Sandwich Isles Order Remains Unchanged

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The FCC has affirmed its 2016 decision to recover $27 million of Universal Service Fund (USF) support from Hawaiian telco Sandwich Isles Communications Inc. (Sandwich Isles). The FCC’s 2016 order found that Sandwich Isles received improper high-cost support between 2002 and 2015 due to the company paying excessive and inflated management fees to its parent company rather than providing the number of communications lines as it had promised. In particular, the FCC found that Sandwich Isles improperly received USF support for (a) costs associated with facilities that were not serving any customers; (b) costs associated with network facilities used for purposes that are not compensable under the FCC’s high-cost support rules; and (c) inflated expenses that violated rules governing how carriers account for transactions with affiliates or that otherwise were excessive. The FCC also imposed $49.6 million of forfeitures against Sandwich Isles, certain controlling interests, and its former owner. In January 2017 Sandwich Isles filed a petition seeking reconsideration of the 2016 order, arguing (among other things) that most of Sandwich Isles’ costs were not misallocated and the FCC’s treatment of affiliate transaction costs was arbitrary and capricious. However, the FCC concludes that it considered all relevant arguments and information and, in a point-by-point recitation, articulated how Sandwich Isles failed to demonstrate how its affiliate transactions were consistent with FCC rules. Accordingly, the FCC found reconsideration to be unwarranted and denied the Sandwich Isles petition.

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