Hawaii local telecom could lose Hawaiian Lands project

Pacific Business News (Honolulu) - February 7, 2005

/pacific/stories/2005/02/07/story5.html

Friday, February 4, 2005

New FCC ruling could cost local telecom Hawaiian Lands project

Pacific Business News (Honolulu) - by Terrence Sing Pacific Business News

After working for years and spending about $160 million to deliver telephone and broadband services to rural homesteads on Hawaiian Home Lands, a Native Hawaiian-owned telecom could lose access to the federal funds that underwrite the project.

The $400 million project by Honolulu-based Sandwich Isles Communications Inc. seeks to link 69 noncontiguous parcels of Hawaiian Home Lands on Oahu, Kauai, Molokai, Lanai, Maui and the Big Island via high-speed fiber-optic cable.

But a surprise ruling from the Federal Communications Commission last October has put the project in jeopardy, based on an appeal originally filed by GTE Hawaiian Tel in 1998, which is now Verizon Hawaii.

GTE argued the areas Sandwich Isles proposed to serve were not unserved because they were within GTE's territory.

At the time, Sandwich Isles applied for and received a waiver from the FCC as an incumbent local exchange carrier, which allowed it access to the Universal Service Fund to pay back money it borrows from the U.S. Department of Agriculture's Rural Utilities Service fund.

The Universal Service Fund comes from fees charged to telephone customers to ensure quality service at affordable rates nationwide, particularly in rural areas.

In its October ruling, the FCC said it made a mistake in 1998 when it granted Sandwich Isles' petition and ordered Sandwich Isles to reapply for a waiver in order to continue receiving universal fund support.

"Incomprehensibly, this dispute has sat in front of the commission for six years," FCC Commissioner Michael J. Copps said in a statement issued with the order. "I limit my support to concurring because fairness requires that we resolve issues involving support for unserved areas and disputed territory with greater speed than we attempt to do here."

Sandwich Isles serves 1,300 customers on Oahu, Maui, Kauai and the Big Island.

"We always knew the appeal was there, but because we were granted local exchange carrier status and relied on it, as did the Rural Utilities Service, we were moving along," said Sandwich Isles Vice President Gil Tam. "In the meantime, we've been out there and getting to people that haven't been served. They will not only have telephones, but affordable access to broadband services."

Tam said Sandwich Isles is the only Hawaii company to ever draw upon the Universal Service Fund that Hawaii residents have been paying into since the late 1940s.

"Everybody pays into it and it's been going to the Mainland to fund other local exchange carriers building out rural America," said Tam, who stressed that Sandwich Isles' project helps all Hawaii. "It's creating high-tech jobs. We have areas out there that don't have telephone service."

Representatives of The Carlyle Group, which is in the process of buying Verizon Hawaii, declined comment.

Reach Terrence Sing at 955-8001 or tsing@bizjournals.com.

Sandwich Isles Communications Inc. builds the state's most advanced fiber-optic network.

By Choo, David K.
Publication: Hawaii Business
Date: Sunday, April 1 2001

Al Hee, president for Sandwich Isles Communications Inc. (SIC) knows that if his company is successful in Kahikinui, it can be successful anywhere.

The 20,000-acre ahupuaa on the slopes

of Haleakala is the largest and most remote parcel m the state Department of Hawaiian Home Lands' (DHHL) inventory.

An hour's drive from Kahului Airport, Kahikinui is up the road from Upcountry Maui's Ulupalakua Ranch and is as beautiful as it is brutal. Once verdant rainforest, the area, which translates into "big Tahiti," is now wind-swept scrubland, sunny and hot in the daytime and foggy and cold at night. Since 1998, two families have called the vast area home. They have no electricity or water--true homesteaders. But last month, thanks to Hee and his company, the homesteaders now have telephone service and DHHL can start placing an additional 70 families who have been waiting to settle Kahikinui.

"This is really at the heart of what we are trying to do," says the camera-shy Hee as he gazes down at far-off Makena and Wailea. "We are bringing telephone service to Hawaiian homesteaders no matter where they live. By the time we are finished people here will be able to surf the Web as well as anyone in Honolulu. They'll be able to work from home or start their own on-line businesses."

