Testimony of Jim Andrew to the House Committee on Agriculture
Subcommittee on Specialty Crops, Rural Development and Foreign
Agriculture

Hearing -1:00 PM- May 1, 2007

1300 Longworth House Office Building

Washington, D.C.

Chairman McIntyre, Ranking Member Musgrave, and subcommittee members,
thank you for the opportunity to testify today regarding broadband
service in rural America. Some of you, who know me, know I live in rural
America. I live outside of Millen Georgia, so far from town that I have
to go back towards town to go hunting. I know what it means for a rural
community to not have broadband service. I have been around long enough
to have seen what has happened to too many of our small towns.

When the railroads passed some of our towns by, they dried up. When the
interstate did not have an off ramp, the tourists and truckers did not
stop to buy gas and meals, your town did not survive. Fifty-seven years
ago when the telephone program was created in this very room, rural
America did not have phones and it took a fourth of our population to
produce the food and fiber needed for this Nation.

Rural America has changed but some things are still the same. We are
still among the world's top producers of grains, soybeans, cotton, and
other commodities. Down in Georgia, we still grow a few peanuts. But at
the same time, rural America has diversified. The rural economy isn't
just commodities anymore; it's manufacturing, services, and everything
else as well.

So what does this have to do with broadband? Broadband is our railroad,
our highway, our bridge to the rest of this country and to the world.
With high-speed communications, we can bridge the barriers of time and
distance to market our goods and services, have access to markets to
both buy and sell.

Today's technology gives the student in the most rural school access to
information and teaching that has long been available to more populated
communities. With today's technology, advanced medical treatment and
expertise is available to small rural hospitals. Today's technology
gives our communities and their citizens the ability to build businesses
that provide jobs for our children.

My wife and I have two children, now adults. One lives in Baltimore and
one in Atlanta. When they were younger, Millen, Georgia did not have the
career opportunities that they were interested in pursuing. The loss of
the next generation has been the problem for rural communities all over
this country. With modern technology, we have an important new tool to
plug the leak.

As I indicated before, we have administered the rural telephone loan
program since it was created by Congress in 1949. In the mid 1990's,
Congress amended the telecommunications section of the Rural
Electrification Act to require new plants financed by us to be broadband
capable at the speed of one meg. Placing this updated capability with
USDA Rural Development made sense because we were already stringing the
lines.

In addition to the Broadband Access Program, authorized by the 2002 Farm
Bill, we have also had the pilot broadband loan program that was a
product of the appropriations process for fiscal years 2001 and 2002 and
the Broadband Community Connect Grant program.

A third program \-- the Distance Learning and Telemedicine Loan and
Grant program (DLT) \-- was created in the 1990 Farm Bill. The first DLT
grants were made in 1994. While it is not a broadband program, it makes
use of broadband connectivity to improve educational opportunities and
improve the quality of health care for rural citizens.

**THE PRESENT**

We have made important accomplishments with the Broadband Access
Program. To date, we have approved 69 loans for \$1.21 billion to
finance facilities in 40 states. These projects, when fully functional,
will serve a projected 520,000 households in 1,081 communities. Eight
projects have been completed in Kansas, Louisiana, Michigan, North
Dakota, Nebraska, South Dakota, Texas and Washington State.

Of these loans, approximately 40 percent of the communities approved for
funding were unserved at the time of loan approval. An additional 15
percent had only one broadband provider at the time of loan approval.

To date, the program has received 198 applications totaling \$4.3
billion. As of today, we have 21 applications under review for more than
\$950 million. We anticipate another \$400 million in applications this
year. We have administered this program with no increase in personnel.
In fact, we have fewer employees than we had when the program began.

From the beginning the loan applications have been larger and more
complicated than anything else the Telecom Program staff has
experienced. In 2003, the average loan size was \$11.2 million. In 2006,
the average was \$44 million.

