Congress again debating bill to transfer ownership of Pohnpei spur of HANTRU-1 fiber optic line

FSMTC again objects to the move calling it unconstitutional

By Bill Jaynes

The Kaselehlie Press


October 3, 2020

FSM—In August of this year, FSM President David Panuelo transmitted a bill to the FSM Congress that among other things seeks to transfer ownership of the Pohnpei Spur from the HANTRU-1 fiber optic line from FSM Telecommunications Corporation (FSMTC or Telecom) to FSM Telecommunications Cable Corporation (FSMT Cable).

It’s not a new idea and many of FSMTC’s objections to the proposal are similar to when the concept was raised before.  Despite objections and claims to the contrary, FSMTC’s CEO Fredy Perman says that it is not opposed to competition. “Competition is coming,” he said. “That’s a fact and we’re okay with that but it should be fair competition.

He says that if the bill passes it would amount to an unconstitutional seizure by the National Government of its assets that essentially “disenfranchises all of the (FSM) States” each of which is a stake holder in FSMTC.

Perman says that the plan to transfer ownership of the Pohnpei spur makes an assumption that has not been verified that the United States Rural Utility Service (RUS) would be willing to transfer FSMTC’s debt for the Pohnpei spur of the HANTRU-1 to FSMT Cable.  As did his predecessor in the previous FSM Administration, FSM Secretary for Transportation, Communication, and Infrastructure (TC&I) Carl Apis testified in front of the Congress Committee for TC&I that the US had indicated its willingness to transfer the balance of FSMTC’s loan for the Pohnpei spur to FSMT Cable which would take Telecom off the hook for the $12 million RUS loan it took for the Pohnpei spur in 2009.  Perman asked for written documentation of the assertion. He said that the answer was only that they “have their sources”.

To date Telecom has paid nearly $10 million dollars to RUS on the loan for the Pohnpei spur since 2009. The loan matures in February 2032.  Nearly $4 million of the amount paid has applied to the principal. $6 million was for interest.  The balance is currently over $8 million.  Perman says that the bill before Congress makes no effort to reimburse FSMTC any portion of the $10 million in amortization it has already paid

on the loan.  Further, he claims that removing FSMTC’s ownership stake means that FSMTC will end up having to pay more than it already does for cable access on an asset that it already has an interest stake in to a corporation that offers no added value.

Congress established FSMT Cable in response to requirements of the grant from the World Bank which paid for lines to connect Yap and Chuuk. FSMT Cable serves as an Open Access Entity ostensibly to provide a mechanism for competition for telecommunications services to exist in the FSM in line with World Bank’s requirements. FSMTC would pay FSMT Cable for bandwidth access on the lines as would any potential competitor. At least in theory, since 2014 the FSM has been open to telecommunications competitors but until recently no competitors have made any advances into the FSM’s difficult market leaving FSM as the sole customer of FSMT Cable since it came into existence.

Within the last year, however, TRA, the Telecommunications Regulatory Authority that was also established by Congress, has issued licenses to two potential competitors.  A company called Boom applied for a license to operate only in Yap but has not yet established a presence there.  That company would utilize the fiber optic line that connects Yap to the rest of the world in order to provide its services. If they do get started in Yap, the company would be required to pay access fees to FSMT Cable because FSMT Cable owns the Yap line.

TRA also issued a license to Kacific which is already providing satellite based service in Pohnpei. Due to the narrow beam of the satellite service they provide, it has the capacity to provide service only to Pohnpei, Kosrae, and Chuuk and not to Yap.  Because Kacific will be using its own satellite and not the fiber optic line, it will not have to pay any fees to FSMT Cable.

Perman says that when all of the negotiating happened that ended with the establishment of FSMT Cable and TRA, FSMTC was told that no entrant would be allowed to “cherry pick” FSM’s telecommunications market.  But he says that TRA’s first two licenses already allow the new competitors to serve small segments of the market while FSMTC is still required to offer services to all aspects of FSM’s market at an equitable rate whether or not a small segment of the market can actually pay for itself.

