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30–424 PDF 2006

S. HRG. 109–799

TO REVIEW THE UNITED STATES DEPARTMENT

OF AGRICULTURE RURAL UTILITIES SERVICE

BROADBAND PROGRAM

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

MAY 17, 2006

Printed for the use of the 

Committee on Agriculture, Nutrition, and Forestry

(

Available via the World Wide Web: http://www.agriculture.senate.gov 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

SAXBY CHAMBLISS, Georgia, Chairman 

RICHARD G. LUGAR, Indiana 

THAD COCHRAN, Mississippi 

MITCH MCCONNELL, Kentucky 

PAT ROBERTS, Kansas 

JAMES M. TALENT, Missouri 

CRAIG THOMAS, Wyoming 

RICK SANTORUM, Pennsylvania 

NORM COLEMAN, Minnesota 

MICHEAL D. CRAPO, Idaho 

CHARLES E. GRASSLEY, Iowa 

TOM HARKIN, Iowa 

PATRICK J. LEAHY, Vermont 

KENT CONRAD, North Dakota 

MAX BAUCUS, Montana 

BLANCHE L. LINCOLN, Arkansas 

DEBBIE A. STABENOW, Michigan 

E. BENJAMIN NELSON, Nebraska 

MARK DAYTON, Minnesota 

KEN SALAZAR, Colorado

MARTHA SCOTT POINDEXTER, Majority Staff Director 

DAVID L. JOHNSON, Majority Chief Counsel 

VERNIE HUBERT, Majority Deputy Chief Counsel 

ROBERT E. STURM, Chief Clerk 

MARK HALVERSON, Minority Staff Director 

(II) 

(III)

C O N T E N T S 

Page

HEARING(S):

To Review the United States Department of Agriculture Rural Utilities Service Broadband Program ....................................................................................... 1

Wednesday, May 17, 2006

STATEMENTS PRESENTED BY SENATORS 

Chambliss, Hon. Saxby, a U.S. Senator from Georgia, Chairman, Committee 

on Agriculture, Nutrition, and Forestry ............................................................. 1

WITNESSES 

Panel I 

Andrew, Jim, Administrator, Rural Utilities Service, United States Department of Agriculture, Washington, DC ................................................................ 3

Panel II 

Pagon, Mark, Chief Executive Officer, Pegasus Communications, Bala 

Cynwyd, Pennsylvania ......................................................................................... 17

Sevier, Larry, General Manager and Chief Executive Officer, Rural Telephone 

Service, Lenora, Kansas ...................................................................................... 15

Simmons, Tom, Vice President for Public Policy, Midcontinent Communications, Sioux Falls, South Dakota ........................................................................ 20

APPENDIX 

PREPARED STATEMENTS: 

Salazar, Hon. Ken (with attachment) ............................................................. 34

Andrew, Jim ...................................................................................................... 37

Pagon, Mark ...................................................................................................... 48

Sevier, Larry ..................................................................................................... 52

Simmons, Tom .................................................................................................. 57

QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD: 

Coleman, Hon. Norm ........................................................................................ 68

Grassley, Hon. Charles .................................................................................... 69

Harkin, Hon. Tom ............................................................................................ 70

Linclon, Hon. Blanche L. ................................................................................. 74

Salazar, Hon. Ken ............................................................................................ 75

Servier, Larry: ..........................................................................................................

Written responses to questions from Hon. Tom Harkin and Hon. Ken 

Salazar ........................................................................................................... 78

(1)

TO REVIEW THE UNITED STATES DEPARTMENT OF AGRICULTURE RURAL UTILITIES 

SERVICE BROADBAND PROGRAM 

WEDNESDAY, MAY 17, 2006

U.S. SENATE, 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:34 a.m., in Room 

SR–328A, Russell Senate Office Building, Hon. Saxby Chambliss, 

Chairman, presiding. 

Present: Senators Chambliss, Coleman, Harkin, Lincoln, Salazar, 

and Dayton. 

OPENING STATEMENT OF HON. SAXBY CHAMBLISS, A U.S.

SENATOR FROM GEORGIA, CHAIRMAN, COMMITTEE ON

AGRICULTURE, NUTRITION, AND FORESTRY 

Chairman CHAMBLISS. The Committee will come to order, and I 

welcome you to this hearing to review the United States Department of Agriculture Rural Utilities Service Broadband Program. 

I appreciate our witnesses and members of the public being here 

to review this very important topic as well as those who are listening through our Website. Over 3 years ago, President Bush set 

forth an ambitious goal of universal, affordable access to broadband 

technology by 2007. While bold, the goal is necessary, and universality is fast becoming a key objective to ensure that geography 

does not become a barrier to entry into the information economy. 

Agriculture has always been at the forefront in the adoption of 

new technologies. In the 20th Century, tractors, combines, hybrid 

seed, and new tillage methods defined improvements in yield, quality, and efficiency. The innovations of the past are fast being 

eclipsed by those of the future, with biotechnology and information 

services helping to define how farmers and ranchers will be profitable. 

While the agriculture sector is an important constituent, rural 

America also includes small businesses, local governments, health 

care providers, first responders, and residents in our communities. 

All of these stakeholders have a strong demand for broadband access, and it is already clear to policymakers in the United States 

and around the world that broadband access can help facilitate economic development and civic participation. 

The success of the Rural Electrification and Telephone programs 

over the past 70 years demonstrates the long-term impact of extending utilities that were once thought to be too expensive for 

2

rural Americans. The Tennessee Valley Authority is a good example of the impact that extending utility service can have on a single 

State and region. These experiences are helping foster a new debate: how the Federal, State, and local governments can help rural 

America bridge the digital divide. 

Data from the Pew Internet and American Life Project indicate 

that the broadband gap between rural and non-rural Americans at 

work is small, but gaps persist at home. While rural areas lag their 

urban counterparts in access, deployment of broadband presents 

different challenges and obstacles compared to traditional utilities 

services. 

To help bridge this divide, the 2002 Farm Bill authorized a loan 

and loan guarantee program to help ensure that rural consumers 

benefit from the same quality and range of telecommunications 

services that are available in urban and suburban communities. 

Complementing the loan program, the Rural Utilities Service manages the Community Connect Grant Program targeting broadband 

services to schools, libraries, education centers, law enforcement, 

and other customers in rural areas. 

These two programs are part of an overall national effort to help 

promote connectivity and rollout of the broadband access. However, 

as with any new technology or service, there will be occasional 

problems with its application and program management. The 

Broadband Program has been the subject of two recent reports 

from the Government Accountability Office and the Department of 

Agriculture’s Office of Inspector General. 

The purpose of this hearing is to engage the Department and key 

stakeholders in a dialog. I am eager to listen to how the program 

is working and what improvements have been made to the management structure since the start of Administrator Andrew’s tenure. 

This is a good opportunity to hear what recommendations were 

made in both reports, which ones are being implemented, and how 

problems in the beginning years of implementation can be avoided 

in the future. 

These lessons will be critical as we move into reauthorization of 

the Farm Bill next year. We need to recognize that the Broadband 

Program is just one part of a more complex puzzle on promoting 

the deployment of equipment and facilities. New technologies like 

satellite and wireless systems are redefining how high speed access 

is delivered to homes and businesses across the country. It is important to note that other Federal agencies like the Department of 

Commerce and the Federal Communications Commission are key 

actors in this issue. 

Together, we can successfully reach the President’s goal of universal access, and I look forward to working with my colleagues in 

the Senate to help make this a reality. When my colleague, Senator 

Harkin, arrives, we will obviously be happy to have him make any 

opening comments he wishes to make. We are going to have two 

panels today. The first panel is Mr. Jim Andrew, Administrator, 

Rural Utilities Service, U.S. Department of Agriculture here in 

Washington. Jim has been a long-time personal friend of mine. He 

and I have come up through the electric cooperative business together. He is the right man at the right time for the RUS position, 

3

and I’m very pleased to have Jim in that position and obviously 

very pleased to have you here this morning. 

Our second panel is Mr. Larry Sevier, General Manager and 

Chief Executive Officer, Rural Telephone Service, Lenore, Kansas; 

Mr. Mark Pagon, Chief Executive Officer, Pegasus Communications, Bala Cynwyd, Pennsylvania; and Mr. Tom Simmons, Vice 

President for Public Policy, Mid Continent Communications, Sioux 

Falls, South Dakota. 

Jim, we look forward to any opening comments you wish to make 

and to a discussion on this issue. 

Welcome. 

STATEMENT OF JIM ANDREW, ADMINISTRATOR, RURAL 

UTILITIES SERVICE, U.S. DEPARTMENT OF AGRICULTURE 

Mr. ANDREW. Thank you, Senator Chambliss. 

Since being confirmed and sworn into office, this is my first opportunity to offer testimony before you, and I appreciate the time. 

As this is the first time to be with you since my confirmation, I 

wish again to express my appreciation for the courteous and speedy 

manner in which I was confirmed. Then, to be sworn in soon after 

allowed me to get on with the work at hand. 

During that confirmation hearing, the prevailing theme was 

broadband to rural areas of America. Community members expressed great interest and desire to see the deployment of this high 

speed connectivity. I, too, expressed my conviction that broadband 

might well be the next railroad or high speed highway that could 

connect rural areas with the commerce of the rest of the Nation 

and the world. 

Without it, some of our rural communities might very well not 

survive or at the least not realize the prosperity that can be derived from such connections. At that time, I also even shared the 

frustration I and my wife feel when trying to get into the Web from 

our home in rural Georgia. 

The conclusion of that day was the desire issued by the Committee and accepted by me to improve and speed the deployment 

of the Broadband Program as assigned to the Rural Utilities Service. I and the broadband staff at RUS are working very hard toward satisfying that desire. 

It must be noted that RUS is responsible for the Rural Electric 

Program the Rural Telephone Program, and the Water and Waste 

program. I will tell you, however, that over 50 percent of my time 

is spent on the Broadband Program. With that in mind, to say that 

the Broadband Program is a challenge is an understatement. The 

Rural Electric Program has over 70 years of experience in the development of that program. In that time, a track has been laid that 

is easy to follow with basically the same participants, with the 

same needs year after year. Rural Telephone and Water and Waste 

have the same history. 

