FCC is asked whether telecom deal with company is legal

The chairwoman of the Hawaiian Homes Commission is asking federal authorities whether the state’s long-standing and exclusive agreement with embattled telecommunications provider Sandwich Isles Communications Inc. might run afoul of federal law.

More than 20 years ago the Department of Hawaiian Home Lands granted Waimana Enterprises Inc. an exclusive license to become the telecommunications provider on the 203,000 acres of homelands, and Waimana partially assigned that license to Sandwich Isles in 1996.

However, in recent years Sandwich Isles has become mired in an array of legal and financial problems.

Company founder Al Hee was convicted of federal tax fraud in 2015 and sentenced to 46 months in federal prison, and the Federal Communications Commission in December announced it plans to impose $76 million in federal penalties on Sandwich Isles for what it described as “egregious misconduct.”

Now Hawaiian Homes Commission Chairwoman Jobie Masagatani is questioning whether the exclusive license granted to SIC is even legal. In a Feb. 2 letter to FCC Chairman Ajit Pai, Masagatani asked whether the license agreement might violate federal law because it acts as a “potential barrier” to other companies that might wish to compete with SIC to serve homelands customers.

Hawaiian Homes Commission officials refused to answer specific questions about Masagatani’s inquiry with the FCC, and would not explain why the legality of the license with Sandwich Isles suddenly arose now.

DHHL spokeswoman Paula Aila said the department is “working with the FCC to seek guidance and clarification throughout this process.”

Aila would not say whether the department is considering ending its agreement with Sandwich Isles, or whether Masagatani’s inquiry with the FCC seeks to identify a legal basis for terminating the Waimana Enterprises and Sandwich Isles license.

She said that “the position of the DHHL is to ensure the quality of service continues for our beneficiaries and they are not negatively impacted throughout the process.” Sandwich Isles provides phone and other telecommunications serv­ices to about 3,600 homelands customers.

The inquiry by Masagatani to the FCC prompted a reply from Hee, 62, who is serving his sentence in the Federal Bureau of Prisons’ Rochester Federal Medical Center in Minnesota.

In a Feb. 27 letter to the FCC, Hee argued the license is a legal exercise of Hawaiian Homes’ authority, and “the exclusivity of the license to WEI was known to, and approved by, the Federal Communications Commission and the rest of the federal government from the outset.”

Hee described Masagatani’s inquiry with the FCC as “an obvious attack by DHHL and FCC on the rights of native Hawaiians and trust beneficiaries to receive benefits under these rural utility programs that are supposed to be available to all citizens of the United States.”

Lex Smith, lawyer for Waimana Enterprises, argued in a separate filing that the license does not actually exclude competition, because companies Mobi PCS and T-Mobile have also received federal subsidies for services they provide on Hawaiian homelands.

Hawaiian Telcom Inc., however, has argued since at least 2013 that the license agreement between SIC and DHHL violates the federal Telecommunications Act of 1996, which was designed to promote competition in communications markets.

Hawaiian Telcom contends that federal law specifically pre-empts any local legal requirement that would bar companies from providing service in an area, and also argued to the FCC that DHHL has no legal right to decide who can provide telecommunications service on Hawaiian homelands.

Only the state Public Utilities Commission has the authority to issue licenses to provide telecommunications in Hawaii, according to Hawaiian Telcom.

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 telecommunications companies that provide service in isolated rural areas, and companies that install “Category 1” lines to customers in rural areas can qualify for the subsidies.

The FCC alleged that Sandwich Isles extended lines to vacant Hawaiian homelands 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.

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.