Deregulation has delivered a vast array of telecommunications products to American consumers, and with long distance giants scrambling for a piece of the local action, the telcos promise that phone service will only get better – and cheaper. Is this a great time, or what? 🙂

Certainly for MCI, which exploited bargain-priced customized calling circles to carve out its share of the cutthroat telecom market. Indeed, competition has been the basis of the company’s success. Which is why MCI threw the book at David T. Moore when he tried to switch long distance carriers.

Moore, as it happens, was already behind bars. Rather than pay the US$3 charge routinely added to inmates’ collect calls, he allegedly hacked the prison’s automated call-routing service. Contacting an outside operator through other customers’ voicemail systems, including a local county government, Moore managed to elude MCI’s Maximum Security technology to reach out and touch his loved ones in northern Virginia.

Though the accused was not convicted last November for his unauthorized Friends & Family discount—the jury reached no verdict—the case calls attention to the telcos’ lucrative trade in America’s prisons. The ultimate captive market, correctional institutions have become prized collectional systems, since inmate callers must pay both their debt to society and a surcharge to companies like MCI, which reportedly controls 50 percent of the state prison market nationwide.

What was once called a bastard business has become a billion-dollar industry thanks to the convergence of two trends: the competition unleashed by telecom deregulation and the explosion of prison building caused by an inmate population boom. Restrictive telephone privileges, conceived to curb crime and harassing calls as well as to manage inmate behavior, have spurred the phone companies to come up with intelligent service platforms like Maximum Security or BellSouth’s Meridian MAX. They have also provoked a bare-knuckles battle for the exclusive prison pay phone contracts that produce revenues five times higher than the average booth on the outside. Niche providers, meanwhile, have also caught high tech fever, moving beyond the manufacture of products like ICC’s indestructible pay phone to biometric systems such as SpeakEZ VoicePrint by T-NETIX, which sells call-processing services to the likes of AT&T, the regional Bells, and other providers. The profit potential has even the specialized players fighting for their place on the food chain; in February BellSouth settled favorably with T-NETIX over infringement of its patented Strike Three call control technology.

The jailers, for their part, have made out like bandits. Along with substantial signing bonuses—in California, for example, MCI and GTI installed all the necessary equipment in 32 state prisons for free—correctional facilities receive large commissions when they seal the telcos’ deals. Florida, already raking in $10 million from its pact with MCI, in early 1997 also hired Sprint to handle the phones in 53 prisons, collecting a 57.5 percent commission on each call.

Though the development, installation, and administration of these new technologies have created major profits for the telcos, part of the price tag, of course, has been passed along to consumers—diffused for the general population, in concentrated form for the incarcerated. In fact, prison-originated phone calls cost far more than other calls: inmates are required to call collect, then telecom contractors tack on surcharges, lengthen calls with recorded interruptions stating that the call comes from a correctional facility, and routinely cut off calls—requiring prisoners to redial and pay an additional surcharge to continue the conversation. While groups such as Virginia-based CURE have lobbied to remove this punitive pricing structure, the state of Virginia has put such efforts on hold—perhaps because in 1995 its commissions were jacked up from 28 percent to 50 percent.

Yet prisoners, it turns out, aren’t the only ones paying the price. In 1996, San Antonio-based North American Intelecom agreed to refund $400,000 overcharged to those who accepted inmates’ collect calls. This January, MCI agreed to repay $1.5 million in similar overcharges to Florida consumers. “Some companies have used ‘clock advancement’ to round phone calls up to the next minute,” reports Arnold Erickson, a staff attorney at the Prison Law Office of California. “Other companies have employed a ‘plus-plus’ program to automatically add charges to the cost of the call, which are masked by adding a minute or two to the length of the call. The Louisiana Public Service Commission found that this was designed for no other purpose than to unlawfully overcharge customers.”

America’s penitentiaries have indeed become profit pens, but the tools of the trade are no longer confined to correctional facilities. Intelligent call center services have a growing foothold in both government and corporate markets, both to cut costs and protect against telecommunications fraud. Telecom consumers behind bars already pay the price of being a captive audience. Those of us in office cubicles may be next.