Broadband, on the other hand, does not have the benefit of that 

history. Every application is new in terms of the applicants, the 

business plans, the financing arrangements, which I must add are 

sometimes very creative, the locations, the technology, the scope of 

their plan, the time to deploy, the area to be served, and the surveys projecting service already in place. 

4

Each of these factors are being considered as we continue to develop better ways to analyze the ever- changing and different applications. The key word there is continuing. Shortly after my swearing in, we had a meeting of a large group of staff that had extensive knowledge of the RUS programs and how they were managed. 

We identified the areas of the Broadband Program that we felt 

needed improvement and in order to be effective in the deployment. 

With that information, the process of refinement began with a 

smaller group of staff with skill sets needed to develop a product 

that could be implemented. There were legal, technical, business, 

and policy members of that committee. The main issues needing refinement were more precise definition of rural, consideration of 

credit support requirements, speeds to be provided in the application offerings, and the time to deploy. 

Each time we thought we had an agreement on the issue, a new 

question would be raised, either by a new application or some further research by the committee members or the industry. An example of industry input is the suggestion from the Cable Association 

that pointed out that our announcement in the newspapers was not 

sufficient notification that one of our applicants intended to deploy 

in a particular area. We accepted their suggestion to post the announcement on our Webpage. Further, at their suggestion, and 

with a visit to and the consent of the Chairman of the FCC, a link 

to their site will be sent interested parties to an announcement on 

our site. 

This is why I describe the process as continuing. The product is 

almost to the point of being rolled out once cleared. To say that it 

is the final word on broadband as pertains to the mission of RUS 

would be a mistake. As applicants change, as technology changes, 

as needed information from the Web changes, as the need for rural 

constituents change, so must we adapt. I’ve compared it to hauling 

a load of frogs in a wheelbarrow: we must stop from time to time 

and adjust our load. 

With that picture in your mind, I also want you to know we have 

a plaque in the office that states: the answer is yes, somehow. In 

summary, we at RUS believe in the value of broadband to rural 

America and are working hard to do our part in this deployment. 

We believe our work is vital to the economic development of rural 

America. We believe that the loans made are investments in that 

economic development. 

A deployment in Iowa or Colorado that creates economic growth 

also benefits taxpayers in Georgia and the rest of America. I have 

opportunities to speak to groups around the country, and I begin 

each presentation with I am from the Government, and I am here 

to help you. It always creates smiles, but I firmly believe it is our 

mission and our driving force. Thank you again, Senator, for your 

time, and that concludes my opening remarks. 

[The prepared statement of Mr. Andrew can be found on page 37 

in the appendix.] 

Chairman CHAMBLISS. Well, thank you, and as I mentioned in 

my opening statement, USDA’s Office of Inspector General released 

a report critical of the program management. Namely, OIG states 

that RUS has shifted the program’s focus away from those rural 

communities that would not, without assistance, have access to 

5

broadband technologies. Can you address this core critique and explain what specific steps your agency has taken to address this concern since you’ve been there? 

Mr. ANDREW. Yes, Senator; excuse me. In the IG report, it refers 

to some communities that are rather large and some applications 

we had in house that served some areas that met the original criteria of 20,000 population or less and that was basically underserved. It also mentioned one that was in Los Angeles County, 

California, which we did turn down and was not approved. 

In my statement, I’ve made the comment that we have had 

some—we have appointed a group of people who have been studying this issue, and one of the issues has to do with the final definition of what rural actually is. Senator just for your information, 

one of the applications we had listed Snellville, Georgia. Now, you 

know, Snellville sounds like a rural community, but it’s a suburb 

of Atlanta, and it met all of the qualifications. But it was turned 

down. So we have been doing that, and we are now working to better define what rural areas really are. 

Chairman CHAMBLISS. Very good. One of the better known critiques of the OIG report is the finding that suburban developments 

receive loans, and your example of Snellville is a good example of 

that. As you know, most suburbs of our major metropolitan centers 

were at one time either farmland or pasture. Suburban and urban 

encroachment constantly redefines if a community is rural or rapidly developing. Can you describe how RUS manages this reality, 

and how do we make sure that the program resources are efficiently and optimally targeted to those communities most in need? 

Mr. ANDREW. Yes, as I pointed out, we are trying to really define 

what rural means. As you restated, Snellville was listed, and I 

might tell you that Fairfax County, Virginia, was one that was listed once as being a qualified applicant, because it had cities and 

towns of less than 20,000. You’re right; the urban centers have 

grown out there. Now, in our case, for example, in my case, Millen, 

Georgia, is listed as an urban cluster. So how do we describe that 

based on the census report? We are working very hard to arrive at 

a conclusion of what urban really is and how we are going to serve 

that area. 

Chairman CHAMBLISS. Managing risk is perhaps one of the most 

difficult issues to deal with in a loan program. The higher the risks 

taken on by a lender, the more likely the default risk will increase. 

Lowering the risk in areas that don’t have ready access to private 

capital will not be helped much by a lender of last resort like the 

Federal Government. Can you explain how RUS determines the 

level of risk it will manage, and what are the specific tradeoffs you 

have seen in the management of the Broadband Program? Also, 

what are the dangers of increasing the risk level in the lending 

program in terms of long-term viability? 

Mr. ANDREW. As you pointed out, this was designed for economic 

development to help rural areas of America, and we consider that 

when we look at the risks. For example, we require a credit support of 20 percent at this point. We’re considering that right now. 

But if someone has interest in the program and has some skin in 

the game, so to speak, we think if their application has a business 

plan that will meet our requirements, we are willing to accept that 

6

risk if he is willing to accept that risk. Now, we still continue to 

keep the vision in mind that we are supposed to be developing 

rural America. That is what a risk we are willing to take. 

Chairman CHAMBLISS. In a change from the infrastructure program, the Broadband Program now allows for loans to entities that 

are competing with existing service. This has been one of the program’s most controversial provisions. How will RUS respond to an 

entity default on an RUS loan due to a competitive loan through 

the Broadband Program, should this aspect of the loan program 

continue, and does RUS plan to focus or refocus future loans on 

areas that do not already have existing service? 

Mr. ANDREW. Senator, you mentioned infrastructure. Are you 

talking about a telecom infrastructure now, or are you just talking 

about general applications? 

Chairman CHAMBLISS. Telecommunications infrastructure. 

Mr. ANDREW. Infrastructure. First of all, the infrastructure, 

when this program came out, they were all offered the opportunity 

to get into broadband. They were offered that opportunity before 

we ever got started. If it was never offered by the infrastructure 

organizations, then, we would go in there. Now, the question was 

if they default on their loan, I am not sure that having broadband 

in there was the reason for the default. 

I will tell you, Senator, that in visiting with some of these infrastructure organizations, we are finding that they are losing some 

of their load, some of their members because of cell phones. But we 

are encouraging them to get into the broadband business. We are 

encouraging them to expand their offerings, and if they have not, 

it was offered to them. Now, what we would do about that is we 

would continue to offer this service in those areas. 

Chairman CHAMBLISS. The formal title of the program is the 

Rural Broadband Access Loan and Loan Guarantee Program. What 

has been the agency’s experience with the loan guarantee side of 

the program, and has RUS worked with telecommunications sector 

lenders to garner interest in this provision? 

Mr. ANDREW. We have no applications for loan guarantees. We 

would like very much to have them, Senator, but the application 

is an 80–20 loan, and the private sector lending agencies are not 

interested in getting into this business. But we very much would 

like to have it, because it eases our job in that they would do the 

back office work; they would do the testing of the loan, and we 

would very much like to do it, and we are still encouraging it. We 

would like to still have it in the program. 

Chairman CHAMBLISS. I hope we can really give some emphasis 

to this, Jim, because history has shown that the Federal Government’s involvement in the lending business is not in the best longterm interest of the taxpayers. We do much better when we work 

hand-in-hand with the private sector allowing the private sector to 

do the making of the loan and allowing us to guarantee it when 

they think it’s appropriate for us to do so. I really do hope you will 

give some strong emphasis to this guarantee section in appropriate 

legislation. 

Mr. ANDREW. As I understand it, when this program was started 

up, it was recommended that there be an 80–20, meaning 80 percent private sector and 20 percent guarantees. Of course, that 

7

would not do anything for the deployment of this business. But we 

are having a hard time finding private sector lenders who will participate in these loans. We very much would like to have it that 

way; very much would like to have it that way. 

Chairman CHAMBLISS. And perhaps it should be—we should look 

at that as we move into the Farm Bill. Instead of 20–80, perhaps 

it should be 80–20, which is the case in most of our guarantee programs. 

Senator Lincoln? 

Senator LINCOLN. Thank you, Mr. Chairman. Thank you, Administrator Andrew. We appreciate your being here and to help provide 

our Members of the Committee with an update on your effort to 

manage what I and I know others really recognize a as a very complex but extremely important set of programs that help provide 

many of our rural areas the tools they need to compete in a global 

economy. 

I grew up in rural America in a seventh-generation Arkansas 

farm family, and rural America is still my home, and it’s so important that they don’t get left out, and I think that these are some 

critical issues that allow them to participate. I was home in Arkansas, oh, a couple of weeks ago, and I ran into a gentleman who had 

bought a considerable amount of real estate in one of our smaller 

communities and restored these old structures and was helping the 

town capitalize on some of its tourism. 

And he had purchased his first property back in 1996, but he 

owned businesses that were located in Annapolis and San Francisco and I think Chicago. He said we’re finally able to move here 

in 1999, when we were able to get the kind of connections to the 

rest of the world that we needed to enjoy living in rural America 

but running our businesses in a global sense. That’s what this is 

about is returning the capacity to Americans to live in a quality of 

life that they know and enjoy and want to but to still be able to 

participate in the global economy. I think we all agree that expanded deployment of broadband technology across the country and 

especially in our currently underserved areas is key to our nation’s 

overall ability to compete in the digital age. 

So the ways that we can improve the quality of life and opportunity in some of our more economically distressed parts of the 

country is a critical issue for me and many other members, I know, 

and we appreciate your efforts in, as I said, trying to implement 

what is a very complicated set of programs. We want to work with 

you and Members of the Committee to ensure that the USDA’s 

Broadband Program functions efficiently and effectively for rural 

America, and I think there are a couple of interconnecting programs that are important in order to be able to utilize what you 

try to do. 

