Federal Communications Commission FCC 16-166
Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of
AT&T Application for Review; Sandwich Isles 
Communications, Inc. Petition for Declaratory 
Ruling
)
)
)
)
)
WC Docket No. 09-133
MEMORANDUM OPINION AND ORDER  
Adopted:  December 5, 2016 Released:  December 5, 2016
By the Commission:  Commissioner O’Rielly approving in part and concurring in part.
I. INTRODUCTION 
1. In this Memorandum Opinion and Order (Order), we address an Application for Review 
(Application or AFR) filed by AT&T Inc. (AT&T) and a Petition for Reconsideration (SIC Petition) filed 
by Sandwich Isles Communications, Inc. (SIC or Sandwich Isles) regarding the Wireline Competition 
Bureau’s (Bureau) Declaratory Ruling in the above-captioned proceeding.
1
  In the Declaratory Ruling, 
the Bureau concluded, based on equitable considerations, that certain disputed Paniolo, LLC (Paniolo) 
undersea cable lease expenses should be included in SIC’s revenue requirement for recovery through the 
NECA pooling process.
2
  For the reasons discussed below, we review the Bureau’s findings about the 
Paniolo lease costs and find that the Bureau’s equitable conclusions in the Declaratory Ruling were based 
on predictive judgments and as such should have provided for a timely review of the reasonableness of 
such predictive judgments and equities.  We further review the underlying predictive judgments and 
continued equities and determine they do not support continued inclusion of the disputed Paniolo lease 
expenses in SIC’s revenue requirement.  We thus grant AT&T’s Application on a prospective basis and to 
the extent discussed herein.  Additionally, we deny the SIC Petition.
II. BACKGROUND
2. Sandwich Isles provides telephone service to a study area consisting of most of the 
Hawaiian Home Lands (HHL),
3
and functions as an incumbent local exchange carrier (incumbent LEC) 
                                                     
1
Sandwich Isles Communications, Inc. Petition for Declaratory Ruling, WC Docket No. 09-133, Declaratory 
Ruling, 25 FCC Rcd 13647 (WCB 2010) (Declaratory Ruling).  See also Petition for Reconsideration of Sandwich 
Isles Communications, Inc., WC Docket No. 09-133 (filed Oct. 29, 2010) (Sandwich Isles Petition) (SIC filed a 
public version of its Petition on Nov. 3, 2010); Application for Review of AT&T Inc., WC Docket No. 09-133 (filed 
Oct. 28, 2010) (AT&T Application or AFR).
2
NECA is an intra-industry, not-for-profit corporation charged by the Federal Communications Commission (FCC 
or Commission) with administering the Commission’s interstate access charge system and associated revenue pools.  
See Declaratory Ruling, 25 FCC Rcd at 13647 n.1.  The NECA pooling process is an averaging mechanism that 
calculates rates for small carriers based on the access revenue, demand, and cost data reported by member 
companies. NECA 2009 Comments at 5.  On February 6, 2015, NECA filed an Application for Review, which 
remains pending.  See Petition of NECA for Clarification and/or Declaratory Ruling, WC Docket No. 09-133 (filed 
Feb. 6, 2015) (NECA Petition).  
3
Declaratory Ruling, 25 FCC Rcd at 13647 n.3. The HHL, created by Congress in 1921 for the benefit of native 
Hawaiians, consists of a total of 203,000 acres in 70 non-contiguous areas.  Ninety-eight percent of this area, which 
is spread out over the six major islands of Hawaii, is rural.  SIC is licensed by the Department of Hawaiian Home 
Lands and is subject to regulation by the Hawaii Public Utilities Commission (HPUC).  Id.
Federal Communications Commission FCC 16-166
2
for access charge and universal service purposes, serving approximately 2000 lines.
4
  On February 3, 
1998, the Common Carrier Bureau (Bureau) granted SIC a waiver of Section 36.611 of the Commission’s 
rules,
5
allowing it to receive high-cost loop support based on projected costs,
6
and waived certain 
incumbent LEC requirements to permit SIC to become a member of the NECA pool.
7
  Sandwich Isles
also filed a study area waiver petition, which the Bureau granted for those areas of the HHL that it found 
were unserved by GTE.
8
  
3. Sandwich Isles planned to use funding from the Rural Utilities Service (RUS) to finance 
construction of the completion of a terrestrial underground fiber network.
9
  However, RUS subsequently 
rescinded its loan approval, and SIC sought alternative financing.
10
  In 2007, SIC informed NECA that it 
was considering a finance lease arrangement with a third party, Paniolo, that would obtain financing to 
build an undersea, inter-island network that would be leased to SIC.
11
  In addition, SIC advised NECA of 
its intention to include new cable lease costs in its NECA cost submissions.
12
  Sandwich Isles ultimately 
                                                     
4
See Declaratory Ruling, 25 FCC Rcd at 13647, para. 2.  In its refreshed comments, SIC asserts that it has “already 
installed nearly 1,200 access lines in 20 new communities across the HHL.” SIC Refresh Comments at 11-12. 
5
Section 36.611 of the Commission’s rules does not exist today, although it did exist when the waiver was granted 
in 1998.  This rule was supplanted by subpart M of Part 54, as part of the Commission’s ongoing Universal Service 
Fund reforms. See Connect America Fund, Universal Service Reform et al., Report and Order, Declaratory Ruling, 
Order, Memorandum Opinion and Order and Seventh Order on Reconsideration, WC Docket Nos. 10-90 et al., 29 
FCC Rcd. 7051, 7069, para. 58 (2014).
6
See Sandwich Isles Communications, Inc., Petition for Waiver of Section 36.611 of the Commission’s Rules and 
Request for Clarification, AAD 97-82, Order, 13 FCC Rcd 2407, 2411, para. 11 (CCB 1998) (High Cost Loop 
Waiver Order).  An Application for Review was granted of the High Cost Loop Waiver Order. GTE Hawaiian 
Telephone Company, Inc., Application for Review of a Decision by the Common Carrier Bureau et al., AAD 97-82, 
Memorandum Opinion and Order, 19 FCC Rcd 22268 (2004). Sandwich Isles filed a waiver petition based on that 
Order, which was granted in 2005. See Sandwich Isles Communications, Inc., Petition for Waiver of the Definition 
of “Study Area” Contained in Part 36 et al, CC Docket No. 96-45, Order, 20 FCC Rcd 8999 (WCB 2005) (Study 
Area Waiver Order). 
7
See High Cost Loop Waiver Order, 13 FCC Rcd at 2413, para. 15.  The Common Carrier Bureau became the 
Wireline Competition Bureau in 2002 as part of organizational changes at the Commission. See generally 
Establishment of the Media Bureau, the Wireline Competition Bureau and the Consumer and Governmental Affairs 
Bureau, Order, 17 FCC Rcd 4672 (2002).  See also Declaratory Ruling, 25 FCC Rcd at 13648 n.12.  The term 
“Bureau” in this order refers to the Common Carrier Bureau prior to the reorganization, and to the Wireline 
Competition Bureau after the reorganization.
8
See Study Area Waiver Order, 20 FCC Rcd at 8999-9000, para. 1. On June 15, 2005, Hawaiian Telcom filed an 
application for review of the Bureau’s study area order, which remains pending.  Hawaiian Telcom 
Communications, Inc. Application for Review, CC Docket No. 96-45 (filed June 15, 2005); see also Declaratory 
Ruling, 25 FCC Rcd at 13648 n.13.
9
See Study Area Waiver Order, 20 FCC Rcd at 9004, para. 11.
10
See Declaratory Ruling, 25 FCC Rcd at 13648, para. 4.
11
See id. at 13648, para. 5.  The Paniolo cable network “is approximately a 358 mile undersea and overland fiber 
optic cable system linking the islands of Kauai, Oahu, Molokai, Maui and Hawaii in the State of Hawaii.  The 
Paniolo network consists of four (4) Undersea Components and six (6) Overland Components, including but not 
limited to beach landings, terminal buildings and central office electronics.”  See SIC 2009 Comments at 17.
12
See Declaratory Ruling, 25 FCC Rcd at 13648-49, para. 5; see also NECA 2009 Comments at 9.  NECA and SIC 
discussed a number of factors bearing on the extent to which the lease payments could be included in the cost study. 
See NECA 2009 Comments at 9; see also SIC 2009 Comments at 6.
Federal Communications Commission FCC 16-166
3
entered into the lease agreement with Paniolo, with lease costs set at an initial rate of $15 million 
annually.
13
4. In 2008 NECA informed SIC that it had “serious concerns about the amount of the 
proposed costs and request[ed] specific details of the proposed cable system” that SIC submitted.
14
  
NECA notified SIC in 2009 that the costs for the undersea cable transaction “do not appear to meet the 
standards of the ‘used and useful’ doctrine”
15
and that NECA might not accept SIC’s proposed costs in 
the upcoming tariff filing or for pool reporting.
16
  In 2009, NECA formally notified SIC by letter of its 
decision not to include the disputed lease costs in SIC’s revenue requirement for the upcoming tariff filing 
or for NECA pool reporting.
17
  NECA held that SIC could continue to recover the $1.9 million annual 
expense it was previously paying to lease voice grade capacity on one of the three existing cables that 
already served the Hawaiian Islands.
18
  
5. In response, SIC filed a petition in 2009 requesting that the Commission issue a 
declaratory ruling that certain circuit lease expenses incurred by SIC for the inter-island submarine cable 
system are “used and useful.”
19
  Sandwich Isles also requested that the Commission direct NECA to 
accept all of the lease costs for inclusion in, and settlement from, its traffic-sensitive pool.
20
  
6. On September 29, 2010, the Bureau issued the Declaratory Ruling.
21
  The Bureau 
disagreed with both SIC’s assertion that 100 percent of its lease costs should be recoverable in the NECA 
pool, and with NECA’s determination that only $1.9 million should be recoverable.
22
  Instead, the Bureau 
held that due to the “unique facts and circumstances at issue,” it would analyze “equitable factors beyond 
current usage in evaluating the costs that are ‘used and useful’ and appropriate for inclusion in the 
revenue requirements.”
23
  The Bureau held that, based on the equitable factors of the unique geographic 
                                                     
