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REVIEW OF RURAL BROADBAND 

PROGRAMS OPERATED BY THE U.S. 

DEPARTMENT OF AGRICULTURE’S 

RURAL UTILITIES SERVICE

HEARING

BEFORE THE

SUBCOMMITTEE ON SPECIALTY CROPS, RURAL 

DEVELOPMENT AND FOREIGN AGRICULTURE

OF THE

COMMITTEE ON AGRICULTURE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MAY 1, 2007

Serial No. 110–16

(

Printed for the use of the Committee on Agriculture 

agriculture.house.gov 

COMMITTEE ON AGRICULTURE 

COLLIN C. PETERSON, Minnesota, Chairman 

TIM HOLDEN, Pennsylvania, 

Vice Chairman 

MIKE McINTYRE, North Carolina 

BOB ETHERIDGE, North Carolina 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

DAVID SCOTT, Georgia 

JIM MARSHALL, Georgia 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

HENRY CUELLAR, Texas 

JIM COSTA, California 

JOHN T. SALAZAR, Colorado 

BRAD ELLSWORTH, Indiana 

NANCY E. BOYDA, Kansas 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

KIRSTEN E. GILLIBRAND, New York 

STEVE KAGEN, Wisconsin 

EARL POMEROY, North Dakota 

LINCOLN DAVIS, Tennessee 

JOHN BARROW, Georgia 

NICK LAMPSON, Texas 

JOE DONNELLY, Indiana 

TIM MAHONEY, Florida 

BOB GOODLATTE, Virginia, 

Ranking Minority Member 

TERRY EVERETT, Alabama 

FRANK D. LUCAS, Oklahoma 

JERRY MORAN, Kansas 

ROBIN HAYES, North Carolina 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

JO BONNER, Alabama 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

MARILYN N. MUSGRAVE, Colorado 

RANDY NEUGEBAUER, Texas 

CHARLES W. BOUSTANY, JR., Louisiana 

JOHN R. ‘‘RANDY’’ KUHL, JR., New York 

VIRGINIA FOXX, North Carolina 

K. MICHAEL CONAWAY, Texas 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

ADRIAN SMITH, Nebraska 

KEVIN McCARTHY, California 

TIMOTHY WALBERG, Michigan 

PROFESSIONAL STAFF

ROBERT L. LAREW, Chief of Staff 

ANDREW W. BAKER, Chief Counsel 

APRIL SLAYTON, Communications Director 

WILLIAM E. O’CONNER, JR., Minority Staff Director 

SUBCOMMITTEE ON SPECIALTY CROPS, RURAL DEVELOPMENT, AND FOREIGN

AGRICULTURE

MIKE McINTYRE, North Carolina, Chairman 

JIM MARSHALL, Georgia 

HENRY CUELLAR, Texas 

JOHN T. SALAZAR, Colorado 

JOHN BARROW, Georgia 

EARL POMEROY, North Dakota 

MARILYN N. MUSGRAVE, Colorado, 

Ranking Minority Member 

TERRY EVERETT, Alabama 

ADRIAN SMITH, Nebraska 

JEFF FORTENBERRY, Nebraska 

ROBIN HAYES, North Carolina 

ALETA BOTTS, Subcommittee Staff Director 

(II) 

(III)

C O N T E N T S 

Page 

McIntyre, Hon. Mike, a Representative in Congress from the State of North 

Carolina, opening statement ............................................................................... 1

Musgrave, Hon. Marilyn N., a Representative in Congress from the State 

of Colorado, opening statement ........................................................................... 4

Prepared statement .......................................................................................... 48

Peterson, Hon. Collin C., a Representative in Congress from the State of 

Minnesota, opening statement ............................................................................ 5

Prepared statement .......................................................................................... 47

Goodlatte, Hon. Bob, a Representative in Congress from the Commonwealth 

of Virginia, prepared statement .......................................................................... 49

Herseth Sandlin, Hon. Stephanie, a Representative in Congress from the 

State of South Dakota, prepared statement ...................................................... 50

WITNESSES

Andrew, Mr. James, Administrator, Rural Utilities Service, United States 

Department of Agriculture, Washington, D.C. .................................................. 7

Prepared statement .......................................................................................... 51

Geller, Dr. Jack, President, Center for Rural Policy and Development, Saint 

Peter, Minnesota .................................................................................................. 27

Prepared statement .......................................................................................... 66

Simmons, Mr. Tom, Senior Vice President of Public Policy, Midcontinent 

Commutions, Sioux Falls, South Dakota on behalf of Natioanl Cable and 

Telecommunications Association, Washington, D.C. ......................................... 29

Prepared statement .......................................................................................... 72

McCormick, Mr. Walter B. Jr., President and Chief Executive Officer, United 

States Telecom Association, Washington, D.C. ................................................. 31

Prepared statement .......................................................................................... 83

Law, Mr. Denny, Eastern Regional Manager for Golden West Telecommunications Cooperative, Wall, South Dakota, on behalf of Natioanl Telecommunications Cooperative Association ........................................................... 32

Prepared statement .......................................................................................... 87

Felty, Mr. Kevin, General MAnager, Plains Cooperative Telephone and President, Colorado Telecommunications Association, Joes, Colorado .................... 34

Prepared statement .......................................................................................... 93

ADDITIONAL STATMENETS

Lytle, Mr. Gary, Senior Vice President of Federal Relations, Qwest Communications ................................................................................................................ 99

(1)

HEARING TO REVIEW RURAL BROADBAND 

PROGRAMS OPERATED BY THE U.S. 

DEPARTMENT OF AGRICULTURE’S RURAL 

UTILITIES SERVICE 

TUESDAY, MAY 1, 2007

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON SPECIALTY CROPS, RURAL

DEVELOPMENT, AND FOREIGN AGRICULTURE

COMMITTEE ON AGRICULTURE

Washington, D.C. 

The Subcommittee met, pursuant to call, at 1:00 p.m., in Room 

1300 of the Longworth House Office Building, Hon. Mike McIntyre 

[Chairman of the Subcommittee] presiding. 

Members present: Representatives McIntyre, Marshall, Cuellar, 

Salazar, Barrow, Pomeroy, Peterson (ex officio), Herseth-Sandlin, 

Musgrave, Everett, Smith, Fortenberry, Hayes, and Goodlatte (ex 

officio). 

Staff present: Aleta Botts, Adam Durand, Tyler Jameson, Scott 

Kuschmider, Merrick Munday, Clark Ogilvie, John Riley, Sharon 

Rusnak, Debbie Smith, Kristin Sosanie, Bryan Dierlam, Brian 

Knipling, Kevin Kramp, Matt Schertz, and Jamie Weyer. 

STATEMENT OF HON. MIKE MCINTYRE, A REPRESENTATIVE IN 

CONGRESS FROM THE STATE OF NORTH CAROLINA 

Mr. MCINTYRE. Good afternoon, everybody. This is the subcommittee’s hearing on the Rural Broadband Program operated by 

the Rural Utilities Service. My name is Mike McIntyre from the 

7th District of North Carolina, and as subcommittee chairman I am 

pleased today to welcome Mr. Jim Andrew, the administrator of 

Rural Utilities Service, and our other esteemed witnesses that will 

be here today at this hearing. 

But before we hear from the witnesses I wanted to have a few 

remarks to set the tone of this committee hearing and I will also 

call on the ranking member, Mrs. Musgrave for her opening remarks. We are especially pleased to have the chairman of our overall committee, Mr. Peterson, here, and he will be called upon as 

well. And then we will proceed to the witnesses and then to the 

subcommittee members as appropriate for questions. 

Broadband is regarded by many as an economic equalizer--providing individuals and businesses with the enhanced ability to 

bridge geographic distances. Broadband has the potential to reshape educational and healthcare offerings, expand employment 

2

opportunities, and dramatically reshape the way we look at services available in rural areas. 

Unfortunately, studies show a digital divide in this nation with 

regard to our being able to have broadband services where we need 

them. In May of 2006, a Government Accountability Office study 

showed that while 29 percent of urban households, and 28 percent 

of suburban households subscribed to broadband, only 17 percent 

of rural households do so. Often, this is not a matter of consumer 

choice. Rather, many rural areas simply do not have access to this 

service. In North Carolina alone, 82 percent of total households had 

access to broadband in late 2005. However, in 26 rural North Carolina counties, many of which are in eastern North Carolina, in the 

part of the State that I represent, that number falls to less than 

70 percent of households and businesses. And in 5 counties the 

number falls to less than 50 percent. 

Congress recognized the potential of broadband to foster greater 

economic growth in rural areas when it established a pilot 

broadband program to enhance access in rural areas. This was 

done in the fiscal year 2001 Appropriations Bill. This was just the 

start, however, and the 2002 Farm Bill authorized the Rural 

Broadband Access Loan and Loan Guarantee Program as part of 

the rural development title to provide loans and loan guarantees to 

fund the costs of construction, improvement, and acquisition of facilities and equipment for the provision of broadband service in eligible rural communities. 

This was a conscientious decision to recognize the digital divide 

facing rural America and to find ways to close that gap and ensure 

equal opportunities for our rural citizens. In fact, I still vividly remember on a beautiful day just like today, it was the last week of 

April in the year 2000, when President Clinton came to the center 

of our district, the seventh district in southeastern North Carolina, 

to visit the small towns of Brunswick and Whiteville, North Carolina, located in Columbus County. It is only one of three places in 

America he went to highlight bridging the digital divide. When we 

realize that this program has been going on for several years and 

there has been a concern, we realize that it hits home. I spent time 

in Columbus County, that same county, just yesterday, just trying 

to struggle to make sure we had enough water and sewer for citizens living in that county. 

So we are talking about serious issues when we talk about equal 

opportunity and equal access for citizens who live in rural America-

-places that we want to do right by all citizens here in America-

-including the folks like President Clinton visited back in the year 

2000, when we were there, and like I did yesterday in Columbus 

County, North Carolina. 

This has real consequences for families, for business, for 

healthcare, for education, and for equal opportunity in our country. 

As Mr. Andrew will note, the program has had some successes over 

the years in providing broadband loans to entities for areas that arguably would not have received such service without low-interest 

loans. Additionally, modifications were made to the program in its 

early years to address concerns that arose particularly with regard 

to the pilot program. 

3

Unfortunately, the program’s successes have been overshadowed 

by continued pervasive concerns about the program’s operations 

and its ability to direct funds to rural areas who are most in need 

of much-needed investment. In particular, it is critical that we find 

ways to resolve concerns associated with which communities are eligible to be served by loans and how competition is assessed by the 

agency when it makes these loans. 

The Inspector General report of September of 2005, and the GAO 

report of May of 2006, identified numerous problems with these 

two aspects of the program. Congress purposely prioritized rural, 

unserved areas as key recipients of the program. One of our concerns is how we can ensure that the program reaches that target 

group. 

Now, as we discussed in our hearing on March 21 with Undersecretary Dorr, the agency is working on new regulations to resolve 

some of these issues. Unfortunately, we do not have the benefit of 

knowing what these regulations entail because they have not yet 

been published by the Administration. As Administrator Andrew 

knows and as we have discussed, I am disappointed that today he 

has to testify with those regulations still under wraps. It ties the 

hands of those on this subcommittee. It will tie the hands of those 

on the full committee, and as we deliberate what changes need to 

be made to the farm bill to ensure this program meets the objectives we have for it, we cannot afford for that to be the case. 

What is even more disappointing is that it has been more than 

a year since these regulations were undertaken. The process starting in December of 2005, the regulations at Office of Management 

and Budget (OMB) not until December of 2006, sent back for a rewrite and then returned again to Office of Management and Budget where they apparently sit today. 

So I am going to ask specifically, and we will be speaking to the 

administrator about this as he comes to testify in a moment, to forward to this subcommittee and the full committee, to both Chairman Peterson and myself as chairman of this subcommittee, as 

quickly as possible but as required by our rules no later than 10 

days from today, and hopefully sooner, this regulation. 

Without knowing the changes the USDA itself is proposing, we 

must assume a more prescriptive stance with regard to the statute 

than we otherwise would. I continue to hope these regulations will 

be published very soon and within the 10 days prescribed so that 

we may have a fuller understanding of USDA’s intent on this program. 

We will explore all these issues today, and I hope when we end 

this hearing have a better understanding of these concerns, along 

with other concerns expressed by committee members and we will 

receive greater input on where the committee should direct its efforts as it proposes to rewrite the statute during the farm bill this 

year. I will remind and encourage the witnesses to use the 5 minutes provided for in their statements to highlight the most important parts of their testimony. Pursuant to committee rules, testimony to witnesses and the committee members will be limited to 

5 minutes, including the question and answer period. Your complete written testimony, of course, should be submitted in its entirety, and we welcome that so that we can have your full stateVerDate 0ct 09 2002 12:47 Apr 25, 2008 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 F:\DOCS\110-16\41709.TXT HAG2 PsN: JAMIE
4

ment with any other explanations you might need to make in the 

record. 

Welcome today. We are glad to have many guests with us. I 

know many of you have concerns about this. We always welcome 

you to these hearings and welcome what they mean to the deliberative process here in Congress. 

I am going to now call on our Ranking Member, Mrs. Musgrave, 

and then she will be followed by our esteemed Chairman of the 

Full Committee, Mr. Peterson. 

Mrs. Musgrave. 

STATEMENT OF HON. MARILYN N. MUSGRAVE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF COLORADO 

Mrs. MUSGRAVE. Thank you, Mr. Chairman, for holding this important hearing today. I am also welcoming the guests today, and 

there is one of my constituents that will be testifying on the second 

panel, Mr. Kevin Felty. He is from Joes, Colorado, and Joes is so 

rural there are a lot of people in Colorado that don’t know where 

Joes is. But I am very happy to have him today. He is the current 

president of the Colorado Telecommunications Association, and he 

also is the general manager of the Plains Cooperative Telephone 

Association. So, Mr. Felty, welcome. 

Deployment of high-speed internet services is one of the most important factors for the economic development, and really the future 

of our rural communities. From promising renewable energy technologies to healthcare to education, broadband can open many 

doors for rural America--both on the farm and in our smaller communities. Tele-work has the potential to slow and possibly reverse, 

the population exodus from our rural areas, something that is very 

near and dear to my heart. I was in Eads, Colorado, which is not 

too far from Joes, just this weekend, talking to high school students 

who want to be able to come back to rural Colorado, and they want 

a main street that has thriving businesses. They said in their lifetime they have not seen main streets that were thriving in these 

rural communities like where they live in Eads. And they want to 

go back to the time when their grandparents tell them there was 

a hardware store, and there were other businesses, and it was the 

heart of the community, and there were jobs available there. So 

that is what our young people are looking for, and I really think 

that reversing this exodus from those rural areas is one of my top 

goals. 

