Inmate calling services companies drop merger bid after U.S. regulatory opposition

WASHINGTON (Reuters) - Two inmate calling service companies agreed to drop a merger bid after U.S. regulators recommended blocking the deal because of significant competitive concerns, the Federal Communications Commission said on Tuesday.

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Allowing Securus Technologies Inc and Inmate Calling Solutions LLC (ICS) to merge would not have been in the public interest, FCC Chairman Ajit Pai said in a statement.

Critics say the deal could have led to a market where the vast majority of inmate calls were controlled by two companies and argue U.S. prisoners already pay inflated prices to make calls.

A Securus spokesman said in an email the company sought the merger to offer more efficient and high-quality services.

The company, which provides inmate services in 46 U.S. states, added it respected the FCC decision and withdrew its application.

Securus previously challenged efforts by the FCC to impose caps on the rates and fees charged to prison pay phone users.

The FCC said in 2018 that ICS, which provides inmate telecommunications services in 39 states, is controlled by HIG Capital LLC, a private equity firm. Securus is controlled by Platinum Equity, a private equity firm headed by Tom Gores, owner of the National Basketball Association’s Detroit Pistons.

HIG and Platinum Equity did not immediately return phone calls seeking comment.

The FCC approved Platinum Equity’s $1.6 billion acquisition of Securus in October 2017. At the same time, Securus agreed to pay a $1.7 million fine to resolve an investigation into whether Securus provided inaccurate and misleading information to the FCC over transfer of control to Platinum Equity.

Democratic FCC Commissioner Jessica Rosenworcel said in an email on Tuesday that “now that two of the largest prison payphone companies have called off their merger, it is time for the FCC to once and for all fix the sky-high rates inmates and their families pay for phone calls.”

Moody’s Investors Service said in a May 2018 note that Securus anticipated adding $350 million in loans, primarily to fund the acquisition of the smaller Inmate Calling Solutions.

Moody’s said at the time the deal would have removed “a marginal competitor” for Securus and improved the company’s market share position. Moody’s said ICS had grown significantly since 2015 “by winning new contracts, occasionally from Securus as well other competitors” and the deal would eliminate “an aggressive competitor in the smaller facility space comprised of local and county jails.”

Reporting by David Shepardson and Diane Bartz in Washington; Editing by Matthew Lewis and Lisa Shumaker