13
See, e.g., Letter from Megan Strand, Counsel to Sandwich Isles, to Marlene H. Dortch, Secretary, FCC, WC 
Docket No. 09-133, Attach. at 11, White Paper of Sandwich Isles Communications, Inc. in Support of Inclusion of 
its Undersea Cable Costs in the NECA Pool (filed June 4, 2010) (SIC White Paper).  These base lease costs increase 
over time, see id. at 12, and SIC is also responsible under the lease for maintenance and insurance costs.  SIC 2009 
Comments at 17; see also Letter from Dana Frix, Counsel to Sandwich Isles, to Marlene H. Dortch, Secretary, FCC, 
WC Docket No. 09-133 at 1 (filed Aug. 27, 2010) (discussing engineering, operating, and maintenance costs 
associated with the Paniolo cable network).
14
See Declaratory Ruling, 25 FCC Rcd at 13649, para. 6; NECA 2009 Comments at 10; SIC 2009 Comments at 7.
15
SIC 2009 Comments at 7-8.
16
Declaratory Ruling, 25 FCC Rcd at 13649, para. 8; see also SIC 2010 Reply Comments at 4; NECA 2009 
Comments at 11.
17
Declaratory Ruling, 25 FCC Rcd at 13649, para. 7; see also NECA 2009 Comments at 12.  
18
See Declaratory Ruling, 25 FCC Rcd at 13654-55, para. 18.
19
See Petition for Declaratory Ruling of Sandwich Isles Communications, Inc., WC Docket No. 09-133, at 1 (filed 
June 26, 2009) (Petition for Declaratory Ruling); see also Comments Sought on Petition for Declaratory Ruling of 
Sandwich Isles Communications, Inc., WC Docket No. 09-133, Public Notice, 24 FCC Rcd 9386 (WCB 2009).  The 
“used and useful” standard provides the foundation of Commission decisions evaluating whether particular 
investments can be included in a carrier’s revenue requirement.  Property is considered “used and useful” for 
regulatory ratemaking if it is “necessary to the efficient conduct of a utility’s business, presently or within a 
reasonable future period.”  Declaratory Ruling, 25 FCC Rcd at 13651-52, para. 12 & n.36 (citing American Tel. and 
Tel. Co., Phase II Final Decision and Order, 64 FCC 2d 1, 38, para. 111 (1977) (AT&T Phase II Order)).
20
See Petition for Declaratory Ruling at 1.
21
Declaratory Ruling, 25 FCC Rcd 13647.
22
Id. at 13650, para. 9.
23
Id. at 13650, para. 9.
Federal Communications Commission FCC 16-166
4
conditions of Hawaii, demand predictions, the special role that SIC plays in providing 
telecommunications services to rural areas of Hawaii, and the general permissibility of including 
reasonable spare capacity in the revenue requirement, SIC was allowed to include 50 percent of its 
disputed lease expenses in its revenue requirement for the NECA pool, as well as certain other expenses.
24
   
7. Several parties requested review of the Declaratory Ruling.  SIC filed a Petition for 
Reconsideration of the Declaratory Ruling, asserting that it was entitled to receive 100 percent of the 
disputed costs.
25
  AT&T filed an Application for Review of the Declaratory Ruling, asserting that the 
equitable considerations relied on in the Declaratory Ruling were not valid and should all be reconsidered 
and reversed.
26
  And in 2015 NECA filed a Petition for Clarification and/or Declaratory Ruling, asserting 
that SIC has made only partial lease payments while receiving pooling payments in accordance with the 
terms of the Declaratory Ruling.
27
  NECA requests that the Commission clarify that such lease expenses 
must be paid during the relevant carrier accounting cycle and authorize NECA to adjust SIC’s pool 
settlements during the relevant period.
28
  The Bureau issued public notices seeking comment on these 
Petitions and the Application.
29
  
8. On March 29, 2016, the Bureau released a public notice seeking to refresh the record and 
stated that, based on numerous ex parte meetings and filings, “new or changed facts and 
circumstances…may be relevant to the Commission’s consideration” of issues in this docket.
30
  Several 
parties filed comments.
31
  In its comments, SIC asserts that it has “renegotiated” its Paniolo lease costs, 
reducing the costs from approximately $24 million to $8.1 million annually.
32
  Sandwich Isles contends 
this restructured lease payment will reduce its annual pool cost recovery and requests the Bureau dismiss 
the pending Application and NECA Petition in this docket and direct NECA to accept its entire 
renegotiated lease amount for cost recovery.
33
  AT&T, NECA, and USTelecom disagree with SIC’s 
request.
34
  AT&T reasserts its earlier position that the equitable considerations relied on in the 
Declaratory Ruling are not valid and should be reconsidered.
35
  NECA states that SIC has not established 
                                                     
24
Id. at 13654-59, paras. 17-23.
25
See SIC Petition at 1, 7.
26
See AT&T Application.
27
See NECA Petition.  
28
NECA Petition at 10-11.
29
See Comments Sought on AT&T Application for Review and Sandwich Isles Petition for Reconsideration, WC 
Docket No. 09-133, Public Notice, 25 FCC Rcd 15589 (WCB 2010) (2010 Public Notice).  Several parties filed 
comments.  See also Wireline Competition Bureau Seeks Comment on NECA’s Petition for Clarification and/or 
Declaratory Ruling re: Sandwich Isles Declaratory Ruling, WC Docket No. 09-133, Public Notice, 30 FCC Rcd 
1164 (WCB 2015) (2015 Public Notice).  
30
See Wireline Competition Bureau Seeks to Refresh Record in WC Docket No. 09-133 and Seeks Comment on 
AT&T Application for Review, Sandwich Isles Petition for Reconsideration, and NECA Petition for Clarification 
and/or Declaratory Ruling, WC Docket No. 09-133, Public Notice, 31 FCC Rcd 2204 (WCB Mar. 29, 2016) (2016
Public Notice).  
31
See AT&T Refresh and Reply Comments, NECA Refresh and Reply Comments, SIC Refresh and Reply 
Comments, as well as Refresh Comments from the Sovereign Councils of the Hawaiian Homelands Assembly 
(SCHHA) and USTelecom.
32
SIC Refresh Comments at 29-31; AT&T Refresh Reply at 3.
33
SIC Refresh Comments at 5, 30.
34
See AT&T Refresh Comments at 1-5 and Refresh Reply at 3-4; NECA Refresh Reply at 1-2, 11-14; USTelecom
Refresh Comments at 2-3.
35
AT&T Refresh Comments at 1-5.
Federal Communications Commission FCC 16-166
5
that its Paniolo lease costs are used and useful and reiterates its earlier concern that SIC has not paid the 
full amount of its lease in several years.
36
  NECA further asserts that SIC has not provided any support or 
justification for its “renegotiated” lease and that a lease payment reduction does not allow SIC to recover 
more than the amounts determined in the Declaratory Ruling.
37
  
III. DISCUSSION
9. In this Order we grant AT&T’s Application to the extent discussed below.  We conclude 
that the Bureau erred in its failure to provide for a timely review of the reasonableness of its predictive 
judgments and, based on the current record, conclude that the equities do not support continued inclusion 
of the disputed Paniolo lease expenses in SIC’s revenue requirement.  Based on the updated record now 
before us, we determine that the predictive judgments made by the Bureau in 2010 did not accurately 
foretell future developments and thus do not support continued reliance on the equitable factors used to 
justify the decision allowing SIC to include 50 percent of the disputed lease costs in its revenue 
requirement.  We therefore direct NECA to discontinue payment of the disputed amounts and to cease 
allowing SIC to include 50 percent of the disputed lease costs of the Paniolo cable lease expenses, as well 
as certain other expenses in its revenue requirement.  Finally, we deny SIC’s Petition.
38
A. Application of the Used and Useful Standard
10. In the Declaratory Ruling, the Bureau noted that the used and useful standard “provides 
the foundation of Commission decisions evaluating whether particular investments can be included in a 
carrier’s revenue requirements” for inclusion in the NECA pool.
39
  Property is considered used and useful 
if it is “‘necessary to the efficient conduct of a utility’s business, presently or within a reasonable future 
period.’”
40
  Although the Commission has identified general principles regarding what constitutes “used 
and useful” investment to be included in a carrier’s revenue requirement, it has recognized “that these 
guidelines are general and subject to modification, addition or deletion. The particular facts of each case 
must be ascertained in order to determine what part of a utility’s investment is used and useful.”
41
  
Relevant considerations under the used and useful standard are: 1) the need to compensate the investor for 
capital devoted to serving ratepayers; 2) the need to charge ratepayers for only those investments which 
benefit them; and 3) the need for such benefit to be either immediate or realized within a reasonable 
future period of time.
42
  
11. In discussing the need for such benefit to be either immediate or realized within a 
reasonable future period of time, the Bureau noted that the Commission has flexibility in considering 
                                                     
36
NECA Refresh Comments at iii; NECA Refresh Reply at 2-9.
37
NECA Refresh Reply at 11-14; AT&T Refresh Reply at 3-5.
38
To facilitate coordinated resolution of the SIC Petition and the AT&T Application, the Bureau, as permitted by 
section 1.104(b) of the Commission’s rules, referred consideration of the petition to the Commission.  See 47 CFR § 
1.104(b); see also, e.g., Jose M Oti, D/B/A Sandino Telecasters for Termination of Authorization of Angeles 
Broadcasting Network, Interim Licensee of Station KAGL (TV), San Bernardino, California, FCC 93-173, 
Memorandum Opinion and Order, 8 FCC Rcd 2573 (1993) (petition referred to the Commission pursuant to section 
1.104(b) of the Commission’s rules); Florida Cellular Mobil Communications Corporation, File No. 10854-CL-P-
468-A-89, Memorandum Opinion and Order, 6 FCC Rcd 6910 n.1 (1991) (similar).  
39
Declaratory Ruling, 25 FCC Rcd at 13651-52, para. 12.
40
Id. at 13651-52, para. 12, quoting AT&T Phase II Order, 64 FCC 2d at 38, para. 111.
41
Declaratory Ruling, 25 FCC Rcd at 13651-52, para. 12 n. 41, citing AT&T Phase II Order, 64 FCC 2d at 39, para. 
115.
42
Declaratory Ruling, 25 FCC Rcd at 13651-52, para. 12, citing AT&T Phase II Order, 64 FCC 2d at 38, paras. 
111-12.
Federal Communications Commission FCC 16-166
6
what constitutes a “reasonable time.”
43
  Plant currently used for the provision of regulated services 
generally is recognized as being used and useful.
44
  Plant that “is not currently used and useful, however, 
is excess capacity.”
45
  In prior cases, the Commission has considered inclusion of costs for plant not 
currently in use for the provision of regulated services, such as excess capacity, as “used and useful” 
based on equitable considerations.
46
  
12. In adopting rules to govern cable rate regulation in 1996, the Commission allowed 
inclusion of costs only for fully constructed plant that would be used to provide regulated service within 
12 months, although it did not appear to have so limited the inclusion of costs related to other services.
47
  
In the AT&T Phase II Order, the Commission stated that the question of what length of time constitutes 
“the near future” for purposes of determining whether investment is “used and useful” “has no strict, 
economically sound answer,” and “is thus subject to Commission judgment and discretion, and depends 
upon the particular circumstances of each case.”
48
  The Commission also stated that the phrase 
‘presently or within a reasonable future period’ in the denotation of ‘used 
and useful’ is included to protect ratepayers from being forced to pay a 
return on investment which may not be used for a considerable length of 
time or is not needed to serve as a reserve for currently used investment.
  