When we look at our rural schools, distance learning is critical 

for them. I recently worked on a veteran’s clinic that will be located 

in Yuma, Colorado--another rural community--and tele-medicine 

plays a huge part in the availability of healthcare for people in 

rural America and especially for our veterans. People have the expectation of state-of-the-art healthcare, and they want it in every 

part of our Nation. When you look at these rural areas, you can 

imagine the distance that specialists would have to travel to get 

there. It is not economically feasible to think that a heart specialist 

can travel to these various rural communities, so we know what an 

important part tele-medicine plays. The Rural Telecommunications 

Programs in the 2002, Farm Bill have provided roughly 1.6 million 

5

rural customers with new or improved telecommunications services, including high-speed broadband. 

The Rural Broadband Access Loan and Loan Guarantee Program 

and the Community Connect Broadband Plans administered by the 

RUS have made great strides in helping these rural communities 

build broadband infrastructure. The current broadband projects 

funded through the RUS when fully complete will serve well over 

half a million households across the United States. While these two 

programs are just part of an overall national effort to help promote 

the deployment of broadband, at present they are the only Federal 

programs exclusively dedicated to deploying rural broadband infrastructure. 

And Mr. Andrew, I want to commend you and your staff for the 

hard work you have put forth on behalf of rural America and your 

efforts to move the broadband program forward. So I look forward 

to hearing from you today, and I hope, Mr. Chairman, that all committee members can have a copy of that regulation. 

But I want to say despite the success of these programs, there 

are many opportunities and there are many challenges that still remain. Both programs have come under a great deal of criticism recently, with particular debate being given to the definition of a 

‘‘rural community’’ for purposes of program eligibility. A narrower 

rural definition would exclude some small communities in need of 

broadband service, while a broader definition increases the chance 

that communities that are not traditionally considered unserved or 

underserved by most definitions may be eligible for assistance. We 

have to try to determine what kind of specific guidelines we need. 

Mr. Chairman, I look forward to hearing the testimony today, 

and I thank you again for your leadership and scheduling this 

meeting. 

Mr. MCINTYRE. Thank you, Mrs. Musgrave, and thank you for 

your very good words. 

I would like to now call upon our esteemed chairman, Mr. Collin 

Peterson, Chairman of the Full Committee on Agriculture, and we 

welcome you to our subcommittee meeting today. 

STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA 

Mr. PETERSON. I want to thank the chairman and ranking member for their leadership on this issue and calling to light an area 

that needs, I think, some focus, and we appreciate your leadership. 

So thank you for calling this hearing. 

I want to first of all welcome a gentleman on the second witness 

panel, Dr. Jack Geller, who is the President of the Center for Rural 

Policy and Development in St. Paul, Minnesota. Dr. Geller’s organization is dedicated to understanding the major issues facing rural 

America today like broadband deployment, and I look forward to 

his testimony. 

Reliable, affordable broadband internet service is as important to 

rural America today as electrification and water were during the 

Great Depression. Broadband internet access is vital to job creation 

and retention, economic development, entrepreneurship, education, 

and medical technology. It is also a critical component of public 

safety--especially in remote areas. 

6

Nevertheless, when it comes to Federal investment in the communications infrastructure necessary for any economy to thrive, 

rural areas are consistently left behind high density urban and 

suburban areas. I think because there is more money to be made 

there. Close to a million Minnesotans live outside municipal boundaries, and many of those citizens lack reliable broadband service. 

These are the major issues that USDA’s Rural Utilities Service 

are expected to address. RUS operates two Federal assistance programs exclusively dedicated to financing broadband deployment, 

and these programs provide Federal support for deploying highspeed internet access for private homes, commercial establishments, schools, and public institutions. 

Despite the implementation of these programs, many problems, 

in my opinion, in broadband deployment persist. The Federal government still struggles to identify which communities already have 

access to broadband technologies and which ones do not. I don’t 

know how that could be. Broadband deployment is reported only by 

the government by zip code, which does not paint an accurate picture of what is accessible to most people living in a rural area. 

A September 2005, audit of RUS broadband programs by the Inspector General stated that RUS has not maintained its focus on 

unserved rural communities. The application process has been 

found to be very cumbersome, with loans not being approved in a 

timely fashion. Furthermore, the agency has been unable to effectively define rural and suburban areas, and as a result, the outlying subdivisions of our largest cities, as well as affluent smaller 

communities, are apparently receiving multiple RUS loans. I just 

had some people in last week who were telling me, and I find this 

hard to believe, and I think we need to get to the bottom of this, 

that we are overbuilding in some communities where there are already 14 or 15 providers. Now, how this can be I don’t know. If this 

is true, and if you guys don’t fix it, I will guarantee you this committee will, because we need to get this money to the people that 

need it. And I don’t know why it should be this hard. 

Widely-available broadband service is critical to our economic future. As I said, the rural communities are depending on effective 

investment in this so that they can not be on the wrong side of this 

digital divide and I am not happy with these stories in the Washington Post that are coming out. This is not helpful to us when we 

are writing a farm bill, and again, if we can’t get some kind of way 

to resolve that within your rule making or whatever process you 

have down there, then I guess we will have to try to do it here. 

So, again, I want to thank the Chairman and the other committee members for their leadership and look forward to the testimony. 

Mr. MCINTYRE. Thank you, Mr. Chairman, and thank you again 

for joining us today. 

Our first panel that we will begin with as we move along is Administrator James Andrew of the Rural Utilities Service, USDA. 

He is accompanied by Ms. Jacqueline Ponti, Assistant Administrator for Telecommunications Programs with the USDA here in 

Washington. Welcome to you both, and we look forward to your testimony, and you may begin. 

7

STATEMENT OF JAMES ANDREW, ADMINISTRATOR, RURAL 

UTILITIES SERVICE, UNITED STATES DEPARTMENT OF AGRICULTURE, ACCOMPANIED BY JACQUELINE PONTILAZARUK, ASSISTANT ADMINISTRATOR FOR TELECOMMUNICATIONS PROGRAM, UNITED STATES DEPARTMENT OF AGRICULTURE 

Mr. ANDREW. Thank you. Chairman McIntyre and Ranking 

Member Musgrave and subcommittee members, thank you for the 

opportunity to appear before you today. The subject of today’s hearing is one of the most important programs we at Rural Development Utilities Program administer, and from the looks of what is 

in this room it is obviously important to a lot of other people. So 

if my nerves show out a little bit, you will understand with all the 

folks. 

You have a written testimony, and I will only offer a few oral remarks. 

Mr. Chairman, I am pleased first of all to introduce a colleague 

sitting next to me. This is Jackie Ponti-Lazaruk. Ms. Ponti-Lazaruk 

is an assistant administrator for telecommunications in the Utilities Program. She came to the program from the Federal Communications Commission (FCC), where she served for 15 years. She 

has broad, across the platform communication knowledge and experience in wire line, wireless, satellite, international, et cetera. This 

month she will have been on the job in rural development for 1 

year and has made tremendous strides in all aspects of the telecommunications program. If I refer to her only as Jackie Ponti, forgive me. She just got married 2 weeks ago, and I am not used to 

that last name yet. 

In order to establish some credibility, let me assure you that I 

am a citizen of rural America, reared in rural southeast Alabama, 

a town of Geneva, educated in public schools, graduated from the 

University of Alabama, and can stand before you with the credentials of a rural upbringing. For the last almost 40 years I have 

lived in rural Jenkins County, Georgia, population 8,600 for the 

whole county. My friend once said I lived so far in the country they 

have to go back towards town to go hunting. Another said that the 

Grand Ole Opry doesn’t get there until Tuesday night. That all is 

true. My home is 12 miles from the only town in the county. The 

town of Millen has 2,600 citizens. The nearest neighbor is two 

miles away. This hearing is about broadband and not my rural 

background, but these facts may become relevant as I proceed. 

Broadband. This subject was first raised with the first interview 

I had with the Secretary of Agriculture in his office. What did I 

think of broadband? Frankly, I had given it quite a lot of thought 

even before the job was a gleam in my eye. It is my belief that 

when the trains bypassed the town its chances of survival were 

shortened. Railroad towns generally prospered. When the highways, speed highways came and bypassed the town it had a hard 

time surviving and certainly prospering. I found that to be true 

when I had my agricultural irrigation business. We were going to 

assist in forming a co-op to help farmers diversify into vegetable 

crops by helping them start up a packing house. My Vidalia oniongrowing customers advised us not to do so because we were not on 

8

a major highway, and the truckers would not venture far from the 

interstate. That turned out to be true. 

Now comes broadband, high-speed connectivity to the web. I was 

convinced before and during the interview and I am even more so 

now that the internet is the high-speed transportation highway of 

the future. Let me restate that. It is the transportation highway 

now. 

I stopped in to see my friend Wayne Dixon in Waynesboro, Georgia, recently. Wayne has a small auto truck repair business and 

salvage yard, what we call a junkyard. He is located only several 

hundred yards from the location of my former business. He did all 

my vehicle repairs. He asked what I was doing now. I ticked off the 

things we work with in utilities. When I mentioned broadband, he 

exclaimed as to how he wished he could get high-speed internet. 

His dial up took forever to get him in touch with folks from whom 

and to whom he bought and sold parts. He was only a few hundred 

yards away from my DSL service, and he could not get high-speed 

connectivity. 

Because of that conversation I am even more convinced that 

broadband is critical to everyone in rural America. They don’t all 

know it yet, but their kids and grandkids do, and we must find 

ways to span that few hundred yards. 

Let me get back to my rural home in Georgia. The speed of my 

house in dial up is about six kilobits. I have DSL in my office, but 

my wife had six kilobits. She could turn on the computer and cook 

dinner while it woke up. 

Mr. Chairman, that generated some real pressure for me when 

my career began at Rural Development. I guess she thought I could 

magically get the problem solved. We are too far in the country for 

a wire system to be run because of economics. A wireless system 

stationed in the nearest town would not reach us with the technologies available today, and the economics aren’t there. 

However, last fall we were able to get connected via satellite. So 

now we have broadband. More expensive per month than those receiving service in a more populated area, and not quite as fast, but 

I am off the hook temporarily. 

One of our major challenges has been trying to reach folks like 

my wife and me, and there are rural towns like Millen that need 

systems so people in town can have the service. Providers need the 

density to warrant building a system that will grow out from the 

community. They probably won’t reach me, but there are many others closer in who can realize the benefit of that density. 

Technology and high-speed communication are moving so rapidly 

that maybe one day my neighbors and I will have system availability that are faster and less expensive. We in the Utilities Program talk to satellite providers, fiber projects, wireless systems, et 

cetera, and they are developing projects that will do just that. We 

even hear of some technologies that are on the drawing board. 

When we look at these projects, we must remember that we are a 

form of a banker. We underwrite these applications for loans with 

as much assurance as we can that the taxpayers’ money will be invested wisely--invest it so rural America can grow. We want the 

systems to be technologically sound, a good business plan, and have 

credit support adequate for success. 

9

We are dedicated to getting broadband to rural America. Candidly, we can only process an application if one comes in. On that 

score, we are hoping leaders of communities are realizing the need 

for high-speed connectivity that will act. 

Mr. Chairman and committee members, we are here to serve 

rural America, my rural America. We can’t all live in metro areas 

of the country. It is not practical, and we don’t want to. Broadband 

is a transportation mode to connect us all. 

We welcome positive, well-meaning comments, criticisms, and 

suggestions that will help us achieve the mission of delivering 

broadband to rural America. It is with that in mind that we certainly hope you will renew the program so we can build on the 

strides we have made. Our team is in place and hopefully has 

passed the biggest of the learning curves. There will be more challenges but many are past. 

In closing, Mr. Chairman, we had hoped to have the proposed revised regulations out in publication before today. That didn’t happen. We hope they will be out in the next few days, and we will 

certainly try to get it within the 10 days that you asked us to do. 

We will provide copies to you the minute they are released to the 

Federal Register for publication. 

With that being said Mrs. Ponti-Lazaruk, and I will be happy to 

answer any questions or receive suggestions you may have. 

Mr. MCINTYRE. Thank you so much, Mr. Administrator. Thank 

you for your remarks. I know they were heartfelt and also thank 

you for highlighting the most important parts. 

I want to start with what you closed with, and that was about 

the concern about the regulations which I mentioned in my opening 

statement. With the more than 1 year time period that has passed 

and now this hearing is already well under way, and you have 

given your testimony, yet we still have no regulations, I understand you have committed to do all that you can to present those 

within the 10-day time period. And we will look forward to you all 

doing what you can to honor that and comply with the committee 

rule. 

Could you please explain for the record why it has taken more 

than a year? 

Mr. ANDREW. We started in December of 2005, with 35 people of 

our staff that included our lawyers, our technical people, our loan 

specialists, and people from the field to look at the problems that 

we had with broadband--what was wrong and what was good. Once 

we identified all those things we reduced it down to a committee 

to start breaking down things that we could work with. Over time 

suggestions kept coming up from the industry and other providers 

as to things we ought to incorporate. For example, you mentioned 

the definition of rural. We have been working with the Economic 

Research Service (ERS) trying to define exactly what rural is, and 

as I have explained on many occasions, it is said that rural is like 

describing the difference between tall and short. It is difficult to do. 

For example, my town of Millen, Georgia, population 2,600--and 

that is the reason I said I wanted to get it in the record--is listed 

as an urban cluster. Now, an urban cluster for us means we are 

50 miles from the nearest movie. We have to go about 25 miles to 

the barber and so forth, but it is still listed as an urban cluster. 

10

So we are having a hard time identifying what we really should 

have in there, and every time we think we had this thing ready to 

come out to go to our people we would find things that needed to 

be changed to improve it and to make it a better product. We 

worked on it a long time, and it was turned into the OMB in December. Hopefully we will get it out. We were hoping to get it out 

yesterday, but it is not, so, therefore, we hope within the next couple of days we will have it, sir. 

Mr. MCINTYRE. Whose direct authority is this under to get these 

regulations done? 

Mr. ANDREW. Whose direct authority? 

Mr. MCINTYRE. Yes, sir. 

Mr. ANDREW. Do you mean from when we started? 

Mr. MCINTYRE. Yes, sir. Is it under yours? 

Mr. ANDREW. That would be me. Yes. 

Mr. MCINTYRE. All right. Well, we do implore you to get that 

done as soon as possible, and we do request it be done within the 

time period, and I thank you for your attention to that very much. 

Let me ask in the remaining time, you mentioned in your testimony that 40 percent of the communities approved for funding 

were unserved at the time of loan approval. That means that over 

half of the loans are going to serve communities that already have 

some level of service. Would you elaborate on why such loans are 

approved? 

Mr. ANDREW. Well, I can. For example, we find that there are 

places where, I used to say in my business, if a vacuum is created, 

somebody is going to fill it. We have had some cases where we have 

had, like my friend, Wayne Dixon, people with DSL within 150 

yards and yet it cannot be brought to them. And we found that 

across the country. There are places where if we can reach a higher 

percentage of people there, then we will look at the loan application. 

I am not sure I answered your question, but the answer to it is 

that we have looked. Before we turn an application loose, we have 

looked at all of these things--the number of providers and so forth. 

Mr. MCINTYRE. All right. Let me ask you one other question before my time expires. 

Mr. ANDREW. Certainly. 