Founded in 1995, Sandwich Isles Communications Inc. is a rural telecommunications company that has an exclusive agreement with DHHL to provide telephone service to the agency's 69 noncontiguous parcels totaling some 200,000 acres and located on the six major Hawaiian Islands. The company is financed primarily by long-term, low-interest loans totaling more than $400 million from the U.S. Department of Agriculture's Rural Utilities Service (RUS), which is responsible for pormoting and supporting the development of utility infrastructure and services in rural America. This federal program is not based on race and has been in existence for more than 50 years. SIC's project is the first application of RUS funds in Hawaii.

In 1998 SIC completed its first project, providing telephone service to homesteaders in DHHL's latest Waimanalo development. Laiopua, above Kona, was next, followed by Kulana Oiwi in Kaunakakai on Molokai in 1999 and Kalawahine next door to Oahu's Papakolea. Other projects include Puukapu in Waimea on the Big Island, Kapolei on Oahu, and the aforementioned Kahikinui.

DCCA SANDWICH ISLES COMMUNICATIONS, INC.

DCCA State of Hawaii
Downloaded on July 2, 2009.
The information provided below is not a certification of good standing and does not constitute any other certification by the State.
Website URL: http://hbe.ehawaii.gov/documents
Business Information
MASTER NAME SANDWICH ISLES COMMUNICATIONS, INC.
BUSINESS TYPE Domestic Profit Corporation
FILE NUMBER 98388 D1
STATUS Active
PURPOSE DEVELOPMENT AND OPERATION OF BROADBAND TELECOMMUNICATIONS
SYSTEMS FOR HAWAIIAN HOME LANDS
PLACE
INCORPORATED Hawaii UNITED STATES
INCORPORATION
DATE Jan 3, 1995
MAILING ADDRESS PAUAHI TOWER 27TH FL
1003 BISHOP ST
HONOLULU, Hawaii 96813
UNITED STATES
TERM PER
AGENT NAME ALBERT S. N. HEE
AGENT ADDRESS PAUAHI TOWER 27TH FLOOR
1003 BISHOP ST
HONOLULU, Hawaii 96813
UNITED STATES
Annual Filings
FILING YEAR DATE RECEIVED STATUS
2009 Jan 8, 2009 Processed
2008 Jan 16, 2008 Processed
2007 Jan 18, 2007 Processed
2006 Jan 27, 2006 Processed
2005 Feb 19, 2005 Processed
2004 Mar 2, 2004 Processed
2003 Jan 13, 2003 Processed
2002 Not Required
2001 Mar 19, 2002 Processed
2000 Processed
1999 Processed
Officers
NAME OFFICE DATE
HEE,ALBERT S N P/S/D Dec 31, 2001
KIHUNE,ROBERT K U V/T/D Dec 31, 2001
Stocks
DATE CLASS SHARES PAID SHARES PAR VALUE STOCK AMOUNT
Jan 3, 1995 COMMON 1,000 1,000

DCCA CLEARCOM, INC.

DCCA State of Hawaii
Downloaded on July 2, 2009.
The information provided below is not a certification of good standing and does not constitute any other certification by the State.
Website URL: http://hbe.ehawaii.gov
Business Information
MASTER NAME CLEARCOM, INC.
BUSINESS TYPE Domestic Profit Corporation
FILE NUMBER 109495 D1
STATUS Active
PURPOSE DEVELOPMENT AND OPERATION OF BROADBAND
TELECOMMUNICATION SERVICES
PLACE
INCORPORATED Hawaii UNITED STATES
INCORPORATION
DATE Aug 6, 1997
MAILING ADDRESS PAUAHI TOWER
1003 BISHOP ST STE 2700
HONOLULU, Hawaii 96813
UNITED STATES
TERM PER
AGENT NAME ALBERT S.N. HEE
AGENT ADDRESS PAUAHI TOWER, 27TH FLOOR
1003 BISHOP STREET
HONOLULU, Hawaii 96813
UNITED STATES
Annual Filings
FILING YEAR DATE RECEIVED STATUS
2009 Jul 1, 2009 Pending
2008 Sep 22, 2008 Processed
2007 Jul 3, 2007 Processed
2006 Jul 14, 2006 Processed
2005 Jul 18, 2005 Processed
2004 Jul 8, 2004 Processed
2003 Jul 2, 2003 Processed
2002 Not Required
2001 Processed
2000 Processed
1999 Processed
Officers
NAME OFFICE DATE
HEE,ALBERT S N P/V/S/T/D Dec 31, 2001
Stocks
DATE CLASS SHARES PAID SHARES PAR VALUE STOCK AMOUNT
Aug 6, 1997 COMMON 1,000 1,000
Trade Names
NAME TYPE CATEGORY REGISTRATION
DATE STATUS
SANDWICH ISLES BROADBAND
SERVICES
Trade
Name
NO CATEGORY
SELECTED May 10, 2006 Active
SANDWICH ISLES LONG DISTANCETrade
Name
NO CATEGORY
SELECTED May 10, 2006 Active

