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Federal Register / Vol. 86, No. 142 / Wednesday, July 28, 2021 / Rules and Regulations
40747

TABLE 11MEAN CHARACTERISTICS FOR LARGER JAIL CONTRACTS BY REVENUE TYPE
High per-minute revenue contract
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Total Revenue Per Minute
Commission Per Minute
Revenue Minus Commission Per Minute
Facilities Per Contract
Average Daily Population
Contract Includes Urban Facilities
Minutes
Observations

74. An alternative method to analyze whether a $0.14 per minute cap for larger jails is commercially viable is to consider the per-minute cost allocation associated with the high per-minute revenue contracts. Doing this suggests at least 96% of contracts for larger jails would likely recover their costs at a rate cap of $0.14 per minute. As before, 65% of contracts for low per-minute revenue jails could be expected to recover costs since their revenues are already below $0.14. Of the remaining 35%, 89% have allocated perminute costs less than $0.14. Of all the high per-minute revenue jails, 57 had costs less than $0.14 per minute, and 7 had costs greater than or equal to $0.14 per minute.
This suggests that 96% = 65% + 35%
89% of all larger jail contracts could cover their costs with a rate of $0.14. Again, to the extent that the providers unaudited costs are overstated, or that unit costs will fall as reduced rates expand call volumes, this number would be higher. For example, 47%
of the contracts for low per-minute revenue jails have allocated costs in excess of their revenues per minute, indicating that allocated costs are an imperfect measure.
75. Contract Viability Allowing for Call Volume Adjustment. The Commissions previous revenue analysis showed that 74%
of prison and 65% of larger jail contracts are already operating under the new interim caps according to reported data. Since these contracts were likely to have been commercially viable prior to this Report and Order, they should still be so after the new interim caps take effect. Further, some of the remaining contracts would still be commercially viable under the new interim rate caps, because lower prices will lead incarcerated persons to increase time spent on the telephone, which in this industry will reduce per-minute costs. The Commission conservatively estimates that when the increase in demand due to lower end-user prices is accounted for, 77% of prison and 73% of larger jail contracts will earn perminute revenues that cover their implied costs. These estimates take no account of the various factors discussed above that imply an even higher percentage of contracts would be commercially viable. For example, these numbers are understated to the extent that:
i The providers revenues are an overstatement of their costs; ii the elasticity estimates are understated; and iii estimates of the cost of an additional minute are overstated. Relatedly, GTL also argues that any reduced rates faced by incarcerated
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people as a result of the Commissions proposed caps would not lead to increased call volume. The Commission is unconvinced, and the record suggests otherwise. GTL has itself refuted this position in other submissions. While incarceration authorities sometimes place tight restrictions on call frequency and length, there is ample evidence in the record that lower prices result in greater call minutes, because high prices do more to discourage calling than these restrictions do.
Further, economic theory echoes the record evidence, and predicts that providers will increase output when a price cap lowers their rates as long as the additional revenue exceeds any corresponding increase in costs.
Here, not only do current per-minute rates exceed per-minute costs, but they exceed the per-minute costs of supplying additional minutes by a wide margin; thus, a rational provider will find it profitable to increase its output.
76. To obtain these estimates, the Commission uses inmate calling service revenues plus revenues for automated payment and paper billing fees net of site commissions divided by paid minutes as a proxy for contract rates. The Commission then assumes that each prison and larger jail contract with rates as just defined above the new caps recovers, through those rates, its direct costs and makes any necessary contribution to overheads to account for costs associated with the provision of inmate calling services, but earns no more than that.
This is conservative, as providers could earn more than that, but are unlikely to systematically earn less than that, since that would imply they are overall making losses.
However, even making this break-even assumption, the new interim caps could still allow providers to recover their costs under these contracts. This is because the new caps will lead to increased inmate calling, allowing providers to spread relatively high fixed costs over more minutes. Inmate calling services have high fixed costs e.g., installation of secure telephone equipment, and low additional costs for each minute of inmate telephone use.
77. For example, consider a hypothetical larger jail inmate calling services contract, voluntarily entered into, that charges incarcerated people $0.25 per minute with a $0.10 per minute site commission. Assume further that this results in 1,000 calling minutes. The provider would earn $150 =
$0.25$0.10 1,000 in revenue and, given
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$0.34
$0.13
$0.22
1.88
2,215
0.84
7,883,827
64

Low per-minute revenue contract $0.19
$0.11
$0.08
1.85
2,447
0.85
10,895,979
118

P-Value for two-sided difference in means test 0.00
0.26
0.00
0.94
0.60
0.95
0.06

the contracts voluntary nature, the contract would presumably be commercially viable.
Now suppose the provider lowered rates to be consistent with the new interim caps, charging $0.16, with the provider receiving $0.14 and with $0.02 for site commissions.
Suppose further, at the lower price of $0.16
per minute, incarcerated people increase their calling minutes from 1,000 to 1,132
total minutes. This assumes a demand elasticity of 0.3, as provided in the following paragraph. Thus, a 44% = 0.250.16/0.25
+ 0.16/2 decline in price leads to 13.2% =
44% 0.3 increase in call minutes. This would generate revenues for the provider of $158.48 = 1,132 $0.14 compared with the revenues of $150 earned at a $0.25 per minute rate with $0.10 per minute in site commission payments. If, at the same time, each additional minute costs the provider $0.01, and the provider was originally breaking even, then the providers costs would rise from $150 to $151.32 = $150 +
132 $0.01, implying per-minute costs of approximately $0.134 = $151.32/1,132, less than the original per-minute costs of $0.15 =
$150/1,000. Thus, the provider would earn $7.16 = $158.48$151.32 more than in the original situation. If supply for this contract were competitive, then the provider winning the bid for this contract would require a price of just below $0.154 per minute = $0.02 +
$151.32/1,132.
78. In connection with the preceding example, the Commission estimated the callminute volumes that would result for each contract that in 2018 had per-minute revenues greater than those allowed under the new caps, assuming a demand elasticity of 0.3. This is the low end of the inmate calling services elasticities found in the record. Using those projected call volumes, and assuming a generous additional or incremental per-minute cost of $0.01, the Commission found 77% of prison and 73%
of larger jail contracts would recover as much as they had at the lower 2018 volumes plus enough to cover their additional per-minute costs. Many direct costs are independent of the need to carry additional call minutes. For example, the cost of each additional telephone installed at a facility would be a direct cost of the facility and is independent of how many call minutes originate from that telephone. Thus, the cost of $0.01 per additional minute assumed here is therefore a very conservative estimate of the cost of an additional call minute. For example, REDACTED operated two contracts at rates
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