Mr. MCINTYRE. The authority for the program expires on Sep- tember 30 of this year, yet the program currently has over $900 

million in available funds to lend. Given that in both 2004, and 

2005, the agency estimated that the appropriations for the program 

would support significantly more in loans than actually was awarded, how much of this $900 million do you expect to lend by the expiration of the existing program? 

Mr. ANDREW. Well, we have 7 loans outstanding right now for 

$128 million, and we are not so sure how many will go out because 

the bank was closed down last year, and we had 20 pending for 

940. Okay. 

Mr. MCINTYRE. I am sorry. Say that again. 

Mr. ANDREW. We have $990 million as you pointed out at the beginning of the year. We have 7 applications in house right now, 7 

loans for 128 million. We have the remaining available funds of 

$861 million. We expect, we have about 500, we have 20 applicaVerDate 0ct 09 2002 12:47 Apr 25, 2008 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 F:\DOCS\110-16\41709.TXT HAG2 PsN: JAMIE
11

tions in house right now pending for $940 million. We expect to get 

those out before this expires. 

Mr. MCINTYRE. Before the expiration of this year? This fiscal 

year? 

Mr. ANDREW. Yes, sir. 

Mr. MCINTYRE. All right. Thank you. All right. With that we finished those questions within the time allotted. I will call on the 

Ranking Member, Mrs. Musgrave, for her questions. 

Mrs. MUSGRAVE. Mr. Chairman, I am going to defer to Mr. Peterson. He has a time constraint. 

Mr. MCINTYRE. Okay. Thank you very much. Mr. Chairman, we 

gladly go to you. 

Mr. PETERSON. I thank the gentlelady. 

Along that line, about the 40 percent who are unserved, the 15 

percent who have 1 provider, and 45 percent have a number of providers. Can you tell us, of that 45 percent how many have 2 providers, how many have 5, if there is actually communities out there 

that have 14 or 15 providers? Can you give me that information? 

Mr. ANDREW. We can provide it for you. Yes, sir. Because we do 

know that. 

Mr. PETERSON. Okay. Is it possible that you are making the loan 

to a place that has that many providers? 

Mr. ANDREW. I don’t think so. No, sir, but anyway, I want to say 

that whoever told you that was not sober. Well, certainly I will get 

you an answer to that question. 

Mr. PETERSON. Okay. As I understand it, you don’t receive any 

loan applications from entities that are proposing to only serve 

non-served areas? Is that true? 

Mr. ANDREW. I am sorry. I didn’t understand. 

Mr. PETERSON. That you are not getting any application, loan applications from entities that are proposing to serve only unserved 

areas and other——

Mr. ANDREW. The only loan application that we have received 

and approved is on an Indian reservation. That was the only one 

we have had that is totally unserved. 

Mr. PETERSON. Only one what? 

Mr. ANDREW. That was totally unserved. 

Mr. PETERSON. There is only one? 

Mr. ANDREW. Yes, sir. 

Mr. PETERSON. And what are you doing on this? We can have 

these grant programs and one thing or another, but without the 

Universal Service Fund (USF) fund on telephones we wouldn’t have 

got telephone service. 

Mr. ANDREW. Right. 

Mr. PETERSON. These folks that are out there running around 

whipping everybody up not to tax the internet are the biggest problem of why we are not getting this done, because we need a universal service fund to get this broadband out there. Because frankly, the economics don’t work otherwise. Am I wrong? 

Mr. ANDREW. Well, so far it has been kind of hard to make the 

economics work unless you have got something to back it up, sir. 

That is why, as I indicated in my oral testimony, the density is 

really critical in some of these places. 

12

Mr. PETERSON. But if we had a Universal Service Fund available 

in those unserved areas like we did with telephones, I bet you 

would be getting more applications than one. 

Mr. ANDREW. Probably. 

Mr. PETERSON. So, somewhere or another we have got to get realistic about this because if we don’t get these broadband services out 

there in these communities, it would be like not having telephones 

was back in the old days. We are going to have to figure out some 

way to work together to make this happen. 

Mr. ANDREW. I might suggest to you that of all the applications 

we have gotten, 35 percent of them are start-up operations, and 

those start-up operations are looking at, they are looking at this as 

a for-profit business. And when we get applications in all of them 

are somewhat different. You get different business plans, different 

ways of financing, different ways of structuring their business plan, 

different tiers and levels of organizational structure, and so our 

people at first were having a hard time working their way through 

this. That was one of the reasons we had such a hard time at first 

and took longer to get these applications finished. We were down 

to 330 days, I believe it is. We are down to 181 days now on the 

applications because our people are learning better, and we are 

also learning up-front as to what will and will is not going to make 

it. You can offer advice, but we are getting better at this. You are 

right. We need more applications, and we need people to understand what we have to offer. 

Mr. PETERSON. Well, thank you. Thank you, Mr. Chairman, for 

accommodating me and the ranking member. 

Mr. MCINTYRE. Yes, sir. Thank you, Mr. Chairman, for joining us 

today. 

I now call on the ranking member, Mrs. Musgrave. 

Mrs. MUSGRAVE. Thank you. Mr. Andrew, as I read through your 

written testimony I was paying particular interest to your bumps 

in the road I believe you called them, and you made comment 

about how the staff was overwhelmed by loan applications, just the 

sheer volume. You said that security of the loans were an issue, 

and many loan applications were returned because of some deficiency or some problem. You also went on to say that you had 

streamlined the process, the review process now, and I would like 

you to give me some specifics on that, because when I read that 

the number of loans was overwhelming. I wondered what you have 

done to educate your staff and increase their expertise. I also am 

trying to determine when a loan is submitted, how long is it before 

you determine that it is not going to pass muster, that you have 

to get it back to the folks. What is that turnaround time? 

I guess I just feel, for instance, when I read about security of a 

loan is an issue, that is the case when we face anything. So I don’t 

know why that is a difficulty. I am wondering how you have addressed those bumps in the road. I know I read that you now have 

a qualified, dedicated headquarter staff of 16 in the national office, 

and there are engineers and loan specialists and economists, and 

I am just wondering if you have the specialists with the expertise 

to deal with these things so that we can get past these bumps in 

the road. I would ask you to comment on that, please. 

13

Mr. ANDREW. Like I said earlier, part of the problem we had was 

that these applications that come in are all different. They really 

were all different in the beginning. They are getting better and better. It is because of our people the folks that submit applications 

know more about what we are looking for. 

We also have 28 people out in the field called loan specialists. 

They are working with these people before the loan is actually submitted to us now. So when they come in, our folks in Washington 

are better equipped because of experience. They are better 

equipped to identify the hard spots in the loans immediately. 

Now, one of the problems we had to start with was that we spent 

a lot of time working with the loan applicants, sending the applications back, ′′fix this, fix that, fix something else′′, and that is one 

of the reasons it took quite a long time is because the applications 

were quite difficult. But they have to be that way because we are 

dealing with government money, ma’am. 

What are we doing about it? Well, as I said, we have reduced it 

from 320 days I believe it is to about 181 days, and we hope to be 

able to get that down to a lot less than that. I won’t make any comments as to what we are shooting for, but as we get better at this 

and as the applications that are being submitted get better, we are 

getting better. As I said earlier also, we have had a tremendous 

learning curve. A lot of that learning curve is behind us now, and 

we now can move onto other things. 

I am not sure I really answered your question, but that is the 

way we see it. 

Mrs. MUSGRAVE. You have those 28 specialists out in the field. 

Describe to me how much they work with the folks that are going 

to be making the applications. 

Mr. ANDREW. The original job when those specialists started to 

work was to work with the infrastructure, the telephone co-ops, 

and in the process of time when the DSL came when broadband 

came, they didn’t have the expertise with broadband. So we set up 

a separate group in Washington to handle only broadband. 

Broadband loans came directly to Washington and did not go 

through our folks in the field. Now we are training them to know 

what to look for, how to work with these folks, and also how to follow up on it after they get installed. 

That is the expertise. Most of them are engineers, and they are 

loan specialists, most of the people in the field are. 

Mrs. MUSGRAVE. Thank you, Mr. Andrew. Thank you, Mr. Chairman. 

Mr. MCINTYRE. Thank you, Mrs. Musgrave. We are pleased to 

have our former Chairman of the Full Committee, Mr. Goodlatte, 

from Virginia here, and Mr. Goodlatte, would you like to make a 

statement or do you have any questions? 

All right. Then we will welcome you at any time that you may 

wish to do so and we are pleased to have your presence today. 

Let us see. Mr. Barrow. 

Mr. BARROW. Thank you, Mr. Chairman. 

Mr. Andrew, good afternoon. My name is John Barrow. I represent Georgia’s 12th District. You have testified how your family 

farm is in Jenkins County, and your business was in Burke County. Well, I represent Jenkins County and Burke County now, and 

14

it is good to be with home folks. It gives me a certain amount of 

pleasure to be with you here today. I say only a certain amount because of all the things that have yet to be done, and I want to add 

my concerns to those that have been expressed so far. 

On one point in particular, in response to the exchange between 

you and Chairman Peterson, I am going to have to express the 

hope that if you all can’t do a better job with defining unserved 

areas than you have been able to define rural areas, we are going 

to have. It is going to be a long time in getting the job done. There 

are going to be folks back home in Millen that is going to have a 

hard time understanding why that doesn’t meet anybody’s definition of a rural community. Maybe folks in Hopeulikit, Georgia qualify, but we got to make some progress and get there fast. 

I want to touch on a subject. You mentioned in passing that you 

were finally able to get access by way of satellite——

Mr. ANDREW. Yes. 

Mr. BARROW. —service, and that is something that I am going to 

touch on because we have talked about the logistical challenges of 

both distance and terrain that make getting broadband to most 

folks the way it is gotten to most folks now--by way of cable or DSL 

service--kind of challenging in more rural areas. So I want to know 

what you all are doing to promote wireless broadband by way of 

satellite service. What are you doing now to promote that, and 

what can you do that you are not doing now to promote that? 

Mr. ANDREW. The satellite people came in just last week as a 

matter of fact. They described to us a new satellite that they are 

hoping to put up and maybe even submitting an application to us 

to help them get that done. The satellites that are up there right 

now, the one that serves me, for example, and I don’t know why 

this happened, but I was the last one that was able to be served 

on that satellite--the circuit--because it was filled. These things 

have beams that come down in like a cone, and when you fill up 

that cone it is done. They had some openings in other parts of the 

United States. Minnesota, for example, filled one up rather quickly. 

Mr. BARROW. It sounds like it is a demand that is not being met 

right now. 

Mr. ANDREW. Well, they have got another satellite up that they 

put up in October, and it started to open up some more. It doubled 

the capacities. These cones doubled the capacity on the new satellite, and they assure us that this third satellite will be even 

stronger than that one, and it will also have the capability of moving these cones around so that if there is an unmet spot they can 

move it. 

Mr. BARROW. Well, right now, Mr. Andrew, it sounds like you are 

describing what is going on. What I want to know is if RUS is 

doing anything to promote that? Are you all making any loans? Are 

you making any grants that are directed towards expanding the 

scope and availability of satellite, wireless service? 

Mr. ANDREW. We have not made any loans to satellite providers. 

Mr. BARROW. Has anybody made any applications? 

Mr. ANDREW. No. Let me back up. That is not so. Yes, one did 

come in, and they didn’t have the credit support to back up what 

they wanted to do. 

15

Mr. BARROW. Was that, it didn’t happen to be that one involved 

with the Indian reservation that was——

Mr. ANDREW. No. 

Mr. BARROW. —the only one that was in a totally unserved area 

by you all’s definition of unserved, is it? 

Mr. ANDREW. No. 

Mr. BARROW. Okay. Well, what can you all do? You described 

somebody coming in just last week to talk about this. What can you 

do that you are not doing to reach out to that sector of the wireless 

community to try and expand service in that way? 

Mr. ANDREW. We hope to work with them on this project they 

have got going right now. We hope to be able to help them on this 

project they have going to get this next satellite up. We have some 

understandings with them. For example, they tell us that they 

have the ability to identify totally unserved areas and also serve 

rural areas, and that is what they are going to dedicate this system 

to serving totally unserved and rural areas. We want to see that, 

and we think they are supposed to be providing us that information. 

Mr. BARROW. Meanwhile, if there are people who are providing 

service right now, are they reaching out to RUS for support, or are 

you aware of any kind of effort that is going on in that area? 

Mr. ANDREW. No. For example, Congressman, in my case, I am 

getting my service through my electric co-op. They are offering the 

service. 

Mr. BARROW. Right. 

Mr. ANDREW. They did the contract with this provider, and they 

are offering the service, and my bill comes from the electric co-op, 

and I pay the electric co-op. 

Mr. BARROW. Are these the folks you say who are tapped out in 

your service area? You are the last one getting on board. Is 

that——

Mr. ANDREW. I am the last one, but now this new satellite is supposedly providing more. There was another beam just up north toward Sandersville, which you know that area. 

Mr. BARROW. Uh-huh. My district also. 

Mr. ANDREW. That beam was also open, but it was starting to fill 

up very quickly. The co-op up there was offering service, and they 

were about to run out, but now they are back in business again. 

So, the co-ops are taking this up, and some other people are taking 

up offering the marketing of this satellite business. But we are, as 

an organization, no, we are not out soliciting satellite business. We 

would like to help them. We hope they can get them up there, because like I indicated, that is the only way I am ever going to get 

it right now anyway unless technology changes. 

Mr. BARROW. Okay, Mr. Andrew. My time is running out, so I 

yield back. Thank you, Mr. Chairman. 

Mr. ANDREW. Thank you. 

Mr. MCINTYRE. Thank you, Mr. Barrow. We now will go back to 

our former full committee chairman and the ranking member of the 

full committee, Mr. Goodlatte. We welcome you if you have any 

questions or statements. 

16

Mr. GOODLATTE. Well, thank you, Mr. Chairman, and thank you 

for holding this hearing. I do have a brief opening statement that 

I will make a part of the record. 

Mr. GOODLATTE. I want to ask Administrator Andrew, who I also 

welcome, a couple things. 

First of all, with regard to Mr. Barrow’s questions, a few years 

ago the Congress did pass and the President signed into law legislation that was introduced by myself in Congress and Representative Boucher that gives RUS the authority to make loan guarantees 

for satellites for both local and the local television service and for 

broadband high-speed internet service. I understand, Mr. Andrew, 

part of the problem is that after that was done, the privately-competing television, satellite companies, if you will, expanded their 

coverage area to cover a lot of the more profitable areas. Is that 

one of the reasons why there has not yet been a subscription, an 

application to you for service under that? 

Mr. ANDREW. I can’t answer that question, sir. I just know that 

the one application we had to come in, I was involved in that, and 

the problem they had was that we require 20 percent credit support, and they didn’t have the investor backing to get that 20 percent credit support. Part of the problem was that I asked that it 

was going to be credit support, and I asked them who was going 

to go get it if they defaulted, and I didn’t get an answer. It had 

to do with buying insurance and so forth. It is not hard, wouldn’t 

be a hard asset for us. The same company is back in on this third 

round that they are going with, and I think they have identified 

ways that we can help them now. 

