Thousands Of Hawaiians Could Lose Phone And Internet Service Amid Bankruptcy Dispute

State regulators have opened an emergency investigation of Sandwich Isles Communications to determine if the company can provide telecommunications services to more than 3,000 households living on Hawaiian Home Lands and to find alternatives if not.

The Public Utilities Commission, which opened the docket March 11, is concerned that Sandwich Isles’ customers “could abruptly lose access to telecommunications services,” a situation the panel considers “unacceptable.”

The investigation comes as Sandwich Isles is apparently blocking access to its telecom infrastructure to another provider, Hawaiian Telcom, alleging trespass, filing police reports and putting customer phone and internet service at risk.

A photo entered as a court exhibit depicts how Sandwich Isles Communications apparently bypassed a Hawaiian Telcom lock and installed a metal box with its own lock at the Paniolo Building in Anahola, Kauai. PUC/Hawaiian Telcom/2022

Meanwhile, Hawaiian Telcom has alerted the Department of Hawaiian Home Lands, the Federal Communications Commission, the U.S. Department of Justice, the Hawaii Attorney General and others that because of the dispute the company is prepared to cut off Sandwich Isles’ access to its telecom network by May 31.

The PUC said in a March 11 filing that it “cannot overstate the paramount importance of maintaining affordable and reliable telecommunications services to the State as a whole, and in particular, to customers on Hawaiian Home Lands.”

If customers lose basic telecom service, it could have serious health, safety, economic and educational consequences, according to Hawaii’s Consumer Advocate, a party to the docket.

Sandwich Isles Communications is an Oahu-based telephone company founded in 1995 with a mission to provide communication services to Native Hawaiians living on homesteads. Besides landline and wireless telephone services for residential and commercial customers, the company also offers broadband and Lifeline, a medical alert system.

With federal backing, the company built the Paniolo Network, a web of undersea and terrestrial fiber optic cables.

Between 1997 and 2001, the U.S. Department of Agriculture loaned the company more than $166 million to build telecommunications infrastructure. From 2002 to 2015, it received over $27 million from the FCC to cover various telecom-related costs.

After the money started flowing, things got complicated.

In 2015, founder Albert Hee was convicted of criminal tax fraud. Federal prosecutors found that Hee steered millions of dollars from the business into his personal accounts to pay for things like massages, college tuition for his children, family vacations, a vehicle, and a home in California, as well as salaries and benefits to his wife and children for work they didn’t perform. Hee was sentenced in 2016 to 46 months in prison.

Then in 2020, the FCC fined Hee nearly $50 million for defrauding the Universal Services Fund which supports carriers providing telecom services in high-cost parts of the country.

Albert Hee was sentenced to nearly four years in prison and fined $50 million for fraud and other charges in recent years. Hawaii News Now/Screenshot

Sandwich Isles Communications defaulted on loans from the Agriculture Department’s Rural Utilities Service and was slapped with a $138.5 million judgment in February 2020. To satisfy the judgment, a bankruptcy trustee ordered the sale of the Paniolo Network to Hawaiian Telcom.

According to the PUC docket, Hawaiian Telcom later sent Sandwich Isles a letter noting the change in ownership. But to avoid any disruption to customers, Hawaiian Telcom said Sandwich Isles could continue uninterrupted use of the Paniolo facilities, temporarily, pending a more permanent agreement.

Things quickly went sideways.

Sandwich Isles didn’t make required payments to Hawaiian Telcom for use of the network, according to correspondence reviewed by the commission.

Hawaiian Telcom said it was willing to negotiate but if no agreement was reached by March 31, the company would revoke Sandwich Isles’ use of the network, which could interrupt telecom services to Hawaiian Home Lands customers. They have since extended the deadline to the end of next month.

But the situation has continued to badly deteriorate.

Correspondence between the two companies indicates that Sandwich Isles “has barricaded interior doors and changed exterior locks to certain parts of Paniolo Network’s facilities,” according to the commission.

In bankruptcy court documents, Hawaiian Telcom says Sandwich Isles has removed, destroyed or tampered with Hawaiian Telcom locks on perimeter fences surrounding buildings purchased by Hawaiian Telcom. And that Sandwich Isles has installed its own locks and devices on buildings and premises owned by Hawaiian Telcom, as well as welding shut access gates. The company also says Sandwich Isles has made multiple false police reports alleging Hawaiian Telcom is trespassing on its property.

Hawaiian Telcom building on Bishop Street.
Hawaiian Telcom says Sandwich Isles has removed, destroyed or tampered with its locks on perimeter fences surrounding buildings it purchased. Cory Lum/Civil Beat/2020

Lynette Yoshida, a Hawaiian Telcom senior operations manager, said in court documents that on Jan. 26 she received a report from a Sandwich Isles employee saying that company founder Al Hee was requesting that Hawaiian Telcom’s lock on its Paniolo Building at Laiopua on the Big Island be replaced. Otherwise, Hee said he would call the police.

Multiple similar incidents involving police are detailed in court papers.

In a Jan. 12 email to Hawaiian Telcom, Hee said, “I have no intention of escalating this to a trespassing issue unless you destroy our property. If you would like to talk about unescorted access, please let me know.”

Things got even uglier after that.

In a March 29 filing in U.S. Bankruptcy Court for the District of Hawaii, Hawaiian Telcom asked the court to enforce the terms of the bankruptcy because Sandwich Isles’ conduct is “not only wrongful, but has become progressively harmful and alarming.”

On Friday, the court ordered Sandwich Isles to immediately stop removing, destroying, altering or otherwise tampering with Hawaiian Telcom’s locks, chains or other security features of its Paniolo buildings. It also found Sandwich Isles and its officers, managers and agents in willful contempt of court for its actions.

A phone call and email seeking comment this week to Lex Smith, an attorney representing Sandwich Isles, were not returned. A woman who answered the phone at Sandwich Isles on Wednesday said no one was available to speak to a reporter.

In a Sept. 11 letter to customers, Sandwich Isles blamed the situation on Hawaiian Telcom. Under the bankruptcy, Sandwich Isles was allowed to temporarily continue serving its customers using a portion of the Paniolo Network for free and paying a nominal amount for its equipment located in buildings now owned by Hawaiian Telcom, the letter says.

But Hawaiian Telcom “has since reneged on its purchase obligation” and is demanding that Sandwich Isles pay market rates for using the network and is threatening to cut off service unless it does, according to the company.

Paying market rates would substantially increase customer telecom bills, the letter says.

In court papers filed on April 11, the Department of Hawaiian Home Lands sided with Hawaiian Telcom. It said Sandwich Isles forfeited any interest or right to assets involved in the bankruptcy, including real estate.

Sandwich Isles faces $400 million in judgments, the department noted. It quotes the bankruptcy trustee as saying Sandwich Isles’ recent actions pose a “clear and present danger to the operations, safety and security of the Paniolo Cable Network.”

The PUC reviewed Sandwich Isles’ recent annual reports and described the company’s financial situation as “dire.”

A commission investigation into whether Sandwich Isles has violated federal law is appropriate, according to the Consumer Advocate. If violations become evident and if remedies can’t be easily found and implemented, the commission must decide whether Sandwich Isles should be allowed to continue to operate.

It’s of utmost importance that services to Hawaiian Home Lands beneficiaries not be disrupted, said Dean Nishina, executive director of the Division of Consumer Advocacy, in an interview Thursday.

In May, parties to the docket will have a chance to request information from others. Sandwich Isles has until June 21 to submit its reply.

“Reliable internet and telephone services are more important than ever,” said Cedric Duarte, a spokesman for Hawaiian Home Lands.

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