The question of what length of time constitutes ‘the near future’ has no 
strict, economically sound answer.
49
13. The Commission has also allowed costs to be included in the revenue requirement to 
“address inequities or avoid complications and burdens.”
50
  The Commission has stated that “[t]he 
question of what property falls within the definition of used and useful has no rigid, economic answer and 
depends upon the balance of equities in each situation.”
51
In the Declaratory Ruling, the Bureau noted 
that the “Commission has flexibility itself to consider a variety of equitable factors beyond current actual 
usage in evaluating the costs that are ‘used and useful’ and appropriate for inclusion in the revenue 
requirement.”
52
  
14. In keeping with precedent, the Bureau held in the Declaratory Ruling that it should 
consider issues such as excess capacity in the Paniolo network through an analysis of equitable 
considerations.
53
  The Bureau balanced “the current lack of use of the cable and a lack of substantial 
record evidence concerning future demand” against the “countervailing factors” of “the unique 
                                                     
43
Declaratory Ruling, 25 FCC Rcd at 13656-57, para. 22.
44
Id. at 13652-53, para. 13.
45
Id. at 13652, para. 13 (internal citations omitted).
46
Id. at 13652, para. 14.
47
Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate 
Regulation; Adoption of a Uniform Accounting System for Provision of Regulated Cable Service, MM Docket No. 
93-215, Second Report and Order, First Order on Reconsideration, and Further Notice of Proposed Rulemaking, 11 
FCC Rcd 2220, 2235-36, para. 33 (1996).
48
AT&T Phase II Order, 64 FCC 2d at 38, para. 113; see also Declaratory Ruling, 25 FCC Rcd at 13652-53 n.43.
49
AT&T Phase II Order, 64 FCC 2d at 38, para 113. 
50
Declaratory Ruling, 25 FCC Rcd at 13653-54, paras. 14, 16.
51
Declaratory Ruling, 25 FCC Rcd at 13653, para. 14, citing Investigation of Special Access Tariffs of Local 
Exchange Carriers, CC Docket No. 85-166, Memorandum Opinion and Order, FCC 86-52 at para. 37 (Jan. 24, 
1986), 1986 WL 291617 (subsequent history omitted) (Phase I Special Access Tariffs Investigation Order).
52
Declaratory Ruling, 25 FCC Rcd at 13650, para. 9.
53
Id. at 13650, para. 9.
Federal Communications Commission FCC 16-166
7
geographic conditions in Hawaii, the special role that Sandwich Isles plays in providing 
telecommunications services to rural areas of Hawaii, and the ability to include some spare capacity in the 
revenue requirement.”
54
  Balancing these equities, the Bureau allowed SIC to include 50 percent of the 
disputed lease costs in its revenue requirement, in addition to the $1.9 million a year that was allowed, 
“approximating the amount that [Sandwich Isles] was previously paying . . . to lease voice grade 
capacity” on another undersea cable.
55
  The Bureau also noted that SIC specified that some future demand 
was likely to come from unregulated services or services provided to other carriers under contract.
56
  
B. Authority to Review Declaratory Ruling
15. In the Declaratory Ruling, the Bureau considered the unique geographic challenges in 
Hawaii.
57
  And, based on the difficulty of repairing submarine cable, the Bureau predicted that the Paniolo 
cable would be used to assist other providers on an emergency basis in the future, as it had in the past.
58
  
The Bureau also considered the special role of Sandwich Isles and made a predictive judgment that 
Sandwich Isles would bring advanced and improved services to underserved areas of the Hawaiian Home 
Lands.
59
  The Bureau relied on predictive judgments and expected, based on SIC’s representations and 
other record evidence,
60
that Sandwich Isles would:  use its excess capacity to assist with cable outages; 
offer improved and advanced services to underserved areas in Hawaii; deploy its spare capacity as 
demand for its services grew; and add subscribers as well as lease available capacity to other providers.
61
16. In its Application, AT&T disputes the Bureau’s consideration of these equitable factors 
and also raises questions about the Bureau’s decisions and predictions.  For example, AT&T asserts that 
the Paniolo cable was never used on an emergency basis and notes that multiple other cable providers 
offer service in the same area.
62
  AT&T also asserts that consideration of spare capacity should account 
for current services and subscribers.
63
  AT&T and NECA assert further that “new facts and…changed 
circumstances…have become evident since the Declaratory Ruling was issued” and that such changed 
circumstances warrant a review of the Declaratory Ruling.
64
   
17. In this case, we find that it is in the public interest to reexamine the Bureau’s decision in 
light of an updated record.  Indeed, some of the equitable factors considered by the Bureau in 2010, e.g., 
anticipated demand, are predictive or future-oriented, and therefore are inherently subject to later 
reevaluation based on changed circumstances.  Therefore we determine that, due to the forward-looking 
                                                     
54
Id. at 13654, para. 17.
55
Id. at 13654-55, para. 18.
56
Id. at 13659, para. 23.
57
Id. at 13654-55, para. 19 (“As Sandwich Isles observes, improved route diversity historically has been viewed as a 
factor supporting the deployment of submarine cable, and is an equitable consideration that we find particularly 
important in an area like Hawaii, given, for example, the depth of the ocean and associated difficulty of repairs.”).
58
See id.
59
Declaratory Ruling, 25 FCC Rcd at 13655-56, para. 20.
60
See, e.g., GVNW 2009 Comments at 14; Letter from Kaulana H.R. Park, Chairman, Hawaiian Homes 
Commission, Department of Hawaiian Home Lands, to Chairman Julius Genachowski, FCC, WC Docket No. 09-
133, at 1-2 (filed Sept. 15, 2009).
61
See Declaratory Ruling, 25 FCC Rcd at 13654-59, paras. 19-23.
62
See AT&T Application at 2-3.
63
See AT&T Application at 10-12.
64
See AT&T Refresh Comments at 5 (“without the equitable underpinnings, the Declaratory Ruling is no longer 
justified”); NECA Refresh Comments at v (“the application of the equitable factors should be reconsidered in light 
of the actual facts that have taken place since the Ruling was issued”).
Federal Communications Commission FCC 16-166
8
nature of the equitable factors used in the Declaratory Ruling, the Bureau erred in not providing for a 
timely review of the reasonableness of such predictive judgments and the equities.  Specifically, the 
Bureau could have held that it would in a defined period reassess whether its predictions had borne out 
and continue to justify its finding that 50 percent of the Paniolo lease costs remain used and useful.  We 
review the comments and the updated record and for the reasons discussed below, find that the Bureau 
erred in not imposing a time limitation on its conclusions.  
C. AT&T Application for Review
18. In its Application, AT&T claims that none of the equitable factors used in the 
Declaratory Ruling justified the Bureau’s departure from NECA’s initial determinations under the used 
and useful standard to exclude all lease costs above those ascertainable as equivalent to leasing cable from 
another provider.
65
  NECA and USTelecom agree and support AT&T’s Application.
66
  
19. AT&T asserts that “because Sandwich Isles failed to demonstrate any present or future
telephone service need for the Paniolo cable, the $15 million annual expense associated with that cable is 
neither ‘used and useful’ nor ‘prudent investment.’”
67
  NECA notes that while it “does not take any 
position on the equitable factors adopted in the Bureau’s Declaratory Ruling, the application of the 
equitable factors should be reconsidered in light of the actual facts that have taken place since the Ruling 
was issued.”
68
  USTelecom asserts that “the ‘equitable’ considerations that WCB relied upon in its 
Declaratory Ruling were based on incorrect facts.”
69
  Sandwich Isles disagrees and contends that both 
AT&T and NECA “grossly oversimplify--and thereby misstate--the purpose and nature of the ‘used and 
useful’ analysis.”
70
  Sandwich Isles claims that the Declaratory Ruling misapplied the used and useful 
standard because the decision to include only 50 percent of the Paniolo lease expense in its revenue 
requirement led to an inequitable and unjust result.
71
  
20. The Commission has considerable discretion under the used and useful standard and 
“these guidelines are general and subject to modification, addition or deletion.”
72
  The inclusion of costs 
related to the Paniolo cable were appropriate in light of “the current lack of use of the cable and a lack of 
substantial record evidence concerning future demand,” as well as “a number of countervailing factors, 
including the unique geographic conditions in Hawaii, the special role that Sandwich Isles plays in 
providing telecommunications services to rural areas of Hawaii, and the ability to include some spare 
capacity in the revenue requirement.”
73
  We find that the commenters’ assertions regarding the used and 
useful standard are arguments about the specific application of equitable factors or changed 
circumstances, and discuss them as such below.  
                                                     
65
AT&T Application at 5.
66
See NECA Refresh Comments at v, 15 (noting that while it “does not take any position on the equitable factors 
adopted in the Bureau’s Declaratory Ruling, the application of the equitable factors should be reconsidered in light 
of the actual facts that have taken place since the Ruling was issued”); USTelecom Refresh Comments at 3 (“the 
‘equitable’ considerations that WCB relied upon in its Declaratory Ruling were based on incorrect facts”).
67
AT&T Application at 1 (emphasis in original).
68
See NECA Refresh Comments at v (noting that while it “does not take any position on the equitable factors 
adopted in the Bureau’s Declaratory Ruling, the application of the equitable factors should be reconsidered in light 
of the actual facts that have taken place since the Ruling was issued”).
69
USTelecom Refresh Comments at 3.
70
SIC Refresh Comments at 21.
71
SIC Petition at 23.
72
Declaratory Ruling, 25 FCC Rcd at 13652-53 n. 41, citing AT&T Phase II Order, 64 FCC 2d at 39, para. 115.
73
Declaratory Ruling, 25 FCC Rcd at 13654, para. 17.
Federal Communications Commission FCC 16-166
9
1. Consideration of Equitable Factors 
21. We conclude that it is in the public interest to reexamine the equities relied upon by the 
Bureau.  In light of the updated record, we determine that the predictive judgments based on the equitable 
factors have turned out to be inaccurate.  
22. Several commenters assert that material facts have changed regarding SIC and the 
Paniolo cable network since the issuance of the Declaratory Ruling, and urge the Commission to 
reconsider the equitable and other conclusions reached in the Declaratory Ruling.  AT&T asserts that “the 
facts have indeed changed and those changed facts directly affect the equities the Commission relied upon 
in allowing Sandwich Isles to recover the costs of the Paniolo cable.”
74
  AT&T notes the criminal 
conviction of the former president of SIC as well as the suspension of High Cost Program support to 
Sandwich Isles, and asserts that Sandwich Isles “has been found to have unclean hands-and no longer is 
deserving of any equitable benefit of doubt.”
75
  