Mr. GOODLATTE. Good. Well, we certainly want to encourage 

that, and I want to ask a similar question with regard to competition for your broadband funds for deployment using any kind of 

technology. I know from my hearing from some providers of 

broadband service, cable companies, telephone companies, and so 

on, of their concern about competition between them and other 

companies that are receiving either loan guarantees or direct funding from the Rural Utilities Service. Can you tell us the status of 

your efforts to sort that out and determine who can receive assistance and who cannot? 

Mr. ANDREW. Yes, sir, in a way. We are dealing with this in our 

regulations which I pointed out are due out any minute as a matter 

of fact. As I understand I am restricted from talking about that 

until it does come out. That is one of the main subjects we are having to deal with. We have some friends back here from the cable 

company, cable association, and we worked with them on some 

issues that they have, but we have not resolved it yet. We hope we 

are going to resolve it when these regulations come out. 

Mr. GOODLATTE. And when do you expect to see those regulations? 

Mr. ANDREW. Last week. We expect——

Mr. GOODLATTE. Looking forward from last week when might we 

expect to see them? 

Mr. ANDREW. We were promised as late as yesterday afternoon 

they might be out as early as today, but any day now. 

Mr. GOODLATTE. Well, I am very interested in that. I know Congresswoman Herseth Sandlin has introduced legislation to address 

17

this issue. wanting to make sure that we are reaching the people 

who are most——

Mr. ANDREW. Yes. 

Mr. GOODLATTE. —in need of broadband service. You say you 

can’t tell us anything about the report you are about to release? 

Can you tell us whether this is based on a radius out from certainsized communities, or is it based upon the degree of competition 

that takes place? 

Mr. ANDREW. We looked at all of those things, and it would not 

necessarily be competition but rather what is the definition of 

rural. As I said earlier, my little town of Millen, Georgia, is considered an urban cluster, and we are 50 miles from the nearest town. 

That has been the hard spot. Trying to decide if you do away with 

urban clusters and therefore, do away with the Millen, Georgias of 

the world or the communities in South Dakota, for example. That 

is what we are having to deal with right now, but I think we are 

close to getting that done. And when the regulations come out, we 

know that there is going to be a lot of discussion about it, and that 

is what we want. We want to hear from everybody based on what 

we have got, and there will be some changes I am sure. 

Mr. GOODLATTE. Mr. Chairman, we may want to have him back 

after those regulations come out, because this is a very important 

issue. 

My concern is that in the eastern part of the United States, I 

represent a rural area of Virginia, we have——

Mr. ANDREW. Yes. 

Mr. GOODLATTE. —small cities where one, two miles outside of 

the city, cable companies aren’t providing service. Oftentimes telephone companies are not able to get service out, even that close to 

urban areas. So they are underserved when it comes to getting 

high-speed broadband service, but they are, indeed, rural areas. I 

could take you down and drive you outside the city limits——

Mr. ANDREW. I know. 

Mr. GOODLATTE. —and you will be in the country real fast. 

Mr. ANDREW. I looked at your map. 

Mr. GOODLATTE. And we would be interested in making sure that 

those types of areas are covered. I do, however, believe that there 

is a need to recognize that people who are making private investments to reach areas don’t need to have government-subsidized 

competition. So it is almost like there are three areas, three levels 

here. One level is where there is real competition. I would assume 

RUS doesn’t need to be there at all. Another area is where there 

is no broadband service, and we would certainly want RUS to be 

offering that kind of loan guarantees and other programs to get 

people, and then there is an area where you might have limited 

service. You might have one private competitor, and let me ask you 

this one question. My time I think is already up, but if I might, 

Mr. Chairman. 

Mr. MCINTYRE. Yes, sir. 

Mr. GOODLATTE. Do you lend right now to cable companies and 

telephone companies who have in a community broadband service 

already but want to expand out into areas that are more costly for 

them to reach but are in adjoining areas to where they are already 

providing service? 

18

Mr. ANDREW. That is a very interesting question because anybody can borrow money from us, and we would like to see that. We 

have never had an application to that extent. 

Mr. GOODLATTE. Not a single application from, I know you have 

had many applications. 

Mr. ANDREW. We have had a few cable companies, but not many. 

Mr. GOODLATTE. Okay. 

Mr. ANDREW. But we are available. 

Mr. GOODLATTE. And they can use that funding to expand their 

current service——

Mr. ANDREW. Yes. 

Mr. GOODLATTE. —to new areas? 

Mr. ANDREW. Yes. 

Mr. GOODLATTE. If they meet certain criteria? 

Mr. ANDREW. Yes. Or even if they are already serving and need 

to expand in their community, we can do that. 

Mr. GOODLATTE. Very good. Thank you, Mr. Chairman. 

Mr. MCINTYRE. Thank you. Good you have you with us, Mr. 

Goodlatte. 

I now call Mr. Marshall from Georgia. 

Mr. MARSHALL. It is good to see a fellow Georgian. I have some 

pretty basic questions to help me get a little bit better educated 

about this program. 

I have had plenty of visits from folks who are concerned about 

the competition issue that has already been discussed by Mr. Goodlatte and others, and it is discussed in the testimony as well, and 

I hope you all can resolve that since it does seem inappropriate to 

me. I am wondering about what flexibility the statute gives you to 

structure your loans so that they are more attractive to start-up 

ventures that are interested in serving unserved areas. I have to 

suspect that serving an unserved area is particularly challenging 

since the market is already decided. There is just no money there, 

and if you were limited to serving only unserved areas, would you 

be able to make any loans? 

Mr. ANDREW. No. 

Mr. MARSHALL. Is that because your loan flexibility is? Can you 

make zero interest loans? What is the flexibility that you have in 

order to attract people to borrow money? 

Mr. ANDREW. In broadband we have no zero interest loans. We 

have no grants. We have it in distance learning and tele-medicine, 

but not in the broadband program. Business is growing very fast, 

and finding unserved areas is getting harder and harder to do, except small, small towns. Therefore, it would be rather hard to make 

a loan in a small town like that because the economics are not 

there. 

Mr. MARSHALL. What lending niche are you? I am a banker, lawyer. What lending niche are you intended to fill here? 

Mr. ANDREW. We are intended to cover, according to the law, we 

are to cover the rural areas of America. 

Mr. MARSHALL. Well, I understand that, but plenty of loans are 

made to rural Americans for all kinds of different business ventures. Apparently there was a decision made that there is a gap in 

the financing that is available, and that gap has to be filled by the 

Federal government. So you were created and authorized to make 

19

loans. What is the lending gap? Is it that the private sector just 

charges too much money or won’t lend at all, or what is the deal 

there? I can understand you don’t want to go up, you know, to retrieve your collateral in space somewhere. 

Mr. ANDREW. Well, Congressman, as I understand it--I was not 

there--but when this program started, they were seeking advice 

from investment bankers of how we should proceed with this thing. 

They were even suggesting that we should have 80 percent credit 

support, meaning by that the person coming to borrow money 

should put up 80 percent. Private investors feel the same way 

about that. So, therefore, we were created, and we require 20 percent investment credit support before we make the loan. That 

means that somebody has got skin in the game before they actually 

go out there and deploy. That means that when they start deciding 

what town they are going to serve in, they have got a pretty good 

idea what they are going through. Yes, sir. 

Mr. MARSHALL. So your terms are consistent with the private 

market as far as interest, period of repayment, those sorts of things 

concerning, but not consistent with the private market as far as 

credit worthiness. You are——

Mr. ANDREW. The interest is less. 

Mr. MARSHALL. So your interest is less, and your credit standards are less as well? 

Mr. ANDREW. Well, I wouldn’t say they are less because, no, I 

wouldn’t say they are less. No. We still have to get the taxpayers’ 

money back. 

Mr. MARSHALL. Well, if you have a choice between a borrower 

who is going to go out and try and serve some underserved areas 

whose credit worthiness is marginal by your standards, and a borrower who is going to expand existing services, I think you gave 

an example of somebody who is 150 yards away from a DSL line 

or a fiber optic cable——

Mr. ANDREW. Right. 

Mr. MARSHALL. —and couldn’t get DSL. If you have a choice between those two, how do you resolve that choice? Credit worthy, 

wants to expand in an existing area and will be able to frankly 

reach more people versus not as credit worthy, meets your standards, not as credit worthy, not going to reach as much people but 

going to go to an unserved area. 

Mr. ANDREW. Credit worthiness would be the choice. 

Mr. MARSHALL. You would go with the company that had the 

more credit. 

Mr. ANDREW. Correct. 

Mr. MARSHALL. Mr. Chairman, I see my time is up, but that is 

probably an issue we need to look at. 

Mr. MCINTYRE. Okay. Thank you. Thank you very much. Very 

good questions, Mr. Marshall, and thank you, Mr. Administrator, 

for following up on those as well. 

I would like to now call on Mr. Smith from Nebraska. 

Mr. SMITH. Thank you, Mr. Chairman, and Administrator Andrew for coming here today. I apologize for my earlier absence. 

The overall needs assessment is what I would like to have you 

elaborate on. In terms of detection of current availability of 

broadband, and then the process by which you ensure that all parVerDate 0ct 09 2002 12:47 Apr 25, 2008 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 F:\DOCS\110-16\41709.TXT HAG2 PsN: JAMIE
20

ties are notified if they are interested in participating in or requesting the assistance. 

So I guess needs assessment to begin with. 

Mr. ANDREW. Your question is? 

Mr. SMITH. Identifying areas that need broadband or that would 

qualify for the assistance. 

Mr. ANDREW. We don’t have a process by which we go out and 

map out the country and decide where there is a need. We have 

to base it on what applications, the applications that come in. 

Mr. SMITH. Right. 

Mr. ANDREW. And they would bring an application in, say this 

community is only receiving 10 percent service or 20 percent service, and it goes from there. But we don’t go out. No, sir. We do not 

go out and identify towns that need broadband coverage. 

Mr. SMITH. But then you rely solely on the applicants——

Mr. ANDREW. Yes. 

Mr. SMITH. —to explain the need for the basic area. 

Mr. ANDREW. Well, originally. Then we check that out because he 

has to give us a market study, and then we advertise in the local 

newspaper at the suggestion of some friends of ours. We also put 

it on our website, and we also have a link over to the FCC so that 

anybody that goes onto the FCC website can link over to us and 

find out who is, what towns are being asked for. 

Mr. SMITH. Are there public hearings involved in this process? 

Mr. ANDREW. No, sir. 

Mr. SMITH. Okay. 

Mr. ANDREW. No. 

Mr. SMITH. Thank you. 

Mr. MCINTYRE. Thank you, Mr. Smith. 

And I would like now to call on Mr. Pomeroy from North Dakota. 

Mr. POMEROY. Thank you. I was part of the original effort to try 

and get loan funds to support lending to address the digital divide, 

and I tell you, the heart of my thinking was we were going to fund, 

we are going to help support build-out in the areas where populations dropped, and it was harder to get these things to be financed without this extra dimension of assistance. 

I have been very concerned that build-over has been a recurring 

feature of the program, not build-out. We have built-over. I am just 

deeply troubled with the loan that was offered in Jamestown, 

North Dakota. It was offered to a rural telephone company. It is 

a fine company, and I like RTCs, but I have real concerns about 

the damage that may be irreparable to a private, small businessman running a cable system in that community. And he doesn’t understand why he has got to compete against a new competitor generously funded with subsidized government money. 

Now, I am not asking you at this point in time to address that 

one, although I might, if you want to, I will evaluate. The damage 

is done. I mean, I would evaluate how in the world that happened, 

but just using that as a hypothetical, I still have questions about 

the application of this program. 

I am a little concerned, Mr. Administrator, by—I like your candor, first of all. You acknowledge that you didn’t know everything 

about this from the start, but gosh, we put $3 billion into this program, and to hear you say, well, as we get better at this, we are 

21

improving the administration of the program. We don’t really anticipate a long learning curve given those kinds of resources. We 

want you to go hire the help you need so that we can basically competently execute an assignment like that right from the get go. 

I think that if you don’t have loan demand, you ought to take 

such resources you can bring to bear and work on market development, not fund build-over projects just so you get some loans out 

the door, and I think that is what happened in part anyway. 

I am also concerned about an area where you have not sought 

additional funding going forward, and that is this Community Connect Grant Program, which funds hookups to schools and libraries 

and community centers in some of these rural areas. If you are concerned about some of these hardest areas to reach with the 

broadband activity, why would you not seek funding for the program that directs it into some of these places like schools, libraries, 

and community facilities through the Community Connect Program? 

Those are the things that are on my mind this afternoon. I would 

be interested in your responses. 

Mr. ANDREW. The Community Connect, let me start with that. 

The Community Connect is a very good program, and we are pushing that very strongly. In fact, I think that there are a lot of places 

we have some, at least one example, of where Community Connects 

was the basis for starting out an expansion program out in the 

community. We would like to, we are, it is a competitive program 

as you well know. It is up for competition. They have to submit applications, and we, I think last year we, well, I will let Jackie, she 

hasn’t said a word. Let me let her speak just to that issue. If you 

don’t mind, sir. 

Ms. PONTI-LAZARUK. Thank you. Community Connect as Mr. Andrew said is a wonderful program. Last year we had $8.9 million 

in grants, and more than 90 applications were received for $45 million in requests. So it is very popular. It is extremely competitive. 

Mr. POMEROY. It is my understanding that you have not sought 

funds for next year? 

Ms. PONTI-LAZARUK. In the current budget? The funding does 

come through other means, and in the current budget we have not 

sought funds for this program. 

Mr. POMEROY. So this great program that you both have spoken 

to, you zero out next year if you have your way about it. It makes 

no sense to me. 

Ms. PONTI-LAZARUK. Well, one of the wonderful things as Mr. 

Andrew alluded to is we do have some who graduate from the 

grant program into the loan program, and we find that in the loan 

program we can do a lot more with the dollars. 

Mr. POMEROY. Schools, libraries, community facilities. I mean, 

there is probably not going to be a lot of graduation when we think 

about those entities. 

I will continue to look on that one. I would like you to talk about 

build-out versus build-over, and get your sense for how you are administering this program presently. You have been talking about it 

through the day, but like I say, we have got a situation of particular concern in North Dakota. 

22

Mr. ANDREW. As I indicated, I think that when the regulations 

come out you will be better satisfied with the answer to that question, but having said that, what we look at on an application is the 

percentage of take that somebody is getting in the community, and 

if there is a small percentage of take and there is a lot of people 

who are not getting it, that would be the only reason we would be 

looking at a build over. Now, let me give you an example. 

I had a lady come into me that was the mayor of a small town 

out west. They wanted to build a system out there that was fiber, 

a loop fiber, a backbone fiber optics. They wanted to provide fiber 

to these communities, and we could only fund about five communities. The rest of them were too large for us to fund. But these 

5 communities came to us and one of them was a community of 

5,000 people. She said that they had already lost two industries because they couldn’t bring broadband to those industries. She said 

also that the third one that they had in town, they were about to 

leave, and they do scientific products for NASA, for the Army, for 

the military, and if they didn’t get high-speed internet to them, 

they were going to lose that industry. There were 2 providers in 

that town, and they were 100 yards away from them, and they 

would not take it to them. So we offered to do the job. And that 

is the example of what I am trying to say that when we build-over, 

that is what it is. 

