FCC Says HI Telecom Took USF for $27 Million

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UPDATE  Before the government shutdown Thursday, the FCC reaffirmed its original decision that a Hawaii-based telecom defrauded the Universal Service Fund by more than $27 million. The agency denied an appeal from Sandwich Isles Communications.

High-cost universal service support is designed to ensure that consumers in rural, insular, and high-cost areas have access to modern communications at rates that are reasonably comparable to those in urban areas.

Between 2002 and 2015, the Commission’s high-cost universal service support mechanisms provided nearly $250 million of funds to Sandwich Isles Communications, Inc. (SIC), to provide service to customers in the Hawaiian Home Lands. Yet SIC only provides service to “a small fraction” of the customers it originally stated it planned to serve, according to the FCC. Exact customer figures were redacted from the decision.

“Far more troubling,” the agency notes, is the outcome of an investigation by the Universal Service Administrative Company that began in 2015. It determined that SIC received more than $27 million in high-cost universal service support to which it was not entitled. That same year, the Hawaii Public Utilities Commission also concluded it could not certify that all federal high-cost support provided to SIC was used in either 2014 or 2015, and only for facilities and services for which the support is intended.

The FCC said SIC violated its regulatory cost accounting rules, and used inflated costs as the basis for its USF support. Those included costs for facilities that didn’t actually serve customers, network costs that were not eligible for compensation and inflated expenses.

SIC appealed the decision in January 2017, saying the FCC ignored its legal arguments and factual submissions. SIC submitted evidence it claimed shows its accounting did comply with USF rules. In its latest decision, the FCC said it found that evidence “incomplete, unpersuasive, or else outright contradictory.” The Commission says it has an obligation to ensure USF funds are used for their intended purposes and seek repayment of improperly distributed funds.

In the meantime, SIC has an obligation to its customers to continue to provide interstate telecommunications services, and cannot end service without FCC permission, according to the agency. Nor can the telecom ignore the agency’s accounting rules and Universal Service safeguards going forward.  Comments? Email Us.

January 7, 2019

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