23. NECA states that “the application of the equitable factors should be reconsidered in light 
of the actual facts that have taken place” since the issuance of the Declaratory Ruling.
76
  NECA also 
specifies that “the current facts continue to fail to meet the second (benefit to ratepayer) and third 
(reasonable time) prongs of the used and useful doctrine, just as they did in 2009.”
77
  NECA states that its 
initial decision to deny certain lease costs based on the used and useful standard was based on “then-
current facts,”
78
and that even with a refreshed record, it “has no basis to change its previous conclusion 
that the Paniolo cable system lease costs are not used and useful.”
79
  NECA also contends that it asked 
SIC to provide it with updated facts pertaining to a used and useful analysis but SIC has not done so.
80
  
USTelecom strongly supports AT&T’s Application and asserts that the Commission should account for 
the recent criminal conviction of the principal associated with SIC’s parent company, as well as SIC’s 
failure to make lease payments according to the terms of its lease in its analysis.
81
  USTelecom argues 
further that the equitable considerations relied upon by the Bureau in the Declaratory Ruling were based 
on incorrect facts.
82
24. Sandwich Isles asserts that 
the issue before the Bureau today is exactly the same as the issue before 
the Bureau in 2010 when the decision was issued: it is beyond question 
that SIC’s lease costs for the Paniolo Cable network are eligible for cost 
recovery from the NECA pool; the only question is the proper method 
for computing the level of and the amount of that cost recovery.
83
                                                     
74
AT&T Refresh Comments at 2.
75
AT&T Refresh Comments at 2-5.  We do not make a determination about AT&T’s assertion that Sandwich Isles 
has “unclean hands” and is no longer “deserving of any equitable benefit of doubt.”  Id. at 5.  We grant AT&T’s 
Application on the other grounds detailed herein and therefore do not need to reach this argument. 
76
NECA Refresh Comments at v.
77
Id. at 20.
78
Id. at iii, 19-20.
79
Id. at iv.
80
NECA Refresh Comments at iii, 15.
81
USTelecom Refresh Comments at 2-3.
82
Id. at 3.
83
SIC Refresh Comments at 4.
Federal Communications Commission FCC 16-166
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25. We agree with those commenters who assert that factual developments placed into the 
record since 2010 demonstrate that the predictions that underlay the equitable factors have turned out to 
be erroneous.
84
  Based on the updated record we reexamine the equitable factors used in the Declaratory 
Ruling, including certain predictive judgments regarding increased demand and forward-looking 
assumptions, and find that they have not occurred as predicted.  
a. Unique Geographic Challenges in Hawaii  
26. One of the equitable factors that the Bureau considered in the Declaratory Ruling was 
“the unique telecommunications infrastructure needs arising from…the geographical characteristics of 
Hawaii….”
85
  The Bureau described how providers in Hawaii “rely on submarine cable transmission to 
connect the various islands that they serve.”
86
  The Bureau further found that the submarine cable 
deployed by SIC was particularly important in Hawaii due to “the depth of the ocean and associated 
difficulty of repairs.”
87
  
27. The Bureau also considered route diversity as part of the equitable factors related to the 
unique geographic challenges in Hawaii.
88
  The Bureau noted that “improved route diversity historically 
has been viewed as a factor supporting the deployment of submarine cable, and is an equitable 
consideration that we find particularly important in an area like Hawaii….”
89
  Additionally, although 
other submarine cables already served the Hawaiian Islands, the Bureau determined that the Paniolo cable 
“lands in different places than do the other two cables” and thus enhances route diversity.
90
  In weighing 
the importance of this factor, the Bureau considered that in the future, SIC would be able to use its 
capacity on an emergency basis, as it had done in the past, to assist other providers in case of service 
interruptions.
91
  
28. New evidence shows that these predictions have proven to be inaccurate.  Commenters 
assert that other carriers have continued to serve this region concurrently with SIC since the deployment 
of the Paniolo cable network.
92
  AT&T contends that “Sandwich Isles ratepayers…already enjoyed robust 
route diversity and spare capacity by virtue of the three undersea cables that existed when Sandwich Isles 
undertook its Paniolo project….”
93
  NECA states that “a substantial number of customers in the Hawaiian 
                                                     
84
See, e.g., AT&T Application, AT&T Refresh and Reply Comments, NECA Refresh and Reply Comments.
85
Declaratory Ruling, 25 FCC Rcd at 13654, para. 18.
86
Id. at 13654, para. 19.
87
Id. at 13654, para. 19 & n.55.
88
Id. at 13654-55, para. 19.
89
Id. at 13654, para. 19.
90
Id. at 13655, para. 19 (internal citations omitted).
91
Declaratory Ruling, 25 FCC Rcd at 13654-55, para. 19.  SIC’s involvement in the Wavecom outage has been 
disputed.  See AT&T Application at 3 n.7 (citing Letter from Thomas Lynch, Counsel to Pacific Lightnet dba 
Wavecom Solutions, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 09-133 (filed Sept. 23, 2010) 
(asserting that WaveCom did not use an outside provider during its 2010 outage)).
92
See NECA Refresh Comments at 18-19 (asserting that a substantial number of customers in the HHL continue to 
receive telecommunications services from Hawaiian Telcom); AT&T Refresh Comments at 6 (asserting that 
“Hawaiian Telcom, Inc. has represented that it ‘is the carrier of last resort for the entire state of Hawaii’ and ‘that it 
can and will continue to serve all rural areas of Hawaii, including the Hawaiian Home Lands’”) (internal citations 
omitted); Letter from Gregory J. Vogt, Counsel to Hawaiian Telcom, Inc., to Marlene H. Dortch, Secretary, FCC, 
WC Docket No. 10-90, 05-337 (filed Jan. 16, 2014) (asserting that Hawaiian Telcom is “Hawaii’s only statewide 
provider of last resort”).
93
AT&T Application at 2.
Federal Communications Commission FCC 16-166
11
Home Lands continue to receive telecommunications services from Hawaiian Telcom.”
94
  NECA also 
contends that “there were two and are now three undersea cable systems serving the Hawaiian Islands” 
and that “[i]t would have been more reasonable and economical to lease only a portion of the cable. . . .”
95
  
29. AT&T disputes that SIC’s cable was used on an emergency basis during out an outage, 
calling the claim “patently false.”
96
  AT&T further asserts that “there are and have been multiple cables 
servicing Hawaii…and the record evidence clearly establishes that there were already ‘backup 
arrangements for all interisland facilities.’”
97
  NECA challenges SIC’s reliance on two recent cable 
outages in Hawaii to demonstrate the need for route diversity, arguing that SIC “stops short of stating that 
the Paniolo cable was actually used during these outages.”
98
  Verizon contends that “Sandwich Isles 
admits that the vast majority of capacity on this new cable network is not needed to offer regulated 
services.”
99
  
30. Sandwich Isles responds that the Paniolo cable has “contributed to inter-island route 
diversity and has been used by other service providers during periods when their networks have been out 
of service.”
100
  It asserts that its “cable network now provides essential, redundant and diverse submarine 
cable capacity for regions of Hawaii that were previously under-served, or completely dark.”
101
  Sandwich 
Isles also states that it “has enhanced the quality of service available across the HHL due to its cutting-
edge technology and robust back-up capacity.”
102
  These statements are unsupported in the record.  
31. Based on the updated record, we find that the predictive judgments set forth in the 
Declaratory Ruling that underpin the equitable factor of the unique geographic challenges in Hawaii have 
not materialized.  No evidence exists, since the release of the Declaratory Ruling, to demonstrate that the 
Paniolo cable has been used when other providers’ cables were out of service.
103
  And, even though SIC 
reports that its cable lands in different places than pre-existing cable, the record shows that other 
providers continue to serve the residents of the Hawaiian Home Lands.
104
  We thus find that the predictive 
judgments based on the unique geographic challenges diversity have not occurred.  
b. Special Role of Sandwich Isles
32. In the Declaratory Ruling, the Bureau found that SIC “serves a unique role in its 
provision of service to Hawaiian home lands” and was created in response to a Hawaiian law designed to 
                                                     
94
NECA Refresh Comments at 5, 18-19.
95
Id. at 22.
96
AT&T Application at 3.
97
Id. at 10.
98
NECA Refresh Reply at 8 n.25.  See also SIC Refresh Comments at 17-18 & n. 41 (“The two intrastate submarine 
cable systems serving portions of Hawaii prior to construction of the Paniolo Cable are now both 20+ years old.  
Predictably, there have already been multiple instances of outages associated with this aging infrastructure.  Both of 
these cables are fast approaching their end of days.”).
99
Verizon 2010 Comments at 3.
100
SIC Refresh Comments at 7.
101
SIC Refresh Comments at 20.  SIC also asserts that its services “enhance[e] security, public and private,” and that 
Hawaii…is a sensitive location with respect to homeland security issues…the personal security of HHL residents 
and island-visitors has been served by the Paniolo Cable network.”  Id. at 19-20.  
102
SIC Refresh Comments at 18.
103
NECA Refresh Reply at n. 25 (“SIC cites two recent cable outages in Hawaii to demonstrate the redundancy 
need.  But SIC stops short of stating that the Paniolo cable was actually used during these outages.”) (internal 
citations omitted).
104
See supra note 92.
Federal Communications Commission FCC 16-166
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improve telecommunications service in rural areas of Hawaii.
105
  The Bureau recognized that SIC was 
created to respond to concerns about the adequacy of communications services provided in certain parts 
of Hawaii “with the expectation that [it] would offer improved service,” including “technological 
advances over the pre-existing cables.”
106
  The Bureau also took into account SIC’s “special role pursuant 
to federal and state law,” and weighed SIC’s “technological advances over the pre-existing cable” in 
Hawaii as part of its equitable considerations.
107
  The Bureau’s prediction that SIC would provide 
advanced services and technology to “areas scattered throughout Hawaii,” especially those in the HHL 
that were underserved, was part of the equitable considerations evaluated when it allowed inclusion of 50 
percent of the disputed lease costs in SIC’s revenue recovery.
108
33. Sandwich Isles states that, via the Paniolo cable, it now “provides essential, redundant 
and diverse submarine cable capacity for regions of Hawaii that were previously under-served, or 
completely dark.”
109
  Sandwich Isles specifies that in certain rural portions of Maui that lack electricity, it 
is “the singular means by which residents and public safety authorities can exchange critical public safety 
information.”
110
  It contends further that it has expanded access to previously unserved areas in Hawaii 
because the “older, pre-existing cables did not then, and do not now extend access to the areas serviced by 
the Paniolo Cable….”
111
  
