What the New Farm Bill Means to RUS

Providers using low-interest government loans to fund rural broadband networks will notice some rule changes as a result of the 2008 Farm Bill, which takes effect in September. Five items stand out: new equity, market survey, public notice and time-to-completion requirements, and longer loan terms.

To the first item, applicants no longer have to pony up 20 percent equity. Congress reduced the percentage to 10 percent or less — the administrator gets to decide the amount — and there’s a chance a carrier wouldn’t have to do any cost-sharing. That’s good for some folks, but it concerns the National Telecommunications Cooperative Association (NTCA), whose members are mostly rural providers competing in hard-to-reach parts of the country.

“The purpose is to show that you have some resources and commitment involved, to make you have a stake in it. So if things go south, you can’t just walk away with no skin off your back,” said Tom Wacker, director of government affairs for NTCA.

The Rural Utilities Service (RUS), which administers the fund, can order a company to pay more than 10 percent if it deems necessary, however.

Another change is that applicants expecting to serve less than 20 percent of the broadband market in a rural area don’t have to conduct market surveys. Congress used to require such documentation so officials could determine whether there’s enough demand when a carrier wants to use government money for network construction. Now, when a provider expects to serve less than 20 percent of an area with broadband, it can avoid the extra costs of a survey.

The decision came about as some applicants conducted thousands of dollars worth of surveys, only to be found ineligible. Wacker said NTCA understands the rationale but if there are no formal data, the idea of loan security is undermined.

Alongside the market survey modification comes a new approach to public notices. It used to be that a provider only had to file a notice in one newspaper in an area it was planning to serve. So, if the territory covered more than one state, not all communities — or competitors — would know a new entrant was on the way. Congress altered that section to declare that would-be entrants must file public notices in each of the places where they want to build.

Another big change coming is that, for the first time, RUS broadband loans come with a deadline attached. Providers must be serving the areas for which they secured government money within three years. Not having completion times in the past has caused problems because, after some providers got loans or acquired spectrum, they let projects languish. Some also used the money to build around areas they considered undesirable, areas they had agreed to serve, Wacker said.

Entities including USTelecom championed longer loan terms to give providers the advantage of smaller monthly payments, which could be especially beneficial to startups. Congress agreed and offered extended terms of up to 35 years.

NTCA pushed back against this clause, but to no avail.

“It’s not sound fiscal policy,” said Wacker. “They’ll still be paying on a loan when the useful life of their equipment has already passed, and they’ll have to go out and get new equipment.”

Approval of longer loan terms will fall to RUS administrators.

Congress tries to pass a new Farm Bill every five years. The legislation covers a myriad of topics, from food stamps and crop support to, yes, funding for rural telecom buildouts. The latter is overseen by RUS, which operates the Rural Development Telecommunications Program under the jurisdiction of the U.S. Department of Agriculture. Over the years, complaints have surfaced that money goes to providers already in an area with broadband, while unserved regions go without. Pioneer Telephone Cooperative in Oregon ran into that very situation about two years ago. The government gave a loan to an unnamed competitor, which duplicates the services Pioneer provides, very close to Pioneer’s region.

“It was a shock to find out that our territory was either unserved or underserved,” said Administrative Manager Randy Morgan. He noted that the other provider hasn’t yet encroached on his co-op’s customer base, but that doesn’t mean it won’t.

The 2008 Farm Bill attempts to avert that problem with provisions that would help better direct RUS broadband funding. The move won praise from entities including USTelecom.

For other organizations, such as OPASTCO, the Organization for the Promotion and Advancement of Small Telecommunications Companies, the changes to the RUS program are important, but not critical to all members’ business plans.

That’s because some OPASTCO members have plenty of their own funds, while others look to different federal subsidies for help. Another form of help could come from the FCC, too. A federal-state joint board has proposed adding broadband support to the Universal Service Fund http://www.xchangemag.com/articles/525/7bh211226578873.html. OPASTCO supports that proposal as well as many of the changes made to the RUS program.

“Our basic position is, let’s get broadband out there,” said John Rose, president of OPASTCO. “Basically we’re for broadband, and that overrides anything else.”

This Farm Bill suffered an unprecedented, embarrassing debacle after Congress first approved it on May 14, and after overriding a promised presidential veto. It was then discovered that the legislation was missing a critical, non-telecom section, and it had to go back through the voting process. The entire bill again was passed on June 5, again vetoed by the president, and again overridden by Congress.

Share this article: Email, Slashdot, Digg, Del.icio.us, Yahoo!MyWeb, Windows Live Favorites, Furl
Add this article feed to: RSS, My Yahoo, Newsgator, Bloglines