcct call restrictions it imposes in managins its collen call program. The contractor shall also notify :he BOP in uritinp of any changes to these restrictions C.Z.I.21.1 Local Collect The coniranor shall protide local colleci calling service at all correctional facilities where the ITS-I1 IS installed The coniraflor shall be responsible for installing and maintaining all telephone circuits necessary to provide this stnice through the ITS-I1 C.2.1.21.5 IniraLATA Collect The contractor shall provide intraLATA collect calling service at all correctional facilities where the ITS-I1 is installed The conrractor shall be responsible for installing and maintaining all ielcphone circuits necesszry to provide this senice through the ITS-I1 6.2.1.21.6 InicrLATA Collect The contractor shall provide intcrLAT.4 collcct calling setvice at all correctional facilities where ITS-II is instatled The contractor shall be responsible for insrallin9 and maintaining all ielcphone circuits necessary to probide this renice through the ITS-11 C-18 C.2.1.21.7 Interstate Collect The contractor shall provide interstate collect calling SeMCe at dl correctional facilities uhere the ITS41 is installed. The contractor shall be responsible for insrallinp and maintaining all telephone circuits necessary to provide this service through the ITS-11. C.2.1.21.8 International Collect (h?on-iMandatop) . International collect services are not a mandatory requirement for the ITS-11. alrhough the contractor is encouraged to offer the service to as many countries as feasible. The contractor shall be responsible for installing and maintaining all telephone circuits necessary to provide this senice through the ITS-11, if this senice is provided~ C.2.1.22 Special Interim Collect The contractor shall provide the capability to pre-install contranor provided collect senices ai all correctional .. facilities currently operatins without an ITS.. C.2.1.22.1 The contractor shall transition the BOP sites that currently provide collect only service. as identified by Correctional Facility type ?Collect? in Exhibit J-I, Correctional Facility Information. to the contractor?s collect service before and until the contractor?s full direct dial/collect system can be implemented. if ordered by the BOP. Once the ITS-I1 is fully installed. collect calls placed by inmates will be processed through the ITS-I1 as required by this contract. The contractor shall be capable of making the necessary arrangements to chanye these correctional facilities current Primary lnterexchange Camer (PIC) with the LEC to the contractor?s services C.2.1.22.2 C.2.1.22.3 ?These collect services shall include screen codins andlor automated operator for inmate services and shall not allow dialed numbers to be changed at the request of an inmate or allow charse reversal. or charge diversion to another number /Non-MandatoF) The contractor may also provide similar collect services to inmates during the period of time the original ITS is being de-installed by the BOP and the ITS-I1 is being installed Simultaneous de-installation of the existing ITS and installation of the neu ITS-II will most likely not be possible due to limited space for two systems in the ITS room Down time may be allowed during the actual cut-over process io allow for full system integration testing. C.2.1.22.5 The installation ofthese interim collect services shall be at the discretion of the BOP COTR. as ordered by the Contracting Oficer C.2.1.22.4 c-19 i ? C.2.1.22.6 At coneaional facilities where this collecl SC~CC is ordered by the BOP. the contractor shall remove the existing telephone station sets and insrall new station sets The new statio5 sets shall be those which will be used when the ITS-11 is fullv installed. . C.2.1.22.7 The contranor shall coordinate the installation ofthese collect semkcs. at the BOP I requested correctional facilities. with BOP Central Office staff. C.2.1.22.8 The contractor shall be responsible for providing these senices to the correctional facility?s communication mainframe in the communications room. The BOP will ensure cross connection to [he individual inmate station sets. C.2.1.22.9 The interim collect call service shall only provide collea call capability and no other type of service. I C.2.1.22.10 The interim service is not required to adhere to the controls ofthe full ITS-11 system (i.e.. calling list. time of day restrictions. identifiers. reponr). C.2.1.22.11 .. The interim service shall be provided at the.yates proposed for collect services in Section B of this RFP. 1 C.2.1.22.12 The contractor shall pay the BOP Central Ofiice Trust Fund each month the percent of the gross billable revenue for collect calls corresponding to the maintenance level chosen by the BOP This payment shall be made monthly within 60 days of the last day ofeach moxh ir. which the calls were placed The BOP will work with the contractor to enable an electronic transfer of funds . .- C.2.1.22.13 The contractor shall provide monihly revenue repons to the BOP Central Ofice . Trvsi Fund for this interim semce. summarizing. for each correctional facility. total call revenue. the amount to be paid to the BOP. the number of collect call minutes. and the total number of calls placed 5.2.1.23 \Vide Area Network i The contracior shall design and install a wide area network (WAN) as part ofthe ITS-ll to provide connectivity among the ITS-JI systems at federal correctional facilities and to suppon the capability for system-wide ITS41 administrative operations and Functions b C.2.1.23.1 The contractor shall be responsible for providing and installing all ITS-I1 WAN equipment at each of the correctional facilities and locations covered by this contract Conrraaors shall also speci~ Network Management Systems to be provided that suppon network stanup. maintenance. monitoring, and operations. Contractors shall fully consider the cost ofthese components in their proposed rates for direct dial and collcct services c -20 i C.2.1.23.2 The contractor shall design its ITS-11 WAX confprations assuming the use of 56 kilobits per second (Kbps) transmission capacity provided through FTS-1000 Dedicated Transmission Senice for ITS-11 WAN connectiblty Contractors shall indicate the number of such circuirs to be insralled to suppon ITS-I1 functions required in this RFP. bur shall not include the cofr of such facilities in rheir'rates for ITS-I1 diren dial or collect calling services. The governmenr shall provide as Government Furnished Equipment (GFE) the FTS circuits to facilitate rhe WAN The contractor shall provide all equipment necessary to facilitate operation of the WAN over these government provided services. C.2.1.23.3 The ITS-I1 WAN shall not have a single point offailure. C.2.1.23.4 The contractor shall provide capabilities to protect against network outages or loss of Network Management Sysrems for the WAh'. After award of the contract. rhe conrractor is encouraged to design and deploy a more efficient network design. using any FTS transmission senices available to the BOP. If an optional WAX configuration is,proposed after award of contract. it will be reviewed for approval by the BOP for cost effectiveness, speed. and redundant qualities. The contractor may also include switched (or other) TTS services for "Ah' backup in this optional design The WAN shall be maintained and monitored by the contracror at its Central Operations Facility and shall be capable of being monitored by BOP Central Ofice star C.2.1.23.5 C.2.1.23..6 C.Z.1.23.- Xetwork management for both wide area and any local area networks shall provide at a minimum the followin_r functions A B C D E Define. maintain. and monitor the status and performance of the network configuration \'leu equipment and sofiware errors Stonitor the status of any network nodes Honitor the performance ofthe workstations and main computers Troubleshoot the network. workstations. and servers C.2.1.23.8 All sofiware to suppon any local and wide area networks from the workstations. 10 the local network components, 'to the WAN components. shall be provided by the contractor C.2.1.23.9 The ITS-11 information is sensitive Communication of information across the WAN or dial up modems shall use a method of encryption The contractor shall use either DES or Type I encryption methods for data transferred via the WAN c-2 1 C.2.2 Management of Inmate Telephone Accounts This subsecrion states the requirements of the ITS-I1 for management of inmate telephone accounts. It is divided into the follo~ng categories: - Inmate Account Information Inmate Access to Telephones rn Inmate Use of Telephones Inmate Telephone Account Financial Transactions rn Management of Inmate Transfers Beween Correctional Facilities rn Reports All information and audit record detail shall be available for viewing and/or reponing by any authorized BOP user immediately upon completion of the transaction . c.2.2.1 inmate Account Information . The information required by each subsection below shall 6e available for viewing and data input on an individual screen for each of the following subsections. These screens shall be capable of being changed by the contractor to meet the needs of the BOP. at the request of the BOP. and at no additional cost to the BOP. w Inmate Profile Information rn Financial Transaction Information Telephone Call Information C.Z.Z.1.1 Inmate Profile lnromotion The follouing inmate profile information shall be maintained for each inmate account: C.2.2.1.1.1 Inmate Register Number This is an eight digit number separated by a hyphen after the first five digits assigned to each ; inmate by the BOP (the hyphen shall be shown on the screen only and shall not be required for input) The 1TS-ll shall provide the ability to chanse an inmate's register number ihrough a z separate menu funnion All data related to the previous register number will be transfcmcd to the new register number C.2.2.1.1.2 Inmate Name Thc inmates' name fields shall include Last Name. Firs1 Name. Middle Name. These field lengths shall be. at a minimum. 35 characiers for.thc last name and I5 characters each for the firn and middle name C-32 . ._ - . . . .. . . . . . . . -. . .... .*.. -. ! .. '"e ... C.2.2.1.1.3 Correctional Facilic Each correctional facility has a unique name which will be used as the automatic default for inmares assinned - IO that correctional.faciltiy The BOP Central Ofice will assign each correctional facility with a three character designation 10 be used with the ITS-I1 This three character designation shall not be capable of being changed by coneaional facility staff Each call record or financial transaction uill be '.stamped" according 10 the correctional faciliry tvhere the transaction was performed BOP staff shall have the capability IO transfer access to inmate accounts among correctional facilities C.2.2.1.1.4 Living Unit .~ I Living units are named buildings within a correctional facility to which inmates are assigned sleeping quaners. Each correctional facility uses different names for its buildings. This field does i not require input at each correctional facility This field shall be capable of being configured by the BOP for each conectional facility as a pick list for that individual conectional facility. This field shall be a minimum of 15 characters .. C.2.2.1.I.I Comments This field shall be used by BOP staff to input miscellaneous comments related to an individual inmate's ITS-I1 account and shall allou input of a minimum of I80 characters. C.2.2.1.1.6 Language Preference Each inmate profile shall be marked by BOP staff with the inmate's language preference of English or Spanish Voice messages provided to the inmate shall be made using this preferred lanpuacc c.2.2.1.1.7 Alrn .Alcns may be placed on inmate accounts which shall norifi\. the user type which enabled the alen that the account IS placing a telephone call The alen status shall only be capable ofbeing viewed b\ the user level uhich placed the alen on the account i C.Z.2.1.1.8 Account A~ctivrtion Dote > This field shall be automatically generated when an inmate's ITS-II account is created. This field shall not be capable of being manually modified C.2.2.1.1.9 Date oTArrivrl The date of arrival at a neu institution shall be automatically grnerated in this field when an inmate's ITS-I1 account access IS assigned to a different BOP conectional faciliry. C-3 C.t.2.1.1.10 Status Code . This shall be a one charaner input fidd of zero to nine and letters A to 2. used IO indicate the status of an inmate's accounl Inmate accounts udl automatically be assigned a status ofA when rn account is active Inmate accounts will auiomaiically be assigned a sratus of 2 when an inmat; is released. c.2.2.1.1.11 Suspension The TTS-I1 shall provide the BOP with the capabiliry to temporarily suspend inmate ITS-I1 account calling privileges. Entry in this field shall require the number of days for suspension and the Stan date ofthe suspension. The system shall display the date on which the suspension becomes inactive. The system shall deny all calls placed by the inmate mil the end of the suspension period at which time it *ill auromarically enable calls for the inmate. c.2.2.1.1.12 Telephone List 'The 1TS-I1 shall be capable of mainraining a list of telephone numbers for each individual inmate 'itcoun: to which an inmate will be allowed to place calls: These lists shall be capable ofbeing maintained by BOP staff with appropriate access rights These lists shall be capable of being printed for one or several inmates. The ITS-I1 shall also be capable of maintaining a special list of telephone numbers for each institution. maintained by the BOP. IO which inmates whose accounts are flagged to access these numbers. can call withour the requirement of these numbers being on their personal list. C.2.2.1.1.12.1 The ITS41 shall suppon a minimum list size of 30 numbers per inmate. but shall be capable of beins adjusted to meet the needs ofthe BOP. Numbers which arc configured as denied. shall be kept on an inmate's list regardless of the quantity of numbers maintained for an account. These numbers. when marked as denied. shall be capable ofbeing deleted or re-enabled only through a protecred mode (system prompt to confirm . ' requested action) by the appropriate BOP staff These denied numbers stiall not aRect the number of active telephone numbers on an inmate's approved) number lia C.2.2.1.1.12.2 C.2.2.1.1.12.3 The amount ofactive numbers available on a list shall be capable ofbeing configured as necdcd by the BOP. by individual inmate. correctional facility. or nationwide C.2.2.1.1.12.4 The amount ofactwe numbers on a list shall be displayed and dynamically updated as numbers are being inputted Duplicate numbers shall be immediately c-24 c.2.2.1.1.12.5 C.2.2.1 J.12.6 identified by the system and audibly alen the ITS staff perfominn the input The ITS-I1 shall provide BOP staff a11h the capability to enter. modik. and deleie numbers for inmate Approved Fu?umber Lists Allow Callsto h?umbers on Special List - . The ITS-I1 shall provide the BOP with the capabiliry to flag an inmare?s ITS-I1 accouni to allou that account to call numbers on the BOP?S Special List described above. withour the need to place that number on the inmare?s approved list C.2.2. 1.1.12.7 Telephone Number Information The following information shall be available for each telephone number on an inmate?s list C.2.2.1.1.12.7.1 Telephone Kumbcr The telephone number an inmate wishes to call C.2.2.1.1.12.7.2 Comment This field shall be used by the BOP to input items such as descriptions ofthe number being called and shall be a minimum of 40 characters in length C.2.2.1.1.12.7.3 Direct DiallCollcctlBoth This designation shall conirol the method by which a call to an individual number may be placed The BOP shall be capable of setting a global default for all inmates C.2.2.1.1.12.7.4 Do Not Record This designation shall conirol whether the voice path of a call is routed to the correctional facility recorder If a number is flasged as an atiorne! call on the ITS-ll. when the call is placed. the voice path of the call shall be disconnected from the correctional facility recorder. Once the i voice paih of the call has been disconnected from the recorder. a tone shall be directed to tht recorder paih in lieu of the voice The BOP shall be capable of enabling or disabling this feature. The default setting for this field shall be io record each call This feature shall be capable ofbeing globally enabled and disabled nationwide or by coneciional facility by BOP staff with appropriate access levels C.2.?.1.1.12.7.5 Called Pam Language Preference This setiing shall be either English or Spanish English shall be used as the default setting This preference setting determines the language the ITS-II will use to present voice messages to the C-25 I ! called paKy. This shall be capable of being indi\idually set for each telephone number on an inmate's list. C.2.2.1.1.12.7.6 Allow Call . This settine shall control whether an inmate can place a call to the individual number The default setting for;his field shall be to allow calls A telephone number on an inmate's account which is set to "Not Allow" will not &ect another inmate's ability to place a call to that number Telephone numbers which are set to "Not Allow" will not affect the amount of numbers on that inmate's approved list C.2.2.1.1.12.7.7 Date of Activation or Deactivation for Each Number The dale of activation or deactivation field shall be automatically updated by the ITS-11 as a telephone number is input on an inmate's authorized telephone number fist and as a number is deactivated From the list. C.2.2.1.1.12.7.8 Alerl .. The ITS-I1 shall be capable of flagging individual telephone numbers for alen. If a call is placed to a telephone number which is flagged for alen. the system shall notify the user level which placed the alen on the account Alened telephone numbers shall only be seen by the user level which enabled the alms Alens shall also be capable of beins reponed a5 described in the REPORTS section of this SOW C.2.2.1.1.13 The ITS-II shall have the capability to allow the BOP to configure the total amount of minutes an inmate may call per a user specified time period The Total Kumber of Call Minutes Remaining field shall display the difference between the BOP-defined maximum number of call minutes for an inmate and the total number of minutes the inmate has used for the specified period of time. It is possible for the BOP defined maximum time limit to be unlimited. thereby. automatically disabling this feature The Total Number of Call Minutes Remaining field shall be automatically updated as the inmate places calls to reflect the total number of minutes remaining for the user specified iimc penod The ITS-ll shall automatically reset !he number of call minutes remaining at the beginning Total Number of Call Minuter Remaining of thc next iimc pcriod C.t.2. I. I. I4 2 Collect hl inuier Remaining The ITS4 shall have the capability IO allow the BOP io configure the amount of collcet minutes an inmate may call per a user specified time period The Collect Minutes'Remaining field shall dtsplay the diffcrencc between the BOP-defined maximum collect calling minutes for an inmate and the total minutes for collcci calls the inmate has used for the specified period ofrime. It is possible for the BOP defined maximum time limit to be unlimited. thereby. automatically disabling C-26 > this feature. The Collect Minutes Remaining field shall be automatically updated as the Inmate places collect calls IO rcflccr the number Of collect minu:es remaining for the user specified time period. The ITS-I1 shall automatically lese1 !he number of collect minutes remairune at rhe beginning of the nen time period. Minutes shall only be deducted for answered calls - . C.2.2.1.1.15 Direct Dial Minutes Remaining The ITS-11 shall have the capabili? 10 allow the BOP 10 cofiprc the amount of direct dial minutes an inmate may call per a user specified time period. The Direct Dial Minutes Remainlna field shall display the difference between the BOP-defined maximum direct dial calling minutes For an inmate and the total number of minutes for direct dial calls the inmate has used for the specified period of time. It is possible for the BOP defined maximum time limit to be unlimited. thereby. .. automatically disabling this feature. The Direct Dial Minutes Remaining field shall be ': automatically updated as the inmate places direct dial calls. ITS-I1 shall automatically reset Ihe ,' number of direct dial minutes remaining ai the beginning of the nexT time period. Minutes shall i, only be deduaed for answered calls. ..-Tf- C.2.2.1.1.16 Total Number of Calls Remaining ,. lhe ITS-I1 shall have the capability to allow the'BOP to confirmre the total number of calls an inmate may place per a specified time period. The Total Number of Calls Remaining field shall display the difference between the BOP-defined maximum number of calls for an inmate and the total number of calls the inmate has placed for the specified period of time. It is possible for the BOP defined maximum number of calls to be unlimited. thereby. automaticah disabling this feature The Total lriumber of Calls Remaining field shall be automatically updated as ;he inmate places calls to reflect the total number of calls remaining for the time period specified The ITS-ll shall auromaticallv reset the total number of calls remaining at the beginning of the next time -C.- period Only answered calls shall be deducted Minutes shall only be deducted for answered calls - C.2.2.1.1.17 Number of Collect Calls Remaining The ITS-ll shall have the capability IO allow the BOP IO configure the number of collect calls an inmate may place per a specified time period The Number of Collect Calls Remainins field shall display the difference between the BOP-defined maximum number of collect calls for an inmate and the iota1 number of collcct calls the rnmate has placed for the specified period of time It is. possible for the BOP defined maximum number of calls io be unlimited, thereby. automatically disablinr this feature The Number of Collecr Calls Remaining field shall be automatically updated as the inmate places colleci calls to reflect the number ofcollect calls remaining for the time period specified Only answered calls shall be deducted C.2.2.1.1.18 Number of Direct Dial Calls Remaining The ITS-I1 shall have the capability 10 allow the BOP to configure the number of direct dial calls an inmare may place per a specified time period. The Number of Direct Dial Calls Remaining fi& shall display the difference between the BOP-defined maximum number of direa dial calls fo; an inmate and the total number of direct dial calls the inmate has placed for the specified period of time. It is possible for rhe BOP defined maximum number of calls to be unlimited. thereby, automatically disabling this feature. The hiumber of Direct Dial Calls Remaining field shall be automatically updated as the inmate places diren dial calls to reflect the number of direct dial calls remaining for the time period specified. ITS4 shall automatically reset the number of direcr dial calls rtmainjng at the beginning of the ne= time period. Only answered calls shall be deducted C.2.2.1.1.19 Balance Transfers from FPPOS The ITS-I1 shall be capable of allowing the BOP 10 enable and disable an inmate's capability to transfer funds from their Commissary accounts to their ITS4 accounts. This shall be confiqurable on an individual inmate basis or for a group of inmates. .. .. C.2.2.1.1.20 Balance Inquiry Allowed The BOP shall be capable of enabling or disabling inmate capability to request and receive iTs-11 and Commissary balance inquiries over the tclephone. This shall be configurable on an individual inmate basis or for a group of inmares or an entire correctional facility. c.2.2.1.1.2 1 Number of Telephone Initiated Fund Transfen The BOP shall be capable of setting the number of times an inmare is allowed to transfer funds from their Commissary account IO their 1TS-II account per day or per week. This shall be confiprable on an individual inmate basis or for a group of inmates or an entire conectional facility The ITS-I1 shall also provide a method of schedulins the time of day and day of week in which such transfers shall be allowed This schedule shall be configurable by the BOP c.2.2.1.1.22 Assign Inmate IO Ttlephone i The ITS4 shall be capable of assigning an inmatefs) account to an individual telephone or grobp of!elephones so that the inmaWs) account may only place calls from those designated telephones. However. those telephones shall siill be capable of being used by inmate accounts not specifically assigned to them C-28 , .-. - .C ....- . .. . .. , ...-_-. I .. . . * .. C.2.2.1.1.23 Personal Identifier The ITS-11 shall be capable of identifying the specific inmate account that initiated each transaction made on the telephone. This identificarion shall be made through a unique identifier assigned to each inmate account. This feature is required for dl direct dial calls bur may be enabled or disabled for collen calls as required by the BOP C.2.2.1.1.23.1 This identifier may be a Personal Access Code (PAC). a voice recognition match. or some other method the contractor may propose which is unique and secure. This identifier shall be the only means through which an inmate can access their JTS-I1 account unless otherwise configured by the BOP. This identifier shall remain assigned to a specific inmate account regardless of transfers to other BOP correnional facilities. If a PAC method is used. the, ITS4 shall provide the capability forfhe BOP to assign a new PAC in case of a lost or stolen PAC. .-I.%7.- \ ~. ..* ? , C.t.t.1.1.23.2 C.2.2.1.1.23.3 .. C.2.2.1.1.23.4 The ITS-I1 shall prevent personal identifiers from being used at multiple telephones simultaneously lfthe contractor uses a PAC as a personal identifier it must be C.t.2.1.1.23.5 A B a minimum of nine digits. randomly generated from one nationwide pool of numbers in such a manner that any inmate may be automatically and randomly assigned any unused number from that capable of bein; printed on a secure. carbon transfer envelope which only exposes the inmate?s name and register number for internal BOP distribution purposes The contractor shall provide the carbon transfer envelopes for this purpose; and capable of being viewed by BOP staff with the appropriate user level. pool. .C D C.2.2.1.2 financial Transaction Information The ITS-11 shall maintain a detailed audit record of every financial transaction made to an inmate?s account and shall indicate !he instiiution at which the transaction occurred. 2 Throughout the duration of a call. the ITS-ll shall track time and status information about a call and terminale a call if the ITS-I1 account balance limits for direct dial calls is reached. i c-19 e u&: C.2.2.1.2.1 ITS11 Account Balance The ITS-I1 shall maintain a separate and indibidual account balance for eve? inmate account This account balance shall be the sum iota) of all ITS-I1 financial transactions occurring for an individual inmate account. This account balance shall be automarkally updated in real time for each transaction made to an inmate's accoum. - C.2.2.1.2.2 Viewing Avoilabiliv Information associated with an individual inmate account shall be available for viewing by all authorized users at all rimes regardless of orher system activities. C.2.2.1.2.3 Immediate Update or Financial Information AI1 audit detail information related IO inmate financial transactions shall be immediately and automatically updated for each ITS-I1 account so that at all times the integrity of the accoum . balance can be verified against the financial transaction detail audit records for that account. C.2.2.1.2.4 Transaction Type At a minimum. the following financial transamion activity types shall be recorded as a separate line item on each inmate's ITS-I1 account This information shall be available for viewing or printing as required by the appropriate BOP sraff. .. .. A) B) C) Direct dial calls. 0) E) F) Refunds on ITS-Il Inmate-initiated transfer of funds from FPPOS to ITS-11. Commissary-initialed electronic transfer of funds from FPPOS to ITS-I1 htanual financial transactions on ITS-11 Transfer of funds from ITS-I1 to FPPOS. C.2.2.1.2.5 Transaction Information .As applicable. each account transaction entn shall conrain the following audit detail information and shall be applied to an individual inmate's ITS-11 account audit detail record: A) Date of transanion B) Time of transaction Cb Amount of rransaction 0 t E) Correctional facility identifier F 1 Type of transaction GJ User entered reference number Individual iniriatinp the transaction i C-30 C.2.2.1.3 Telephone Call Record Information C.2.2.1.3.1 Call Record Availability . ! All calls shall generate call records which shall be accessible and available for reponing. analvsis. or viewing. immediately upon the termination of a call Any process requirins a delay in making call records available (for example. on a daily basis or through a dounload process) IS unacceptable C.2.2.1.3.2 Call Record Data Structure for Direct Dial and Collect Calls . For the purposes ofvjcwing call records. all call records shall reflect the most current record first. followed in a descending date order to the least current call record. The ITS-I1 shall maintain identical call record data structures or formats for direct dial and collect calls. The only acceptable differences shall be any indicators which identify calls as beinp either direct dial or collect. C.2.2.1.3.3 . Call Record Saorage ? The ITS-11. at a minimum. shall suppon a call record database storage capacity ofthe most recent I:! month period per correctional facility for queries and reports. This storage shall be for all incompleted and completed calls It is estimated that the number of records will range from I million to 4 million call records. per correctional facility. depending on the size of the correctional facility for a I? month period. Informational calls placed by inmates. such as balance requests. call minutes remaining. CIC.. shall no1 affect this call record capacity. nor shall they be stored as pan of the call record database. .. C.2.2.1.3.4 Calls Not Completed The ITS-Il shall record the reason for a call not being connected in the call record using English constructs The use of notification messages in the form of codes that must be looked up to ascenain their meaning is unacccptable Records for collect calls shall indicate ifthe call was refused and for what specific reason i C.2.2.1.3.5 Call Record Format > The followins information shall be captured and stored for all calls attempted where a personal identifier has been used A) lnmate register number B) Inmate name C) D) Date Correctional facility from which call was placed c-3 I Time. Dialed digits. Destination (city and state. or city and coun!? for internationd calls). Reason for call not completed Duration from answer or acceptance Trunk definition (FTS. local. international. etc.). Telephone location. Station set number. Charge for call. Description assigned to telephone number called. Call type (interLATA. intraLAfA local. etc.). Alen (whether an den was issued for that call). Type of Alen (account or telephone number). Recorder channel number. C.2.2.2 Inmate Access to Telephones The ITS-II shall provide features which provide the BOP with the capability to manage inmates' abiiitie; to jlh ielcphone calls These features. at a miGmum, shall be capable of being applied by the BOP as described below and as summarized by Exhibit 5-6. Features. Feature Parameten. The ITS-I1 shall provide the BOP with an easy to use method of setting and changing system parameters which can be applied to various groups of inmates or individual inmates as deemed necessary by the BOP. C.2.2.2.1 Feature Groups The ITS41 shall be capable of maintaining multiple groups or BOP confiprable features derived from various combinations of the features listed below C.2.2.2.1.1 The contractor shall state the number of feature groups which shall be made available for configuration There shall be a minimum of six feature groups C.2.2.2.1.2 The ITS41 shall provide BOP Central Office staffthe capability to assign access privileges to user levels for any indi\*idual feature. allowing those users to modi$ or change features for individual inmates and/or individual telephone numbers onl). C.2.2.2.1.3 A call shall be completed only if the inmate ailempiing to place that specific call is allowed io do sa within the confines ofthe applicable feature group configuration. ' C.2.2.2.2 Class of Service (COS) The BOP shall be capable ofconfigunng COS by configuring the parameters for each feature within a group The values of these parameters are listed below in Feature Descriptions. These COSs shall be capable of being assigned by BOP staff with appropriate access levels to individual c-32 .' inmates or groups of inmates as defined by groups of institutions, individual institutions. Or li\inp units. - - C.2.2.2.2.1 The ITS-II shall be capable of providing multiple COSs for each feature group C.2.2.2.2.2 A COS shall be capable of being assigned as a default configuration IO the follouing levels . A Individual inmates B Groups of inmates as defined in sets of living units. correctional facilities. groups of correctional facilities. or nationwide. C.2.2.2.3 Feature Descriptions The following features shall be made available for inclusion in each feature group as defined by the BOP. If a feature is not included in a feature group. its function shall be considered not applicable. C.2.2.2.3.1 Inmate Access 10 Inknation The BOP shall be capable of enabling and disabling an inmate's ability to receive account information over the telephone. Each item of information (Le.. ITS-I1 account balance, Commissary account balance) shall be capable of being enabled or disabled independently of the other. by the appropriate BOP staff .. - C.2.2.2.3.2 Require or Not Require Approved Telephone h'umber List The ITS-11 shall have the capability to only process calls to telephone numbers on an inmate's approved list This shall be capable ofbeing configured by BOP staff with appropriate access. to require or not require the use of a list for direct dial. collect. or all calls. C.2.2.2.3.3 Calling Scheduler The ITS-ll shall be capable of providing the BOP with a means of setting various calling schedules These schedules will control when telephones cut on or off within a correctional facility or uhen individual inmates are allowed IO place calls within the correctional facility > schedule The ITS-I1 shall provide the capability to configure multiple calling schedules for each day. by correctional facility and individual inmate C.2.2.2.3.4 Time Between Completed Calls The ITS-11 shall be capable ofbeing configured to control the amount of time between inmate compleied calls. The sysiem shall be capable of placing this !hit on direct dial. collect. or both types of calls The BOP shall be capable of enabling or disabling this feature. This time shall be c-33 set by minutes and shall range from 0 to 9.999 C.2.2.2.3.5 Maximum Kumber of Calls The ITS-I1 shall be capable of being configured for the maximum number of calls allowed per da\. week, month for an individual inmate or groups of inmates or all inmates The svstem shall be . capable of placing this limir on direct dial. colleet. or both rypes of calls. The BOP shall be capable ofenabling or disablinq this feature This setting shall range from 0 to 999. C.2.2.2.3.6 Maximum Number of Minutes The ITS-11 shall be capable of being configured for the maximum number of minutes of calls allowed per day, week, month for an individual inmate or proups ofim,ates or all inmates. The system shall be capable of placing this limit on direct dial, collect, or both types of calls. The BOP shall be capabk of enabling or disabling this feature This time shail be set by minutes and shall range from 0 to 9.999. 93.2.2.2.3.7 Call Duration .Thc ITS-II shall be capable of assigning a maximum call duration for each type of call; direct dial. collect or both. The BOP shall be capable of enabling or disabling this feature. This time shall be set by minutes and shall range from 0 to 99. C.2.2.2.3.8 Extra Dialed Digits Prevention The ITS-I1 shall be capable of preventing the processing of additional digits fTom the inmate afier all call processes have been completed for an authorized call. This feature shall be capable of being enabled or disabled. It shall also be configurable for the number of extra dialed digits allowed before the call is cut off. The system shall be capable of enabling or disabling this feature for individual inmates and individual telephone numbers. C.2.2.2.3.9 Branding Calls with a BOP Message The ITS-II shall be capable of providing a BOP configured message to the called pany at the beginning of each call for an individual inmare or groups of inmates or all inmates. The BOP shall be capable of modifying this message The BOP shall be capable of enabling or disabling this feature C.2.2.2.3.10 Intermittent BOP Message The ITS-I1 shall be capable of providing a BOP configured message which is heard by the called pany at variable times during a call The BOP shall be capable of modifiring this message. The BOP shall be capable of enabling or disabling this feature C c-34 I 1 C.2.2.2.3.11 Called Pam. Blocking The ITS-I1 shall provide the called pan! through a voice prompt uith a method to block all calls placed from an inmate account. Calls blocked for an inmate account using this method shall not affect other inmates wishing to call that same number. Calls blocked using this merhod shall be identified separately in all tables as blocked by the customer. Under no circumsrances will ihc contractor alter or interfere with the ability ofthe called panv to receive other collect calls ori_ninaring from non-BOP correciional facilities (Le.. placini LIDB blocks). C.2.2.3 This subsection describes the functions which shall be available to inmates through use of the ielephone The ITS-I1 shall provide inmates with information relative to their ITS-I1 accounts and Inmate Use of the Telephone - Commissary accounts throush the use of the telephone as described below. ., .. .. ,' C.2.2.3.1 ITS-11 Account 9sldncc The ITS-ll shall be capable of protiding inmates with their ITS-I1 account balance information and cost of their last call io dollars and cents \ia the telephone. C.2.2.3.2 comrnissav Account Balance The ITS-Il shall provide a method by which inmates may obtain their Commissa? account balance informalion C.2.2.3.3 Direct Dial Minutes Remaining Thc ITS-I1 shall provide a method by which inmates may request. and be provided. the number of direct dial minutes remaining as specified in their inmate profile C.2.2.3.4 Sumber or Direct Dial Calls Remaining 4 The ITS-ll shall provide a method by which inmates may request. and be provided, the numbpr of direr! dial calls remaining. as specified in their inmate profile C.2.2.3.5 Colltrt Minulei Remaining The ITS-ll shall protide a method by which inmates may request. and be provided. the number of colleci call minutes remaining as specified in their inmate profile i c-35 C.2.2.3.6 The ITS-II shall provide a method by phich inmates may request. and be provided. the number of collect calls remaining. as specified in their inmate profile. Fiumber of Collect Calls Remaining . C.2.2.3.7 Funds Transfer IO JTSIl Account The ITS-I1 shall allow an inmate to transfer funds from the Commissary svsiem to the ITS4 account via the telephone in whole dollar amounts only. This function shall require the contractor to interface diredy with the Commissav FPPOS System. Please refer to Section C.2.2.4. I for &inher details. Upon selection of this function. the ITS-I1 shall provide the inmate with account balances of both the ITS-11 account and the Commissary available balance. The ITS-II shall determine if there are funds available in an inmate's FPPOS account to transfer to the ITS-11. lfthere are funds available. the ITS-I1 shall prompt the inmate for an amount IO transfer. The inmate shall enter the amount via the telephone. Once an inmate has entered an, amount. the ITS-11 shall provide the inmate with an opponunity to confirm the amount entered I .The ITS-11 shall then deduct funds from the inmate's Comhsary account and add that amount of funds to the inmate ITS-I1 account The ITS-I1 shall not allow funds to be transferred to inactive ITS-ll accounts with a status code of"Z '. Ir'there are insufficient funds available in the Commissary account. the ITS-I1 shall provide a message to the inmate indicating that the Commissary balance is insufficient to process the transfer request and shall terminate the transfer process C.2.2.3.8 Placing Calls Due io ihe various locations of BOP correctional facilities throughout the country. the contractor shall propose a method by which inmates shall place calls to local long distance and iniernational locations using a consistent dialing patiern nationwide Due to the fact that inmates transfer to and from coneciional faciliiies on a frequeni basis. the BOP desires a dialing method which is standard for all correciional facilities permancntlv affixed on each telephone In addition. if PACs are used. dialing instructions shall be The contractor shall be responsible for informing inmates of the proper call process either throush a voice message na the telephone or directions i pnntcd utth the PAC Number inside the carbon envelope ). C$lr shall only be processed according to the procedures set fonh below .4 4s configured by !he BOP. each inmate shall be required IO input a personal identifier and a \slid ielephone number for a call to be processed Once this information has been input. the s!stem shall pedonn all required chciks necessary to process the call An inmate may place only one call IO one telephone number after entry of his personal identifier C-36 B. If any checks fail. the call shall be denied and a descriptive messaee shall be el\'en to inmate indicating why the call was denied .. - C If the call is processed. the inrpate shall be given the appropriate call processing lories (, e, ring. busy, SIT tones. informational messages) . Prior to the ITS-11 terminating a call due to expiration oftime limits or exhaustion of funds. the inmate shall be informed at 60 and 30 second intends of the impenainr! - expiration. D. , C.2.2.4 Voice Response and Message Capability I The ITS4 shall be capable ofprobidin8 prerecorded messages to inmates and called panies The contractor shall ensure that the ITS-I1 provides sufficient access to voice storage and response capability ib suppon the voice message and inmate interaction requirements pertaining to all calling services. and to ihe ITS-II account management functions specified in this RFP Under no circumstances shall an inmate with access to an ITS-I1 handset experience delay in placing a call or accessing their ITS-I1 account due IO insufficient voice messaging and response resources C.2.2.4.1 Capabiliv IO Change Messages The contractor shall provide the BOP with the capability to change all voice messages provided by the sysiern C.2.2.4.2 Responding lo Voice Prompts The ITS-II shall be capable of accepiing voice responses. andior DTMF keypad and roran telephone input as a means of input for answering all system provided questions or prompis from .. .. : the inmate and called pany C.Z.Z.4.3 Use of Voice Messaging The ITS-II shall be capable of usins the voice messase capability IO provide inmates information or prompt responses regarding i A Call sciup B Call processing C D Accouni infomation and transaciions Reasons call could not be completed c-37 C.2.2.4.4 Keypad Input The ITS-I1 shall be capable of using rhe voice response capability or keypad input to allou inmates to' . A. Obtain account information 9. Perform call setup. C. Process a call. D. Perform account transactions C.2.2.5 Inmate Tclephonc Account Financial Transactions The following section provides information on the accounting processes which shall take place on the ITS-il and. where necessary. interface with the Commissary system. The flowchans shown in Exhibits J-7 to J-12 include general descriptive information on the following account transactions and are not meant to be all inclusive. bu1 rather to illustrate the general flow of the process , A B C D E F Inmatc-ir,itiated transfer of finds from the Commissary account to the ITS-I1 account (Exhibit J-7) BOP initiated electronic transfer of funds from the Commissary account to the ITS-I1 account (Exhibit 5-8) Debiting the ITS-Il accounts for telephone charp (Exhibit J-9) BOP initiated manual transactions made directly to the ITS-Il accounts (deposits. uithdrawals and exceptions) (Exhibit J-IO) BOP initiated transfer of ITS-I1 account Funds to the Commissary accounts for,inmate releases (Exhibit J-11) BOP initialed call charge refunds made directly to ITS-I1 accounts (Exhibit 5-12) C.2.2.5.1 Ccncral Account Transaction Information C.2.2.5.1.1 System Inredaces The ITS-ll shall be capable of interfacing with the Commissary system and manipulating all files nccessan in both the Cornmissan sysiem and ITS-11. to complete each transaction and ensure accounlabiliry of fundi . C.2.2.5.1.2 Accountabili? of Transactions All of the transaciions identified above shall affect the inmate's ITS-II account. The result of these transactions (in summay) shall be recorded and reponable for the BOP Central Ofice account reconciliation process described in this section C-38 . . .... . C.2.2.5.1.3 Piegative Balances KO transactions shall create a negative balance in an inmate's ITS-I1 account or Cornmissan account It is incumbent upon the ITS-I1 to prevent such an occurrence . C.2.2.5.1.4 Contractor Provided Flowchanr The contractor shall provide detailed flowchans, consistent with the requirements outlined herein. depicting how each of these transactions shall be accomplished and verified by the ITS-I1 ..,.; ~~~,~ , ~_. C.2.2.5.1.5 Site Specific Codes ' All of the ITS-I1 financial transactions shall be traceable to the rorrectional facility that pen-omed the transaction using site-specific codes to trace the transactions. C.2.2.5.2 Inmate-Initiated Transfer of Funds From the Commissary Account IO the ITS-11 Account (Exhibit J-7) .. ' ' r;r. inmate shall be able to transfer hds from the Commissary system to the ITS-I1 through the ITS-I1 telephone set. The BOP will not allow this fund transfer during cenain periods of activity on the FPPOS System. Therefore. the ITS-II shall provide the BOP with the capabilitv to manually CUI off this function on an "as needed" basis and provide the BOP with a met.hod of creating a schedule for each individual correctional facility (Le.. after 4.00 PM) A The inmale shall begin the process by using the ITS-II telephone set to request an electronic transfer of funds from the inmate's Commissary account to his/her,lTS-II account B The ITS-II will check to determine if the Commissary system is available to process the transaction If not, the ITS-Il will generate a message to the inmate stating. for example. !hat "the Commissary system is not available at this rime '. If the Commissary system is available. the ITS-11 will determine if their Commissary account is currently in use lfthe account is in use. the ITS-II will generate a message to the inmate stating that the transaction cannot be completed at this time lfthe Commissary account is available. the ITS-11 will inform the inmate of the amount of funds available for transfer and prompt the inmate to enter a whole dollar amount for transfer The inmate will then enter the amount. in whole dollar amounts. 