And I have got a couple of questions, Mr. Chairman. Particularly 

interested in the Community Connect Grant Program. We have a 

special projects team on our staff in the State, and they have been 

looking at the scoring criteria for this program, where it gives the 

maximum points of 40 to a community with a population of 499, 

and by the time you reach a community with a population of 2,000 

to 3,000, the score is only 20, which makes it really difficult for a 

community of that size to compete, which they are the more likely, 

8

actually, community at that point to compete. I guess given that 

fact that many of our tiniest of communities with populations 

under 499 often lack the capacity to maintain the program once it 

is installed, in your opinion or your viewpoint, would it make sense 

to reevaluate the scoring criteria to allow those slightly larger communities but still very much rural, small communities and isolated 

in many instances to be more competitive? 

Mr. ANDREW. I thank you for that, Senator, and that’s not been 

in our discussions, but we will certainly add that, because that’s 

certainly a criteria we ought to look at, and I appreciate that, and 

we will. 

Senator LINCOLN. Well, I hope that you will. 

Mr. ANDREW. Yes, we will. 

Senator LINCOLN. Because I think that in terms of the viability 

and the sustainability, looking at the size of the community and 

the way that the scoring is attributed to those communities would 

be helpful in reflecting some success in the program. 

Mr. ANDREW. It is a good program. 

Senator LINCOLN. So if we need to follow up with you on any of 

that, or if you’ve got ideas, I hope you’ll——

Mr. ANDREW. We are making a note right now. 

Senator LINCOLN. Great. I hope you will stay in contact with us. 

The last question I have, Mr. Chairman, is your interpretation 

of how important other programs are to the sustainability of what 

you do with your program. I know for us, health care and telemedicine are critical, but much of the resources dedicated to programs 

like AHEC and the outreach programs, health care initiatives, particularly preventive care in our smaller communities have been zeroed out, along with some of the I guess debate as to how important the Universal Service Fund is, which allows much of our 

smaller telecommunications companies to operate. 

Do those types of programs have—what kind of a direct relationship or indirect relationship do they have to the success of your 

program? 

Mr. ANDREW. You are speaking of health care? 

Senator LINCOLN. Well, the telemedicine and the AHEC, which 

is the Area Health Education that’s run mostly through the medical schools, and its outreach into the small rural areas, and they 

use a lot of telemedicine through those programs, connecting, you 

know, medical schools and larger city hospitals and doctors with 

the smaller communities and then, also, the Universal Service 

Fund, as we all know, which allows smaller telecommunications 

that operate in rural areas to serve their constituency. 

Mr. ANDREW. Well, I have the experience, Senator, of twice being 

able, in the short time I’ve been there, twice being able to go and 

present checks, awards, to hospitals. I’ve been completely awed by 

what they’re doing with it. I mean, we know of one case in Pennsylvania I went to that have got people online at home, where the doctors, the nurses are able to monitor their progress. It cut their recidivism back into the hospital from about 70 percent down to 

about 20 percent. 

Senator LINCOLN. Right. 

Mr. ANDREW. And is saving the hospital over $500,000 a year. So 

we are extremely interested in that. We promote that rather heavVerDate 0ct 09 2002 10:46 Feb 20, 2007 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 C:\DOCS\30424.TXT SAG2 PsN: SAG2
9

ily, because we do see what it is doing. Now, I am not sure I have 

answered your question entirely, but telemedicine and also, I might 

say, distance learning——

Senator LINCOLN. Right. 

Mr. ANDREW [continuing]. Has been a real critical thing with 

this, too. You know, I think we’ve done a real good job with that. 

Senator LINCOLN. Well, we know, you know, and again, the efforts that you’ve made and these programs, the importance of 

them. I guess my question is really how they dovetail with other 

programs and how those other programs and resources actually 

support the overall sustainability of what you are initiating or 

what you are doing through both Universal Service Funds, AHEC 

programs, and other types of health care outreach for rural areas. 

So we will look at that and might send you a question there that 

you can kind of expand on, if you’d like to, at a later date. 

Mr. ANDREW. I would be glad to do that, and I think it’s something I should answer, and I will. 

Senator LINCOLN. Great, thank you, Mr. Andrew. 

Thank you, Mr. Chairman. 

Chairman CHAMBLISS. Senator Harkin. 

Senator HARKIN. Thank you very much, Mr. Chairman. I apologize for being late. I had a previous longstanding engagement I had 

to attend to off the Hill. 

But, Mr. Chairman, let me thank you for calling this hearing. 

Broadband Internet access is crucial for the success of our rural 

communities. I keep saying my hometown, we still do not have 

broadband, and a lot of rural communities do not. I remember, Mr. 

Andrew, when you appeared here before us earlier, we talked about 

this. So, I’m delighted to see you here. I hope that after half a year 

in Washington that you will see our approval of your nomination 

as a blessing and not a curse after being here for half a year. 

Mr. ANDREW. No comment. 

[Laughter.] 

Senator HARKIN. You are all right. 

[Laughter.] 

Senator HARKIN. Well, there have been some signs of some 

broadband access around. The GAO issued a report on this earlier; 

maybe someone talked about that. They said that while 29 percent 

of urban households and 28 percent of suburban had Internet, only 

19 percent in rural America, and that is a big gap. The problem 

that we see in Iowa, while they say that 95 percent of our communities have access, what happens is a town will have access in a 

small pocket, but the rest of the town will not have access. That’s 

the big problem. So, it’s not really universal access. They say 95 

percent have access. Well, that means a small town downtown area 

might have access but not out to the houses and stuff like that 

that’s in the community. 

The loan program that we put in the Farm Bill has not been carried out as it was written and intended. Broadband loan applications are rejected out of sort of a we don’t want to have any risk 

at all. Well, that is why we have the program. You know, if you 

are just going to avoid the risk, well, if we were just going to avoid 

risk, we never would have had the Rural Electrification Corporation, either. So what RUS, I would hope that what the legislation 

10

would do would be to work with borrowers to manage risk, to minimize losses. 

And I think RUS set an inflexible 20 percent cash on hand rule 

that ignores future recurring income from subscribers. I’ve had instances of my own where they may not have had the 20 percent 

cash on hand, but they had enough subscribers that they could 

show on a business plan that they would be able to handle the 

cash-flow and the payment requirements. But they had to have 20 

percent on hand, and they did not have it. So I think that is just 

way too inflexible, and I think that has had a chilling aspect on 

this. 

So again, I know you have been there a short time. I know from 

having spoken with you before that you are a proponent of this. 

Again, I am sorry I am late. I just am interested in hearing again 

from you, Mr. Andrew, just what steps in the short time you have 

been there have you taken? And what are you doing right now to 

get over some of these hurdles? Just address the 20 percent rule, 

if you could. Is there any way we can get around that, or do we 

have to change it legislatively? 

Mr. ANDREW. In my opening statement, Senator, I made the comment that we formed a committee made up of some legal people, 

policy people, technical people on our staff who have got a lot of 

experience in all of these RUS programs. That is under consideration. We have discussed it at length, and it is under consideration, 

and we are going to be writing the proposals of how it would be 

considered, whether it is less than 20, how much less than 20. If 

the business plan should call for more than that, would the plan 

have access to—be able to increase it or decrease it? 

So, yes, Senator, we are working with that, because you’re not 

the only one. We have heard it from other places. 

Senator HARKIN. Well, I am sure you have. 

But, see, time really is of the essence here. 

Mr. ANDREW. We know that. 

Senator HARKIN. Because by September, you know what happens 

to that money if it’s not obligated. I do not know how much it is 

right now, around $900 million that we have on hand for loan capacity, my staff tells me on this. I don’t know it particularly, but 

that would be a shame to lose this, because we are tied up trying 

to get through some of these onerous rules and regulations. So I 

hope you can assure us that you recognize that time is of the essence and we have to move on this expeditiously. 

The other thing, Mr. Andrew, is that there are a lot of companies 

out there, and again, I know just a few of them; I’m sure it’s true 

in every other rural State represented here, where they applied for 

these, were turned down for one reason or another, and yet, if they 

were to get these loans could immediately begin to put broadband 

lines in communities that have access but to get the lines out to 

the rest of the community. Do you know what I’m saying? 

Mr. ANDREW. Yes, sir. 

Senator HARKIN. I think a lot of times, RUS has looked at how 

do we just get it to a community? Well, if a community has access, 

then, they don’t consider it. It should be considered if the community just has access but not the entire community, if you know 

what I mean, has access. 

11

Mr. ANDREW. Yes. 

Senator HARKIN. So I am hopeful that if you get through this, if 

you can get these rules changed, can you go back and look at those 

that were turned down to see if they are still willing and able to 

partake of this program? I would think that might be one of the 

fastest ways of getting that money out before September 30th. 

Mr. ANDREW. Well, that is an interesting concept. The answer, 

I guess, somehow. As I pointed out earlier, we’ve got the answer 

is yes, somehow. I would think that they would have to reapply, 

obviously, but we could do that. We could take the applications and 

consider it on its merits; be sure nothing has changed in the community since that time also. We need to do that. 

Senator HARKIN. I think this change has been made, but I cannot 

specifically say so. But both Senator Grassley and I had a small 

company in Iowa that we knew about—we did not own it; we knew 

about this company; we worked together on it where they happened 

to be owned by a woman. She had dealings with other communities, and I think she had, like, maybe—I’m pulling it out of my 

head here—I think maybe eight different communities that she 

could serve with her business. 

But the paperwork was such that every community she had to 

serve, she had to have a full application for each one. Yet, it was 

the same company. These were all communities within a small radius of one another, and yet, she had to fill out hundreds and hundreds of pages of application, because each community required it 

rather than just saying, well, you’re one company; you’re going out 

there; just fill out one application for all the communities. I do not 

know if that has been taken care of, but I wish you’d look at that 

for me. 

Mr. ANDREW. We will, Senator. 

Senator HARKIN. Thank you very much, Mr. Chairman. 

Chairman CHAMBLISS. Senator Salazar. 

Senator SALAZAR. Thank you very much, Chairman Chambliss 

and Ranking Member Harkin, for holding this hearing, and Administrator Andrew, thank you for being here today as well. I have a 

more formal opening statement that I will submit for the record, 

but I will just make this comment and then have a couple of questions. 

