Sandwich Isles faces $13M loss after PUC ruling cuts off federal subsidies

A telecom company that serves about 3,600 residents of Hawaiian Home Lands is facing mounting financial difficulties following a Monday ruling by the state Public Utilities Commission that cuts off its federal subsidies through at least March.

Sandwich Isles Communications has been fending off investigations into its operations since its founder Al Hee was indicted by a federal grand jury in July on seven counts of tax fraud.

The Monday ruling by the PUC — which rejects Sandwich Isles’ bid to be recertified to continue receiving federal subsidies in January — means the telecom company could be facing financial losses of about $13.6 million through March.

This includes federal subsidies that were suspended by the Federal Communications Commission beginning in June.

In their ruling, commissioners said it would be “premature” to certify Sandwich Isles and its wireless arm, Pa Makani, given ongoing federal and state reviews of the companies’ finances.

There “remains uncertainty as to whether all federal high-cost support provided to SIC and Pa Makani was used and will be used only for the provision, maintenance, and upgrading of facilities and services for which the support is intended,” according to the decision, signed by PUC Chairman Randy Iwase and commissioners Mike Champley and Lorraine Akiba.

Sandwich Isles can reapply for PUC certification for the second quarter of 2016.

In June the FCC stopped funneling about $1.3 million to the company monthly while it conducts investigations into whether millions of dollars of company money that Hee used for personal expenses — such as paying for his children’s college tuition and getting twice-weekly, two-hour massages — came from federal ratepayer funds.

The FCC indicated in documents that it might resume Sandwich Isles’ subsidy before the end of December, when it expects to complete its audit of the company.

However, the PUC ruling ensures that Sandwich Isles won’t be receiving federal subsidies through March, raising questions about the company’s future solvency.

Sandwich Isles CEO Janeen-Ann Olds did not respond to an interview request, but in an emailed statement she called the PUC decision “unfortunate and premature,” saying the FCC audit has not been concluded.

“We have provided nearly 40,000 pages of accounting transactions and documentation to assist with the audit,” she said by email. “Neither (the Universal Service Administrative Co.) nor the FCC have released any interim findings or conclusions at this stage, and to our knowledge, the audit remains on track to conclude by the end of this calendar year. In the meantime, we remain committed to serving our subscribers and we will keep them updated as information becomes available.”

Lex Smith, an attorney for Sandwich Isles, also provided an emailed statement calling on the PUC to make sure that there are no gaps in funding once the federal audit is complete.

Sandwich Isles has received more than $242 million from the FCC’s Universal Service Fund since 2003, according to federal documents. The fund is supported by fees tacked on to people’s phone bills and distributed to telecommunications companies that operate in rural or remote areas to ensure those communities have affordable communication services.

The Department of Hawaiian Home Lands, which signed an exclusive contract with Sandwich Isles, has been tight-lipped about any contingency plans if Sandwich Isles were to go under.

DHHL spokeswoman Paula Aila would say only that the department is seeking “specialized legal expertise” about its contract with Sandwich Isles.

Hawaiian Homes Commissioner Pua Chin said that most conversations about Sandwich Isles are being carried out in private, executive sessions, which are not open to the public.

Hee was convicted on six counts of filing false income tax returns and one count that he corruptly impeded the Internal Revenue Service from correctly calculating and collecting his taxes after federal prosecutors accused him of skimming $4 million from Sandwich Isles’ parent company, Waimana Enterprises, to pay for personal expenses.

Hee is appealing the convictions.