Twenty-one years ago, President Bill Clinton signed the 1996 Telecommunications Act into law. At that time, he spoke of an information highway in the works and said the legislation “promotes competition as the key to opening new markets and new opportunities.”
Given the law’s invitation to let any communications business compete in a rising digital age market, it’s puzzling that the plug was not quickly pulled on an old-school monopoly agreement, inked the year before, through which Hawaiian Homes granted an exclusive license in perpetuity to Waimana Enterprises Inc. to provide telecommunications services on Hawaiian homelands. Waimana partially transferred its license to subsidiary Sandwich Isles Communications Inc.
As a businessman, Albert Hee, founder of both Waimana and Sandwich Isles, proved to be highly ambitious and morally reprehensible.
Over a period of two decades Hee tapped into enormous federal telecommunications subsidies to build a system that serves 3,600 homesteader customers. He’s now serving time for a 2015 federal tax fraud conviction, sentenced to 46 months in a federal prison medical facility for concealing from the IRS that his company deducted $2.75 million as business expenses it had paid to cover Hee’s personal expenses.
Hee’s business drew heavily from the Universal Service Fund, which was created by Congress in the mid-1990s to ensure rural, low-income areas had essential phone service, and later Internet access. It’s financed by telecommunication service providers, many of whom pay their share with monthly fees collected from customers. About six years ago, when the Federal Communications Commission (FCC), which oversees the fund, began cracking down on waste and abuse tied to subsidies, Hee emerged as a glaring Exhibit A.
Hee’s case is a costly and cautionary tale about government handing out taxpayer money without adequately checking up on who is receiving it and how they are using it.
How did years and years slip by before the FCC, which regulates Sandwich Isles, took a hard look at Hee’s sweet deal with Hawaiian Homes? And why did Hawaii’s Public Utilities Commission (PUC), which is tasked with scrutinizing the company’s operations and finances, fail to raise red flags — even when the FCC began uncovering appalling abuses?
Hee ripped off ratepayers to cover “salaries” to family members, college tuition for his children, real estate, vacations and dozens of other personal expenses. One example underscoring a routine arrogance: $96,000 for massages. In federal court, Hee said they were legit because stress relief allowed him to “function as CEO” and deal with other health issues. The IRS countered that he had falsely characterized massage payments as health consulting fees, causing his company accountants to improperly deduct them as a business expense over a stretch of 10 years.
Last year, the FCC imposed $76 million in penalties against Sandwich Isles and has cut the flow of most of its federal subsidies. Then, last week, the commission announced that the company’s agreement with Hawaiian Homes — in place since 1995 — violates the Telecommunications Act, and cannot be enforced. It’s frustrating to see that it took a criminal conviction to spur long overdue protection of the public purse.
Also exasperating is a slice of local response following Hee’s 11-day jury trial. A sizable stack of letters from Hee’s friends and acquaintances — including several politically connected figures — urged a U.S. District Court judge to go easy on sentencing for the man they depicted as helpful and generous. Among Hee’s political generosity: Since 2000, he has donated more than $45,000 to federal candidates and their committees.
Sandwich Isles’ future is now unclear. What is clear is that Hawaiian Homes should quickly cut exclusivity ties with Hee’s businesses and start fresh. Surely, if communications companies compete, as intended by federal law, to further develop, operate and maintain homesteader lines, taxpayers will be better served.