10 be transferred. The ITS-I1 will then determine whether this amount is less than or equal to the Commissary account balance If the amount of the transfer request exceeds the funds available in the Commissa? account. the transaction will abon and the inmate shall receive an insufficient funds message C i D c-39 E. ' If sufficient funds are available for the transfer amount requested. the ITS.11 will deduct the funds, calculate the new Cornmissan, accounf balance and insen the new balance into the Commissary system The COITImiSSar\. account for the inmate shall then b: \,enfied ensure that the transaction has taken place correctly. completed transactions shall be appended to a temporary file on the COtnnksary system as a separate record. A record is' dx, placed in an "error" file on the Commissary system if the transaction did not occur properly. The inmate's ITS-I1 account shall be increased by the amount of funds deducted from the inmate's Commissar). account. Completed transactions shall be capable of being printed as an Electronic Transfer Repon (ETR) at the correnional facility. Upon demand, this repon shall be capable of being printed on a daily basis and shall contain. at a minimum the following information: 1. Inmate Register Number. 2. Inmate Name. 5. Date of Transaction. 4. Time of Transaction. 5. Amount of Transaction. 7. Correctional facility site code. The time period in which inmates may make a transfer shall be controlled by the BOP F. 6. .. Telephone initiating transfer. .. G. C.2.2.5.3 BOP Initiated Electronic Transfer of Funds From the Comrnissaq Account to ITS-I1 Account (Exhibif 3-8) Inmates may be allowed to buy telephone credits through the correctional facility Commissary sales process All telephone credits purchased through this method are initially recorded in the Commissa? system as an ASCII file The ITS-II shall be capable of interfacing with the Commissa? system and applying this file to the proper ITS-I1 accounts. once initiated by the appropriate BOP staff on the ITS-ll. The flowchan in Exhibit J-8 includes the process flow performed ,within the Cornmissan, system. to aid the contractor in understanding how the entire process takes place The ITS-11 shall be responsible for processes within the area marked "ITS-I1 '. A During the transfer process, the ITS-I1 must determine wherher each of the ITS4 inmate accounts is available for update and either process the transaction or print as "exceptions" ihose which cannot be processed on a Commissary Electronic Funds Transfer Exception (CEFTE) repon. This repon shall include the following information for each exception: I Inmate Name. 2 Inmate Register Number 3 Amount offransaction 4 Reason for rejection c-40 B C D All exceptions must be capable of being entered in the ITS4 manually when the inmale's ITS-I1 account becomes available ,%I ITS-II account will not be available if the account does not exist or ifthe inmate is usinp - the account at that time and the transaction being processed will reduce the ITS-I1 account balance. If an account is not available. a transaciion cannot be performed and the exception repon described in this section shall be printed For ITS-I1 accounts which arc available. ITS-I1 account balances are updated. and a Commissan Electronic Funds Transfer (CEFT) repon is subsequently produced at the correctional facility initiating the funds transfer (in both summary and detail format) This repon shall contun the following information 1 Inmate Kame 2 Inmate Resister Kumber .i Date of Transaction 4 Amount of Transaction C.2.2.5.4 . . Debiting IfSll Accounts for Tclephonc.Chnrges (Exhibit J-9) The ITS-II shall be capable of debiting an inmate's ITS-II telephone account automatically and in real time as a call is taking place The ITS-I1 shall not be designed to require that the total cost of a call is available prior to allowing a call to be placed. Rather. an inmate shall be capable of placing a. call if the ITS-II account contains enough funds for a two minute call and the call shall be terminated when the inmate's ITS-I1 account balance is depleted to the point of not havins enough Funds to continue the call This shall occur pnor to creating a negative inmate ITS-II account balance .4 B C D E The process begins when an inmate initiates a direct dial call through an ITS-II telephone set The ITS-II first uses the unique personal identifier to determine whether the inmate possesses an active ITS-Il account Ifnot. the ITS-I1 generates an error messape to the inmak and abons the process If an inmate has an active the ITS-I1 account. ITS-ll determines whether the inmate has suficieni funds in !he accouni IO make a direct dial call If an inmate has suficient funds to complete a1 least a two minute direct dial call, the LOS- II shall allou the call to be processed ,4 call is first processed for administrative checks (e g . whether the call is on that inmate's allowed call list) Ifany check is unsuccessful. the ITS-II shall peneratc a message to the inmate and abon the process If all checks complete successfully. the call is processed. The inmalc's ITS-I1 account is then debited in whole minute increments automatically, in real time. as the call is taking place The ITS-ll shall prevent this process from creating a I negative balance in the inmate's ITS11 account. F. The call record detail shall be updated. as shall the balance. on a real-time basis. and be available for viewing immediaiely afrer the call is completed. If the inmate does not have suffrcicnt funds in their ITS-I1 account io process a call. the ITS-I1 shall generate an emor message to the inmate and abon the process. There shall be no deductions made a_painst an inmate's ITS-I1 account and no inmate call usage tracking measures shall be compiled if the inmate hangs up or othenvisc icrminates call setup prior to completion of the call to the called pany. . G. H. C.2.2.5.5 BOP Initiated Manual Transactions Made Directly to the ITS11 Accounts (deposits, withdrawals and exceptions) (Exhibit J-10) It is anticipated that there will be times when the ITS-11 and the Commissary system will be unable to communicate. or for some other reason a manual transaction will be necessaw. There must. therefore. be a screen for input of manual transactions. .. .. A. The process shall be initiated when an ITS staff member accesses the ITS-I1 "manual transaction'' screen. Data for the manual deposit or withdrawal is then input on the screen. and the inmate's ITS-11 account is updated on a real-time basis. Input fields for this Function shall be: I lnmaic name 2 Inmate regisier number 3 4 5 r\mount of transaction b Cpon pressing the enter key on the last input field of a transaction. a new transaction shall be available for input and the previous transaction infomaiion shall be printed in succession At the end of all transactions. the repon will total all amounts and count the number of transactions The Manual Transacrion repon shall include. at a minimum: Date of transaction (automatically generated) Type of transaction (defaulted from previous transaction. and selectable from a pick list) Commeni (not a mandatoo entrj) B C I Inmate register number I Inmate name 3 Date of rransaction 4 Type of transaction 5 Amount of transaction . .-. .. 6 Total transaction amount 7 Total number of transactions C.2.2.5.6 BOP Initiated Transfer or ITS-I1 Account Funds to the Commissap',Accounlr for lnmate Releases (Exhibit J-11) . An inmate release occurs when an inmate leaves the BOP system. In such a case. the BOP will transfer any remaining ITS-II account balance back to the inmate's Commissary account in time for out-processins ofthe inmate h ITS-I1 "release input screen" shall be used for this purpose The process shall be initiated when an ITS staff member accesses the release input screen and enters information on that inmate. This creates a release/transaction input form A. ....-. ,. B The ITS-II shall determine whether the ITS-I1 account is cunently in use If so. the ITS- I1 shall generate a response to the ITS-I1 terminal that the account is in use If not. the ITS-I1 shall reduce the inmate's ITS-Il account to zero and mark the status field ofthe inmate account as "2." This transaction shall generate an Inmate Release Transaction Rcpon which shall include at a minimum 1 Inmate register number 2 Inmatename 3 Date of transaction 4 Type of transaction S Amount of transaction 6 Comment ._- C The ITS-11 shall simultaneousl! access the Commissa? system. record the transaction. and be capable of creating a file of the transactions thai can be printed from the Commissary system C.2.2.5.7 BOP Initiated Call Charec Refunds Made Directly to ITS-Il Accounts (Exhibit 5-12) Cenain situations occur which can cause an inmate's ITS-ll account to be refunded a cenain; amount of funds An ITS-I1 refund screen shall be used for this purpose h The process shall be initiated when an ITS staff member accesses the ITS-II refund screen The ITS staffmember will enter the inmate register number. the telephone number for which the refund is being given. and the amount of minutes to be refunded. The ITS-11 uill then calculate the refund to be given to the inmate A reason for the refund shall also be entered on the screen The result of this transaction shall be an increase in the inmate's ITS-I1 account equal to the amount of the refund This transaction shall then generate a summary transaction repon at the correctional A B c-43 facilities printer This call record refund rransaaion repon shall include. ai a minimum 1. 2. 4. 5. 6. 7. 8. 9. - 1. Inmate register number Inmate name. Date of transaction Time of transaction. Type of transanion Amount of transaction Comment. Telephone number called User name (automatically generated from the login). C.2.2.5.8 At the end of each day (or as requested). a summary of all ITS-I1 financial transaction activities (by type) for that day shall be capable ofbeing viewed and printed. The repon shall be capable of being run by the BOP Central Ofice. as a summation of all correctional facilities or for individual correctional facilities as requested In addition. a sum of all ITS-I1 accoum balances shall be prwidcd corresponding to the type of repon requested. BOP Central Office Account Reconciliation .. A The contractor shall determine and communicate in its technical approach. whether the ITS-II will need IO shut down due to this procedure. Ifso. the contractor will indicate ihe Iengh of time that the system will need to be disabled to perform this procedure. In addition 10 processing accounting transactions at the correctional facility level. the contractor shall provide the BOP'S Central Office with the ability to balance and reconcile the ITS-11 transactions for all correctional facilities asainst all of the ITS-I1 account balances as needed lnfonnation to be included for penodic balancing are: I 2 Electronic transfers (-I-) B Previous balance (from previous repon) a Inmate(-) b Commissary (-) c Releases (-) d Subtotal of electronic transfers 3 Refunds(-) a Local b Long distance E International d Subtotal of refunds c44 . .. . , . . - .. ___.. , .. . .. 4. hlanual transactions (-;-) a Deposits (-) b. Withdrawals (-) c Exceptions (-/-) d. Subtotal of manual transactions 5. Direct dial calls (-). a. Local. b. Long distance. c. International. d. 6. Net sum of transactions. 7. ITS-I1 account balances (*) Subtotal of direct dial calls (*) The ?ITS-I1 Account Balances? information shall be determined by acquirins the true sum of the inmate balances within the system. not a calculated sum from transaction numbers in the repon. The contractor must demonstrate how this balance is derived. C. These reconciliation repons shall be recoverablefor future use and organized with a numbered tracking system. These reconciliation repons shall receive data from the identical. exact time frames for each correctional institution included in the repon (e.g.. 10/1/98 to 10/31/98). They shall also be capable of reponing data since the time ofthe previous repon and include the balances from the previous repon D C.2.2.6 Managrrneni of lnrnaie Transfers Between Correctional Facilities An inmate?s personal identifier shall be capable of being used at all BOP correctional facilities to place collect calls immediately upon arrival at a neu? correctional facility, when transferred from one BOP correctional facility to another The inmate?s account. however. shall remain the responsibility of the correctional facility from which the inmate transfened until such time that staff at the new correctional facility change the inmare?s correctional facility assignment. ITS-II shall provide the BOP a method of changing the site assignment ofaccounts when inmates transfer between correctional facilities (all call records shall be stamped from the correctional faciliiy the call acrually originated from) A Lpon transfer ofthe inmate. the inmare?s ITS-II account shall remain designated at the original correctional facility until such time as staff at the receiving correctional facility change the designation. B No financial transactions shall be conducied upon an inmate?s accounr except by the correctional facility IO which the inmate account is designated If an artempt is made io perform a Comrnissan transfer from a phone designated at a correctional facility other c-45 (cy .;i C. D. E than the correctional facility the it-imale accounl is assigned. the inmate shall be prorided with a message such as. "ihis transaction is not authorized from this correctional facilitv" and cancel the transaction If a staff member enters the register number of an inmate already created in the ITS4 but assigned to another correctional facility, the system shall inform the staff member, (example) "this account is assigned to John Doe at FCI Somewhere. Would you like to retrieve this account? Yes or No." Upon the staff member responding "yes." this account will become designated 10 the new site Once the account is designated by the receiving correnional facility. all subsequent account transactions made for or by that inmate shall be coded to that correctional facility for purposes of reponing. querying. and balancing. The ITS-I1 shall be capable of providing repons of accocnt movement specific to correctional FaciliLies so that correctional facility staff may deternine which inmares have transferred to and from their conenional facility. These repons shall print each day at those correctional facilities that have "gained" or "Ion" inmate accounts. The repon shall include: inmate name, register number. and the ITS4 account balance. This repon shall. segregate and provide separate totals for "gained" accounts and "losf "accounts balances. The ITS4 shall also be capable of reponing personal identifiers which have been used ai correctional facilities different From the correctional facility IO which the inmate's account is assigned. . .. C.2.2.7 Queries and Reponr The BOP requires reponins and querying methods and capabilities which provide maximum flexibility. a user Friendly interface. speed. efficiency. and accuracy. The contractor shall therefore make available a sophisticated information retrieval system with maximum flexibility, speed, and ease of use.. C.2.2.7.1 Queries The ITS-ll shall provide the BOP the capabilitv to retrieve. analyze. and repon ITS-11 information according to its dynamic mission-defined needs i C.2.2.7.1.1 All data dealing with inmate use of the ITS-11. telephones. telephone numbers caned. call types. renrictions. and all other data residing in the data base shall be accessible to BOP ITS staff. limited only by user access level. as determined by the BOP Central Ofice C.2.2.7.1.2 Soning shall be able to be performed on data base queries to a minimum of five levels C,2.2.7.1.3 All queries shall be able to be sent io a screen and/or printer. C-46 4. C.t.2.7.1.4 All queries shall be capable ofbeing saved for future use and available fro,,, a list at the access level and locarion from which rhey were created C.2.2.7.1.5 AI1 queries created by Central Office ITS sraff shall be capable of being saved and distributed to user levels for use from a pick list C.2.2.7.1.6 The conrractor shall pro\ide a screen-oriented form ofdata retrieval. in uhich BOP personnel with the proper access level shall have the following options IO Pick from standard. defined queries with no modifications (from saved central IISI) Pick from standard. defined queries with no modifications (fiom saved local list) Pick from standard. defined queries with modificatlbns (which can then be saved under another name either centrally or locally) Pur ro_pether queries in a free-form manner (which can then be saved. either cenrrall\ or locally). A B C D , .. C.2.2.7.1.7 The contranor shall probide all rhrec of rbc following methods for the BOP to format and modify qucnes A ' Direcr typing of query informarion ("SOL-like" stmcturc) B Use of a "pick list" for fields. logical operators and relalionships betweewamong f~elds C En_clish-lanpuagc que? creation (via urilization of a user interface in Combination uith the data base) C.2.2.7.1.8 All queries shall havc a "drill-doun" capability in which users are capable of usinc the results from onc que? as input to a second or ekird qucn: io a minimum of three levels This capabiliiv shall be made available thrbugh the use of an "SOL-like" sttuciurc or an En&h-language user interface system C.X.T.1.9 At no time shall a BOP ITS staff member be forced to use a native data base languayc. such as the SOL IO rcincvc infomarlon. although this capabiliiy shall be made available io BOP ITS gaff i C.?.2.'. 1.10 BOP coneciional facilii! personnel shall be limited to data retneval specihcallv dealing uith the conectional facility IO which they are associated unless specific all^ granted increased access by the BOP Central Office c.22.-.1.1 I BOP Central Ofice ITS personnel shall have unlimited access to data retrieval Ceniral Ofice ITS pcrsonncl shall, therefore. have access to ITS-II data on a system-wide basis The contractor shall providc the maximum time the ITS-ll will take on a fully C.?.?.-.I.l2 c-r: A. B. c.2.2.7.2 loaded database to retrieve the following screens: Any lndividual Inmate .4crount Any lndividual lnmate Call Record( s) . General Repoi?,Capnbilities The BOP requires an ITS-I1 which probldes extremely flexible reponing capabilities. as well as. an easy IO use interface for users to create new repons as needs arise. The ITS-I1 shall also provide reponing capabilities with speed and accuracy. Speed ofrepons is highly desired by the BOP, therefore. the ITS-I1 sofiware and hardware shall be designed to maximize dl repon processing speeds. The coniractor shall work with the BOP throughout the life of this contract to attain maximum repon speeds. C.2.2.7.2.1 AI1 repons shall be capable of being generated by correnional facility or combinations of correctional facilities dependant on the user level requesting the repon. C.2.2.7.2.2' 'SOP Central Office staff shall have the capability to assign access to repons to various user levels BOP Central Office staff shall also have the capability to limit a user's access to a correctional facility or combination of correaional facilities. C.2.2.7.2.3 The BOP shall have the ability to change the type of information presented in each repon. that is, the BOP shall have the abiliry to custom design repons to show specific infomation BOP requires Customiration includes repon information (content) and the information sonine sequence and presentation. C.2.2.1.2.4 BOP Central Oflice staff shall have the capability to assign reports to categories so that repons with similar functions can be grouped toyelher under one menu item. C.2.2.7.2.5 The BOP requires the capability to program repons to be generated automatically. These repons shall be pnnted. as deiermined by BOP personnel. when a cenain call IS made. when a cenain transaction with the Commissary system andlor the AIMS is made. or a! a cenain time of day This capability is intended to act as a notification to BOP staff uhen taracted circumstances occur. 67.2.2.f.2.6 The automatic repon generalion programming shall be able to be performed at each concaional facility or system-utde b C.2.2.7.2.7 Printed repons shall include only necessan information and pages. Blank pages shall not be insened into repons unless a legitimate reason exists C.2.2.7.2.8 The contractor shall provide rapid repon searching and printing capabilities --*--.------ e . . ~..~.~ .. . C.2.2.7.2.9 AI1 reponed data shall be capable ofbeing stored on electronic medla le g , tape. CD-ROM. or diskette) C.2.2.7.2.10 Repons shall be capable ofbeing created and viewed on-line at all tennlnals a user with the proper access level and shall be able to be printed as determined by BOP staff ,, * c.2.2.7.2.11 All repons shall be capable of betng recrcared without the need to store the original repon IO electronic medium. All printed repons shall include. at a minimum. the following basic information C.2.2.7.2.12 --..m B.. C. D E F G H I .. Time. Terminal making request. Parameters of the repon Piumber of pages Repon heading. End oirepon foottr Repon heading on each page Repon title on each page C.2.2.7.2.13 The header of the repon must be on the same page as the beginning ofthe report and on each page ofthe repon and contain the following basic informalion .A Correctional facility name B Reponname C D Pagenumber E Field headings Date and rime of repon C.2.2.f.Z.14 The repon footcr must be on the same page as the end of the repon except when normal page breaks occur and include the following. A B C ,411 columns containing dollar values shall total at [he end of the column L If the repon contains inmate informarion. the repon shall include a total count of inmares All columns containing minutes or call duration or counrs of calls shall include a total of this information c.2.2.7.2.15 The BOP shall have the capability to create groups of related information such as telephone numbers. inmate register numbers. correctional facilities. units. which can be used a5 input for search criteria These groups or batches shall c-49 be capable of being named and saved for use as search criteria inpui for future queries and repons. C.2.2.7.3 Specific Reports The ITS-I1 shall provide the following standard rcpons: C.2.2.7.3.1 Chronological List of Calls Report Produces a list of call records within the specific stan time ._IC and end timddate ranges specified. This repon shall include the follow in_^ information in chronological order: A. B. C. D. ' E. F. G H 1 J Inmate register number Date of call. Time call staned. Dialed number. Call type (local. long distance. international) Trunk. Station set number. Cost of call. Recorder channel number. Duration of call. .. C.2.2.7.3.2 Daily Call Volume and Charge Rcpon Provides a daily sum of call charges. call couni. and call duraiion for each type of direct dial and collcct call . Search criteria include stan date. end date. and correctional facility. The report shall be capable of reponing multiple days and muliiple coneciional facilities if requested. c-50 . . . . -. .. C.2.2.7.3.3 Telephone Account Statement This repon shall be a comprehensiwepon of an inmate's 173-11 account transactions it shall include collecr calls. This shall be similar to a typical bank statement. habine a separate line for - each transaction, beginning with an account balance and shall include a runnine balance afier each transaction. The statement shall include a beginning and ending balance. The beginning balance shall be the balance as ofthe requested repon "from" date The ending balance shall be rhc balance as of the requested repon "ending" date This repon shall provide an option IO include zero dollar transanions such as collect calls Search criteria shall include: - .. - A. Inmate register number(s). B. Beginning date C. End date. .. Eaih iine ofde!ail on the stzt'encnt'shall include A B C D E F C H Date of transaction Time of transaction Transacrion type (call. deposit. transfer) Correctional facility site code (uhere transaction occurred) Call duration (if applicable) Dialed number (if applicable) .Amount Balance The repon shall be pnnted in order from oldest dare to the most recent date. C.2.2.7.3.4 ITS-I1 Accounts Tranrrcrrcd and Rcccived The ITS-ll shall be capable of reponing to the BOP Central Office which accounts have been transferred for a user specified penod of lime It shall also provide this repon of accounts transfened and received for correcrlonal faciliry ITS staff The repon shall be soned by site then date It shall include A Inmate register number B Inmate name C D E Date of transfer F Transfened from correctional facilii! site code Transfencd to correctional facility site code ITS-ll account balance ai the time of transfer c-SI G. H. 1. Tiet amount. Total amount of transferred account balances Total amount of received account balances C.2.2.7.3.5 Frequently Dialed Numbers Report - Lists all telephone numbers meeting the user input parameters of number of times dialed hithin a specified time frame. Search criteria include Stan date. end date. and the minimum number of times a telephone number must have been called fo be included in the report. Output shall conrain information relative to each of the frequently called numbers included in the report. This includes: inmate name. register number. dare, time, recorder channel number. correctional facility site code of the inmate. and shall be soned by telephone number and chronologically according to the staning date and time of each call. C.2.2.7.3.6 .. Telephone Fiumber Usage Repon .. The repon lists calls made IO a user specified telephone number or numbers. The search criteria is the telephone number or any wildcard combination of number and other criteria allowing the user to filter the output if necessary for completed calls. uncompleted calls, direct dial calls. coI1cct calls. and/or user defined duration of calls. Output lists calls to a specified telephone number (or pattern) soned by telephone number and in chronological order The output shall contain the following. .a B c D E F G H I Inmate name Inmate register number Telephone number Date of call Time of call lclephone used Recorder channel number Cost of call Conecuonal facility site code of the inmate c-52 C.2.2.7.3.7 Suspended Telephone Accounts Repon - -._--... . .. Lists all inmare telephone accounts whose calling pniileges have been suspended either remporarily or indefinitely. The search criteria shall be for current suspensions andior expired suspended accounts . Output is soned by inmate register number and date of suspension. C.2.2.7.3.8 Approved Telephone kumber Search Repon The repon lists inmates who are authorized to call a specified telephone number, or multiple numbers or number pattern defined by using wildcards. he search criterion is the telephone number (or number pattern). Output is soned by telephone number and by inmate resister number. C.2.1.7.3.9 Alert Notification Repon The ITS-I1 shall be capable of providing a repon for all telephone numbers or accounts which have been placed on alen status by BOP staff Search criiena shall include a stan daw and time. and an end date and time Output shall include in chronological order the following as applicable A Type ofalen B Inmate name C Inmate register number D Telephone number E Dale ofcall F Timeofcall G Telephone used H Recorder channel number I Cost of call i c-5; m C.2.2.7.3.10 Telephone h?umben Called by More Than One inmate The ITS41 shall be capable of producing a detailed andor summq repon of all telephone numbers called by a user defined amount of inma!es for a usei defined time penod. not ro exceed? the previous thirry days. The repon output shall be grouped by telephone number and contain A. B C. D. E. F. G. H. Inmate register number Inmate name. Dare of call Time of call Telephone used. Recorder channel number. Cosr of call. Comectional faciliry sire code of inmate C.2.2.7.3.11 Telephone Numbers Listed on More Than One Telephone Account .. The ITS-I1 shall be capable of producing a repon which lists all telephone numbers which are listed on more than one inmate?s ielephone accouni The repon output shall be soned by ielephone number. then by inmaie. and contain A Telephone number B lnmaie register number C Inmate name D Dale placed on list E Correctional facility sile code of inmate C.2.2.7.3.12 Quantin of Calls Placed The ITS-Il shall be capable of reponing all inmates who have placed calls in excess of the parameicrs defined for the repon by the BOP user The user shall have the option of selecting this repon for direct dial calls only. collecr calls only. or both The user shall be able io input the amount of calls within a defined iime period rhai the repon will generaie ouiput for. The repon shall be capable of being printed as a detail and/or a surnmav. The output shall be soned by calls in descending order and shall include > A Sumber of calls B Inmate resister number C lnmaie name D Correctional facility siie code of inrnaie c-54 C.Z.Z.i.3.13 Quantity of Xlinutes Called The ITS-II shall be capable of reponing all inmates who have placed in excess of a user defined number of minu~es of calls within a user defined amount of time. The user shall have the option ofselectine - this repon for direct dial calls only. collect calls ody, or both The repon shall be capable of being printed as a detail or summap The output shall be soned by minutes in descendine - order and shall include A. Kumber of minutes 8. Inmate register number C. Inmate name D Correctional faciliry site code of inmaie C.2.2.7.3.14 Blocked Telephone h?umbers The ITS-11 shall be capable of producing a repon of telephone numbers blocked From calling, This shall include numbers blocked system-wide. for individual accounts. and shall indicate the. ;cason for being blocked (i.c.. blocked by staff. blocked?by cal!ed pany). The repon output shall include A. Telephone Piumber B C who placed the block D E F Reason for block (comment or description) Resister number (if blocked for individual inmate) lnmaie name (if blocked for individual inmate) Correctional facility site code of inmate .. C.2.2.1.3.15 Extra Dialed Digits This repon shall provide information for each call which the ITS-ll detected extra dialed digits This repon shall be capable of being generated from a user defined period of time. The outpu~ shall be in chronological order and shall include A B C D E F G H Date Time Dialed number Register number lnmaie name Telephone Recorder channel number Correctional facility site code of inmate C.2.2.7.3.16 Local Exchanges This repon shall provide each correckional facility uith a rcpon of d1 exchanges - which a're designated within the local calling area for that panicular correctional facility. C.2.2.7.3.17 Percentage Grade or Blocking Report This repon shall provide information on a line by line basis for the percentage of calls blocked at specific hourly time periods for either ielephones or call types (i.e., FTS Long Distance. local, international. collect local). The output shall include the number of calls attempted. the number of calls blocked, and the percentage of blocking. Search criteria shall include stan date. end date. and time interval in minutes C.2.2.7.4 . BOP Central Ofiire Administrative Reports The BOP Central Office shall have the ability to create repons on a system-wide basis and for .. . each corrections1 facility. C.2.2.7.4.1 The BOP requires the ability to program repons that would be generated at predesignated times or on an ad-hoc basis. C.2.2.7.4.2 All repons. whether site specific or ITS-11-wide. shall be accessible from any terminal at any correctional facility. Limited only by user level of person logged into terminal. C.2.2.7.4.3 The BOP Central Ofice shall have the ability to query the database and generate repons from all correctional facilities or any group of correctional facilities. C.2.2.7.4.4 The database shall allow multiple correctional facilities IO query the database simultaneously C.2.2.7.5 General Revenue Rcpon Requirements i The ITS-11 contractor shnll provide revenue repons to [he BOP COTR and Contracting Oficet within thin! days of the close of the month being reponed upon. These repons are separate from the monthly maintenance reponing process described elsewhere. C.2.2.7.5.1 The ITS-ll contractor shall provide these repons. in hard copy and/or electronic medium formats All revenue figures shall be calculated and displayed in US. dollars and cents 6.2.2.7.5.2 For purposes of these repons. call types are defined as follows. Other call types C-56 .- ~.. . . _% . . .. . ..~. - .. -%i shall be added as necessa? .,. .._. ".. .. .. a A Direct Dial Call Types 1, Diren dial local 2. Direct dial long distance 3 4 Direct dial Canada 5 Direct dial Mexico Diren dial international (excluding Canada and Mexico) B. Collect Call Types 1 Collea (other than international) 2 3. Collect Canada 4 Collect Mexico Collea inrernational-rif provided and for countries serviced (excludins Canada and Mexico). .. .. C.2.2.7.6 Specific Monthly Revenue Repons The contractor shall provide the BOP with the following repons. C.2.2.7.6.1 Summary Minutes by Call Type The contraclor shall provide as pan of the monthly revenue repons a Summary Minutes by Call Tvpe rcpon which shall include the followrig A B \umber of calls (by each call type) \hum of calls (by each call type) . C.2.2.7.6.1.1 C.2.2.7.6.1.2 C.2.2.7.6.13 Totals shall be calculated and displaved for direct dial calls. collect calls. and total calls for each correctional facility Totals shall be calculated and displayed for direct dial minutes. collect minutes, and total minutes for each correctional facility Totals shall be calculated and displayed for each call type. direct dial calls, collect calls. total calls. direct dial minutes. collect minutes. and total minutes across all correctional facilities and shall include sub-iotals and totals for each of {he catc~orier C.2.2.7.6.2 Monthly Distribution of Revenues The contractor shall.proide as pan of the monthly revenue repons a Monthly Distribution of Revenues repon. This repon shall be the summation ofall calls placed through ITS for the enrirc BOP. The following information shall be included for each call rype: A. B C D. E. F. G. H. Totals minutes by call type for direct did. Rate per minute due contractor by call type for direct dial. mount due contractor by call type for direct dial. Grand iotals for direct dial minutes and amount due contractor. Gross billable revenue by call tbe for collect calls. Percent due the BOP by call type for collen calls. houm due BOP by call type for collect calls. Grand totals gross billable revenue and amount due BOP. Net revenues due contractor or BOP shall be calculated and presented at the end of the repon Payments due IO the BOP shall be submitted wthin 60 days of the end of each month in which the cal!s occumd .. The conrractor shall provide supponing documentation for the Monthly Distribution of Revenues repon by providing the following information for each individual correctional facility. A B C D E F C H 1 1 ti L \I K Correctional facky name Direct dial minutes by call type. Rate charged to the BOP by rhe Contractor for direct dial calls by call type. Amount due contractor for direct dial calls by call rype. Summa? iotals for direct dial calls (minutes and amount due the contractor) by correctional facility Summa? totals for direct dial calls (minutes and amount due the contractor) across all correctional facilities Collect call minutes bv call type Summa? of collect call minutes by correctional facility Summan of collect call minutes across all correctional facilities. Gross billable collecr call revenue by call type BOP percentage cf gross billable collect call revenue by call type Amount due the BOP by the Conrracror for collect calls. Summary iotals for collect call revenues (gross billable and due the BOP) by correctional facility Summa? totals for collect call revenues (gross billable and due the BOP) across all correctional facilities i > c-58 C.2.2.7.6.3 Monthly ITS-ll Direct Dial and Collect Revenue Analysis The contractor shall provide as pan of the monthly revenue repons a Monthly ITS-I1 Direct Dial and Collect Revenue Analysis Repon which. at a minimum. shall include. . A. B. C. D. E. F. G. Primary son: direct dial and collect calling. Secondan. son: by correcrional facility. Teniary son. by month in fiscal year (beginning ofOctober through end ofSeptember) Fields: revenue for each call type Totals: total revenue across all direct dial or collect call rypes per month in fiscal year Subtotals for each call type for a correctional facility across the fiscal year (IO date) Grand totals of all subtotals shall be calculated and displayed. C.2.1.7.6.4 Direct Dial Sales by Correctional Facility The contractor shall provide as pan of the monthly revenue repons a Direct Dial Sales by Correctional Facility Repon which. at a minimum. shall include. A B Total direct dial revenues. C D Fiscal year average inmate population to date (derived from the number of inmate ITS-II accounts that have had account activity during the period). Annualized average total direct dial revenue per inmate. For each direct dial call rype 1 Revenues. 2 3 hnualized average revenue per inmate The number ofactive inmaie accounts with no activity during the period. Totals shall be calculated and displayed for each field C.2.2.7.6.5 lnmatr Usage The contractor shall provide as pan of the monthly revenue repons an Inmate Usage Repon i which. at a minimum. shall include A B C D E F G H Number of ITS accounts that have had activity during the period (inmates). Sfinures per inmate per month (for each direct dial call type). Number of calls per inmate per month (for each direct dial call type). hlinutcs per inmate per month (across all direct dial call &pes). Number of calls per inmate per month facross all direct dial call rypes). Minutes per inmate per month (for each collect call type). Kumber of calls per inmate per month (for each collect call type) Minutes per inmate per month (across all collect call types). c-59 1 1 K. 1. ' Number of calls per inmate per month (across all collect call types) Number of active inmate accounts with no actk+;ry during the period Minutes per inmate per month facross all call types) Sumber of calls per inmate per month (across all call types). . Totals and averages shall be calculated and displayed for each field and for both minutes and number of calls. C.2.2.7.6.6 Cumulative Usage for Fiscal \'ear The contractor shall provide as pan of the monthly revenue reports a Cumulative Usage for Fiscal Year repon which, at a minimum. shall include: A. B C. D Percentage of total call minutes (for each direct dial call type). Percentage of total call minutes (for each collect call type). Percentage of total call minutes (across all direct dial call types), Percentage of total call minutes (across all collect call types). Tctals and avereges shall be calculaied and displayed for'each field luote Inmate Usage and Cumulative Usage for fiscal year reports may be combined into one repon c-60 C.2.3 Administrative Requirements This section describes BOP administrative requirements C.2.3.1 The ITS-II contractor shall work with the BOP IC maintain control ofall data wirhin the ITS-Il and all data stored on backup or archived medium. This data is considered "sensitive" and shall not be disseminated to anyone without prior approval ofthe COTR or as designated within this contract. C.2.3.1.1 ' The minimum measures ufhich shall be taken by the contractor to ensure this data . Data Sccuri~ .. integrity include. a. b. d. Degaussing or wiping of hard disk prior IO being used in any other system. Degaussing or wiping of hard disk prior to being shipped to any outside vendor. ' , Backup and archive da!a shall be maintained in a fireproof companment and in an area separate from that which contains ITS-11. c Repons shall be shredded prior to disposal. .. . . C.2.3.1.2 The ITS-11 shall also be protected from access via the Internet. If the contractor's proposed ITS-II solution is connected either directly or indirectly to the lnternet. the contractor must provide a secure firewall protection scheme IO protect the ITS4 The contractor shall also describe this protection scheme to the BOP in its response io this SOW C.2.3.2 ITS-II Backup Cnpabiliv The BOP is seeking a system which can recover quickly from any failure Due to the fact that inmate funds uill be maintained on the ITS-I1 system. the contractor shall provide all backup and archival hardware. supplier. and recovery procedures which wili ensure that no data will be losi. The follouing are the minimum requirements for this capability C.2.3.2.1 C.2.3.2.2 C.2.3.1.3 The contractor shall provide a backup and archiving facility capable of performing backups concurrently uwh ongoing full operation of the d,atabase with no readily apparent affect on any applications running concurrently with the backup activity. The backup shall proteci against loss of data or service ai any BOP correctional facility for any type of system failure The ConiracIor shall be capable of recovering all data. to the point of full system operation. using a system backup C-61 - . c.2.3.2.4 'The contractor shall probide ai a mitimum a weekly system backup that shall be maintained at a location distinct and separate from the locarion of the contractor's Cenrial Operations Facility. 10 be available in case of natural disasters. such as fire or flood. . . C.2.33 Data Archiving The ITS-11 shall provide hardware and software capable of archiving all inmate data ,411 data older than 12 months may be archived and shall be maintained for six years. This archived data shall be capable of being viewed. queried. and reponed on, by BOP Central Office staff in the same manner as the ITS-I1 real time operations without having to disrupt ongoing operations C.2.3.3.1 The ITS-I1 shall suppon a data archival capabiliry that allows search and retrieval functions of historical inmate telephone account information. The ITS-11 shall suppon the full administrative query and reponing functions on archived data that were possible on the data a! the time it was generated' The ITS-I1 may be configured to automatidly archive data from all correctional facilities that is older than 12 months The most current 12 months of information shall be maintained in the working database Archived data shall be kept for a minimum of six years The data archival sysiem shall hay a minimum data transfer rate of 300 kilobytes per second The contractor shall provide all macneiic or other media necessary for this archivins process If an! financial data is removed due 10 the archival process. one entry shall be placed in the financial record of each account to reflect the balance of the archived entries which have been removed C.2.3.3.2 - .. .. . C.2.3.3.3 C.2.3.3.4 C.2.3.3.5 C.2.3.3.6 C.2.3.3.7. i C.2.3.J ITS-I1 Extcrnnl Intcrfaccs The BOP maintains computer systems and networks with which ITS4 must be capable of inidacing C.2.3.J.1 The BOP provides inmates uith an opponunity IO purchase Commissary items which are spproved by the Warden at each correctional facility which are no1 orhewise provided within the chrrecuonal facilrt! Correctional facility Commissaries provide these items to inmates under (1 > Fcdcrrl Prison Poini of Snlc (FPPOS) System C-62 , ,. controlled environment Inmates prode their requests for Commissary items to BOP staff The requested items are sold to inmates and the funds are deducted from the inmates' Cornmissan. account The FPPOS System is the accounting and inventon. sofiware packay used to maintain inmate Commissary accounts and Commissa? inventon. The FPPOS System provides BOP staff vnth automated Commissary sales to inmates through the use of UPC scanning equipment and sales receipt printers. FPPOS Commissary accounts are the source of credits for debit accounis in the ITS-II The FPPOS System and ITS4 must interact to exchange accurate credit information between systems. FPPOS Svstem is nor a centralized sysrem and is deployed and operated as independent LAKs at each corr;ctional facility. The contractor's ITS-II solution shall be required IO interface wth each of ihe FPPOS Systems in operation at BOP correctional facilities served by the ITS-II The conrractor shall configure rhe FPPOSflTS-I1 interface to be implemented locally; the contractor shall not confipre a single point of interface to all FPPOS Systems. The FPPOS System currently operates on a Novell Network Version 3.12 LAN based system. using - DOS Version 5. I. Tne.propram sofiware is witccn in COBOL programming language utilizing a file based Novell prosram for record management called Btrieve. The FPPOS System cunenily generates 18 data files in both Btneve and ASCII format. The ITS-II shall interface uith the FPPOS Synem by accessing these files directly. In no case will the contractor be required to create or modify FPPOS application software. The ITS-II shall suppon the following capabiliries for the FPPOS interface ,, ' A The ITS-II shall physically connect to The LAN supponing FPPOS and provide all nccessay software and hardware IO facilitaie this connection BOP Central Ofice staff shall be capable of accessing all FPPOS LANs through the ITS- II u.45 B C D The ITS-ll shall be capable of accessing the FPPOS file systems as a NetWare user The 11s-ll shall be capable of the following operations on Btrieve files: open. close. read. edii records. delete records. create records The ITS4 shall not cormpt FPPOS files in the event of ITS-I1 failure .' E C2.3.J.1.1 blulliple FPPOS Syricms.at BOP Facilities The contractor is advised there may be configurations for which a sinsle ITS-II configuration shall be required to logically and physically inicrconnect to more than one FPPOS system. This configuration is most likely to be found at FCCs where the contractor may choose IO deploy I single ITS41 as a solution to the requirements. wth multiple FPPOS systems installed at each of e -.