Now, if I understand correctly, they are probably getting it now. 

They wouldn’t offer it to the college either in that town. As I understand it, the fact that we might be, that they might be doing something, sometimes I think that if we just advertise we are going 

somewhere, that it will get build out, because the people start to 

get active again when they see us coming or see a competitor coming. But that is an example of what, sometimes when we have to 

look at build-over. 

Mr. MCINTYRE. Thank you, Mr. Administrator. I am going to 

have to stop this because we are running, we have run 2 minutes 

over, but I wanted to allow you to fully elaborate your answer. 

Mr. ANDREW. Thank you. 

Mr. MCINTYRE. And thank you for doing that, but we would welcome you to give any other example or explain further as necessary. Thank you for understanding, and thank you, Mr. Pomeroy, 

for some very excellent questions. 

I would like to now call on a special guest of the subcommittee 

today. We are honored to have the gentlewoman from South Dakota, Mrs. Herseth Sandlin join us. Although she is not a member 

of this subcommittee, she is a member of the full committee, and 

I have consulted with our ranking member, and we are pleased to 

welcome her to join in the questioning of the witnesses. 

Mrs. Herseth Sandlin. 

Mrs. HERSETH SANDLIN. Thank you, Chairman McIntyre, for allowing me to attend today’s hearing. I do want to thank all of today’s witnesses and in particular too that you have been kind 

enough to let me introduce on the next panel, two South Dakotans. 

I commend their testimony to all members of the subcommittee. 

I do have an opening statement I will submit for the record that 

lays out briefly some of the elements of the Rural Broadband Improvement Act that I have introduced, along with other of your 

23

members on this subcommittee, including Mr. Pomeroy and Mr. 

Smith. So I will submit that for the record. 

Mrs. HERSETH SANDLIN. But I do have just a couple of follow-up 

questions for Mr. Andrew if I might. 

Mr. ANDREW. Yes, ma’am. 

Mrs. HERSETH SANDLIN. I understand, Mr. Chairman, that you 

had requested that the regulations that the USDA is working on 

be submitted to the subcommittee within 10 days. 

Mr. MCINTYRE. Yes, ma’am. 

Mrs. HERSETH SANDLIN. I know in response to Ranking Member 

Goodlatte’s question that, Mr. Andrew, you expect them any time. 

May I inquire, however, how long you have been undertaking the 

review and the proposed changes to the regulations? How long has 

this process been taking, how long has it, when did it start in other 

words? 

Mr. ANDREW. We started the process in December of 2005. We 

started with a large group of people to analyze the good parts and 

the bad parts about the program that we had at that time. Then 

after we got all these things on paper, we reduced them down to 

a workable paper, workable project, and over the time, over that 

time from that, from February of 2006, to July of 2007. We were 

honing our process down, and for example, I know you are concerned about overlay, competition, and we had a lot of discussion 

with competitors from the cable industry and other industries. We 

also had discussions about what is rural and what is not rural and 

how do we identify what areas we are going to serve. Every time 

we thought we had something ready to come out we would find another issue that we needed to deal with, and that is what has 

taken so long--probably too long. 

Mrs. HERSETH SANDLIN. But you don’t anticipate any problems 

getting us the proposed regulations within the next 10 days? 

Mr. ANDREW. I am sorry? 

Mrs. HERSETH SANDLIN. You don’t anticipate any problems getting us those proposed regulations within the next 10 days? 

Mr. ANDREW. I sure hope not. I didn’t have any, didn’t think I 

would have any problems getting them, not getting them here 

today, but we hope to get them out. We have been promised anyway. 

Mrs. HERSETH SANDLIN. Okay. Picking up on Mr. Pomeroy’s 

questions, but also going back to a statement you made about the 

unserved areas and that the economics just aren’t there, and that 

they are very small towns. You just gave the example of when you 

did go in, even though there were providers that were there in that 

community of about less than 5,000 and industry was possibly 

going to move out of that community, knowing how important 

broadband is to the revitalization of rural communities, including 

these very small towns, do you have any suggestions or will we see 

in the proposed regulations how we go about addressing the statement you made about the economics just not being there, or are the 

people that live in these communities just never going to be served 

by broadband? 

Mr. ANDREW. Do you want to say something? I see you shaking 

your head. We would like very much to get awareness out there, 

Congresswoman. The little town I talk about where I come from, 

24

I go to town every time I go there. I go into town and speak with 

the Chamber of Commerce, I speak with the industrial developers. 

Why aren’t you doing something on broadband? Why aren’t you 

doing something to bring this to our community of 2,500 people because it is going to be so critical to the success. It is drying up. The 

only answer I get is lack of leadership, and we have got to find a 

way to find that leadership. 

Mrs. HERSETH SANDLIN. Well, I agree with you, and I do think 

that is an issue for communities of all sizes but I also support entrepreneurs, and that is where the issue of credit worthiness comes 

in. We all know how important that is as it relates to protecting 

taxpayers when we are dealing with a loan or loan guarantee program. But I do think as Mr. Pomeroy pointed out, if there isn’t the 

demand for the loan, and there is a problem of lack of leadership, 

then we need to work together to figure out a way for market development or enhancing the leadership and building the type of 

leadership and support for entrepreneurs for the types of companies that would be willing to submit application and serve these 

unserved areas. 

My time is drawing down, but I do thank you for your testimony, 

and we look forward to seeing the proposed regulations from 

USDA. 

Mr. ANDREW. Thank you. 

Mrs. HERSETH SANDLIN. Thank you. 

Mr. MCINTYRE. Thank you so much, and thank you for joining 

us. 

We now call upon Mr. Fortenberry. 

Mr. FORTENBERRY. Thank you, Mr. Chairman, for holding this 

important hearing. You will recall a month or so ago Under Secretary Dorr was present with us and made the comment that providing rural broadband access is perhaps the most significant initiative that we can undertake to help ensure good rural economic 

development. So, thank you, Mr. Chairman, for following up on 

that comment. 

Mr. Andrew, you did make the comment earlier to Mr. Smith 

that you currently have no methodology of identifying areas that 

are underserved, poorly served, not served at all, or conversely, 

areas that may be very well served or adequately served. Also in 

your testimony you, and I apologize if some of this is redundant because I just came in, but I skimmed through your testimony quickly. You make the comment that we want to do a better job of identifying where the holes are in existing service. I think we ought to 

reconcile those two comments. If you would talk openly about if 

this would be an important new policy initiative that we undertook 

some sort of identification strategy to understand where our holes 

are significant, and perhaps some type of rating scale that gave an 

indication as to how well communities are being served, if they are 

served at all. That could then tie into perhaps what Mr. Pomeroy 

was alluding to in terms of decision-making processes as to where 

you provide loans to ensure that we aren’t unnecessarily entering 

into competition when there has already been build-out by the private sector. 

Mr. ANDREW. We looked at this right from the very get go when 

I first got on board. We looked at the possibility of mapping the 

25

United States and where we could identify who had it and who did 

not have it. The conclusion was finally reached that this thing is 

moving so fast that by the time we had the map finished, it would 

be obsolete. We didn’t have the funds to do such a thing as that. 

Now as recently as 2 or 3 weeks ago, we have met with the chairman of the FCC, and there is a possibly that we will be able to do 

some work with them about identifying these areas. Because right 

now they identify that if there is one person in a community receiving broadband service, that community is served. Well, of course, 

that is not the way it should be. We think that we might--we are 

going to be meeting with them on a regular basis to try to figure 

out a way to better identify where we are going. We have also identified a private contractor that may be able to help us. We think 

that they have got some data that can help us identify better than 

what we have been doing. We have to do that. 

Mr. FORTENBERRY. Okay. Again, so then the presumption is that 

is an important initiative that you should undertake. 

Mr. ANDREW. Yes, it is. 

Mr. FORTENBERRY. I would agree. I think that, providing that information is going to be critical as you move forward in potentially 

any reform of the program that looks at as to how you grade an 

applicant’s, the viability of a potential applicant for a loan that provides service in the area if we know clearly that it is a potential 

duplication of private market sectors or if there is somewhere inbetween versus not having the service at all versus enhancing existing service. And you might be able to grade, if you will, the applicant on using some methodology, having a clearer understanding 

of what the market is already providing. 

Mr. ANDREW. If you don’t, if you will, I will give you an example 

of how difficult that might be. I live in an apartment building in 

Arlington. When I got there, I applied for broadband coverage or 

applied for, I won’t say with whom. They said, yes, we can provide 

it. Well, then in the 2 days that they are supposed to connect it, 

they said they don’t have the capacity. Well, if I were to look at 

a map and look at what is covered, they would say that Arlington 

is covered, but I couldn’t get it. So I had to go to another provider. 

I almost put in a satellite receiver, but I could not get it there because the capacity was not there. They were overloaded, so if we 

were to look at a map, it would say that it is covered, but a lot of 

us still couldn’t get it. We are finding that to be true in a lot of 

places. But we have got to identify, better identify places where we 

need to be going. There is no question about that, and we have got 

to find a way, Congressman Pomeroy, we have got to find some 

boots on the ground to help us get this program delivered because 

basically we are not deliverers. We are bankers, but we need to 

find a way to deliver this stuff. We have thought a lot about this. 

I have worked with Rural Electric, for example. They have got people on their staff that are marketing people that work with the 

Chambers of Commerce, county commissioners and so forth. If they 

could help us, say, ′′Look, let us get broadband.′′ Some of these coops are now offering broadband more and more. 

So we are trying to find ways that is within our purview. 

Mr. FORTENBERRY. Well, I appreciate your comments. Obviously 

it is very complicated and difficult. My suggestion about a grading 

26

system was not indicating any policy preference but just putting a 

new idea on the table to suggest that I think we do need some attempt to collect the data and how that could potentially be an important input into your processes of evaluating loan applicants. 

So thank you. 

Mr. MCINTYRE. Thank you. We thank you for being with us, Mr. 

Andrew, and Ms. Ponti, congratulations on your recent marriage. 

Thank you all. We will look forward to getting the regulations 

hopefully by tomorrow, but in no less than 10 days. 

Mr. ANDREW. It helped me a great deal, sir. 

Mr. MCINTYRE. Yes. Thank you all so much. 

We now will call, we will excuse this first panel and call our second panel to the table. 

Thank you. Welcome our second panel to come before us today 

for the Specialty Crops, Rural Development, and Foreign Agriculture Subcommittee. I would like to recognize the Ranking Member from Colorado to introduce her constituent who is testifying on 

this panel. 

Ms. Musgrave. 

Ms. MUSGRAVE. Thank you, Mr. Chairman. Well, again, Kevin 

Felty from Joes, Colorado. He and I had a good chance to visit and 

I introduced him previously, but Kevin, we are glad to have you 

here today and look forward to your testimony along with the rest 

of the panel. 

Thank you, Mr. Chairman. 

Mr. MCINTYRE. Yes, ma’am. Thank you, and I would like now to 

call upon the gentlewoman from South Dakota to introduce her 

constituents who are testifying on this panel. 

Mrs. HERSETH SANDLIN. Thank you, again, Mr. Chairman. I 

would like to take this opportunity to introduce the witnesses from 

the great State of South Dakota. Tom Simmons, Senior Vice President of Public Policy for Midcontinent Communications, and Denny 

Law, Eastern Regional Manager for Golden West Telecommunications Cooperative Association. 

Incorporated in 1916, Golden West Telecommunications 

headquartered in Wall, South Dakota, was the first company to run 

telephone lines across the remote plains of western South Dakota. 

Today, despite serving the most remote regions of our State, Golden West is the statewide leader in information, communications, 

and entertainment. The history of Golden West, despite the many 

barriers it confronts, serves as the perfect example for both the success and the challenges of providing telecommunication services to 

rural America. 

Mr. Law’s early years in the communications business include 

ownership of a start-up inter-exchange carrier in 1990, and a startup internet service provider in 1994. He has served as general 

manager of Sioux Valley Telephone Company and a Golden West 

subsidiary since 1997. In addition, Mr. Law serves in a larger capacity as I mentioned as eastern regional manager of Golden West 

Telecommunications. 

We also have with us today Mr. Tom Simmons from 

Midcontinent Communications. Midcontinent, headquartered in 

Sioux Falls, South Dakota, is the leading provider of cable television services, as well as local and long distance telephone service, 

27

high-speed internet access, and cable advertising services for communities in both North and South Dakota. Prior to his 20 years of 

service at Midcontinent Communications, Mr. Simmons managed 

radio stations in Spokane, Washington, Boise, Idaho, and Green 

Bay, Wisconsin. He has provided testimony before the U.S. Senate 

Commerce Committee, the Senate Agriculture Committee, and the 

North Dakota Public Service Commission, along with legislative 

committees in both North and South Dakota. 

So I want to thank both of them for their testimony, commend 

to you, Mr. Chairman, and our ranking member, and thank you 

again for allowing me to participate in today’s hearing. 

Mr. MCINTYRE. Thank you so much, Mrs. Herseth Sandlin, and 

I would like to note that in addition to those that have already 

been introduced by members of the panel or the larger committee, 

we know Dr. Geller was mentioned earlier by Chairman Peterson. 

He will be our first witness, the President of the Center for Rural 

Policy and Development from St. Peter, Minnesota. 

Also, we have on the panel Mr. Walter McCormick, Jr., President 

and Chief Executive Officer of the United States Telecom Association here in Washington, and we welcome you as well. 

So with that we have all of our panel introduced, I believe, and 

Dr. Geller, if you will begin. 

STATEMENT OF JACK GELLER, PRESIDENT, CENTER FOR 

RURAL POLICY AND DEVELOPMENT 

Mr. GELLER. Chairman McIntyre, members of the subcommittee, 

it is indeed an honor to be here today. My name is Jack Geller. I 

am President of the Center for Rural Policy and Development in 

Saint Peter, Minnesota. My comments this afternoon will be limited in scope, and I will focus on the importance of having accessible and affordable high-speed telecommunications infrastructure 

throughout rural America. In that discussion I will touch upon the 

adoption and deployment of broadband services throughout rural 

Minnesota and what we have learned about the value of having 

good objective data on the utilization consequences of broadband 

technology to Minnesota policymakers, industry executives, and 

rural organizations. 

In many ways the need for access to these broadband technologies for our rural communities and businesses is really self-evident. As FCC Commissioner, Michael Copps noted last month after 

learning of a new report that dropped the United States in its 

rankings from 12th to 15th among OECD nations in broadband 

penetration, these rankings are not a beauty contest. They are 

about the competitiveness, our competitiveness as a country and 

creating economic opportunity for all of our people. It is with this 

very reason that Federal agencies such as RUS have put funding 

programs in place to assist rural America in remaining viable and 

economically competitive and connected. 

At the Center for Rural Policy and Development we have been 

conducting annual technology assessments since 2001. In that first 

year we reported that only six percent of rural Minnesotans purchased a broadband service at home. I am pleased to tell you that 

last month in April, 2007, we reported that, to date, 40 percent of 

rural Minnesota households subscribe to a broadband service. This 

28

is just a few percentage points below the national subscription rate 

of 42 percent as reported by the PEW internet and American Life 

Project. 