It seems to me, Mr. Chairman, and to my colleagues on this 

Committee, that as we move forward and try to figure out how we 

deal with the revitalization of rural America that there are two 

things that perhaps are going to be the most significant opportunities that we face in our country today. One of those is renewable 

energy, and we have had a hearing in this Committee, and I know 

many of us are working on the renewable energy opportunities for 

rural America. 

I think the second will be the opportunities that come along with 

making sure that we move forward with the full advancement, as 

we can, of broadband out into rural America. I have been impressed in my own State that in places that I have gone, we have 

seen tele-health now coming out, available out in the rural parts 

of Colorado, and yet, there are many places out in the Eastern 

plains, on the Western Slope of my State where we do not have 

that kind of capacity available. 

12

And I guess I would ask, following up on the questions of some 

of my colleagues, Administrator Andrew, this question: you know, 

given the disparity that we have between the availability of 

broadband in the urban areas, suburban areas versus rural areas, 

what would be the two most important things that you would think 

we could do as a Senate to try to further penetrate the rural 

broadband availability out into the rural areas? What would be the 

one or two things that you would say would be the most important 

things that we could do to help you get the job done on the vision 

that I know you share with us? 

Mr. ANDREW. Well, I do share that vision, and if I might say so, 

Senator, I know there has been a lot of deployment of fiber optics 

in your State. I know of a couple of electric co-ops that did it, and 

you wrote me a letter concerning can we deploy fiber optics on the 

transmission lines, which we can and so forth, and I have studied 

your State well quite a bit. 

The one thing I think is just stay with us, because we’re working 

on it, and I believe we are going to be able to have a program soon 

that will be able to be able to answer some of these questions. Now, 

I will tell you this: when I had this hearing, I was up, commented 

to Senator Harkin, I, myself live so far in the country, the gentleman back here says you have to go back toward town to go hunting, and I do. I live 14 miles from the nearest town, and I am not 

sure how anybody can rationalize running a cable out there to me 

or running any other service other than maybe satellite, which is 

there now. 

So we are working on that, trying to figure out who will be the 

players, how they’re going to fit together, how they’re going to do—

what position they are going to take in this, and we are getting 

very close, real close, to having a product that we can announce to 

you that, as I pointed out in my earlier statement, every time we 

think we’ve got it, something changes a little bit to make us come 

back and regroup again. 

But we’re working very hard toward correcting anything that 

needs to be done that we have learned. We have learned some lessons over the last several years. But since December, we’ve been 

working very hard, trying to arrive at a conclusion as to what to 

do next. Now, directly answering your question, just stick with us. 

I think we’ll come up with something that will be satisfactory. 

Senator SALAZAR. Let me ask you just a question regarding your 

place 14 miles out in a very isolated area. You know, our family 

farm is in a similar situation, and I think broadband has come 

maybe within a couple of miles of our farm house, but it is not out 

there. 

In terms of your exploration through RUS of alternative ways of 

getting high speed Internet out into some of these communities, 

what kinds of services is it that RUS is sponsoring and promoting 

to get to places like your place, so that even a place that is so far 

out in the back woods is going to have access to this new technology? 

Mr. ANDREW. I did not say backwards, Senator, but anyway——

[Laughter.] 

Senator SALAZAR. Back woods, not backwards. 

[Laughter.] 

13

Senator SALAZAR. I would never call anybody from the back 

woods backwards. 

[Laughter.] 

Mr. ANDREW. Our program is technology-neutral. Every day, 

somebody is walking into my office. Once a week, somebody walks 

into my office with a new idea about technology, how to deliver. We 

are looking at all of it; and we are neutral. We do have some concerns about some of them, however. You know yourself that when 

you got your first computer in about a year’s time, it was obsolete. 

We are concerned about some of these——deploy some of these 

things, how secure our loan is going to be, but we don’t need to 

worry about that. We need to worry about getting it out. 

Senator Harkin was talking about in Iowa; I know that at least 

I have studied about something in Iowa. I believe most of the farmers, not most but many live in town and have their farms out in 

the country so that they could receive broadband in town. In our 

case, we live in the country. We live out on the farm. So it’s a different story for us. In my case, I think right now, we could get it. 

We can get it with satellite. 

There are some proposals, and we’ve got some applications inhouse right now that would start with either a fiber in town or a 

Wi-Max, as it is called, that will hit the perimeter of the town and 

reach out as far as 18, 20, maybe 30 miles, depending on the terrain. 

So it will be like a rock in a pond. It will start to expand and 

grow. As the technology comes along, as the technology gets better, 

I think that wave will get broader and broader. I hope it will; that’s 

what I’m counting on anyway, sir. 

Senator SALAZAR. Well, I sure hope that we see broadband out 

in your place. 

One final question if I may, Mr. Chairman, and that is with respect to the $900 million or so that currently still is available for 

lending, if you look at the timeframe that we have ahead of us, and 

this was clear; I think it’s an additional four or 5 months, what is 

the plan that you have in terms of at least making that, the information of the availability available out there to applicants? 

Mr. ANDREW. We have in house, if you will excuse me 1 minute, 

right now, we have applications approaching $800 million, so we 

are getting close to that now. We’ve got several applications in 

house that we’re working now. That will take up—if we can get it 

done in time, and we are working very hard to get these applications completed and the money deployed. So we are working toward it. We’re getting there. 

Senator SALAZAR. Thank you very much. 

Mr. ANDREW. Thank you, sir. 

Chairman CHAMBLISS. Senator Coleman. 

Senator COLEMAN. Thank you, Mr. Chairman, and thank you for 

this hearing. I have a great passion about rural infrastructure, and 

infrastructure is not only wastewater, but these are the roads and 

highways of the future. Administrator Andrew says it well in his 

testimony: with the correct technology and connectivity, you can do 

business anywhere in the world, and you can live anywhere in the 

world. I’ve been on Minnesota farms and been impressed with the 

14

technology; I’ve been in small towns and seen how technology can 

move us forward, but we need help, and we have some challenges. 

But one concern that I have is government cannot do this by ourselves. We are not the only game in town, and in fact, you know, 

there are folks out there making investment and trying to bring 

technology to rural communities. My concern is about that playing 

field, Mr. ANDREW. One of the witnesses who will testify later has 

raised two concerns that I wanted to run by you. One is this issue 

of whether we should be providing support in areas where there is 

already existing broadband service. As I understand the mission, 

it’s to go to those places that are not served. But that does not always appear to be the case. Can you respond to that, I mean, how 

you look at that and how you factor in whether, in fact, service is 

already there and how that impacts a loan application? 

Let me give you both, in fact, because they’re really tied together. 

The other issue, then, is, and I presume in order to get some of 

that information, you would want to check to see who’s already out 

there, who’s serving, what’s going on there? The other concern that 

a later witness will add, it really has to do with transparency in 

the process. The concern is, and I will just kind of——this is from 

testimony that will come later—but I want to lay it in front of you 

now so that I can get a response. The RUS does not disclose when 

an application has been filed, the name of the applicant, the communities the specific applicant proposes to serve, or the assertions 

made about existing broadband service in a community. 

It does provide an update on online lists of towns and unincorporated rural areas in a State that are covered by a pending approved application, but there is, however no true public notice and 

comment period that ensures the public is heard prior to a loan 

being granted. I will just read one more sentence. In fact, the only 

way an applicant can find out, the only way anyone can find out 

how an applicant is characterizing a market is through a Freedom 

of Information request, and to the best of our knowledge, such requests are usually fulfilled after the application is approved. 

So can you talk to me a little bit about the transparency issue 

in the process and what efforts we make to kind of work in partnership with the private sector, so sort of being filled, we’ll kind 

of focus on those places that don’t have service? 

Mr. ANDREW. Let me ask you the second one first. I am aware 

of who that is. We invited them to come into our office and discuss 

these very issues. We have already taken one of their suggestions, 

which I mentioned in my opening remarks, that our announcement 

as to the towns that are going to be covered was not an adequate 

announcement. 

And we agreed with that, and we are going to post this on our 

Website, and we have also worked with the Chairman of the FCC, 

and he has agreed to let us post a link on their Website over to 

ours, because the suggestion was that a lot of these people come 

in and check the FCC Website every day, but they do not check the 

local newspaper, because that’s where we advertise and where 

we’re required to advertise is the legal section of the local newspaper. So that was one step, and we are going to do that. 

Now, as to the other step, when an application comes in, the person has to present a business plan: let’s make this thing pay. If 

15

they come in, and they say they can get a certain percentage, they 

have to conduct a survey. If the survey says that they can do a certain percentage of take if they go into that town, even though there 

are other providers there, if that take will cash-flow and make a 

business plan work, then, we will make the loan there. 

Now, what does that do? It just offers more to other people. We 

are not trying to run other people out of business. We’d like them 

to increase their services. But if a person can show in their application that they can take enough to make their business plan work, 

we will consider their application, and all things being equal, then, 

they will be awarded. 

Senator COLEMAN. OK; well, Mr. Chairman, I am a huge fan of 

this program, and I appreciate the great leadership, Mr. Andrew, 

that you are providing. My concern is that we take advantage. A 

public-private partnership is a good thing. I learned that as a 

mayor. I think there are some opportunities here. We have limited 

resources. We have communities that have great needs that aren’t 

being served, and I would hope that would be a first priority. 

And in those areas where there is—competition is a good thing, 

but I would hope that first and foremost, the priority would be go 

to those places that for whatever reason, the economics are not 

there, but the need is there for folks who live 14 miles from the 

nearest town. 

So I appreciate what you’re doing, and I appreciate the opportunity that some of my constituents have had to have these conversations and your responsiveness. Thank you. 

Mr. ANDREW. Thank you, Senator. 

Chairman CHAMBLISS. OK; Mr. Andrew, thanks very much for 

being here today. We are very much appreciative of your testimony 

and the work you’re doing. There will be some additional questions 

maybe that will be submitted to you in writing, and we will get 

those, and I hope you’ll respond to those very quickly, please. 

Mr. ANDREW. Thank you, Mr. Chairman, Senators. 

Chairman CHAMBLISS. Thank you very much. 

Chairman CHAMBLISS. Our second panel, Mr. Sevier, Mr. Pagon, 

Mr. Simmons, if you will come forward, please. 

Gentlemen, again, welcome, and thank you for taking time to be 

here this morning. We look forward to your opening comments. Mr. 

Sevier, we’ll start with you; Mr. Pagon; then, Mr. Simmons. Welcome. 