- e the independent correctional facilities uithin the FCC C.2.3.4.1.2 FPPOS Transactions The contractor shall configure the ITS-11 h~dware and software to interface with FPPOS files 10 perform the funnions required of this SOW. The following transadions are to be implemented in this interface. A. Inmate-initiated transfer of funds from their Commissary account IO their ITS-I2 account (requires modification of existins FPPOS Btrieve data files). BOP initiated electronic transfer of funds from the Commissary account to the ITS-I1 account (requires transfer of an existing FPPOS ASCII-format data file to ITS-11). BOP iniiiated transfer of ITS-11 account funds to the Commissary account for inmate releases (requires modification of existing FPPOS Btrieve data files). B. C. D. Inmate Commissary account balance inquiries (requires reading exining FPPOS Btrievi data files). C.2.3.4.1.3 Access to FPPOS Application and Files Subsequent to contract award. the contractor will be provided FPPOS program and data files and shall work with BOP Central Ofice staff to design and implement the software required. The contractor shall %rite the necessap programs and make the necessaw sokware modifications to perform the ITS-111 FPPOS financial transactions described elsewhere in this SOW. C.2.3.4.1.4 Future FPPOSATS-II Interface Deployment Other modifications to the FPPOSIITS-I1 System and interface may be necessary over the course of the contract life These modifications will be made through task orders issued by the BOP Coniracting Officer C.2.3.4.2 Institution Voice Recorder i The BOP records inmate conversations using recording equipment which is physically located in the investigations ofice at each institution This recording equipment is provided by the povemmenl The voice recording equipment records a separate inmate conversation on a single recorder channel A channel number is assigned to each inmate telephone within the correctional facilit! The ITS-11 shall provide an input field for the recorder channel numbers which will be used by the ITS-I1 automatically on repons and other data display elements as required in this SOW The ITS-ll shall provide an analog voice path to the correctional facility recording equipment , C-64 C.2.3.4.3 Automated Intelligence hlanagement System The ITS4 shall provide data to the BOP SIS .AIMS at each indikidual site C.2.3.4.3.1 The ITS-I1 shall physically connect to the AIMS via a serial pon and provide a method by which call record information can be downloaded from the ITS-II to the AlMS The SIS ofices are r!pically located several hundred feet fiom the ITS-II office Therefore. shon-haul modems may be required for this trmsmssion of data . C.2.3.4.3.2 The data to be transferred shall be call record data available on the ITS4 for a specific corrcciional facility and shall be capable of being transferred at any requested time by an SIS staff at that conectional facility. The contractor shall provide SIS staff at the correctional facility the capability to request this transfer of data from within the office at the site which contains the AIMS computer. The following data shall be provided for this transfer: ' A., . Inmate register number. .. B. Date of call. C Time call was initiated D. Duration of call. E Telephone number dialed F. Station set number G Recorder channel number C.2.3.4.3.3 This information shall be capable of beins requested for a user defined time and date and shall be output in chronological order for the period requested. The data transfer rate shall be a minimum of 300 Kbps. C.2.3.4.3.4 Other modifications to the interface may be necessary over the course ofthe contract life through the issuance of a task order Financial Managcmrnt Inlormalion System (FMIS) C.2.3.4.4 The BOP is currently migrating to a neu accounting system. FMIS. FMlS is the BOP'S official accounting system and is a completely scparaie system from the FPPOS System Once this J migration is complete. some interface with the ITS-Il may be necessary The contractor may be requested. through a task order. to work 4th the BOP at a later date to interface with this svstem i C.2.3.4.5 BOP LANNAIV _-. The BOP currently operates a LAN (which is separate from the FPPOS LAN) at each concctional facility which is connected naiion-widc through a WAN. The contractor may be C-65 e- requested, through a task order. 10 work with the BOP at a later date to interface with this system C.2.3.5 Access Control The ITS-I1 shall provide a secure, multilevel database access control configuration \rith a minimum of six definable user levels. . C.2.3.5.1 C.2.3.5.2 . . C.2.3.5.3 C.2.3.5.4 C.2.3.5.5 A B C D E F G C.2.3.5.6 The ITS-I1 access sofiware shall allow creation of access levels and assignment of multiple users to those access levels. The BOP Central Office shall be the highest access level and shall be capable of creating the lower levels of access. The ITS-I1 shall provide the BOP Central Office access level the capability to assign specific menu funcrionality on an individual basis to each lower access level. This funcrionaliry shall include but is not limited to the assignment of repon capabilities. menu functions, dara input capability. query capability. screen view capability. menu functionality assignment. and other system administrative functions. Database access shall be provided in a hierarchical fashion, beginning with the Central Office level for BOP Central Office personnel. Access shall then be defined by Central Oflice personnel for the lower levels. Other levels may be created throughout the tenn of the contract. The ITS-I1 sofiware shall provide an easy-to-use logon procedure that requires the user to enter an identification and a password BOP Central Office staff shall create the Trust Fund Supervisor user at all conectional facilities. The Trust Fund Supervisor shall have the capability to create users for all other access lcvels at that correctional facility .. Once a user has been created. it will require a password for access to the system at that user level The following type of password system is required for the ITS-II environment Lenph ranse 4-8 Composition Uppercase letters (A-2). lowercase letters (a-2). and digits (0-9) Lifetime 6 months (with an automated prompt for the user to change when necessary) Ownership individual Storage encrypted passwords EntT non-priming keyboard and masked-printing keyboard. Transmission cleanexr The Trust Fund Supervisor shall have control over all users and passwords within the assigned correctional facility C-66 C.2.3.5.7 System sofrware shall allow the BOP Central Office to configure the svstem IO allon either multiple or sinEle instance logons for a0P user accounts C.2.3.5.8 Passwords used for aurhentication must comply uith the requirements of Federal Information Processing Standards Publication (FIPS'PUB) 1 12. Password Usage. or its successor C.2.3.5.9 The Contractor's staff with a need to access the ITS-I1 database shall each be provided a separate and unique ID and password with identical requirements as those for BOP staff. This ID and password shall allow BOP staff the capability to monitor and control contractor staff access to BOP data. Remote terminals and network workstations shall be identified to the system. preferably throush a hardware-generated identifier such as the network interface card node address or controller OH address C.2.3.5.10 C.2.3.5.11, Communication links,which utilize public networks shall be protected. .AI1 neccssan. security functions shall be enabled IO protea sensitive information while it is beins processed or transferred AI1 users shall be given notice during logon indicating that by "signing on'' to the ITS-Il they consent to monitoring of their activities. This shall be done through an appropriately worded "sipon" screen described as a banner. which shall include the following wording C.2.3.5.12 -WARNING! By accessing and using this computer system you arc consenting to system monitoring for law enforcement purposes. tinauthorized use of. or access to. this computer system may subject you to criminal prosecution and penalties." The contractor shall provide a method for tracking activities and transactions conducted on the ITS-Il ai the user level This audit trail shall include. at a minimum. failed access attempts i C.2.3.5.13 C.2.3.5.14 Xuiornatic archiking of the log files shall be accomplished without requirins mahual intenention or degradation to the use of the ITS-I1 C.2.3.51 The audit wail log file shall be able to be searched using English language-type search criteria. and printed on demand BOP Central OfFicc staffshall have ihe capability to assign access to multiple correciional facilities to the Trust Fund Supervisor at another correctional facility This capability is predominantly necessary for use in BOP complex's where one C.2.3.5.16 C-67 B) ?? group of ITS staff arc responsible for several conenional facilities. and other users are responsible for only indnidual correctional facilities within that complex , The Trust Fund Supervlsor shall then be able IO assign ths same multipie access or some limited form to lower leuel users C.2.3.5.17 Users with access to multiple conectional facilities shall be capable of performing - funnions and running repons on those conenional facilities or any combination of those correctional facilities . C.2.3.6 Fraud Detection The ITS-I1 shall provide features and repons which allow the BOP to maximire its cffons to detect and prevent fraudulent. illicit. or unauthorized activity attempted by inmates through the IJSC of the ITS-I1 against either the Trust Fund or the public. The contraaor may propose repons and features in addition to those requesied in this SOW which it believes will contribute to identifying fraudulent. illicit. or unauthorized activity C.2.3.6.1 C.2.3.6.1.1 A B C D C.2.3.6.1.2 C2.3.6.1.3 C.2.3.6.2 Contractor Proposed Fraud Detection Fertures (Non-Mandatory) Each proposed detection feature shall allow the BOP the option of: Enabling or disabling the feature Reponing or not reponins detected activity. Enabling or disabling real time notification of detected activity. Tetminatinp or not terminating ongoing telephone calls. As pan of the technical approach of the proposal. the contractor shall list and fully describe all its detection and prevention capabilities related to fraudulent. illicit. or unauthorized activity. on the proposed system The Contractor shall idcntifi specific activities the proposed capabilities shall detect andlor prevent The contractor shall also idcntifv possible methods inmares may use io circumvent these Capabilities BOP Rcquerrrd Fraud Drtection Capabilities The BOP desires the following capabiliiies within the ITS-ll to detect fraudulent or illicit aciiviry Sornc of thc follouinp feaiures arc ideniificd as non-mandato? requirements, C.2.3.6.2.1 Extra Dialed Dieits The ITS-I1 shall be capable of detecting extra dlaled digiis from either the called pany or the cal!ing pany?s telephone C.2.3.6.2.1.1 The ITS-11 shall be capable of aurornarically terminating or reponing. as C-68 configured by the BOP. the call if the number of enra dialed dinits detect& by the svstem is equal to or greater than the number ofdighs configured bv the BOP - - C.2.3.6.2.1.2 The ITS-II shall be capable ofproding a repon ofall calls uhich the ITS-11 detected with enra dialed digits This repon will provide the BOP kith information needed to locate the detected attempt on a recording See Section C.2.2.6.3 I5 for the repon requiremenrs. C.2.3.6.2.2 Unusual or Suspicious Dialing (h'on-Mandatory) The BOP is requesting a means of deieciing unusual or suspicious number sequences dialed or dialing patterns which the system identifies as possible attempts to commit fraud. Contractors who provide this type of detection shall provide the BOP with a list of the types of activities the! detect and'how this information will be reponed C.2.3.6.2.3 Third Party Calls to Correctional Facilities (h'on-Mandatory) The BOP is'requesting a non-rr.andaroy capability of detecting calls which have been connected to other BOP correctional facilities through a third pany method. This capability may be accomplished through inaudible signal passing and detenion from each correctional facility This feature should also be capable of identifving the specific correctional facilities, the inmate's register numbers. as well as. print a daily repon of such occurrences. C.2.3.6.2.4 Detection of Three Wny Calls and Call Forwarding ITS-ll shall be capable of detecting three way calls and/or call forwarding The contractor shall esplain in detail the type of three way calling or call forwarding their system is capable of dctectinc - The contractor shall. at a minimum. indicate whether their proposed ITS-II is capable of detcciing each of the following types of three way or forwarded calls. .. A B C D E Calls to telephone numbers which have been automatically fonvarded to another telephone, number by the local telephone company Calls to telephone numbers uhich have been automatically forwarded by called panic$ through the use of feature groups provided by the local telephone company Calls to telephone numbers which "hook flash." dial another number and complete thd three wry call Calls to "follow me" numbers Conference calls facilitated through customer provided switching equipment If a contractor's svstem is capable ofdetecting three way calls andlor call fowarding it shall be capable of beins confiyred by the BOP to either automatically terminate suspected calls. repon the suspected calls. or both C-69 C.2.3;7 . Display of Calls in Progress Cenoin BOP staff. as designated by the BOP Central Office, shall have real-time acctss (\<a a display) to information on dl calls in progress. This fearure uIll give BOP sraffwith the proper access level the capability to see. real lime. rhe fo!lowing information at a mirimurn on all telephone calls currently in progress. . A. B. C. D. E. F. G. H. 1 J. K. L Inmate register number Inmate name Telephone number called Called pany information Any association with a silent monitor number Recorder channel number. Duration of call Charge of call. Correctional facility account assigned to Location of telephone Type of call Cal! denial reason C.2.3.8 Call CutofTCapsbility The ITS-I1 shall provide the BOP with the capability io immediately and remotely turn telephones on and OK This shall be capable of being accomplished by individual telephones. groups of telephones. or an entire correctional facility by BOP staff with the appropriate access level. C.2.3.9 BOP ?umber Blocking The ITS-ll shall p~ovidt The BOP with the capability to input telephone numbers which shall be automatically blocked From being called by inmaies Telephone numbers shall be capable of being blocked as an individual number or as a block or range of numbers (e.g.. 800-000 IO 800-540) The ITS-ll shall provide the capability for BOP siaff to produce a repon of all numbers which have been blocked in the database. ihe reason for their being blocked. and where appropriaie the inmale account for which they are blocked The ITS-I1 shall allow BOP staff with appropriate access the ability to block and remove number blocks for either an individual correctional fatility or all correctional facilities Calls io telephone numbers which have been blocked in this manner will not be allowed by the ITS-I1 C-70 C.2.4 System Requirements The following secrion describes the specific system requirements of the ITS-11. consisting of correctional facility requirements. Central Office requirements. 'and senera1 hardu,are and sofrn,a& requirements c.2.4.1 General System Requirements C.2.4.1.1 The contractor shall not use physical irems such as sman cards or magnetic SWIPC cards as means of storing ITS-II account information or balances or accessing !he telephone. The ITS-11 shall incorporate remore system alarms which automatically alen contractor staff to real or potential system andior senice problems to reduce down time. The contractor .shall provide on-line rccovesy ofthc darabase during a failure. which allowi the system IO c'ontinuc to operate wkile a failed ponion is recovered. This may be accomplished by the use of a Redundant Array of Independent Disks (RAID) C.2.4.1.2 C.2.4.1.3 C.2.4.2 Wiring and Cabling room A B C The BOP maintains a demarcation point in the correctional facility communication room For ease of access. the demarcation point for inmate telephones is extended by the BOP to the ITS-I1 The contractor shall provide all wiring and cabling in accordance with the following When allowed by Ihe LEC. the contractor shall have all services terminated in the ITS-II room IF this is not possible. services shall be terminated in the BOP communication room and'cxtended by the BOP to !he ITS-II room In any case. no ITS-I1 system equipment shall be installed in the BOP communication room unless specifically agreed to by the BOP COTR or designee The contractor shall be responsible for providing all cabling necessary to bring the required services of this contract to the demarcation or extended demarcation point intthe correctional facility installation of all Fl3 semces The contractor shall provide all wiring and cabling necessary to connect their equipment to the service blocks in the ITS-Il room The contractor shall also provide all wiring and cablins necessary IO connect their equipment to the BOP provided blocks for internal wiring in the ITS-II room The BOP shall provide wiring and cabling to the ITS-ll room for C-7 I D. All ITS-I1 wiring and cabling infiastruffures shall meet current indust? standards and commercially accepted pracrices All ITS-I1 wiring and cabling shall be concealed from plain view. C.2.4.2.1 The BOP will provide all imemal wiring from the demarcation block in the ITS-I1 room IO the following areas outside the ITS-I1 room using Category 111 wiring. Contractor Use of BOP Provided Wiring ,.., A. AI1 telephones. 8. All towers. C. All workstations. D. Correctional facility recording equipment E. AI1 monitoring equipmenx. F. Satellite camps. G. BOP communication room. C.2.4.2.1.1 The ITS-I1 shall be capable of providing al].data and voice senices over this BOP provided Caregoy 111 wiring. C.2.4.2.1.2 The contractor shall provide all signal amplification equipmen1 necessary to send and receive signals across BOP provided wiring. C.2.4.3 Environmental Requirements This subsection describes the environmental factors which may affect operation of the ITS-11. These factors consist of power requirements. UPS needs, HVAC, physical space requirements. and phvsical secunty requirements associaied with ITS-I1 equipment C.2.1.3.1 Powtr Requirements The contractor shall provide the BOP wirh a written description of the power requirements associated with ITS-Il hardware components The contractor shall clearly delineate what power is required to operate each hardware component at each correctional facility. The contractor is advised that the BOP performs tests of its backup generaiors at least once per month. During this testing the power will be remporarilv disabled throughout the correcxional facility including the ITS-I1 room C.2.4.3.2 Lininttrmptible Power Source The contractor shall provide a sufficient number of unintemp~ible power supply (UPS) systems that also have surge protection and line conditioning at each correctional facility and the ITS-I1 location. capable of supponing all key ITS-li system components for a minimum oftwenty minutes IO allow error fret system shutdown of telephone call processins equipment and all ITS- c-71 I1 worksrations C.2.4.3.2.1 The contractor shall be responsible for protiding. installing. and maintaininc - all ITS- 11 0s svstem equipment at each of the correcrional facilities and locations covered by this conrract Heating, Ventilation and Air Conditioning C.2.4.3.3 The ITS-Il shall be capable of operating in an environment which is six? to ninety degrees Fahrenheit. and a non-condensing fony to ninety percent humidity. C.2.4.4 Physical Space Requirements The contractor shall provide the BOP with a u.ritrcn description of the space requirements associated wirh the ITS-I1 hardware components. The contractor shall clearly delineate how much physical space is required by each hardware component. and the contractor shall provide a recommended equipment layout configuration Due to limited space available in BOP , . correctional facilities. a smaller rarher than larger space. requirement is desired. C.2.4.5 System Capacities The contractor shall provide system capacitiedimits for the system they are proposing At a minimum. specific capacities for the following areas shall be provided. A B C D E F C H I Individual inmate accounts Call Records Simultaneous users (administrative. not telephone) I \ation-wide 2 Correctional Facility Workstations I \ation-wide 2 Correctional Facilit>- Silent monitors (shall include all necessa? equipment for this purpose) Simultaneous users of silent monitor equipment Tclcphoncs I Xalion-wide 2 Correctional Facility Llne card or CO pon (contractor shall provide the various combinations available). Telephone calls I hation-wide 2 Correctional Facility c c-7; C.2.4.6 Hardware This section describes the general requirements for the ITS-I1 hardware. Specific hardware solutions are the choice of the contractor. which should be fully defined in the contractor's proposal. Offerors shall indicate if the proposed equipment is newor used. C.2.4.6.1 Documentation of Hardware Enginctring The contractor shall provide engineering specificaiions for all major hardware components used to meer rhe requirements of this contract. This shall include all switching, computer telephone inteeration - (CTI). interactive voice response (IVR), worksrations. and WANILAh! equipment These engineering specifications shall provide an explanation of each component's capability to adequately perform the requirements of this SOW. Any future chanses to the hardware or a component's configuration must also be documented and provided to the BOP. C.2.4.6.2 Switching Equipmen1 The contra:ior shall be responsible for providing and insrdling all of the ITS4 switching equipment necessary to perform the requirements of this contract. C.2.4.6.2.1 The ITS-Il switching equipment shall provide an interface with the public telephone network and the TTS-200OPost TTS-2000 network. C.2.4.6.2.2 All ofthe ITS-I1 switching equipment shall be compatible with all other ITS-I1 components including the telephone se~ equipmenr. IVR equipment. CTI equipment. and call monitoring equipment , ..--;.. - -. .. ., _._ i, C.Z.J.1 Software This section'describes the general sofiware requirements of this contract C.2.J.7.l Software Documentation Sofiuare documentation shall be probided by the contractor C.2.4.:.l.I Sofiware design and documentation shall conform to current established engineering standards and shall be provided to !he BOP as requested. C.2.4.7.1.2 The contractor shall pro\ide informarion on the personnel who developed the ITS-I1 software and the companies involved in developing the ITS-11 software. including pannerships uith other companies. qualifications. background. number of employees. and relaiionshtp to the pnmc contractor i > '. a C.2.4.7.1.3 The BOP shall be provided all softu-are licenses necessary to legallv operate the ITS- I1 C.2.4.7.1.4 AI1 electronic data used or created in 1he ITS-;I, including call records database, archived data, and repons and study results shall remain the propeny of the BOP - C.2.4.7.2 Software Features Several general features shall be provided with the ITS-Il software, C.2.4.7.2.1 All sofiware shall provide easily accessed on-line help utilizing help menus from each screen. C.2.4.7.2.2 The system shall provide a "print screen" capability that allows the BOP operator to . immediately obtain a hard copy of displayed information. In addition. Ihe BOP operator shall have rhe capability to scroll and lock information on the terminal screen. Scrolling through screen views of repons shall be capable of being accomplished through the use of keyboard arrow keys. Page up and page down keys.shall be capab!e ofbeing used to move between pages of screen repons C.2.4.7.2.3 The ITS-I1 shall provide a menu feature that allows the operator to cancel any individual or all print jobs in progress C.2.4.7.2.4 The sofiware shall use graphical user interfaces and menu-based command structures comparable to a Microsoft Windows environment C.2.4.7.2.5 Funcrion kevs shall be programmed to operate similarly and consistently throughout the ITS-ll system (e.g . FI is "help" for all screens. F2 is "print" for all screens) .. C.2.4.7.2.6 Hidden menus to swap from one screen to another without exiting from the cukent account shall be provided C.2.4.7.2.7 The system shall use Point and Click technology C.2.4.7.2.8 Tab keys shall be capable ofbeing used to move between fields on screens C.2.4.7.2.9 The keyboard escape key shall be capable ofbeing used to escape from any screen, i ' I print job. or data commit. without an adverse effect on the system C.2.4.7.3 Software Changes and lipdates Following award ofthe contract and lhrough the installation of the second correctional facility. the contractor shall make changes and adjustments to the software as detailed in Section H of this FGP at no addilional cost to the BOP c-75 C.2.4.7.3.2 All sofware updates proposed by the contractor shall be fully ducumcnted and tested The BOP shall have the right to observe and pankipate in this testin8 process. Documentation of sofiware updates and testing musi be provided to the BOP COTR C.t.4.7.3.3 Implementation of sofiware updates. Beta testing. and scheduling of implementations must be approved by the BOP COTR. C.2.4.7.3.4 The ITS-11 shall be designed to provide implementation of sofiware changes and updates at individual rites. such that all other sites continue running on the existing sofiware until the changes or updates are fully tested and approved at the Beta sites .. -.-..,- ; C.2.4.7.4 Operating System Sofware 12 order for the ITS-I1 to be flexible'in its expansion and'ifitegration capabilities. the operatins svstem architecture shall be based on a multitasking open system concept. using widely accepted siandards of hardware and sofiware interfaces. distributed architmure. nerworkin_e and platfom- independent software C.2.1.7.4.'1 The ITS-II shall be configured so that new applications can be added to existing processors or so that existing applications can be moved to a different processor and be fully compatible with the hardware and sofiware environment. C.t.J.7.4.2 Time of Day and Dale Changer The ITS-I1 shall maintain consisten1 and accurate time and date stamping. consisten! nationwide for all ITS-II sites C.2.4.'.4.Z.I -. The accurate date and time of day shall be distributed to all workstations' processors using or displaying the dale and time of day. i h c.2.4.5.4.2.2 Sofiware shall be capable of automatically adjusting for daylight savings time changes. standard time changes. and dates in the year 2000 and beyond The contractor is advsed that some correctional facilities operate in areas which do not recognize or change times for davlight savings Time of day and date chances shall be capable ofbeing accomplished without causiny intemplion to system operations . C.2.1.7.4.2.3 ~. .. C-76 e e . '. C.2.4.7.5 Switching - control sofrware shall be. a programmable. flexible telephone control sofruare packaQe that manaees - the switching of inmatc telephone calls from the correctional facilir! Offerors shall indicate in their proposal how changes are made to this suircin_e control sofware and the degre; of difficulty involved in making changes or improvements to the eisting control processes C.2.4.?.5.1 The ITS-II is an outgoing calling system only and switching control sofiLvare shal!. therefore. nor connect an incoming call to an ITS-I1 telephone C.2.4.7.5.2 All switching software shall be compatible and funmion efficiently with the interfaces between the telephone system and the carrier services. the ITS-II computer software. the automated messaging function. and tne computer-telephony function C.2.4.7.5.3 Switchins system control shall interface with FTS-2000Post FTS-2000 senice. the local exchange camer service. and the internaiiona! camer senice to direct the collect and direct dial calls over the proper trunks. Telephone Call Switching Control Software . C.2.4.7.5.4 Switching software shall interface with the ITS-II software to allow or disallow a telephone call based on criteria determined by the ITS-11 software. 1-0 maintain a real-time record of call in process. and to update the inmate call records C.2.4.7.5.5 Switching software shall interface with the automated voice response system to probide account information to the inmate C.2.4.7.5.6 Switching software shall interface with the computer-telephony application providing the connectivity access and protocol conversions required for call processing applications C.2.4.7.5.7 Control switching sofiware shall also provide and be capable of printing. standard traffic measurement and standard telephone call accounting information This information shall be accessible to BOP ITS staff both on-line and in a repon format C.2.4.8 Corrcctional Facility Requirements The equipment required for the ITS-11 installation at each correctional facility is described in chis section See Exhibit 5-13. Contractor Wiring Rcrponsibilitier C.2.4.8.1 Slation Sets The conlractor shall be responsible for providing and installing all the ITS-11 inmate station set equipment ai each of the correctional facilities and locations covered by this contract These telephone sets will be used by inmates io place calls via the ITS-I1 Exhibit J-I. Correctional Facility Information. presents the number of station sets currently installed at each correctional C.77 .-. . facility and location The contractor shall be responsible for all modifications IO ensting enclosures. necessary to mount the proposed station set c C.2.4.8.1.1 Quantity of Station SCIS . C.2.4.8.1.1.1 The ITS-I1 contractor shall initially provide inmates with a nation-Bide average ratio of 20: I inmates to starion sets across all correctional facilities Some correctional facilities may require more station sets and some may require less The contractor shall be required to install additional starion sets over the life of the contract because the inmate population is projened to increase during the nexf ten years. However. the nation-wide average 20:l ratio is expected to be maintained. C.2.4.8.1.1.2 C.2.4.8.1.2 Station Set Features The majority of the ITS-11 station sets installed shall predominantly be permanently mounted wall phones with a heavy-gauge steel case. heaw-duty metal, keypad. bonded handset. steel reinforced. and metal-wrapped cord. A limited number of movable telephone sets shall be required at each correctional facility The contractor shall also provide "all-weather" rclephones to be used as required by the BOP It is estimated that there will be approximately I00 "all-weather" telephones needed throughout the BOP C.2.4.8.1.2.1 The contractor shall be responsible for installing the station sets ai BOP defined locations and making any modifications to existing enclosures necessan to mount the proposed station set The conlractor is responsible for the proper operating condition ofall the ITS- I1 telephones All ofthe ITS-I1 station sets shall be dual-tone multifrequency (DTMF) compatible Station sets installed at correctional facilities shall not be programmable for any purpose Station sets shall not be capable of being used to program any feature of the C.2.4.8.1.2.2 C.2.4.8.1.2.3 ' h C.2.4.8.1.2.4 C.2.4.8.1.2.5 ITS-I1 C.2.4.8.1.2.6 Station sets shall not contain card reader capabilities used to identify inmate telephone accounts or for the purpose of debiting inmate telephone accounts. C-78 C.2.4.8.1.1.7 The contractor shall pro\ide a unique number. physicallv imprinted on each station set at a correctional fadit!, SO that the number can be seen by BOP staff for the purpose ofreponing troubles and troubleshooting problems As telephones necessitate replacement. they shall be renumbered bv the contranor As new telephones are added they shall be identified in the same manner and all appropnate paper work shall be updated IO reflect the addition . C.2.4.8.1.2.8 Station sets shall be capable of reducing background noise through the use of confidencers or directional microphones in the handset C.2.4.8.1.2.9 All ofthe ITS-II station sets shall provide volume controls which allou inmates to amplifi the called party's voice The contractor shall provide dialing instructions in English and Spanish on each telephone in a manner which reduces the possibility ofbeing destroyed The contractor shall maintain these instructions for legibility and accuracy C.2.4.8.1.2.10 .. .. C.2.4.8.1.3 American Dirabilirier Act Compliance Rtquircmcnts All of the ITS-11 station sets shall be capable of being ADA compliant. Due to security concerns. the BOP shall be capable of requiring the contractor IO modify certain features on station sets such as cord length and mounting height The ITS-I1 TDD equipment will be protected and secured by the BOP when not in use C.2.4.8. I .3.1 AI1 ofthe ITS-ll station sets shall be compatible with telecommunication devices for the deaf (TDD) equipment The coniractor shall be responsible for providing a single TDD device for the ITS-ll at each BOP location C.2.4.8.1.3.2 C.2.4.8.1.3.3 The ITS-11 TDD equipment shall be portable. such that it can be used with any ITS-ll siation SCI ai a correctional facili:?. C.2.4.8.1.3.4 Thc ITS-ll TDD cquipmcnt shall allou inmates IO communicale via keyboard cntn The ITS-ll TDD equipment shall contain a display and a printer device C.2.1.8.1.3.5 C.2.4.8.2 Adminislralivc Position Equipment The ITS-Il con:rz::or shall be responsible for providing and installing up to a nationwide average of three uorkstations at each of the correctional facilities and locations covered by this contracl. The BOP uill determine the aciual number of ITS-ll Workstations at each correctional facility. c.79 . ._.~. (rb .-. . - The BOP may require additional workstations at some correnional facilities Additional workstations requested by the BOP beyond the nationwide average of three per s~te in accordance with the prices proposed in Section B C.2.4.8.2.1 The ITS-I1 workstations shall allow BOP staff to axes and perform the administrative functions associated with the ITS-11 as defined uithin this SOW be leased . C.2.4.8.2.2 The ITS-I1 workstations shall include, at a minimum. 15-inch color monitors. standard-enended keyboard. mouse, dot matrix printer. and shall have the capability to perform electronic transfer of data to a removable medium such as 3.5 inch floppy disk. C.2.4.8.2.3 All of the ITS-I1 workstations shall operate independently of other workstar ions in the same correctional facility even when accessing the same stored data C.2.4.83 Call Monitoring The ITS-II shall provide call monitoring stations for the purpose of audibly monitoring inmate ca!ls and providing information relative to the call in progress. C.2.4.8.3.1 Call monitoring stations shall provide indicators for each phone in use at a conectional facility assigned to the user C.2.4.8.3.2 The ITS-I1 shall be capable of supponing ten monitoring stations at each correctional facility. each capable of monitoring any telephone in operation at that correctional facility The amount'of monitoring stations is cunently estimated at four per site and not expected to exceed !en at correctional facilities with guard towers The contractor shall provide the BOP with the amount of monitoring equipment requested at each site Additional monitoring stations requested by the BOP beyond the nationwide average of four per site will be leased by the BOP in accordance with the prices proposed in Section B C.2.4.8.3.3 Call monitoring capability shall be an integral pan of the ITS-I1 and require no additional wimp to the ITS-Il for the addition of station sets. C.2.4.8.3.4 The call monitoring stations proposed shall be different equipment than that proposed for workstations Due to space limitations. a smaller display device capable of providing the required data is required .' C.2.4A.3.5 Audible Call Monitoring Requirements The ITS-I1 shall provide BOP staff the capability to audibly monitor inmate calls in progress. The BOP will provide its staff with this capability in various offices. towers. control centers. and other locations throughout each conectional facilily c-80 B C.2.4.8.3.5.1 The analog inmiace used for this capabilin. shall not impact :ne voice path for. an inmatc?s call in any ua! DC voltages. voice transmission ieveis. and VOICC quality on the connection to the inmate station set shall not be efieaed bv the SIatus of the moniionng interface (e.g.. whether a station set is attached to the interface or on or off hook) . C.2.4.8.3.5.2 It shall not be possible for either pany in the call IO determme the presence or status of this analog monitor interface through detection oi changes in toice sienal quality. voice transmission level. or enema1 background intenerence such as impulse noise. crosstalk. or white noise BOP staffshall be provided with the capability to identifi the call which they wish io morutor and easily access the voice path for that call C.2.4.8.3.5.3 C.t.4.8.3.6 Call Monitoring Display Requirements The ITS-II shall provide instant identification and access to monitoring of inmate telephone calls Calls placed by inmates to alened numbers and/or from alened accounts shall be considered a pnority and the ITS-Il shall no:i@ BOP staff of the call in progress C.2.4.8.3.6.1 The time between the first possible detection ofa call in process by the remote telephone equipment and a display of the call status shall not exceed two seconds C.2.4.8.3.6.2 BOP staff shall have access to a station set equipped with a display rhar will indicate io the staff member the follouinS. A Register number of inmate B Name of inmate C Telephone number called D E Duration of call F Timeofcall C Recorder channel number Locarion or idenlification of telephone C.2.4.8.3.7 Call Moniioring Equipment Rrquircmcnts ,ID . -I /I! Call monitoring stations shall require a minimum amount of space due to the locations in which they may be ins~alled C.2.4.8.3.7.1 Call monitoring slations shall be capable of operating at distances greater than r_wo miles from the siaiion set being monitored e. C.2.4.8.3.7.2 * . Call monitoring capabilities shall include. at a minimum. station sets with C-81 speaker phones and headsets The ITS-I1 shall have the capability 10 suppon multiple call monitonng s:at:ons within a correctional facility as deemed necessary Call monitoring equipment shall be capable of moniroring every sration set at a correctional facility C.2.4.8.3.7.3 . C.2.4.8.3.7.4 C.2.4.9 BOP Central Ofice Requirements The ITS-Il contractor shall provide the BOP with an ITS-I1 administrative system at its Cenrral Ofice to oversee and administer system-wide operations and service. compile data on inmate use of the system. reconcile financial actibities. facilitate training of BOP staff on ITS-II operation and capabilities. and perform system tests This system will be used by BOP Central Office staff only Therefore. call voiumcs will be exceptionally low Call volumes at this sire will not exceed 300 minutes per month The contractor shall not bill the called party or the BOP for any ofthese calls However. the coniractor shall still Fulfill all of the requirements stated in this section. c.2.4 -3.1 c.2.4.9.2 C.2.4.9.3 c.2.4.9.4 c.2.4.9.5 The ITS-II shall provide BOP Central Office ststhe capability to remotely call into the system usinp PC laptops. emula'te the ITS-I1 ierminal. and perform functions using the same keyboard functions as would be used if direaly connected to the system This remote capability shall require a system logon procedure and all data transmissions shall be Fully encnpted Transmission speeds shall be no slower than 53 6 kbps The database information used to suppon the BOP Central Office system shall be panitioncd from all other correctional facilities. such that financial transactions. including calls. will not be rtnectcd a5 a pan of the Central Office reconciliation repons However. this capability shall not preclude the possibility of performing tests for centralized functionality between the BOP Central Office system and the BOP MSTC system BOP Central Office ITS staff currently use eight. 120 MHZ, Pentium processor. desktop Personal Computers. utilizing the Windows 95 operatins environment. The ITS-ll shall be capable olmterfacing with rhe Windows 95 environment and conneon up to I5 PCs may be requested in the future The ITS-ll shall also provide electronic mail capabilities. complete with electronic notification. for BOP Central Olficc to correspond with individual correctional facility 1TS stafi: user groups defined within the system. user access levels. or specific terminals The ITS-II system installed at the BOP Central Ofice facility shall include all ctly with each of these PCs to perform as a workstation, Additional C-82 hardware. sofiware. and service. corresponding to all equipment installed at any BOP correctional facility All senices shall be installed, however, less quantities will be required. The BOP Central Office facility shall require eight functioning inmate telephones. with service types and quantities capable of meeting the percentage - crade of blocking required of this contract. Four workstations shall be required. as well as all peripheral equipment such as silent monitor stations. printers. FPPOS. and AIMS interfaces, etc. Management and Specialv Training Center ., C.2.4.10 The BOP provides training to correctional facility Financial Management staff at the hlSTC in Aurora. Colorado. The contractor shall not provide training to these BOP staff. However. the contractor shall provide a system comparable to those installed at each comeaional facility. at the MSTC for BOP staff to perform this training. This system will be used by BOP staff only. Therefore, call volumes will be exceptionally low. Call volumes at this facility will not exceed 300 minutes per month. The contractor shall not bill the called pany or !he BOP for any of these calls. However. the contractor shall still fulfill all of the requirements stated in this senion. C.2.4.1O.f ' Due to space limitations. the ITS-11 shall be capable of using the existing PC workstations at the MSTC in the place of ITS-I1 workstations. There are current!). ihiny five (35) workstations which shall be configured by the contractor to provide the same functionality as the ITS-I1 workstations. Since this is a training environment. the contractor is advised that the system shall be capable of accepting the same keystrokes for the same functions from all workstations simultaneously Simultaneous printing capabilities are also required. The ITS-11 system installed at the MSTC shall allow multiple simultaneous login Of the same user types Training classes typically occur once every month. The contractor shall provide methods of clearing previous training databases and setting up the sysiem for new classes C.2.4.10:2 C.2.4.10.3 C.2.4.10.4 C.2.4.10.5 The ITS-II sysiem installed at the BOP LfSTC'facility shall include all hardware, sofiware. and service. corresponding! 10 all equipment installed at any BOP correctional facility All typical voice services shall be installed, however. less quantities will be required The hlSTC shall require eighl funnioning inmate telephones. with senlce types and quantities capable of meeting the percentage - wade of blocking required of this contract AI1 peripheral equipment such as silent monitor stations. printers. FPPOS and AIMS interfaces. etc.. shall be required. The database information used IO suppon the MSTC system shall be partitioned from all other correctional facilities. such that financial transactions. including calls. C.2.4.10.6 C-83 will not be reflened as a pan of the Central Office reconciliation repons However. this capability shall not preclude the possibiliry of performing tests for centralized functionality between the BOP Central Office system and the MSTC system Contractor Central Operations Faciliry (COF) C.2.4.11 The conrractor shall provide their ow facility (non-BOP) to house all ITS-II equipment which is not specifically required at a site and is necessary to provide centralized operations. includirlg daiabase processing and data storage. The contractor shall allow BOP staff access to this facility The contractor shall provide disaster recovery plans for this facility in case of destruction of the site. -.r- -C.2.4.11.1 Security The contractor shall provide the BOP with a written description of the system security plans the contractor shall put in place to protect the ITS4 data. and hardware components. The methods of physical security may include. but are not limited to. combination of key lock. motion detectors. and alarm systems .. C.2.4.11.2 BOP Access BOP Central Ofice staff shall have access to the contractor?s Central Operations Facility and any information stored or generated in relation to the ITS4 C.2.4.lI.t.l BOP Central Office shall maintain the right IO perform site visits to the contractor?s Cenrral Operations Facility without prior notice to the contractor BOP Central Ofice sraR shall maintain ownership of all information stored or - nenerated at the Central Operations Facility that is related to the ITS-11 operations .-.. C.2.4.11.2.2 C.2.4.11.3 Disaster Recoven The contractor shall provide the following products as a plan to restore system operations in case of a disaster at the contractor provided Central Operations Facility and for each installed BOP location The contractor shall be required to adhere to these plans in case of a system disaster. These products shall be submitted on electronic medium to the BOP COTR within four months of award of contract and become the propeny of the government These plans shall be updated \earl\ These plans will be reviewed for adequacy and approval by the BOP. C.2.4.1 1.3.1 Risk Analysis Rcpon The contractor shall provide a repon of the risk analysis identifying threats to information assets C-84 .. and existing wlnerabilities The coniracior shall provide plans which recommend merhods 10 minimize the risk of loss C.2.4.11.3.2 Contingency and Disaster Recoveq Plans The comractor shall provide the plans and arrangements which are necessary IO ensure coniinuir! of the critical hnctions of the ITS-I1 This plan should cover all events of total or partial cessation of operations or destruction ofthe data base or physical facility These plans should include procedures for both automated and manual recovery. .. C-85 C.3 TRANSITION AND IMPLEMENTATION REQUIREMENTS This senion describes the requirements for the transition period during the instahtion of the ITS- 11 C.3.1 Trsnsition and lmplementntion Plan The contractor shall provide a transition and implementation plan which will include a time line for installation of all BOP sites and correctional facilities consistent with requirements outlined in this section. This time line shall address all aspects of installation for each site and correctional facility. C.3.1.1 The plan shall describe the activities involved in the transition 10 and implementation of the ITS-11. The contractor shall coordinate the transition and implementation of each site with the BOP Central Office. The focus of the transition plan shall be to minimize service disruption during the implementation process. C.3.1.2 .. C.3.1.3 C.3.1.4 The contractor shall provide a plan to include all aspects ofthe installation process. This plan proposed by the contracior shall be the baseline plan for each ITS-I1 implementation at a BOP correciional facility The contractor shall include any other components for this baseline plan deemed necessary in addition to the elements in "A" through "E below Inspection and acceptance testing procedures discussed in Section E of this WP must also be fully reflected in this plan. The plan shall include. at a minimum. the following . A Pre-installation procedures 1 Staffing requirements 2 Site visits 5 Site evaluation 4 System requirements check B Service coordination I Local service arrangements t j FTS-~OOOPOSI FTS-7000 coordination 4 Intcrexchange and international service agreements. Time requirements for installation of services C-86 c. Sofiwart preparation 1. Data conversion 2. Data input. D. Insidlation procedures. I. Equipment delivey. 