DC Circuit strikes down FCC rules placing caps on payphone rates in prisons

Earlier this week, as reported in the AP article, a DC Circuit panel "struck down regulations intended to cap the price of some calls to prison inmates."  The full ruling in Global Tel*Link v. FCC, No. 15-1461 (DC Cir. June 13, 2017) (available here), has a lengthy introduction that includes these excerpts:

Due to a variety of market failures in the prison and jail payphone industry, ... inmates in correctional facilities, or those to whom they placed calls, incurred prohibitive per-minute charges and ancillary fees for payphone calls. In the face of this problem, the Commission decided to change its approach to the regulation of ICS providers. In 2015, in the Order under review, the Commission set permanent rate caps and ancillary fee caps for interstate ICS calls and, for the first time, imposed those caps on intrastate ICS calls. The Commission also proposed to expand the reach of its ICS regulations by banning or limiting fees for billing and collection services — so-called “ancillary fees” — and by regulating video services and other advanced services in addition to traditional calling services.

Five inmate payphone providers, joined by state and local authorities, now challenge the Order’s design to expand the FCC’s regulatory authority.  In particular, the Petitioners challenge the Order’s proposed caps on intrastate rates, the exclusion of “site commissions” as costs in the agency’s ratemaking methodology, the use of industry-averaged cost data in the FCC’s calculation of rate caps, the imposition of ancillary fee caps, and reporting requirements. And one ICS provider separately challenges the Commission’s failure to preempt inconsistent state rates and raises a due process challenge....

• We hold that the Order’s proposed caps on intrastate rates exceed the FCC’s statutory authority under the 1996 Act. We therefore vacate this provision.

• We further hold that the use of industry-averaged cost data as proposed in the Order is arbitrary and capricious because it lacks justification in the record and is not supported by reasoned decisionmaking. We therefore vacate this provision.

• We additionally hold that the Order’s imposition of video visitation reporting requirements is beyond the statutory authority of the Commission. We therefore vacate this provision.

• We find that the Order’s proposed wholesale exclusion of site commission payments from the FCC’s cost calculus is devoid of reasoned decisionmaking and thus arbitrary and capricious.  This provision cannot stand as presently proposed in the Order under review; we therefore vacate this provision and remand for further proceedings on the matter.

• We deny the petitions for review of the Order’s site commission reporting requirements.

• We remand the challenge to the Order’s imposition of ancillary fee caps to allow the Commission to determine whether it can segregate proposed caps on interstate calls (which are permissible) and the proposed caps on intrastate calls (which are impermissible).

• Finally, we dismiss the preemption and due process claims as moot.