STATEMENT OF LARRY SEVIER, GENERAL MANAGER AND 

CHIEF EXECUTIVE OFFICER, RURAL TELEPHONE SERVICE, 

LENORE, KANSAS 

Mr. SEVIER. Thank you, Senator. My name is Larry Sevier. I’m 

the CEO and General Manager of Rural Telephone Service Company and our subsidiary, Nex-Tech. We live in the remote regions 

of Northwest Kansas. We provide voice, video, and data services to 

10,000 customers, spanning over 5,000 square miles. So you can 

see that the density is rather small, at two per square mile. 

We’ve been using the traditional RUS loan program for over 50 

years to bring the traditional triple-play services, voice, video, and 

data to our service area, and we began providing the high speed 

Internet service in 1998. We have done it through a variety of techVerDate 0ct 09 2002 10:46 Feb 20, 2007 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 C:\DOCS\30424.TXT SAG2 PsN: SAG2
16

nologies. We’ve used DSL; we’ve used fiber to the home; and we’re 

also using wireless. Currently, we provide telephony services and 

high speed Internet service to over 85 percent of our service area, 

and we continue to push fiber further out into the remote rural 

areas every year, so that we are hoping we will get 100 percent out 

in the next five to 10 years. 

Our penetration rate for high speed is very high in our traditional service area, where we’re providing the fiber. It’s over 40 

percent per household for the high speed. The remainder of the 

service area, we are handling with satellite service through NRTCA 

with a service called Wild Blue. 

Until recently, many of the neighboring communities served by 

the larger companies were without broadband service or perhaps 

inadequate broadband service, and obviously, this stifled economic 

development in Western Kansas. Seeing the need and the despair 

of the neighboring communities, Rural Telephone wanted to help 

bring economic stability to Western Kansas. We could do so 

through our deregulated subsidiary Nex-Tech if we could find the 

funding. Funding is not adequately available through the local 

sources, and some other funding streams dried up as well. 

When we learned about the pilot program through RUS, we immediately applied for a loan for two of the communities in northwest Kansas, Norton and Almena. We received a $6 million loan 

to bring broadband service to these communities. They’re not large 

communities. Norton is 3,000, and Almena is only 500. 

So with the funding of the RUS Broadband Program, we brought 

fiber to the home to these communities. We held community 

events, we went door-to-door, we had sign-up events prior to actually starting construction and signed up 70 percent to telephony 

services prior to construction, and 25 percent signed up for the 

high speed Internet service. Today, we have a 96 percent take rate 

for telephony services in those communities and a 50 percent take 

rate for the high speed. I know the local newspaper editor said that 

was one of the biggest events that he had seen in Norton in quite 

some time, so it showed that the need was there, and the people 

were hungry for broadband services. I think this illustrates the 

good purpose of the RUS Broadband Program. 

Nex-Tech has since received three additional loans for over $15 

million to bring broadband service to five additional communities 

in Western Kansas, and the population is 1,500 to 2,700 in these 

communities as well. We have a penetration rate of over 80 percent 

and a 47 percent broadband penetration rate in those communities 

today. 

Through the National Rural Telecommunications Cooperative, 

Nex-Tech has also used a satellite program, Wild Blue. While it is 

a good program to reach the last mile of customers, the price and 

speed limitations do make a difference on the penetration rates, 

and so, our rates there are not as high, but I would quickly add 

that the service has been a very useful tool to reach the areas that 

we cannot reach with a traditional program. 

Rural Telephone is currently in the process of acquiring 12 

Sprint exchanges in Western Kansas. Some of these communities 

still do not have Internet service, and other areas have very limited 

service. Rural Telephone will be utilizing the traditional RUS proVerDate 0ct 09 2002 10:46 Feb 20, 2007 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\DOCS\30424.TXT SAG2 PsN: SAG2
17

gram for the acquisition and the rebuild of these communities with 

fiber to the home. 

We look forward to closing on this transaction and providing high 

speed Internet service to these communities to help stabilize the 

area even further. We are passionate about these areas because we 

live and work there. These are our neighbors. Our young families 

are moving back into the areas of Western Kansas. We have provided at least 300 jobs internally with Rural Telephone and NexTech over the last few years, and hundreds of other jobs have been 

created, as small businesses move back into Western Kansas, and 

so, we think we have stabilized the economy through the RUS 

broadband program. 

I see I am running out of time. Do you want me to continue? I’ve 

got just a few more comments. 

Chairman CHAMBLISS. Go ahead with your comments. 

Mr. SEVIER. OK; I know there has been some criticism that the 

program is not getting the money out the door fast enough, but in 

my opinion, you know, it is a loan program, so there must be relative assurance that the loans will be repaid, and this requires a 

very solid business plan and due diligence. I know some of the new 

borrowers probably did not know what to expect from this program. 

We’ve been in the program for over 50 years, and we did not have 

a problem meeting and satisfying the requirements. 

You know, RUS has loaned out billions of dollars in rural America and operated a very relatively inexpensive program at little 

risk. So I guess in summary, I would just say that we are excited 

about bringing young families back to Western Kansas. We’re getting small businesses back because of the RUS Broadband Program 

that has helped us bring broadband to some of these communities, 

and I hope it will help us bring broadband to more of the communities. 

I’d like to enter into the record, and I can pass this around; this 

is a map of the broadband coverage that we are serving in Western 

Kansas, showing that we’re serving 100 percent of our area and the 

different technologies that we’re using to do that. 

Chairman CHAMBLISS. Good. We will submit that and attach it 

to your statement, Mr. Sevier. 

Mr. SEVIER. OK; thank you. 

[The prepared statement of Mr. Sevier can be found on page 52 

in the appendix.] 

Chairman CHAMBLISS. Thank you very much. Mr. PAGON. 

STATEMENT OF MR. MARK PAGON, CHIEF EXECUTIVE OFFICER, PEGASUS COMMUNICATIONS, BALA CYNWYD, PENNSYLVANIA 

Mr. PAGON. Good morning, Mr. Chairman and Ranking Member 

Harkin and Members of the Committee. I’m grateful for your invitation to provide testimony to the Committee in its review of the 

Rural Development Broadband Loan and Loan Guarantee Program. My name is Mark Pagon. I’m the CEO and founder of Pegasus Communications Corporation and of its subsidiary, Pegasus 

Rural Broadband. Pegasus Rural Broadband is a facilities-based 

provider of wireless high speed Internet services to residential, 

18

small business, and enterprise subscribers in underserved and 

rural communities. 

Pegasus Rural Broadband was approved in 2005 for a $13 million 

loan under the Rural Development Broadband Loan and Loan 

Guarantee Program in support of our efforts to provide wireless 

high speed Internet services to approximately 100 rural communities and 400,000 people in the State of Texas. 

I have been an entrepreneur for substantially all of my professional life. My strategy has always been to focus on underserved 

and rural communities, to introduce attractive new services and to 

price them affordably. In the eighties and early nineties, I started 

companies providing cable TV and Fox Television in Mississippi, 

Tennessee, Florida, Alabama, Pennsylvania, Massachusetts, New 

Hampshire, Connecticut, and the Commonwealth of Puerto Rico. In 

the nineties, I started a company introducing Direct TV to rural 

areas in 42 States. 

Collectively these companies grew to serve over 1.5 million subscribers, in almost all cases providing new services not previously 

available in the communities we served. While there are a variety 

of means to measure success in business, the measure that I believe takes precedence over all others is whether your company has 

made a difference to the communities it serves. My companies have 

always striven to meet that goal, and I believe that we have. 

Pegasus Rural Broadband was formed with a simple objective: to 

offer wireless high speed Internet services to rural and underserved communities at an affordable price. We began commercial 

operation approximately 2 years ago. We are operational in 50 communities in West and Central Texas, and we currently serve approximately 2,500 subscribers. We offer connection speeds up to 1.5 

megabits per second and price our services at between $30 and $40 

per month. While we have been authorized for a $13 million loan 

from the RUS under the Rural Development Broadband Loan and 

Loan Guarantee Program, to date, the capital required to build and 

operate our business has been wholly contributed by Pegasus Communications. 

My experience as an entrepreneur building companies, introducing new services to underserved and rural communities provides me a perspective on the challenges of providing broadband 

Internet access to rural communities and the importance of the 

Rural Development Broadband Loan and Loan Guarantee program 

to meeting this important objective. My observations are, of course, 

limited by my own experience. I hope you will find them useful. 

No. 1, affordable high speed always on Internet access is a necessary element of community health and development in the 21st 

Century. Communities that lack such services will be severely at 

risk. Rural communities present two specific challenges to building 

a financially self-sustaining high speed Internet access service: 

small population size and low home density. 

Small population makes it very difficult to generate the revenues 

necessary to cover the fixed costs attendant on providing such services, and low home density disadvantages Internet access services 

whose capital investment is proportional to the geography covered, 

as the revenue per unit of capital investment shrinks as home density declines. 

19

This is a problem for both wireless and wire line services but is 

especially problematic for wire line services. For this reason, we believe that wireless high speed Internet services represent an efficient and promising means for providing financially self sustaining 

high speed Internet services in rural communities. 

Wireless technologies have now been introduced that allow for 

the delivery of commercially viable wireless high speed Internet access services. These include both proprietary technologies and open 

standard technologies using unlicensed spectrum as well as socalled fourth generation or 4G technologies such as Wi-Max, designed for use in licensed frequency bands. As compared with wire 

line alternatives, these technologies are relatively inexpensive to 

build and are efficient for serving low- density geographies. 

Companies serving rural communities have traditionally had 

more limited access to the capital markets than those serving larger metropolitan areas. This is, of course, also true for companies 

providing services based on newly introduced technologies. As a result, wireless high speed Internet access service providers have to 

date had great difficulty in securing the capital to launch wireless 

high- speed Internet services, especially in rural communities. 

The Rural Development Broadband Loan and Loan Guarantee 

Program is one of the few sources of long-term capital available for 

such wireless high speed access service providers. For Pegasus 

Rural Broadband, our loan authorization provides an essential supplement to our own investment capital and will enable us to expand our high speed rural Internet services throughout Central 

and West Texas. 

Now, just to provide some background on our experience, we filed 

our initial application for loan authorization with the RUS in February of 2003. Our application outlined plans to serve approximately 100 eligible communities in Texas. Preparation of our application required substantial commitments of time from six members 

of our management and financial staff. It took approximately 3 

months to complete. 