2. Time required for installation 3. Equipment security 4. Cut-over. 5. Cleanup. E. Post-installation procedures 1 System testing 2 System acceptance 3 After action reponing C.3.2 Schedule For Installation .. Exhibit 3-5. Correctional Facility Installation Sequence provides a general installation order that the BOP intends to follow. Any changes to this sequence of installation must be approved by the BOP. C.3.t.l Contractor Central Operations Facility Because of its critical suppon of the ITS-II program. the contractor-provided Central Operations Facility shall be the first location installed This site shall be installed within the first three months atier award of contract C.3.2.2 BOP Central Ollice Facilin The BOP Central OEce Facility shall be the contractor's first insrallarion of ITS-11. This sile shall be installed within the first four months afier award of contract. Depending on the ITS-II system proposed. this system may be used for input of dara for correciional faciliiies to be installed C.3.2.3 BOP Training Faciliv. MSTC The hlSTC shall be the second site installation of the ITS-II. This site shall be installed within the firsi four months aficr award of contract C.3.2.4 Correctional Facilities C-87 The BOP wishes to install the ITS-I1 as quickly as possible in all correctional facilities However. it is also the intent of the BOP to ensure a proper working system prior IO full scale implementation. For .these reasons. the follo\sing guidelines are anricipated for installation of the first site and all additional sites thereaficr. The BOP will work with the contractor to install the ITS-I1 in she firs BOP correctional facility within the first four months afier award of contran. I1 is anxicipated that this sire will operate for two months prior to the installation of any additional sires. After dl sysrem changes and adjustments have been made and the Beta site has performed properly. the BOP shall approve installation of the ITS-I1 ai additional sires. The ITS-I1 will then be installed at correctional facilities based on the installation order in Exhibit J-5, Correctional Facility Insrallation Sequence Additionally. pursuant to delivey orders issued by the BOP, the contractor will be required IO install the ITS 11 at the first 38 correctional facilities listed in Exhibit 1-5 within 18 months of the contract award date and in the order listed in Exhibit 1-5, unless the BOP directs otherwise. ., . _. . -. . C.3.3 Pre-installation Process .. The following paragraphs describe the activities which shall occur prior to the installation ofthe ITS-I1 at a correctional facility c.3.3. I Stamnp Requircmcnts The contractor shall provide information on how it will provide sufficient staffing 10 install the svsrem. whether these personnel are contractor staff. subcontractor staff. or temporary employees hircd for installation purposes only c.3.3.2 Siw \:isiis .. The contractor shall perform sire risits as necessav IO prepare for the installation of the ITS-I1 at tach site The coniractor shall rely on the information gathered from these site visits to size the svstcm and gain an understanding of thai correctional facility's needs for installation. These visits shall be coordinated with BOP Central Ofice staff and suppon the installation schedule. The coniractor's field technician shall be required to. at a minimum. visii the correctional facility duriny implementation of the ITS-ll to ensure familianration with the equipment and correctional factlit\ access procedures C.3.3.2.1 Sile Evrlurrion Thc coniracior shall provide the BOP with an rnstallation plan. site checklist. and an installation checklist IO funher ensure proper cut-over of the ITS-I1 C-88 c C.3.3.2.2 System Requirements Check The contractor shall provide the BOP with any concerns it may have regarding installation of the ITS-Jl at each site, as a result ofthe site survey. The BOP and the contractor shall work together to resolve any concerns. C.3.4 Software Preparation The transition and implementation plan shall cover how the contractor will perform the transfer and input of data prior lo cut-over of the ITS-11. C.3.4.1 Data lnput The contractor shall be responsible for installing inmate-related information from the existing ITS into the new ITS-11. The contractor will be provided with an ASCI! data file(s) download from the previous ITS which contains the following: A Inmale name B Register number C Inmate callins lists D Inmate balance E Dcscnptions .. C.3.4.l.l The contractor shall provide a dara input device at correctional facilities without an existins ITS which will allow the BOP IO input inmate information two months prior to implementation and maintain the infomalion current through implemcntarion. It may be possible to use this same data inpul device at correctional facilities with the current ITS prior to implementarion The contractor is solely responsible for convening the ASCI1 data downloaded from the prekious ITS and ensunng the information is accurately uploaded to the ITS-11. CJ.4.1.2 C3.5 lnrtallstion Process The coniracior shall be responsible for all equipment. tools. and materials required in the installarron of the ITS-11 The contracror IS advised that all 1001s and personnel will be checked pnor to enrrance into a BOP correctional facility All roois will be accounted for at the end of each uorting day C-89 C.3.5.1 BOP Responsibilities The BOP is responsible for de-installing the present ITS. The de-innallation for each correctional facility is expected IO take less than 24 hours C.3.5.2 Installation Procedures and Schedule .I The contractor shall provide an anticipated time line for the installation of a single ITS-I1 at a BOP correctional facility. C.3.5.2.1 The lime-line shall provide specific details on each component from the beginning of ... -. the installation process to cut-over, including significant mjlestones. C.3.5.2.2 The time-line shall include variable time-frames, if necessary, based on the number of telephone sets a correctional faciliry requires. C.3.5.3 .. Equipment Delivery .. The contractor shall be responsible for the delivery of all the ITS-II related equipment IO each BOP site and conectional facility C.3.5.3.1 The contractor shall be responsible for ensuring the delivery of proper equipment in ' working condition. C.3.5.3.2 The contractor shall provide infohation on the means of delivery for the ITS-11 and whether the means consists of contractor or subcontractor personnel. c.3.5.0 Cutover The contractor shall propose the time required to perform the physical cutover of an ITS-I1 location C.3.5.4.1 Within the transition and installation plan. the contractor shall provide specific details on the process of the acwal cuiover to the ITS-11 C.3.5.5 Cleanup The contractor shall be responsible for ensuring the areas of installation are emptied of all rnatenals used and discarded dump Ihe inslallatron C-90 C.3.5.6 The BOP may require the addition of equipment at its correnional facilities aficr rhc original installation of the ITS-I1 The contractor shall install additional equipment within 50 days upon notification from the BOP Contracting Officer This installation of this equipment shall be at no cost to the BOP ifthe quaniiries do not exceed the nationwide averages stated elsewhere in this WP The BOP will issue a Task Order for the addition of equipment which exceeds the nationwide averages stated elsewhere in this RFP c.3.5.7 Newly Constructed Correctional Facilities Additional Equipment Orders after Original Installstion . When a new correctional facility is opened by lhe BOP (but before occupancy by inmates). the contractor and BOP shall determine a schedule for installation of an ITS-I1 at that location to ensure senice as soon as practicable at !he new site. The number of sites to be opened during the life of the coniraci is unknown. but may surpass the 30 correctional facilities now in planning or constwciion stages. The contractor is advised that installation dates for the ITS-I1 at new BOP correciional .. facilities occasionally chanze due to conn+ction delays or the BOP'S needs, C.3.5.f.l '' The contractor shall be required to work with the BOP to adjust to these delays or changes in implementation dates at no additional cost to the government. C-91 C.4 MAIKTENANCE REQUIREMEKTS The contractor shall not configure ITS-I1 to require on-site suppon under normal operating conditions. Afier installation of the ITS-I1 at a correctional facility. contractor personnel will be permitted access to the correctional facility for the repair of equipment. renoration of services. and remedial and scheduled maintenance activities. Restrictions on contractor on-site maintenance activities are discussed in Seaion C.4.2. C.4.1 Maintenance and Service Levels C.4.1.1 Service Level Requirements This section discusses the various service level requirements that may be ordered by the BOP. This section also defines the criteria the BOP will use to determine if the service level requirements ordered by the BOP have been met by the contractor. .I .- ~ The BOP shall order one specific maintenance service level .. for both direct dial and collect calls , fci all sites.' 'If the ccntractor'meetsor exceeds the criteria for the maintenance service level ordered for the entire month. the contractor shall be compensated at the rates in Section B that the coniracior has bid for the maintenance level selected by the BOP. If the contractor fails to provide the service level ordered by the BOP for that month. the contractor shall not be compensated at the rate for direct dial calls and the percentage for collect calls corresponding to the service level ordered. but rather the contractor shall be compensated at the rates and percentages which corresponds with the lower level of service actually provided for that month. This lower level of compensation shall be applicable to all calls from all institutions for the month in uhich the maintenance service level provided fell below the service level ordered by the BOP. The contractor shall change the level of service provided upon receipt of 120 days written notification from the BOP ordering such change C.4.1.2 Catastrophic Downtime Catastrophic downtime of the ITS-ll is defined as any event which results in the loss of phone call processing from twenty-five percent (2SO/b) or more of the ITS-Il inmate handsets installed at a BOP site or any event which results in the complete loss of availability of any single ITS-II service Such events include the following faults ofthe ITS-ll components. including a single fault limited to a single correctional faciliiy or multiple related faults at several correctional facilities simultaneously. loss of network services supponing direct dial and collect calling services. loss of system operation to accommodate routine or remedial maintenance activities which occurs during a time in which the ITS-ll is available for use; voluntary deactivation of an ITS-II at a correctional facility by BOP management. in response to an ITS-ll fault. that is deemed necessav to ensure the safe and orderly operation of the BOP correctional facility or 10 prevent financial loss to the Trust Fund Catastrophic downtime will be the time the ITS-II ' c-92 services are affected by catastrophic failures and will be measured as beginning at the time the trouble repon for the catastrophic failure is called into the contractor's Maintenance Operations Control Center. and ending when BOP acknowledges that the Catastrophic Failure has been resolved. This time will be measured and reponed each month for each BOP site semed by an ITS-I1 system installed by the Contractor as indicated in Section C.4.6. Maintenance Repons C.4.1.2.1 Maximum Acccptablc Catastrophic Downtime The Contractor shall design and maintain all ITS-I1 systems and installations to ensure that Catastrophic Downtime does not exceed the requirements of the maintenance level chosen by the BOP. C.4.1.2.2 Catastrophic Failure Restoration The contractor shall respond to and resolve all Catastrophic Failures within the time frames specified by the maintenance level chosen by the BOP. C.4.1.3 .. Son-catastrophic Failures .. Kon-catastrophic failures will be any events causing loss of ITS-I1 inmate calling services or ITS-Il administrative capabilities (;.e.. such as running repons or queries. transferring funds. monitoring calls. inputting information) due to ITS-II fault. malfunction, or deactivation for maintenance purposes that are not defined as catastrophic failures. Non-catastrophic failures will be measured as beginning at the time the trouble repon for the non-catastrophic failure is called into the contractor's Maintenance Operations Control Center. and ending when the BOP acknowledges that the non-catastrophic failure has been resolved at that site. This time shall be measured and reponed each month for each BOP site served by an ITS-I1 system installed by the contractor. as indicated in Section C.4.6. Maintenance Repons. C.4.1.3.1 hlnxirnum Acceptable Son-catastrophic Downtime The contraclor shall design and maintain the ITS-ll systems and installations to ensure that non-catastrophic downtime does nor exceed the requirements of the maintenance level chosen by the BOP C.4.l.3.2 Son-catastrophic Failure Rcsloration The contractor shall respond to and resolve all non-catastrophic Failures within the time frames required of the maintenance level chosen by the BOP C.4.1.4 System Downtime Repons The contractor shall track catastrophic and non-catastrophic failures and down-times for all the ITS-11 installations and compile per-site records of these measures every month c-93 C.4.1.5 Maintenance Levels The following criteria for monthly catastrophic and non-catastrophic dountime will be esrablished to define the maintenance levels for which the contractor shall propose rates for ITS-II services in Tables 1A through ID as defined in Section B. A. B C Level 1 (Table 1A) 1. 2. 3 4. S. The nation-wide average of catastrophic downtime shall not exceed 0.25 hours per site. so correctional facility shall experience catastrophic downtime in excess of six hours for the month. The number of catastrophic downtime trouble tickets shall not exceed one at any site in any individual month. The amount oftime to resolve any non-catastrophic failure shall not exceed 12 hours for any correctional facility. The number of non-catastrophic trouble tickets shall not exceed one at any site in any individual month. .. Levil?2 (Table 1B) ? 1 2. j 4 5 The nation-wide average of catasrrophic downtime shall not exceed 0.5 hours pH site No correctional facility shall experience catastrophic downtime in excess of 12 hours for the month. The number of catastrophic downtime trouble tickets shall not exceed two at any site in any individual month The amount of time to resolve any non-catastrophic failure shall not exceed 24 hours for any correctional facility The number of non-catastrophic trouble rickets shall not exceed two at any site in any indi\<dual month Level 3 (Table IC) I 2 .I 4 5 The naiion-wide average of catastrophic downtime shall not exceed one hour per site No correclional facility shall experience catastrophic downtime in excess of 24 hours for the month The number of catastrophic douniime trouble tickets shall not exceed three at any siie in any individual month The amount of time io resolve any non-carastrophic failure shall not exceed 48 hours for any correctional facility The number of non-cataarophic trouble tickets shall not exceed three at any site in any individual month c-94 D. Level 4 (Table ID) I. The nation-wide average of catastrophjc dounlime shall not exceed two hours per site No correnional facility shall experience catastrophic downtime in excess of 48 hours 2. for the month. The number of catastrophic dountime trouble tickets shall not exceed four at any site in any individual month The amount oftime to resolve any non-catastrophic failure shall not exceed 96 hours for any correctional facility The number of non-catastrophic trouble tickets shall not exceed four at any site in any individual month. Failure to Meet Maintenance Service Level Ordered 3. ', 4 5. C.4.1.6 The contractor shall probide a system that meets or exceeds the service level ordered by the BOP If the contractor fails to provide the service level ordered by the BOP, the contractor shall not be compensated at the rates and.percenta_ees for the senicc.level ordered, but rather the contract'or, shail be compensated at the serfkc level rates and percenta_pes which correspond with the lower level of senice actually provided. The BOP COTR will inform the contractor in writing within IS days of receipt of the monthly maintenance repons of the contractor's need to adjust the monthly invoice to compensate for the lower maintenance service level actually met by the contractor. C.4.1.7 Waivers for ITS-11 Maintenance Service Level Measurements The BOP reserves the right to grant the contractor waivers for catastrophic or non-catastrophic dountime andlor trouble tickets in a given month due to specific failures and events. The BOP may grant waivers if the BOP determines that the event or events that lead to specific catastrophic andior non-catastrophic failures and the resulting downtimes due to exrraordinary circumstances. However. the BOP will retain the final authority in making such determinations. C.4.1.8 The number of trouble tickets resulting from inmate damage to individual telephones shall be exempted from ihe calculations related to meeting maintenance level criteria. However, the time to repair telephones damaged by inmates shall not be exempted from the calculations related to meeting maintenance level criteria Additionally. downtime caused by the BOP for reasons such as refusal to allow entn. or requesting a delayed repair. may be reduced from the total downtime by an amount equal to that caused by the BOP The following events shall be exempted from the maintenance level measurements required by this contract Exemptions Tor ITS-ll Maintenance Service Level Measurements c-95 . 9'- I--' ' . .- . . .. . A. Downtime caused by I. FTS problems. 2. lnternal wiring. 3. BOP operator failure. 4. BOP environmental disasters. 5. 6. 7 Natural disasters occumng at BOP sites. Local telephone company caused problem. Planned semiannual sofiware upgrades as agreed to by the BOP. B. Trouble Tickets generated by: 1. Items one through six above. 2. lnmare damage. ;. BOP approved "bug list" issues. 4 Erroneous reponing ofa trouble. 5. Local exchange and area code updates. 6 . Redundant tickers for-me problem. ': -. . .. The conrractor shall noti& the BOP COTR or hisher designee in writing of the contractor's intent to claim exemptions from a maintenance level measurement for a specific trouble ticket. This notification shall be made through the daily trouble reponing process to the COTR Regardless of any exemptions claimed. the contractor shall be responsible for the repair their sen'tce. harduarc. and sofiware ... C.42 General Maintenance Requirements The coniractor shall provide the Government uirh on-call maintenance service for the full contract penod of performance including exercised option years for all equipment and services provided under this agreemcni C.4.Z.l The contractor shall respond to all troubles reported on ihe ITS-11. If the coniractor deiermines !hat a malfunciion exists due to equipment or services provided by the government. such as FTS or internal wiring. the contractor shall notify the appropnate BOP staff ofthe malfunction and shall assist the BOP or its contractor IS necessan. or requested. to help diagnose the malfunction. The contractor shall noi require the use of an on-site administrator to fulfill the maintenance or any other requirements of this contract. The BOP will allow the contraaor access to correctional facilities for the repair of services and equipment. and remedial mainicnance needs Physical access shall be coordinated with the C.4.2.2 C-96 e individual correctional facilities C.4.2.3 The contractor shall not schedule routine and preventative maintenance more than once per month for any BOP site This shall include all subcontracted maintenance activities for any ITS-II component The contractor shall provide detailed plans of its troubleshootin_e and maintenance procedures and schedules including any remedial maintenance deemed necessal? by the contracior to fulfill the requirements of this contran. The contractor. at the request of the BOP, shall perform any work that may adversely affect inmate use of the telephones during off peak hours. C.4.2.4 C.4.2.5 . C.4.2.6 The contractor shall provide skilled technicians who will be available 10 perfom maintenance work on the ITS-II at each of the correctional facilities and the ITS-I1 locations covered by this contract. C.4.2.7 .. In general. the Contractor shall not assume.that the BOP will provide space in its ccjrrectional facilities for spare pans for the ITS-11. A trouble ticket shall be established at the time a trouble is reponed by a BOP site. Each trouble ticket shall be assigned a unique sequential number and given to the BOP staff member at the time the trouble is reponed Each trouble ticker shall include. at a minimum. the following information C.4.2:S C.4.2.9 C.1.2.10 A B C D E F G ti I 1 K Trouble ticket number Date and time trouble reponed Date and time trouble resolved Total time to resolve \ame of person reponing trouble Sile ai which trouble was reponed Component affected Reponed descnption of trouble Actual descnption of trouble Descnption of solution of trouble An! exemption claimed C.4.3 %laintinanre Operations Control Center The contractor shall maintain a 24-hour-per-da!. 7-day-per-week maintenance operations control center for response IO the BOP in conpnctlon with operating the ITS-11. C-97 C.4.3.1 The maintenance operarions control center shall serve as the sin_ple point for - eenerating trouble rickets that are established as a result of a system or senice problem BOP access to this center shall be through a cmractor provided toll free telephone number The ITS-I1 shall be designed to minimize the need for BOP staff'to repon troubles such that the system and senices shall automatically generate alerts to !he maintenance operations control center for malfunctions or detected senice depadation C.4.3.2 C.4.3.3 The contractor shall maintain sufficient facilities and staff for receiving information on trouble calls so that the Government waiting time to provide such trouble information IO a live person does not exceed 5 minutes from the time the call is placed. C.4.4 Maintenance Status Updates During a catastrophic system problem. the contractor shall be required to update the BOP hourly, if irqursted'b? :he.BOP, unti! tbe problem is resolved. C.4.4.1 The contractor's update shall include. at a minimum, the following information. Current status of the problem. Estimated time needed to resolve the problem. A. B Projected solutions. C C.4.5 Escalation Plan The contractor shall propose escalation procedures. processes, and personnel procedures for use during an ITS-I1 system failure C.4.5.1 The contractor's ITS-I1 escalation procedures shall be subject to BOP approval and all contractor staff identified in the escalation plan shall be capable of being contacted C.4.5.2 During a system failure. !he contracior shall adhere to the approved escalation procedure The contractor shall provide one contaci person plus one alternate point orcornam from its organization to address unanticipated difficulties (installation concerns. svstem downtime. degradation of services. etc.). The contractor shall also provide additional escalation policies and points of contact. including contact numbers Itelephone. pacer. facsimile. E-mail). titles. and chain of C.4.5.3 CL4.5.4 c-98 command, for the use of BOP in case the contractor's effons by the single point of contact are insufficient in resohing a panicular situation. C.4.5.5 If the main contact point is not the ITS-II project manager. the contractor shall clarify the relationship of the project manager in the escalation process C.4.6 Maintenance Repons The contractor shall develop. prepare. and provide monthly maintenance repons to the BOP COTR and Contracting Officer to keep the BOP informed about the ITS-II performance. C.4.6.1 C.4.6.2 C.4.6.3 C.4.6.4 C.4.6.2 C.4.6.6 C.4.6.1 A The contractor shall present and discuss these monthly maintenance repons as a pan of the monthly ITS-I1 mainienance meetings with the BOP. The contractor shall provide the BOP with monthly maintenance repons which thoroughly document and analyze system performance, trouble ticket repons, and trouble trends The conrractor'shall work with the BOP ti develop these repons in a meaningful and informative format Monthly maintenance repons shall be available in both hard copy and electronic format The database or spreadsheet file used to create these repons shall also be provided to the BOP on elecrronic medium These repons shall be provided within I5 working days after the end of the previous month The contractor shall continue to prepare and provide monthly maintenance repons to the BOP for the duration of this conrran The contractor shall provide setvice level compliance repons on a monthly basis which shall include. at a minimum. the following information. This information shall be presented in two formats. one which includes all troubles reponed, including any exemptions. the second shall include all troubles reponed. excluding any exemptions and waivers Catastrophic downtime repon 1 2 5 The repon shall list catastrophic downtime for each individual BOP site for the preklous month The repon shall list the catastrophic downtime for the entire BOP for the previous month The repon shall list the catastrophic downtime for each individual BOP site by c-99 month for the previous sin months The repon shall list the nation-wide average of catastrophic down-time per site for the previous month The repon shall list the number of catastrophic down-time trouble tickets bv site for the previous month The repon shall indicate compliance or non-compliance with the maintenance service level ordered by the BOP. If the maintenance service level ordered by the BOP is not met. the repon shall indicate which level was actually met by the contractor 4 5. 6 B. Non-catasirophic downtime repon I. 2. 2 A 5 6 The repon shall list non-catasirophic downtime for each individual BOP site for the previous month The repon shall list the staning time. ending lime. and total for each non- catastrophic failure experienced at each site during the previous month. The repon shall list ihc non-catastrophic downtime for each individual BOP sire by month for the pre\+ous six months. .The repon shall list the nation-wide average of non-catastrophic down-time per site for the pre\ious month The repon shall list ihe number of non-catastrophic down-time trouble tickeis by site for the previous month The repon shall indicate compliance or non-compliance with the maintenance service level ordered by the BOP. If the maintenance service level ordered by thc BOP is nor met. the repon shall indicate which level was actually met by the contractor C.4.6.8 The confracior shall pro\ide ihe BOP COTR with daily repons of all trouble tickets reponed on the previous day Trouble tickets reponed on weekends and Federal Holidays may be reponed on the next workday. This'repon may be faxed or E- mailed io the BOP on a daily basis C.4.: .\lonthl? .\laintenanre hlrctings Thc contraclor shall meet monihly uith the BOP Central Ofice staff These meetings shall be for ihc purposc of preseniinp ITS-I1 prior month's maintenance repons and discussing resolutions to program issues and concerns These meeiinys map be scheduled less frequently at the discretion of thc BOP The site for the meetings shall be deiermined by the BOP. Travel may be required to vanous BOP siies. contractor sites. and subcontracior's siies The contractor shall provide represeniatives.for each of its subconiraciors at each of these meetings if requested by the BOP c- IO0 C.5.1 Training The contractor shall provide training to a maximum of twelve BOP ITS-I1 Central Offce personnel in the use and technical operation of the ITS-I1 It is anticipated that this training will require from 40 to 80 hours of classroom time The BOP will cover the costs of its travel expenses to the contractor's location for this training C.5.1.1 C.5.1.2 The first training session shall be provided within four months of award of contraci The training shall be designed to provide BOP Central Offce staff with a thorough working knowledge of the vanous the ITS-I1 components. their integration. and system operation C.5.1.3 The contractor shall provide annually. upon the request of the BOP, updated maintenance. or use ofthe ITS-ll The BOP wili cover the costs of travel expenses 10 Ihe contractor's location for this trainins. .. refresher training for any major or significaot changes to the administration. C.5.2 System Documentation The contractor shall provide complete system documenrarion at each site for all software,and hardware components of the ITS-I1 BOP will use the documentation for internal purposes only. This documeniation shall be updated by the contractor as necessav to remain current with the system The contractor shall also provide two Implementation Engineering Plans (IEP) for each site which detail the site specific wiring. trunking and routing data One plan shall remain at the conectional facilily and the other plan shall be provided to the BOP Central Ofice. The IEP shall be updated as changes to Ihc system are made and shall be used by the contractor's local technicians and BOP staff to aid the troubleshooting process c.5.2.1 Reference Cards The contractor shall provide reference cards. which have been approved by the BOP, that provide inmates with instructions on the use of the ITS-ll The contractor shall provide proof copies of all reference cards which may be copied by the BOP as required for distribution IO its inmate population C.5.2.1.1 These cards shall be prepared in English and Spanish, and shall become the propeny of the BOP c-101 c C.S.2.1.2 C.S.2.1.3 The cards may be copied and/or distributed by the BOP as desired The contractor shall provide a quantity of cards equivalent to the inmate population ofeach institution at the time the ITS-I1 is being installed at that institution. These cards may only be produced out of paper. Lamination is no: allowed. C.S.2.1.4 c.s.2.2 User Manuals The contractor shall provide and maintain current operation manuals for each BOP site. One type of operating manual, addressing the full capabilities of the ITS-II is acceptable. ., C.S.2.2.1 These manuals shall contain detailed and clear instructions on the operation of :he ITS-II software C.S.2.2.2 These manuals shall be provided within one month after installation of the second correctional facility C.S.2.2.3 C.5.2.2.4 C.S.2.2.S Thesc manuals shall be updated at each site 3s software version updates are made. The contractor shall provide a user manual(s) for each workstation at every site The contractor shall allow the BOP to make copies of these user manuals for internal use only. C.6 General Contractor Requirements A The contractor shall be responsible for complying with all state and national laws and regulations concerning the delivery of these services. The contractor shall be held responsible for any noncompliance to these laws and regulations Thc contractor shall provide goods and services at the prices proposed in Section B as ordered by the BOP C.6.1 Language Requirements All contractor and subcontractor personnel supponing the ITS-I1 shall speak and understand English B C c- 102 C.6.2 Organizational structure Offerors shall provide information (organizational charts and explanatory charts) on the following organizational structures: A. B. C. Overall company structure: how the company is organized. Project structure: staffing structure for the ITS-IJ project and how this project is positioned within the company. Detailed structure for the Central Operations Facility: to be staffed by the contractor C.6.3 Subcontractor Management The contractor shall be responsible for all subcontractor personnel at all times. C.6.3.1 The contractor shall propose and adhere to a comprehensive plan regarding subcontractors. C.6.3.2 , , The contracior, shall provide BOP with its policies and procedures of subcontractor management inclsding the following: .' Contractor's level of experience with the subcontractor. References to the subcontractor's performance. A. B. C Points of contact. D. Financial stability. E. Quality control measures. F Replacement policies (contractor replacements attributed IO situations such as corporate mergers. acquisition or insolvency, and poor performance). C.6.4 Quality Assurance The contractor shall propose and adhere to quality assurance (QA) plans and procedures. C.6.4.1 The contractor's QA plan shall address, at a minimum. the following: A Harduare. B Software testing procedures C Corporate and projecl-specific quality assurance methods to be used QA shall address all aspects of the total ITS-11. QA plans shall specifically address, in addition to hardware and software, all system documentation and all aspects of program and configuration management. C.6.4.2 C.6.4.3 C- 103 C.6.5 Configuration Mnnagernerii The contractor shall propose and adhere to Confguration Management (CM) plans and procedures. C.6.5.1 The contractor's CM plan shall be updated as necessary and include at a nlinimum the following. .. A. Hardware installed. B. Planned hardware upgrades. C. Sofiwardfimware versions. D. Planned software upgrades. . -.=.7?- C.6.5.2 Configuration management plans and procedures shall be available to BOP at any time throughout the contract C.6.5.3 Configuration management data shall be updated whenever any software or hardware is changed or replaced. This data shall be provided to the BOP at the time of update. .. .. C.6.6 Complction of Contract The Contractor shall be responsible for removing all equipment related to the ITS-I1 at the termination or completion of the contract. The schedule for the removal of equipment shall be determined by the BOP. Immediately upon the completion or termination of this contract the contractor shall provide the BOP Central Office with a stand-alone system which conrains all financial records and call records for the previous six years and the software to easily retrieve and output this information within ihe same parameters of the repons provided in this SOW. This system will be provided by the contractor at no cost to the BOP. .. C-104 .. r ! ! : i i I I i I i i I FEDERAL COMMUNICATIONS LAW JOURNAL Formerly FEDERAL COMMUNICATIONS BAR JOURNAL VOLUME 54 Artids , MAY 2002 NUMBER2 AN E~CIENCV ANALYSIS OF CONlRACTs FOR THE PllOVlSION OF TELEPHONE SERVICES TO PRISON8 By Justin Caner ...................................................................................... 391 As the numbers of prisons and prisonen conanue w incmse, Io docr IhC market for prison services. One of the molc lucntivc Icgmcnu of this induscy is Ux telephone market. To the extent ha1 chc wicu M pmvidcd 10 .JK prisonen. he dabonship resembles a third parry anCfic*ry conm but dw IO the pwmc financial inativep and the policicpI dimk sunoundinp prisons and prisonen. neither lhe sue nor the privau entiry OLU in the kct inmeuC Of the consumen in puticulvor of sociery in general. This Miclc will dyx Ihc efficiency of these conmu. introduce almau urnngemmo. and compvr Ihe efffcicncy of rhe present wnmu IO the alternatives. '. ! i i I i i I 1 \ '\ I 1 I I i ! t 'I ! 1 i An Efficiency Analysis of Contracts for the provision of Telephone Services . to Prisons Justin Carver* 391 393 396 Calling Options ................ ............................... 401 Need to ~~i~i~e Access 10 Telephones ....................... 40 1 ............................. ................................... 1. .......... 11. ............................................. 393 ............................. ................................. ............... A. ficlusive provider Provisiom .................................................. c. cosr of Calk ...................................... 400 D. s~~~~~* Use of Revenue ....................................... 402 .................................................. B. interconnection ................ 403 .............. ............................... .............................................................. 407 ........................ E. m. TELEcomuNlcA~o~~ Am OF 1996. Removal ofBariers 10 Entq .............................................. 402 c. Universal service at Just Rates ........................................... 404 : 407 sTRu-oFm ~0~~s GAMETHEORY ............... 407 ................ A. me payoff Matd V.. State lncen,ives for Requiring Commissions ................. ................................... ........................ .................................. 2. incentives for Utilizing an Exclusive Dealing 409 Awarding of Contracts 413 provision ................................... 411 B. rhheor?' in ................ 391 392 FEDERAL COMMUNI~T~ONS U WJOURNU [Vol. 54 i t A. Presenr Contracts ............................................................... 413 B. No Kic,&ack Compcrition .................................................. 414 C. Kickback Compctirion ....................................................... 416 . D. Stare-Owned Enterprise ...................................................... 417 E. Comparison of Approaches ................................................ 411 W. CONCLUSION 419 ............................................................................. I. IK~RODUC~ON ne prison population in the United States has dramatically increased since the 1970s. and as recently as 1998. there were nearly two million inmates incarcerated in the United States.' As the numbers of prisons and prisoners continue to increase, so does the market for prison services. Indocd, the prison indusay has already gmwn into a multibillion-dollar industry with its own trade shows and bade newspaper.' One of the mote lucrative segmenu of this industly is the telephone market. In the prison context. the state con=& with a private entity, and the private entity provides services to the prisoners and also to the state. TO the extent that the services arc provided to the prisonen. the relationship resembles a third party beneficiary contract. Due to the perverse financial incentives and the political climate surrounding prisons and prisoners, however, neither the state nor the private entity acts in the best interesls of the consumers in particular or of society in general. With respect to the financial incentives, it is estimated that inmate calls generate a billion dollars or more in annual rcvenueI) One prison pay phone can generate $15.000 annually: a typical public pay phone generates only one-fifth of that amount' Faced with the possibility of such revenues. MCI installed its inmate phone service in prisons throughout California at no charge to the state.' As pan of the deal, in exchange for the right to be the sole provider of telephone services to the prisons, MCI pays the California Department of Corrections a 32% share of all revenue derived from the calk6 MCI adds a three-dollar surcharge to each call.' The 1. Eric Schlosrer. The Prbon-lmiuslrid Gmpkx, 7% AfuKnC MONTHLY. bec.' 1998. at 5 1-52. avaduble al hnpJl~.ch~.nlic.c~~~u~Sdcdprironr.m. z 1. Id at 63-64. 3. Id s 63. 4. Id. 5. Id. 6 Id This is smdard pactis. A 1995 study of swe dcpnmncnu of cmeclim rcpd hat 38 of 41 rcspmdcnu rtaived commissions from imatc phone systems. See. i TELEPHONE SERVICES TO PRISONS Number 31 393 California example is by no means unique; it is the de, rather than cnsption. - his Anicle will analyz the efficiency of these conmts, inaoducc dmate arrangements. and cornpart the efficiency of the present contracts to the alternatives. In so doing, this Article will demonstrate that the sent conOactS arc inefficient. Mon specifically, Section II discusses Pnb]ems Pm that arc unique to the provision of phone scrvicc to prisoners, and induces the practical shortcomings of the cumnt conmu. The Telecommunications Act of 1996, the source of Federal Communications Commission C?FCC?) regulatory jurisdiction, is discussed in Section m. Section N introduces a few basic principles used in pcrfonning an efficiency dysis. section v uses payoff mamces and game theory to demonstrate how the award pmss for the contracts causes inefficiencies to arise and perpetuae indefinitely. Section VI introduces alternate contract structures and dcmonstratcs that certain dtematives are more efficient than the present contracts. Section W contains a brief conclusion that calls for the FCC to adopt regulation that preempts existing state contracts which art inconsistent with the most efficient alternate svuctm. A. Exclusive Provider Provisions nK contract between the telecommunications provider and the state typically provides that the telecommunications provider will be the sole provider for a particular prison or prison system.? Parties to these agreements often cite the high costs of he security systems associated with the operation of a phone system in a prison as justification for the exclusive-dealing provisions.? Stated differently, the asserted justification is e.&. Jolm LEGIS. AUDIT AM) REVIEW COMM?N OF THE VA. GEN. ASSLMB.. REVIEW OF THE DEP?T OF COaREcnONS? INMAT? Tn. SYS.. House Doc. No. 70, 1997 kS.. 81 3 (1997). avaiIabk at hnp://jlsrc.stw.vaure~n~~ll99.pdf [hereinafter lOlNI LEGIS. AUDIT]. This Mjcle will rcfcr 10 Ik share of the rcvcnuc as ?commission? (x ?Ljckback? 7. Schbur. supra nac I. 81 6). 8. JOINT LEGIS. AmT. rupra note 6, a1 16. 9. David Asher. Reach Our and Gouge Someone. US. NEWS & WORLD REPORT. May 5. 1997, u 51. clearly. a wuriry systcm is brnh desirable and necessary. It is im@w hat prisoners be pludcd from running a drug ring while in prison, conmting ds tampainp with wilnersa. and so on Mort if na all sIa1cs. fa example. require that chc primr submit a list of paronr lhst he prisoner HOUU like IO be able 10 mnlsn by (clcphone. The persons are then investigated. and if appmved. Lc names of rhox persrrra M Lhcn placed on Ihc inmau?s list. The inmate may conran by tckphone only that persons who arc on Ihe appmved lisL Each inmate is allowed 10 plaa a limircd number of persons rm the inmate?s list at a given time. Scr FLA. H.R. JUrnc~ COUNCIL. COM. ON CDRRECnONS. MNNTAINNG FAMILY COKIACT WHEN A FAMILY MEMBER WES TO PRlSO?C i 394 FEDERAL COMMUNICATIONS LAW JOUm4.U that the market is a natural monopoly. or a market that ?can be sen efficiently by a single incumbent fm?to There an two reasons why the market is believed to bc a natural monopoly: (1) the provision of telecommunications in general is best accomplished by one firm: and (2) the costs of the security system make it impracticabk for more than one firm to service a prison. he first reason is based on bad economics, and?as a rnaner of public policy, it has kcn abandoned by Congress.? The second reason is factually unsubstanuated 8s well as pmextual. At least one state, New Jersey. has authorized competition in the provision of telephone services IO inmates, and in SO doing, the only articulated concerns wm security related.? The New Jersey Board articulated no ?efficiency? concern. The truth is that states stand to eat^ additional revenue when a monopoly is providing the service. because the state will receive both a commission and tax revenue based on Ihe monopoly profits.? In fact. most states are not responsible for operating the security system; that task is delegated to the service provider. In 1998. New YO& estimated that the annual cost of overseeing the maintenance of the phone system including? the security system, was a mere $283.000.?? Incidentally. the New York State Department of Correctional Service receives a 60% commission from MCI in exchange for granting MCI the right to be the sole service provider - : : AN EX*MlNATION OF STATE rQLlCIEs ON MAL. VISITING. fflD%LE?HOHE 2@21 (Nov. 1998). P hap://ww/.fcc.suuc.fl.uJfcdrcpons/lamily.~ [herrider MA~MAINING FmnY COhTACr]. f hMDUI(F. 912 (4Ih od. 1%). : IO. E. THOMAS SWVAN C HERBERT HovEwr. Mrrntus~ LAW. Poucr & i 11. See Telemmmunicaim Act of 19%. Pub. L. No. 104-10(. 1 IO Slat. M (ccdikd 12. Exceutom Information Systems. Inc.. 141 P.U.R. 41h 519 (NJ. Bd. Reg. Comm?n i at scaDned %aims of 47 U.S.C.). .\I 5. .* Apr. 5. 1993). avmYab/c af hftp://www.westlaw.com. N.Y.Ttm, Nov. 30, 1999. a Al. Mac chc swcs w responsible for thc ~curity system -, 13. For nwrc dccail. see infra Pan VI. 14. John Sullivan. New York Sran Eo- Top Dollnr From Collrrr Calls by 11s hmnrcr, the costs M high. Fa example. in Oklahoma. the state received 51.9 million in lk yur 2000. spcnt $1.2 million cm security. and rctaincd a profit of 57WX100. Bobby Ross Jr.. Cost Calls MQ~ Dcrreaccfor hmarcr: Braid &6 for Chgr in Prison Phmr S~Sfcm. THE DAILY OKLAHOMAN. Jan. 26.2M)I. 4A. According to a pns rckasc by Marrachurdc CURE, thc average cost of a collect call made in Ihc mu of M~chusec~ is 50.20 minute. In Massachusctls prisons. calls arc limiud to a lcngth of twenty minuter each The minimum CMI of I call ma& out of a prim in rhc Massachuscnr 413 area mdc is 58.50, d~ W.43 per minute for twenty minuus. has Rclcasr. Masrachusem Cum. Prison Tclephnr Charges (4 413 Area Triple 7hou Elsewhac - Rep Swan Renews WI to Lmit Tdls u cxplorrr wbelha Ihc security system used in Massachusetu really doubles the mst of che calls M whccha rhc 40% kickback imposed by the swc das, ! i . ,; National Boycon Begins (Aug. I. ZWO). available of hrrpd/www.marscurc.aJ ! .\ prarrcleaw0800.hunl (on filc with autha) beinah Swan Renew Calll. ?his Anick i ., i ,? . ?