Tuesday, July 20, 1999

pulling out of
Big Isle

The phone carrier, tired of
fighting GTE, is walking away
from its millions in investments

By Rob Perez


A company that spent millions of dollars to start a rural telephone network in the Kau region of the Big Island is leaving the market, citing the high cost of fighting protracted legal battles and other delays.

TelHawaii Inc. says it will discontinue its fledgling service by Aug. 31, leaving only GTE Hawaiian Tel, the area's dominant carrier, to serve the sparsely populated region of about 2,400 customers.

Five full-time TelHawaii jobs will be lost in the pullout.

Besides some telephone equipment, TelHawaii will have little to show for the multimillion-dollar investments it made in the market over the past four years. Having overcoming a number of legal hurdles, except one crucial one, the company in the end only signed up less than a dozen customers -- and was losing money serving them.

TelHawaii is leaving the Big Island embittered because state regulators approved its plans for entering the market, yet failed to defend those approvals when GTE Hawaiian Tel challenged them in court, according to the company.

"The present regulatory and political conditions in Hawaii are not conducive to TelHawaii's continued attempts to serve telephone customers," said Bernie Murray, the company's vice president and general manager. "The history of TelHawaii's treatment is bound to make other telecommunications carriers think twice before entering or expanding in the Hawaii market."

The state Public Utilities Commission in 1996 picked TelHawaii in a competitive bid to replace GTE as the basic service provider in Kau.

The selection was made after the PUC determined GTE's service in rural areas such as Kau was inadequate. Kau was one of few areas in the country that up until a few years ago only had party lines.

Although GTE challenges to various PUC orders delayed TelHawaii's entrance, it wasn't until April that the company received what turned out to be the critical setback.

A state judge ruled that a PUC order granting TelHawaii's request to take over GTE's Kau assets through condemnation was unconstitutional. The company appealed the ruling, but subsequently decided it would face years of costly delays even if the appeal were successful.

Before making the decision to pull out, however, TelHawaii in recent weeks signed up less than a dozen customers on a trial basis, offering them residential service using a hybrid of TelHawaii's limited network and portions of the GTE network.

But the $15 a month that each customer paid didn't even cover half the fees TelHawaii was charged for use of GTE's network, meaning TelHawaii was losing money on each customer, Murray said.

Those customers will be switched back to GTE.

Murray expressed disappointment that the company made investment decisions in good faith based on PUC approvals, only to see the court overturn some of the approvals.

Even though the company likely would win the pending appeal, Murray said, "it really doesn't matter because we would have to persevere through more years of legal battles and delays with GTE Hawaiian Tel before the PUC and courts."

"Given the millions of dollars expended already and the lack of sufficient revenues, we cannot afford to continue the fight."

Kau resident Bob Barry, 71, a retired engineer, was disappointed in the latest development, saying a lack of competition likely will lead to deterioration of GTE service.

"It's pretty pathetic," Barry said. "It means we're going back to the old total lack of service."

But Joel Matsunaga, GTE's vice president of external affairs, said the company's service has improved dramatically in Kau and will continue to improve, no matter what happens to TelHawaii.

The improvements stemmed from projects GTE had in the works well before TelHawaii entered Kau and had nothing to do with a competitor's presence, Matsunaga said.

Rep. Bob Herkes, whose Big Island district includes Kau, said TelHawaii's pending pullout underscores a fundamental regulatory problem in Hawaii. The regulatory process protects incumbent carriers such as GTE, even if the companies are providing poor service, Herkes said.

But Matsunaga noted that more than 200 carriers have been authorized to do business in Hawaii, suggesting the system is conducive to competition.

He also disputed the notion that TelHawaii's setback will have a chilling effect on other companies considering the Hawaii market.

Matsunaga said TelHawaii's illegal condemnation strategy, which no other carrier has embraced here, was the problem, not the state's regulatory process.

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