In March of 2003, the RUS deemed our application incomplete 

and returned it to us. We submitted a revised application in April 

2003, and in June 2003, the RUS notified that a revised application 

had been deemed complete. In June of 2005, we executed definitive 

loan documentation for our $13 million loan authorization. While 

we have not yet submitted an initial draw on this loan authorization, we expect to do so within the 90 days. 

I would just offer up two observations, comments in support of 

the program and in improving the program if I might, Mr. Chairman. 

Chairman CHAMBLISS. Certainly. 

Mr. PAGON. Observation No. 1, suggestion No. 1 is the process 

of submitting our application, having our application deemed complete, and negotiating and completing loan documentation was considerably more time consuming than we initially expected. Much of 

our experience is attributable to the fact that we are a first time 

borrower from the RUS, without prior familiarity with RUS processes or documentation. We believe that our experience will enable 

us to submit complete and document future loan applications more 

quickly. However, we suggest that simplification of the loan appliVerDate 0ct 09 2002 10:46 Feb 20, 2007 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 C:\DOCS\30424.TXT SAG2 PsN: SAG2
20

cation process by RUS would also be beneficial to expediting review 

of loan applications under the loan program. 

No. 2, currently, the Rural Development Broadband Loan and 

Loan Guarantee Program prohibits loans to companies proposing 

services competitive to other applicants or RUS borrowers. The 

submission of an application for an eligible community blocks the 

ability of subsequent applicants to file for the same community 

until such time as the earliest application is deemed complete or 

is rejected. This imposes some hardship on applicants, as it is difficult to anticipate which communities will be the subject of alternative, competing applications, and when a competing application 

has been filed, how quickly RUS will make a decision to accept the 

competing application as complete or to reject it. 

We suggest that the Broadband Loan Program would be improved if applicants were allowed to submit applications for any eligible community at any time up to the point that RUS and a competing applicant enter into a definitive loan authorization covering 

that community. This will enable applicants to file an application 

for eligible communities at any time and to have their application 

considered in the order in which the applications were submitted 

to RUS. 

In summary, I believe that the Rural Development Broadband 

Loan and Loan Guarantee Program is a good program as well as 

a necessary element to facilitating provision of high speed Internet 

access services in underserved and rural communities. I also believe that certain modest changes can be made in the existing program to ensure that its promise is fully realized. 

Mr. Chairman, Ranking Member Harkin, Members, again, thank 

you for the invitation to speak to you today. 

[The prepared statement of Mr. Pagon can be found on page 48 

in the appendix.] 

Chairman CHAMBLISS. Thank you very much. 

Mr. SIMMONS. 

STATEMENT OF TOM SIMMONS, VICE PRESIDENT FOR PUBLIC 

POLICY, MID-CONTINENT COMMUNICATIONS, SIOUX FALLS, 

SOUTH DAKOTA 

Mr. SIMMONS. Chairman Chambliss and Members of the Committee, thank you for inviting me to testify today. My name is Tom 

Simmons, and I am the Vice President of Public Policy for MidContinent Communications, a leading provider of cable telecommunications services in rural America, including analog and 

digital cable television, broadband Internet, local and long distance 

telephone services. We serve over 200,000 customers in approximately 200 communities in North and South Dakota, in Western 

Minnesota and northern Nebraska, generally classified as small or 

rural. 

The size of our communities range from densities of five to 116 

homes per mile of cable plant and populations ranging from less 

than 30, in Barlow, North Dakota, to our largest community, which 

is Sioux Falls, South Dakota. That population is just a little over 

140,000. Mid——Continent launched its broadband Internet service 

over 10 years ago on April 15, 1996, in Aberdeen, South Dakota, 

and made a pledge then to bring advanced broadband services to 

21

as many customers as possible regardless of the size of the community. 

By the end of last year, we completed a project to rebuild our 

cable plants to 750 megahertz or better in 50 more Mid-Continent 

communities. That brings our total of upgraded systems to 152, 

now serving over 95 percent of Mid-Continent’s customers. 

All of this has required Mid-Continent, a privately held company, to invest over $90 million in private risk capital to bring advanced 

services to our customers in rural America without the assistance 

of public funds. We hope to continue doing so. We are proud of our 

ability to deliver the services our customers demand, which are no 

less than those desired and expected in suburban and major metropolitan areas. As a provider of broadband service in rural America, 

Mid-Continent strongly supports the fundamental, primary goal of 

the RUS Broadband Loan Program: to deploy broadband to consumers living in unserved areas of rural America. We believe that 

quality broadband services should be available to all regions of the 

country and to all consumers, including those in the least densely 

populated areas of the country. 

However, we have two concerns regarding the RUS Broadband 

Loan Program which we would encourage the Committee to examine further. First, in many instances, RUS loans are being used to 

subsidize broadband deployment in areas already served by companies that deployed broadband service without a Government subsidy. This runs counter to the stated purpose of the program: to 

bring broadband to consumers living in areas where it is unavailable. 

A September 2005 USDA Inspector General’s report found that 

the RUS Broadband Loan Program was, and I quote, not maintained its focus on rural communities without preexisting service, 

unquote. Mr. Chairman, we concur with the IG’s report. There are 

numerous examples of RUS loans being granted in areas already 

served by one or more providers. In fact, not long ago, the RUS 

granted a $13 million loan to a company to overbuild Mid-Continent in Mitchell, South Dakota, a small city of a little over 14,500 

residents, despite the fact that we faced vibrant competition and 

invested millions of dollars in risk capital to upgrade our system 

in Mitchell in order to provide our customers there a variety of advanced services, including high speed Internet services, high definition television, and telephony. 

And Mitchell was not the only town overbuilt in South Dakota. 

As an RUS official reported at a 2004 South Dakota PUC conference, the RUS had approved $37 million in loans to South Dakota companies by that time, but none of that money was targeted 

to provide broadband service to any of the more than 70 communities in South Dakota that had no access to broadband service. 

Mr. Chairman, providing broadband service in high cost rural 

areas is economically risky at best. That risk could become unbearable if we are faced with a competitor subsidized by the Government. Subsidizing a company to overbuild an existing provider 

could have the perverse effect of making it increasingly difficult if 

not impossible for a company that entered the market first using 

private risk capital to continue to provide quality service in that 

market. Furthermore, the threat of Government-subsidized comVerDate 0ct 09 2002 10:46 Feb 20, 2007 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 C:\DOCS\30424.TXT SAG2 PsN: SAG2
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petition in rural markets also creates a disincentive for a company 

that does not receive Federal support to extend support to rural 

communities, and importantly, subsidizing deployment in a competitive market diverts scarce revenues from areas where a market 

based solution has not developed. 

We are concerned that while the RUS is required to assess the 

status of broadband service in markets where an applicant is seeking a loan, the existing rules can make it difficult for the RUS to 

make an accurate assessment. Existing providers often have little 

or no opportunity to effectively challenge assertions made by an applicant that seeks a loan to overbuild incumbent providers. By not 

having a clear picture of the marketplace, it may be difficult for the 

RUS to determine whether it is appropriate to approve the application. A more transparent, open process allowing for disclosure of 

nonproprietary information to the public would assist RUS staff 

evaluating loans and benefit the public, whose tax money supports 

this program. To this end, and reflecting on the two principal concerns, we recommend the following: first, the program should be revamped to carefully and strictly target assistance to support 

broadband deployment in unserved areas only; and second, the 

RUS should take steps to, one, ensure that it getting the information it needs to assess the feasibility of loan applications; and two, 

ensure the public understands the basis on which the loans are 

made. 

In closing, Mr. Chairman, let me reiterate that Mid——Continent supports the goals of the Federal Government to assure that 

all Americans have access to broadband services. Our industry has 

invested hundreds of millions of dollars to help that goal become 

a reality, and we recognize that Government subsidies may be the 

only answer in some rural areas. However, that program should be 

designed to promote broadband deployment; and must be carefully 

defined and targeted to those areas that lack broadband service. 

And let me also, sir, add a word of thanks publicly to Mr. Andrew and the members of the RUS who have been willing to meet 

with our industry to discuss these concerns and work on mutual 

goals to do right by our customers and your constituents. 

Mr. Chairman, thank you for inviting me to testify today. I’d be 

happy to answer any questions you or Members of the Committee 

may have. 

[The prepared statement of Mr. Simmons can be found on page 

57 in the appendix.] 

Chairman CHAMBLISS. Well, thanks to all three of you for that 

information that you respectively provided there. 

Mr. Sevier, what is your consumer per mile ratio on your telephone line versus your broadband service line? 

Mr. SEVIER. Well, it depends on which program. In our traditional program, we have probably a ratio of 80 percent of 

broadband customers to our telephony customers. We have around 

6,000 to 8,000 broadband customers and 10,000——

Chairman CHAMBLISS. What I meant to ask was how many consumers per mile are on your telephone lines versus your broadband 

line? 

23

Mr. SEVIER. We have two consumers per mile on the telephone 

project, and I am not sure that we have done a per mile; I could 

figure it out relatively easy. It would probably be about——

Chairman CHAMBLISS. Do you think it is more or less than two? 

Mr. SEVIER. It is less; it is maybe one, one-half to one per mile. 

There are a lot of consumers who do not have computers yet, and 

it is difficult to know how many consumers are out there that do 

not have computers to be able to get a good ratio of what our penetration is to the number of computers. 

Chairman CHAMBLISS. Yes; I hear what Mr. Simmons is saying, 

and I empathize with his position. Anytime we can encourage the 

private sector to invest in markets like the expansion of broadband, 

I think it is important that we do so. But I know from my experience with the rural electric cooperatives that in terms of the customer per mile, two customers per mile makes it difficult to support your telephone operation. If you have less than that on 

broadband, there’s not a lot of incentive for capital investment in 

the private market. 

At the same time, I hear you saying, Mr. Simmons, that you support the program, but it should be going to underserved areas. I 

think that’s a good statement, and that is a fair statement. What 

effect, from a competition standpoint, does someone who has a government subsidized loan or a government loan come into your market area? What effect does that have on your business on a dayto-day basis? 

Mr. SIMMONS. Well, in that particular market, that market, 

which is already very small, now has been split. Regardless of 

whatever number of customers that we have or what our market 

share has been, the pro forma that we built the operation on no 

longer exists. There will be more players in the marketplace, so obviously, it has an impact on what our margins may be, an impact 

on our ability to provide services in that particular market. 