$ I j ,+ b I I ! ! ! i ! i I I I I I TELEPHONE SERVICES TO PRISONS 395 pjurnber 31 to in New York? In 1998 alone, the Department received $2.5 million to this arrangement. The Depanment has reccived roximately S68 million since the inception of the arrangement.? States ?Ln cam lens of millions of dollars in annual revenue from the telephone merits, as do the telephone companics. Sutes also seek to justify the exclusive dealing provisions by assenjag that there is competition for the award of the contract, and the of competition for the contract enmuages the telephone service pro,.idcr to act as though there is competition for the provision of the This argument is based on the thcory of contestable markets. the identiry of a monopolist is determined by a competitive bidding process, and where therr is no collusion among biddm. the theory of contestability holds that the price charged by the monopolist will approximate that which is charged in a competitive market.?? Because the price charged by the monopolist is substantially similar to the price that would be charged in a competitive market, there is no need to regulate the monopolist. There are a number of problems with the application of the theory to this situation. first, note that for the theory to function properly. the bidding for the contract must be renewed regularly. because once a firm begins operating in the market, therr is no incentive to price competitively? It is also imponant to note that conicstability has not worked well where the sunk costs aft high. as they are here.? More crucially. the manner in which these contracts are actually awarded does not fall within the traditional understanding of the contestability theory, which presumes that the contract will be awarded on the basis of cost andor quality of service. Here, he contracts are usually awarded solely on the basis of which company will provide the state with the largest commission. and not on the .. basis of which company will provide the services at the lowest price:- As the award process does not create an incentive for the firm to behave competitively, this practice is not I6 . agree IS IS, Asociatcd Rcrr. Suir Turgrrs Ram for Prism Phones. NEWSDAY. Mar. 22. 2000, 16. Id. 17. Id. 18. SULLIVAN& HOMNKAMP, supra nac IO. at 913-74, 19. Id. 20. Id at 972. A common KI~ for the convacts is fivc yw. which is probably too long 21. Id. sl973. 22. Fischer, supra now 9. at 52 (noting hat the stale of Ruida awarded 8 contracl (0 Sprint after Spin! outbid canpcutorr and offered To mNrn a stunning 57.5 percent of ia ~vcnucs to he stale?). Reviourly. Florida had been receiving a405 kickback. Id at A32. waihbk a! ?OM) WL IW323 I [hereinafter Suir TagrU RoIcrJ. a time Tor conlcsubility IO affca Chc &havia of the incumbent 396 FEDERAL COMMUNIl%TIONSU WJOURNAL Pol. 54 in accord with the economic theory of contestabiility. B, Calling OptfORS - Even when prisoners arc required to place all calls through a phcular provider, prisoners generally do not have the ability to chwg between multiple calling options, The vast majority of states ~uk that all calls made by inmates be made "collect," and therefore it is the prisoner's family or friends who actually pay for the call." Repaid calling cards generally banned for fear that they contribute to or funher a black market for C. Cost of Calls The cost of the phone calls varies from state to state, depending on the amount of the surcharge imposed by the company, the amount of Ihe kickback to the state. and the amount of the cap to which the rates are subject. ln some states, the rates charged by the telephone company for collect calls made from prisons are capped at the rate that wuuld be ch&@ on collect calls made from a pay phone outside of prison. Of CouSC. Ihe surcharges do not count against the cap, so the actual rate charged for calls from inside a prison still exceeds the rate charged on external calls. It is also important to note that telephone companies an often required by regulatory authorities to install and maintain a number Of public pay phones in the area served by the phone company? The installation of these pay phones is considered by rrgulaton to be a compulsory public service, and this service is made mandatory by regulators who believe that greater access to pay phones increases public access to 911 emergency service. This requirement is very unhpular with 23. See Global Telcoin. hc.. No. U-20784-B. 1995 WL 59684. at *I (La Pub. Sen'. Comm'n Jan. 17. 1995) (noting rhal inmates arc no! free to chmse he opemtpta r&ce oc long-dislance canicr of their choice due to concerns abut fraud). How fraud would be more of a problem when Ihe family is responsibk for paying the bill is not cnlircly elm. Rcsumably. the family ha longdistance service in its resickna. Does the Lauisiana Pubtic Scma Commission tclicve lhrt the family can be mud IO pay he long-disranct bill from the regulu long-distance provider. bur not the bill for the call from the prison? Ewn if the enswu is yes. dw Lhu mwer justify UIC rule precluding a prisoner Imm choosing I provider? The de cffcctively grants Lhe cania Ihe power to charge a monopoly pice; presumably, as prias increase. le rau of fraud incrcase.5. So pcmspa chc NIC CIU~L( the frwd which in turn mates the need end jurtification for (he mlc. 24. M"IA1mNG Fmnv CONTACT, supra note 9. at 24. 25. AT&T Comm. of N.H.. Inc.. 19 N.H. P.U.C. 639. 639 (N.H. Pub. Udl. Comm'n Nov. 1A. 1994). oua'bbblc 01 1994 WL 854500. Of EO-. the racc cap is usually ld UJ much the highest rue charged a1 Be pcak times by any pmvida in rtK sutc. 26. Re Rats and Chwga Paid by Pay Telcphonc Service Roviders m Local Eachsnge Wss, Flaida Public Service Comm'n. Feb. 14,1991. I20 P.U.R. 4th 530 at '28. ' > r ,- ,A: : TELEPHONE SERVICES TO PRISONS N-,~r 31 397 companies, which an Often nquind to install and maintain pay phons in unprofitable locations witfi low call volume." Regulators have b&n responsive to these concerns and have allowed telephone . bes to increase the rate charged on all pay chones. effectively dlowj,,g the unprofitable pay phones to be subsidized by the profitable on#. AS noted above, prison pay phones have an inordinately high amount of call volume. as compand to public pay phones. Where the rates arc Capped, they arc often capped to match the highest of the rates charged by a firm providing service outside a prism." Also, depending on the state, the inside the prison does not necessarily reflect time of day discounts? mafore, even where the rates for collect calls fmrn prisons arc capped at the **outside" rate. the inside rate cap is based on false Bssurnptions about phone use in the outside market. As a result, the charges for the inside calls disproportionately higher than the cost. Inmate challenges to the rates generally unsuccessful? In other situations. the rates arc not capped in such a manner that they correspond to the ram made for outside calls." Because the state is not paying for the calls, it seems reasonable to conclude that it would be less concerned with the cost of the calls than if it were responsible for paying the bill. Stated differently, the state receives the benefit of having a service provided, but does not have the corresponding burden of paying for that comp 27. Id 28. opcradnp Ranices of Alternative Opentor Sav. Rovidcrr. No. U-17957. 1993 WL 56141 5.81 '2 (La. Pub. Sew. Comm'n Scp 23.1993) (comparing the nlcr charged by four pvidcn. and noting hac guidclincs required thnt the rate cap match the highat raw charged by me of the four). 29. Id (ordering hat the conraucIion given to Ihc rate cap k changed, allovring the rate cap 10 bc conswed to reflat time of Qy discounts). 30. See. t.8.. Jackson v. Taylor. 539 F. Supp. 593. 595 (D.D.C. 1982) (holding thm prison officials were immune from an antiuust claim arising out of an allcgd practice of fixing Ihc price of phone dr ma& fmm the prison): Ccinm. Worken of Am. v. Pr. FkU. 61 C.P.U.C.2d 647 (CUI. Pub. UOl. Comm'n Ocr 5. 1995) (holding that lhc prison irrelf is thc customci, and tha prismas we% nu mnsumen of a telephone sysun and Ihu thaefae. only the prison w1s guaranteed pccrss under state regulations); Basham v. Mountaintor Powcr Sys.. No. 42-IOZbCOCOT-C 1995 WL 441123. at *9 (w. Vr rub. SUV. Cm'n June 15.1995) (categorizing prism cornplainu into fw c:uegoria: .'vlosc regarding the typc of system offered. those regarding whcthcr the sysm complia with,l)r Commission's NICS and rcgulariom. lhose reganling rhc funhoning d the systun. md those reguding the raws charges'). The West Virginia Rblic Smice Cnnmission found Ihu only thw claims dealing with lhc functioning of the sysum can bc brought by 01 inmuc kfm thc Commission. Id Complainu regarding the cost of the senice wen found nu lo & "emcnsjned by the Commission in the mnlcxt of a complairn case but are imttud reviewed in the renice provider's next me pmeding:' Id 31. MAINMMNG FAMILUCO~~~AC~. supra nac 9. at 12. 398 FEDERAL COMMUNICATIONS LAW JOURNAL [VOl. 51 benefit. That burden falls on the families Of the inmates. the phone companies seek to justify the COSt Of the on a number of grounds. Phone companies Cite to a high !ate of 'YOU fraud" where bills are sent to invalid or incorrect addr~sses.'~ Agdn why than in the context of routine long-distance calls is not entirely clear.' The cost of the calls can be partially justified by the expensive security systems that arc a necessary component of the prison telephone systems. Of the asserted justifications, this one has actual merit. for the security systems an clearly necessary. Nonetheless. one has to question whether the security systems currently in place an the most cost-efticient systems available. Since the service provider opemtes without any real thnat from competition. the provider has fewer incentives to knp costs low. Most states are candid enough to admit that the kickbacks they receive from the service provider do increase the cost of the calls for the consumer? Nonetheless, these states argue that the telephone system is not without costs. and that it is only fair that those who use the system pay for pan of the COSIS of the system. Of course, this argument fails to note that for the state. the system may very well be without costs. As noted above, in California. MCI installed the entire system at no cost to the state, and MCI allows state employees to make calls for fie. ?ffective/y, rhefamilies ON pasingfor the stare's use ofrhe sysrem Isn't it only fair that those who ur the system pay for pan of its cosu? Note that even where the system is not without cost to the state, the state earns much more from the system than it spends on the system." A number of telecommunications providers supplying service to prisons have engaged in unscrupulous billing practices. such as: - fraud is more of a problem in the context of calls received from a prison 32 See Rates. Tams and Condition fa lnmiue Tclsomm. Scrv.. No. 368, 1999 WL 179812. PI '2 (Ky. Pub. Scrv. Comm'n Ian. IS. IY99). This view assumes thal an enor in billing must ncassatily be thc fault of the consumer. and UKrcfare. irrreavd pries am entirely justified. No= thu when the company doer nu get paid. rhe consumers M xcwd of engaging in frau& Of course. where the company charges consumers lor calls tha wrc nevu made a ovacharges cmsumers for calls. then it is not fraud 33. As prices increase. so does the rate of had Therefore. it is possible thh the smaurc of the apmcnts imavs the cost ol the calls. creating Ihc inn& frs$d. Highu mes of fraud in Iurn create Ihc apparent jvstification for the higher costs. 34. MNUTAIMNG FAMRY COKTACT. supra nae 9. at 22 ladmining tha Ihc cost of the calls is affcctcd by thc "sizable commission" rcccived by the state). 35. Id a! 29. Mer cma. New York SLBIC pockctcd 52021 million from Ihc commissions in 1997.1998. Id Arc the urn merely paying their fair share fw tclsommunicatians service. M are Lhcy paying mom? 1 lrrc c.::'. Number 31 TELEPHONE SERVICES TO PRISONS 399 Program ming phones to sw billing befom the recipient accepts the calkb impsing surcharges in excess of those allowed;" failing to discount calls at off-peak times;" and charging for unauthorized calls." The for fraud on the prut of a provider is exemplified by the recent behavior of Global TePLink Corporation ("Global"), which operates inmate phone systems in several states. Global was found to have engaged in a number of illegal activi8es, including the following: staning the internal time clock on the phones either I5 or 36 seconds ahead.- charging mtes that exceed the authorized rates.'' adding time and money IO each cdl." and billing a call more than once." Another provider was found to - - 36. Lqual Access Corp.. No. FCU-90-5. 1991 WL519835. at *3 (Iowa Util. Bd. kb. 6. 1991). 37. MCI Tclecomm. Corp., No. 9606l7-TI. 1598 WL 391688. at *I (Fla Pub. SCN. comm'n June 9. 1998) (noting that MCI imposed surcharges that WCIC. al various times. $2.00 a S1.25 in cams of the permined surcharge). 'Ihir rnancr also illusuater the dificulty of dealing with thc overcharges. Pursuanr to a previous Florida Public Scrvicc Commission orda. MCI iulcmpud 10 issue refunds to rhore individuals who wm ovcrcharged. Id. A large number of thore pcrsonr could no longa be locatcd however. Ma requested that Ihe funds be placed in a WI fund fw prisoner advocacy groups. but che Commission ordd an immediate nlc reduction. Id. As a sidc nuc. when MCI unt bills IO invalidaddnsres. MI3 med "fraud" ud went to tk Canmission. 38 EqwlAccesa Cofp.. 1991 Wl519835. at.3. 39. Id. at *4. See nlro La. Pub. Sew. Comm'n v. Quest Correctional Corn. Inc.. No. U-21318, 1996 WL 532269. at *4 (May 14. 15%) (noting that one Ann used 309 pay stations at a prim. but the company only paid fa l6S of thox lines). 'Ihir we is nu necessarily imponant for its impact on rhe rate chargcd on inmau calls. but it could imp& the quality of service. Also. it is illustrative of an additional mannu in which a provider could circumvent any applicable regulations. 40. La. Pub. Sm. Comm'n. No. U-20784.1995 W 59684. al *S (Jan. 7.1995) (naing that chis popnmjng is ma& mare significant by IIIC fact that Global. as well as mEdt telephone companies. mund up the time of the call to thc ncxt minute). 41. Id 42 Id. at '6 (noting char Global may have used I many as twenty4ve different add-on techniques). 43. Id. at n.5. Apparendy. Global would also combine thcx techniques. FOI cxampk. on any pplficul~ call. Global may haw smed rhe internal clod; ahead. charged a lllc in cxccss of that allowed. added on additional lime and money 10 rhe call. and thcn billed lhc customa mac than once fa chat samc call. Thc tola1 mwnt 01 the overcharges. in Louisiana alone. was calculated Io be 51.243.000. Id. at *I]. See also Global Td*Iink Cop. No. 93-C-OSOI. 1995 WL 782983 (N.Y. Pub. Scrv. Comm'n Dcc. 11. 1995) (or& approving a rcimburscmcnt plan submined afkr Global's pranias were discovered): Globll Scl*link Cq., 68 C.P.U.C. 2d 149. at '6 (Cal. Pub. Util. Comm'n Scpl 20. 19%) (noring lhal on Ihc date of thc decision. Global had rcfundcd aver 53.4 million). This behavior is nbc limited to Global: a diffcrcnt company operaring in Louisiana was found to have cdaed similar am: charging customcn fa two calls that wcrc ma& at the same time. chargiv cuslmcrs fa calls that were nu cvcn made from the facility. overcharging calls. and adding lime to calls. La Pub. Sen. Comm'n v. Vendormatic. Inc.. No. U-221 IS. 1998 WL 201681 (La Pub. Scrv. Comm'n Feb. 17.1998). In any cvcnt. the situation could be wx: in Texas an inmarc is allowed IO makc onc collcct call every ninety days, so long as the inmate has . .. 400 FEDERAL COMMUNICA7lONS LAWJOURNAL [Vol. 54 have overbilled wo-rhirds of the interstate calls made from a panjcular lo .Florida, in a five-yeat time span, three companies were found to have overbilled consumers by a total of over S2.7 million." \ I t: .t D. Srates' Use of Revenue <! i States the revenue derived from the commissions in different ways. Most states claim to use the funds to offset costs of operating a prison, either by funding programs operated by the Depanment of Corrections, or by placing thc funds in a prisoners' welfare account.M For example, the proceeds may be used to fund health care for prisonen. cash for work-release, and bus tickets home.'' Interestingly enough. one state was recently found to have failed to establish "controls to safeguard. reliably account for, or efficiently use the telephone commission monies and was usin inmate funds for stiffing positions not directly related fo the Trust Fund' Other states place the funds in the general revenue coffers.* Where this is the case, the surcharges on the phone calls can bc said to take on the nature of a regressive tax that is imposed exclusively upon the families of those who are incarcerated. One has to question whether such a tax regime is the best method, from a tax policy standpoint. of funding the activities of the state. However the funds are ultimately used by the state. one could go even further than calling the surcharges a 'lax." Indeed, Oliver Wendell Holmes might suggest that from the point of view of the person paying the surcharges, the surcharges are not so much a 'lax" as they are a 'Yine.'* That is. the ultimate consumer would likely view the excessive cost of the calls as an additional punishment imposed on the consumer for no reason i , , , ' fi refrained from violating my prison NkS. James M. Odato. Tor@ng Profirsfrom Prism Cdh. 'IIMs Umos. Sep~ 4. 2wO. Texas does na reccive a kickback. MA@.~AIN~NG FAMILY CONIAC~. supra nbe 9. at 28-29. 44. See Ve&rmnriC, 1998 WL 201681. a1 '4 (finding ha1 of the 90.879 tolled cab. Vendmtic cmdy charged 13,849. undercharecd 12.157. and overcharged 64.873). - 45. MAlhTAIMNC FAMILY COh7ACI. supra note 9. a1 27. 46. Filchcr. supra now 9. m 52. 47. Odato, sypra nole 43. 48. FLORIDA LEGISUNRE omm OF PRCGRAM ANALYSIS AND ~owrwym ACCOUNTABILITY, FOLLOW-UP &PORT ON "E INMATE WELFARE TRUST FUXD rWlD WS~VIIOU-BASW ACCOUNIT MMINISTERU) BY THE DEPARTMENT OF CORRECTIONS. NO. 96.46(1597). LEGIS. Am. supm now 6. at 36. 49. See SWM Renews Call. supra note 14: Wsckr. supra note 9. at 52. See. e.#.. JoIh7 50. See Oliva Wendell Holmes. 7hc Parh of the Law. IO HAW. L. REV. 457. 451 (1897). 8 TELEPHONE SERVICES TO PRISONS Num~f 31 than bat a family member of the consumer has kn. incarcerated. he matter in this light would raise a number of justice. fairness. Lookins even due process concerns.? e Need io Maximize Access to Telephones Most es aficcted officials recognize that it is in the best interests of all by an incarcer$on that the incarcerated person maintain conracr with friends and family. That is, prison officials seem IO recognize thar with family is very imponant not just for the prisoner. but also for the and the family of he prisoner. Contact with families helps maintain order in the prisons, and it facilitates the prisoner?s ,inreption into society. Therefore. the stated goal of many ofiicial relating to inmate use of telephones is that prisoner access to I ! lclephones should be maximized.? .i I III. TELECOMMLINICATIONS ACT OF 1996 In 1996. Congress revolutionized the telecommunications market by pasing the Telecommunications Act of 1996 (the Act). The impetus? ; behind the Act was a finding that ?[t]echnological advances would be more rapid and services would be more widely available and at lower prices if 1 t&communications markets were competitive rather than regulared 1 monopolies.?* In light of this finding. Congress sought to introduce i competition into the telecommunications market. for the purpose of i ! i 51. Thcrcfore. most Iam?.king badies would likely look at kc mann from an entinly diffmnl pcrspcctivc. Most cdnly. kc phonc companies and the sates &AI muve a commission would not rake this point of view. 52 See Rater. Terms. and Condition for Inmate Telccomm. Servr.. No. 368. 1999 WL 179812. at ?I (Ky. Pub. Sew. Camm?n Jan. IS. 1999). The kpanment cf Conedons tcatificd bcforc the Commission that le Deparunen~ intended that those who pay for collat phone calls madc fmm prisons pay no mnc Ihan the amount fa a similar call made horn outside the pison. Id Sre dro AJr Pub. Scrv. Comm?n v. AU Customer-omcQ Coin- Operated Tel. Sm. Roviders Scning Continemcnt Facilities. No. 23871. 1995 WL 337071. a1 ?1-2 (Ala. Pub. Sew. Comm?n May 1. 1995) (dung ustimony of m ecomic capml maincd by he Alabama Attmcy Gcnnal?s Office who tuufied fhu no valid purpose would & served by cslablishing higher rates for inmatc phone calls). In both -sa. the Public Service Commissions apd to cap fhc ~KS on calls made from prison IO match ourridc ms. Rues, Tms. and Condition for lnmue Telccomm. Sav.. 1999 WL 17981L a1 ?3; Ala Pub. Sew. Comm?n. 1995 WL 337071. r( 5. 53. One has m wonder how ohm the actual atutudcs of prison officills refla rNs stated policy. Upon receiving information that the scue had jusi been swd fa allegedly mompolizing ulc povision of celcphonc services io primsr. ow stat offidd?s mfv response was thu ?lilnmatcs do not have a consuuuonal right to make phonc calls.? Suit Targrrs Rates. rupm mu IS. I \ i i I ! I 54. H.R.REP.NO. IW2W.a148(1995). ! I ! 1 I: .: 402 FEDERAL COMMUNICATIONS LAWJOURh?AL Wol. 54 protecting consumers from potential monopoly abuses.?$ To promote competitiop. Congress removed state and local barriers to entry, required providers to interconnect with competilors. and placed an affirmative duv on the commission and the states to ensure that universal service is available at rates that a~ just, reasonable, and affordable. These change will be analyzed individually. A. Removal of Barriers to Enrgv With respect to the removal of the state and local barriers to enuy. the Act has broad provisions for the preemption of state and local regulations that impede Ihe Act?s operation. The Act provides: ?No State or local statute or regulation, or other State or local legal requirement. may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or inmtate te~ecommunications service.*? These provisions grant the FCC the authority ro set aside any state law that is deemed inconsistent with the Act?s purpose.? Clearly, by allowing only one company to be the provider of service to a prison. the state has put into place a ?legal requirement? that prevents entry into the market. This legal requirement is essentially a govemrnent- granted monopoly. Section 253(a) of the Act is directed squarely against this practice, because the practice is inconsistent with free eny into the market. Funher. the state requirement conflicts with the congressional belief that technological advances would be more rapid, and services would be available at lower prices. if telecommunications markets were competitive marketplaces rather than regulated monopolies. B. Interconnection Congress funher imposed a general duty on telecommunications providers to interconnect with the facilities and equipment of other telecommunications providers.? The incumbent is to be compensated by i 55. Id. 56. Scc 47 U.S.C. 9 253la) (Supp. V 1999). 57. Set 47 U.S.C. 5 T53(a). (d) (Supp. V 1999). Scr dso S. REP. NO. lob230. at. 126 (19%) (noting chat rhc bill pecmps almost all stale and local banierr to competition). ? 5% Srr 47 U.S.C. 0 ZI(a) (Supp. V 1999); 47 C.F.R 0 51.305 (200;)). Note (hat I the duty 10 afford access lo rights-of.way. pola. cmduits. and ducts. 47 US.C 5 YU r 4) 251(a) requires a provider to share infrarnucturc and facilities. Section 25KbN4) irn (Supp. V 1999). Howevu. local exchange carriers would ?not bc required IO mkc any rlion that is economically unrcaronable or that is contrary IO the public inluesL? 47 C.F.R 0 S9.Xa) (2030). 7he obligation to regotiate intcrconncction applies to a local exchange carrier rhat is dctmnincd by he FCC IO have market power in providing exchange ravica. S. REP. NO. 104-230. at 117 (19%). The Act creates 1he poceniial for cornpeulion whnc formerly there was a naiurill monopoly. , , . .,. I E TELEPHONE SERVICES TO PRISONS plulnber 31 403 at reasonable terns. which generally has been consmed 10 at the of the incumbent. Essentially. these provisions require a mW er to lease its facilities to a rival. The provisions are designed to to enter the market without sustaining a substantial amount of or fixed Costs up front: when the rival leases access. these costs arc ne interconnection provisions, if applied to the contracts. would incumbent to lease the necessary facilities and lines to a rival. both providers could share everything, even the already exisling security system. Redl that the states seek to justify the exclusive ,,ding provisions by asserting that the costs are too high for two firms to both install and Operate sYStemS. But by interconnecting and using one system, two firms could compete without incumng the expenses associated wib installing and operating two duplicative systems. Further, it is likely hat competitive pressures would force each firm to drjve down costs.@ If sos then it is possible that two fims could operate at lower cost than B single firm. Finally, note that the exclusive dealing provisions also prevent be cow 59 allow ri sunk fieRby competition in the market. over time. Therefore, the provision lowers a barrier to enuy. interconnection. c. Universal Service ot Jusr Roles To effectuate the ultimate goal of promoting consumer welfarc, Congress imposed an affirmative duty on the states to prevent unnecessarily high rates from being charged. Specifically. the Act provides that "[tlhe Commission and the States should ensure that universal service is available at rates that are just, reasonable, and aMordable.'" Therefore. it is not sufficient for the states to promote competition: the states must also take affirmative action to ensure that all consumers have access to sewice at reasonable rares. The states have violated this duty in three material respects: by nquiring that a commission be paid to the stare. by allowing the provider to impose additional surcharges (which in pm pay for he commission). and by granting a monopoly to the provider. The states have violatd this duty because it is profitable for them to do so, no1 because the present situation is beneficial to consumers. This practice is in dmt 59. Some qucstion has Mvn as io how "CCSW should be mearurcd See. r.g,'Willim I. Baumol &Thomas W. Merrill. Derrgdawn. Takings. Breach ofrk RgularoN Cogrocr. andrh Tdrcommwicorionr ACI of 19%. 72 N.Y.U. L REV. 1037. 1039 (1997) (arguing that efficiency requires pricing by faward-laking CDSIS. and that thc Takings Claw does no1 prdudc pricing on a forward-looking bdn). 60. What costs arc lett? Managerial. adminimalive. billing, and any ocher sui which do mt pcnain direcdy IO the cat( associated with the lincs and facilities. 61. 47 U.S.C. $254(i) (Supp. V 1999). n 404 FEDERSL COMMVNICA77ONSLAW JOURNAL [vol. 51 conflict with the congressionally imposed obligation to ensure that service is provided at reasonable and affordable rates. Ultimately, one is left with the distinct impression that sate requirements are in direct conflict with both the plain terms and the spirit of the Act. Consequently, the FCC should exercise the powers conferred by the Act, and pmmpt any state conat that requires a commission to be paid to the state. or that grants a monopoly to a provider. IV. Emcmfl AN~Lysls The alleged superiority of law and economics. as a body of jurisprudence, is based on the fact that it uses economics to test the validity and/or efficacy of rules. and he fact that economics is a less subjective measure than those measures employed by rival jurisprudential theories? Generally speaking, law and economics suggests that the role of the law is to maximize wealth, and that all laws should be consaued so as to maximize wealth. Wealth maximization is. by some. measured in dollars; dollars are less Subjective than general notions of ')usrice" or %mess.*' Therefore, an efficiency analysis performed on two competing pieces of legislation. for example, is a less subjective measure of the merits of the proposed laws than a discussion about the comparative justice of the respective proposals, or the impact of the proposals on natural rights. Whose wealth is sought to be maximized: consumer wealth or social wealth? What is the difference between the two? Social welfare is defined as the sum of consumer welfare and producer welfare. The distinction between the two is imponant because they may not necessarily point in the same direction. A particular policy may enhance social wealth but adversely afTect consumer wealth, or vice versa. Those who subscribe to law and economics would generally assen that maximization of wealth should be analyzed in terms of social welfare.6' The issue arises, however. because the current approach in both antitrust jurisprudence and telecommunications taw generatty involves looking to consumer we~farc.~ Perfect competition maximizes consumer welfare better than monopoly. Competition is also preferable to regulation. perhaps even where it is a natural monopoly that is being regulatedb' ThFrefore, 62. The= is SI least some merit to this assertion. 11 is pmbably cprier 10 proh IIUI a 63. See GUtW CUABWI. THE COSTS OF ACCIDEMS 16-20 (1970) 64. ROBERT BOW. THE AhTITRUST PARADOX: A PWCY AT WAR WlW hUF 81 (1918). only justification fa rhe An prnicular rule is inefficient than it is to prove hat the same NIC is unjust. 65. Ai least. chis Article posits chat this must be Congms's belief. for this is really the I i i I I t I I i ! I i i ! i j I i 1 i i TELEPHONE SERVICES TO PRISONS plumber 31 40s pnmDe cition genedly maximites consumer welfan better than monopoly - or nanr~ rnonopob?. below dzpicts the economic consequences of the current smcnue of the contracts. In it, the label ?MP? denotes the price that would be charged by a monopoly. Similarly, ?MP*? denotes the monopoly when a commission is quid by the state. ?*CY refers to the price. and ?CP?? refers to the competitive price when a co&ssion is required. ?MQ refers to the quantity that a monopoly be expected 10 produce. ?MQ?? denotes the quantity produced by a monopoly when a commission is imposed. ?MC? represents the marginal cost of production. ?CQ? represents the quandty produced when there is ,,mpetition. An& finally, ?CQ?? represents the quantity produced when thee is competition and a commission is imposed. ne Figure 1. Prices Charged by Monopoly and Competitive Firms t MP MP cp? fp ?u R A monopolist will produce its goods at a level such that marginal revenue quals marginal cost. Therefore. the amount produced by a monopoly may be determined by locating (on Figure I) the intersectiqn of the marginal revenue and marginal cost curves. Note, however, +at the actual price charged by a monopoly it that which corresponds IO he demand for the amount produced. Accordingly, the price charged by a monopoly may bc determined by drawing a vertical line from the intersection of the marginal revenue and marginal cost curves to the 66 See SUVAN & HOVWLAMP. sqrn nm ID. 81 61-62. .. 406 FEDERAL COMMUNlC4TlONS LA W JOURNAL [Vol. 54 c L demand curve. Therefore, the circles depict the price charged and the quantity produced by a monopolist Conmt the output of and price charged by'a monopoly to that of a firm operating in a competitive - environment. A firm operating in a competitive market will produce its goods such that the market price equals the marginal cost of production. Stated differently. in competition. fmns will also price their goods at the price that corresponds to the intersection of the marginal cost and demand curves. Therefore, the rectangles in the diagram depict the pricc charged and quantity produced by a tirm operating in a competitive market. Cleuly. competition results in a lower price and higher output than a monopoly. The upward shift in the marginal cost cwe represents the effect of a kickback. The consquences of the imposition of the kickback are higher prices and less outpur Clearly. from the perspective of the consumer, a monouolv and commission are disfavored. But consumer dislike for a . 1 ! .. policy'does not necessary imply that the policy is detrimental to social welfare. Recall that social welfare takes into consideration the effect of the policy on the consumers and the producers. If the consumers ate harmed to the extent of X, and the producers are benefited to the extent of X, then the policy simply causes a transfer of wealth fiom the consumen to the producers; in the aggregate. the policy does not adversely affect the social welfare. In other words, because the policy does not adversely affect the social welfare it is not to be condemned on those grounds. From the social welfare perspective. is the monopoly. or the commission. preferable to the alternatives? There are two theories that may be used to answer this question. The theory of Pareto Optimality states that a new rule is superior to the old when the new rule improves at least one person's sition and no person's position is devalued by the rule's adoption. The pnncipal shortcoming of chis theory is that it has limited application. Often. someone will lose under the new rule. and even if the amount of the loss is negligible, the theory is unable to evaluate the value of the new rule. An alternate approach is taken by the Kauldor-Hicks theory. This theory holds that a new rule is superior to the old rule when the winners (under the new rule) gain more than the losers lose.y Judge Posner modifies this theory in one important respect: Posner asserts that a le& rule is wealth maximizing if the winners would be willing to pay more for its adoption than the losers would be willing to pay for the rule not to + 6p" . . 67. ROBERT C~ER & THOMAS ULM. LirW AND ECONOMICS 12.43 IM cd. 2MX)): D*N 68. Doses. supm "OK 67. al30. C~R & UEN. supra nae 67. I&. D~SLIS. LAW OF REMEDIES 30 (2d cd. 1993). Jwmtw 31 TELEPHONE SERVICES TO PRISONS 407 It is crucial Io note that the winner does not actudly have Io pay the loser. As long as payment is theoretically possible. the rule is weallh Willingness IO pay is one measure of people's preferences. it is easier to measure "dollars versus dollars" lhan it is to measure versus preferences." In this respect. Posner's version of the Kauldor-Hicks theory is supenor (in its application) to the traditional formulation of Kauldor-Hicks. Accordingly, this Article wiII define wealth in terms of Posner's version of Kauldor-Hicks eficiency. Concerns of "fairness*' will be given no weight in assessing the various po~icies.'~ v. STRUCTURE OF THE CONTRACTS AM) GAME THEORY This Section consists of two subsections. The first subsection will develop a series of payoff mamces. and use the matrices to show how the existing structure of the contracts arose. The second subsection will use game theory to dernonstrale that the award process causes the inefficiencies of the curreni contracts to perpetuate. A. The Payoff Matrix A payoff matrix is a simple device. Here, two matrices will be used to depict the incentives to the state for adopting a panicular structure to the contracts. The first matrix illustrates the incentives to the state for structuring the contract so the state receives a commission on the revenues derived by the telephone company. The second matrix depicts the incentives for structuring the agreement so a single telephone company will provide the service. 1. State Incentives for Requiring Commissions In Table 1. the left column depicts the potential political gain that may be derived from srmctunng the contracts in a particular manner." Note that 69. Richard A. Posner. Utililarianisrn. Econom'cs. and Lgd Theor?'. 8 1. LEGN STLDIFS 103. 119-22 (1979). 70. According to Kaplow and Shavell. a marivc arscssment of legal policy should k drivcn cxclusively by considcrations of swial wlfarc. and norions of fairness should be given no indepcndcnt wcieht,in assessing he policy. Louis Kaplow & Steven Shavell. Fairness Venw tt'dfarc. I14 H*aV. L. REV. %I. 966 (2001). 71. Political gain is Ihc political currcncy or benefit the state receiver whcn it p(r benefits 10 its residents. 'There is an inhcrent difficulty in ntampting to measure the politid gain 10 thc sua. This difficulty is augmented when me socks to compare rhc pmjcned political gain 10 thc financial gain. and 10 determine which is greater. One rne&awre of political loss (or gain) IO the sute is thc negative value of Ihc financial gain (or loss) IO thc siatc. Thm is. if the state passes a taa bat benefits he slitte to Ihc cxwnt of"J" (dollam a uniu). hcn rhc smtc has caused Ihc consumer 10 incur a financial loss of "3." Sin= he slue 408 FEDERAL COMMUNIC4TlONSLAWJOURNAL (Vol. 54 if the state continues to require the commission. the state sustains a political Ioss of "1." . Table 1. Incentives for requiring commissions political Gain Financial Gain Total Gain Kickback -1 4 3 No Kickback 1 -4 -3 The families of prisoners arc the only g~ooup harmed by this policy: they are not 'an organized body, nor are they seen as a psrticularly sympathetic group. Similarly, the state may derive some political gain from structuring the contract in favor of the families, but the pain would not be significant. The company is largely ambivalent about the requirement of the kickback, because most of the cost of the commission can be passed on IO the consumer in the form of surchargc~.'~ The right column in Table 1 represents the potential financial gain to the state. As the table indicates, the state can require the commission. and thereby derive a financial gain of "4." and a total gain of "3." If the state waives the commission, the state suffers a financial loss to the extent of the forgone commission." TII~ total loss if the state waives the commission is '3." The state clearly has a swng financial incentive to has imposed this financial loss on the consumer. he we suffers a poliucal loss of ,"3" because the consumer's political suppon of the state wanes when thc consumer is m& 10 pay the stau. This appmch is not without defccls. First of all. a pcrscn's political sllppat of the state is na ~cssarily bud on or even inlluenccd by. one decision made by the sue. Funha. the state rsciva the aggregate anwunt derived from the individual paymenu ma& by all the consumen. If used properly. this aggregate amount can benefit the swe morc than the smaller amwnts bcnefitcd the individuals. While there is probably an invav relationship kwem political suppat and financial costs imposed on consumers. it is unlikcly that IJU relationship is a one-teone rafio. When the Poslal Savicc increaser Ihc price of a stamp by a pcnny. for example. my political sum of IIK Postal Service daw not fall by a carcrponding amwnt. To the consumer. be loss of onc psmy is minixuk. but Ihc Postal Smia's loss of everyone's pennies mattm a gr~at dul. In the situation af the phone conums loss is imposed on a pwp that does not wield great political cloul. Thcrrfar che slate das nu suffer a rubstanrid political loss when it imposes a financial loss or\ this panicular group. FM purposes of this illusoafion the Aurha sssumes thaf thc ruio bctwua financial pin to he stafc Md political loss to the state is four to one. 'Iharfae. k sw will have a financial gain of four and political loss of MY. 72. Of cuune an additid surcharge would result in higher taal pices. causinp demand for the service to fall and a loss of sales for the company. In lhir pvricular m&L however. it is likely that the demand is na very responsive to price chanpck 73. 7hc lost commission is an opponunity cos^ This cost must be factored in baause the me will have to replace the lost commission. TELEPHONE SERVJCES TO PRISONS so9 pJumkr 31 mequire that the telephone company pa), a commission. As political incentives are, subsrantially outweighed by financial incentives. a rational will require a commission. . 2. Incentives for Utiljzing an Exclusive Dealing Provision In Table 2. the column on the left depicts the estimated net political gain or loss. Three groups will exen political pressure on the state: families, the incumbent. and the prospective competitor. As before. the value of the political loss (or gain) to the state is generally equal to the negative value of the financial gain (or loss) to the constituents." Table 2. Incentives for Utilizing an Exclusive Deplmng Provision Political Gain Financial Gain Total Gain Exclusive -0.073 S0.083 0.01 Non-exclusive 0.073 -$0.083 -0.01 Assume that a monopolist can charge a monopoly price and derive a profit of $0.25 on each phone call. If there is competition. then the incumbent can no longer charge a monopoly price. The incumbent will be forced to accept a lower profit level of $0.15 per phone call. Therefore, an incumbent stands to have a financial ain of $0.10 per phone call if the state grants the incumbent a monopoly. If the competitor is allowed to enter the market, the cornpetitor will earn $0.15 per phone call. Conversely, if the competitor is never allowed to access the market. {hen the competitor loses the oppomnity to derive $0. 15 in revenue. This lost oppomnity has a value equal to the lost revenue. Therefore. the competitor will lose $0.15 if the state grants a monopoly to the incumbent. As discussed infra. the cost difference between monopoly ahd competition, to the consumer. is $0.225. Accordingly, the consumer will incur a financial loss of $0.225 if the state grants a monopoly. For the reasons previously discussed. however, the political loss incurred by the state because of monopoly will be much less than the direct financial loss incurred by the consumer.76 In this hypothetical, the political loss is valued I 74. Alrhough the political pin (a loss) is calculated on the basis of Ihe negative value of the liiancial loss (or gain). he poliucal gain is not adjusted to rcflst LOX conrcqrrems 1i.e.. the sta1e.6 financial gaim will fanor in additional LOX revenue). Thc Auh das na klievc that this difference in tht calculation of he gains a losses undermines the analysis. 75. Thew numbers arc the same as those used in thc whemaucs in Pan Vl. inIra. 76. Again il is unlikely hat there is a one-~c-onc ratio in this sccnario. 'The families arc 410 FEDERAL COMMUNICATIONSIA WJOURh'AL [Vol. 54 at $0.023.n grants a monopoly, is calculated as follows: Therefore, the political loss incumd by the state. when the state 0.10 -0.15 -0.023 = -0.073. The political gain derived from permitting competition is calculated -0.10+0.15+0.023=0.073. The middle column in Table 2 depicts the dinct financial pain that may be derived by &e state if the telephone company is allowed to be the exclusive service provider. If the state grants a monopoly, then the state will derive $0.25 in revenue from the commission charged to a monopolist. But the state will also earn a commission if the state allows competition. Therefore, to determine the financial gain derived solely from the grant of monopoly. one must first take the difference in the commission between monopoly and competition. If the commission derived by the smre in the context of a monopoly is $0.25 per call, and the commission derived from a single phone call in a competitive environment is $0.175, then the difference is as follows: in the same manner, but by using the negative values of the same numbers: $0.25 - $0.175 = $0.075. The state will also receive income taxn from the profit derived by the company. The additional amount of tax from granting a monopolym at a 10% tax rate is calculated as follows: $0.075 X 10% = $0.008. Finally, the state's revenue is calculated by adding the tax revenue to $0.075 + $0.008 = $0.083. Consequently. the sfate has a financial incentive of $0.083 to grant a monopoly. If the state refrains from granting a monopoly. then the state incurs an opponuNty cost of $0.083. When the financial incentives are the amount of the commission: ~~ unorganized. politically weak. and perhaps even uninfmed about the effect of monopoly. The state may mwe easily justify the monopoly rhm the commission. Funhrr. a monopoly is less likely IO inflame he public than a commission, That is. rhc rcquiremcnt of Ihc commission may appear to the public as driven by grcui bad lax policy. or bad moncy managemni. All of the s1ate.s justifications fa thc commission revolve mund the need D gtncrau revenue. and this is mly popular. she state can mre easily jusufy a monopoly to thc American public, which is easily confused by rhetoric leven whue the rhetoric is baseless). Thc Autha' lhcrefwe assumes that on this pdcular issue. he ratio of politic* loss to financial gain is un IO one. 77. $0.225 I IO * 0.023. 78. 'llihis assumes a 10% tax on net income. 79. Monopdy profir is higher than the profit dcrivcd by a firm operating in a competitive market When the state pnts a mnopolg. they are able to ma this higher prolit level. . ! I I" Number 31 TEEPHONE SERVICES TO PRISONS 111 ,-onsided in conjunction with the political incentives. it is apparent that the slate. when acting to maximize its own welfare. will grant a monopoly. When examined in the aggregate, these financial incentives are far fro,,, mvial. Tables 1 and 2 are calculated on a per-call baskM but as of 1998 nearly two million pons were incarcerated nationwide. If each inmate makes one call per week on average. the numbers above can bc multiplied by 104 million to reflect the number of calls placed in one yea. Taken together, Tables 1 and 2 indicate that the state has both political and financial incentives to require a commission and to prant 8 monopoly to the telecommunications service provider. A rational state will act on these incentives and srmc~re the contracts accordingly. Unless the underlying incentives change, this behavior will continue indefinitely. B. Game theory is an economic lheory that can be used to gain insight into legal rules. The theory is used to identify the optimal snategy for one actor when the conduct of that actor depends on a course of conduct chosen by another actor." As applied to the present contracts between the state and ' the telecommunications provider. game theory will demonstrate that the award process perpetuates the inefficiencies of current contracts. Game theory will show that the award process mates a permanent market failure that will not correct itself until the process is modified. Assume that there are only two firms competing. Company X and Company Y. Each competes for a single contract. Funher assume that both X and Y know that the state will award the conuact on the basis of the size of the kickback offered to it. The companies are both motivated by profit, and therefore each will conduct itself to maximize its own profit. Game Theory in the Awarding of Contracts ' SO. Also note that Ihc '*cost of the call." as used here. is much lower lhan the actual cost Ut. SccCoorra& U~~~.s~pranou67.