Island telecom firm disputes FCC’s overpayment findings

Embattled telecommunications provider Sandwich Isles Communications Inc. is disputing findings by the federal government that the company received more than $26 million in overpayments of federal subsidies over 10 years.

The Washington, D.C., law firm Venable LLP filed a petition this month asking the Federal Communications Commission to reconsider findings the agency issued last month.

Venable argued the FCC’s decision in the case was “arbitrary, capricious and contrary to law.”

Last month the FCC announced it is imposing a total of $76 million in federal penalties on Sandwich Isles for what it described as “egregious misconduct” in the case.

Sandwich Isles has an exclusive license from the state to provide telecommunications services on Hawaiian Home Lands and provides phone and other telecommunications services to about 3,600 home lands customers.

Sandwich Isles has received more than $249 million in subsidies since 2002 from the Universal Service Fund, which is financed through fees collected from telecommunications customers across the country.

The fund offers special “high-cost” subsidies to telecom companies that provide service in isolated rural areas, and companies that install “Category 1” lines that serve customers in rural areas can qualify for the high-cost subsidies.

The FCC alleged that Sandwich Isles extended lines to vacant Hawaiian home lands and then improperly classified those lines as “Category 1” in reports to the federal government although no customers were actually being served.

That allowed the company to qualify for the special high-cost federal subsidies, and Sandwich Isles allegedly drew down $26.3 million in overpayments from the Universal Service Fund from 2003 to 2014, according to the FCC. The agency has ordered the Universal Service Fund to recover that money.

In its defense of the company, Venable argued that a study by independent experts concluded the allegations of overpayments to Sandwich Isle are “wildly overblown.”

“In reality, the maximum amount of alleged Category 1 overpayments received by SIC is only $4.1 million, as established by an independent professional telecommunications consulting firm” in a report already submitted to the FCC, according to the Venable filing.

The FCC also issued a separate order that found Sandwich Isles is apparently liable for an additional forfeiture penalty of nearly $49.6 million for allegedly submitting false data to the agency from 2010 to 2013.

The FCC has given the company until Feb. 3 to explain why it should not be barred from receiving further “high-cost” support payments from the federal Universal Service Fund. The FCC is inviting “interested stakeholders,” including the Department of Hawaiian Home Lands, to comment on whether the company should continue to receive those subsidies.

Comments are due by Feb. 3 and can be filed with the FCC at fcc.gov/ecfs.

Sandwich Isles founder Albert Hee is now serving 46 months in federal prison for 2015 convictions on six counts of federal tax fraud and one count of corruptly impeding the Internal Revenue Service from calculating his actual tax liability.