34. Commenters dispute SIC’s claim that it is the exclusive provider of advanced 
telecommunications access in remote, previously-unserved areas parts of the HHL.
112
  NECA asserts that 
SIC’s claims regarding the unwillingness of other providers to serve parts of the HHL are “dated history,” 
which predate SIC’s commencement of service in 1997.
113
  NECA further notes that SIC’s claims 
regarding its necessity for public safety and resident services are neither explained nor supported.
114
  
NECA disputes SIC’s assertion that its service is crucial in rural, unserved parts of Hawaii, stating that 
such vague claims appear to relate to the capacity of SIC’s network as a whole, not just the Paniolo cable
in question.
115
  
35. Additionally, commenters disagree with SIC’s inclusion of costs in the NECA pool
related to building an advanced broadband network.  AT&T asserts that in those places in which SIC 
provides advanced broadband service, its related costs should never have been considered as part of its 
rate-of-return carrier access charges, which by law are limited to a reasonable return on plant used and 
                                                     
105
Declaratory Ruling, 25 FCC Rcd at 13655, para. 20.
106
Declaratory Ruling, 25 FCC Rcd at 13655, para. 20.  The Bureau noted, however, that in discussing investment 
in new technology, “the weight we place on these considerations here derives primarily from the special role served 
by Sandwich Isles in Hawaii.”  Id. at 9-10 n.65.
107
Declaratory Ruling, 25 FCC Rcd at 13655, para. 20, citing SIC White Paper at 12.
108
Id. at 13655, para. 20.
109
SIC Refresh Comments at 20.
110
Id. at 20.
111
Id. at 18.  
112
See supra note 92.
113
NECA Refresh Comments at 4-5 & n.11.
114
Id. at 8-9 (asserting that “no explanation of this expansive statement is provided” and that such claim cannot be 
credited as statement to support the need for SIC subscribers to the Paniolo cable network).
115
Id. at iii, 4-5.  AT&T notes that SIC was established to serve underserved, isolated communities within Hawaii 
and that “this is really a USF issue.”  AT&T Application at 3-4.  AT&T contends that other, explicit subsidies for 
the provision of advanced services, such as Universal Service Fund support, should be used for such costs. 
Federal Communications Commission FCC 16-166
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useful in the provision of basic telecommunications services.
116
  NECA also states that inclusion of the 
costs of the entire Paniolo network was and remains unjustified.
117
36. Based on the updated record, we find no evidence that the predictive judgments set forth 
in the Declaratory Ruling underlying Sandwich Isles’ special role have materialized.  Sandwich Isles does 
not provide evidence that the Paniolo cable offers “technological advances over the pre-existing cables” 
in the HHL but merely recycles the same arguments based on predictions of what it would do that it made 
in support of its 2010 Petition for Declaratory Ruling without demonstrating what has changed or actions 
it has taken since that time.
118
  Additionally, significant dispute exists in the record regarding SIC’s 
alleged exclusive provision of service to the HHL.
119
  As discussed previously, relevant considerations 
under the used and useful standard are the need to charge ratepayers for only those investments which 
benefit them.
120
  Without evidence that Sandwich Isles’ customers actually enjoy the benefits of such 
investments previously predicted, it is not appropriate to continue to rely on this equitable 
consideration.
121
  
c. Inclusion of Spare Capacity  
37. In the Declaratory Ruling, the Bureau noted that “once the decision was made to deploy 
the cable...it was logical here to include some spare capacity in the cable, given the relatively small 
increase in cost….”
122
The Bureau observed, however, that while “some recovery for spare capacity can 
be reasonable,” NECA had raised substantial questions about whether the capacity in Paniolo’s proposed 
                                                     
116
AT&T Application at 3, 11.
117
NECA Refresh Reply at 2-3.
118
SIC Refresh Comments at 19-20 (suggesting that the Paniolo cable enhances the quality of service available 
across the HHL, improves restoration and reliability, extends to areas not previously served and is consistent with 
government efforts to promote diverse and redundant submarine cable capacity).  See Declaratory Ruling, 25 FCC 
Rcd at 13655, para. 20 (discussing that SIC was created to respond to “concerns about the adequacy of 
communications services provided in those areas, with the expectation that Sandwich Isles would offer improved 
service”).  The Bureau also noted that the submarine cable includes technological advances over the preexisting 
cables used in Hawaii).  Id.  See also SIC 2010 Reply Comments at 3 (suggesting that the existing cables were 
nearing the end of their useful life). 
119
See, e.g., SCHHA Refresh Comments at 2 (asserting that on the island of Molokai, “Hawaiian Telcom bypassed 
that island’s HHL communities in providing Internet services” and that “[a]s recently as six years ago, our Molokai 
families were still using antiquated dial-up modem service if they wanted Internet service at all”); SIC Refresh 
Comments at 3.  Contra Verizon 2010 Comments at 3 (asserting that the SIC cable network is ‘duplicative of four 
other undersea cables serving the Hawaiian Islands”); AT&T Refresh Comments at 6 (asserting that Hawaiian 
Telcom has represented that it is “the carrier of last resort for the entire state of Hawaii” and that “it can be and will 
continue to serve all rural areas of Hawaii, including the Hawaiian Home Lands”)(internal citations omitted); NECA 
Refresh Reply at 4 n.11 (asserting that SIC’s claim of exclusivity is “dated history” and that the Molokai area has 
been served by another provider via an interisland cable since 2000); NECA Refresh Reply at 5 n.13 (asserting that, 
despite SIC’s claim that it has exclusive rights to serve customers in the HHL service territory, “Hawaiian Telcom 
serves a significant number of HHL residents today”).  In 2013 the issue of SIC’s alleged exclusivity of service was 
considered by the Bureau as part of in its consideration of certain high-cost universal service support, but the issue 
was not resolved.  See Connect America Fund, Sandwich Isles Communications, Inc., Petition for Waiver of Section 
54.302 of the Commission’s Rules, WC Docket No. 10-90, Order, 28 FCC Rcd 6553, 6556-57, paras. 8-9 (WCB 
2013).
120
Declaratory Ruling, 25 FCC Rcd at 13651-51, para. 12, citing AT&T Phase II Order, 64 FCC 2d at 38, para. 112.
121
We discuss below the incorrect prediction that demand for Sandwich Isles’ services, and thus the Paniolo cable, 
would increase following the release of the Declaratory Ruling.  See infra paras. 41-44.
122
Declaratory Ruling, 25 FCC Rcd at 13656, para. 21.  
Federal Communications Commission FCC 16-166
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lease was “necessary to serve Sandwich Isles’ reasonably foreseeable demand for regulated services.”
123
  
The Bureau also found that, while not determining the specific issue of whether SIC’s cable was 
“prudently incurred,”
124
“the record [did] suggest some promise” regarding future increased use of the 
cable’s capacity.
125
  The Bureau held that it did not want to “deter other carriers from deploying spare 
capacity in the future” by “unduly limiting cost recovery solely to the percentage of capacity actually 
used” by SIC at that time.
126
  
38. AT&T urges reconsideration of this equitable factor, stating that “the record 
overwhelmingly demonstrated that there was more than sufficient spare capacity on existing cable” and 
that the “Paniolo cable was not needed to provide either current services or spare capacity.”
127
  NECA 
agrees, asserting that “the cost and the capacity of the Paniolo cable system are far in excess of what is 
reasonably required to service SIC broadband customers from 2010 through the near future.”
128
  NECA 
asserts that the Declaratory Ruling cast doubt on SIC’s number of expected subscribers, based on HHL’s 
goal of new housing for up to 20,000 native residents, and that this projected new construction still has 
not occurred.
129
  
39. Sandwich Isles asserts that it constructed the Paniolo network due to the condition of 
existing infrastructure.
130
  This is not a new argument.
131
  Sandwich Isles argues further that “excess 
capacity represented a minor, incremental cost – particularly relative to the scale of the project – and did 
not materially affect the cost of construction.”
132
  
40. Whether or not it was “logical here to include some spare capacity in the cable” at the 
time of the Declaratory Ruling’s adoption, the used and useful standard requires that the benefit from an 
investment must be realized within a reasonable period of time, and that ratepayers not be forced to 
subsidize services that they do not enjoy.
133
  That has not happened here.  As discussed in this Order, no 
evidence exists that the spare capacity allowed pursuant to the equitable factors in the Declaratory Ruling
has been needed or utilized since its adoption.
134
  Sandwich Isles has provided no evidence to the 
contrary; rather, in recent comments, it has again presented only predictions that its excess capacity will 
be used in the future.
135
  The Bureau should have provided for a timely review of the reasonableness of 
                                                     