~,t34-38. in the real world 412 FEDERAL COMMUNICATlONS LA W JOURNAL [VOl. 54 Lurga Commission Table 3. Game theory in ihe award of conrracts SmN Commission Y High) IC (Low, High) 1 iy%ksion 1 fltfigh, Low) ID (Low. Low) I The choice variable for each firm is the commission offered to the state. The firms may offer either a large commission or a small one. The terms of ''high" and "low" in Table 3 indicate the payoff for each firm under each choice, given the choice of their rival." In the context of this game, the large commission snictly dominates the low commission for each firm. The payoff to Company X when choosing a large commission is greater than when choosing a small commission. regardless of the bidding strategy of Company Y. The same is me for Company X. Both firms will therefore choose the high commission. competitive outcome "A." While both would be marginally better off if they would choose to cooperate, there is no incentive to cooperate because there is no guarantee that a rival firm will also choose the cooperative solution. Each fm chooses the competitive solution because they are better off than if they cooperated. but their rival did not. The solution to this game highlights a fundamental defect in the award pmess. Taken as a whole. the award process inevitably leads to a contract containing an exclusive dealing provision and a high commission for the state, With the telephone company and the state acting rationally in their own best interests. the consumer inevitably loses. Until the incentives change, or until the state begins to elevate the interests of the consumer above those of the state, this situation will continue indefinitely. This is a i i 82. The payoff for a large commission is "high" because by offering a high commission. the firm is mom likely to be awarded the conma. Sina he telecommunications ravicc provider doer not pay thc cost of the commission iuclf. the fa3 thpl the commission is high dar mt redua the payoffto the fm. If the Arm WCIC he only bid&. it would offer a low kickback because the lower the kickback. Le higher lhc demand for maAing calls Number 31 T&L&PHON& SERVICES TO PRlSONS 413 permanent nontransitory market fail=. ? VI. h?ALYSlS OF THE CONTRACTS I This Section will innoducc alternative structures to the conuacts. and then determine whether the adoption of an alternate smcm would be an efficiency-enhancing move, To provide a meaningful frame of reference, the discussion will begin with a brief analysis of the present contracts. In the discussion of each alternative, a number of simplifying assumpfions will be made. These assumptions will remain the same in the analysis of each altematiye. The company is assumed IO be responsible for the full cost of the security system. and this cost is included in the company?s total cost in administering the contract, Where the state requires a commission, rhe commission will be calculated as 501 of gross revenues. The commission is passed directly on to the consumer in the form of a surcharge added to the cost of the call. Where the state waives the commission. the surcharge is eliminated. Assume that the state imposes a tax of 10% on the net income of the provideds). Further, and perhaps most importantly. the analyses of the competitive arrangements presume that the market is not a natural monopo~y.? Finally, each structure will be analyzed in tms of the cost of, or revenue derived from, a single phone call. Two phone calls will be depicted in a situation where competition is permitted, only to illustrate the effect of competition. However, where two calls are depicted, the analysis will still focus on costs and revenues associated with one call. A. Present Contracrs Figure 2 illustrates the smcture of the present contracts. The individual pays $0.75 for a phone call. Of this amount. $0.25 represents the commission. and this amount passes through the company to the state. The remaining $0.50 is retained by the telephone company. Of that amount. $0.25 is allocated to the costs incurred by the company in providing the services. and $0.25 represents the monopoly profit retained by the company. The orofit of $0.25 is taxed by the state at the rate of Id%. -. Therefore, the state derives $0.025 in ;ax revenue. and $0.275 in total revenue.. 83. Roving Ihe validity of this arsumpliw is beyond he scope of this papa. The AuLha bclicvcr he arsumption accwarcly rcflcnr rhc actual operation of the market. The cvidcncc suppning thc assonion of mural monopoly is wcak. See infm Section 1I.h 414 FEDERAL COMMUNICATIONS LAW JOURNAL Figure 2. Diagram of present contracts [Vol. u $0.25 pdil a.25 cod i I IndiVi I B. No Kickback, Competition Consider a situation where the state forgoes the kickback and allows competition to be introduced. In this scenario. illustrated in Figurr 3. the individual pays $0.35 for the phone call. Of that sum, the company retains $0.15 profit, and $0.20 is allocated to cover the costs of providjng the service. The company's total cost of providing the service falls from $0.25 to $0.20. The cost savings are driven by the threat of competition and the related need to increase efkiency and to reduce costs. Also. after a competitor has been introduced, the incumbent may pass on a portion of sunk costs to the challenger, reducing the incumbent's fixed COS~S.~ Competition forces the companies to accept a lowergrofit level, and therefore only $0.15 of profit is retained by the company. 84. This pedinion assumes that Ihe companies arr subjcc! Io a regime like I+ Tclaanmunicdonr Acl of 19%. which rcquircs an incumbcnl Io leae XCCSS IO cornpica. The lease payments are driven by the.incumbcnl's cas&. Presumably. whenhe incumbent acquired he cmuacL he incumknl incurred a high numbcr of one-lime eapenses. Under uzditiond acmunting techniques. ~hcsc expenses can bc proponionall) allocated IO urh czll. 'Ihercfore. when rhc challenger leases access to the syslcm thc incumbenl my pars lhese expenses onlo Ihe challenger. effectively relieving thc incumklu from incurring hsc expenses. 85. As picer continue IO fall. consumer ux of the syslem will increase. and cm~es' Axed casu may thcrcfm k allocarcd over a gca~cr numbcr of calls. although variable corn will increase. . .y i I Number 31 TELEPHONE SERVICES TO PRISONS -115 Figure 3. Diugrom of competirion wirhour kickhark $0.15 poR $0.15 prdl $0.20 coft $0.20 cost No kickback * State cowary COWW t t l"dividud Indii As Figure 3 illustrates. the state earns no revenue from commissions. but it taxes the company's revenue of SO. IS. Therefore. the state deri\aes revenues of S0.015. For the consumer. the cost of the telephone call has fallen from $0.75 to 50.35. saving her S0.40. Therefore. this scenario is a significant improvement from a consumer welfare point of view. There is also room for a bargain in this situation. That is. this scenario represents a change that would increase the social welfare. The caller would theoretically pay up to $0.40 to acquire this arrangement. because she will save this amount on the cost of a call. Therefore, if the caller paid $0.39 for this arrangement, then she would be better off by SO.01. The telephone company would require at least $0.10 to offset the loss of profit. and the state would require at least $0.26 to forgo the kickback and the taxes imposed on monopoly profits. $0.40 > $0.26 + $0.10. Consequently. the individual could pay the state and the company these amounts, and ihe social welfare would be improved by an amount between $0.02 and SO.05. depending on the precise nature of the bargain struck by the parties. The adoption of this structure would be an efficiency-enhancing move. It is imponant to note that the individual need not actually compensate the state or the cornpay. As long as compensation is theoretically possible, the new regime is an improvement over the old. Note also that this structure most closely resembles the public policy of the Act. Here. there are no state barriers to entry in the telecommunications market. This structure also most advances consumer welfare by "ensur[ing] that universal service is available at rates that an just. reasonable. and aff~rdable."~ 86. 47 U.S.C. 0 34iI tSupp. V 19991 416 FEDERAL COMMUNICATIONS LAW JOURNAL [Vol. 54 i \ C. Kickback, competition i ! In this saenario, presented in Figure 4, the state continues to require a commission. but it allows competition to be introduced. The company's costs fall to $0.20," and the threat of competition forces the telephone company to accept a lower level of profits. Therefore, the company's gross revenues arc $0.35, The state earns $0.015 in tax revenue and a commission of S0.175. Accordingly, total state revenue is S0.19. The commission is passed on to the consumer. Therefore. the individual pays $0.525 for a phone call. , Figure 4. Diagram of romperition with kickback $0.525 r I . $0.525 $0.15 pioH $0.1 5 Pon $0.175 kickback $0.20 Cod $0.20 cost CMlpW Cornpaw t t $0.1 75 kickback Slate 4 Individual lndividud In the present-day situation (the scenario presented in Section V1.A. with a kickback and no competition), the cost of the call is 50.75. Recall that in the first alternative (presented in Section V1.B. with no kickback and competition), the cost of the call is $0.35. In the second alternative. presented in Figure 4. the cost is $0.525. From a consumer welfare perspective, this alternative is clearly preferable to the first. but the second maximizes consumer welfare better than the first and current-day arrangement. As the consumer would save $0.225 in this option over the current situation. he would be willing to pay up to $0.225 for this alternative. 'Ihe state would require $0.085 to offset the loss in kickback and taxes. The company would require $0.10 to offset the loss in profit. $0.225 > $0.10 + $0.085. Note that here. too. there is room for a bargain; the consumer could pay the state and !he telephone company these amounts. and social welfau would be improved by $0.04, Therefore, this arrangement also enhances 87. The costs fall fa thc reasons discusvd in he prcrious rccnario. See supm Pan W.B. ! ! ! ! i ! ! ! 1 i I I I I TELEPHONE SERVICES TO PRISONS Number 31 417 consumer welfare and socia) welfare. D. State-Gned Enterprise This alternative, represented by Figure 5. depicts a situation in which the state would assme the role of rhe private company and provide the services directly to he individual. Figure 5. Diagram of sratc-owned enterprise No revenue Stale $0.35 cod lndividud As the state would be responsible for the operation of the phone system. the system itself would presumably be less efficient than a similar system operated by a private firm. Consequently. the state operates at a higher cost level, $0.35. than does the private company. The consumer would only pay $0.35 for a phone call. however. This scenario would also bring about an improvement in consumer welfare from the present-day situation. In order to adopt such an arrangement, the state would require the consumer to pay an additional $0.275 to compensate the state for the loss of kickback and taxes. and the company would require the consumer to pay $0.25 to replace the forgone profits. The consumer would bc willing to pay up to $0.40. but no more than that. S0.40 < $0.275 + $0.25. Therefore, there is no room for a bargain here. Consequently. while this arrangement would not enhance social welfare. it would enhance consumer welfare. E. Comparison of Approaches How the four aforementioned approaches compare to one another iS presented in Table 4. . ! ! Table 4. Comparison of approaches 1; !I / ' I! * ~ 11; /. ,I I ! Of the available options presented. either "competitive" regime is more efficient than the present structure. from a Kauldor-Hicks standpoint. This is so because both competitive regimes minimize the ne! social loss better than the present regime does. A lesser amount of social loss is really a social gain. As between the two competitive regimes, the second scenario (no kickback, competition) is clearly superior from a consumer welfare point of view. The first alternative would bring about a 50% reduction in the cost of [he call !o the consumer, whereas the second alternative would bring about a 30% reduction. However, both actors involved in making the svuctural decision-!he state and the company-prefer the present structure to any other. Table 4 illustrates why. Note that if the state maintains the status quo. the state will receive 50.275 in revenue. If the state moves to the first alternative. which would be better for the consumer. then the state will derive O!I& 5% of the revenue it formerly derived."' By moving to the second scenario. the company will realize 60% of its former profit level."" Neither the state nor the company has a financial incentive to make this change. no matter how inefficient or harmful to consumers the present structure may be. If i! is theoretically possible for consumers to purchase a mok competitive regime, then why do they not do so? There we a numbei of possible reasons. First, the consumers are probably unorganized, and arFy purchasing decision would require a great deal of cooperation. Second. 86. 50.015 / S0.275 * 50.05. 89. 20.15 IS0.25 = $0.60. .- .-- . .I p I Number 31 TELEPHONE SERVICES TO PRISONS 419 there is a cost to organizing. Third. there are ransaction costs of negotiating a deal. It is possible that these costs are so high that they preclude a ?deal from being reached. Fourth. it is possible that the consumers lack information: they may not how of the possibility of reaching a bargain, how to organize. or who IO contact to set up the transaction. VII. CONCLUSION The present state of affain is inefficient. It came about because the state and the company entered into a third-party beneficiary conuact. and in so doing, both actors focused only on their own welfare and neglected the so. called ?beneficiary? of the contract. Ulrimately, the problem with the present situation is that this behavior is entirely rational for both the states and the telephone companies. That is, it is reasonable to expect the smtes and the companies to place their own welfare before that of other panies. Economics presumes that actors will generally act to maximize their own welfare. and this is exactly what the states and the companies have done, In this panicular context. however. the conduct of the states has created inefticiencies. which. by definition. are wasteful and socially harmful. If the goal of law is IO minimize inefficiencies. then new regulation is appropriate. The letter and the spirit of the Telecommunications Act of 1996 gives the FCC the power to regulate these contracts. The FCC should exercise this power by preempting and regulating those contracts that gnnt a monopoly or require that a commission be paid to the state. ATTACHMENT A EXHIBIT 5 Exliibit J-1 Coriec\ioiral Facility Inlorination _- I ,1280 ITS 1108 11s 1030 ACCO 1202 COLLECT 2777 ITS i 186 ACCO 1223 lis i432 tis 1025 ITS 508 COLLiCi Cniirily Coirectmal . Secuiw oioo-ijsS oGoo.ijjo 06M)-2330 N/A osS6-23sS OlOO-i359 NIA . -. . . . .- . .. 0600.2330 WOO-2359 .. ... &ijijT2j59 FacihPy Name Lewd Alderson :omden ;Allenwood IAlenwood !Allenwood Allenwood !Ashland :Ananla 'Baslrop i :ampler ;Beaumont Beckley lBig Spring :Boton Brooklyn Bulner carswen Chicago :omflex Coiernan coieman cumbeitand Danbury ;Dublin F PC F PC LSCl MSCl HSCl .FCI 'USP FCI FCI FCI lFPC IMDC FPC FCI ,FCI LOW FMZ MCC LSCl Fci FCl MSCl Monioc Lycomng Union Union Union Boyd Fullon 'Baslrop Jefferson Raleigh ;Howaid Cnrieclional Population Coirecltonal Slate ' Fat% FaclkPy . i Operaling Hour' WV PA PA PA PA KV GA 1x 1x WV TX i;mlnllyadmo I CA !NY Dviham 'NC ji3iazor TX Dviham I NC larranl TX lsumter rc ifaiffield ci IL FL I 1g:;:er ' Alleghany MD 6 3 7 5 0 1 10 21 14 NIA NfA 4 - .. - .~ .- . .. NIA e . .. .. ii NU .. .... 5 6 NIA 14 ... - ~.. . . -. .. .- . -. . . . ... ... . . . . . . . .. . .- NIAI . - 7 10 3 7 1 14 . Page 1 Exliibil J-1 Correctional Facility liilormalion . .... .,.. Link 7 I4 NIA 6 in .. - NlA NiA a 4 i 4 NiA NiA 7 NIA 7 3 .. 14 6 2 NIA '4 NIA NIA 7 . ..... .... .... - io 6 MA 4 5 f1IA 4 7 6 5 ._._- I a Populatuon I 'i Fscw ! 'Corrcclional I I . Coriechonal Opcialing Houi I , FaciblyNamc Lcuel County SIale 1 FaclLly I Correcbonal Srcisdy 1482 imi 2122 94 i 1910 e46 1499 1689 ,Greenville FCI j Guaynabo MDC 'Jesup FCI IL~ Tuna FCI !Ceavenworih 'USP jLompoc !FCl . .L&sburg :USP iLexlnglon 'FMC ILompac 'USP Loreno 'FCI ILos Angelel ,MDC Manchester FCl i Marianna (FCI ITS ffioo.ij59 COLLECT .. NIA ITS 0100.2359 COLLECT NIA ITS 0600.234 5 lis 0600.23~9 ACCO oioo.i%g COLLECT NIA (unlon 1 F ayenc :Santa Barbara Sanla Barbara Cambria Cos Angelcs Clay [Jackson .. PA KV CA CA PA CA FL KY .. Marion USP Wlntamson iL McKean FCI McKean PA IN ' ''_ _. . ...... .... Memphis f CI Shelby ....... - I I I I 915 i297 ijii 668 ijei --- 705 si .. 53 80 NIA 54 NIA NIA 27 51 20 NIA 66 21 NlA NIA - ... __. . .. .... .... . -. -. .. . -. 42 40 96 50 . -. ..~. -- - 20 20 NIA 40 20 66 ... NlA . NiA ..... .. - .... .. NIA 2% $7 NIA 40 si SI 31 Miami Milan Monlgomery Morganlown * New Yolk Oakdale Oklahoma Ci Oxford Pekin ~ Pensacola Miami .... hiiiingiOn ..... -. ....... - - Nenlt Oakdale - Otivllle __ .- ... . . . -. . -. - . . ___ - - ..... . . - . . __ - -. . - ...... ____ - - ....... .... - - -. Fci oade 1031 F DC Miami - FCI Washlenaw Mi I411 TN 264 FPC Monlgomery ..... KL. 73 ___ 1 FCI Monongaia .... WV 805 C5k' _ - NV ' 443 New Yolk Allen FCI FDC OK Oklahoma Fit 1101 Orange . , , NV FCI WI 1186 Adams Tazewell IL iiiS ....... .. .... .... .... FPC Shelbi ..... - . . --. MCC .. Allen - -. - FCI . -. . FCi ..... ..... . .. -- .... - . FPC ...~ -. . 1161 -. - -. - . . - - . .... - . .- . ix -- . 910 . . - -. . . -. - . - - -. . .. rc-- isi m . Escambia ....... . Pelersburg FCI .. PLiiGiOige. ... Phoenix FCl Maricopa- . . Ray Brook FCI - Essex ---.. - _Rochester FMC Olrnrted g,K,, . ijo9 iZ-' iiJi A2 -. 1340 NV 1091 - -. I. Exhibit J- 1 :- it Correctional Facilily Informalion ! Corrrclmnd Coiiecliond ' Slale Fm+V , FacW Type i i Pnpula'an ! I I Operaling Houi Correclional FacWName lFCl MCC FCI FCI FCl F Pt I 'SaUord /ZZ!nl Seagonla )Sey John Shcrdan Springfield Tacrcdega lalahassee ISchufllcfl Gmham San Dego P*u Schuylll Djln Wayne I County I Levd ... 20 19 34 53 26 54 . 40 _. - _. 5i 40 ,5 55 - 36 .. - ... - 20 48 32 46 20 53 -. ...... - .... -. . - - - -. __ ... _- __ .- NlA NlA NA .... .. 4 4 NIA 2 6 . 11 NIA 5 5 NIA NIA 4 NIA 5 - - ..... .... ... .... . .. NIA ... ...... ....... .- ... ......... ...... . . - .. - . NiA . . - NIA 20 34 NIA NIA 40 39 NIA 61 NIA 20 NIA NIA 48 NIA - - ........ - . -. - ....... ....... ......... ... - 34 . . - . . . ......... . .......... . ._.!? Los Angdn Borne LN; oak Pma Waseca Yanklon __ Vb .... . -. -. . - - . ......... c;iioo ....... -- ' .- -, . - . _. . . . . - .... - . . .... ........ .... I iu IC" ix MO MN PA NC OR AI. FL ICA ... - . NIA NIA 6 7 NIA 6 7 10 NIA 3 NIA NIA 4 7 .... - . .- . . - .- .... .. ilA - klA 4 ._ .... .... ... ..- .- iG - __ __ ___ .- 1687 197 719 1381 429 1932 1028 i~io i 269 gee b9i iija iij ii .... 1608 1620 ..... 340 516 .... .... COLLECT NIA ITS OiG.ijS6 - - - __ ... ACCii 0100.2359. .COLLECT NIA lnternaliond Linea Long Dblance Number 01 Phones .Term Island ;:hWbeb"k I 1 hlee dieis Waseca , TUCSOi Yankion .... vazoo .- .. .~ FCI USP FCI FCI FCi FCI IF PC $Ci ._ .... ..... __ . - .. _. ... ............ I lidtiis 88 ..... . .. 97579 .... 3650 474 ............. _. .... __ 283 1 422 . r 32s 3 .- Page 3 .- ATTACHMENT A EXHIBIT 6 Page I communications Daily, April 28, ZOO; Copyright 2003 Warren Publishing, Inc. Communications Daily April 28,2003, Monday SECTION: TODAY'S NEWS LENGTH: 1051 words HEADLINE: STATE REGULATORS COURTED BY ILECS AND IXCS ON UNE-P ROLE BODY: to state legislatures Fri. at the National Conference of State Legislatures (NCSL) Spring Conference here. A panel Fri. summarized the new role of state PUCs in using "impairment" criteria from the FCC at the local level in determining whether to keep UNE-P. The predictable messages from AT&T and MCI to keep the UNE-P liberal and by Verizon "to consider local investment" and eliminate the UNE-P were somewhat misdirected in a room filled with state lawmakers, few of whom were likely to have telecom as their top priority. Final language on the Triennial Review is expected from the FCC next month. Much speculation remains on its details as the order by a closely divided Commission was based on several last-min. compromises. The FCC representative on the panel, senior counsel Cathy Carpino, who is involved with writing the broadband section of the draft, limited her discussion to piblicly known information from the original Feb. Commission news release. She did say with spme pride that the impairment tests the FCC would send to state regulators were "by far the most comprehensive and rigorous" that the Commission had devised. "State PUCs inherit a very large role in UNE-P cases," AT&T senior counsel Richard Rubin said. He saw little debate with UNEs intended for large businesses that used high- capacity loops -- DS-1 and above. Under the new rules the FCC presumptively will conclude there's no impairment 10 competitors, meaning ILECs won't be required to unbundled those elements, he said. A state PUC will have 90 days to make a contrary finding. "The big fight will be for the UNE- P for the mass market," Rubin said. The Commission will presumptively find CLECs are impaired if they're unable use a UNE-P to serve mass-market locations such as residential and small business customers. PUCs will have 9 months to determine whether market facts in their jurisdiction don't support that presumption using impairment criteria the FCC will identify, he said: "We don't know what this criteria is. Hopefully, it will leave room for PUCs to exercise their judgment" and rely on their local experience. Finding impairment for the mass market should be "a no- brainer" to state regulators, Rubin said. Unlike ILECs, competitive carriers always must incur significant extra costs to extend their customer loops to their own switches, he said. al!uding to a complex diagram !hat showed digital cioss-connects, optical switches, DS-3 transport and other equipment a CLEC needed to colocate if the WE-P weren't available. "These are things the incumbent doesn't have to do." he said: "The ability of competitors of provide a service without the UNE-P is extremely impaired." BOSTON -- ILECs and IXCs on both sides of the UNE-P debate pitched their respective views I Asking state regulators to make "pro-investment" policy, Verizon Asst. Vp-Internet Link Hoewing offered the familiar argument that the UNE-P regime served as a disincentive to ILEC investment in new networks that it knew it must share with competitors. "The more that is shared in the network -- at below cost -- the less incentive competitors have to invest," he said. Recounting the decline of telecom in the last 3 years, Hoewing warned that "the economy may not recover without telecom, which represents 4% of GDP." His warning was an argument designed to play in Mass., a state that recently has lost 160,000 jobs, primarily in telecom and Internet firms. "PUCs can make a major dent in getting investments started in your state," he said. Less convincing were Hoewing's arguments that without the UNE-P CLECs still had access to Bell networks through resale or colocation, adding that he had seen telephone switches on E-bay for "$100,000 or so." "CLECs can buy equipment," he said. Rubin retorted that "on resale, the RBOC earns the entire profit it would have received if the line were sold to a customer under the peculiar structure of the Telecom Act." Colocation also isn't inexpensive, he said -- AT&T has spent up to $10 billion "and has only part of the network necessary to compete on a facility basis." Facility- 'lked competition to ILEC voice does exist, Hoewing countered, pointing out that Verizon was losing business to wireless services, voice-over-cable and even e-mail on the Internet -- all facilities-based competitors. Odd man out on the panel was Rick Cimerman, senior dir.- state telecom policy of NCTA, which represents cable operators. He said the broadband portion of the FCC's Triennial Review would "be most important in the long run." The WE-P is tied to competitive voice, a service that remains "a cash cow but with declining revenues." In the future, "voice will be an adjunct to other services" such as cable modem or DSL broadband "and will be thrown in for free," Cimerman said. The "general framework where new fiber investments will have different regulatory treatment" than existing networks "is a sensible decision," he said. The FCC order will give ILECs significant UNE relief for broadband service capabilities and "the FCC got it wrong on broadband issues," MC1 Vp-Public Policy Joan Campion said. Aside ffom a 3-year phase-out of copper line-sharing, she said access to hybrid fiberkopper loops would qe limited, which "limits competitors' ability to provide broadband services'' such as DSL. ckpion and Rubin agreed that the FCC decision would have a significant effect on broadband :ompetition "eventually." If Verizon can supply DSL, but AT&T and MCI can't economically, they effectively are locked out of the local voice market, Campion said: "DSL must be part of the bundle." modem service -- would be the result of the new FCC rules. Cimerman disagreed, saying an FCC inquiry opened last week on providing broadband services over power lines, a service that FCC Chmn. Powell has called a potential 3rd network into the home. "If anyone has more money than the phone company, it is the electric utilities," he said. Cimerman also cited the expanding market for Wi-Fi hot spots, "and with mews Corp. CEO Rupert] Murdoch buying DirecTV, satellite broadband should be making a comeback." -- John Spofford LOAD-DATE: April 26,2003 Campion worried that a duopoly for broadband -- DSL provided by only the ILECs vs. cable - -- is ii ATTACHMENT A EXHIBIT 7 payphone.com - Our Products: Specialty Items : Armored Courtesy Phone Page 1 of 3 - The armored courtesy phone is a full featured coinless phone designed for use in locations where strength and reliability is needed. This wall-mounted unit is made of durable 14-gauge stainless steel, and is protected with tamper resistant security screws. It has a built-in volumc control button, and a re-enforced window for customized instruction cards. Description The armored courtesy phone is easy to install and simple to maintain. Applications House phone Employee phone Speed dial phone Inmate phone Courtesy phone Security phone June 3 Phone 1-800-884-4835 E-Mail : gtel@payphone.com About mi Products I SUPPOB I Cla-ssifieds I Site-Map I ., YvhW CBe Home > Products >Specialty Items >Armored Courtesy Phone - $169.00 Order Now Armored Courtesy Phone - $169.00 Qfl http://ww.payphone.com/Our - ProductdSpecialty-Phones/armoredcourtesy.htm 6/3/2003 payphone.com - Our Products: Specialty Items : Armored Courtesy Phone Page 2 of j Emergency phone Hot line phone Free call phone - Heavy-duty armored handset is hearing aid compatible (HAC) and has an anti-static receiver. Can be used as a stand alone single line phone or on a PBX as an extension phone. Works with most auto-dialers and call controllers Tamper resistant locking system Reenforced window for customized instructions cards Built in volume control button Calling card service compatible Warrant) 1 Year (See More Information ~_n_W_a!LaAt&O!.i.Cy] Dimensions~l0.U"' x 5.4"W 2.7"H I Addltior Pictur Optio Lead TII Technii Specificatia Instructi Man! FA Jsually ships same day JPSGround.Shlpeing.Char?-. see how long your package will take I User Comments Submit a new cqmment . http://w.payphone.cordOur - ProductslSpecialty-Phones/armoredcourtesy.htm 6/3/2003 - ____- payphone.com - Our Products: Specialty Items : Armored Courtesy Phone Page 3 of 3 ! :. About Us I Products I Support I Classifieds I Site Map I RVh; Copyright 0 2003 payphone.com. All rights reserved. G-TEL Enterprises, Inc. - Payphone.com 16840 Clay Rd. #118 Houston, TX 77084 Powered By -New Diqital Solutions http://www.payphone.com/Our - Products/Specialty-Phones/armoredcourtesy.htm 6/3/2003 payphone.com - Our Products: Specialty Items : Armored Courtesy Phone Page 1 of 2 : $7 Description June 3 & Phone 1-800-884-4835 E-Mail : gtel@payphone.com About Uri Pr!.xl~f I Suppo.fl I Classifieds I Site Map I . kw.w Cmt Requires a backplate. indoor enclosure, or pedestal lo properly be mounted. The Bell Style Coinless Phone is made of 11 gauge cold rolled steel with a durable powder coating finish that is capable of withstanding the environment of your most inhospitable phone locations. ]Home > Products >Suecialty Items >Bell Style Coinless Phone - .49.00 I Order Now I Bell Style Coinless Phone - -ON SALE $149.00 Mounting Options None - I I With a 52" handset add $10.00 r L J Feature . Heavy-duty 32 armored handset is hearing aid compatible (HAC). . Armored modular hook switch lever. . Armored modular keypad with metal buttons and bezel that is water, fire and shock .. !s lresistant. . Highly polished stainless steel faceplate with re-enforced instruction card window. ' Calling card service compatible. . Work with most auto-dialers and ca!l restrictor. ' Tamper resistant locking system. . Accommodate most smart boards II Weight127 Lbs It .> Warranty12 Year (See More Information on Warranty Policy) h~p:Nwww.payphone.com/Our_ProductslSpecialtyPhones/belIcoinless. htrn 6/3/2003 payphone.com - Our Products: Specialt) Items Armored Courtesy Phone Page 2 of 2 Dimensions Additional Pictures Options Usually ships same day I UPS - - Ground S -- hi~ping-Chart,..se.e..ho.w-lo.ng.your-p.ackage will take Lead Time I Technical Specifications Instruction Manual FAWI I User Comments I I Submit a new comment I About Us I Products I Support I Classitieds I Site Map I FVIOW Copyright 0 2003 payphone.com. All rights reserved. G-TEL Enterprises, Inc. - Payphone.com 16840 Clay Rd. #118 Houston, TX 77084 Powered By -New Digital Solutions hnp://www.payphone.codOur - ProductslSpecialty - Phonesibellcoinless.htm ,,I I 6/3/2003 Payphone.com : Products : Coinless Phones : Full Size Courtesy Phone Page 1 of3 October 7 - - - Phone 1-800-884-4835 E-Mail : gtel@payphone.com r .._.* . . . About Us 1 Frod~~ts I bu.~~o_rt I C!assi.fieds I Site Map,l Rvirw cwt Home > Products >Coinless Phones >Full Size Coinless Phone - $209.00 Order Now Full Size Coinless Phone - $209.00 QN~ Mounting Options -- None Upgrade to a 52 Handset $10.00 r ll I The Full size coinless phone is a large, full featured phone designed for use in locations where strength and reliability is needed. This wall-mounted unit is made of durable 14-gauge stainless steel, and is protected with tamper resistant security screws. It has a built-in volumc control button, and a re-enforced window for customized instruction cards. http:Nw.payphone.comlOur - ProductdSpecialty~ltems/fullcourtesy.htrn 10/7/2003 - ~ .~ .... . ~ ~~ Payphone.com : Products : Coinless Phones : Full Size Courtesy Phone Features Page 2 of 3 Heavy-duty armored handset is hearing aid compatible (HAC) and has an anti-static receiver. Can be used as a stand alone single line phone or on a PBX as an extension phone. Calling card service compatible Works with most auto-dialers and call controllers - Tamper resistant locking system . Re-enforced window for customized instructions cards Built in volume control button \Same footprint as a bell style for easy installation on a backplate. Weight115 Lbs Warranty11 Year (See M.ore Information on Warranty Policy) Dirnensionsl5"L x 7.5"W 21"H I Additioi Pictui I Optional Mounting Backplate Options Mounting Option : Backplate I hap://~~.payphone.comlOur_Products/Specialty_ltems/fullcourtesy.htm 1017/2003 Payphone.com Products : Coinless Phones : Full Size Counesy Phone Page 3 of 3 Usually ships same day UPS Ground Shipping Chart - see how long your package will take 11 Lead Time1 II Technical Specifications Instruction Manual User Comments Submlt a new comment About Us I Products I Support I Classifieds I Site Map 1 kv1.w Copyright 0 2003 Payphone.com. All rights reserved. G-TEL Enterprises, Inc. - Payphone.com 16840 Clay Rd. #118 Houston, TX 77084 Powered By -N_ewD~i!a~Sflp!lons 10/7/2003 ATTACHMENT A EXHIBIT 8 REPORT OF THE STATE CORPORATION COMMISSION'S DIVISION OF COMMUNICATIONS . ON RATES CHARGED TO RECIPIENTS OF INMATE LONG DISTANCE CALLS TO S. VANCE WILKINS, JR. SPEAKER OF THE HOUSE OF DELEGATES COMMONWEALTH OF VIRGINIA RICHMOND 2000 EXECUTIVE SUMMARY . During the 2000 Session of the General Assembly the House Committee on Rules considered House Joint Resolution (?HJR?) 262, which requested the State Corporation Commission (?SCC?) to study the rates charged to recipients of long distance calls placed by inmates held in state prisons, ahd local and regional jails. While HJR 262 was not reported, the House Committee on Rules determined that the issues raised in the resolution were important and should be reviewed by the SCC By letter, S. Vance Wilkins, Jr.. Speaker of the House of Delegates. requested that the SCC?s Division of Communications undertake a study of inmate calling. The Speaker provided a copy of HJR 262 as a guidance document. HJR 262 requested that the SCC I ) examine the current charges for inmate calls and 2) make recommendations on any alternatives for the provision of telephone service to inmates. The Staff of the Division of Communications contacted or met with representatives of the state inmate telephone system, various locallregional inmate telephone systems. state and federal entities charged with oversight of inmate facilities, an association of inmate calling service providers, and inmate families. In addition. we received approximately 30 letters from inmates and their families. Information was gathered regarding the specific rates and surcharges of different companies, alternatives that have been implemented by other inmate facilities, and specific problems encountered with the current state system. i The study discusses collect calls, associated surcharges. and options available to the recipients of inmate collect calls. The current Virginia Department of Corrections contract with MCI WORLDCOM Network Services is discussed along \\ith a comparison of the state rates and various rates for local and regional inmate telephone providers. Attachment 3 to the study provides a detailed comparison of the rales and surcharges for intrastate [intraLATA and interLATA) and interstate inmate and non- restricted automated collect calls. . As requested, the study sets forth modifications that could be implemented to revise the current inmate telephone system along with providing alternatives for the current state and IocaVregional systems. Of those, we believe there are two which hold the most promise for allowing reductions to calling rates. First, the Legislature should consider requiring the reduction or elimination of the commissions that VDOC or other inmate facilities may collect from the inmate telephone system provider. Any reduction from the current commission level should be passed through to users by reducing the current applicable intrastate and interstate charges or surcharges. Second. we suggest that VDOC and DIT undertake a study to evaluate the feasibiliry and cost of implementing n debit inmate telephone system in state facilities. This should include feasibility of whether i local and regional facilities could be included in sirch a system. i While providing modifications and recommendations. we believe it is important that before any modification or alternative is adopted, the resulting ratesisurcharges. potential impact on inmate families. and the security and safety for the individual facility and general public should be considered. . I iii Report of the State Corporation Commission's Division of Communications On Rates Charged To Recipients Of Inmate Long Distance Calls 1. INTRODUCTION . During the 2000 Session of the General Assembly the House Committee on Rules considered House Joint Resolution ("HJR) 262. Introduced by Delegate James F. Almand, which requested the State Corporation Commission ("SCC") to smdy the rates charged to recipients of long distance calls placed by inmates held in state prisons. and local and regional jails. While HJR 262 was not reported because of an effort to reduce the number of legislative study resolutions. the House Committee on Rules determined that the issues raised in the resolution were important and should be reviewed by the SCC. By letter dated March 10, 2000, S. Vance Wilkins. Jr.. Speaker of the House of Delegates, requested that the SCC's Division of Communications undertake D study of inmate calling. The Speaker provided a copy of HJR 262 (Attachment 4) as a guidance document, and requested rhat the Division's findings and recommendations be reported by December I, 2000. HJR 262 requested rhar the SCC I) examine the current charges for inmate calls and 2) make recommendations on any alternatives for the provision of telephone service to inmates. i * i In gathering information for the study. [he Division of Communications met with or contacted various'individuals or groups, including the following: I Inmate Calling Service Providers Coalition. Citizens United for Rehabilitation of Errants - Virginia Virginia Depanment of Corrections ("VDOC"). Federal Bureau of Prisons ("Federal BOP). California Department of Corrections ("CA DOC").' Colorado Department of Corrections (TO DOC'). Tennessee Department of Corrections. Pay Tel Communications. Evercom Systems. Inc.. &?la Correctional Billing Services, ASC Telecom, Inc.'. and MCI WORLDCOM Nehvork Sewices ("MCI WORLDCOM)' ("CURE -Virginia"). On April 19, 2000, the SCC received a letter from Delegate James F. Almand requesting information on two issues, one relating to the study nnd one relating to docketed inmate complaint cases pending before the SCC.' Delegate Almand asked how the public could participate in the current study and the pending complaint cases. A response letter was forwarded to Delegate Almand on May 17. 1000. The response included. as an attachment, a form lener from the Staff. which informed individuals of the study and invited comments. The Staff received approximately 30 letters from inmates and family members. One lettedpetition was signed by 53 inmates. The major issues expressed in these letters i I CA DOC representatives made an on site visi1 to the offices of the Federal Bureau of Prisons in Washington D.C. Attachment I includes their analysis of the Fcderal BOPS inmate tclcphone sysicrn and its applicability to the California corrections system. - Pay Tel Communications. Evcrcom Systems. Inc.. dib.2 Corrcctional Billing Services. and ASC Telecorn. Inc., provide local and regional inmate calling services in Virginia. ' MCI WORLDCOM currently holds thc VDOC contract to pro\,ide inmate telephone service to state corrc~tional facilities. Robert E. Lec Jones. Jr. v. MCI WORLDCOM Nenvork Services of Virginia. Inc.. MCI WORLDCOM Comrnunicalions of Virginia. Inc. (collccli\,ely "MCI WORLDCOM"). Case No. PUC990157 and Jeffrey D. Barnes v. MCI WORLDCOM. Case No. PUC990246 . 2 were: I) that the calls are too expensive: 2) there are problems with the inmate telephone system (blocks being placed on phones: numbers not working: cut offs before lime limit reached); and 3) the amount of commission paid and that the commission is not used for the inmates? benefit. These issues echo the statement made to the Staff during its August ?8.2000. meeting with CURE -Virginia. The 1996 Appropriation Act directed the Joint Legislative Audit and Review Commission (?JLARC?) to examine various issues related to the VDOC?s inmate telephone system. The JLARC study was presented to the Governor and General Assembly in January 1997. The study made eleven recommendations (Attachment 2). They addressed issues such as comparable rates and surcharges for inmate calls compared to similar non-inmate calls, extension of the time limit on inmate calls. commissions paid to the state and its use to benefit inmates, participation by the Department of Information Technology (?DIT?) in the inmate telephone system. provision of inmate calling statements to inmates, independent audits of timing and billing of calls. consideration of call recipients input during contract negotiations, and advanced notice of any ratelsurcharge increases. While some of the recommendations have been acted upon (e.g. audits and comparable rates and surcharges for inmate calls v. similar non-inmate calls), others have not been adopted and remain outstanding.? l b The SCC has adopted rules governing the regulation of interexchange carriers (?IXCs?) and payphone providers. In its Rules Governing rAe Certification of Interexchange . The Division of Communications belicvcs that some of rhe outsranding rccommendrtionr made in the 3 JLARC study continue to be viable today. 3 Corrirrs6 (YXC Rules") (20 SAC 5-400-60). the SCC allo\vs facilities-based lSCs IO request authority to set rates based upon competitive factors. pursuant to Va. Code $ 56- 481.1. This section states that the SCC. after making a determination that the services will be provided on a competitive basis, may grant the IXC authority to set its rates based on those competitive factors. This means that an IXC may price its senices on 3 market driven basis without reference to cost or rate base regulation. As of this date. no carrier has been denied such pricing authority. . .Additionally, many of the providers of local and/or regional facilities' inmate calling systems are non-facilities based ("resellers") IXC providers'. At present. the SCC does not regulate the provision of long distance services by resellen. The SCC has adopted Regulations .for PUV Telephone Service and Insrntnwnrs ("Pay Telephone Rules") (20 VAC 5-400-90) pursuant to Va. Code $6 56-508.15 and 56- 508.1 6.R These rules established certain requirements that payphone providers hid lo meet including access to other carriers and price limits. The Pay Telephone Rules also address the potential application of the rules to pay telephone instruments found in confinement institutions. The SCC exempted Confinement service providers from these rules, but retained its authority to revisit this exemption should circumstances change. i A ' Case No. PUC840017. Order issued June 29. 1984 ' Resellers of IXC services have no facilities of their own. They purchase services from facililicr-based lXCr and repackage and/or reprice thc S~N~C~S and sell them under thcir name. Case No. PUC930013, Order issued November 24,1993 4 11. EXAMINATION AKD COMPARISON OF THE CURRER?T R4TES AND CHARGES FOR INMATE TELEPHONE C.1LLS . Calls from Virginia inmate facilities. whether state. local, or regional. are nlnde on a collect basis. A collect call. whether handled on a fully automated basis or \vith the use of a live operator. is one type of operator assisted service where the individual originating the call is not the person paying for it. Collect calls from inmate facilities. as with any collect call. are paid for by the recipient and not by the inmate. Additionally. 3s with all collect calls, the call is not connected until the receiving party takes some aflinnative action. This affirmative action indicates the called party?s agreement to accept and pay for the collect call. Most, if not all, inmate telephone systems include a brand before the collect call is accepted which informs the called party that the collect call is from P correctional facility and the ,lame of the caller. Some, if not all. inmate telephone systems give the called party the ability to request the maximum cost of that call. refuse to accept the call. and to restrict additional calls from that inmate to the called party?s number. In addition to the per-minute rate for long distance calls or the flat rate for local calls there is an associated surcharge for handling a collect call. A collect call can be either a , local or interexchange call. An interexchange call can be further defined as an intrastate (interLATA or intraLATA) call. interstate call, or international call. While the SCC has jurisdiction only over local and intrastate calls. this study compares both intrastate and # ;? I interstate rates and charges for inmate collect calls with the applicable rates and charges for non-inmate collect calls. VDOC currently has a contract with MCI WORLDCOM to provide the inmate telephone system to all state facilities. As the comparisons below and information found in Attachment 3 show. the rates charged for inmate collect calls? are comparable to those charged to MCI WORLDCOM?s other customers and to those charged by other carriers. MCI WORLDCOM is currently charging persons accepting collect calls from state facilities a 51.55 station to station surcharge for intraLATA calls and a S2.25 station to station surcharge for an intrastate interLATA call. The per minute intraLATA usage rates vary from a low of 5.048 to S.40 per minute depending on the associated territory of the incumbent local telephone company (?ILEC?). and are distance and time of day . sensitive. The per minute rates (and surcharge) for an intraLATA state inmate collect call currently match the collect call rates of the ILEC. The intrastate interLATA usage rate ranges between 5.15 and 5.37 per minute dependent on distance and time of day. As a comparison (MCI WORLDCOM?s tariff has various classifications of operator assisted calls) other intrastate station to station collect calls (but not using an MCI WORLDCOM provided access number) are rated at a 52.15 surcharge with usage rates ranging between %.IS and S.37 per minute. A collect call using an MCI WORLDCOM provided access number (e g. I-800-COLLECT) has a per call surcharge of 51.Y7 with usage rates between 5.1499 and 5.3699 depending on the time of day and distance. i A Inmate collect calls are generally handled on a fully automated basis. The state inmate telephone system includes security features such as a per call time limit, an approved ?only? call list. and the recording of calls. While such security features are standard in the state prison system, many of the local or regional facilities may not have all the same security features. ? MCI WORLDCOM?s MCI Maximum Security Colleit calls rates 6 While MCI WORLDCOM currently has the contract to provide inmate calling services to state facilities, other providers. including AT&T. provide inmate calling senices to local . and regional facilities throughout [he Commonivealth. The following charts show a ,, , comparison of charges for selected collect calls for both inmate and non-inmates. Intrastate inIraLATA collect call Duration: 15 minutes Time of Day: Day Distance: 110 miles MCI WORLDCOM inmate MCI WORLCOM automated AT&T inmate AT&T automated Evercom inmate* ASC inmate Pay Tel inmate Verizon Virginia automated Rate Surcharee Total charee 5 3.29 1 .ss 4.84 5.25 2.1s 7.40 9.00 3.95 12.95 9.00 4.99 13.99 2.70 - 7.50 I .5S - 3.00 5.05 - 10.50 3.29 1.55 4.84 5.16 1 .s5 6.71 3.29 1.5s 4.84 lntrastate interLATA collect call Duration: I5 minutes Time of Day: Evening Distance: 253 miles . Rate Surcharee Total charce MCI WORLDCOM inmate s 4.35 -.-- 7 75 6.60 MCI WORLCOM automated . 