It might be a different situation if the competitor came into the 

marketplace and was providing services that were different from 

ours. But in the example that I offered in my testimony, in Mitchell, South Dakota, the competitor came into the market, provided 

exactly the same services that were provided in exactly the same 

service area. So it was purely a competitor to that market. 

There is a secondary, unintended consequence of this, however, 

that may not be apparent. We found in our company that when we 

take a look at our operation companywide, that’s all the communities we serve, it has impacted us in some of the other communities. There may be some communities out there that basically 

have been upside down for quite some time. 

We continue to provide the services there until such time that 

we’re able to build services into that or advance services into that 

community. But we have found ourselves making a decision in a 

few of those markets that it no longer makes sense for us to provide any services there. We have, in fact, in a few small towns not 

renewed our cable franchise. We can’t continue serving even the 

level of services that we provide now in some of those communities, 

because we have a competitive assault going on in some of our 

other communities. 

24

So we talk about competition being good, and it is in almost all 

cases. Competition is important. It is really important for the people who receive the competition. But if money is allocated from the 

Federal Government into those community areas that might divert 

it from those unserved areas, it is a failure of the program to serve 

those people. Even in our case, if we are having to divert our resources to compete in some of these markets, there might be some 

other smaller communities out there that will also be unserved now 

even by our cable services. 

So this is a very complicated issue, sir, and it goes well beyond 

the obvious: there are, in fact, unintended consequences. 

Chairman CHAMBLISS. When a competitor comes into your market, and let us just use your South Dakota example. Did the Government-subsidized entity that came into that market serve or 

compete with you with lower rates than what you were able to provide at that point in time? 

Mr. SIMMONS. Not necessarily; in some cases, perhaps. But what 

we have done, you know, the application was made, and again, 

there’s quite a lag time between when the application was made 

and when the service provision begins. They have to go through an 

extensive application process, as I understand it, but there is a period of time, usually a year, to build out those services. 

From the time that the application was made to the time of deployment, we have a competitor providing all those services, but 

during that time we have modified our services as well. We’ve 

ramped them up substantially; not because of the competition; we 

have done that throughout our entire service area. 

But we have added most recently digital telephone service, VoIP, 

if you please, to that particular market. So we’ll have additional 

services. Since the time the application was made on our cable 

plant, we were offering both analog and digital video services, high 

definition television in those markets, digital video recording capability in those markets, and we will be about to add video on demand in those markets as well, not necessarily because of the competition but as a standard rampup that we do in those particular 

markets. 

And one great concern that I have, Mr. Chairman, with the program is that I’m assuming that the only reason the city of Mitchell 

received that loan grant was because the RUS had determined 

Mitchell to be underserved. I do not understand how the city of 

Mitchell could have been considered underserved with all of those 

offerings. 

Chairman CHAMBLISS. Were any questions asked of you by anyone from RUS at the time that application was under consideration? 

Mr. SIMMONS. Mr. Chairman, I have never received a telephone 

call from anyone at the RUS: not for any information regarding the 

application or for any matter. 

Chairman CHAMBLISS. Mr. Sevier, you have had experience with 

filing an application for loans both on the telephone side and the 

broadband side. Again, going back to Mr. Pagon’s testimony regarding the significant difficulty his company encountered in filing this 

application, is there a major difference in the application and the 

requirements thereof for a telephone loan versus a broadband loan? 

25

Mr. SEVIER. Mr. Chairman, I do not see much of a difference. We 

have made loans on both of the programs. In fact, we are currently 

doing a loan application for the Sprint acquisition and rebuild that 

I mentioned, and the requirements are very thorough. They are 

very thorough about what they expect us to have in there. 

But they are both about the same from what I can tell. One requires a market survey under the Broadband Program, while they 

do an area coverage survey under the traditional program, so typically, they would be about the same. You have to do your engineering design prior to submitting for the loan, and the differences that 

I see might be that in the traditional program, there might be more 

required of an A-loan borrower, which would be the first time a 

borrower has borrowed from the RUS program. 

And so, you’re seeing many first-time borrowers in the 

Broadband Program right now. So I can see a difference in what 

would be required for that first-time borrower as opposed to an incumbent borrower who has been in several times and that they’re 

familiar with. 

Chairman CHAMBLISS. Mr. Pagon, again, along that same line, 

was that the first loan application you had submitted under this 

program? 

Mr. PAGON. Yes, it was. 

Chairman CHAMBLISS. Have you subsequently submitted any additional applications? 

Mr. PAGON. We submitted a second application a year and a half 

ago, and it was returned to us as incomplete, and we have not resubmitted it at this point. 

Chairman CHAMBLISS. Again, I empathize with your position, 

having gone through a number of applications in the electric cooperative business. Those things are a couple of feet thick, as I remember. I think that your concern there has a lot of merit to it. 

Perhaps we need to emphasize to RUS that we want to make that 

process a little bit easier to go through. Senator Harkin and I were 

just talking about this: we have $900 million sitting there, and 

much of it is not being accessed just because of the difficulty that 

you encountered in that loan application process. 

So, Senator Harkin. 

Senator HARKIN. Mr. Chairman, you are right on that, and as we 

were discussing, we want to get the money out, but we want to 

make sure that it is reasonable and that we do not make bad loans 

and everything. 

But in that regard, I would just say to each of you that, you 

know, under the REA, sort of the history of what I have looked at 

here when we put this in the bill, in the REA, when they started 

making their loans for extending lines and things like that and 

even up to the present time, they didn’t just take a loan application, process it, and say goodbye. They worked with the applicants 

to design, to organize, establish a system, provide the services out 

there. It was a whole service entity. It was not just getting the 

loan. It was providing a lot of support and help and stuff to get the 

job done. 

I don’t detect that in RUS right now. It is sort of we will look 

at the paperwork and make the loan and good- bye. I’m thinking 

that there ought to be more of an active involvement with that proVerDate 0ct 09 2002 10:46 Feb 20, 2007 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 C:\DOCS\30424.TXT SAG2 PsN: SAG2
26

gram than what we have right now. I do not think we set it up 

in the Farm Bill just as a lender, just as a specific lender but as 

someone who would work with entities and help them out. 

With regard to getting—Mr. Simmons, in many cases in the Midwest, cable does a very good job. They got their communities wired. 

They provide a lot of good services. But there’s a kind of conundrum here. There’s a problem. In many cases, cable will serve a 

community; does a great job, but then, they reach beyond the community. Now, we get a place where Mr. Pagon comes in here, and 

he says, well, we want to serve a rural area out there, but in order 

to make it cost-effective, to make sure that we can make the plan 

work, we need to be able to serve some of the community also. 

So here I am. I want to be able to get service out to people who 

live beyond the community limits. Cable won’t do it. Here comes 

along a borrower; they say they can do it, but they need to have 

access, perhaps, to some of that community also. So, then, what do 

you say to our constituents who say, yes, we have cable, and it provides good service, but we don’t have any competition? It’s the only 

thing we got? And when they raise their prices, we do not have any 

other place to go. 

So you see, we are in a bit of a problem here. We want to get 

it to rural areas. Cable can’t do it, and I understand the monetary 

reasons; but they can, but they need to have access to the community. How do you solve that problem? 

Mr. SIMMONS. Well, Senator, there are a couple of issues in that 

statement. On the cable competition issue, every market already 

has satellite competition, so there are choices in the markets right 

now, and frankly, there is another debate going on within both 

Commerce Committees in the House and Senate on how we’re 

going to be extending franchises for new providers, presumably in 

the individual markets. But maybe the core of the question you are 

asking——

Senator HARKIN. Excuse me, Mr. Simmons; satellite is only 

downstream. 

Mr. SIMMONS. That is correct. 

Senator HARKIN. We want to get broadband so people can do 

both. 

Mr. SIMMONS. When we have a provider who is asking for an 

RUS loan grant into the market that’s going to extend well beyond 

that particular market, the position of my company, if not our industry but certainly for my company, is go for it. That is quite all 

right. We would not resist that for a minute. 

The issue we have is when a broadband, quote unquote, provider 

is asking for the RUS to provide millions of dollars for a full market overbuild that will be providing not only the broadband component but will be providing all the services of advanced video, cable 

television services that we provide now, telephony as well, with the 

broadband component of that, the Internet per se, being just a 

small piece of that. But they’re providing that infrastructure in a 

community that matches our service area. It is not going outside 

of that area. It is exactly the same area that we’re serving now. We 

have a problem with that. 

27

Senator HARKIN. I can understand that. That’s why I say—and 

we do have a problem with that. But what if they want to beyond 

that area, though? 

Mr. SIMMONS. Then, they should be allowed to go beyond that 

area. If they want to be able to serve that community and tie it 

all into a bundled package, I believe that would be fine. 

Senator HARKIN. Well, that would be fine. I think that solves the 

problem. 

Mr. SIMMONS. Senator, I think the question that we’re asking 

with all of this is that we clearly understand——and I honestly do 

not understand, perhaps; I thought the purpose of the program was 

to get—to provide service to unserved areas primarily. 

Senator HARKIN. That is right. 

Mr. SIMMONS. And that the primary job of the program is to take 

care of that as opposed to just allocating money. I look at the RUS 

Website, and all the successes are about, ‘‘this is how much money 

we have allocated’’, and I guess there is cause for celebration in all 

of that. But I think the real story should be about how many 

unserved customers have been taken care of? 

Senator HARKIN. So you are right on that. You are right on on 

that, and that is exactly what we intended to do when we put this 

in the bill, and that preference is listed in law. There is a preference in the law. 

The other thing that we might think about here; I didn’t bring 

it up with Mr. Andrew, but some of his people may still be here 

is that perhaps, Mr. Simmons, you might suggest that when these 

loan applications come in, there is a preference in the law for underserved areas. But the way the RUS handles the loans now, as 

I understand, Mr. Chairman is it is first come, first served. You put 

in your loan application; that is what they look at. Then, if you 

came in later, that is what they look at. 

Perhaps those loan applications that truly serve unserved areas 

ought to get to the head of the line. Maybe they ought to be considered first. What do you think of that? 

Mr. SIMMONS. Well, Senator, I would agree. 

Senator HARKIN. I assumed you would. That is why I asked the 

question. 