123
Declaratory Ruling, 25 FCC Rcd at 13656, para. 21 (internal citations omitted).  The Bureau also noted that SIC 
had “an obligation and responsibility” to account for the different in use between its regulated and nonregulated 
services.  Id. at n.67.
124
Declaratory Ruling, 25 FCC Rcd at 13656-57, para. 22 n.70.
125
Declaratory Ruling, 25 FCC Rcd at 13656-57, para 22 n.77.
126
Declaratory Ruling, 25 FCC Rcd at 13656, para. 21.
127
AT&T Application at 11.
128
NECA Refresh Comments at v.
129
Id. at 16-18, citing Declaratory Ruling, 25 FCC Rcd at 13656-57, paras. 22-23 (“Although Sandwich Isles states 
that it ultimately anticipates 20,000 new residents of the Hawaiian home lands, it is not clear how quickly those 
residents are likely to arrive, particularly given past trends” (internal citations omitted)).
130
SIC Refresh Comments at 17-18.
131
SIC 2010 Reply Comments at 3.
132
SIC Refresh Comments at 16.
133
Declaratory Ruling, 25 FCC Rcd at 13656, para. 21.
134
See infra paras. 41-44.
135
See, e.g., SIC Refresh Comments at 6-7 (asserting that “very recently, the State of Hawaii has committed an 
infusion of funds to the HHL which is very likely to result in a significant increase in HHL homesteads and 
population, with likely resulting increases in demand and usage on SIC’s network, including the Paniolo Cable”).
Federal Communications Commission FCC 16-166
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the predictive judgments and equitable analysis relied upon in the Declaratory Ruling.  We thus find that 
the Bureau acted erroneously in not providing for such timely review.  We find further that there is 
insufficient support in the updated record for the continued consideration of this equitable factor.  
d. Anticipated Demand
41. In the Declaratory Ruling, the equitable consideration of spare capacity is closely tied to 
that of anticipated demand.  The Bureau observed that, while it had significant flexibility in considering 
when an investment would be used within “a reasonable time,” it was concerned about SIC’s inability to 
quantify any meaningful projected demand for the near-term future.
136
  The Bureau predicted that it was 
“reasonable to anticipate some additional future demand for capable capacity.”
137
  The Bureau determined 
that, while it did not agree with Sandwich Isles’ predictions concerning increased future demand, it still 
found it “reasonable to anticipate some additional future demand for cable capacity,” particular as 
advanced services were made available.
138
  The Bureau also found that some increased demand was likely 
to come from customers outside the NECA pool.
139
  
42. AT&T argues that SIC’s claim that demand will increase is “seriously suspect.”
140
  
AT&T asserts that “even if demand for Sandwich Isles regulated services increased tenfold, the resulting 
rates would pay for only 13 percent of the initial annualized lease costs.”
141
  AT&T notes that SIC based 
its lease costs on its projection of serving 20,000 subscribers over the life of the lease, and that SIC is 
“highly unlikely to obtain anywhere near 20,000 during the 20 year life of the facility.”
142
  NECA 
contends that customer demand was too low to support the construction of the Paniolo network when it 
was constructed and that demand has not increased since that time.
143
  NECA states that SIC has not
“demonstrated a reasonable likelihood that it will place all its leased capacity into service for the benefit 
of SIC’s subscribers using regulated services within such [reasonable] time.”
144
NECA also states that 
“SIC has done little to shore up its inadequate demand projections.”
145
  NECA disputes SIC’s recent 
assertions about anticipated construction in the HHL, noting that such assertions are based merely on 
government commitments that have not been funded.
146
  
43. Sandwich Isles asserts that the HHL population growth projections it previously put 
                                                     
136
Declaratory Ruling, 25 FCC Rcd at 13656-58, para. 22.
137
Id. at 13658-59, para. 23.
138
Id. at 13658-59, para. 23.
139
Id. at 13656-57, para. 23; 13652, para. 13 n.43 (noting that the Commission previously “allowed inclusion of 
costs only for fully constructed plant that will be used to provide regulated service within 12 months”) (internal 
citations omitted).
140
AT&T Application at 7 (internal quotation marks omitted).
141
Id. at 7.
142
AT&T 2010 Comments at 18.
143
NECA Refresh Comments at 16-18 (“Based on the current data available, and SIC’s burden of justifying the 
level of its expenses and investment, NECA’s judgment continues to be the same as it was in 2010:  the Paniolo 
lease expenses and capacity are excessive for what is reasonably required to provide regulated service, i.e., is not 
used and useful).”  NECA also states that it “does not have any data concerning the amount of capacity that SIC 
broadband subscribers currently use, how much such usage reasonably requires of the Paniolo cable system, how 
much of such usage is served by facilities purchased from third parties, and the realistic expected trends in DSL 
subscribers in the relatively near future.”  Id. at 17 n.58.
144
NECA Refresh Comments at 21.
145
NECA Refresh Reply at 7.
146
Id. at 7.
Federal Communications Commission FCC 16-166
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forward have proven too “optimistic” and blames “negative externalities”
147
as well as “the economic 
downturn in the years 2007-2010 … [which] could not have been reasonabl[y] predicted.”
148
  Sandwich 
Isles asserts that this unpredictably low population growth has been “offset significantly by rapidly-
increasing demand … for broadband services and capacity.”
149
  Sandwich Isles again predicts a 
“significant increase in HHL homesteads and population, with likely resulting increases in demand and 
usage.”
150
  Sandwich Isles also asserts that, as demand increases, consumer prices will drop.
151
   
44. We agree with AT&T that it no longer appears reasonable to rely on anticipated demand 
as an equitable factor in this case.
152
  Despite its optimism, SIC presents no concrete evidence to support 
the notion that the Paniolo cable network has been, or will be, subject to greater demand within a 
reasonable period of time.  Nothing in the record indicates a significant increase in demand or usage on 
the Paniolo network.
153
  Additionally, as discussed above, the used and useful standard requires that the 
benefit from an investment must be realized within a reasonable period of time, and that ratepayers not be 
forced to subsidize services that they do not enjoy.
154
  We find that insufficient evidence exists to continue 
supporting the ongoing reliance on this equitable factor to support relief.
2. Costs Allowed in Revenue Requirement 
45. Based on this analysis of the predictive determinations made in the Declaratory Ruling
and on a careful review of the updated record in this docket, we find that it no longer makes sense to rely 
on the equitable factors used by the Bureau in the Declaratory Ruling on a going-forward basis to support 
inclusion of the allowed disputed amounts.
155
  We recognize that SIC has received funding from the 
NECA pool based on the Bureau’s determination of equitable factors since the implementation of the 
Declaratory Ruling.
156
  We find, however, that it is appropriate to terminate inclusion of these disputed 
amounts and allow SIC to provide NECA with the necessary support for its current revenue requirement 
to the extent that is more than the amounts allowed by NECA under its used and useful analysis.  
                                                     
147
SIC Refresh Comments at 29.
148
Id. at 29.  
149
Id. at 6.
150
Id. at 6-7.
151
See, e.g., SIC White Paper at 31 (asserting that “NECA ignored data that demonstrates the competitive benefits of 
the construction of the Paniolo cable …. The introduction of new competition and the resulting decline in prices is 
one of the factors that makes the Paniolo cable used and useful and will lead to increased demand and uptake of the 
new cable capacity”); id. at 6 (“The very factors recognized as important in a public policy evaluation, as identified 
by the Commission in prior decisions … are ignored by NECA. These factors include … the competitive benefits of 
adding a new cable which has driven down rates in the market, as shown by the prices obtained by NECA after 
construction of the Paniolo cable.”). See also SIC Refresh Comments at 6-7.  But see NECA Refresh Comments at 
20 (asserting that “under SIC’s proposal, today’s ratepayers would essentially be paying for a level of service that 
might never be provided during the length of the lease.”).
152
See AT&T Application at 4 (“even the most wildly optimistic growth projections will never use more than a tiny 
fraction of the new cable”).
153
Sandwich Isles merely asserts that it could not have foreseen the impact of an economic downturn that it 
identifies as well underway at that time.  SIC Refresh Comments at 6.  
154
Declaratory Ruling, 25 FCC Rcd at 13651-52, para. 12.
155
See NECA Refresh Comments at 2-3 (stating that “FCC rules require that rate-of-return carriers justify their 
proposed rates …. [T]he Commission has a duty to evaluate whether NECA rates are just and reasonable.” (citing 
July 1, 2004 Annual Access Charge Tariff Filings, WC Docket No. 04-372, 19 FCC Rcd 23877 at 23886-87, para. 
24 (2004)) (footnotes omitted).
156
See Declaratory Ruling, 25 FCC Rcd at 13650, para. 9.
Federal Communications Commission FCC 16-166
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Specifically, NECA shall cease allowing SIC to include 50 percent of the disputed lease costs, as well as 
certain other expenses, in its revenue requirement as of the effective date of this Order, as the basis of this 
allowance was the consideration of equitable factors that we find do not support continued relief.
157
  
46. Sandwich Isles may continue to receive the $1.9 million a year that approximates the 
amount that it was paying to lease voice grade capacity prior to the Declaratory Ruling.
158
  Sandwich Isles 
has the right to provide NECA with additional evidence of its current used and useful expenses beyond 
those previously provided for inclusion in SIC’s revenue requirement.  If SIC provides NECA with 
sufficient evidence, we further direct NECA to timely consider it and recalculate SIC’s revenue 
requirement for compliance with the used and useful standard in accordance with its normal processes.
159
The burden rests with SIC to explain why any additional expenses are used and useful by providing new 
or additional factors and/or data.
160
  
D. Sandwich Isles Petition for Reconsideration
47. In its Petition, SIC seeks reconsideration of the Declaratory Ruling, specifically 
requesting that the Bureau reconsider the cost recovery methodology adopted, and award SIC “100 
percent recovery.”
161
  
1. NECA’s Spare Fiber Guidelines
48. To begin, we reject Sandwich Isles’ contention that NECA’s Spare Fiber Guidelines are 
dispositive of the Commission’s review.  Sandwich Isles asserts that NECA failed to consider its cost 
allocation and recovery rules that apply to the accounting treatment of spare fiber cable and wire facilities 
in its determination that only a portion of Sandwich Isles’ submarine cable and related investment should 
be included in its revenue requirement.
162
  Sandwich Isles argues that NECA’s Spare Fiber Guidelines 
clearly apply to spare Paniolo fiber and entitle the carrier to 100 percent recovery.
163
  
49. The NECA Spare Fiber Guidelines do not address the threshold “used and useful”
standard that governs whether any particular cost may be included in the NECA revenue requirement for 
the NECA pool.  Rather, NECA’s guidelines provide advice to member companies as to the appropriate 
accounting treatment of specific costs in accordance with the Commission’s rules and orders.
164
  In 
                                                     