During the past six years, we have made 129 Community Connect grants for
a total of \$57.8 million. Under the Pilot Broadband Program, we made 28
loans totaling \$180 million. Since 2002, USDA has invested more than
\$166 million in its Distance Learning and Telemedicine (DLT) Program,
allowing 3,796 rural educational facilities to expand their access to
modern telecommunications technology, and 2,226 health care institutions
to develop technologies needed to enhance local medical care.

Let me make one very important point....no one else is making loans for
broadband service in rural America. We are committed to making this
work.

**SUCCESS STORIES**

We have a number of success stories that you can review on our web site.
I want to mention some of them here today. Nex-Tech, Inc. of Lenora,
Kansas has received two loans totaling just under \$12 million. This
company has used a combination of fiber/coaxial cable and DSL to build a
system that provides broadband data services, voice and video at speeds
over six Mbps to Plainville, Smith Center, and Stockton, Kansas. These
areas had poor or non-existent data services. The system will serve
2,251 voice lines, 1,855 video subscribers, 768 high-speed data and 528
dial-up subscribers with new or improved service.

What do these loans mean? What is the impact? Osborne Industries in
Osborne, Kansas is only one example. The company has not only remained
in town; it's more than doubled in number of employees. It has become
the largest employer in the community, thanks to broadband capability
that has allowed it to reach not only across the nation but to
international markets. Just this year, the employees have been able to
purchase the company. They are working for themselves because they took
the tool of broadband and have been able to make the concept of "living
locally and competing globally" a fact.

And just down the road, in Phillipsburg, Kansas, a new ethanol plant was
built and depends on Nex-Tex for its broadband service. This \$54
million business created 34 jobs and is expanding.

A second example is a small company that is headquartered in
Frankenmuth, Michigan. Air Advantage began with a Community Connect
grant and with that start was able to graduate to two loans totaling
\$1.5 million. They have used a fixed wireless system that provides
broadband service to 37 rural communities in Michigan. This company and
its parent, Zimco, were founded by local businessman Scott Zimmer and
his wife with a mission to improve the education and communications in
their community.

Air Advantage now serves 1,100 customers with another 1000 projected in
the near future. Their subscriber rates exceed their original
projections. In addition, Scott and his wife successfully assisted local
schools with applications for distance learning grants.

A typical success story from the Pilot Broadband loan program is
Consolidated Enterprises, Inc. With a loan of just under \$20 million,
this project brought broadband services to the town of Dickenson, North
Dakota. With the broadband loan, this company was able to purchase and
upgrade an existing cable company and replace existing lines with new
hybrid fiber/coax facilities in and around Dickenson. Last year,
Consolidated reported more than 3,000 broadband customers receiving
service. In addition, Consolidated's parent company, Consolidated
Telecom, invested significant general company funds to ensure that the
outlying rural areas were also upgraded and now offers advanced
broadband services to those residents as well.

**THE PAST**

Now let's talk about some of the bumps in the road this program has
incurred. The law creating the program instructed that regulations be
issued without public comment. That meant we got them out faster, but it
also meant that we did not have the amount of input that comes with
proposed regulations published for comment.

We are now developing revised regulations, which are being reviewed by
OMB and will be published for public comment very soon. We expect that
the proposed regulations will receive extensive comments. We also
believe the process will be of help to this subcommittee as you begin
drafting the legislative language on the next farm bill.

In addition to the lack of public comment, the volume of loan
applications has been an issue. In July and August of 2003, we received
applications totaling over one billion dollars. Needless to say, we were
overwhelmed. We had to rework how we handled loan applications. These
were not our traditional telephone loan applications.

We were concerned from the beginning that the loans we made had to be
good loans. First, this is not just the government's money. This is the
taxpayers' money. It needs to be spent in the way that Congress intended
it be spent and in a way that accomplishes the goals of Congress.
Second, no one benefits from a bad loan. Not the applicant, not the
taxpayer, and not the people who are looking for broadband service.

This agency has always been concerned about security of a loan. For
utility programs, it is often more important to have an accurate
projection of the revenue stream than it is to tie up the hard assets of
a borrower, although we try to do both.

