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Tuesday, June 4, 2002



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ANTHONY SOMMER / TSOMMER@STARBULLETIN.COM
Workers on Kauai have begun a 51-mile-long trench to link Department of Hawaiian Home Lands property in Anahola in northeast Kauai to DHHL land in Kekaha on the west side of the island with fiber-optic cable. Within five years, Sandwich Isle Communications plans to connect all DHHL property in the state with high-speed computer capability at a cost of $500 million. Most of the cost will be borne by fees levied on U.S. telephone customers.




Fiber-optic firm taps
federal gold mine

A Hawaii company will get
$500 million to lay a rural network
that may see little use


By Anthony Sommer
tsommer@starbulletin.com

LIHUE >> Work has begun on a privately owned $500 million fiber-optic cable telecommunications system ultimately linking all Department of Hawaiian Home Lands residents currently without telephone service. Even if it services all the homes possible, the price tag will be $25,000 per home.

Of the total cost, $400 million will be paid through a loan from one federal agency that will be almost entirely repaid by another federal agency that assesses a fee on every telephone user in the United States.

The company building the system is Sandwich Isles Communications Corp. Wiring of Hawaiian Homes properties from Anahola to Kekaha, a total of 51 miles, began in Anahola in March.

Over the next five years, Sandwich Isles plans to lay 1,500 miles of fiber-optic cable linking the Department of Hawaiian Home Lands' 69 housing developments scattered across six major islands. Included are undersea cables between the islands.

The plan is to provide state-of-the-art telecommunications to 20,000 homes.

But the 20,000 homes do not yet exist. The number represents the families who are on the Hawaiian Homes waiting list for new home. At the current rate of DHHL home construction (about 500 new homes per year), the 20,000 dwellings will not be completed for another 40 years.

The initial service will reach less than 5 percent of the existing 5,400 DHHL homes statewide: only those that do not have existing service from Verizon.

Many of those who know about it think it is huge investment to provide services that will be rarely, if ever, used.

"Our question is, How do they make money with this thing?" said Kevin Kotsura, chief legal counsel of the Public Utilities Commission.

"Someone spotted a big pot of federal money just sitting there and went out and grabbed it," said one Kauai official with extensive experience in applying for and receiving government grants. "The money isn't in operating the system, it is in building it."

Neither Sandwich Isles nor the federal agencies providing the funding would say how much of the funding is for administrative costs and how much profit the company will be allowed on construction.

That information would give an edge to competitors, they said, even though there don't appear to be any companies interested in serving Hawaiian Homes properties. Verizon officials said they don't intend to compete with Sandwich Isles for the service the new company wants to provide.

Sandwich Isles comes equipped with a high-profile political pedigree. Robert Kihune, retired vice admiral and recently appointed Kamehameha Schools trustee, is chief executive officer. Al Hee, brother of Office of Hawaiian Affairs Chairman Clayton Hee, is president.

In 1995, it made an agreement with Hawaiian Homes to build the system. There was no bidding and the project costs the department nothing.

Under the 1996 Federal Telecommunications Act, which encourages new companies, Sandwich Isles' rates will not be regulated by the state Public Utilities Commission.

The financing includes $400 million in loans from the U.S. Agriculture Department's Rural Utilities Service and perhaps another $100 million from unnamed "private investors."

Most of the federal loan will be paid off by another federal agency, the Federal Communications Commission, through the Universal Service Fund, administered by the National Exchange Carriers Association..

The money comes from a federal charge on every monthly bill for every telephone user in the United States. For a residential customer, it works out to about $10 a year.

How much of the $400 million debt will be paid by DHHL customers and how much by every other telephone user in the United States through the Universal Service Fund?

Sandwich Isles has been tight-lipped about how its debt will be structured. But it says that's because it doesn't really know how the system will evolve.

"We have kind of a social mission," said Gil Tam, Sandwich Isles vice president for government and community relations. "We don't want to be a big telephone company like Verizon. Our mission is to serve Hawaiian Home Lands.

"We definitely believe it will be utilized, but we don't know yet what businesses the availability of the system will attract," said Tam.

"I think it is clear to everyone that we need a first-class infrastructure to attract high-tech businesses to Hawaii and our mission is to build that infrastructure on Hawaiian Home Lands," he added.

When the Star-Bulletin asked Roberta Purcell, administrator of the Telecommunications Division of the Rural Utilities Service (which is making the loan available) how much of the debt service would come from the Universal Service Fund, she responded: "Much of the information you are seeking is either proprietary or must be obtained directly from Sandwich Isles itself."

Purcell refused to discuss the justification for spending a half billion dollars when there is no indication any significant number of Hawaiian Homes residents has been underserved by Verizon.

Asked how many of her acquaintances in Anahola currently lack service from Verizon, longtime Anahola resident Sondra Grace had to pause a minute.

"I can think of one old guy who doesn't have a telephone and he lives out in an isolated valley," she said. "I'm not sure he'd want it even if it were available."



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