Private equity's prison phone-call businesses just got nailed by the FCC

The business of charging inmates exorbitant rates for phone calls just became a lot less profitable.
The Federal Communications Commission on Thursday said it will put caps on the costs of calls from prisons. Calls from prisons could cost as much as $US14 a minute, before the limits were put in place.

Its bad news for the private equity funds that own these phone-call businesses. The biggest company, called Global Tel* Link, is owned by American Securities.

American Securities, which manages about $US13 billion, invested in Global Tel* Link in 2011, according to the fund’s website. A spokeswoman for the investor declined to comment.

Global Tel*Link, which was previously owned by Goldman Sachs’ private equity arm and Veritas Capital, controls about 50% of the prison call market.

When the FCC first floated the idea of capping call rates, last year, the Wall Street Journal reported that American Securities was exploring a sale of Global Tel*Link. The newspaper cited unidentified sources and said it wasn’t clear if the effort to sell the business was linked to the potential regulations.

The FCC said it has now barred most add-on fees imposed by the companies, and took other steps to cut the average rate for inmate calls to $US1.65 for a 15-minute call.

“With the cost of a call sometimes ballooning to $US14 per minute once inside prison walls, the FCC for the first time capped rates for local and in-state long-distance inmate calling, and cut its existing cap on interstate long-distance calls by up to 50 per cent,” the regulator said. “Extra fees and charges can increase the cost of families staying in touch by phone with loved ones who are incarcerated by as much as 40%.”

Another company in the sector is Securus Technologies. It is owned by Abry Partners, which didn’t respond to a request for comment.

NOW WATCH: This is what Carl Icahn would do first if he ruled America

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.