Telecom company warns it could close

A struggling Hawaii telecommunications provider that is facing huge federal fines has warned the state it could close and lay off its workforce, but it is unclear whether the company is being sold or is on the verge of folding.

Sandwich Isles Communications Inc. submitted a letter to the state Department of Labor and Industrial Relations on Jan. 3 announcing it could close as early as March 4 and lay off its 62 employees. SIC provides telecommunications services to about 3,600 customers on Hawaiian homelands across the state.

“SIC has entered into a letter of intent to sell the company, and currently is negotiating a definitive purchase agreement,” according to the letter signed by Sandwich Isles’ interim CEO Breanne Kahalewai.

The proposed sale would require the new owner to retain the current employees, but Kahalewai said that “out of an abundance of caution,” the company was notifying the state of a possible closure as required under the state Dislocated Workers’ Act. Kahalewai is the daughter of Sandwich Isles founder Al Hee.

William Kunstman, spokesman for the labor department, said DLIR was later notified that about 20 Sandwich Isles workers had found jobs elsewhere. Kunstman had no further information about the status of the company, and SIC did not respond to requests for comment Monday.

William Aila, deputy director of the state Department of Hawaiian Home Lands, said homesteaders across the state report that service is still being provided, but “we have not been contacted by Sandwich Isles, so it’s interesting that this comes up at this time.”

The department is working on “possible mitigation” that could include a sale of the company or transfer of assets, he said. Aila declined to disclose any details but said DHHL would have to consent to any sale of the company.

A spokesman for the Federal Communications Commission said Monday that a carrier such as Sandwich Isles “must have FCC permission before discontinuing service and none such request has been received. In addition, there are a number of pending petitions related to this company still before the commission.”

Sandwich Isles was granted an exclusive license in 1995 to provide telecommunications services on more than 200,000 acres of Hawaiian homelands, and spent years building a fiber network to serve businesses and homes on homelands.

Hee was convicted of federal tax fraud in 2015 and sentenced to 46 months in federal prison for concealing from the IRS that his company had deducted $2.75 million as business expenses it had paid to cover Hee’s personal expenses.

Among the purported business expenses cited by prosecutors were $718,559 the company paid for college tuition and living expenses for Hee’s three children, $92,000 in payments for massages for Hee and $121,878 in credit card charges made by Hee for personal expenses, according to federal court records.

Over the years SIC had received more than $249 million from the federal Universal Service Fund to support telecommunications services on Hawaiian homelands, but in 2015 the FCC cut off most of the federal subsidies that the company had been receiving. The fund is financed through fees collected from telecommunications customers across the country.

Sandwich Isles also borrowed more than $166 million from the U.S. Department of Agriculture’s Rural Utilities Service to finance construction of its network. USDA officials disclosed in 2016 that Sandwich Isles still owed the agency more than $108 million and had defaulted on USDA loans as early as 2013 and 2014.

In late 2016 the FCC imposed $76 million in penalties against Sandwich Isles, and the company has been fighting that decision in filings pending before the commission.

Hee was once a generous source of funding for federal political campaigns, donating more than $45,000 to federal candidates and their committees since 2000 and contributing more than $60,000 to the Obama Victory Fund in 2011 and 2012.

He also donated more than $50,000 to various Democratic Party organizations since 2008, with most of that money going to the DNC Services Corp., which supports the Democratic National Committee.