4.35 2.15 6.50 AT&T inmate 10.35 3.95 14.30 AT&T automated 13.35 4.99 18.34 Evercom inmate' 3.88 - 7.50 1.80 - 3.00 5.68 - 10.50 Pay Tel inmate 5.25 3.00 8.35 * Evercorn serves 20 locallregional facilities in Virginia, and uscs various rate schedulcs. The rates in the cham represent the low and high charge based on the various rate scheduler. Interstate collect call Duration: I5 minutes Time of Day: Evening Distance: 2150 miles Rate Surcharee Total charae MCI WORLDCOM inmate $ 6.75 2.45 9.20 MCI WORLCOM automated 13.35 4.99 18.34 AT&T inmate 10.35 3.95 14.30 AT&T automated 13.35 4.99 18.34 Evercom inmate 10.35 3.95 14.30 Pay Tel inmate 9.75 3.00 12.75 ;I 8 OPTIONS AND ALTERNATIVES TO THE CURRENT INMATE COLLECT CALL SYSTEM This section of the study discusses various options and alternatives to the current collecr call system used by the state prisons and various local and regional facilities. The Division of Communications believes that the following issues should be considered before adopting any alternative to the current inmate collect call system. The resulting rates and surcharges for the inmate calls; The potential impact on inmate families; and The maximum security and safety for the individual facility and the general public. Since the Division of Communications has no expenise in prison security and safety. this study does not address such areas. POSSIBLE MODIFICATlONSlREVlSlONS TO THE CURRENT COLLECT ONLY INMATE CALLING SYSTEM . Commissions - Require VDOC, local facilities, and regional facilities to cap. reduce. or eliminate the commissions paid to the facilities." This should be passed through (dollar for dollar) to reduce the surcharge and/or rates for inmate calls. If local or regional facilities use the commission as revenue for operating the facility or inmates services, it may be appropriate to establish a maximum level and require any resulting reduction in E b Commissions or lease payments/fees are generally bascd on Ihc revemits generated by the inmm calls. 9 I I1 the commission to be passed through (dollar for dollar) to the collect call surcharsr andior rates. We reviewed eleven contracts of one local!regional inmate telephone ssnice provider in Virginia. The commission or lease payment paid to the county. city or facility ranged from 20% to 40%, with there only being one contract at 4OO;o. While the contracts. for the most part, did not contain rateshrcharges, one contract (4O0,b commission) specifically stated that an operator assisted surcharge of $2.75 was to be charged (interLATA intrastate and interstate calls) plus the AT&T tariffed per minute rates. Most of the contracts reviewed included a statenient to the effect that the provider agreed to charge operator assisted rates that were equal to or less than the tariffed rates regulated by the SCC or the Federal Communications Commission. The current contract between MCI WORLDCOM and VDOC includes a commission based on the revenues generated from the phones used by the inmates. The ciirrent commission is 40% and is paid into the Commonwealth's General Fund. During the study some parties voiced concern over the amount of the commission and its role in determining the winner of the state inmate telephone contract. In particular. there was il fear that there would be an incentive in the RFP process to award the contract to the vendor bidding the.highest commission. In the Staffs meeting with VDOC. we were advised that in the review and awarding of the state contract the commission proposed by the bidders played a minor role in determining the outcome of the process. The payment of a commission between payphone providers and payphone location providers is it common and.accepted practice around the country. . I i Time limits - Consider lengthening the time limit on calls (e.2. from IS minutss to 20 minutes or more for state prisons). This time extension could reduce or rsniove the inmate's need for multiple or back-to-back calls to the same individual. Additionally. the overall per minute cost of the call nould be reduced since the surcharge \vould be spread over additional minutes of use. Example: A current 15 minute interLATA evening rated call of 100 miles has a total cost of $6.30 (includes surcharge and per minute rate). This equals $0.42 per minute. That same call lasting 20 minutes would cost S 7.65. This is a little over $0.38 per minute, a per minute reduction of almost 10% or slightly less than $0.04 per minute. Today an inmate at a state facility wanting to talk to the same recipient for 20 minutes would be required to make two calls. Using the same 100 mile example above, these two calls would have a total cost of $9.90 (including the per minute rate and two separate surcharges). This equals $0.495 per minute. If the current inmate time limit were extended to 10 minutes, the per minute reduction in this instance would be almost 13% or slightly more than 50.1 1 per minute. $1 . Call restrictions - Revise the current system to restrict an inmate from repeatedly calling the same number (either a waiting period between calls. a limited number of calls per inmate per day, or a limited number of calls per inmate to B giver1 number). Whik this may not be a popular option for the inmates or families. it could result in lower telephone bills and lessen the financial burden on some families. . Revise the current system to allow call recipients to request an automatic block on calls from an inmate facility when a certain dollar amount (or number of calls) is reached per month. Surcharges - Consider limits on applying surcharges to one per day per inmate. or one per day per inmate for each different number called. Inmate education - Provide an educational packet to new inmates and each person on the "approved" call list. The packet should include information on the cost of calls. components making up the total cost of a call (surcharge and per minute rates). suggestions to maximize talk time (inmattsifamily have notes of topicdissues to be discussed during call to maximize talk time. take advantage of full 15 minutes), variation in rates between day,' evening. and nightweekend calling periods, responsibility of the calling party and the called party. Regulatory - Request that the Stare Corporation Commission cxen authority over rates and charges for restricted access payphones provided to confinement facilities. The current state contract requires the contracted carrier to charge rates that do not exceed those of the "dominant" carriers. If the SCC Pay Telephone Rules were expanded IO include inmate telephones," the rates currently charged by MCI WORLDCOM would fall well below the maximum allowable charges. Therefore, if current regulation were < 'I There would certainly be security concerns if all the Pay Telephone Ruler were applied IO inmate calling (e.$. acecss to 800 calling). I2 expanded to cover inmate calls for state facilities. it would not result in a reduction. Further, if the SCC were to exercise rate authority and require reductions. this could . result in a situation where no carriers would be interested in providing the sewice. ALTERNATIVES TO THE CURRENT COLLECT CALL INMATE SYSTEM I_- -- Establish a debit or debitlcollect inmate telephone system. Require VDOC and the Department of Information Technology (?DIT?) to undenake a study similar to that performed by the California DOC? to implement a debit inmate telephone system (?debit system?) similar to that system used by the Federal BOP. A debit system may prove to be cost effective and achieve cost savinss in large prison facilities where the duration of confinement and volume of calls would be great. The federal debit system allows inmates to place direct dialed calls without a surcharge. Under this program the inmate budgets available funds between commissary needs and the need for contact via telephone with family and friends. Inmates may earn money for calls as well as family and friends having the option to deposit funds directly into an inmate?s account, This places more financial responsibility on the inmate and. therefore. can lessen the burden on families. In addition, from a billing perspective since the calls are prepaid there is certainty of payment and virtually no uncollectables or bad debt. The Staff of the Division of Communications met with Mr. Mike Atwood and Mr. David Woody of the Federal Bureau of Prisons in Washington. D.C. on September 26, 2000. We were given an overview of the federal inmate telephone system? (?federal system?) F A ?*A copy of the CA DOC study is included as Attachment I. ?? Estimated number ofinmates in the federal syrtcm is 125.000 13 and background on the ten-year development and refinement process to get the system IO its current state of operation. The federal system consists of two types of calls. direct dialed debit and collect calls. . The current federal system uses no tax dollars and is financially self-sufficient." %Me the federal system has various contracts with vendors (DynCorp, Value Added Communications), many functions of the system. such as the management of inmate accounts, are handled by federal employees. I.' Inmates have the ability to make direct dialed calls with the cost of such calls being debited directly from their telephone account. Currently. direct dialed calls are rated at S.04 per minute for local calls and $.I5 per minute for long distance calls. There is no surcharge.I6 Approximately ninety-two percent (92%) of inmate calls are direct dialed. Since the cost of the call is subtracted directly from the inmates' account. the responsibility of paying for the call has been shifted from the recipient. as with collect calls, to the inmates. Inmates are paid an hourly wage for assigned work; these funds are deposited directly into the inmate's account." Additionally, families and friends may i The federal system uses an inmate trust fund for rc\'enues from the commissary and inmate telephone ,, li system. All expenses and salaries associated u.ith the inmate telephone systum arc paid from this fund. The federal employees working with the inmate calling telephone systcm are paid from revenues from I5 that system. I' While there is no surcharge on the direct dialed debit calls. there is a mark-up on the cost ofthc call. This revenue is paid to the inmate INSI account. It was also discussed that the current per-minute ratc for toll calls was based on a certain level of call volume. Based on a reduction in the owrall call volumc at federal facilities. the Federal BOP anticipates a ratc increase will be necdcd in the near future. The inmate has one main commissary account with the ability to transfer funds from that aceoitnt into I7 their telephone account. .' 14 make contributions to the inmate's account. LVhile there are no monthly statements provided to the inmates on their calling on an ongoing basis. an inmate can request * certain information, such as the balance of their telephone account. Federal inmates also have the ability to place collect calls (limited to 120 minutes per month).lR Interstale collect calls are rated at $.40 per minute with a $2.45 surcharge. Each inmate has an approved call list of 30 numbers with all calls limited to I5 minutes in duration. The federal system has a multitude of optional security, monitoring. regulating. and reporting functions that can be used on a facility by facility basis or even by banks of phones within a facility. The prisons have the ability to restrict all calls by an inmate. limit the number of calls an inmate can make in a day and set a minimum time limit between calls. Under normal circumstances there is no limit on the number of calls an inmate can make in a day but there is a waiting period between calls. The states of Colorado and Tennessee have implemented inmate debit telephone systems in state facilities. While there was very limited information,available on the Tennessee system, the Colorado system took six months to implement and has been in operation for nine yean." Today, 57% of all inmate calls in Colorado nre placed using the debit system. Colorado uses a total of 8% employees to operate the state inmate telephone t system for 15,000 inmates. Unlike the federal inmate system that does not provide any type of statement to the inmate, the Colorado system provides monthly statements of all ). 'I The systcm receives a commission of60% on all collect calls '' Covers borhdircct dialed calls and collect calls. lo Colorado has contracts with Value Added Communications ("VAC) and MCI. Like thc fcdcral anmale telcphonc systcm. Colorado uses a tmsr and is financially self-suficient. direct dialed calls. Local calls are 51.25. with intrastate calls being mileage sensitive with a $I .25 surcharge. The CO DOC is in the process of negotiating for a flat intnstate rate that will be effective 21 hours a day. seven days a week.? The only problem r.oiced by Colorado was the limited number of vendors in the inmate debit industry.-- . .. While VDOC has voiced concerns over the management of a debit inmate calling system. we believe the operation could be handled by DIT as previously recommended in the JLARC study. Local or regional facilities should consider use of prepaid cards. While local and ? , regional facilities would not necessarily have the duration of inmate stays, volume of calls, budget, or staff required to make a Federal BOP type system work. there may be other prepaid alternatives. As most local or regional facilities do not require the number of security features (example, approved calling list) required at long term facilities. a simplified prepaid system could be an option. Prepaid calling? cards offered by the current inmate phone service provider could be sold by the facility personnel or through vending machines. These cards could be purchased by the inmate during the booking process (when the inmate still may have access to money and/or credit cards). through a commissary. or by family andior friends and given to the inmate during visitation. This 8 alternative would still allow the local or regional facilities to be paid commissions on A They suggcsted that the flat rate pcr minute rate would bc in thc ranpc ofS.19 - 20 with the coniinucd 21 surchargeofS1.25. 22 Per Colorado only IWO vendors offer debit inmate calling, VAC and Global Tcl Link As a security and safety measurc the prepaid cards could be paper instead of the standard plastic 23 I 16 dollar amounthumber of cards sold. provider is certain of payment and there are virtually no uncollectables or bad debt. As with the debit system discussed above. the' . Alternatives which do not appear to have the ability to provide the continued maximum security and safety for the individual facility and the general public. There are a number of other potential alternatives to the current inmate telephone system. Commercial collect (800-COLLECT, 800-CALL ATT, etc.), prepaid calling cards (prepaid calling cards purchased convenience/discount stores etc.). ability to direct dial calls, the use of personal 800 numbers, and multiple carriers competing within an inmate facility are some alternative services which are available to the general public. While on the surface many of these services may be seen as an option for inmate calling at state. local, or regional facilities, they appear to present increased financial risk and potential security problems for the facilities. All, at first glance. may seem to have the advantage or potential for lower cost, more choice. andor control for the called parties. However. none of these options. as currently available, possesses the ability to provide continued security and safety for the facilities or the general public. Additionally. some of these options would fully circumvent all security measures such as approved calling lists. branding, tracking and screening of calls, and call limitations. Furthermore. many of these options, if implemented. could result in increased fraud and harassment. 3s well as * increased uncollectables and collection expenses. !. h 17 n?. RECOMMENDATIONS This study evaluated numerous modifications and alternatives to the current collect call inmate system. Of those. we believe there are two which hold the most promise for allowing reductions to calling rates. First. the Legislature should consider requiring the reduction or elimination of the commissions that VDOC or other inmate facilities may collect from the inmate telephone system provider. Any reduction from the current commission level should be passed through to users by reducing the current applicable intrastate and interstate charges or surcharges. Second, we suggest that VDOC and DIT undertake a study to evaluate the feasibility and cost of implementing a debit inmale telephone system in state facilities. This should include feasibility of whether local and regional facilities could be included in such a system. ANALYSIS OF THE FEDERAL BUREAU OF PRISONS INMATE TELPEHOKE SYSTEM AND APPLICABILITY TO THE C.4LIFORNIA DEPARTMENT OF ?CORRECTIONS . EXECUTIVE SUMMARY All California State Prisons have pay telephones that inmates. in certain privilege groups. can use to call family and friends. This Inmate Security Telephone System allows collect calls only. It is installed and operated by private vendors under a contract administered by the California Department of General Services (DGS). In response to complaints from inmate families about the rising cost of the collect calls, the Governor?s Office asked the DGS and the California Depanment of Corrections (CDC) to examine alternative ways for reducing the cost of the inmate collect calls. One of the alternatives examined is conversion to a system similar to the Federal Bureau of Prisons (BOP) Inmate Telephone PlNiDebit System, which provides both direct dial and collect calls at a lower cost. The CDC conducted a review of this federal system to determine the potential cost benefit and feasibility of transitioning to a similar system in Cali?fornia prisons. The followingis a summary of the findings. For comparison, the BOP has 96 prisons. 31,335 employees, and approximately 124,380 inmates. California has 33 prisons and 38 camps, 45.976 employees. and approximately 160,000 inmates. The BOP extends telephone privileges to all inmates with very few exceptions. and has a telephone-to-inmate ratio of 1:26. with a monthly average of 242 called minutes per inmate. The CDC has privilege groups with only one group having unlimited telephone calls during nonworking hours. The number of inmates in this privilege group is roughly equivalent to the entire BOP inmate population. The CDC?s ratio of telephones to inmates is approximately 1170, with a monthly average of 76 call minutes per inmate. The BOP has transitioned from a collect call system similar to California?s system to one that provides both direct dial and collect calls. In the federal system. the costs of direct dial calls are debited ?real time? from the inmate?s tmst fund account. To ensure accuracy, the BOP issues a Personal Identification Number (PIN) to each inmate which ties directly to their trust fund account. Currently, about 93 percent of the calls that inmates make are direct dial and 7 percent are collect. Indigent inmates can only make collect calls. The federal system has all the security features California currently has: Le., branding. recording. real time monitoring, etc.. as well as additional desirable features such as third pany call detection, frequently dialed number report,( approximately 25 investigative reports, etc. It has taken the BOP approximately five years e transition to this system. The key to the success of the federal system is that it is fully integrated into a standardized automated trust fund accounting and inventory system. California does not have a similarly automated system and could not implement a PINiDebit system without it. The basic task of developing the required connectivity alone will be very lengthy because California prisons are not on a network. Also, because of the imponance of maintaining a high degree of reliability. functionslity, and public and staff safety, CDC would have to fully assess security issues. costs. staffing, impact on current prison operations. as well as the impact to inmates before developing a similar system. I* I EXECUTIVE SUMMARY (CON?T) The cost of both the direct dial and the?collect calls are significantly cheaper than the current cost of California collect calls. The BOP?S average 15 minute. long distance. direct dial call COSIS $2.25 and a local direct dial call costs 5.60. Through the current State of California Pay Telephone Contracts, the average inmate family?s cost for a 15 minute. intra-state. inmate collect call is $7.50 (including surcharge). and a local collect call average is 53.90 (including surcharge). All of the federal government?s direct dial calls are routed over the Federal Telecommunications System (FTS), which is similar to the State of California?s telephone services provided through the California Integrated Information Network (CIIN). The inmate telephone system is one ofthe largest users of the FTS; with inclusion of the inmate telephone calls. the cost of all calls processed over the FTS has decreased dramatically. It is unknown at this time. if California could route all inmate calls over the CIIN andior experience a similar side benefit of 3 reduction in the cost of all CIIN calls. The federal PINIDebit system requires more staff than a collect call system primarily because more adrninis:rative processes and oversight are required: it. managing calling list changes. PIN applications. etc. The federal system has approximately ten staff responsible for the bureauwide administrative functions and 1.5: staff responsible for the overall local administrative functions in each prison for a total of 154 staff. The CDC estimates that operating P similar system in California prisons would required ten staff for the Departmentwide administrative functions, and 2.5 staff for the overall ongoing local administrative functions in each prison for a total of 92.5 staff. In addition, CDC would require approximately 12 staff for the planning and development of the system prior to implementation. The federal system generates enough revenue to pay for the annual 526.8 million cost of the system and realizes an annual net revenue of S26 million. The BOP experienced an increase in direct dial calls when the costs of calls were reduced after implementing the PINidebit system. The CDC estimates that a similar system in California prisons would cost approximately $10.8 million annually and generate approximately 510.5 million in annual ner revenue. Planning and development costs are estimated at $1 million annually. It is conceivable that California may experience the same increase in calls with direct dialing capabilities that the BOP experienced which could increase the net revenue. CONCLUSION The Federal BOP Inmate Telephone PlNiDebit is an efficient. fully automated. security;? conscious system that has reduced the cost of inmate calls dramatically. However. it has taken the Federal BOP approximately five years to fully transition this system to all prisons. The system couldprovide benejirs ro California. brit nor imntediarely. Additional study would be needed to develop a comprehensive needs assessment and implementation plan. With the exception of the high cost of collect calls. the current CDC system provides the necessary service to the inmates and their families and is operating well in the prirnnq. It is recommended that the State consider other options for lowering the cost of calls that could be implemented sooner. However, the state should continue to examine the PIN/Debit system as a prison management, security, and investigative tool, and as a long-term solution to the high cost of collect calls. . i . ANALYSIS OF THE FEDERAL BUREAU OF PRISONS INMATE TELPEHONE SYSTEM AND APPLICABILITY TO THE CALIFOWL4 DEPARTMENT OF CORRECTIONS INTRODUCTION: All California Slate Prisons have pay telephones thdt inmates. in cewin privilege groups. can use to call family and friends. This hate Security Telephone System allows collect calls only. It is installed and operated by private vendors under a contract administered by the Cdifomia Department of General Services (DGS). In response to complaints from inmate families about the rising cost of the collect calls. the Governor's Office asked the DGS and the California Deparnnent of Corrections (CDC) to examine alternative ways for reducing the cost of the inmace collect calls. One of the alternatives examined is conversion to a system similar to the Federal Bureau of Prisons (BOP) lmate Telephone PMiDebit System, which provides both direct dial and collect calls at a lower cost. DESCRIPTION OF THE FEDERAL BUREAU OF PRISONS PINiDEBIT SYSTEM The BOP began the process of installing a Federal Inmate Telephone PINDebit System (ITS) ten years ago. The original ITS was primarily a debit system. with very limited collect calling capability. In 1995. under a court mandate of Washington IS Reno er al. the BOP made the ITS a dual system which offered both debit and collect calling capabilities. The BOP is currently replacing the original ITS with an ITS-I1 system which has both capabilities. As of this report. the BOP estimates that all fedenl prisons will have the ITS-U within the next three months. The ITS-II system provides inmates with outbound telephone services and provides the BOP with the means to ensure the proper and lawhl use of this system by inmates. The following is a list of the systems' components. Centralized database, network based mana_eement system that provides support. network stamp, maintenance, monitoring, and operations. The ITS-I1 is the database setup for all nust fund debits which includes the commissary and the ITS. There is one standardized database system for all BOP facilities. which is configured independently, at each prison. The BOP utilizes a Wide Area Network (WAN) to provide connectivity among the ITS4 systems , at the prisons and to wpprt capability for systemwide administrative operations and functions (See Attachment A for schematic). The federal system's telecommunications' capabilities provide outbound direct dial and collect calling services to inmates and administrativdsecurity capabilities to BOP personnel. 1??7 w I DESCRlPTlON OF THE FEDEML BUREAU OF PRlSONS PINlDEBlT SYSTEM (CON'T) All inmate long distance direct dial calls within the United States and Pueno Rico are routed over the Federal Telecommunications System (FTS) circuits provided by the BOP. These costs arc borne by the revenue from the federal system. Collect calling services are fully automated and do not involve the use of a "live" opentor at any stage of a collect call. Admiistrative, system support. and training capabilities are located in the BOP Central Offce in Washington. D.C.. and in Aurora, Colorado. The Central Operation Facility (COF) is located at the conmctor's site in Texas and m alternative COF is located in Virginia (similar to our having an Emergency Operations Center [EOC] and w alternative EOC for the telephone system). The original ITS equipment was purchased by the BOP with existing commissary funds. The ITS-II system is vendor-owed which includes all equipment, installation. and maintenance costs. 85 percent of the inmate calls are interstate; 15 percent are local and international. The BOP'S current overall ratio of inmate telephones to inmates is 126. . HOW DOES THE PIK WORK AND WHAT IS ITS PURPOSE? The Personal Identification Number (PIN) is a randomly selected, ninedigit numher. by the ITS-II system that is unique to each inmate. The PIN is tied directly to an hiate's individual mast account and their preapproved telephone numbers list. The PIN is the only identifier through which an inmate can access their ITS4 account. Prison staff input inmate profile information into the ITS4 system on all new fedenl inmates creating a separate and individual inmate trust account. The inmate receives a random, ninedigit Pn\l number that stays with them throughout their incarceration. The inmate submits a list of up to 30 telephone numbers for approval. The PIN identifies if an inmate possesses an active ITS-I1 account. The PIN allows for customized applications for individual inmates (e.g.. allo\vs for only one specific telephone to be used limits the number of times an inmate can call. etc.). i Identifies the inmate when security staff are generating reports on potential abuse or illegal activity The inmate receives training at orientation on how to use the PIN and debit system. When an inmate is transferred to another prison. the PIN and telephone list becomes a part of the file transferred. The inmate's PIN number can be used at all prisons where the inmate is housed. This allows the inmate to place collect calls immediately upon arrival at the new prison. The inmate's account remains the responsibility of the pkon where the inmate came From until thc staff at the new prison changes the inmate's prison assi-ment. No fmcial transaction is conducted on the inmate's account except by the prison where the inmate account is designated. over the inmate telephone system. A HOW DOES THE PIN WORK AND WHAT IS ITS PURPOSE? (CON'T) The trust fund technician at the prison where the inmate resides. has the responsibility for changing andior deactivating the inmate's account (e.g. work FOUP changes. suspension put on telephone access, inmate release from prison. updating inmate's calling parameters. changes to approved calling lit, etc.). The inmate's PIN number is not reissued for ten years. If an inmate is reincarcerated within ten years, they will utilize ~e Same PIN number. There are no documented security issces regarding the use of the PIN as a "commodi~*' among inmates since the implementation of the PINDebit system. 0 HOW DOES THE DEBIT WORK AND WHAT IS ITS PURPOSE? When an inmate places a long distance direct dial call, the system is capable of debiting their ITS-II account automatically and in real time as the call is taking place. The system also allows the inmate to -fer funds from their commissary account to their ITS-II account for Ions distance direct dial calls via the telephone. The inmate is required to input a PIN and a valid telephone number for a call to be processed. The inmate can place only one call to one telephone number after enny of their PIN number. The system uses the PIN to determine whether the inmate possesses an active ITS-I1 account. If there is no account. the system generates an error message to the inmate and aborts the call. If the inmate has an active account. the system performs all required administrative checks necessary to process the call (eg. PIN and called number correlate. inmate has suflicient funds to complete at least a two minute call. etc.). If any administrative checks fail, the call is denied and a descriptive message is given to the inmate indicating why the call was denied. Neither the inmate nor the called party can speak to, or hear the other party. until after the prerecorded "branding" is completed and the call has been accepted. Call charges for inmates do not begin until the called parry has accepted the call. The call record detail is updated, along with the balance, on a real time basis and is available for reviewing by security staff immediately afier the call is completed Prior to the system terminating a call due to expintion of time limits or exhaustion of fimds. the inmate will be informed at 60 and 30 seconds prior to the impending expintion. Call charges sop when either the calling or called party hangs up. If an inmate hangs up or otherwise terminates the call setup prior to called parties' accepiance. no deductions will be made against the inmate's account. At no time does the system allow a negative balance in the inmate's ITS-II accotmt. 6 *& I ?Il,OO ACCOUNTING DATABASE The Federal Prison Point of Sale (FPPOS) System is the accounting and inventory sohvare package used to maintain inmates? commissary accounts. commiss~y inventory, and includes all inmate trust fund debits (commissary and ITS). The FPPOS commissary accounts are the source qf,/imds for inmate accounts in the ITS-U system. . Inmates can purchase commissary items that are approved by the warden at each prison. The requested items are sold to the inmates and the funds an immediately deducted from the inmate?s commissary account. The FPPOS system and ITS-Il must interact to exchange accurate creditldebit information benveen systems. The FPPOS is a standardized system and is operated on an independent Local Area Network (LAN) at each prison. De BOP Cenbal Ofice in Washington. D.C.. is capable of accessing all FPPOS LANs at each prison through the ITS-XI WAN. The system can provide inmates with their lTS-Il and commissary account balance information. along with the capability of transferring funds from their commissary accounts to their ITS-II accounts in whole dollar amounts via the telephone. Each prison has its own FPPOS database. which is backed up daily. When the inmate?s call is completed, the call record data is replicated at both the Central Opention Facility (COF) and the alternative COF located in Texas and Virginia. The ITS-II system archives all inmate data at both COFs. The BOP keeps all inmate data for ten years. which includes the call record PIN and accounting information The system has several categories for management of the inmate ITS4 account: 0 The Inmate Account Information. + Inmate?s registered number. name. prison. living unit. language, telephone restrictions, telephone list number of times an inmate is allowed to transfer funds between accounts per day or week, etc. + lTS-U maintains a detailed audit record of every fmancial transaction made IO an inmate?s$ account and at which prison the transaction occurred. + Throughout the duration of a call. the ITS-I1 tracks time and statu information regruding the call. + Au information related to an inmate?s financial uansactions is immediately and automatically updated SO that at all ties the integtity of the account balance can be verified against the fmcial bansactions detail audit record for that account. * All calls generate a call record that can be accessible and available for reporting, analysis. or reviewing immediately upon termination of the call. + Call records are stored on the sewers? hard drive for 12 months at the prison and archived at the COFs for ten years. 0 Financial Transaction Information .? Cl Telephone Call Record Information 12I7IW 4 STAFFING. OPERATING COSTS ANI) REVENUE The Trust Fund Branch is a component of the BOPS Centnl Office located in Washmgon. D.C. The Trust Fund Branch has approximately 30 employees including the hate Telephone Section and provides management and services to the BOP consistent with mainminine sability and financill inte@?' of the mt hd and inmate deposit fund. This branch oversees the operation of the BOP'S commissary, ITS. warehouse. laundry. and clothing issue opelations for approximately 124.538 inmates and prisons. The operating costs are based on line. hunk, and WAN costs. Revenue is based upon the volume of calls made by the inmates. The Inmate Telephone Section is responsible for the Bureauwide and on-site implementation of the ITS-II including development of policy and procedures. oversight of daily operations. compile data on inmate ILW of the system, reconcile fmancial activities. training. and continuing technical suppon. staff resources are as follows: 0 One Communications Supervisor 0 One Trust Fund Supervisor 0 Four Communications Technicians 0 Four TIUSI Fund Analysts Trust fund technicians at the prisons are responsible for creating. changing. and deactivating.inmate accounts; updating inmate calling parameters; generating and analyzing call records. training the inmates on how to use the ITS; and other necessar). local administrative hctions. Changes to an hate's calling list are submined from the inmate via his counselor. The counselor verifies he information and submits the signed. authorized change to must hd technicians. Staff resources are as follows: 0 One half of a Trust Fund Supervisor per prison. Q One Trust Fund Technician per 2.000 inmates at each prison. 0 To~al cost of lnmate Telephone Section saff, including Central Oflice and prison staff. is approximately $7.5 million annually. The BOP rulls their long distance calls over the FTS with inmate telephones being the largest user.$ These costs arebome by revenue from the fedenl system deposited into the inmate tmst fund. operating costs, which include, FTS per minute cost. line. trunk and WAN costs are approximately> $19.3 million 0 Total staff and operating expenses were 526.8 million, Q Per BOP, last year's net profit from the fedenl system n'as approximately $26 million. - Federal system is self-supporting. 11.7~00 5 RATE STRUCTLJRE METHODOLOGY Rate structure for the PMDebit system is based on 3 direct dial methodology. . . . 0 0 . . . 85 percent of inmate direct dial calls are interstate (state-to-state1 and IS percent are local and international. The BOP realized an increase in the inmate's telephone usage \vith direct dial in comparison of their previous collect call system. The minority of inmates make the majority of calls. All inmates are limited to 120 minutes per month for collect calls and have unlimited minutes for direct dial calls. bate drect dial charges are separated into three categories and rates: long distance at 15 cents per minute; local at 4 cents per minute: and international which charges vary !?om countty- to-country. Average number of direct dial minutes, per inmate. per month is approximately 212 minutes. Approximately 7 percent of all calls are collect. The inmate's cost for a collect call includes a S2.45 surcharge with a S.40 a minute me. based on the residential rate as of February 1998. TRAINING The BOP Central OWce staff provided training during the installation of the ITS-11. The conbilctor did not train the inmates or custody staff. Original mining for the inmates on the ITS-I1 PINDebit system is performed during oriehtation at the prisons. as well as, on an ongoing basis. 0 The trust fund technician(s) at each prison make themsehes available during the inmate's mealtimes to answer questions From inmates regarding the system and how it opentes. During installation, the BOP Trust Fund Branch. hate Telephone Section, provides one Trust Fund Analyst and one Communications Technician to perform training at each prison. Future mining will become part of the curriculum of the BOP mining facili~y in Aurora, Colorado. t i SYSTEM CHANGE OUT The BOP is currently in transition of changing out the original ITS to the ITS-I1 system. A change out project typically takes six to nine months. Schedule of installation was developed utilizing Microsofl Project. The BOP sends a r+esciard memomdurn from the director to wardens of the prisons inswlling the ITS-II system, describing the inmate's concerns and benefits of the progm. One communications technician from central offce performs site surveys at each prison. 12'7iW 6 SYSTEM CHANGE OUT (CON'T) Six weeks prior to installation staff at the prison begin "keyins-' inmate-related information into a data input device supplied by the conwctor. . Flyers are posted to notify staff and inmates ofupcoming upgmde from ITS to ITS-11. Headquaners' Communications Technician and Trust Fund Analyst develop individual installation checklists. Actual installation of ITS-U system takes approximately one week. Most difficult issues during implementation includes: e Informing the inmates of the change. Training inmates and slaff. Taking to the inmates regarding their concerns. Prepare prison for installation of system. Service to Site installation from local exchange canien. SECURITY The process to enact the safety and security features of the BOP PlNDebit system starts when the inmate enters into a prison and receives a PIN number. There are three areas of security concern regarding the ITS-11 system: User Security Level. Integrity and Security of the Inmate Trust Fund. and Security Regarding Inmate Calls. User Security Level The system provides secure. multilevel database access control configurations with defmable user levels. The BOP Cennal Office personnel have the highest access level as well as define the lower levels of access (screen view capability, menu functions. data input capability. query capability, etc.). Consistency of access is maintained at all prisons. The BOP creates the trust fund supervisor user access level 31 all prisons. The trust fund supervisor creates users for all other access levels at that prison and has control over all users and passwords within the assigned prison. Inteuity and Security of the hate Trust Fund The system can generate reports that assist in the ovenll accountability of the financial transactions and statements generated by the inmates (Telephone Account Statement Report. Transferred Telephone Accounts Report, Reconciliation Report. etc.). Security Reeardine hate Calls The system can generate numerous reports using a multitude of different parameters to allow for more enhanced intelligence gathering. increase security. and conceivably reduce !he amount of drugs going into prison and lower violence. A few of the reports are: Frequently Dialed Number Rem Telephone Number Called By More Than One Inmate Report. Alert Notification Report, Extra Dialed Digit Repod, etc. All calls are "branded." SECUMTY (CON'T) All calls have an intenniaent random overlay during the convemtion. idenrifting that the call is from an inmate at a prison and is being recorded. . Numbers can be blocked for all inmates at a prison. Telephone numbers may be blocked even if identified on the inmate's approved list. All calls are recorded and subject to "real time" monitoring. Ability to enable/disable telephones on an individual, cellblock or prison basis. Ability to customize applications from inmate to inmate (allow only one specific telephone IO be used; limit the number of tunes an inmate can call. etc.). Ability to limit date. time. and duration of call. Ability to monitor each telephone call or multiple telephone calls simultaneously. Ability to identi@ who was called, who made the call, what time call was placed. and what telephone was used. Ability to monitor from different locations simultaneously such as the local housing unit. Investigation Security Unit. Central Office. etc. RECAP OF FUNCTIONlh'G SYSTEM 0 The BOP has a standardized database system for all BOP facilities. Each system is confipred independently. The BOP utilizes a WAN to provide connectivity among the ITS-I1 systems at the prisons and to support capability for systemwide administrative operations and hnctions. New inmates receive their random PIN number when they enter the BOP system and it stays with them throughout their incarceration The ITS-II system debits the inmate's account automatically and in "real time" as the call is raking place. The FPPOS accounting database includes all trust fund debits (commissary and the ITS). Inmates can access their account via their PIN to nansfer funds or verify their account balances using the inmate telephones. The system provides the ability to have continuous, ongoing. daily changes to the activity of inmates' The BOP estimates completion of all change outs within three months. The federal system is self supporting with an annual staff and operating costs of $26 million. Last year the federal system generated $26.8 million in net revenue. 0 calling list. calling parameters. etc. t > APPLICABILITY OF FEDERAL PINlDEBIT SYSTEM TO CALIFORNM DEPARTMENT OF CORRECTIONS Description of Califomia Department of Corrections' Inmate Securiw Telephone Svstem 1?'7;00 8 The cwnt California bate SecWity Telephone System (ISTS) is a collect call only system that is outsourced via a DGS administered Master Contracts to Rvo vendors. The ISTS ensures all cdls are ??branded? as to their origin when initiated and at random intenals during the conversation. Inmate c;tlls are recorded and are limited in duration to a maximum of 15 minutes Description of California Department of Corrections? Inmate Securitv Telephone System f Con?tj per call. Inmate calls are automatically terminated and are subject to ?real time? monitiiring. If calls are deemed inappropriate. they can be disconnected by the Officer monitoring the call. Currently. CDC is utilig specialized security telephone equipment in the management of innwe telephone calls. The equipment is provided and maintained by the vendors at no cost to the State. As previously discussed. the federal system uses a PINiDebit system with direct dial charges immediately debited from an inmate?s hust fund account. The discussion below identifies potential issues in the applicability of this system to CDC. A complete needs assessment is required for actual resource identification. . MAJOR ISSUES Lack of Database System Staffmg and Cost To State Inmate Trust Fund Account vs. PINNIDebit System Implementation New Request For Proposal (WP) with PINDebit Direct Dial and Collect Calling Category and Population of Inmates Policy Training LACK OF A DATABASE SYSTEM Currently, there is no centralized and/or local database system in place at Heedquaners or hi the prisons to implement a PIN/Debit system. Based on the federal system. CDC would be required to utilize a standardized accountinglinventory database to implement a PlNf?Debit system. t Applicability: Accountingflnventory System must be developed to ensure ?real time? debits of all inmate tmst liund activity. To apply the federal PR\l/Debit system to CDC. a standardized Tmst FundA Feasibility Study Report (FSR) must be developed. A local and centralized accounting and inventory database system must be developed and include all trust fund debits (restitution. canteen, federal znd state filing fees. medical copayments. child suppor~ orders, any special canteen purchases. etc.). Manual and automated debit system in place at the same time would create the possibility of an inmate overspending in one account. l?i7!W 9 All prisons must have an operational LAN. A WAN would be required for connectiviry to the LANs as required by the fedenl ITS4 system. Must determine location of database backup storage facilities (Gllt. Teal Data Center. \eildur's site, etc.). . STAFFING AND OPERATlONAL COSTS TO THE ST.ATE AND POTENTlrZL RE\'ESCE Currently, there is no designated staff to develop. implement. and provide ongoing suppon to a PINDebit system. Applicability: Staff is required for implementing the PIN Debit system and to administer thc 1 wtm _. . on an ongoing basis in all prisons and in Headquarters. 