The government is not a single entity. In this case the federal government is limiting what the state and local governments can do. The federal government can l

The government is not a single entity. In this case the federal government is limiting what the state and local governments can do. The federal government can limit what federal prisons and those servicing federal prisons can do directly but not state and local governments directly, so they place the limits on the companies because that is what they have the power to do. The state and local governments are partners with these phone companies and the outrageous rates are not a surprise outcome but an intentional one. In exchange for allowing such rates the prisons get free surveillance services and some combination of a fixed and percentage of revenue payment from the companies. In other words a legal kickback.