Of course, the adoption of high-speed telecommunication services 

is simply not possible if such broadband services are inaccessible 

or unavailable throughout rural Minnesota and rural America. Accordingly, in 2003, we also began working with Minnesota’s 

broadband providers to monitor the deployment of broadband services throughout rural Minnesota as well. The outcomes of these 

monitoring efforts has been valuable to policymakers, broadband 

advocates, and industry officials as we no longer need to make generalizations based upon case-specific or anecdotal events. 

For these statewide assessments we reported that access to 

broadband services, while not ubiquitous, is quite widespread 

throughout rural Minnesota. Overall more than 85 percent of Minnesota’s rural communities have access to at least one broadband 

provider and more than one-third have access to competitive 

broadband services. 

Essentially today if you live in rural Minnesota and live within 

one of our 800 municipal boundaries of the cities and towns in Minnesota, there is a very high probability that you will have access 

to at least one broadband provider. However, that is not the case 

if you reside outside the municipal boundaries 

Across Minnesota’s countryside accessibility and availability of 

broadband services is considerably less consistent. In Minnesota 

more than 900,000 residents currently live outside these boundaries. The reality is, in spite of all this added emphasis on advanced telecommunication services, there is embarrassingly poor 

information and data on the adoption, diffusion, deployment, and 

utilization of these technologies. In fact, as mentioned today, the 

Federal government still has no credible list simply identifying 

which communities do and do not have access to broadband technology. 

Accurate data and information on the availability and consequences of this significant public investment is essential. Recently, the Federal Communications Commission validated the importance of such information when they announced their efforts to 

determine whether high-speed internet access is being made available fast enough--calling it critical to the Nation’s economy. Specifically, the FCC emphasized the need to assess the availability of 

broadband service in rural and other underserved areas. That is a 

great first step. 

In closing, I see my time is waning quickly, allow me to offer the 

observation that if the Rural Utilities Service were a technology 

company making such sizable billion dollar technology investments, 

it would be unheard of that it were not spending a sizable percentage of its revenues on research and development. The need to understand the consequences and the outcomes of these public investments is evident. 

Allow me to suggest that in the case of RUS, a simple set aside 

of less than five percent of program and loan funds and actually 

considerably less than five percent, would be one of the best investment strategies that Congress could make. 

29

Chairman McIntyre, members of the subcommittee, I see my 

time is up, so let me thank you for this opportunity. I really appreciate it. 

Mr. MCINTYRE. Yes, sir. Thank you. 

Mr. Simmons. 

STATEMENT OF TOM SIMMONS, SENIOR VICE PRESIDENT OF 

PUBLIC POLICY, MIDCONTINENT COMMUNICATIONS, ON BEHALF OF NATIONAL CABLE AND TELECOMMUNICATIONS ASSOCIATION 

Mr. SIMMONS. Chairman McIntyre, Ranking Member Musgrave, 

and members of the committee, thank you for allowing me to testify today and also thank you, Congresswoman Herseth Sandlin, 

for being here as well. 

My name is Tom Simmons, and I am the senior vice president 

of public policy for Midcontinent Communications, a leading provider of cable telecommunications services in rural America, including digital, cable television, broadband internet, and telephone 

services. We serve over 200,000 customers in approximately 200 

communities in North and South Dakota, western Minnesota, and 

northern Nebraska, generally classified as rural and small. The 

size of our communities ranges from densities of 5 to 116 homes 

per cable mile, with populations ranging from less than 30 in Barlow, North Dakota, to our largest community, Sioux Falls, South 

Dakota, which has a population of about 150,000. 

Midcontinent launched its broadband internet service over 10 

years ago in Aberdeen, South Dakota, and made a pledge then to 

bring advanced broadband services to as many customers as possible regardless of the size of the community. The continued build 

out and upgrade of our system has required Midcontinent to invest 

well over $100 million in private risk capital to bring advanced 

services to our customers in rural America without the assistance 

of public funds, and we hope to continue doing so. 

We are proud of our ability to deliver the services our customers 

in relatively small towns demand, which are no less than those desired and expected in suburban and major metropolitan areas. And 

Midcontinent’s not alone. The cable industry has invested over 110 

billion during the last 10 years to become the largest provider of 

broadband service in America, and according to Kagan Research, 

cable internet service is now available to 94 percent of all U.S. 

households including hundreds of small towns and communities in 

rural areas across the country. 

However, despite the widespread availability of broadband service, there are still sparsely-populated areas of the country that are 

not served. Recognizing this, the cable industry supports legislative 

initiatives and government programs designed to promote 

broadband deployment in these unserved, rural areas. 

The Rural Utilities Service Broadband Loan Program is a prime 

example of a program that was intended to make it economically 

feasible for the private sector to serve rural communities that lack 

broadband service. Though we support the goals of the RUS 

Broadband Loan Program, we are very concerned about how this 

program has been implemented and managed. And our concern 

was validated by a September, 2005, report from the USDA’s own 

30

Office of Inspector General. In particular, the report and the cable 

industry’s concerns center on the fact that our U.S. loans are largely being used to subsidize broadband deployment in areas already 

served by companies that deploy broadband service without a government subsidy using private risk capital. 

Additionally, RUS rules make it difficult for anyone, existing providers, the public, even RUS staff, to assess the accuracy of the 

claims made by an applicant regarding existing broadband service 

in the area it proposes to serve. As such, the RUS is often unable 

to determine whether the grant of a loan will undermine private 

sector competition, and before the process lacks transparency, taxpayer funds are being misspent on projects that are not extending 

broadband service to those unserved rural communities. 

I know this personally since the town of Mitchell, South Dakota, 

was over-built with RUS funds, despite the fact that the project 

didn’t reach any unserved homes. And Midcontinent had already 

invested nearly a million dollars to upgrade the existing cable plant 

to provide those advanced services. Last week Representative 

Stephanie Herseth Sandlin, along with Representative Jerry 

Moran, introduced legislation to reform the RUS Broadband Program. The cable industry supports this legislation. HR 2035 would 

redefine eligible rural community so that scarce Federal resources 

are not squandered on projects that serve densely-populated suburban areas where broadband competition already thrives. 

The bill would also create an incentive for applicants to deploy 

broadband service to as many unserved households as possible by 

only granting a loan for the full amount of the project if at least 

half the households proposed to be served do not have broadband 

available to them. 

Mr. Chairman, the legislative changes prescribed in HR 2035 

would do much to ensure that the RUS refocuses the Broadband 

Loan Program on its original mission by bringing broadband service to unserved rural areas. However, to fully address the program’s problems, the cable industry also believes that considerable 

changes have to be made to the RUS broadband loan application 

assessment and approval process. These changes should require 

much needed transparency, aggressive oversight, and a notice and 

comment period for the loan applications. If the RUS cannot ensure 

that it has complete and accurate information regarding the applications, then any legislative changes made by this committee will 

be considerably less effective. 

In closing, let me reiterate that Midcontinent supports the Federal government’s goal of ensuring that all Americans have access 

to broadband services. However, any government program designed 

to promote broadband deployment must be carefully defined and 

targeted at those areas that lack broadband service. 

Mr. Chairman, thank you, again, for inviting me to testify today. 

I would be happy to answer any questions that you or the members 

may have for me. Thank you. 

Mr. MCINTYRE. Thank you, Mr. Simmons. 

And now Mr. McCormick. Welcome. 

31

STATEMENT OF WALTER B. MCCORMICK, JR., PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, UNITED STATES TELECOM ASSOCIATION 

Mr. MCCORMICK. Thank you, Chairman McIntyre, Ranking 

Member Musgrave, members of the committee. I appreciate the opportunity to appear before you today. 

The United States Telecom Association represents innovative 

companies ranging from the smallest rural telecoms in the nation 

to some of the largest corporations in the United States economy. 

The vast majority of our member companies are rural companies. 

They are small businesses serving small communities. They are 

deeply committed members of their communities. 

What unites our diverse membership is the sheer determination 

to deliver innovative services to consumers. We are enthusiastic 

about our role in driving the next wave of broadband-based innovation which holds the promise of significant life-enhancing advances 

from healthcare to the environment to education to our economy. 

We believe it is critical that these opportunities be accessible in 

rural America so we wholeheartedly support the objective of ubiquitous, nationwide broadband. We were pleased to see that affordable broadband access for all Americans is now a component of 

Speaker Pelosi’s innovation agenda. Similarly, the Republican High 

Tech Task Force is calling for policies that ‘‘promote widespread deployment and use of broadband technology.’’

Broadband deployment and adoption should be bipartisan objectives, and we believe that RUS has a vital role to play in advancing 

these goals in rural America. Specifically, we believe that five modest changes to the RUS Broadband Loan Program can produce significant progress in terms of enhanced rural broadband deployment. 

First, target program resources. We believe the current program 

can more aggressively target areas with no current broadband access. We believe the successful RUS Telephone Program offers 

many helpful suggestions for doing so. In that program, for example, the RUS administrator must issue a non-duplication finding 

prior to making a loan. Such a requirement in the Broadband Program would help direct funds to where they are most needed. The 

Telephony program also requires that service be extended to the 

widest practical number of users in the service area, unlike the 

Broadband Program, where service is sometimes confined to town 

limits. 

Second, enhanced investment incentives. While cost-of-money 

loans make projects financially viable in some communities, higher 

cost areas require below-cost loans or a combination of loans and 

grants to make a costly infrastructure build feasible. Particularly 

as the program focuses more sharply on unserved areas, this approach will become increasingly important. Congress should encourage RUS to look at the unique needs of unserved communities 

and find ways to enhance incentives for private investment. Taxpayers will reap the benefits of broadband-driven economic development, and we believe this would increase loan applications targeting the more hard-to-reach areas. 

Third, expand eligibility. Expanding the range of companies eligible for these loans would also help. Unlike the Telephony Program, 

32

the Broadband Program prohibits loans to companies that serve 

more than two percent of the nation’s customers. So while the FCC, 

for example, classifies Embarq as a rural carrier in 17 of the 18 

states it serves, it is prohibited from using RUS loans to bring 

broadband to unserved communities. The emphasis in our view 

should be on the infrastructure needs of a community, not on the 

company willing to serve it. 

Fourth, steps can be taken to improve loan processing. 

And fifth, Congress should explore innovative public-private partnerships such as the partnership in Kentucky known as Connect 

Kentucky, which has done far more than accept government loans. 

It has mapped broadband availability throughout the State, something no other State has done. It created technology teams in each 

community that lacked broadband. By the end of 2007, Kentucky 

will go from having one of the lowest broadband subscription rates 

in the country to having broadband available to 100 percent of its 

household. We think Congress might look to Connect Kentucky as 

a model, and in fact, Senator Durbin recently introduced legislation 

that would do just that. 

Mr. Chairman, after 60 years the RUS loan programs remain an 

essential public-private partnership. The United States Telecom 

Association and its member companies stand ready to work with 

this subcommittee to make broadband ubiquitous. 

Thank you again for the opportunity to appear before you today, 

and I, too, would be happy to answer any questions you may have. 

Mr. MCINTYRE. Thank you, and thank you for your very timely 

testimony. 

Mr. Law. Welcome. 

STATEMENT OF DENNY LAW, EASTERN REGIONAL MANAGER 

FOR GOLDEN WEST TELECOMMUNICATIONS COOPERATIVE, 

ON BEHALF OF NATIONAL TELECOMMUNICATIONS COOPERATIVE ASSOCIATION 

Mr. LAW. Thank you. Chairman McIntyre, Ranking Member 

Musgrave, members of the subcommittee, I would like to thank you 

for the opportunity to be here today. Congresswoman Herseth 

Sandlin, thank you very much for the kind introduction. 

I am here on behalf of the National Telecommunications Cooperative Association and Golden West Telecommunications Cooperative based in Wall, South Dakota. 

After President Truman signed the Telephone Amendment to the 

Rural Electrification Act in 1949, residents of Quinn, South Dakota, met to form Golden West Telephone Cooperative and soon applied for a loan from the REA. Today, Golden West Telecommunications and its subsidiaries now provide service to over 43,000 telephone customers and 15,000 internet subscribers in South Dakota. 

Golden West serves customers across 63 telephone exchanges and 

over 24,000 square miles. That is a geographic area larger than the 

States of New Hampshire, Massachusetts, and New Jersey combined. 

Due to RUS funding, many communities served by independent 

telephone cooperatives throughout the United States have significantly higher broadband deployment than neighboring communities 

served by regional Bell operating companies. Since 1995, RUS teleVerDate 0ct 09 2002 12:47 Apr 25, 2008 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 F:\DOCS\110-16\41709.TXT HAG2 PsN: JAMIE
33

communications infrastructure loans have been required to be in 

harmony with State modernization plans and be broadband capable. 

NTCA members’ tremendous record of broadband deployment in 

some of the most remote and rural areas of America is largely due 

to the RUS Telecommunications Loan Program. NTCA’s 2006 annual members survey shows more than 96 percent of its members 

are offering broadband to some portion of their customer base, and 

88 percent of its members are providing broadband at speed of 

more than 1 megabit per second. 

Since the initiation of the RUS Broadband Loan Program 5 years ago, RUS has made over $1 billion in loans to 68 entities. RUS 

broadband loans have been used by some rural independent companies to increase broadband capabilities within their traditional 

service territories. 

Other independent telecommunications providers have used the 

Broadband Loan Program to overbuild or compete in communities 

outside their traditional ILEC territories where broadband deployment may not be as advanced. However, there are also stories in 

many parts of the country where broadband loans have been approved in areas where broadband services already existed through 

two or more competitors. While overbuilding and competition is allowed under the regulations, I do not believe this is what Congress 

had intended when the farm bill was signed into law. 

The Rural Broadband Improvement Act, HR 2035, was recently 

introduced by Representatives Herseth Sandlin and Moran. Golden 

West believes the Rural Broadband Improvement Act would provide better definitions for rural and urban, as well as limit loan 

fund availability for applicants proposing to serve areas that already have a broadband provider. Golden West supports HR 2035. 

As a Telco provider, I am well aware of the challenges faced by 

a Federal agency trying to determine where broadband currently 

exists. I believe that RUS should be able to better determine the 

level of broadband deployed based on their own lending portfolio inventory. As Golden West has just been approved for our 25th telecommunications infrastructure loan through RUS since 1954, I am 

well aware of the high standards required for borrowing from the 

American taxpayers. The level of information required by RUS for 

approval of an infrastructure loan is extensive. A similar level of 

information should be required under the Broadband Program. 

Golden West’s success in connecting farms, ranches, small communities, and tribal areas throughout South Dakota illustrates 

how vital RUS Loan Programs address the needs of those residents 

living in rural America. In many communities, rural independent 

telecommunications companies provide broadband in areas outside 

the city limits where a cable company or a regional Bell operating 

company has no interest in providing that service. These rural residents deserve the same consideration as those living within the city 

limits. What is good enough for the residents living just a few miles 

from the Houston skyline should be even better for those residents 

living outside of Wall, South Dakota. 