Mr. SIMMONS. And also, a statement that Mr. Andrew said early 

on caught my attention when he said about the plaque that said, 

you know, something to the effect that we will find a way. When 

we talk about serving areas outside of a community, it doesn’t 

mean that all you need to do is have one household outside the 

area. We have now found a way to backdoor the situation that says 

we would provide services beyond. 

I would hope that an applicant into a market, if they need to 

serve this market, at least the majority of it is going to go beyond, 

outside of that particular market, and it’s not going to be one or 

two or a housing development over here that we will inadvertently 

pick up in order to say that we have served outside of this primary 

community. I would hope that would be the case. 

Senator HARKIN. Thank you very much. 

Thank you, Mr. Chairman. 

Chairman CHAMBLISS. Senator Coleman. 

28

Senator COLEMAN. Thank you. I was encouraged to hear from 

Mr. Andrew, and get Mr. Simmons to respond, is that there has 

been a level of cooperation involved in those conversations, and I 

think that is a positive. I still——I am going to follow up with some 

questions for Mr. Andrew. I’m wondering if we don’t have a little 

kind of a debate here between, you know, whether we’re focusing 

on underserved or unserved and a distinction between the two. 

My sense from Mr. Andrew was that—and I thought I heard him 

say this that, you know, this is about competition, that it is underserved, and so, we could provide more competition. I think, though, 

the law is pretty clear on this, and for good reason, that we look 

to areas that are unserved. In fact, I would think that the loan application process, the suggestion of the Senator from Iowa is a good 

common sense one. If the mission, if the law dictates that we are 

looking at unserved areas, then, I would suggest that applications 

should be focused first on unserved areas. 

If, for whatever reason, the unserved areas are all filled, and the 

money has been allocated, and you have some additional applications, I presume there is not an absolute ban on underserved, but 

the focus really should be on served. My sense is, and even the response to Mr. Andrew, I am not sure that is even as we sit here 

today a clear focus of what the understanding should be. 

And Mr. Pagon, let me ask you a question: if the RUS were to 

change their policy and concurrently consider multiple broadband 

applications, are you concerned about how this might affect, slow 

down the application process? 

Mr. PAGON. I am not sure I understand the thrust of your question. 

Senator COLEMAN. You were saying that one of your concerns 

was that you don’t get a chance to file the application, to get yours 

in front of the RUS until they have either processed or gone 

through the applications in front of you. It’s kind of a singular 

order. I thought you were suggesting, in fact, that the agency 

should be, you know, kind of processing applications, you know, all 

at one time, not doing it kind of waiting until one is finished before 

you go to the next. 

Mr. PAGON. No, that was not my intent. What I was speaking to 

was the process of preparing an application is very involved and 

very time consuming, and you need to prepare, as I think was the 

testimony of someone else, that actually, I think it was in Senator 

Harkin’s comments that you have to file separate applications for 

each community that you propose to serve. 

And one of the hardships is that at any point prior to the submission of your application, it may be the case that another applicant 

files an application for the same community and has the effect of 

blocking your ability to file for that community. So essentially, all 

of that effort becomes potentially wasted. There is really not any 

transparency as to once a competing application is filed for a community, where the RUS is in its review of that application. 

So I think sort of succinctly put, what we would propose is greater transparency in the process of applications. I was not suggesting 

that the RUS should either approve competing applications for the 

same community under the loan program or that they should propose to consider them concurrently. Having heard some of the back 

29

and forth here just in the past few minutes, I think prioritization, 

having some type of scoring criteria beyond just first, you know, 

first come, first served would be something that we would support. 

I think that would be, you know, would be a real improvement. 

Senator COLEMAN. I raised the question of transparency with Mr. 

Andrew today, and he indicated an understanding that needs to be 

done. Just to anyone on the panel, would the transparency actions 

that he talked about today, does that address some of the problems 

you have had, problems with anticipation of competing applications 

and some of the other concerns? Anybody want to respond to that? 

Mr. SEVIER. I think they are developing a Website of communities that do have broadband service or have loans from the RUS 

and so that they can ensure that they are not making loans against 

themselves. So, I think that is getting much clearer today if you 

look at the communities that they have listed: where have loans 

been made? Where is broadband being served by a borrower, 

whether it be with loan funds or other loan funds, so that they, in 

essence, are not loaning against themselves in this program. 

So I think that has gotten much better. I just want to make a 

comment to the multiple applications: they do accept multiple communities in one application. It is not a separate application for 

each community. So if have 10 or 15 communities that need 

broadband service, and you can support those communities in your 

business model and feasibility study, then, they will accept that. 

Senator COLEMAN. Anybody else want to respond to whether the 

transparency actions talked about are sufficient or whether more 

needs to be done? 

Mr. PAGON. From what I understood of Mr. Andrew’s comments, 

I think what he was suggesting would be definite improvements. 

It was a little bit unclear to me how far along, how thorough that 

transparency would be with respect to filed applications and the review, but in general, I think they would be good steps. 

Senator COLEMAN. Mr. Simmons. 

Mr. SIMMONS. Senator, we have had discussions with the RUS 

through our industry group, and most of those discussions were, 

frankly, about disclosure, making it a little bit more transparent. 

Mr. Andrew mentioned the Website changes. He mentioned that to 

us as well. We haven’t seen them yet. They’re promised. So it will 

be interesting to see what they look like. 

We also had made a variety of other recommendations. One was 

that perhaps loan applicants could identify existing broadband providers in the proposed service area and notify them of their activities, so that we can have a dialog. As I mentioned earlier in one 

of the questions, to one of the questions, I have not ever been contacted by a member of the RUS. Now, supposedly, field agents are 

out reviewing the market, trying to understand what is happening 

in those particular communities. Yet, we have never heard from 

them. 

And in response to a FOIA request, I learned that an applicant 

had learned about our company from our Website. Yet, our Website 

contained no information that would be probably useful in that particular application. There are just better ways of obtaining that information. We’d be more than happy to cooperate on any calls 

30

made on any of our members by, you know, field offices or members of the Rural Utilities Service. 

Senator COLEMAN. Well, I hope this hearing today will foster a 

review, then, of those procedures. Certainly, my follow-up questions 

to Mr. Andrew, I’ll take some of these suggestions and see what we 

get at the RUS. 

We want this program to succeed. It is an important program. 

It is a critical issue. Again, my concern is that we are not focusing 

enough on the areas that are unserved, and that should be the 

principal focus. I am sympathetic, Mr. Simmons, to the concern 

about the difficulty of raising capital for rural investment. The last 

thing government needs to be doing is to make it more difficult to 

scare capital away. Capital grows jobs and builds communities, and 

so, hopefully, this will be a positive public-private partnership, 

which I think was intended to meet the needs of rural communities 

so they can be connected to 21st Century technology. 

So thank you, Mr. Chairman. 

Chairman CHAMBLISS. I think you are exactly right, Senator 

COLEMAN. The last thing we want to do is have Government-subsidized entities competing with the private sector. There is kind of 

a delicate balance. I don’t know how we totally eliminate the overlap that might be here, but all three of you raise some good points 

relative not only to competition but also relative to the need for 

this program to exist, and what we have got to figure out is how 

we achieve that balance. 

Gentlemen, thank you very much. You’ve been very informative. 

Mr. Sevier, you had something else you wanted to add? 

Mr. SEVIER. Just wondered if I could make two last comments, 

if you don’t mind, Mr. Chairman. 

Chairman CHAMBLISS. Sure. 

Mr. SEVIER. One is to perhaps address Senator Harkin’s comments about how RUS used to, in the old REA days, go out and 

provide the assistance in the field to help these new borrowers 

through the process. I’m not trying to defend the RUS program, because they can do an adequate job of that themselves, but I am just 

observing what I have seen. 

They have taken tremendous budget cuts over the years and 

probably have a third or a fourth of the personnel today that they 

used to have in the days when they were doing that, and an example would be the field person that Mr. Simmons has not seen. They 

have one field man now for maybe two or three States; maybe 

more, when they used to have two field men per State, an operations man and an engineer, that had more time, each of them, to 

kind of help walk these borrowers through. They’re spread pretty 

thin today. They’re an extremely hard working bunch of individuals, and I have experienced that first hand. So that is one comment. 

The other would be something that I would just like to get on 

the record, I guess, as far as a traditional borrower through the 

traditional RUS infrastructure program and now a borrower 

through our subsidiary through the Broadband Program, we are 

still one company: we consolidate our audit, and we submit an 

audit to the RUS folks every year, which is a requirement of theirs, 

and in that audit, we do spell out what our subsidiary, Nex-Tech, 

31

is doing, as well as what our rural telephone service company parent is doing, and then, we consolidate the two, and they have required that we send in a separate audit report to the Broadband 

Program, which we found to be a little expensive and maybe something that might not be necessary. Since they are 50 feet down the 

hall, they have access to an audit that we’ve done on both of our 

organizations. 

And then, second, we have a very diverse subsidiary that is in 

multiple businesses, and at the time we made our first loan, for example, we had $20 million in assets in other pieces of our business, 

and they do take a mortgage on the entire property and have the 

first lien on everything in your business. Perhaps they could consider taking a mortgage on the communities that are financed by 

the Broadband Program, leaving the rest of the subsidiary available to get some local funding for business expansion for some of 

the local needs. 

Now, it is very onerous to try to get a lien accommodation so that 

you can get funding elsewhere through a local bank to build a new 

building or something that you might need for other parts of your 

business. So those are a couple of suggestions that I’d like to make. 

Chairman CHAMBLISS. Very good. Thank you. Your comment relative to a reduction in personnel is an argument in favor of all that 

paperwork that is required to be submitted for a loan application. 

[Laughter.] 

Chairman CHAMBLISS. We will leave the record open for 5 days 

for anyone who wishes to submit questions, and there may very 

well be some written questions coming to any one or all three of 

you. I would appreciate your prompt attention to all of those and 

get them back for the record. Again, I thank you for taking time 

to come to Washington to participate in this hearing. The information you have provided has been very informative. Thank you, and 

this hearing is concluded. 

[Whereupon, at 12:12 p.m., the Committee adjourned.] 

(33)

A P P E N D I X

MAY 17, 2006

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(67)

QUESTIONS AND ANSWERS SUBMITTED FOR THE 

RECORD

MAY 17, 2006

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Æ