The state will retain a 20% ownership interest in the interisland network, which will compete with Hawaiian Telcom.

The state is getting into the broadband business with a new plan to develop submarine fiber optic lines that will introduce a major new entity into the Hawaii market and steer it in a more competitive direction.

Last month the University of Hawaii announced that it has awarded a $120 million contract to the Georgia-based Ocean Networks Inc. to develop the new fiber lines between the islands. Half of that investment in the new system will come from federal broadband funding, money that the University of Hawaii awarded to Ocean Networks. Private investors are putting up the other half.

The state will retain a 20% ownership interest in the new network when it is built out, according to Garret Yoshimi, chief information officer for UH.

The new system is supposed to be completed by the end of 2026, and will compete with Hawaiian Telcom, which currently owns or co-owns the three existing interisland cable systems.

Ocean Networks Inc.
The state’s new project with Ocean Networks Inc. to develop a new interisland fiber cable network will introduce a new, partially state-owned entity that will compete with Hawaiian Telcom. (Source: Research Corporation of the University of Hawaii Request for Proposals/2023)

Yoshimi described the project as a move by the state to give the market “a pretty serious poke.”

“It does introduce some competition into the marketplace where right now there is not a whole lot,” Yoshimi said.

A Public-Private Partnership

The new system will be configured to accept U.S. Department of Defense traffic and will have a cable landing station at the DRFortress Data Center, a carrier-neutral data center and cloud marketplace.

Fred Rodi, co-president and chief operating officer for DRFortress, said that is being done deliberately.

“They are using us as a cable landing station because it will allow all of our customers, which are the carriers, the content providers, the wireless networks, to basically buy on the system,” he said. “It’s not like (potential customers) have to build out to the cable landing station. They’re already here.”

Ocean Networks will build, operate and maintain the new undersea system in what is being billed as a public-private partnership.

“You need customers that buy on the system to create revenue to actually maintain the system and then hopefully make profit,” Rodi said, adding they also need to provide a return for the private investors in the new system.

And Rodi said the injection of competition and the federal subsidy of the new system should cause bandwidth prices to drop.

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State officials have fretted for years about relying on private companies to deliver broadband service, which is seen as critical infrastructure in the wake of the coronavirus pandemic.

As early as 2008 the Hawaii Broadband Task Force advocated for a primary policy shift “to view broadband as essential infrastructure rather than leaving it to be deployed only when private investors believe they can obtain favorable returns relative to other opportunities for their capital.”

“The task force notes that we do not leave private investors solely responsible for the financing and decisions concerning when and where to deploy other shared infrastructure such as
roads, highways, sewers, water and power distribution systems,” the report added.

That task force was created by the Legislature and led by UH President David Lassner.

Federal Funding Provides New Tools

The enormous federal investment in broadband since the pandemic started in 2020 has suddenly given the state new tools to take a more active role in the marketplace, which has been dominated for many years by Hawaiian Telcom and Charter Communications, which operates as Spectrum.

The federal funding for Hawaii includes $115 million in U.S. Treasury Capital Projects Funding, and more than $149 million in Broadband Equity, Access and Deployment funding from the National Telecommunications and Information Administration.

Yoshimi sat on the procurement panel that awarded the $120 million contract to Ocean Networks, and he confirmed Hawaiian Telcom sought the contract to build the new system. Hawaiian Telcom was not selected because it did not adhere to certain specific requirements in the solicitation, he said.

Lawmakers have fretted for years about relying solely on profit-driven private companies to deliver broadband service, which is now seen as essential infrastructure for the public. (David Croxford/Civil Beat/2023)

The new system will be called the Hawaiian Islands Fiber Link, and the “wet” undersea segment of the project is expected to total more than 408 miles. It will have cable landing points at Kakaako in Honolulu as well as Kahului, Hilo, Molokai, Lanai and Kauai.

The state intends to retain at least partial ownership of some of the broadband systems built with that federal money, starting with its 20% stake the Ocean Networks project. How much influence that will give the state to move the Hawaii market remains to be seen.

‘Making A Whole Bigger Pie For Everybody’

Yoshimi said the state will use its ownership influence over the new system “to make sure the public interest is protected so that the capacity is delivered on an open access, non-discriminatory basis.”

The typical customers for the system will be wholesale, including cell phone carriers and internet or content providers who must now do business with Hawaiian Telcom to access interisland markets.

“We think it’s a necessary help to the market to use the public funds to help to encourage this new build to happen to create future capacity,” he said.

Garret Yoshimi of UH says the state won’t be dictating prices but won’t let them soar either. (Courtesy: UH)

“When I say ‘we,’ this would be the private entity that’s running the system, this is not a state business entity that’s running the system,” Yoshimi said. “The private entity will run it and operate it as a commercial venture.”

But Yoshimi also said the federal funding comes with requirements that the state “have a voice in the business plan as well as the ability not to dilute the public interest.” The state won’t be dictating prices, he said, but “we’re not there to have the entity have this huge profit return.”

“The idea of the ownership share is so that we have influence in how the business operates on a going forward basis so that it operates in a way that continues to be in the public interest,” he said.

Yoshimi said it makes sense that the state would end up with less than half ownership of the new system because the state will not be responsible for operations, maintenance or repairs to the new system.

State government will also be allocated dedicated interisland fiber capacity on the system that will boost its operations, he said.

Hawaiian Telcom did not respond to requests for comment on the Ocean Networks project last week, but Yoshimi suggested the utility itself could become a customer on the new system to provide redundancy or backup capacity in case its own systems fail for any reason.

The Ocean Networks system will also include ready-made cable landing stations, a feature designed to encourage new trans-Pacific cables to land in Hawaii. Those connections will be pre-permitted, which can save companies years in permitting time.

Cliff Miyake, vice president for business development for Ocean Networks, also contends Hawaiian Telcom will benefit from the new network in the end if those cable landing stations and available ducts succeed in luring new trans-Pacific cables to Hawaii.

That would grow the local market, which he described that as “not so much just dividing the existing pie, it’s kind of making a whole bigger pie for everybody.”

Miyake also points out two of Hawaiian Telcom’s three interisland cables now serving the state were built in the mid-1990s. They are so old that they are described in state documents as “aged” and “brittle.”

The third interisland submarine cable system, the Paniolo Cable Network, was completed in 2009. Hawaiian Telcom bought that system out of bankruptcy.

Republican state Rep. Gene Ward, who was a member of the Hawaii Broadband Task Force some 15 years ago, said it makes perfect sense for the state to provide capital to encourage broadband connectivity.

“To me, this is prepping us for the 21st, 22nd century, and we should have done it long ago,” Ward said. “It’s about time. I mean, get us up to speed.”

Given Hawaii’s remote location, “we should be the quickest in our internet, quickest in our communications, quickest in our ability to respond to any emergency,” he said. “We’re loners out here, and we need that technology to keep our head above water.”

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