Golden West and other rural independent telecommunications 

providers have an extensive history of providing voice and advanced telecommunications services to remote, high-cost areas of 

34

rural America. Since the 1950s, RUS infrastructure loans have provided a solid foundation for the deployment of these basic and advanced telecommunications services. The RUS Broadband Loan 

Program is a more recent application, and there are examples of 

loans being awarded to provide broadband to communities or regions where broadband did not exist. But it is obvious that this 

program could be working better. 

Thank you for this opportunity. I welcome any questions you 

may have. 

Mr. MCINTYRE. Thank you so much. 

And now Mr. Felty. Welcome. 

STATEMENT OF KEVIN FELTY, GENERAL MANAGER, PLAINS 

COOPERATIVE TELEPHONE, AND PRESIDENT, COLORADO 

TELECOMMUNICATIONS ASSOCIATION 

Mr. FELTY. Good afternoon, Chairman McIntyre, Ranking Member Musgrave, and committee members. My name is Kevin Felty, 

and I am the general manager of Plains Cooperative Telephone Association, and its wholly owned, deregulated subsidiary, Plains 

Communications Services. 

Our headquarters are located in Joes, Colorado, on the extreme 

eastern plains of our State. Plains Telephone provides voice and 

data service to 1,350 access lines in 7 exchanges encompassed in 

2,000 square miles. That gives us a density of .7 subscribers per 

mile. 

Despite the vast expanse we have 100 percent availability of 

broadband services via our telephone plant with a penetration rate 

of 32 percent. We are often referred to as the poster child for rural 

high cost companies. In several meetings at State level as well as 

RUS when they come out and do drive throughs, they just marvel 

at the vast expanse. 

We have been a 45-year traditional borrower of RUS funds. We 

have a very inherent understanding of the loan process and requirements associated with doing business with the RUS much like 

Golden West. Programs like the Broadband Loan and Grant Programs are key components to most companies’ business plan if they 

intend to serve rural America. Traditional capital sources do not 

understand the costs associated with serving such a sparsely-populated area. They don’t like the slim margins in the product line of 

broadband, and furthermore, most large companies just don’t play 

where we live, where we choose to live. That leaves deployment of 

advanced services up to companies that understand this type of 

business model. 

In my prior position before becoming general manger of Plains 

Cooperative Telephone I was Manager at Sunflower Telephone 

Company, a FairPoint Communications property. While serving as 

Manager of Sunflower, I actively pursued and was awarded a Community Connect grant. This grant allowed Sunflower to bring 

broadband service to 3 exchanges that had a total of 307 access 

lines in a 900 square mile area. 

Today, checking with my counterparts at FairPoint, 20 percent 

of the customers of Towner, Sheridan Lake, and Harman Colorado 

have subscribed to these broadband services and are using them as 

everyday business tools. During our scoring process in the grant 

35

application we received 70 percent out of a possible 70 percent in 

the demographic portion of the application. That consisted of density, mean family income, and other quantifiable measurements. 

By all accounts the $300,000 capital investment we needed to complete this project would not have come close to a satisfactory rate 

of return on any investment for any company. Without the grant 

from RUS these communities would still be on the wrong side of 

the digital divide. 

While I sit here and sing the praises of these programs, they are 

not without systemic problems. We have touched on most of them. 

I will skip over some of the few I have listed. But in an effort to 

secure financing for our subsidiary’s wireless broadband development, we did a review of the Loan, the Rural Broadband Program 

administered by the RUS. We found the process to be too cumbersome administratively as evidenced by the 38-page application 

guide and the 58-page actual loan application. We managed to fund 

the project internally, and it did end up slowing our rollout. 

In light of recent and past criticisms of the Broadband Loan and 

Grant Program, I think a few inherent questions need to be asked, 

and a lot of them have been today. Does the RUS staff have a clear 

understanding of the legislative intent? 

We may need to revisit the definition of broadband. Today, the 

FCC, as well as the RUS, defines broadband as 200 kilobits per 

second. That is just slightly better than a dial-up connection. 

Regarding the quantity served versus unserved areas, we have 

touched on that. Most witnesses have touched on that today. 

Is the current staff at the RUS adequate to fulfill the wishes of 

Congress and the technology they use? And can the loan applications be streamlined? 

We have referred to the Office of General Counsel’s audit, and 

I won’t review what most people have already said here again. 

These instances were splashed all over the pages and caused embarrassment to the RUS, USDA, as well as Congress and this committee. I believe the program is viable and with some modifications 

it can be accessed by the parties it was intended for, as well as fulfill the legislative directive. The establishment of a Rural 

Broadband Initiative or Caucus could maybe provide direction to 

all parties involved. It could become a database, the keeper of the 

data regarding who is served and who is unserved. 

In closing, I would like to ask Congress and this committee to 

continue to support the longstanding national social policy of quality, affordable telecommunications services for all America, no matter what the remoteness or the cost of these services. 

Thank you, and I would be happy to answer any questions. 

Mr. MCINTYRE. Thank you so much and thanks to all of our 

panel. 

I may have a question or two, but I am going to defer at this moment my time to our chairman of the full committee, Mr. Peterson. 

Mr. Peterson. 

Mr. PETERSON. Thank you, Mr. Chairman. Dr. Geller, Minnesota 

is apparently doing quite a bit better than the rest of the country. 

Could you tell us why you think that is? 

Mr. GELLER. Mr. Chairman, Representative Peterson, there are 

a lot of reasons why, but I would say that probably one of the most 

36

important ones is unlike some other States, and I can’t really speak 

to every other State, but some States are just totally dominated in 

almost all their markets with their baby Bell, with their Regional 

Bell Operating Company (RBOC). In Minnesota, as you well know, 

we have a large number, dozens and dozens and dozens of telephone cooperatives, small family-owned telephone companies, and 

independent telephone companies, and so essentially at the end of 

the year when they look at reinvesting their profits, they don’t 

have to question where exactly we are going to make these capital 

investments. They are going to make them in their service areas. 

When you are a large regional Bell, and you have a dozen, 14 or 

more States to cover, you have a lot of choices as to where you are 

going to deploy that technology. So I am sure it is true in South 

Dakota and elsewhere as it was in Minnesota that as we saw the 

rollout of broadband, it was not unusual for small rural communities to actually have the technology before some of the larger 

areas just because our small independent telephone companies 

were investing in their sole service areas. 

Of course, there are lots of other reasons why. I think Minnesota 

as a State is rather aggressive in pushing all kinds of public services online. That is one thing we really hadn’t talked about--how 

Federal, State, and local governments are aggressively pushing 

more and more public services online from purchasing car tabs to-

-most businesses pay their quarterly sales taxes online, on and on 

and on. As we start seeing government pushing more public services, I think it is important for us to ask what role does the government have in making sure that residents in remote rural areas can 

access those very same services. 

Mr. PETERSON. This development of a national broadband map 

has attracted attention by some people, and some have identified 

this program called Connect Kentucky as being a model. What do 

you think of such State programs and are the States better able 

to prepare these maps than the Federal government or why, and 

I don’t get involved in this area so much, but I remember a few 

years ago the State of Minnesota was getting involved in this, and 

they were actually trying to overbuild what the private sector was 

doing. Did that get straightened out? Apparently I don’t hear about 

it anymore so——

Mr. GELLER. Well, Chairman Peterson, essentially the Courts 

kind of straightened it out in Minnesota, but we created similar 

maps in Minnesota. As a matter of fact, in my written testimony 

I provide such maps. The problem you run into is, as you noted 

awhile back when Administrator Andrew was speaking, the issues 

often lie in the smallest communities and people living in the countryside. And for many of those markets that are less attractive, 

many of the solutions are wireless solutions, and trying to actually 

map the reach of a wireless provider is not nearly as easy as a telephone provider or a cable provider, and sometimes it is similar to, 

′′Can you get this AM or FM station in your community?′′ Well, 

some days when the wind is blowing in the right direction, I can. 

Other days I can’t. Oftentimes when you are dealing with wireless 

solutions, if you are kind of on the periphery, it is really difficult 

to figure out whether you are really being consistently covered at 

speeds that we would consider broadband. But I do think this 

37

whole issue of assessing our telecommunications capacity throughout rural America to help target the investments, to really understand the consequences of these kinds of investments doing what 

we think they are supposed to be doing. Everything from making 

rural businesses more competitive, rural economies, rural communities being able to retain and attract new businesses, so on and 

so forth. We often do this based upon assumptions. We don’t often 

have really good data as to whether or not the consequence is what 

we hoped it would be. 

Mr. PETERSON. Thank you. Thank you very much, Dr. Geller, 

and other panel members. Excellent job and thank you, Mr. Chairman, for your leadership. 

Mr. MCINTYRE. Yes, sir. Thank you, Mr. Peterson. 

Mrs. Musgrave. 

Mrs. MUSGRAVE. I will have some questions later, but I would 

like to defer to Ranking Member Goodlatte. 

Mr. MCINTYRE. Yes, ma’am. 

Mr. GOODLATTE. Thank you, Mr. Chairman, and I thank the 

ranking member. 

You heard the testimony of the Administrator. We really have a 

problem here in terms of trying to get broadband spread across the 

county, and the companies that you represent are the principle 

place that we look to accomplish that goal. And so when we look 

to the Rural Utilities Service we want to do it in such a way that 

it is not unfairly competing with private companies and private investment dollars. On the other hand, just relying on private companies to reach some of these most remote areas is not completely 

working. 

I wonder if you each might comment about the Connect Kentucky program, which obviously is a program that has received a 

lot of compliments for identifying areas not served in the State. By 

the way, I am absolutely sure that map was not completely accurate, but identifying areas not served by the State and then utilizing both Rural Utilities Service funds and State funds to target 

those areas that are not served. 

Mr. McCormick, do you have a view of that? 

Mr. MCCORMICK. Yes, Congressman. Thank you very much. We 

think that the Connect Kentucky program is a very intriguing 

model. Intriguing based upon its success. The fact that Kentucky 

has gone to, from such a low level of broadband adoption to such 

a high level of broadband adoption really merits some focus on 

that. 

But we also think that we appreciate the committee having this 

oversight hearing because the Rural Utilities Service has money. It 

has got a telephony program that has worked. It seems to be trying 

to reinvent the wheel with the broadband program. It can look to 

what it did with the telephony program. I mean, get the money out 

there and get broadband into areas that are unserved today. It 

shouldn’t be sending money to areas where it is duplicating investment that is already there. It ought to be focusing on areas that 

need broadband. And so we think that your lighting a fire under 

them at this hearing today is a very, very good thing to have done. 

38

Mr. GOODLATTE. Mr. Simmons, do you agree with that comment 

from Mr. McCormick, and what is your impression of the Connect 

Kentucky program? 

Mr. SIMMONS. Well, I believe I generally do agree. What I know 

of the program, what is most intriguing for me, I think, is that 

there is a different party or a third party out there trying to examine what areas are served and unserved. Currently under the RUS 

program as Mr. Andrew I believe testified to, the only way they 

know about what areas are in question are by the applications. 

And through their processes those applications are very confidential. We have tried on several occasions to try to get information 

about details of applications and have been thwarted at every effort. So as it stands now the only ones defining what is or is not 

unserved are the applicants, and I fear that is terribly inadequate. 

I do know that there are other informal programs that are going 

on in other areas not quite——

Mr. GOODLATTE. Let me interrupt you because I only have a few 

minutes, and I want to ask you a couple other things. 

Mr. SIMMONS. Okay. 

Mr. GOODLATTE. The Administrator testified that there have 

been very few, if any, applications from cable companies to participate in the RUS program, and I know there are many cable companies in my district. I have not talked to very many of them about 

this issue other than to receive similar types of complaints that you 

have about having to compete with others. They are either experiencing that or concerned about having to experience that. Why is 

it that cable companies have not applied for funds to reach out beyond their normal service area into areas that are more expensive 

to reach? It is a smaller number of customers per mile of line. Is 

the RUS program not desirable to participate in from that standpoint, and if not, why not? 

Mr. SIMMONS. Congressman, the program is very difficult for a 

cable company to participate in, primarily because the RUS program was modeled after the business operations of an RTC, a rural 

telephone company. Cable companies typically borrow money from 

bankers to upgrade and to operate their systems, and for an MSO, 

a multiple system operator, to go to the RUS and agree to a first 

lien on the assets of the entire company makes it very difficult for 

us to do. The bankers would have a great deal of difficulty with 

that. 

So almost——

Mr. GOODLATTE. Let me ask Mr. McCormick since he represents 

some of those telephone companies, why the telephone company experience would be different. I understand you also want to see 

changes, and I want to see changes to the RUS program, but why 

is it that can work for a telephone company and not for a cable 

company? 

Mr. MCCORMICK. I think that the principle difference is our telephone service area is usually different from the cable company’s 

franchise area. Cable companies tended to locate in areas where 

there was a concentration of population. Our footprints sort of extend on the basis of service to broader geographic areas, and so our 

whole service ethic is about trying to get service out to as many 

people as possible. It is just kind of a different business model. 

39

Mr. GOODLATTE. All right. And that is the model really of a government entity that is trying to get it extended beyond where the 

cable industry is going, but I also don’t see why when you have got 

in the old days you had cable companies and you had telephone 

companies, and never the twain shall meet. Now you both in urban 

areas are competing very heavily with each other, and what we are 

trying to accomplish in rural areas is to get one and ultimately we 

would love to see both of you out there competing out there, too, 

but we recognize that the first step is to get at least one of you out 

there. 

What do we need to do, Mr. Simmons, to change the RUS, not 

to just restrict its competition with you, but to get you out there 

utilizing this program in more costly areas to get out there? Do we 

need to change it so that you don’t have to put a lien on your entire 

company, so you only have to provide some other form of security? 

Or what can we do to get you to reach out beyond where you are 

located now and serve people in the closed in areas outside of small 

cities that do not have high-speed broadband service today because 

neither one of you are reaching them? 

Mr. SIMMONS. Congressman, I think the lending requirements 

would be a very good step. I would very much appreciate the opportunity for our industry to participate in the design of this new plan 

that would offer an opportunity for several different business models to embrace those of cable industry but also the companies that 

are not necessarily in the telecommunications business today but 

might be providing solutions with some of the wireless technologies 

as well. 

I think additionally in my formal testimony there are some examples that might be helpful, like providing tax credits or other 

tax incentives to providers that build out in these rural areas, to 

make sure that, or to consider an expansion of the FCC’s Lifeline 

and Linkup Programs. There are other private and public partnerships in these areas that I think would be very helpful. I know that 

we voluntarily within my company have partnered with a few wireless telephone providers that go from our cable plant out into those 

areas, but we supply them with the back haul link into the internet 

that would be terribly expensive for them were they not able to obtain it in that community. 

I think there is a lot of things that we can do by getting a variety 

of people together, and if the RUS were willing to consider other 

models, other opportunities, other ideas other than an extension of 

the models that they have been working with for the last several 

years. 

Mr. GOODLATTE. Thank you. Mr. Chairman, my time is well 

passed, and I thank you for your forbearance. 

