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Sunday, June 02, 2013
Feds Bust Sandwich Isles Com: $25M/year Funneled to Hee Company
By Andrew Walden @ 9:16 PM :: 13964 Views :: Akaka Bill, DHHL, National News, Ethics

by Andrew Walden

The Federal Communications Commission in a May 10, 2013 Order says 'no' to "a waiver that would allow (Sandwich Isles Communications) to retain a number of significant and wasteful expenses, totaling many millions of dollars, including significant payments to a number of affiliated and closely-related companies." 

This is possible only because Dan Inouye is dead.

The FCC explains:

Sandwich Isles Communications, Inc., a Hawaii corporation, is a subsidiary of Waimana Enterprises, Inc., (Waimana), and Mr. Albert S.N. Hee is the President of both companies.

Sandwich Isles is also affiliated with ClearCom, Inc., (ClearCom), a Hawaii corporation and competitive local exchange carrier.

...Sandwich Isles has a contractual relationship with Paniolo Cable Network (Paniolo), a closely-related company. Although Sandwich Isles contends that Paniolo is a non-affiliated entity, we note that it is owned by Blue Ivory, LLC, which in turn is wholly owned by Blue Ivory Hawaii Corporation. Blue Ivory Hawaii Corporation is held equally by the private trusts of the three children of Mr. Hee....

Al Hee is the brother of State Senator Clayton Hee.  Sandwich isles Communications (SIC) is well known as a redoubt of the Broken Trust crowd after they were forced to stop looting Kamehameha Schools. 

The FCC order exposes more information on Hee than has ever before been made public.  Nonetheless, the FCC redacts many key details.  For instance:

Sandwich Isles has spent millions of dollars with affiliated and related entities for services that appear unrelated to the provision of a broadband-capable network....

Payments of over REDACTED between 2009-2011 to Waimana, Sandwich Isles’ parent company, for providing services to Sandwich Isles for the performance of REDACTED. These payments remain ongoing.

Payments to an affiliated entity, ClearCom, for use of abandoned water mains, which have resulted in payments of over REDACTED between 2009 and 2011....

Sandwich Isles’ corporate operations expenses appear disproportionately high as compared to its peers. Corporate operations expense categories include salaries, legal expenses, consulting fees, audit expenses, insurance, and, as further discussed below, management fee payments....

A significant amount of Sandwich Isles’ expenses consist of many millions of dollars paid to certain affiliated companies, and one closely-related company. As described below, based on the information in the record to date, these payments appear excessive, and therefore unreasonable....

How much did the Hees and their cronies get?  The FCC compares SIC to its peers:

...companies with 2,000 to 3,000 loops have median corporate operations expenses of $814,975, or approximately $27 per loop per month. By contrast, as of year-end 2011, Sandwich Isles had 2,439 loops and corporate operations expenses of $6,554,263—$224 per loop per month....

Sandwich Isles’ corporate expenses are 623 percent greater than the average for companies of similar size with the highest corporate operations expenses....

Sandwich Isles received $25,107,678 in universal service fund (USF) support in 2011 to serve approximately 2439 lines, at over $858 per line per month.  Sandwich Isles is an incumbent local exchange carrier that was designated as an eligible telecommunications carrier (ETC) in 1997....

$25M per year for 16 years is $400M--the exact amount Sandwich Isles offered in 2009 in a failed bid to buy Hawaiian Tel.  Of course they didn't keep all that money within their corporate structure.  As the FCC explains:

Waimana. Sandwich Isles has made payments to Waimana which have totaled over REDACTED between 2009 and 2011. Waimana provides REDACTED.  Of particular concern, Sandwich Isles’ payments to Waimana have significantly increased in recent years, without any explanation for the need for additional services.  For example, its payments to Waimana were approximately REDACTED.  We are not convinced that the significant payments to Waimana are warranted for the services provided by Waimana to Sandwich Isles. And, as noted above, the record does not explain whether and how those services changed during this period, in a manner that sufficiently justifies the increased payments. In addition, we are concerned that Sandwich Isles’ payments to Waimana for these services may be redundant services its own employees perform or are capable of performing.

ClearCom. Sandwich Isles has made over REDACTED in payments to its affiliate ClearCom, for the use of some abandoned water mains in Honolulu. ClearCom also provides REDACTED. Of particular concern, ClearCom leases abandoned water mains from the Board of Water Supply for the City and County of Honolulu (Board of Water Supply), which it currently provides portions of to Sandwich Isles. Sandwich Isles paid approximately REDACTED these abandoned water mains from 2009-2011. The agreement between ClearCom and Sandwich Isles gives Sandwich Isles the right to REDACTED. According to Sandwich Isles, the abandoned water mains serve as REDACTED. None of the other entities providing broadband service in Honolulu indicate they use the water mains. REDACTED. While ClearCom leases REDACTED of mains, Sandwich Isles currently uses REDACTED of those water mains and plans to use REDACTED. Thus, for use of this fraction of the abandoned water mains, Sandwich Isles appears to be paying both significant amounts of money and a significant portion of ClearCom’s lease costs....

In 2007, Sandwich Isles entered into with Paniolo an REDACTED lease to receive telecommunications transport services at a cost of over REDACTED during the period of the lease. These payments increase over time yet they do not include costs for engineering, insurance, operation, and maintenance costs, for which Sandwich Isles also is responsible.

...we are concerned that the Paniolo-related costs may undermine Sandwich Isles’ overall financial viability....

Another issue of concern is insurance costs, specifically the REDACTED....

...Between 2009 and 2011, Sandwich Isles reports that it employed a number of well-compensated persons, such as REDACTED....

The FCC order gradually reduces SIC's per-line taxpayer subsidy from $858 to $250 per line per month.

the Commission phased in the (nationwide) $250 cap over three years. From July 1, 2012 through June 30, 2013, carriers were to receive no more than $250 per line per month plus two-thirds of the difference between their uncapped per-line amount and $250.  ($250 + $401 = $651 per line per month)

From July 1, 2013 through June 30, 2014, carriers shall receive no more than $250 per line per month plus one-third of the difference between their uncapped per-line amount and $250. ($250 + $200 = $450 per line per month)

Beginning July 1, 2014, carriers shall receive no more than $250 per line per month....

With 2,439 lines, $250/month will leave SIC with $7,317,000 annual taxpayer subsidy.

---30---

FULL TEXT: May 10, 2013 Order 

2005:  Sandwich Isles Communications: Political Connections Pay Off

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