“Through a January 2019 binding agreement called an Indefeasible Rights of Use (IRU) deed, the FSM National Government, FSMT Cable, and FSMTC agreed that FSMTC would retain ownership of the HANTRU-1 Pohnpei spur but FSMT Cable would retain usage rights,” the press release from the Office of the President on the transmittal of the proposed bill said. Two paragraphs later the press release quotes from the President’s letter to FSM Congress Speaker Wesley Simina. “The refusal to act in accordance with the terms of the IRU Deed undermines the telecommunications sector, and puts at risk the [EMC] project which will provide a cable connection to Kosrae.”

The transfer of ownership of the Pohnpei spur of the HANTRU-1 line to FSMT Cable would violate the IRU as it was described in the President’s press release.  What the President proposes to do with his proposed package of legislation is to change the agreement to one more palatable to the World Bank and not to correct some current violation of the terms of the existing IRU Deed.

“As this agreement is increasingly challenged by various stakeholders internally, and increasingly recognized by the World Bank (the primary donor behind the Digital FSM project) as a potential setback, the Panuelo-George administration has taken the view that transferring legal ownership of the HANTRU-1 Pohnpei spur to FSMT Cable is required for the State of Kosrae to eventually receive improved internet infrastructure via the EMC…It also undermines the development of a free and open competitive and customer-oriented telecommunications market, and ongoing World Bank grants for the Fiber to the Home project.”

The EMC, the East Micronesia Cable is intended to connect the Republic of Kiribati to Pohnpei with a spur to the State of Kosrae and a spur to the Republic of Nauru that would complete the connection of all FSM States to a fiber optic line for telecommunication.

Perman says that Congress shouldn’t be overly anxious to give away the FSM’s sovereignty over its telecommunications. He says that they should carefully consider whether in the long run scrambling to take free money will ultimately cost the FSM, its States and its customers more and whether it could also end in the collapse of FSM’s own operator—sort of like throwing away the bird in the hand for the two potentially better ones in the bush and losing them all in the process.

The COVID-19 pandemic is already wreaking havoc on FSMTC revenue streams. In a March letter to President Panuelo, Perman told the President that in the previous year FSMTC has earned $1.2 million in roaming fees which were entirely generated by travelers to the FSM.  With the FSM travel restrictions, that market completely dried up leaving Telecom scrambling to pay its bills.  Perman wrote that he has already asked RUS to consider debt relief on its two loans to FSMTC or at least forgiveness of interest during the pandemic shut down. He told the President that the Telecom board had also decided that it would not pay FSMT Cable for access fees during the crisis.  He also asked the President to consider a hiatus on GRT payments.  FSMTC paid more the $400,000 for that tax in the previous fiscal year.

In a separate interview, Perman said that the FSM seemed to think that the revenue lost in roaming charges would be made up as customers made a move toward online meetings instead of traveling.  But he said they found out that the Internet service they were already paying for was sufficient for the online meetings. Big customers have not had to ramp up their bandwidth so no additional revenue has been realized there.

At the same time, FSMTC has presented invoices for promised payments to FSMT Cable Corporation in the amount of nearly a million dollars.  The biggest portion of that bill was an invoice in May for a promised payment of nearly $830,000 as a 50 percent share of Pohnpei spur amortization from March 2018 to April 2020. FSMT Cable has not paid that bill either.

The two entities took their payment grievances to TRA which is the regulator.  But TRA told them that it has no jurisdiction in the matter and suggested that the two companies take their issues to the FSM Supreme Court.

That may well be the next step.

The TC&I Committee of the 21st FSM Congress, chaired by Senator Victor Gouland has held several hearings since President Panuelo transmitted the bill in August. As of this writing, no recommendation has yet been made for consideration on the floor.

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