Challenging the Net Neutrality Order

It looks like there are going to be a number of challenges to the FCC’s recent repeal of Title II regulation and net neutrality. Appealing FCC decisions is normal for controversial rulings and the big telcos and cable companies have routinely challenged almost every FCC decision they haven’t liked.

The FCC voted to repeal Title II regulation on December 14th, but just released the order on Friday. As expected, there were some wording changes made that the FCC hopes will help during the expected legal challenges. The time clock for any challenges will start when the order is published in the Federal Register. The FCC order goes into effect 60 days later and any court challenges must be filed within that two-month window.

When FCC rules are challenged, it’s not unusual for a court to put a stay on some parts, or even make an entire new ruling until the legal issues are sorted out. This happened a few years back when Verizon challenged the FCC’s first net neutrality order and the courts stayed all of the important parts of that ruling before eventually ruling that the FCC didn’t have the authority to make the rules as they did.

It appears that challenges are going to come from a number of different directions. First, there are states that have said they will challenge on procedural issues. This is a tactic often taken by the big ISPs, and generally if the courts agree that the FCC didn’t follow the right procedures in this docket they will then rule that the agency has to start the whole process over again. That alone would not change the outcome of the proceeding, but it could add another year until the FCC’s order goes into effect. I wonder if this kind of delay is meaningful because it’s likely that this FCC won’t enforce any net neutrality ‘violations’ during a reboot of the rules process.

The Attorney General of New York has an interesting appeal tactic. He is claiming that the FCC ignored the fact that there were millions of fake comments made in the docket – some for and others against the proposed rules. New York is suing the FCC over the issue and expects some other states to join in the lawsuit. This would be a unique procedural challenge and would be another way to have to reset and start the whole process over again.

Legislators in California, New York and Washington are planning to tackle the issue in a different way. Legislators are proposing to create a set of state net neutrality laws that basically mimic what was just repealed by the FCC. These states would not be directly challenging the FCC order and it would require some third party like a big ISP to challenge the state laws through the court system. Such a process might take a long time since it might have to go through several layers of courts, and might even end up at the US Supreme Court. State’s rights have been a common way to challenge FCC rulings ad there have been numerous fights between states and the FCC any time that Congress has created ambiguity in telecom laws.

The hope of these state legislators is that the state rules will be allowed to stand. They know that if ISPs and other tech companies have to follow net neutrality laws in large states like California that they are more likely to follow them in the whole country. A similar State / Federal battle is also underway on a different issue and twenty states are considering enactment of state privacy laws to replace ones preempted by Congress.

Another challenge to the FCC’s decision will come from democrats in Congress who are trying to use the Congressional Review Act (CRA) rules to challenge the FCC’s ruling. This is a set of rules that allow Congress to reverse rulings from administrative agencies like the FCC with a simple majority and has been used effectively recently by republicans in a number of ways. With a 51-49 Republican majority it would only take a few republican defections to maintain at least some aspects of net neutrality. The make-up of the Congress might also change with the elections later this year – meaning that Congress might change the rules in the middle of all of the various appeals.

One thing is for certain – this FCC ruling is not going to be easily implemented and I’m guessing that during the next sixty days we will see a number of creative challenges used to appeal the FCC’s ruling. It could easily be a few years before these issues are resolved through the courts.

The Last Telephone Monopoly

English: Concertina razor wire at a prison

English: Concertina razor wire at a prison (Photo credit: Wikipedia)

There is still one last monopoly in the telephone world and that is for rates charged in many of the prisons and jails in the US. Some of the rates charged to prisoners for making a call are extremely high as will be shown below.

The prison calling industry has changed a lot over the last thirty years. Thirty years ago most of the calling from prisons was handled by the telephone companies, and for the most part inmates had to go through live operators and make collect calls. But over the years the prisons and jails have required a number of special features, referred to as penological features, that allow them to monitor and control inmate calling. These various penological features have forced the industry to shift to specialty providers who have developed solutions that deliver the needed penological features. So today there are a handful of prison telephone providers who each serve large numbers of facilities – companies like Securus, Global Tel-Link, ICS and FSH Communications.

I call this a monopoly market because at each jail or prison there is only one service provider. Generally the service providers compete to serve a facility through an RFP process, so one would assume that the calling rates would be competitively set. But just the opposite occurs. In most states the telephone service providers are required to pay a commission back to the prisons for each call billed. Over the years these commissions have increased and there are some commissions as high as 60%, although most are more in the range of 30% to 40% of the billings. The RFP generally seems to get awarded to the carrier that will offer the highest kickback to the prisons.

This Table of Prison Rates is a summary from a magazine called Prison Legal Review from 2011 that summarizes the rates in each state. The rates don’t change much over time so this ought to still be fairly accurate. As you can see, rates vary widely by state and also by jurisdiction. The lowest rates are in New York where rates for all jurisdictions are a flat 4.8¢ per minute and the highest rate is in Washington state where an interstate call has a $4.95 setup fee plus 89¢ per minute.

You can see from this table that the intrastate rates in most states are lower than the interstate rates because the state commissions in most states have set a cap on the prices that can be charged for prison calling. But most of those rates were set in a different time in the past where a lot of the calls from the prisons required a live operator. Today very few calls require an operator and most prisons offer both collect and pre-paid calling to prisons which are both totally automated. Other states have set prison calling rates to be the same as payphone rates since the phones in a prison resemble a payphone in technology (although none of them allow for coins to be used to pay for calling).

The prison service providers are obviously making a lot of money on the calls with high rates. If there are service providers willing to bid on the business in a state like New York or other states where the calling rates are relatively low, then these same providers are obviously making a huge margin per call in states where the rates are high, even after paying commissions.

One might ask why it matters what the rates are in prisons and I think there are several reasons:

  • Studies have shown that allowing prisoners to keep in contact with family is an important aspect to rehabilitation and of them not returning to prison. The high rates make it very difficult for most prisoners to keep in regular contact with the outside world. The real victims of high calling rates are the families of inmates. It only takes a few short calls at the rates shown in the table to hit a $100 monthly bill for calling. Many families are forced to severely limit calling due to the cost.
  • The high rates make it very hard for prisoners to stay in contact with their lawyers, for the same reason of cost.
  • It just feels wrong to have a niche of the market where a carrier can land a deal that allows it to charge a huge set-up fee and 89¢ per minute. And the whole system of commission kickbacks feels wrong. This is not analogous to having high rates for public payphones because the public can choose to avoid payphones. But if an inmate wants to call they have no option but to go through the monopoly provider at their prison.

There does not seem to be much momentum to change things. Prisons are very happy with the commission kickbacks. It’s a source of revenue outside of what they are funded by the states or federal government. Very few state commissions seem to be concerned enough about the issue to accept dockets that examine the issue. There has been an open docket at the FCC for many years that has never been decided.

But I think everybody in the industry understands that cost of long distance calling has fallen through the basement. Wholesale long distance can be purchased for a penny or two at most per minute, and it’s obvious by the prison rates in New York that the penological requirements can be met for a relatively low amount per minute. And so anything over the New York rates are simply the last abuse of a monopoly power that has been broken for every other kind of calling.