157
Id. at 13659, para. 24 n.84 (“[W]e are not persuaded by concerns about possible financial hardship insofar as 
remedying such concerns would require us to allow for cost recovery from ratepayers beyond that permitted by the
Act and Commission regulations.”).
158
See Declaratory Ruling, 25 FCC Rcd at 13654, para. 18.
159
In the Declaratory Ruling the Bureau confirmed the validity of the used and useful standard as “the foundation of 
Commission decisions evaluating whether particular investments can be included in a carrier’s revenue 
requirement.”  Declaratory Ruling, 25 FCC Rcd at 13651-52, para. 12.  The Bureau also stated that it “ordinarily 
expects [the used and useful standard] to be sufficient to resolve revenue requirements.”  Id. at 13644, para. 18.  We 
affirm those findings in this Order.
160
See 47 CFR §§ 69.605(a), 601(c); see also Declaratory Ruling, 25 FCC Rcd at 13656, para. 21 n.67 (“Sandwich 
Isles has the obligation and responsibility to account for those differences [between usage for regulated vs. non-
regulated services] in compliance with the Commission’s rules and to accurately report the results of its accounting 
to NECA.”); id. at para. 13662, para. 28 n.97 (citing NECA comments which state that “both parties to the pooling 
agreement are obligated to comply with all applicable FCC rules and orders. Thus, Sandwich Isles had an 
independent obligation to confirm its actions were consistent with FCC rules.”).
161
SIC Petition at 3.
162
Id. at 2-3.
163
Id.
164
See Letter from Gregory J. Vogt, Counsel for Nation Exchange Carrier Association, Inc., to Marlene H. Dortch, 
Secretary, FCC, WC Docket No. 09-133 at 3 (filed Apr. 14, 2011) (NECA Apr. 14, 2011 Ex Parte Letter).
Federal Communications Commission FCC 16-166
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particular, we agree with AT&T and NECA that the Spare Fiber Guidelines presume that the investment 
is “used and useful,” and merely explain how cable and wireline facilities expenses and spare capacity 
costs are to be allocated among various regulatory sub-accounts.
165
  Thus, Sandwich Isles’ assertion that 
the Spare Fiber Guidelines require that all of the Paniolo lease payments be included in Sandwich Isles’ 
revenue requirement, regardless of Commission policies or decisions, is incorrect. Rather, the threshold
step in the ratemaking process is the application of the “used and useful” standard to determine the 
expenses that a carrier may include in its revenue requirement and thus recover from ratepayers.
166
  The 
Spare Fiber Guidelines provide no basis to overturn the Declaratory Ruling. 
50. We also reject Sandwich Isles’ argument that NECA misled the Bureau by failing to 
advise the Commission of the Spare Fiber Guidelines.
167
  Because the Spare Fiber Guidelines do not 
control the Commission’s determination of whether the Paniolo cable is “used and useful,” NECA was 
under no obligation to produce them in the context of this proceeding.
168
     
2. Study Area Waivers
51. We disagree with Sandwich Isles’ characterization of the Study Area Waiver Orders,
169
which simply repeats arguments considered and correctly rejected by the Bureau in the Declaratory 
                                                     
165
See AT&T 2010 Comments at 13; NECA 2010 Comments at 3.  NECA’s guidelines interpret sections 36.152 
and 36.153 of the Commission’s rules, which explain the jurisdictional separations process in which carriers are 
required to allocate property costs, revenue, expenses, taxes, and reserves as recorded by the company for the 
process of separating interstate costs and intrastate costs. See 47 CFR § 36.152-53; AT&T 2010 Comments at 9.  
Other Commission rules and policies must also be applied in establishing interstate access rates.  First, the carrier 
must apply the “used and useful” doctrine to determine whether the investment should be included in the costs of 
providing regulated telecommunications service.  If the particular investment is found to be “used and useful,” then 
the carrier must determine whether the investment is expected to be used for regulated or non-regulated purpose in 
accordance with the Commission’s cost allocation rules.  Once the costs are determined to be regulated, they are 
then assigned to cost categories in accordance with Part 36 of the Commission’s rules.  See NECA April 14, 2011 
Ex Parte Letter at 3.
166
See Investigation of Access and Divestiture Related Tariffs, CC Docket No. 83–1145, Memorandum Opinion and 
Order, 97 FCC 2d 1082 at 1088, para. 16 (1984) (“The starting point for developing or reviewing a rate filing is 
establishing an overall revenue requirement.  A carrier is entitled to charge rates which recover allowable expenses 
and a reasonable return on the investment in property used and useful for service to the public. This amount is the 
revenue requirement.”) (emphasis added); AT&T Phase II Order, 64 FCC 2d at 37, paras. 110-111 (noting that 
“[t]he starting point in calculating [a carrier’s] revenue requirements is a determination of the ‘fair value’ of its rate 
base,” and that the Commission “has always applied the used and useful standard” to make that determination).
167
SIC Petition at 1-2.
168
Sandwich Isles filed an emergency motion requesting access to NECA rules and regulations, claiming that NECA 
would not permit Sandwich Isles’ counsel to gain access to NECA accounting guidelines even though Sandwich 
Isles had access to the guidelines as a NECA member.  See Sandwich Isles Communications, Inc., Emergency 
Motion Requesting Access to NECA Rules, Regulations, Guidance and Precedent of Any Type Relied Upon by 
NECA, Carriers or Regulatory Personnel in Connection with the Access Charge Regime, WC Docket No. 09-133 
(filed Dec. 16, 2010).  Sandwich Isles and its counsel should have access to all relevant NECA guidelines, and it 
appears they do.  See NECA April 14, 2011 Ex Parte Letter at 4 (explaining that Sandwich Isles has access to all of 
the NECA guidelines through the members-only database and can either print out the guidelines and provide them to 
its attorneys, or make online access available to its attorneys through the same security procedures that Sandwich 
Isles follows).  Accordingly, we find that Sandwich Isles’ emergency motion is moot and dismiss it.  We also note 
that a copy of the Spare Fiber Guidelines were attached to the Sandwich Isles Petition, so they are now part of the 
record.  See Sandwich Isles Petition, Exh. A, Harper Declaration at 6.  Finally, Sandwich Isles, as a NECA member, 
could have provided its counsel a copy of the Guidelines much earlier in this proceeding, and thus, raising them at 
this time does not meet the standard for their consideration on reconsideration.  See supra note 39.
169
See High Cost Loop Waiver Order, Study Area Waiver Order.
Federal Communications Commission FCC 16-166
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Ruling.
170
  Sandwich Isles reiterates its argument that previous Bureau orders approving waivers that 
allow SIC to participate in the NECA pool also constituted a binding decision that all of SIC’s costs are 
used and useful and thus fully recoverable through the NECA pooling process.
171
  As the Bureau 
explained, although the Accounting and Audits Division granted a waiver to allow Sandwich Isles to 
participate in the NECA pool,
172
it did not consider whether it was in the public interest to include all of 
the lease costs currently subject to dispute in the NECA revenue requirement.
173
The public interest 
analysis in the Study Area Waiver Orders context was focused more generally on whether the public 
interest would be served by extending service to consumers in the area at issue and did not address 
whether particular attendant costs would be prudently incurred and “used and useful.”
174
Thus, contrary 
to Sandwich Isles’ contention, the Bureau had not previously approved the eventual costs of Sandwich 
Isles’ network for inclusion in the NECA pool, and we affirm the Bureau’s conclusions regarding this 
issue.
175
3. Application of the Used and Useful Standard 
52. Sandwich Isles claims that the Bureau misapplied the used and useful standard in the 
Declaratory Ruling on multiple grounds. First, it argues that the Bureau erroneously awarded only $1.9 
million for the fiber currently being used and claims that the cost of that fiber constitutes 98 percent of the 
total cost of the Paniolo cable.
176
  Sandwich Isles argues further that the Bureau should have awarded 100 
percent recovery for the terrestrial portion of the Paniolo cable network.
177
  Finally, Sandwich Isles argues 
that the Bureau’s decision to include 50 percent of the Paniolo cable lease expense in Sandwich Isles’ 
revenue requirement was inequitable and unjust.
178
  We disagree with SIC’s arguments regarding the 
Bureau’s application of the used and useful standard.  
53. As discussed above, the used and useful standard provides the foundation of the 
Commission’s decisions evaluating whether particular investments can be included in a carrier’s revenue 
requirement.
179
  In this situation the Bureau found that “just as 50 percent recovery was appropriate on the 
particular facts of the PSV cable case, this allocation provides appropriate recovery for Sandwich Isles 
investors through NECA tariffed rates in light of the benefits arising from the investment.”
180
  
54. We reject Sandwich Isles’ argument that “[t]he [Bureau in the Declaratory Ruling] 
misapplie[d] the [used and useful] standard when it award[ed] only $1.9 million for the in-use fiber when 
the record evidence shows, and the [Bureau] finds, that the cost of the in-use fiber is 98 percent of the 
                                                     
170
Declaratory Ruling, 25 FCC Rcd at 13650-51, para. 10.
171
SIC Petition at 12-13.
172
High Cost Loop Waiver Order, 13 FCC Rcd at 2412, para. 13 (“[B]ecause [Sandwich Isles] plans to make large 
capital investments to initiate service, its company-specific rates would likely be extremely high . . . . [and therefore] 
it is in the public interest to permit [Sandwich Isles] and its potential customers to benefit from both the cost savings 
and lower rates available through NECA participation.”).
173
Declaratory Ruling, 25 FCC Rcd at 13650-51, para. 10.
174
“The public interest is served . . . because of the significant investment to provide service in areas and to
customers that did not previously have service.” Study Area Waiver Order, 20 FCC Rcd at 9007, para. 19 (emphasis 
added). 
175
See Declaratory Ruling, 25 FCC Rcd at 13650-51, para. 10.
176
SIC Petition at 21.
177
Id. at 22-23.
178
Id. at 23-24.
179
See supra paras. 10-14.
180
Declaratory Ruling, 25 FCC Rcd at 13660, para. 25.
Federal Communications Commission FCC 16-166
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total cost of the Paniolo cable.”
181
  Sandwich Isles mischaracterizes the Bureau’s findings in the 
Declaratory Ruling.  First, the Bureau determined that the correct amount to include in the revenue 
requirement was the $1.9 million that SIC previously had established was “used and useful” for the 
provision of the relevant services and allowed in addition on equitable grounds 50 percent of the total cost 
of the cable lease plus certain additional expenses.
182
  Second, the Bureau did not find that “the cost of the 
in-use fiber is 98 percent of the total.”
183
  The Bureau cited a statement by Sandwich Isles that the 
difference in construction cost between a 12 fiber system and 48 fiber system was approximately 2 
percent to support inclusion of some amount of spare capacity when the cable was built—nothing more.
184
  