0 Modify cmnt ofice shucture to include technical. accounting. operations and infomiation systems staff to plan, develop, install, train. and troubleshoot the PNDebit system. Headquarters would require approximately 12 staff to perform needs assessment: assess security issues and impact on prison operations; and plan and develop a complete. fully automated innlate telephone PINiDebit system. Based on the federal ratio of one prison staff to every 2.000 inmates. a total of 80 staff \vould be required to administer the PINiDebit system in 33 prisons. (Current inmate population is approximately 160,000 divide by 2.000 = 80.) Each prison would have approximately hv0 staff (80 di\:ided by 33 = 2.5). Staff \vould be responsible for creating, changing. and deactivating inmate accounts: updating inninre ciilling parameters; generate and analyze call records; training the inmates on use of the system: and other necessary local administrative functions on a day-to-day basis. Using the BOP'S Central Office staffing as a baseline. the number of Headqwers' statt' required for oversight of daily operations, compile data on inmate use of the system. reconcile tiniincial activities, ltaining, and continuing technical suppon is approximately ten. There is a potential impact to the Correctional Counselors I aorkload. although impact is unknown at this time. The impact would be identified during the system development phase. Estimate Cost and Revenue to State: Estimated Plannina and Development Cost is Betwren S500.000 and SI &lillioll (w1;iI I completion of RFPi ' A o Information Systems Division (ISD) iapprox. 7 staff x S60.000') = 5420.000 o Telecommunications and Accounting (approx. 5 stalrx S60.000) = S300.000 o System development and needs assessment may rcquire a consultant. Estimatc. cos1 is aloo,ooo - 5250,000. * . The PINtDebii Syricrn rrquirrr higher lcvcl uT annly~rl ahill!: ~:\swc~dtc Ciavrmmcntal Ptwpm hnrlyq and Ass~rrrtr Information Syrlcm Analyst) than ~urrent CDC Trust Fund Systmm uiiliring an Accounting Clerk II. Estimate Implementation. Onaoina Sicpport and Operational Cosr is behveen 89 Million and $11 Million annuallv (staff required once RFP is completedl o Headquarters and pnson Staff (appros. 90 staff h 560.000) = S5.1 million (may also require management structure to support additional star. Estimate could reach $6 million). o Operating costs include approximately ;-TI lilies and trunks per prison. 1V.W costs. ctc.. are estimated at $4 nullion to $5 million annually. . STAFFING AND OPERATIONAL COSTS TO THE STATE .4ND POTEhTIAL RE\-ENUE (CON'T) Estimated Potential Net Revenue is ADrJroximateh. SI0.S .Million annriallr* o Based on the BOP federal system methodolop and costs applied to CDC's inmate telephone usage, the State's revenues and costs are estimated as follows: $21,354,862 Estimated Gross Revenue Annually $10,515.652 Estimated Annual Net Revenue 10.839.210 Less Estimated Annual Staff and Operation Costs ' . Srr AIIachrnrnl B rer dcuilrd andyas CURRENT INMATE TRUST FUND VS. PINIDEBIT SYSTEM The current inmate nust fund is an antiquated. locally automated system with manual processes for the movement of inmates. Each prison has its own stand-alone Distributed Data Processing Systems (DDPS) which include the Inmate Trust Accounting System. Trust account staff manually input all of the inmate's debits and credits. There is no centralized database. When an inmate transfers from one prison to another, the process of tnnsfening their account is done manually. Trust account positions equate to inmate population (ratio is one mist account pinon per 640 inmates). As of November 1999. the cost to administer inmate trust funds for 150.311 inmates was approximately $7,812,541 annually. This cost includes trust accounting personnel at prisons. Headquarters, and ISD stafftg, plus the checks and receipts of trust office supplies. Currently, it takes two to three days per week. three weeks per month to process the canteen workload (his does not include returning inmates). Other workload involves manually debiting restitution. federal and state filing fees. medicalf copayments. child support orders. and any special canteen purchases (televisions. radios. etc.). h Additional areas that are currently being hampered and are considered low priority are postage charges, deadlines for holds are not being met. etc. ' Currently, there is a backlog of enhancement requests to the current database systems. Applicability: In order to implement the PNDebit system for prepaid inmate telephone calls, the current Inmate Tmt Accounting System must be replaced wilh a %lly automated accounting and inventory system Lhat includes all inmate twt timd activity. The system must be standardized and connected to the current DDPS system. l?i7!00 II IMPLEMENTATION Because of the impomce of the P'LhDebit spem. a high degree of reliability and availabilih. of setvices to the inmates is required. The BOP has been transitioning this system into all federal prisons since 1995 and will be completed within three months. . IMPLEMENTATION (CON'T) Applicability: The tieframe to implement a PIN.Debit System statewide is unknown at this tie. A needs assessment must be performed on all aspects of the PIN:Debit sysleni for prisons. camps. Law Enforcement Investigation Unit. Headquanen. Accounting. etc. Identification of an accounting and inventory database system conf-pation. for both local and central operations, The FSR approval is required. A RFP must be developed. Establish a core FOUP of staff IO implement a PINiDebic system (plan. develop. install. train. and troubleshoot). The core pup must include technical. accounting. operations. and information systems sraff personnel. Development of a project plan with tiehes and schedules. NEW RFP WITH PIN;?)EBIT DIRECT DIAL AND COLLECT CALL CAPABILITIES The current statewide inmate pay telephone RFP has been cancelled and a new RFP ,must be developed for the inmate telephone system. Applicability: A new RFP must be developed to include 3 PIN.'Debit system with dual direct dial and collect calling capabilities. A bidding methodology must be developed (CDC could possibly utilize the federal WP F A FSR must be approved. The RFP would request that the vendor purchase. maintain. and install the PINiDebit system) equipment. Utilization of the California Integrated Information Nenbork as the long distance canier for inmates calling within Cahfomia should be investigated. A RFP of this magnitude would take a minimum of 12 IO I8 months to develop and bid. methodolop, with modifications, to meet its specific needs and requirements). TRAINING Training of the PINlDebit system for the implementation ream, custody star. and inmates would be a monumental undertaking requiring critical coordination with all prisons and Headquanen' staK Applicability: The list of personnel that require training: Implementation team for the PINiDebit system. Ongoing administrators of the PNNiDebit system located at Headquaners. Inmates currently incarcerated in prisons. camps. and reception centers. Inmates new to the CDC system. TRAINING (CON'T) a Custody staff at 13 reception centers, 33 prisons, and 38 camps. Telecommunications staff at each prison. Investigations Security Unit at each prison. Law Enforcement Investigation Unit in Headquarten. Trust fund staff at each prison and in Headquarters. Correctional Counselors I at each prison. CATEGORY OF INMATE AND POPULATION The BOP and CDC differ in the management of inmates in regard to their telephone call wage. The federal BOP system: Extends telephone privileges to all inmates with very few exceptions. Does not have any Limitation on the number of times an inmate can make a long distance. direct dial call. The BOP prison population is approximately 124.380 CDC is approximately 160.000. The BOP has approximately 96 facilities. making the avenge inmate population per prison approximately 1,213; CDC has 33 prisons with an average inmate population per prison 4,879. The ratio of telephones to inmates is approximately I :26: CDC's ratio is I :70. The BOP average called minutes per inmate per month is 242: CDC's average called minutes per inmate per month is 76. $ Applicability: The category of hates that are incarcerated in CDC prisons could potentially have an impact on the PIN/Debit system revenue. A The CDC has approximately 29 percent indigent inmates that do not have any money in their account. Where the 29 percent of indigent inmates are depicted in the categories below is UnknOUn. hates are classified in privilege group categories ranging From A-D and U that specify when an inmate is allowed a telephone call. Group A - Approximately 123.630 inmates; unlimited telephone calls during nonwork hours IZ.'l;W I3 Group B - Approximately 5.472 inmates: one call per month . u5c.d cbr half-time workea Group C - Approximately 813 inmates: emergenc) only basis - used for inmates \vho refuse to work Group D - Approximately 4.527 inmates: emergency only hasis - :\dministntiot1 Se-megation or Security Housing Unit inmntes Group Li - .Approximately 19.943 inmates: reception center - eniergenc! ulls only . CATEGORY OF INM.ATE AND POPULATION (CON'T) Average inmate population per prison is 4.879. The cwent ratio of telephones to inmates is 1:70. POLICY ISSUE Potential change in policy must be reviewed to address the restitution replations. wlierenr the families could deposit funds into a telephone account without restiNtion being deducted. Currently. 40 percent of all inmates owe court-ordered restitution. Penal Ccde Section 2085.5 requires that 22 percent be deducted from any deposits made to an iiinute trust fund account to cover restinition and associated administrative fees. Inmate funilier hnve espressed concerns with the potential of restitution deductions if funds were deposited into an inniate's'nccount for telephone calls. CONCLUSION The Federal BOP Inmate Telephone PIN/Debit System is an eficient. fiilly automated. security conscious system that has reduced the cost of inmate calls dnmatically. However. it has taken the federal BOP approximately five years to fully nansition this system to nll prisons. The system corrld prol*ide benejits to Cali/ornia, brit nnr inrinediutely. Additional study would be needed to develop a comprehensive needs assessment and implementation plan. With the exception. of the high cost of collect calls. the current CDC system provides the necess? service to the inmates and their families and is operating well in the prisons. It is recommended that the State consider other,$ options for lowering the cost of calls that could be implemented sooner. However. tllc State sl~ould continue to examine the PIN/Debit system as a prison management. security and investigative tool. and as a long-term solution to the high cost of collect calls. 12;l.w ATTACHMENT A EXHIBIT 9 Before the FEDERAL COMMUNICATIONS COWSSION Washington, D.C. 20554 ) ) ) In rhc hlatrcr of ImpIementation of the Pay Tcicphonc ) provisions ofthc Tclccornmunicauons ) Act of 1996 Reclassification and Compcnsanon ) Docket NO. 96-128 RECEIVED ) J MAY 2 4 2002 COMMENTS OF THE INMATE CALLING SERVICE PROVIDERS COALITTON . May 24,2002 Albert H. Kramcr Robert F. Aldrich DICKSTEIN SHAPIRO MONN & OSHINSKY 2101 L St., N.W. c Washington, D.C. 20037 (202) 785-9700 Arrorncys for zhc Inmatc Cahg scwicc Providers Coalition No. oi CoDiM rec'd- Lkt ABCDE - minimum cornpensation for inmate service providers for inmate local collect calls. The Commission invited the submission of additional cost data: - We seek additional data, to the extent such data can be developed, that might ovcrcome the problems we identified. In particular, wc seek cost and revenuc data related to local collect calls made from confinement facilities, scparatc &om data related to othcr services offered by payphonc providers. We also seek support and justification for any costs rclatcd to inmate calling services (such as depreciation, overhead, or return on investment) that ICs providers assert differ from the costs incurred with rcspcct to ordinary payphones. NPRM, 174. The Coalition has submitted additional data, described below, which confirms the necd for thc Commission to prescribe a minimum compensation rate for local collcct calk. Such compensation would enable scnicc providers to recover their costs of sewing "marginal" confinement facilitics (Lc., facilities where no commissions are paid) in thox states where they currcndy arc rcquircd to charge ratcs below such costs. As previously discussed by the Commission, such a rate prescription is ncccssary to ensure widespread dcployment of inmate tclephone systems and fair compensation for inmatc payphonc service. W~thout rate rclicf, inmate service to small county jails in many states is in jeopardy, and inmate scrvice providers are able to SCNC othcr confinrmcnt facilitics only by charging increascd rates for long distancc service. i A. The additional cost information submitted by the Coalition dunonsuatcs that a minium rate of $2.44 p~ local call is necessary for ICs providers to recover the costs of a marginal inmate phone loation. In response to the NPRMs invitation, the Coalition rcquested its consultant, Don Wood, to prepare a study of inmate service providers' cosu attributable to local collect calls. This cost study determines the cost of inmate local collect calls with substantially 3 greater precision than the information previoulv submitted by the Coalition in this proceeding, and addresses the defects perceived by the Commission in the information previously submitted. NPRM, 1136-38: In addition, the study rigorously adheres to the cost-based compcnsation methodology followed by the Commission in the Third Payphonr Ordcr.? A description of the study and its results is attached to thcsc comments. Scc . -. Attachment 1. 1 To address the issue of scparating revenue and cost for local collect calls from other services (Id., 137), the Wood study identifies service-specific costs and attibutcs to local collect calls only the service-specific costs that are specific to local collccr calls. Non- service-spccitic costs are identified and allocated in zccordancc with the methodology approved in the Third Paphonc Ordcr. To address the Commission?s other concerns (WILL!, 138) the Wood srudy avoids mating commissions as costs, has fully documented its determinations of all costs, and has applied the same 11.25% rate of rctutn used in the Third Pnpbonc Ordcr. The Commission also questioned why inmate service costs were different from public payphone costs. ?W, 138. While there are differences between the costs developed in this study with the public payphone costs dctcrmincd by the Commission in the Third Paphonc Odor, such dil?crenccs are to bc expected. As the NPRM recognizes, there are numerous respects in which inmate service facilities and operations differ from non-inmate payphone services. Id., 19. Thcrcfore, while the same methodology has been followcd in both cases, the cost inputs are Merent and therefore the results are different. Indeed, it would be surprising, and perhaps a basis for questioning the study, if the costs of the disparate service operations and equipment configurations involved in inmate and non-inmate service had been found to be the same. , In order to ensure appropriate evaluation of such cost data, the Commission must reassess certain rulings in the Rrmand Ordcr. As explained in the Coalition?s petition fo May 15,2002) the Commission should reconsider and rulc that: (1) in the inmate service context, Section 276(b)(l)(A) of the Communications Act, 47 U.S.C. §276(b)( l)(A), inmate service providers must be fairly compensated by end uscn for the full cost of the scrvicc they actually provide (not an artificially segregated pomon of the service); and (2) compcnsztion for local collcct calls requires 3djustmcnt if a state rate ceiling prevents inmate service providers From recovering the direct cost of such calls plus a proportionate allocation of fixed or common costs attributable to such calls pursuant to the cost-based compcnsation methodology followed in thc Third Payphonc Urdcr. Implcmtntation of the Puy Tclcphonc Rcclassrfication and Compensarion Provisions of thc Tclccommunications Act of 3 reconsideration of the Remand Ordcr (JCC Public Notice, &port No. 2553, release i 4 . .... 'ATTACHMENT 1 Inmate Phone Local Call Cost Study Inmate Phone Local Call Cost Study May 24.2002 Prepared By: Don J. Wood Cynthia M. Wilsky Gregory H. Kraigher Wood d Wood Consulting, Inc. 4625 Alexander Drive Suite 125 Alpharetta, Georgia 30022 i Inmate Phone Local Call Cost Study recent Requests for Proposals ("RFPs") indicates that facility operators are requiring increased monitoring capabilities and other related features. The equipment acquisition costs used in the study reflect the minimum requirements set forth in these RFPs. This ensures that costs are forward-looking. D.3.3 Depreciation The useful life of an investment is directly impacted by two constraints. First, the investment can be consumed or rendered unusable by wear and tear. This constraint is typically the limiting factor in the useful life of a durable asset in a stable industry. Second, the useful life of an investment can be limited because of technological changes that render the asset obsolete.u This constraint is typically the'limiting factor in the useful life of a technology-based asset (such as computers), or assets utilized in an industry characterized by rapid change in the functionality required by customers. Vendor bids and invoices indicate that the primary investment for an IPSP consists of the computer processing equipment that provides the hrnctionatii demanded by the operators of confinement faciliies and regulators. In contrast. the basic phone units represent a minor portion of the investment for a given location. The automated call processing equipmen?' has proven to be subject to technical obsolescence as the demands of confinement facility operators and regulators change. Because of these changes, IPSPs are usually required to recover their investment over the term of the contract with the confinement facility operator. These contracts range in length from three to five years. As a conservative assumption, a useful life of five years has been used in the study for this equipment. The IRS (publication number 946) also supports the use of a five year depreciable life for computer equipment. D.3.4 Return on Investment . Return on Investment should be representative of a normal economic proffi on the capital investments made in order to provide the service. When this return on investment is included in the cost calculati~n,~~ a rate set equal to the calcuiated cost would permit the provider to receive a fair return on investment. 8 "An asset can become obsolete either because it is incapable of performing a newly demanded function, or because it no longer represents an eficient method of providing required functionalny. '' The Commission has historically required this treatment of return on investment in cost studies conducted by the LECs. and adopted this approach when calculating costs to support its rate far dial-around compensation. This equipment is comparable to a personal computer, 14 61 6.1 LL 91 sc tL EL 21 LL OL 6 8 L 9 S P qc ec I I eorl I . S s 61 81 LL 91 SL *l Cl 21 11 OL 6 8 L 9 S P 46 ec 2 t m I I I I I I 61 81 L1 91 SI v1 C1 21 li 01 6 8 L 9 S P 4E et 2 1 aon I ." .. . ,i:..: 1.:-,;=,> ': ', )i , ... ~ . . ., .. Inmate phones - County Jail Facilities Local Call Cost Study Location N line 1 2 3a 3b 4 5 6 7 0 9 10 11 12 13 14 15 16 17 10 19 Variables lopvt Local Service Charges - Flal monthly fee Local Sel~rC Charges - rnonlhly he charp Local savics ch.r!p - Usape - average lewh Unbiltsbls dlr - not acmptd; answering machine See Analysis Section 0.3.1 (Tab 0). Documentation is available. 2601 See Analysis Section 0.3.1 (Tab 0). bcmenlation is avaibble. 7.68 See Analysis Section 0.2.1 (Tab 0). Documentalian is avaidabk. 0.025 See Analysis Section 0.2.2 (Tab D). Doamentalii U available. 0.0160 See Analysis Section D.2.1 (Tab 0). Documentalion is avaihk. S s Tala1 Number of Calls (Local6 Interstate) Average Number of Calk per monh -All Types (exckiding unbillabk ~ nd acomted) Unbillable calls - returned by LECs J a b c PWUAKCalls d Billable Calk # of Lines Service Spcific Average Number of Calls per month (excluding unbillable . not aaapkd) Unbillable calls - returned by LECs a b c PBAlOAKCalls d Service Speufic Billable Cab Billing .3 Coleubn Fees Validalin fm call Cos1 d Equlpment Depredahm period (#of months) SGM Total (manhly mrt) ReRrn (prof#) X Canmission X Uncolkctibles % Unbilab!e % -returned by LECs Pal Billing AdjuBImbnl% (PW) - Denied AU Knowledoe (MK) <Left blank, 872 See Analysis Sdon 13.2.1 (Tab 0). Documcnlalm is available. 29t Ln 5 I Ln 7 I3 months 6 Ln6'Ln18 1 Ln6.LntS 284Ln6a-6b-6c 1 Location Spedb Data 2% See ~na~yla Sedim D.z. t (Tab D). Doamentation is waihblo. 5 Ln8'LntE 1 Ln8'Ln19 248 Ln 8a - 8b - Bc E s E 13.689.00 Location Specik D.la s 107.61 Calculaled from inlormrlii pmvidd by IPSPs. 0.104 See Analysis Sedion D.3.8 (Tab D). Doamentalion is wabble. 0.058 See hly~R .%Son D.3.7 (Tab D). Ooamunlalan ir rvai*bls. 60.00 Calculated Punuant to melhoddogy set forth in Thitd R60 11.25% Warkshea ROI. Ln 1 1, Col. N 23 10% Calculated from informallon provided by IPSPs. 1.9% Calwlated from information pmvided by IPSPs. 0.2% cplculaled horn infomulion pmvaad by IPSPs. OX : ij *;iyJ:i: .~ :, j 1: .. :j. ir .. Inmate phones -County Jail Facilities Location 0 Local call cast study LJne 1 2 3a 3b 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 i : Workpapers D J 35 Yenables ioput Lml SeMce Charges - Flat monthly fee Lout senrim Ch.rger -monthly tine charge LmlSavissawges-uuge-aMngskngm Unbillabb dr -not m%%pted: anrwer*lg L-1 &vice Chug- - U- - Wt per minuts See hlysm SecUon D.3.1 (Tab D). Documentation is available. 28.53 See Analyais SedDn D.3.1 (Tab D). Documentation is available. 8.04 See Analysis Sedian D.2.1 (Tab D). Docmudation is mailable. 0.025 See Analysis Section 0.2.2 (Tab D). Oocumntstion h avaW. 0.0159 See Analysis Sedh D.2.1 (Tab D). DocMenlation is available. S S Told Number of Calla (Local 6 Intenlate) Average Number of Calk per monlh - M Types (exduding unbllsbla - not sc~~led) UMabb ulb - mtumed by LECs U a b c PWMKCalls d LlhbbC.ls I Of LIneS Sew- Spulic Average Number of Calls per month (erdudtng untvllaMe -no1 accspled) Unb~llable calk - relwnad by LECs a b c PBAlDAKCalls d SeNHx SpeUhc 6dkME Cab Bllng 6 CdtecIm Fa Vd&m per dl <Le0 blank, Cos1 of Eoupment kmuallon period (S d Mhr) SGM Total (montNy cat) Return (pml) K commiulon K Unwlledbles K Unb#able K - returned by LECs Pod Bilhng Ad~usbnenl K (PBA) - Denad AI KJ=w@(DAK) -w -_ 2,420 Sae Ansfysis SedDn D.2.1 (Tab D). Doamentalion is availaba. 269 Ln 5lln 713 monht 5 Ln6'Ln18 1 Ln6'Ln19 263Ln6a-6b-6c 3 LocationSpecikData 232 See Analysis Section 0.2.1 (Tab D). Doamantarion ir available 4 LnB'Ln18 - LnE'Ln19 228 Ln Bo -8b - 8s s I s 5,961.00 Localii Spxific Data 60.00 CaiaMed s 107.61 c.lcuWed fmm inlomulim pmviduj by IPSh. 0.104 See Analysis Sscliol D.3.8 (Tab 0). Oownentation h available. 0.058 See AnJyds Wi D.3.7 (1.b D). -(ion ia available. lo mlhaddogy sd fmih in Thicd R60 11.25%WmWmetROI.Ln11.Col.O 23.10% Cdoulated from informath provided by IPsPs. 1.9% CllculatCd fmm infaufion povided by IPSPs. 0.2% c.*Uhlod horn inkmation pmvidsd by IPSPS. 0% hpt0 YI4m14:29PM . ., I 11 ' , Inmate phones -County Jail Facilltles Local Call Cost Study Location P liae 1 2 3a 3b 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Yariables Local Serve Charges - Flat monthly fee Local senw Charges - &ly lins charge ~ocal saw Chrpa - U- - average lsnpm or can Uhllabb calla - not aasW; machlne LacrlServicsChwpas-VI.ge-eDI(pnminuM S Totat blumber of Calls (Local 6 Interstate) S a b Average Nunber of Calls per month -All Types (exduding unbillable - not -pled) Unbilabk calls ~ returned by LECs PBAlDAK Calls # of Lima Sewice Specifn Average Number of Calk per month (excluding unbllable - not accepted) Unbilsble calls - relumd by LECI d BillabkCdls a b c PBAlMKCalh d Servlco Specilic Billable Calls Blliig 4 Cdleclion FeaS vddalan per an Cost of Equipment Dcpwallw period (X of monuI5) SGM Total (monlhly mat) Return (profl) % Canmission % Uncolleclibks % Unbillabk % - relumd by LECs Post Billing Adiusbcen! X (PEA) - Denied All <Le# blank> Kmwkdpe(MK) > -_ loput See Analysis Section D.3.1 (Tab D). Documentalion is available. 32.s see mtysn Section D.3.1 (Tab D). mmentatiw i. available. 7.51 see myair ssdion D-2.1 (Tab D). Daumsntatim is availebk. 0.025 See AMIYS~S Saction D.2.2 (Tab D). Ooannentation is available. 0.0160 See Analysis Scdion D.2.1 (Tab D). Oowmentation is available. 1.812 Ses Analysis Sectwn D.2.1 (Tab D). Documentation is available. 302 Ln 5 I Ln 7 I3 months 6 Ln6'LntfJ 1 Ln6'Ln 19 295 Ln6a-6b-6c 2 LocatimSpauhcDaIa 245 See Andysb Section D.2.1 (Tab 0). Documentation is available. 5 LnB'Ln18 - LnfJ'Ln19 240 IS 8a - m- BC 0.104 See Anaiyia Section 0.3.8 (Tab D). Documentation is available. 0.056 See Analysis Sscfion 0.3.7 (Tab D). Documenlalion is available. 7.375.50 Location Specib Dala 60.00 Calculated Pursuant (0 methodology re( brul in Thid R60. 107.61 Calculated fmm hfmru(im pmvidad by IPSPa. 11.25% W&sheeIROI.Lnll.Col.P 23.10% Calculated ha informa!lcn provided by IPSPs. 1.9% Cakulaled ha inlm~lii provued by IPSPs. 0% 0.2% c.ku!aled fmm inlorrrmlion pmvided by IPSPS. wo+p.prs D 3 37 i .... = . \~, ~.~ I.'. j, . i? I.... 3nmC phones -County Jail Facilities Local Call Cost Shrdy Lawtion Q *, lion 1 2 3a 3b 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 18 ij e Vsriebbs w Fn Lwl Servke Chams - Flat monthly be L~lsorvio~-~Nrmduw $ Loal-chrpr - uwps-rrrnge lcnoth d call unw.bh db - nd.ccapted; ansneIing mpchin LoolSrro~-U.rp.-corlprminuk S See A~lpiio Section D.3.1 (Tab D). ~mantatim is avsilabk. 29.18 See Analysis Seaion D.3.1 (Tab DI. Documentation in available. 7.44 See Analyaia Sedion 0.2.1 Crab 0). Dournenlalion is available. 0.025 See Anatysii Seelion D.2.2 (Tab D). DocMnlaSon is available. 0.0160 See Analysis Sedion 0.2.1 (Tab D). Daunnlahn is available. 2.162 See Analysis Seaion 0.2.1 (Tab D). Docunsnlalion b, avi*bls. 360 Ln 51 Ln 713 nmnlhs 10 Ln6'LnIe 2 Ln6'Ln19 YBLn6a-6b-b 2 Localion specib Dala 294 See Ahaiysb sadlon 0.2.1 (T* D). Daxmenlalion is amibbk. 9 Lne-Ln10 1 Ln8'1"19 284Ln.Sa-Bb-Bc s s S 8.189.50 Locatian Specihc Dala t 107.61 Calculed ha inhnalh povidcd by IPSPI. 0.098 See Analyeis Won D.3.8 (Tab 0). Dmmsntatian is available. 0.056 Sse Anatyak Sodim 0.3.7 (Tab D). Dmmenwm i~ 8Vihble. 6O.W Cnlarlated Pu~unt lo melhodology sd forth in Third mo. 11.25% WslmelROI. Ln 11. Cd. Q 19.60% Cakulaled fmn infonnalbn povided by IPSPs. 2.9% Cakxbted from inlwmaliw pwiad by IPSPs. 0% 0.5% CdWJmed fran inlomrtion provided by IPSPS. ! ~ .. ~.\....I w+q;kpapco I1 5.39 . v ATTACHMENT A c EXHIBIT 10 EX PARTE OR LATE FILED ORtCrNAL I DICKSTEIX SHAPIRO hIORIS &oSHISSKY I.LP 2101 L Srrcrr XIV Wnshiyron, DC 20037-1526 Td (202) 7R5-Y700 Fas 1202) 887-0689 ORIGiNAL May 9,2000 Ms. Magalie Roman Salns Secretary Fcderal Communications Commission 445 121h St., sw Washington, D.C. 20554 NOTICE OF EX PARTE PRESENTATION Rc : NO. 96-128 Dear Ms. Salas: On May 8, 2000, Roben Aldrich of this law firm and Vice Townsend of Pay- Tel Communications, Inc., representing the Inmate Calling Scrvice Providers Coalition, met with Jordan Goldstein, Advisor to Commissioner Ness. We discussed the proceeding regarding inmate calling services on remand from the United States Court of Appeals for the D.C. Circuit. In particular, wc discusscd (1 ) the need for the Federal Communications Commission to provide, pursuant to 47 U.S.C. 5 276, fair compensation for inmate service providers for local collect calls where state race ceilings preclude recovery of the cost of the calls; and (2) the need for the Federal Communications Commission ro make clear that ?inmate telephone service,? for purpoxs of thc Section 276 ban on Bell company discriminations and subsidies, as well as the compensation provision, includcs not only thc equipment but also the collect calling rcrvicc provided for die use of inmates. Regarding the cornpensation issue, the following points were discussed, and are reflected in the attached material that was handed out at the meeting. i + Those commcnting parties bat claim to be able to makc a profit in inmate sewices do not offcr service to city and states with the lowcst rate ceilings; counry jails (where local calls are most prevalent) in the t$ INDEPENDENT INMATE PHONE SERVICE PROVIDERS (as of May, 2000) ' r.*i.li*gs Previous Providers AmeriTel Pay Phones, inc. Blair Communications Coin Telephone Consolidated Communications Correctional Communications Corp DGI Communications Executone Corrections Division Harris Corp InVision Telecom. Inc. Kantei London Communications, Inc. M.O.G. Communications, Inc. .z.ewzm North American Communications North American lntelecom OPUS PayCom Payphone Systems Paytel of America Peoples Quest Telecommunications Robert Cefil B Associates Saratoga Telephone Talton Communications Tataka Tel Awerica KR&# )I . :i. :I r.!CBh'l Current Coalition Providers Sold Evercom Sold Global Telink Sold McLeod USA Sold Pay Tel Communications, Inc. Sold Public Communications Services Out of business Sold Sold Sold Sold Sold Sold Sold Went under Sold Halted installationslfor sale Sold Sold Sold Sold Sold Sold Sold Sold Sold Sold . - ... . - . . -. _. - . - .. . . - .. .* +. *?i .. , ATTACHMENT A EXHIBIT 11 September 13,1999 Magalie Roman Salas Secretary Federal Communications Commission 445 12?~ Street, S.W. Washington, DC 20554 Re: Dear Ms. Salas: In accordance with Sections 61.21 and 61.23 of the Commission?s Rules, enclosed is a diskette containing revised FCC Tariff No. 1 of Erercorn Systems, Inc. Similar diskettes are simulmneously being provided to the Chief, Tariff Reiieiv Branch and the Commission?s commercial conwactor. in accordance with Section 61.21 of the Commission?s Rules. The requisite fhg fee of 5630.00 and an accompanying FCC Form 159 are being filed in accordance with Section 61.21(4 of the Commission?s Rules on this date. Should there be any questions on this matter, please contact the undersigned counscl. Sincerely yours, Evercom Systems. Inc. - Revised FCC Tariff No. 1 Paul C. Besozzi PCB/lyt Enclosure cc: AIikeSmith i EVERCOM SYSTEMS, INC. Tariff F:: Kc. I Original Tirlt ?'a;+ INTERSTATE SWITCHED TELECOMMUNICATIONS SERVICE REGULATIONS AND SCHEDULES OF CHARGES APPLICABLE TO SERVICES FURNISHED BY EVERCOM SYSTEMS, INC. This tariff includes the rates, charges, terms and conditions of service for the provision of interstate telecommunications services provided by EVERCOM SYSTEMS, INC. ("Company") between points within the United States. This tariff cancels and replaces in its entirety Tariff FCC No. 1 previously issued by Saratoga Telephone Company effective November 17, 1998. ISSUED: September 13, 1999 EFFECTIVE: September 14, 1999 BY : Mike Smith, Manager of Regulatory Affairs 8201 Tristar Drive Irving, Texas 75063 . EVERCOM SYSTEMS, INC. SECTION 3 - SERVICE DESCRIPTION AND RATES, (CONT'D.) . 3.4 Debit Services, (cont'd.) 3.4.1 Debit Services Rates Rates listed below are applicable to the Ccmpany's Debit Card Service and Inmate-only Debit Account Service. For billing purposes, call timing 1s rounded up to the next full minute increment after a minimum initial period of one (1) minute. No time of day, holiday or volume discounts apply. The Per Minute rates listed below are inclusive of all applicable taxes. PER MINUTE USAGE CRARGE: $0.65 3.4.2 Debit Services Sponsor Program A Sponsor Program is offered to organizations or the Company commercial entities for distribution of Company's Debit Cards to thsir members or patrons. The marketing vehicle and expiration period is selected by the Sponsor upon joint agreement between the Carrier and the Sponsor. The Sponsor is responsible for name, service mark or other image on the card. The carrier reserves the right to approve or reject any image and to specify the customer information language and use of the Carrier's trade mark, trade name, service mark or other image on the card. The Sponsor may distribute the Carrier's debit card accounts at reduced rates or free of charge to end users for promotional purposes. At the option of the Sponsor, these cards may not be renewed. Debit Cards and/or Accounts issued through a Sponsor Program may not be used in conjunction with Debit Account services provided to inmates of confinement institutions. I' ISSUED: September 13, 1999 EFFECTIVE: September 14, 1999 BY: Mike Smith, Manager of Regulatory Affairs 8201 Tristar Drive Irving, Texas 75063 ! EVERCOM SYSTEMS, INC. SECTION 3 - SERVICE DESCRIPTION AND RATES, (CONT'D.) 3.5 Operator Service Operator service consists of the provision of automaced operator assistance in completing and arranging billing for calls, and the transmission of such operator-assisted calis through the resale of transmission services of other carriers. The service is provided by means of a microprocessor located inside a pay telephone, which uses recorded or simulated voice prompts to guide the Customer through the process of completing a collect, credit card, or third number billed call. The microprocessor responds to the Customer's voice or input of information by automatically processing and transmitting the information as necessary to establish a valid billing procedure for the call and to complete the call. PER MINUTE RATES EVENING NIGHT/WKND $0.59 $0.59 $0.59 Service charge $3.95 per call. ISSUED: September 13, 1999 EFFECTIVE: September 14, 1999 BY: Mike Smith, Manager of Regulatory Affairs 8201 Tristar Drive Irving, Texas 75063 ATTACHMENT A EXHIBIT 12 .+~ri'6? 2"~ EX PARTE OR LATE FILED Ms. Magalic Roman Salas NOTICE OF EX PARTE Secretary Federal Communications Commission REc&~~o~ Washington, D.C. 20554 Re: 415 12'h St., sw Dear Ms. Salas: On April 5, 2000, Robert rUdrich and Jacob Farber of this la\\ firm, and Vincc To\\nsend of the Inmatc Calling Service Providers Coalition, met with Lynnc h.iihc, Calvin Howell, Jon Stover, N Barna, and Adam Candeub of the Competitive Prich% Division. We discussed thc procceding regarding inmate calling senices on remand from the United States Court of Appeals for the D.C. Circuit. In particular, we discussed thc need for the Federal Communications Commission to act to ensure that inmatc calling service providers arc fairly compensated for local inmate collect calls. Thc attachcd marcriais, which show a correction to a cost analysis previously submitted by thc Coalition, wcrc distributcd. Sincerely yours. Enclosurcs cc: Lynne Milnc Jon Stover Calvin Howell N Barna Adam Candcub ficob S. Farbcr 1177 Axmur o/rbr Amnmnrar * 41s Floor Ncm York, Ncv Zrk lW36-2il4 I1 23717 VI: -31 DQI!.DOC TI1 1211) 835-1400 * Fax (212) 997-9880 .. http://mm.dmo.cam Coinvs22.xlr Y29iC.O INMATE SERVICE FEE - 12 Minute Local Call COST ANALYSIS lYmuLis 'L!amkuw - Local Scrvlce Charge. 't 5253 S M 05 Fiex-ANI Charge s 108 s 1DB Number of Calh 439 268 Bllllng L Collactlon Feu 'I 018 s 0 18 Overhead ToLll s 1962 s 59.86 Return (pmflt) .s 1531 S 22.10 Pay Phom Inmate Malnlenance s 1890 s 24 12 Equlpmenl hpmclatlon s 1273 S 29 48 30% 30% Commlarion X Unblllablrr % 0% 5% 2% 14% Uncollccllbl~a % Tax I s I .. c .-. . Local Srrvlcs Charws Billing L CollectJon Fees ValldaUon Malnknanse L Repairs Equlpmenl DepnclaUon Qvnhead Return (pmflt) TOUl C0.U (1) Pay Phow (2) Inmab Cor1 DiffennUal -- S 0.180 s 0.180 I 't 0.113 S 0.170 S 0.057 s 0.043 S 0.090 I 0.047 s 0.023 s 0.110 s 0.001 f 0.045 S 0.224 S 0.179 S 0.035 S 0.082 I 0.048 I 0.567 S 1.099 s 0.632 'I 0.122 s 0.243 S 0.121 Commhrlon @ 30% s 0.254 t 0647 S 0 393 Unblllablr.NncollscUbles @ 19% s 0025 S 0410 5 0.384 TOTAL s 0.840 S 2.165 S 1.109 FOOTNOTES: 1) Excepl when Indlulrd, avenge figuns for payphone servlcm an uken from the FCC'r Thlrd Repofl and Order, and avenge Rgum for lnmab aewkea am taken from prlor CoallUon flllnga 2) Local s~NIc.~ shag lor payphone aervlcn Include usage charges as esllmaled by Un RBOC/GTEISNET CoallUon. Local sewlcr charges for lnmrb HNICrs an asUma(.d based on analyala of ILEC brim In Ih. 1J ahbs wl lhe loweal loul coIIrc1 call nU.. 3) btlmata baled on mvkw of LEC 8nd slerrlnghousi feu 4) Payphonc nturna calculated 11 1W. and Inmale lclurm at 16% 5) Commisrlon ?c for plyphone servicn h assumed to be qual to commission 'A for inmate services 6) Unblllablca for payphone aervlcea an ntinutrd 10 br nrgllplbk. EaUmatrd unblllabler for Inmat. scnkea ham Increaaed hom 3% 10 6% since pnvloua Commlrslon flllnga 7) Uncollectlbks for payphone .ewlcea an* bard 00 .sUrnals pmvldad by clcarlnphou*e 0) FkX ANI INS an Includrd In Local Servica Charge perull calcul8Uonr S) ValldaUon rrUm.1.. based on e.UmaPd ull compleuon nUos foe pyphon. rcnlses and Inmat. 8CNk" . WITH COMM VT Pap0 1 ATTACHMENT A EXHIBIT 13 WASHINGTO& DC 20654 1 In the Matter of ) . VU1 9 1 1996 1 Telephone Reclassification and 1 ,~ Compensation Provisions of the 1 Telecommunications Act of 1996 1 1 1 Implementation of the Pay ) CC Docket No. 96-128 \ July 1, 1996 Albert .Kramer Robert HF .Aldrich Jacob Si Farber OSHINqKY L.L.P. DICKS$IN SHAPIRO MORIN 6: 2101 ,L Street, N.W. Washington, D.C. 20037-1526 (202j 785-9700 Attorneys for Inmate Calling Services Provijders Coalition i ---- i FEDERAL COMMUNICPiTIOKS COMhllSSION Comments of Inmate Calling Services Providers Coalition CC Docket No 96-12 Filed July 1, 1996 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, DC 20553 1 In the Matter of 1 1 Implementation of the Pay ) CC Docket No. 96-128 Telephone Reclassification and 1 Compensation Provisions of the 1 Telecommunications Act of 1996 1 1 1 The Inmate Calling Senices Providers Coalition (the "C.oalition") hereby submits its comments in response to the Commission's We af Pr- lBllahm FCC 96-254 (June 6,1996) ("IWke") in the above-captioned proceeding. The Coalition is an ad hoc coalition of companies that proLide highly specialized telephone equipment and services to inmates in confinement facilities. The Coalition's members' range in size from the nation's largest independent pro\?dcr of inmate calling services to small companies sening only a handful of confinement facilities. They share in common the desire to offer the highest possible level of service .. I 1 The Coalition's members include AmeriTel Pay Phones, Inc., Communications Central Inc., Correctional Communications Cdrporation, Inc., InVision Telecom, Inc., M.O.G. Communications, Inc., Pay Tel Communications, Tataka and TELEQUIP Labs, InC. FEDERAL COMMUNICATIONS COMMISSIOS Comments of Inmate Calling Services Providers Coalition CC Docket No. 96-12 Filed July 1. 19% .I Another basic requirement for inmate calling systems is the ability to limit call duration andor to limit calling to a particular time of day, which often varies from inmate to inmate. This serves to provide confinement facilities with control over inmate phone usage while allowing more inmates greater access to the phones available to - them. Additionally, restrictions may be placed on the number of calls an inmate is permitted to make over a given period. The ability to restrict inmate calling by called number is another specialized requirement of inmate calling systems. Confinement facilities often require that ICSPs block an inmate's ability to make calls to certain designated numbers, such as to judges or witnesses. Additionally, confinement facilities may require the ability to restrict inmate calling only to certain pre-designated numbers, such as family members or the inmate's attorney. These requirements prevent or reduce harassment, fraudulent calling, and the use of the inmate calling system to engage in other criminal activity. At the request of the confinement facility, many ICSPs have put into place additional called number screening mechanisms that permit free calling to certain piedesignated numbers. These numbers typically include the public defenders' office, b&l bondsmen, and commissary services." Some confinement facilities also request that ICSPs block calls at.tempted by particular inmates or calls attempted from certah inniafe phones. This requirement In addition to the costs involved in maintaining the hardware and software to id +, . ', - >, 14 provide this service, the ICSP also bears the costs of transmission, which can amount to $25 or more for a 10-minute call. ATTACHMENT A EXHIBIT 14 Trends in Telephone Service Industry Analysis and Technology Division Wireline Competition Bureau August 2003 This report is available for reference in the FCC?s Information Center at 445 12th Street. S.W., Cnwtyard Level. Copies may be purchased by calling Qualex International, Portals 11.445 12th Street S.W., Room CY-B402, Washington DC 20554 at (202) 863-2893, facimile (202) 863.2898, or via e-mail qualexin@ aol.com. The report can alsobe downloaded from the FCC-State Link Internet site at www.fcc.gov/wcb/s~atats. Table 1.2 05/26/84 01/14/85 01/15/85 0501185 06/01/85 09130185 10/01/85 05/31/86 06/01/86 12/3 1186 01/01/87 06130187 07101/87 12131187 01/01/88 11/30/88 lUO1/88 02/14/89 02/15/89 03/3 1/89 W/01/89 12/31/89 01/01/90 06130190 07/01/90 12/31/90 OI/Ol/91 06/30/91 07/01/91 06/30/92 07/01/92 06/30/93 07/01/93 06130194 07/01/94 06/30/95 07/01/95 06/30/96 07/01/96 06130197 07/01/97 . 12!31/97 07/01/98 12131198 01/01/99 06/30/99 07/01/99 12/31\99 01/01~00 06I30NH) ouom8 0613o~a wim 06ni~)o O~/OI/OI mi/oi OI/OI/OZ 06/30/02 07/01/02 06/30/03 t Interstate Per-Minute Access Charges (National Average in Cents per Minute) ' Ratn In EKrd I Intentate Charpn for Snitched kens Servlcr Carrier Carrier Trrmc Non-Trafk Total ' Non-traffic-sensitive charges include charges assessed on a per-month. per-unit basis. Prior to 07/01/94. thcsc charges wcrc included in the average trafiic-sensitive rates, The total charge per Conversation minute consists ofcharges on the originating end of the call. which are adjusted for dialing and call seNp timr, plus charges on thc terminating end. Originating charger per conversation minute equal the carrier common line charge per originating access minute plus the traffic-sensitive charge per switched minute. both multiplicd by I .07 to account for dialing and call xIup time. plus the "on-tralfic-sensitive charge per switched minute. Terminating chargerpr Conversation minute equal carrier commm line ckarges per terminating access minute plus both traffic-sensitive and non-lraffic-sensi*ve charges per switched minutc. ' Although the charges took effect on July I. 2000. some companies made adjusments to the tariffs which did not take efTect until August 11.2000. Source: Access tariff filings. i 1-6 3 .a Common Llnr Common Llnr sensinvc SInsllive Charge per prr Originating prr Termlnating per Smtchrd per Snitched Conrers8tion ACCCSI Accns Minute Mlnutc * Minute ' Minute Minute I 5.24 t 5.24 t 3.10 # 17.26 5.43 5.43 3.10 17.66 4.71 4.71 3.10 16.17 4.33 4.33 3.10 15.38 3.04 4.33 3.10 14.00 1.55 4.33 3.10 12.41 0.69 4.33 3.10 11.49 0.00 4.14 3.10 10.56 0.00 3.39 3.00 9.60 0.00 3.25 3.00 9.46 1 .XI 1.83 3.00 9.11 I .00 1.53 2.50 7.78 1.00 1.23 2.50 7.48 I .00 1.14 2.40 7.18 0.88 I .06 2.40 6.97 0.79 0.95 2.40 6.76 0.88 l.lb 2.20 6.66 0.84 I .os 2.10 0.28 6.89 0.74 0.89 1.96 0.21 6.16 0.72 0.89 I .95 0.17 6.04 0.64 0.84 I .63 0.14 5.18 0.68 0.23 I .29 0.21 4.04 0.91 0.20 0.99 0.30 3.82 0.82 0.16 0.98 0.32 3.71 0.32 0.10 0.86 0.3 I 2.85 0.23 0.07 0.52 0.26 1.91 0.15 0.07 0.48 0.24 1.71 0.15 0.07 0.47 0.24 I .69 0.02 0.01 0.48 0.22 I .46 0.37 0.10 0.86 0.28 2.82 ATTACHMENT A EXHIBIT 15 1 .. -. . _. . . -. . ..... . ... .. .. . . .. . - . . ..- . .. - . -. .. .. . - -_ -~ __ Total dl minutan 4.991 .. I ATTACHMENT B , .. UNITED STATES DISTRICT COURT FOR Tm DiSTRILT OF COL-IA . __ -.--- MARTHA WRIGR?, ec al. I Plainti ffr. : I V. Civil Action I SO. 00-793 (GI) CORX-WIMS CORPCPA'CZON OF X!RIO'.. e: al., : FILED AUG 2 9 ?1Gi I b 8 .. 1 ... .. . .. I-: . ATTACHMENT C UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA MARTHA WRIGHT, et al. Plaintiffs, : V. Civil Action NO. 00-293 (GK) CORRECTIONS CORPORATION OF AMERICA, et al., : FtLED Defendants. AUG 2 2 2001 ORDER NANCY MAYER WHIllINGlON, CLERK US DISTRICT COURT This matter is before the Court on the Motions to Dismiss Plaintiffs? Complaint by Defendant telephone companies and Defendant Corrections Corporation of America (?CCA?) . Upon consideration of the motions, oppositions, replies. the Motions Hearing held on August 9, 2001, and :he entire record herein, for che reasons stated in the accompanying Memorandum Opinion, it is hereby ORDERED, that the Motions to Dismiss the Corcplaint under the doctrine of Primary JurisdicL2sn are granted; it is further ORDERED, that this case is diamissed without prejudice; it is further ORDERED, that parties are directed to file the appropriate pleadings with the FCC to ensxe that the issues raised in this f i lawsuit are presented to the FCC. I Date U Gladys Kessdr United States District judge COPIES TO: Marie-Ann Sennett D.C. Prisoners' Legal Services Project 1400 20F" Street, AW Suite 117 Washington, D.C. 20036 Frank R. Volpe Sidley & Austin 1722 Eye Street, NW Washingtcn, D.C. 20006 17 Y ATTACHMENT D UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ~~ ) MARTHA WGHT et ai.. ) 1 Piaui f ifs, 1 ) Civil Action NO.: \ V. 1 1 .OOCV00293 (GK) 1 Ft LEG 1 NOV 5 2001 ,, ru4NcYhum ~nnffirOll.cLERII CORRECTIONS CORPORATION OF AMElUCA et al.. ) DC/cndW7/S ) us. DISTRICT COWR ORDER This matter comes before the Court on Plaintiffs' Motion to Reconsider the Court's decision dismissing this case with prejudice. Upon consideration ofthe Motion. it is by the Court on thdday of , CWd' %OOl. hereby $1 ORDERED, that the Motion be, and hereby is. GRANTED. The Court stays this action and requests that the panics file a report with the Court on Etu / .?cC L, *I) ./ informing the Court ofthe status of proceedings before the Federal Communications Commission. i The Honorable qdys Kessler United States Distnct Judge Copies To: Marie-Ann Sennett @.C. Bar No.?462200) Eric R. Lotke @.C. Bar No. 446706 ) D.C. PRISONERS? LEGAL SERVICES PROJECT 1400 20th Street. N.W., Suite 117 Washingon. DC 20036 Local Counsel for Plaintiffs (202) 775-0323 Frank R. Volpe, Esq Sidely & Austin 1722 Eye Street. N.W. Washington. LX 20006 Accepting Court Orders on behalf of Defendants (202) 736a3~ . 2 ATTACHMENT E Public Correctional Policy on InmateNuvenile Offender Access to Telephones . Policy Statement: Recognizing that thue is no constitutional right for inmatcs/juvenile offenders io have awcss to telephones, nonetheless consinem with the requirements of sound correctional management, inmatcdjwcnile offendm should have access to a range ofreasonably priced celecommunic~tions services. correctional agencies should ensure that: A Conuacts ~valvinglelecommun~cations senices for inmates/juvcnik offenders complpirh all applicable mte and federal regulations: B. Conuncts are based on rates and surcharges rhat arc commcnsurare \\iVirh those charged IO the general public for like services. Any deviation hom ordinary consumer races should reflect actual costs associated with &e provision of seMws in a correctional serting; and C. Contracu for inmate/jwcnile offendcr tclecommunications services provide the broadest range of calling options determined to be consistent With the requirements of sound correctional management. ThisPublic Concctional Policy u%3 unanimously muBd by rbchaicanCon:cliond ~YacisliM~!cgmcArrmbly mihc Winter Conference inNash~ille. N.. Jm. 11,2001. 7 - I