by Andrew Walden
(originally published May, 2005, reprinted in honor of Sandwich Isles offer to buy Hawaiian Telecom)
In a little-noticed May 16, 2005 ruling, the Federal Communications Commission (FCC) has granted a waiver necessary to allow Sandwich Isles Communications (SIC) to complete construction of its $500 million project to link 69 Hawaiian Homelands properties with a fiber optic communications network. Sandwich Isles, had completed about $160 million worth of construction bringing its network to all the islands except the Big Island, when in October, 2004 the FCC suddenly acted on a six-year old complaint from telecom rival Verizon. As a result of the October ruling, Sandwich Isles was forced to reapply for its FCC waiver which allowed SIC to receive $400 million in federal funds taken from the “Universal Service Fund” (USF) tax on consumers’ phone bills.
The USF tax is intended to subsidize telecommunications service to un-served rural areas. Verizon Hawaii, now re-named Hawaii Telecom after being purchased by the Carlyle Group, had argued the DHHL lots Sandwich Isles proposed to serve were not un-served because they were within Verizon territory. With the waiver granted, federal funds can once again flow into SIC’s coffers and construction can be completed on the Big Island. In a statement issued by the office of Gilbert Tam, SIC Vice President for government and community relations, SIC said, it “is pleased with the FCC order” which “allows SIC to fulfill its commitment and efforts to provide modern and affordable telecommunications services to residents of Hawaiian Home lands “
At an estimated cost of $500 million, is SIC were to serve all 20,000 DHHL lots, the cost would be $25,000 per lot. But DHHL has only about 5400 lots occupied by leaseholders. At current build-out rates it would be about 40 years until all 20,000 lots are filled. $500 million to wire 5400 lots averages out to about $93,000 per lot--the construction cost of a small house--just for high speed internet and phone service. Further, there is no reason to believe that all 5400 DHHL leaseholders would want to pay SIC’s monthly fees for high speed internet service. Many DHHL homesteaders already have land lines from Verizon. In the US about 33% of households have high speed internet connections. If DHHL leaseholders have the same level of interest in high speed internet connections, SIC would serve about 1800 lots at an average cost to the taxpayers of about $278,000 per lot. Currently SIC is reported to serve about 1300 customers.
These figures compare unfavorably to the $600 or less setup cost of many commercially available high-speed satellite internet connections. Internet satellite providers’ monthly charges are competitive with those of SIC. With inexpensive, commercially available “VOIP” technology, high quality internet based telephone service can be included. Satellite technology requires no digging to lay cables, thus minimizing environmental damage and disruption of Hawaiian sites.
Unsurprisingly, Sandwich Isles is led by many politically connected directors and corporate officers. Robert Kihune, retired vice admiral and Vice-Chair of the Kamehameha Schools Board of Trustees, is SIC Chief Executive Officer. Kihune, who is also Chairman of the USS Missouri Memorial Association, was keynote speaker at the Hawai`i County Council inauguration in December, 2004.
Al Hee, brother of former Office of Hawaiian Affairs Chairman (and current Democrat State Senator) Clayton Hee, is SIC President.
Sandwich Isles Vice president, Gilbert Tam is a former Director of P&C Insurance Company, Inc. and the former Administrative Group Director for Kamehameha Schools/Bishop Estate (KSBE). Tam was formerly an officer with Bank of Hawaii, which has substantial financial connections with KSBE.
As explained in a December 31, 2001 article in the Honolulu Advertiser:
“Part of the reason Sandwich Isles Communications has attracted interest in Hawai'i political circles is that the company has ties to a variety of politicians and current or former executives involved with Kamehameha Schools, another politically influential local institution.
“Al Hee said his brother Clayton, (then) chairman of the board of trustees of the Office of Hawaiian Affairs, is not involved in the project. Sandwich Isles did hire Clayton Hee's wife, Lynne Waters, to produce videos for presentations to business leaders, homesteaders and others on the company's operations.
“Among (Sandwich Isles’)... 22 employees are former Democratic House Majority Leader Tom Okamura and former state Rep. Devon Nekoba, who both carry the title of agency coordination officer. (Al) Hee said the two advise company executives on government policy matters.
“Ties to Kamehameha Schools, formerly known as the Bishop Estate, include Gil Tam, the company's vice president of government and community relations, formerly director of administration and interim chief executive officer for Bishop Estate; and Robert Kihune, chief executive officer, now a Kamehameha Schools trustee.
“The Hawaiian Homes Commission chairwoman in 1994, when the commission approved Hee's license (to provide communications services), was Hoaliku Drake, the mother of former Bishop Estate trustee Henry Peters.
“Clayton Hee is a friend of Peters and was hired as a cultural affairs researcher for the Royal Hawaiian Shopping Center, a subsidiary of the former Bishop Estate/Kamehameha Schools (KSBE).”
Henry Peters was one of the Bishop Estates Trustees named in the infamous “Broken Trust” case. Gilbert Tam was also a co-investor in KSBE’s McKenzie Methane deal at the time he was a KSBE manager.
In addition to “Broken Trust” connections, Sandwich Isles also benefits from a connection with former FCC Chairman Michael Powell, son of former Secretary of State Colin Powell. Hee and the younger Powell were introduced by one of Hee’s mid-1970s Annapolis Naval Academy classmates. The FCC’s sudden decision to rule on Verizon’s complaint corresponds in time closely to Michael Powell’s resignation as FCC chair.
There is also a correspondence in timing between the purchase of Verizon’s Hawai`i assets by the Carlysle Group, a company founded on its many well-known connections to both Democrat and Republican national political leaders and appointees, and the FCC’s subsequent ruling in SIC’s favor.
SIC’s cable-laying contractor is MasTec, named for its founder the late Jorge Mas Canoza, Cuban exile leader. On the MasTec board, is Joseph Kennedy II, whose family connections with Mas Canoza go back to the Bay of Pigs.
Amazingly for a $500 million fiber-optic communications company, Sandwich Isles does not have a web site. SIC shares offices with Waimana, Inc, Richardson-Luke, and Ku`iwalu. As of this writing, SIC has not released to this writer a complete list of company officers and directors and their total remuneration.
Totally Related: Broken Trust , Akaka Bill Reading List , Ue ka lani, ola ka OHA? , Forbes: Dreaming and scheming Hawaiian style , HA: $400M Offer for Hawaiian Tel