Wednesday, July 1, 2009

Sandwich Isles keeps finances private

• Hearing on telecom bid today

Sandwich Isles Communications Inc. says it is profitable but members of the public can't verify that statement based on the company's filings with the state Public Utilities Commission.

That's because the PUC and the state consumer advocate's office have agreed to allow the company to file its annual financial reports under protective order.

Industry analysts say the move makes it virtually impossible for the general public as well as interested parties in the Hawaiian Telcom bankruptcy to assess whether Sandwich Isles' offer is viable or not.

"It's a disgrace that a company using federal money to benefit a state agency does not have to file in the open," said Marty Plotnick, a local marketing expert who has written a history of Hawaiian Telcom.

Sandwich Isles wants to buy Hawaiian Telcom Inc. for $400 million. The offer is a competing bid to a standalone $460 million reorganization plan proposed by the local phone company itself.

The Advertiser has requested copies of Sandwich Isles' annual reports for 2006, 2007 and 2008 from the PUC. Copies of the 2006 and 2007 reports were provided but all financial details were redacted from the report.

The Advertiser has appealed the PUC's decision to redact the reports.

When asked by The Advertiser why company reports are filed with the PUC under protective order, Sandwich Isles president Albert Hee said his company is a private one. But he said he would make public appropriate financial information if asked by the bankruptcy court.

Hee added that he does not to know his company's annual revenues, saying he leaves the company's financial details to CEO Robert Kihune.

"I don't track the financial. I have no idea what the revenues are. All I know is that the expenses are less," Hee said.

"Quite frankly, I'm satisfied as long as we aren't losing money and are making money."

Trustee Robert K. U. Kihune

A 1955 graduate of Kamehameha Schools, Robert Kihune graduated from the U.S. Naval Academy in June 1959, with a Bachelor of Science degree in marine engineering, followed by a graduate degree in electrical engineering in 1965.

After 35 years of distinguished service, Kihune retired from the Navy in 1994 with the rank of Vice Admiral. His brilliant career included command of two aircraft carrier battle groups – the USS Kitty Hawk and USS Nimitz – as well as the USS New Jersey battleship group. During the Vietnam War, Kihune commanded a guided missile destroyer that conducted nightly strikes against North Vietnam while successfully dodging hundreds of rounds of enemy fire without sustaining damage. Kihune was awarded a Legion of Merit with a combat "V" for gallantry.

Among his significant military assignments are the support for the capture of the terrorists involved in the Achille Lauro hijacking and serving as Commander of the Naval Surface Forces of the Pacific Fleet. He also served as Assistant Chief of Naval Operations for Surface Warfare at the Pentagon, where he was responsible for procurement of ships and surface ship weapons systems with a budget of $22 billion. Additionally, he was Chief of Naval Education and Training responsible for all technical school house training in the U.S. Navy, including flight training and recruit training.

Kihune currently serves as an officer and member of several non-profit boards, including as Chair of the USS Missouri Memorial Association, where he has been involved in the refurbishment and development of the Battleship Missouri Memorial as a top visitor attraction in Hawaii.

Sandwich Isles Communications

Hawai`i Free Press

Sandwich Isles Communications: Political Connections Pay Off

by Andrew Walden

In a little-noticed May 16, 2005 ruling, the Federal Communications Commission (FCC) has granted a waiver necessary to allow Sandwich Isles Communications (SIC) to complete construction of its $500 million project to link 69 Hawaiian Homelands properties with a fiber optic communications network. Sandwich Isles, had completed about $160 million worth of construction bringing its network to all the islands except the Big Island, when in October, 2004 the FCC suddenly acted on a six-year old complaint from telecom rival Verizon. As a result of the October ruling, Sandwich Isles was forced to reapply for its FCC waiver which allowed SIC to receive $400 million in federal funds taken from the “Universal Service Fund” (USF) tax on consumers’ phone bills.