Further, in applying the used and useful standard, the Bureau determined that “only a very small portion 
of the capacity leased on the cable currently is in use by Sandwich Isles to provide regulated services,”
185
and it expressed concern that Sandwich Isles would be unable to quantify any meaningful projected 
growth in demand for the near future.
186
  As NECA explained, the used and useful analysis requires that 
regulated ratepayers realize the benefit from the investment in a reasonable time.
187
  Although Sandwich 
Isles anticipated 20,000 new residents of the Hawaiian Home Lands,
188
the Bureau found that it was not 
clear how such an estimate foreseeably could be achieved given the rate of construction of new housing in 
the Hawaiian Home Lands.
189
  The Bureau also observed that there were already two submarine cables 
serving the Hawaiian Islands.
190
  The Bureau concluded that there was no data in the record to substantiate 
SIC’s assertion that the existing submarine cables were inadequate to meet future demand and SIC has not 
established a basis to conclude otherwise.
191
  
55. We also reject Sandwich Isles’ arguments that the Bureau should have applied the used 
and useful standard to award 100 percent cost recovery for the Paniolo terrestrial construction.
192
Sandwich Isles claims that for more than ten years NECA has not disputed that Sandwich Isles’ existing 
terrestrial network is used and useful and has accepted the costs of the terrestrial network into the NECA 
                                                     
181
SIC Petition at 21.
182
See Declaratory Ruling, 25 FCC Rcd at 13654, para. 17.
183
SIC Petition at 21.
184
Declaratory Ruling, 25 FCC Rcd at 13656 n.65; see also SIC 2009 Comments at 14.
185
Id. at 13654, para. 17.
186
Id. at 13656-58, para. 22.
187
“Sandwich Isles has not adequately demonstrated a reasonable likelihood that it will place all its leased capacity 
into service for the benefit of Sandwich Isles’ subscribers using regulated services within [a reasonable] time.”  
NECA 2009 Comments at 21.  NECA also questions SIC’s decision to lease 100 percent of the network from 
Paniolo, rather than leasing only a portion of the system required to serve customers in light of realistically expected 
demand.  See NECA Refresh Comments at 22.  See also NECA Apr. 14, 2011 Ex Parte Letter at 2 (asserting that 
“SIC did not provide a sufficient justification to NECA for its decision to lease 100 percent of the cable’s capacity, 
especially given that carriers often partner with each other in order to share the costs of expensive networks”).
188
See, e.g., Sandwich Isles 2009 Comments at 4; Sandwich Isles 2010 Reply Comments at 22.  In its refreshed 
comments, SIC states that it still anticipates “[s]oon-[t]o-[b]e [r]ising [r]egional [d]emand.”  SIC Refresh Comments 
at 20-21. 
189
Declaratory Ruling, 25 FCC Rcd at 13657, para. 22; NECA April 14, 2011 Ex Parte Letter at 1; see also NECA 
Refresh Comments at 7. 
190
Declaratory Ruling, 25 FCC Rcd at 13654-55, para. 19.
191
Id. at 13656-57, para. 22. Sandwich Isles has provided no credible evidence as to how much of the Paniolo cable 
is actually “in-use.”  The used and useful standard requires the Commission to evaluate whether the fiber at issue is 
being used to provide regulated services.  Id. at 13652, para. 13 (internal citations omitted).  
192
SIC Petition at 22.
Federal Communications Commission FCC 16-166
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pool.
193
  Sandwich Isles further argues that construction of the Paniolo terrestrial fiber would be necessary 
even if it had continued leasing submarine cable capacity from other carriers.
194
  These arguments are 
unpersuasive.  First, in this situation, the undersea and terrestrial portions are all part of the same Paniolo 
cable system.  Whether the expenses associated with Sandwich Isles’ previous terrestrial network were
used and useful has no bearing on whether Sandwich Isles’ Paniolo-related expenses are used and useful. 
Further, the fact that NECA has in the past accepted expenses associated with SIC’s non-Paniolo-related 
terrestrial network does not establish that 100 percent of the expenses associated with the terrestrial 
portion of the much more extensive Paniolo network are used and useful.  Thus, Sandwich Isles has not 
established a basis to treat the terrestrial portion of the Paniolo network different than the undersea cable
for purposes of determining the appropriate revenue recovery allowance in this context.  
56. In addition, SIC provides no evidence to support its assertion that the Paniolo terrestrial 
fiber would have been necessary if it had continued to lease submarine cable capacity from other carriers.  
Sandwich Isles merely submitted maps showing where the new terrestrial fiber is located in relation to 
various cable landing points.
195
  Although SIC demonstrates from those maps that the Paniolo landing 
sites differ from other carrier’s landing sites and also shows the location of Sandwich Isles’ terrestrial 
facilities, the maps do not establish that the Paniolo terrestrial fiber would have been necessary, consistent 
with the used and useful standard, if Sandwich Isles had continued to lease capacity from other carriers.  
Furthermore, the maps do not disprove NECA’s contention that Sandwich Isles could have continued 
providing service to its customers by leasing fiber from other carriers.
196
  And certainly before the Paniolo 
cable system was built, Sandwich Isles does not suggest that it was unable to lease terrestrial connections 
to the other submarine cables for use to provide service to its customers.
57. We also reject Sandwich Isles’ claims that it was an inequitable and unjust application of 
the used and useful standard to not allow it to include 100 percent of the Paniolo lease expense in its 
revenue requirement.
197
  Sandwich Isles claims that it reasonably relied upon the Study Area Waiver 
Orders and exercised reasonable, good faith judgment in constructing the Paniolo cable.  The Bureau’s 
decision represents a reasonable determination that, because of “the current lack of use of the cable and a 
lack of substantial record evidence concerning future demand,”
198
a strict used and useful analysis would 
find only $1.9 million appropriate for inclusion.
199
  As explained in the Declaratory Ruling, the 
Commission has discretion to weigh additional equitable considerations in its used and useful analysis as 
the Bureau did in that order.
200
  Those additional equitable considerations included the unique geographic 
challenges in Hawaii, the special role of Sandwich Isles in serving the HHL, and the logical decision to 
include some spare capacity in the cable.
201
Balancing these equitable factors with the used and useful 
analysis, the Bureau determined that 50 percent of the Paniolo cable network lease expenses subject to 
                                                     
193
Id. at 21.
194
See Letter from Dana Frix, Counsel to Sandwich Isles Communications, Inc., to Marlene H. Dortch, Secretary, 
FCC, WC Docket No. 09-133, Exh. 1 at 2 (filed April 25, 2011) (Sandwich Isles Apr. 25, 2011 Ex Parte Letter).
195
Sandwich Isles Apr. 25, 2011 Ex Parte Letter at Attach. B.
196
See NECA Apr. 14, 2001 Ex Parte Letter at 2; see also NECA Refresh Comments at 22.
197
SIC Petition at 1, 7.
198
Declaratory Ruling, 25 FCC Rcd at 13654, para. 17.
199
See id. at 13654, para. 18.
200
Declaratory Ruling, 25 FCC Rcd at 13652-53 para. 14.  As explained above, the Commission has discretion to 
take additional equitable considerations into account.  See supra paras. 11-14.  We conclude that the Bureau did so 
appropriately here.
201
See Declaratory Ruling, 25 FCC Rcd at 13654, para. 18.
Federal Communications Commission FCC 16-166
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dispute—in addition to the $1.9 million allowed by NECA—should have been included in the recovery.
202
   
Sandwich Isles provides no substantial basis for reversing the decision to grant further equitable relief.  
58. Finally, SIC argues that the Declaratory Ruling constitutes impermissible retroactive 
rulemaking because it “creates and imposes upon SIC an entirely new and novel requirement that carriers 
demonstrate anticipated demand for spare fiber based upon carrier specific evidence of demand for 
regulated services.”
203
We disagree.  This is not a new requirement, it is a core principle relevant to the
review of a carrier’s revenue requirement applied to “the unique facts and circumstances at issue here.”
204
The principle that ratepayers may not fairly be forced to pay a return except on investment that can be 
shown to directly benefit them is central to the question of whether particular investments can be included 
in a carrier’s revenue requirement under the used and useful standard.
205
  Additionally, contrary to 
Sandwich Isles’ assertions, these long-standing requirements are consistent with both the NECA
guidelines and Commission rules regarding jurisdictional separations.
206
  As explained above, the NECA 
guidelines and these Commission rules address how to allocate costs among various regulated accounts, 
not how to determine whether those costs are used and useful and therefore can be included for recovery 
in the NECA pool.  Thus, we find no retroactive rulemaking here, and further find that Sandwich Isles 
provides no basis to overturn the Bureau’s ruling; accordingly, we deny the Sandwich Isles Petition.
IV. ORDERING CLAUSES
59. ACCORDINGLY, IT IS ORDERED, pursuant to sections 1, 4(i), 4(j), 5(c)(5), 201-205, 
405 of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151, 154(i), 154(j), 155(c)(5), 201-
205, 405, and sections 1.104(b) and 1.115(g) of the Commission’s rules, 47 CFR §§ 1.104(b), 1.115(g), 
Application for Review of AT&T, Inc. is GRANTED to the extent discussed above.
60. IT IS FURTHER ORDERED, pursuant to sections 1, 4(i), 4(j), 5(c)(5), 201-205, 405 of 
the Communications Act of 1934, as amended, 47 U.S.C. §§ 151, 154(i), 154(j), 155(c)(5), 201-205, 405, 
and sections 1.104(b), 1.106(p)(3), and 1.115(g) of the Commission’s rules, 47 CFR §§ 1.104(b), 
1.106(p)(3), and 1.115(g), that the Petition for Reconsideration of Sandwich Isles Communications, Inc.
is DENIED. 
61. IT IS FURTHER ORDERED that the Emergency Motion of Sandwich Isles Requesting 
Access to NECA Rules, Guidance and Precedent is DISMISSED as MOOT.
62. IT IS FURTHER ORDERED that the National Exchange Carriers Association (NECA)
shall cease allowing 50 percent of the disputed lease costs, as well as other expenses, in Sandwich Isles 
Communications, Inc.’s revenue requirement upon the effective date of this Order.
63. IT IS FURTHER ORDERED that, pursuant to section 1.103 and 1.4(b)(2) of the 
Commission’s rules, 47 CFR §1.103 and 1.4(b)(2), this Order SHALL BE EFFECTIVE upon release.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch 
Secretary
                                                     
202
See id. at 13360, para. 25.
203
SIC Petition at 10 (emphasis omitted).
204
Declaratory Ruling, 25 FCC Rcd at 13647, para. 1.
205
Id. at 13651-52, para. 12.
206
See 47 CFR §§ 36.152-153.