In May 2018, Securus Technologies announced the acquisition of Inmate Calling Solutions (ICS). The transaction has largely gone unnoticed outside of the occasional financial report describing the $350 million deal as a “costly purchase” that “removes a marginal competitor.” But a closer look at the relationship between Securus and ICS may raise serious anti-trust concerns that will cost incarcerated people and their support networks much more.
After the deal is finalized, advocates estimate that as much as 90% of the correctional telecom market will be split between two companies, Securus and Global Tel Link (GTL). Until now, GTL has led the $1.2 billion industry. However, when the ICS deal closes, Securus will likely become the nation’s largest correctional telecom provider as measured by revenue, number of contracts, or facilities served and be well-positioned for organic growth.
This purchase is one of many recent acquisitions for Securus, which has spent almost $600 million since 2012 swallowing up its smaller competitors. But, the ICS deal is alarming, both for its high price tag—$100 million more than Securus’ second largest purchase—and the competitive, even acrimonious relationship between the two companies.
Before the deal, Securus and ICS had grown into bitter rivals. Under The Keefe Group, its previous parent company, ICS had won a number of contracts out from under Securus, sparking an escalating war of words. Despite the losses, Securus’ then-CEO Rick Smith publicly mocked ICS in 2016, declaring that it “should be scared to death” of Securus’ recent investments in technology.
So, why would Securus pay hundreds of millions of dollars for a company it described as small, outdated, and inefficient? Patent competition provides at least one answer.
For years, Securus has used aggressive tactics to hoard intellectual property in the industry. The company controls hundreds of patents—more than the rest of the industry put together—and has embraced its reputation as a frequent patent litigator and troll. Securus has used the threat of litigation to compel smaller companies to sign expensive, bilateral licensing agreements under the stated notion of creating “patent peace.”
Correctional telecom companies that do not want to engage in a patent-sharing partnership can expect to be inundated with patent infringement lawsuits. In fact, Securus is remarkably open about its partnership strategy, promising to “outspend and out-patent” any company that does not sign on to partner with it. These threats have paid off: Securus has established “patent peace” with nearly all its competitors, or at least those without the capital necessary to challenge them in court, like GTL.
Securus and GTL had several licensing agreements in place for years, until their relationship soured, in 2013, when GTL chose not to renew the agreements. Shortly afterwards, Securus embarked on a protracted campaign against GTL and its intellectual property. GTL responded with its own lawsuits, prompting countersuits and allegations of unfair competition from both sides. By 2016, Smith estimated that the companies had spent more than $40 million suing each other in patent litigation.
Although Securus still had a sizable advantage in intellectual property, several court decisions had stripped Securus of key patents for call-monitoring technology. These rulings paved the way for GTL to file a massive infringement suit against Securus in 2017, seeking $115 million and an injunction against the use of technology integral to Securus. In December 2017, before trial, the companies reached a confidential settlement to end their litigation battle.
Having finished second-best in the direct challenge, Securus was faced with a dilemma: it could either pay GTL for the use of its technology or it could find alternative technology at a less powerful competitor. ICS, which offers call-monitoring technology similar to that for which Securus lost its patent, presented one option. But like GTL, ICS was less vulnerable to Securus’ usual intimidation with the financial backing of The Keefe Group, which boasts annual revenues of over $800 million.
Smith's hostile statements about ICS suggest that it had not succumbed to Securus’ “patent peace” bullying and had refused to sign a licensing deal. So, instead of risking yet another expensive court battle, Securus chose to simply buy out the competitor. In doing so, the company mitigated against future losses while strengthening its position in the market. These gains come at the expense of the incarcerated individuals dependent on prison telecom services.
If the ICS deal is approved, forty-seven state prison systems will now contract with a telephone provider that is owned by one of just three national companies: GTL, Securus, or CenturyLink. Although Securus’ public filings regarding the ICS deal claim that there are “a number of other competing providers… [and thus] the deal will not foreclose the opportunity for continued competitive bidding,” this statement omits two key details: these providers are in many cases neither competitive nor independent. Other companies control just a fraction of the market for telephone contracts and cannot truly compete with larger rivals like Securus. But, even if they were competitive, Securus now has a stake in the businesses of many of those providers too.
For instance, CenturyLink, the only remaining significant national competitor outside the leading duopoly, has contracted with ICS for over ten years and recently developed an exclusive partnership with ICS for correctional telecom services. Additionally, many of the remaining regional providers, like NCIC and Paytel, are dependent on Securus for technology thanks to its “patent peace” partnerships. This leaves GTL and Securus as the only true competitors in the prison telecom industry.
And this is not just true in traditional telephone services, but also in their expanding portfolio of non-traditional technology services. For example, in 2015, the Securus spent an estimated $250 million to acquire JPay, which has hundreds of contracts for money transfer services and generates millions in profits by collecting a fee each time someone sends money to an incarcerated person. When officials allow multiple players to assist with money transfers in their facilities, users often have only the illusion of choice because Securus also has a partnership with one of JPay’s primary competitors, MoneyGram.
Between its acquisitions, licensing agreements, and partnerships, Securus now has an unprecedented level of control over the industry, shifting the balance of the industry in its favor. Layer on top of that their growing suite of products and services that allows them to bundle contracts, and their dominance becomes obvious. This gives the company both substantial advantages in contract bidding and significant bargaining power in contract negotiations.
With this expanded power, Securus will be free to deepen its exploitative practices. In regions where Securus has already squeezed out the competition, it can raise prices when extending or renewing contracts. Without a large field of companies to make counteroffers, facilities will not have the option of negotiating for better terms. And while officials sign the contracts, these increased costs will fall squarely on Securus’ incarcerated customers and their loved ones, who have no voice in the contract bidding or negotiations.
In new markets, Securus’ control gives it a different advantage: it can make riskier bids. When it has a stake in multiple bids for the same contract, Securus takes less risk in presenting higher rates and fees and more favorable terms for the company. If Securus loses the bid, it can still benefit if it has a relationship with the winning contractor. For Securus, it may become a win-win situation.
But, the acquisition is not a done-deal, and there is still time to expose the anti-trust concerns that it raises. On July 2nd, the companies submitted the deal for approval by the FCC, which requires the FCC to confirm that the acquisition will serve the public interest and preserve competition. The public has until July 16th to file comments opposing the deal and showing how it will negatively impact anyone who wants to keep in touch with someone behind bars. Advocates must use this as a rallying point to stand up to the industry’s exploitative practices—the cost of inaction is too great.