July 3, 2017 – The Federal Communications Commission (“FCC”) has released a Memorandum Opinion and Order in which it finds that an exclusive license to provide services granted by the state of Hawaii to Sandwich Isles Communications, Inc. violates Section 253(a) of the Communications Act.[1] As a result, the FCC has preempted enforcement of the license.

In 1995, Hawaii’s Department of Hawaiian Home Lands (“DHHL”) granted an exclusive license to Waimana Enterprises, Inc. to build, construct, repair, maintain, and operate a broadband telecommunications network, including intrastate and interstate telephone services, throughout all lands under the jurisdiction of the DHHL. In 1996, Waimana partially assigned the license to its subsidiary, Sandwich Isles.

In 2016, following a lengthy investigation in which the FCC concluded that Sandwich Isles improperly received millions in universal service high-cost support through repeated violations of FCC rules, the FCC sought comment on whether to terminate Sandwich Isles’ status as an incumbent local exchange carrier, and thereby render Sandwich Isles ineligible to receive universal service support. In response to that inquiry, the DHHL submitted a letter to the FCC requesting guidance on whether the terms of the exclusive license granted to Waimana and partially assigned to Sandwich Isles implicates Section 253(a) and acts as a barrier to entry for other providers capable of utilizing universal service support to provide service to the Hawaiian home lands. The FCC sought comment on DHHL’s request.

The FCC has concluded that the exclusive license does in fact violate Section 253(a). The statute provides that “[n]o State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.” First, the FCC found that the DHHL is a “State” agency to which Section 253(a) applies, and the exclusive license is a “legal requirement” under the statute. After finding the exclusive license falls within the scope of the Section 253(a), the FCC concluded it violates the statute because it prohibits other entities from providing service – the exact type of barrier to entry that Section 253(a) was intended to prevent. The FCC noted that it previously held in 1996 that “Section 253(a), at the very least, proscribes State and local legal requirements that prohibit all but one entity from providing telecommunications services in a particular State or locality.”[2] Finally, the FCC determined that the exclusive license is not subject to the exceptions in Sections 253(b) and (c), and therefore preempted enforcement of its exclusivity provision pursuant to its authority under Section 253(d).

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***** Footnotes *****

[1] Connect America Fund: Sandwich Isles Communications, Inc., WC Docket No. 10-90; Petition for Waiver of the Definition of “Study Area” Contained in Part 36, Appendix-Glossary and Sections 36.611 and 69.2(hh) of the Commission’s Rules, CC Docket No. 96-45, Memorandum Opinion and Order, FCC 17-85 (rel. July 3, 2017).

[2] Memorandum Opinion and Order at ¶16 (citing Classic Telephone, Inc., Petition for Preemption, Declaratory Ruling and Injunctive Relief, Memorandum Opinion and Order, 11 FCC Rcd 13082, 13095, para. 25. (1996)).