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The Honolulu Advertiser
Posted on: Wednesday, November 8, 2006

Hawaiian Telcom at odds with biller

By Sean Hao
Advertiser Staff Writer

Hawaiian Telcom is not happy with the company it hired to handle its customer billing and is considering a change.

Hawaiian Telcom hired McLean, Va.-based BearingPoint Inc., a management consultant, last year to help as it took over Hawai'i's largest telephone network from Verizon Communications.

The April takeover was far from smooth, with some customers getting billed double and many complaining about difficulty getting through to service representatives to get billing problems resolved.

Hawaiian Telcom and BearingPoint are in negotiations over the liability and costs resulting from the problems.

Those talks include the possible hiring of another company to finally fix the telephone company's systems.

"We're certainly not sitting still," said Hawaiian Telcom spokesman Dan Smith. "The conversation has shifted to bringing in a strategic partner that can just get the job done."

Hawaiian Telcom was formed last year after the Washington, D.C.-based Carlyle Group bought the main Hawai'i phone company from Verizon for $1.6 billion. Under the terms of that sale, Hawaiian Telcom was scheduled to take over so-called back-office operations from Verizon in February.

That date was pushed back to April 1 because of delays in creating new back-office systems at Hawaiian Telcom. Hawaiian Telcom has yet to restore customer service to levels experienced prior to April's cutover from Verizon.

The delay and other issues led to an estimated $96 million operating loss at BearingPoint last year, Bearingpoint recently revealed. Hawaiian Telcom and BearingPoint remain in talks concerning costs and damages relating to the transition.

"The (Hawaiian Telcom) contract has experienced delays in the build and deployment phases, and milestones in the contract have been missed for a number of reasons," said BearingPoint Chief Executive Harry You during a September conference call with investors. "The client has indicated that it believes we are responsible for certain resulting costs and other alleged damages. We are negotiating with the client to resolve and apportion these costs and damages, though at present, these issues remain unresolved."

BearingPoint currently is engaged in its own financial issues. The company has yet to file required 2005 financial statements with the Securities & Exchange Commission. BearingPoint has said it expects to file its 2005 annual report by Thanksgiving.

BearingPoint was hired under a five-year contract to design, build and run many of the systems at the newly independent Hawaiian Telcom. The switch from Verizon to Hawaiian Telcom was one of the most complex system cutovers in the telecom industry's history, BearingPoint said.

That transition has not gone as planned, which has resulted in Hawaiian Telcom hiring added help and requiring overtime among certain employees.

Meanwhile, Hawaiian Telcom continues to suffer from customer service issues. The company is meeting state obligations when it comes to answering calls to operators and directory assistance, but is falling far short of the goal when customers call with billing or installation questions.

In October, Hawaiian Telcom answered only 46 percent of calls from residential customers within 20 seconds, according to preliminary Hawaiian Telcom figures. The state, which regulates the telephone company, requires Hawaiian Telcom to answer 85 percent of customer calls with a live voice within 20 seconds.

"We did not intend for things to be this way," Hawaiian Telcom's Smith said. "We very much regret that things turned out this bad. There's no way on God's green Earth we're going to leave things this way."

Smith said Hawaiian Telcom may disclose more details on negotiations with BearingPoint when the phone company releases third-quarter earnings on Tuesday.

Reach Sean Hao at shao@honoluluadvertiser.com.