We have returned 108 loan applications for a variety of reasons. In some
cases, review indicated that they did not have the credit support or
equity needed. In others the applications were incomplete, had
unsubstantiated or missing financial or technical information, or did
not meet other criteria in the statute or regulations. It takes just as
long, and sometimes longer, to review an application that is not
approved as it does one that is approved.

A great deal of concern has been expressed from applicants, private
industry, and Congress, including the House Committee on Agriculture,
that we were not getting a sufficient number of loans approved fast
enough. In any business, time is money and in the broadband industry,
the changes occur almost daily.

We understand those concerns and are trying to respond appropriately. We
have worked to streamline our review process, make the applications more
"user friendly" and opened up our process to the extent possible.

Another frequently raised concern is that we are lending into existing
service. In many cases we are doing just that, lending into some level
of service. Let me go over some of the questions we face as we approach
each application.

The statute requires us to give first priority to applicants that will
provide service where there is no service. We do that. We want to see
more applications that serve an unserved area. If you want rural
citizens to have access to broadband, you are going to lend into
competition.

For example, we had an application where we had two servers saying they
were in one of the towns in question. Our review found that they were
providing service in that community. But at the same time, I had a
letter on my desk from the mayor of the town in question stating that
they had lost two businesses because they could not get access to
broadband and the college in the community could not get broadband
service on the campus. We made the loan.

On the other hand, we hear and understand the concern. This is the first
program in the utilities part of Rural Development where we lend into
competitive areas. It raises new issues. We have met with every group
that has asked to meet with us on this issue. The Assistant
Administrator for Telecommunications Programs, Ms. Jacki Ponti, has made
a concerted effort to improve the openness of the process:

-   New USDA/RD web link on the Federal Communications Commission (FCC)
    Rural Home Page.

-   New and improved web page design that is easier to use and easier to
    find information.

-   New and improved weekly broadband report indicating companies with
    applications pending and the communities proposed to be served if
    the application is funded.

-   Under construction is a new Community Search Function that will help
    everyone with an interest find out what communities are being
    served, which ones have applications pending, and which companies
    are providing service.

**WHERE DO WE GO TOMORROW?**

Congress has a challenging task on hand to write a Farm Bill for 2007
that will cover commodities, conservation, food and nutrition, and of
rural development. We are committed to working with you on this task. My
area of responsibility is small, but I think it is important. Here is
what we are doing.

We have proposed changes in the regulations that we hope will address
some of the concerns that have been expressed. As these are published
and comments come in, I expect I will hear from a number of members of
Congress. We will have an open discussion as to how this program should
work.

In addition, we are working to improve program delivery in the field.
This begins with strong leadership from the Rural Development State
offices with 47 state offices covering all 50 states. These State
Directors with their staffs provide the eyes and ears of where the needs
are in rural America.

Under the supervision of the State Directors, Telecom Program Staff
provide Financial and Engineering support and guidance in all 50 states
with 28 General Field Representatives monitoring more than 1000 telecom
and broadband loan and grant projects across the country.

Finally, twenty three broadband workshops and outreach events have been
held to inform potential applicants and community leaders about the
program, as well as assist existing program borrowers with compliance
requirements.

**In closing, USDA can successfully operate a rural Broadband loan
program because:**

-   We have expertise with the program and a long history in
    administering loan and loan guarantee programs.

-   There is an established distribution system with field
    representatives and state offices in the heart of rural America

-   We have developed a qualified and dedicated headquarters staff of 16
    in the national office comprised of Engineers, loan specialists, and
    economists to provide broadband expertise and detailed evaluation of
    proposals.

There is a demand for broadband in rural America. We see it and hear it
every day. We want to do a better job of identifying where the holes in
service exist. We can only make loans to those who submit applications.
Local leadership is vital to every rural development program.

The technology is changing and so are the business plans. We cannot be
much leaner, but we can be smarter in how we manage this program. I look
forward to your questions.