Rural Loans Catch Flak

Washington— The federal government’s broadband-loan program should focus spending on areas that don’t have high-speed Internet access, a small cable company executive told a Senate Committee last week.

The program “is largely being used to subsidize competition in areas where one and, in many cases, multiple providers of broadband exist,” Tom Simmons, vice president of public policy for Midcontinent Communications, said in prepared testimony last Wednesday.

Simmons argued that the loan program’s failure to concentrate on unserved markets distorts competition and runs the risk that the federal government won’t be repaid because loan recipients’ consumer penetration likely won’t meet expectations.

“Subsidizing competition is a waste of scarce resources that should be targeted to areas where a market-based solution has not developed,” he said.

Midcontinent provides voice, video and data services to 200,000 subscribers in 200 communities scattered around three Great Plains states.

Appearing before the Senate Agriculture Committee, Simmons called for changes to the U.S. Agriculture Department’s Rural Development Broadband Loan program, created in 2002 under federal farm legislation.

In his testimony, Simmons said loans were intended to bring high-speed Internet access to communities that don’t have it. But the Rural Utilities Service, he added, is loaning millions of dollars to companies that face competition from rural cable and phone providers.

For Midcontinent and others, RUS loans have created an unexpected risk, and “that risk could become unbearable if we are faced with a competitor subsidized by the government,” he added.

Since the program’s inception, the RUS has approved 57 loan applications totaling $872 million. It has $900 million to loan this year, RUS administrator Jim Andrew told the Senate panel.

The RUS money is loaned at rates that are not available in the private market. Simmons said his company invested $91 million to provide broadband in North Dakota, South Dakota, Minnesota and Nebraska communities, although he did not reveal how much of that money was borrowed.

He said 41% of the communities mentioned in approved loan applications did not have access to broadband; in 49%, broadband was only partially available. Put another way, a majority of communities listed in RUS-approved loan applications already had broadband available to some extent.

Andrew’s testimony did not state whether the majority of the money loaned ended up with competitive providers.