The USF tax is intended to subsidize telecommunications service to un-served rural areas. Verizon Hawaii, now re-named Hawaii Telecom after being purchased by the Carlyle Group, had argued the DHHL lots Sandwich Isles proposed to serve were not un-served because they were within Verizon territory. With the waiver granted, federal funds can once again flow into SIC’s coffers and construction can be completed on the Big Island. In a statement issued by the office of Gilbert Tam, SIC Vice President for government and community relations, SIC said, it “is pleased with the FCC order” which “allows SIC to fulfill its commitment and efforts to provide modern and affordable telecommunications services to residents of Hawaiian Home lands “

At an estimated cost of $500 million, is SIC were to serve all 20,000 DHHL lots, the cost would be $25,000 per lot. But DHHL has only about 5400 lots occupied by leaseholders. At current build-out rates it would be about 40 years until all 20,000 lots are filled. $500 million to wire 5400 lots averages out to about $93,000 per lot--the construction cost of a small house--just for high speed internet and phone service. Further, there is no reason to believe that all 5400 DHHL leaseholders would want to pay SIC’s monthly fees for high speed internet service. Many DHHL homesteaders already have land lines from Verizon. In the US about 33% of households have high speed internet connections. If DHHL leaseholders have the same level of interest in high speed internet connections, SIC would serve about 1800 lots at an average cost to the taxpayers of about $278,000 per lot. Currently SIC is reported to serve about 1300 customers.

These figures compare unfavorably to the $600 or less setup cost of many commercially available high-speed satellite internet connections. Internet satellite providers’ monthly charges are competitive with those of SIC. With inexpensive, commercially available “VOIP” technology, high quality internet based telephone service can be included. Satellite technology requires no digging to lay cables, thus minimizing environmental damage and disruption of Hawaiian sites.

Unsurprisingly, Sandwich Isles is led by many politically connected directors and corporate officers. Robert Kihune, retired vice admiral and Vice-Chair of the Kamehameha Schools Board of Trustees, is SIC Chief Executive Officer. Kihune, who is also Chairman of the USS Missouri Memorial Association, was keynote speaker at the Hawai`i County Council inauguration in December, 2004.

Al Hee, brother of former Office of Hawaiian Affairs Chairman (and current Democrat State Senator) Clayton Hee, is SIC President.

Sandwich Isles Vice president, Gilbert Tam is a former Director of P&C Insurance Company, Inc. and the former Administrative Group Director for Kamehameha Schools/Bishop Estate (KSBE). Tam was formerly an officer with Bank of Hawaii, which has substantial financial connections with KSBE.

As explained in a December 31, 2001 article in the Honolulu Advertiser:

“Part of the reason Sandwich Isles Communications has attracted interest in Hawai'i political circles is that the company has ties to a variety of politicians and current or former executives involved with Kamehameha Schools, another politically influential local institution.

“Al Hee said his brother Clayton, (then) chairman of the board of trustees of the Office of Hawaiian Affairs, is not involved in the project. Sandwich Isles did hire Clayton Hee's wife, Lynne Waters, to produce videos for presentations to business leaders, homesteaders and others on the company's operations.

“Among (Sandwich Isles’)... 22 employees are former Democratic House Majority Leader Tom Okamura and former state Rep. Devon Nekoba, who both carry the title of agency coordination officer. (Al) Hee said the two advise company executives on government policy matters.

“Ties to Kamehameha Schools, formerly known as the Bishop Estate, include Gil Tam, the company's vice president of government and community relations, formerly director of administration and interim chief executive officer for Bishop Estate; and Robert Kihune, chief executive officer, now a Kamehameha Schools trustee.

“The Hawaiian Homes Commission chairwoman in 1994, when the commission approved Hee's license (to provide communications services), was Hoaliku Drake, the mother of former Bishop Estate trustee Henry Peters.

“Clayton Hee is a friend of Peters and was hired as a cultural affairs researcher for the Royal Hawaiian Shopping Center, a subsidiary of the former Bishop Estate/Kamehameha Schools (KSBE).”

Henry Peters was one of the Bishop Estates Trustees named in the infamous “Broken Trust” case. Gilbert Tam was also a co-investor in KSBE’s McKenzie Methane deal at the time he was a KSBE manager.

