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Agency, AT&T Also Pressed

Judges Question Sandwich Isles Attorney's Claims FCC 'Supported' Undersea Cable Plan

Judges questioned a Sandwich Isles Communications attorney's assertions the FCC backed the carrier's Hawaiian Island undersea cable project before reducing its related access charge revenue. A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit also questioned FCC and AT&T attorneys extensively in oral argument Monday. SIC is challenging a 2016 FCC order that prospectively disallowed all but $1.9 million of its annual access collections from a National Exchange Carrier Association rural telco pooling mechanism (see 1612060032).

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SIC counsel Lex Smith's claims that a 2005 FCC bureau order "supported" its project for a high-capacity undersea cable faced resistance from Judge Laurence Silberman, who repeatedly asked the attorney to substantiate that. Judges Patricia Millett and Gregory Katsas also raised questions as Smith tried to provide answers. When Smith again said the project was "supported" in 2005, but "something changed," Silberman shot back, "You keep saying 'supported,'" and noted SIC originally sought Rural Utilities Service financing to construct the cable but was ultimately rejected. That led to an alternative arrangement under which SIC agreed to lease capacity from Paniolo Cable, which borrowed from Deutsche Bank to construct the cable in 2007-09. Smith said the 2005 order instructed SIC to join the NECA pooling, and promised USF support that "isn't the subject" of the litigation.

Silberman asked about SIC's duty to show expenditures meet a "used and useful" standard, and noted the carrier served just 2,000 customers, over a network with much more capacity. When Smith said technology changes made an original $24 million annual lease payment seem "outrageous" currently, Silberman quipped that it seems "much more outrageous" now but was still "outrageous at the time." Smith said the excess capacity SIC is leasing adds negligible expenditures to the cable's fixed costs, and said SIC couldn't have continued to lease capacity on a lower-quality Hawaiian Telcom cable that was "at the end of its cycle." Under questioning from Silberman, Smith acknowledged SIC didn't have a signed agreement to lower the annual lease payment to $8.1 million after reaching a "handshake" agreement.

FCC attorney Sarah Citrin said ratepayers funding NECA pooling shouldn't have to pay for SIC's decision to push a network with capacity to serve all Hawaiian customers. Millett asked about a 2000 NECA letter that she said suggested SIC could recover its projected costs. Citrin said she wasn't sure what NECA meant but said its letter didn't bind the FCC. When Silberman also asked about the letter, Citrin said it wasn't "relevant."

That sparked Millett to ask numerous questions about SIC's argument that it relied on NECA and regulatory assurances to make long-term capital investments, but then the FCC Wireline Bureau allowed just 50 percent of its requested pooling recovery and the full commission "pulled the plug" in 2016. Citrin cited NECA's 2007 cost concerns and later objections, and delved into various complexities in back-and-forth with all three judges. When Millett noted it took the FCC six years to reverse the bureau's 50 percent funding decision prospectively, Citrin said that delay helped SIC.

Judges also heavily questioned Daniel Feith, representing AT&T, which challenged SIC's pooling revenue. Much of the questioning was directed at understanding certain details, but Silberman repeatedly pressed Feith not to conflate SIC with Paniolo, despite their relationship.

In rebuttal time, Smith said the FCC knew in 2005 SIC's projected network costs were going to be $14,000 per customer, but then changed its mind. He said that can be explained only by "arbitrary and capricious" decision-making.