In addition to “Broken Trust” connections, Sandwich Isles also benefits from a connection with former FCC Chairman Michael Powell, son of former Secretary of State Colin Powell. Hee and the younger Powell were introduced by one of Hee’s mid-1970s Annapolis Naval Academy classmates. The FCC’s sudden decision to rule on Verizon’s complaint corresponds in time closely to Michael Powell’s resignation as FCC chair.

There is also a correspondence in timing between the purchase of Verizon’s Hawai`i assets by the Carlysle Group, a company founded on its many well-known connections to both Democrat and Republican national political leaders and appointees, and the FCC’s subsequent ruling in SIC’s favor.

SIC’s cable-laying contractor is MasTec, named for its founder the late Jorge Mas Canoza, Cuban exile leader. On the MasTec board, is Joseph Kennedy II, whose family connections with Mas Canoza go back to the Bay of Pigs.

Amazingly for a $500 million fiber-optic communications company, Sandwich Isles does not have a web site. SIC shares offices with Waimana, Inc, Richardson-Luke, and Ku`iwalu. As of this writing, SIC has not released to this writer a complete list of company officers and directors and their total remuneration.

Dreaming and Scheming Hawaiian Style

Dreaming & Scheming Hawaiian Style
Carleen Hawn,

While foolhardy telecom chiefs choked their companies with debt to fund broadband rollouts, Al Hee contrived to have the U.S. government subsidize his state-of-the-art network. Look out, Verizon.

It is 8 a.m. on a blazing July day on the big island of Hawaii. Five miles south of the airport, amid the lava flows that span the island's barren west coast, there springs up a lonely housing development called Laiopua. Budless flower beds and freshly paved sidewalks indicate the newness of the place. The uniform clapboard homes are well kept. Most are painted pink or yellow. Some have rusting car chassis in their driveways.

A small crowd has formed around the one building that stands out: a windowless cinderblock structure with a green metal roof. It is a festive gathering, including homeowners and several Hawaiian elders. One man chants a pule, or prayer, in Hawaiian. Another blesses the ground with water and ti leaves. A tall and imposing man--clearly the honored host--steps forward and unties a lei of maile plants, then bends to dig at the earth with a carved wood o'o stick.

This is a consecration ritual, all right, but not for some monument or native burial site.This crowd is here to bless the newest leg of a $500 million fiber-optic network that will soon bring high-speed Internet access and cheap phone service to the 225 households at Laiopua, a government-subsidized site deemed too poor and too desolate to merit even basic service until now. But the broadband rollout won't come from Verizon (nyse: V - news - people ), whose Hawaii unit has had a local monopoly here for most of 12 decades. It comes courtesy of the guy with the o'o stick, a native Hawaiian and first-time telecom entrepreneur named Albert S. N. Hee.

Hee, 48, is president of Sandwich Isles Communications, the rural carrier he founded in 1995 to serve the residents of Laiopua and 22,000 other native Hawaiians who inhabit the Home Lands, 200,586 acres of sparse, rugged terrain set aside by the federal government in 1921. "This isn't about making money, completely," says Hee. "I wanted to do something for my people, to change things for the community of Hawaiians."

By the time his buildout is complete in 2005, SIC's network will link Hawaii's six largest islands with 1,500 miles of underground and undersea cable filled with 48 strands of gleaming fiber-optic glass capable of transmitting 2.4 billion bits of data per second. It will have all the slick features of the multibillion-dollar pipes that bankrupted once-high-flying carriers like Global Crossing and WorldCom. The only difference is Al Hee didn't have to go into hock on Wall Street to build his network. Hee got the government to pay for it, more or less.

It gets better: While Hee landed federal largesse because he will serve underprivileged natives of Hawaii, he is also building out his network in Honolulu and other cities to compete with Verizon and other incumbents for higher-spending businesses and richer residential customers. "It's all about dreaming and scheming," says Hee, clad in his trademark Hawaiian shirt and Bermuda shorts and standing barefoot on the plush white rug in his glittering office. He gazes out 27 floors above the bustling business district of Honolulu and adds: "Idream up something and then scheme and scheme until I find a way to make it happen."

That irks his rivals. At a time when vanquished telecom titans such as former Qwest chief Joseph P. Nacchio call for a government bailout to revive a devastated industry, a rookie they never heard of has beaten them to it. "We question the reasonableness of it," says Joel Matsunaga, vice president at Verizon's Hawaii unit. "They're getting loans from the government, then they're going to get other subsidies to pay off the loans. To compete with other providers in an open market just isn't fair."

SIC's network, because it targets underserved rural areas, is being financed with $400 million in long-term, low-interest loans from the Department of Agriculture's Rural Utilities Service (RUS). The agency has subsidized rural delivery of water and electricity since 1935, adding phone service in 1950. SIC, an RLEC (rural local exchange carrier) licensed to serve only rural communities, landed the largest grant the agency has ever made. The loans have a term of 20 years at 5% to 6% annual interest. The remaining $100 million of SIC's $500 million price tag will come from private funds, including some of Hee's own cash.

The residents of Laiopua and their ilk need Hee's help. Thirty percent of native Hawaiians are functionally illiterate; 45% are on welfare. SIC's network will help provide home-schooling and remote health care as well as phone calls. Many customers previously had no wired phone service at all; the only way they could dial 911 was by using a cell phone.

Hawaii's Home Lands, some 69 tracts on six islands, are overseen by the state's Department of Hawaiian Home Lands (DHHL), established in 1961 and tasked with developing affordable housing for native Hawaiians, many of whom are homeless or can't afford to live in urban centers. But most of the land is so desolate and fallow that it had long gone ignored by developers and utilities. Except for a few homesteads near urban centers, Hawaii's main carrier (formerly GTE and now Verizon) never built out its networks to serve the Home Lands.

If this sounds strange, it should. For decades the Federal Communications Commission has used a Universal Service Fund to subsidize carriers to help provide affordable phone service to remote areas. But carriers are required to serve such "high-cost" areas only if they have networks in place to do so. The FCC can't require Verizon to extend to a new remote region that is unlikely to produce a profit.

In 1992 DHHL asked GTE to provide service to a new homestead called Maku'u near the city of Hilo on Big Island. Verizon said it would have to charge DHHL $1 million for installation, or about $10,000 per subscriber. With a budget of just $15 million, DHHL couldn't afford it. Nor could the customers themselves. This is when DHHL turned to Al Hee, a well-known businessman who made his fortune in the late Eighties building a hydroelectric power plant on Hawaii.

The younger of two sons, Hee was born into a working-class family in Honolulu in 1954. His mother, a native Hawaiian, worked as cashier at the famously pink Royal Hawaiian Hotel on Waikiki beach. Hee's father, a Chinese-American, was a site inspector for the Honolulu Board of Water Supply. Father and son would trek through the large water mains beneath Honolulu's streets, an experience that later inspired Al's foray into fiber optics. Hee attended the Kamehameha Schools on Oahu, a highly regarded private academy for Hawaiians set up by the late Princess Bernice Pauahi Bishop. Later he won an appointment to the U.S. Naval Academy at Annapolis. When he left for school in 1972 it was the first time he had ever set foot off the islands. Hee bristled under the rigors of military life but says it served him well in business. "You can't quit, that's what it taught me. It gave me the undeniable belief that I can do whatever I put my mind to."

Annapolis helped Hee in other ways, too. It was through a former classmate that he later made the acquaintance of Michael Powell, now chairman of the FCC. The two remain friendly. "Albert is an extraordinary entrepreneur. His goal is quite noble," Powell says. "SIC is a labor of love for him as much as it is a business. He could be willing to take a hit [on it], because you know he's not going to recover that money from the customer." SIC customers will pay no more than $20 a month for their phone service, as much as 20% less than what Verizon charges its subscribers. That owes in part to SIC's getting back-end subsidies from the Universal Service Fund. "That's not fair competition," Verizon's Matsunaga complains.

But then, Al Hee is an opportunist. He graduated from Annapolis in 1976 and served in New Jersey before returning to Hawaii in 1980. The state was in a real estate boom, and resort developers faced a lack of desalinization plants and power utilities. In 1985 the Federal Energy Regulatory Commission began deregulating power, and Al Hee made the most of it. "I figured if buying utility stocks was smart, then owning a utility must be smarter," he says.

Hee sowed the seeds of his first fortune when he got a contract to developa hydroelectric plant on the Big Island in 1986. He raised financing and kept a small equity stake in the plant, later selling his share for several million dollars, which formed the basis for his current holding company, Waimana Enterprises. Waimana (Hawaiian for "water power") later formed SIC.

When DHHL, the state Home Lands agency, approached Hee in 1992, he had been looking for a way to "give back" to the Hawaiian community. Ray Soon, now head of DHHL, approached him and explained the homesteaders' predicament. Soon asked whether Hee could help find a way to develop a telecom infrastructure for the homesteaders. The catch was that DHHL would not be able to pay for it. Remarkably, Hee agreed.

Hee tried to raise money from private investors like Mitsubishi but found no takers. Then a Hawaiian friend, who had worked in the first Bush Administration, alerted him to the rural loan program. In 1995 DHHL gave Hee an exclusive license for voice and data services, letting Hee register with the FCC as a rural local exchange carrier and qualify for government-backed loans. Still, it took several trips to Washington, D.C., and one helicopter ride over DHHL land with an RUS loan agent in tow, to build his case.

Now Hee had to build the network and find a way to turn a profit on it. He spent several years lobbying for construction permits from state utility commissioners, local mayors and other pols. "It was a headache," Hee recalls. He also hired a consultant to plan the project and lined up contractors and network specialists like Tyco, NTT and little-known Summit Communications for the actual laying of the network.

In 1997 SIC broke ground near four rural homesteads on the north side of Oahu. By 1999 construction was under way for three more homesteads on Maui and Molokai. Two years later SIC had completed nearly 5% of its buildout and was serving 11% of the 22,539 residents on nine homesteads, including Laiopua. It was at this point, Hee says, that he came up with a big idea for how to make money off SIC. It happened one night as he drove home from work and suddenly remembered the subterranean tours of water mains that he had taken with his father years before.

"What's the most expensive part of building a telecom network?" Hee asks. "Digging up the streets to lay the fiber. Oahu has miles and miles of vacant water pipes lying fallow," he adds, then smiles shrewdly. "They're a liability to the city"--and a boon to Al Hee.

He figured he could use the water mains to easily extend his network to central Honolulu and take on Verizon. The problem: SIC's federal license as a rural carrier permitted it to serve only rural areas. The solution: ClearCom, a CLEC (competitive local exchange carrier) that he formed four years earlier. "In business we call these parallel paths," he reasons.

ClearCom will use SIC's central switching offices to link the communications traffic of urban customers to the public network. Because for at least the first few years ClearCom won't have to pay SIC for access, Hee figures he can undercut incumbent rivals on price. Now-defunct CLECs, like NorthPoint Communications and Covad, were bankrupted by the huge access fees they had to pay to the Bells.

In June 2002, following an open auction in which SIC was the only bidder, Al Hee and ClearCom were granted an exclusive license with Honolulu's Board of Water Supply to lease all of its abandoned water mains in perpetuity. ClearCom has agreed to pay an annual fee of $1 million, and when the network is complete ClearCom also will pay the board a dollar a year for every foot of pipe it uses. Hee will also deliver voice and data service to the water board itself at a 50% rebate.

So Al Hee uses government subsidies to build a telecom network for rural consumers and parlay it into profits by serving urban residents and businesses. This irritates his detractors, but he doesn't flinch. "My [SIC] license is dependent upon providing service to the Home Lands. As long as I do that, I'm good. Worst-case scenario, someone sues and it takes 10 to 15 years to work through the courts. By then my network will be built. Will they then tear it up? No way."

But the native Hawaiians he has helped the most don't much care about such details--they just want the services that have always gone to the urban rich. Norman (Duke) Kapuniai, 60, raises sheep on a farming homestead near Waimea on the Big Island. His wife, Marion, works as a bookkeeper for a nonprofit called Friends of the Future in nearby Kamuela. The couple got SIC service earlier this year. "We're very appreciative of SIC. Until now we've been on cell, and cell is expensive," Marion says. Together, the Kapuniais once spent $300 a month for cellular service.

When asked if she and her husband look forward to using SIC's broadband capabilities, Marion responds, "Broadband? You'd have to explain to me that term." A SIC representative gently describes how Internet access would let her work from home and offer Friends of the Future's literacy and nutrition programs to Hawaiians on other homesteads, and she gasps in wonder. "That," she says, "would be just wonderful."

Additional reporting by RiShawn Biddle.