Mr. MCINTYRE. Yes, sir. Thank you, and it is a pleasure to have 

you and the chairman with us today. 

I would like now to defer my time to Mrs. Herseth Sandlin. Mrs. 

Herseth Sandlin. 

Mrs. HERSETH SANDLIN. Thank you, Mr. Chairman. I want to 

thank all of you for your testimony. It is very insightful, and Mr. 

Law, thank you for the work of Golden West and the support for 

the bill that was recently introduced by me and a number of my 

colleagues, a bipartisan bill. It reflects a lot of input and comVerDate 0ct 09 2002 12:47 Apr 25, 2008 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 F:\DOCS\110-16\41709.TXT HAG2 PsN: JAMIE
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promise from a wide spectrum of organizations. And I know that 

NTCA, who your testimony on behalf of today, as well as NCTA 

Quest and others, has been valuable. 

I would pose a question to you and others on the panel, however, 

to the extent you are familiar with the bill. We don’t want to make 

what we think are unnecessary changes because of how the program has been administered in a way that we didn’t intend and 

then place too many restrictions on the Loan Program so that folks 

in unserved areas don’t benefit. 

So the question I would have to any of you, are there recommendations that you would have for the bill? I know that 1 topic 

that has come up in some conversations with some of my colleagues 

has been the 10-mile, non-eligible boundary. Does that create problems for some of your fellow cooperative members or for communities in South Dakota or communities like Mr. Goodlatte’s that are 

just two miles outside of what would be defined as an urban cluster 

or a larger community, all the different definitions we used? Because, again, I want to make sure that we make appropriate 

changes to the bill as it is currently drafted so that we don’t overdo 

it and impose restrictions in a way that leads to other unintended 

consequences. 

Mr. LAW. Congresswoman, I would suggest that rural densities 

to some degree will always come back to the forefront of this issue 

in terms of what is the fine line that you just tried to describe in 

terms of the 10-mile exclusionary rule. As you are aware, in South 

Dakota you can get two miles out of many of the communities in 

our home State and rural there looks like rural all the way across 

the rest of the State. I think it is, and Mr. Felty testified in terms 

of densities in his area. I don’t think, and I think that will be one 

of the more difficult items is how do you define in terms of rural 

densities, and can it be a mileage exclusion, or does it deal more 

with a city limit, boundary, or a certain geographical or subdivision 

boundary. I wish I could tell you I had the answers to that. I do 

not, but I do know that I think there should be some type of litmus 

test that is reasonably designed. Is it 10 miles? I am not sure that 

is the magic number, but I am not sure it is much less than that 

either. 

Mrs. HERSETH SANDLIN. Does anyone else care to comment on 

that question? 

Mr. SIMMONS. Congresswoman Herseth Sandlin, I appreciate the 

job that you have done on this and that of your staff members. We 

have had an opportunity to speak with them on numerous occasions. 

I agree with Dennis. It is very difficult to break this down to 

mileage situations. Communities are different. What I was most 

concerned about in looking at all this is that we not have a situation where we would have one or two homes or some circumstance 

that would somehow sneak through the process that would allow 

an overbuild of an entire community. That to me is gaming the system and not the intent of the overall program. 

I know that you have a finite period of time to come up with a 

bill in language that hopefully will be enacted into law, and that 

everybody has forever to figure out a way around it. I just hope 

that the attention of the RUS and this oversight committee would 

41

be on the original mission of taking care of people in unserved 

areas and not on seeing how much, how many loans we can process 

or get out the door. I am concerned that has been more the fact 

previously in the program. 

Mrs. HERSETH SANDLIN. Point well taken, Mr. Simmons, in 

terms of the full committee and the various subcommittees oversight and the importance of what happens in the implementation 

process and how it fits with what we intended as we make these 

changes, whatever changes are ultimately made to the program. 

But one last question based on what you just said about the need 

not to overbuild. You had stated in your testimony you proposed requiring that all projects that receive an RUS loan be required to 

survey a certain minimum percentage of unserved households. So 

I guess my question, Mr. Law and Mr. Felty, is what are your 

thoughts regarding that proposal? If the percentage was set at a 

reasonable amount, say 20 percent, do you think your fellow cooperative members would strongly object? 

Mr. MCINTYRE. If you will answer that as briefly as possible. 

Mr. FELTY. I don’t think they would object. 

Mr. LAW. I concur. 

Mr. MCINTYRE. Okay. 

Mrs. HERSETH SANDLIN. Thank you, Mr. Chairman. 

Mr. MCINTYRE. Thank you, Mrs. Herseth Sandlin, and if you 

would like to expound on that, we would welcome you to do so in 

your, any further answer on that question. 

We now call back on the Ranking Member, Ms. Musgrave. 

Mrs. MUSGRAVE. Thank you, Mr. Chairman. I would just like to 

ask the entire panel do you think that a national broadband map 

would be beneficial? 

Mr. FELTY. It would be hard to maintain. I think it would be outdated as soon as it came off the press, but I think it would be a 

good start. As long as it was updated. 

Mrs. MUSGRAVE. Anyone else? 

Mr. MCCORMICK. I do not think having the Federal government 

undertake a national broadband map would be the right way to go. 

I do think the approach that was taken in Kentucky where you 

have local public-private partnerships engaged in mapping with an 

objective in mind, which is to get broadband out, to look for solutions to get broadband out to those unserved areas, that would be 

a productive exercise. 

Mr. GELLER. As someone who has actually created such a map 

for the State of Minnesota, I could tell you that the value of it will 

only be equal to what you are hoping to accomplish with it. If, in 

fact, you are trying to create a map that is the definitive, you 

know, map of the state of broadband in the U.S., then everybody 

on the panel, including Administrator Andrew earlier, is exactly 

right. It is going to be obsolete as soon as it is completed. 

On the other hand, I could certainly make an argument that if 

the purpose of such a map is to create a baseline from which 

progress can be tracked over time, then, in fact, it may have some 

value. If you are only going to do it once, I would advise not to do 

it. 

Mrs. MUSGRAVE. Okay. Thank you very much. Mr. Felty, in 

terms of speed, what should the classification be today to qualify 

42

as broadband service? I know you had mentioned in your written 

testimony that the FCC and the RUS defined it as 200 kilobits per 

second. 

Mr. FELTY. With the applications increasing, software downloads, 

the music, the gaming industry is really pushing for more and 

more broadband. I don’t think that is an antiquated speed from a 

time perspective. I think the technology just passed it by. You 

know, 512 kilobit, 1 meg, 2 meg. I was a western WTA meeting the 

other day, and they are talking 10 meg being the minimum. I think 

every day goes by that speed will just increase and increase and 

increase, but a 200 kilobits per second is probably, a good dial-up 

connection is 64 kilobits. So to put it in perspective I would say a 

half meg to 1 meg. 

Mrs. MUSGRAVE. Thank you. In your comments you also mentioned how a rural broadband initiative could help in the development of the services that we need and in rural Colorado. Could you 

comment on that further, please? 

Mr. FELTY. Well, Congresswoman Musgrave, in our great State 

we have a commission that put it in writing that, and I brought 

it along with me, that there is no correlation between broadband 

services and economic developments. And I am fighting this at a 

State level. I think initiatives, key players coming together, be it 

members of the RUS, members of the cable industry, members of 

trade organizations. Maybe pulling together and educating. Policymakers know what it is. Educating the general public. Some of the 

policymakers are at a State level that just don’t understand the 

correlation between broadband and economic development. 

If there was some forum, for lack of a better word, I think it 

would serve us justice. 

Mrs. MUSGRAVE. Thank you, Mr. Felty, and thank you, Mr. 

Chairman. 

Mr. MCINTYRE. Thank you very much. Mr. Fortenberry. 

Mr. FORTENBERRY. Thank you gentlemen for coming today. In all 

of your testimonies there is some inherent tension from what I am 

hearing. The country is vastly covered in adequate broadband service. We have a public policy to help build out that service in areas 

that are underserved, and yet we are having trouble defining what 

underserved means, and yet you are all strong supporters of the 

program. 

And, again, as I mentioned earlier, Mr. Felty, Under Secretary 

Dorr, who was here a month or so ago, pointed out that of all the 

initiatives we could undertake that rural broadband service is probably the most effective initiative to help ensure rural economic development. So your points are well taken. 

But, Mr. Simmons, you hinted at basically the answer to my 

question. Presuming again that this is good public policy, that enhanced communications such as this that help bring down market 

barriers towards, for entrepreneurs in rural communities, the technologies which supply those market information or access to market information. It is important to continue our aggressive march 

in developing it and be sure that we are networked throughout the 

country. Assuming all that is not being supplied or portions of it 

is not being supplied adequately by a private sector investment, 

how would you go about a redesign of our broadband initiatives in 

43

the Rural Utilities Service so that it is effective? I hear your point 

that you are concerned that the process by which we are determining who gets loans is not open to public scrutiny, and we don’t 

have a clear understanding mapped out as to how these services 

are interconnected and who, again, is adequately served and who 

isn’t. Yet a smaller scale model in the State of Kentucky seems to 

have accomplished that. 

So let me just take a higher altitude look here for a moment and 

ask you the question. How would you redesign what we all agree 

can be a very important tool for rural economic development and 

an essential one and an important policy program? 

Mr. SIMMONS. Well, Congressman, when I made the statement 

that we support the RUS Programs, we certainly support the intent 

of the programs but have been disappointed by the processes that 

we have seen over the years. I think the first point is defining what 

is and is not served and unserved. I am intrigued by the connect 

programs, to have another party do that and not leave it to applicants. 

I think it is important for——

Mr. FORTENBERRY. Could I interject something? Perhaps on a 

smaller scale than a nationwide undertaking, perhaps using another governmental subdivision as apparently it has happened in 

Kentucky, might be a faster route to getting that done. Is there a 

general agreement on that? 

Mr. SIMMONS. I would agree to that. 

Mr. FORTENBERRY. I am trying to pull out important findings 

here that we can potentially include as we move forward in the 

farm bill. 

Mr. SIMMONS. Well, Congressman, I am concerned that there 

may be those type of programs that are out there. There might be 

information that may have been supplied to the RUS, but we have 

not been invited to do that, and I am not sure the States have either. 

Mr. FORTENBERRY. All right. 

Mr. SIMMONS. In preparation for this hearing I testified before 

the Senate Ag Committee a year ago, and at that time in that testimony I reported that there were 70 communities in South Dakota 

that were unserved. That number came from the South Dakota 

Public Utilities Commission. In preparation for this hearing I 

called the same analyst and asked him what is that number today, 

and he told me the number is six. I know full well that there have 

not been a number of grants or certainly that number of grants 

from the RUS to move that plan forward in the State of South Dakota. Yet there are a number of communities that have broadband 

service today that didn’t have it before. That is to the credit of companies like Mr. Law’s Golden West and several of the rural telephone companies. And we have built out markets ourselves. I know 

this is going on. 

But to your point I know that the South Dakota Public Utilities 

Commission, under the Bureau of Information and Technology, collects that information. I know it is available through the IT operations in the State of North Dakota as well. I am quite sure that 

Mr. Geller would be able to get that information from the State of 

Minnesota. Had the RUS gone out rather than doing their own parVerDate 0ct 09 2002 12:47 Apr 25, 2008 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 F:\DOCS\110-16\41709.TXT HAG2 PsN: JAMIE
44

ticular program and accessed perhaps some of the information that 

is available, we might have that information. 

Mr. FORTENBERRY. Mr. Chairman, may I have an additional 

minute or so? 

Mr. MCINTYRE. If you have an additional question, go ahead and 

ask it, then we will ask them to submit it back. 

Mr. FORTENBERRY. Yeah. I would just, was hoping the panel 

could give a brief overview of what I was asking. 

Mr. MCINTYRE. Let us finish with one or two more questions, and 

then we will see what our time is. Okay. Just to honor the time 

limits on the overall hearing but Mr. McCormick, I had deferred 

previously to both the chairman and to Mrs. Herseth Sandlin as a 

visiting member of the full committee. I wanted to ask you, you 

have mentioned the need to enhance incentives for investment in 

areas not served. How would you structure such a combined loan 

grant program? 

Mr. MCCORMICK. Mr. Chairman, I would structure it very similar 

to the very successful telephone program. The RUS Telephone Program has gotten telephone service out to virtually every American. 

It requires a certificate of non-duplication so that there is not investment in duplicative facilities. It draws a nice balance between 

those areas that are unserved and those areas that are incidental 

to service in an adjacent urban center. It is an effective model for 

not wasting money and getting service out to as many Americans 

as possible. 

So we think that a broadband program based on the telephony 

program, and one that maybe incorporates mapping along the Connect Kentucky model would be a very, very effective way of getting 

the program out there and in conserving taxpayer resources. 

Mr. MCINTYRE. Thank you. Mr. Law, the customers you have in 

your service area with access to broadband, what percentage actually decide to purchase the service, and what do you think is influencing the decision not to buy broadband among those who have 

access? 

Mr. LAW. I think probably a couple of items. One still is deployment of——

Mr. MCINTYRE. What is the percentage first? Can you tell me? 

Mr. LAW. I would at last count put it roughly 30 percent depending on the geographic exchange, but 30 percent is a rough number. 

Mr. MCINTYRE. They are the ones that actually decide to purchase the service? 

Mr. LAW. Yes. 

Mr. MCINTYRE. Okay. All right. Now, go ahead. I am sorry. What 

do you think influences their decision not to buy? 

Mr. LAW. I think there is a couple of influencing items. One is 

potentially computer penetration besides remoteness. Computer 

penetration in the household. Age. We serve some of the oldest demographics in the country in some of our rural areas, and while 

the digital revolution continues, there is not a computer in every 

home, nor is there a program that is going to change that. That 

will evolve over time, I am sure, and we have seen it evolve even 

in the last few years. But I would say it is, age is one, demographics. 

45

Probably the other one is still from a cost perspective. Incomes 

tend to be lower in rural areas and whether you are talking 30 to 

40 bucks a month for in our case primarily DSL services, that can 

represent a significant expenditure in some of the areas that we 

serve, both from a retired income household as well as tribal area 

and things along those lines. 

Mr. MCINTYRE. Okay. Thank you. Just one moment. All right. 

We are approaching the conclusion of the hearing, but Mr. 

Fortenberry, I will, with the ranking member’s consent, I will yield 

for you to ask the members to briefly respond to your question, because I think it was an important question. I wanted to make sure 

everything else had been concluded. 

Mr. FORTENBERRY. Thank you, Mr. Chairman. 

Mr. MCINTYRE. Please proceed. If the members will be direct and 

to the point to answer Mr. Fortenberry’s question, and then you 

may supplement to the record. 

Mr. FORTENBERRY. Again, the key recommendations that you 

would use in altering or redesigning the program. 

Mr. MCCORMICK. Again, my key recommendation is take a look 

at the successful telephone program, which requires non-duplication. It provides funding to areas that area incidental to the population center to get broadband out there. And map those areas that 

need service along a public-private partnership route a la Connect 

Kentucky. 

Mr. LAW. I would concur with Mr. McCormick, and I would also 

stress given the level of regulation and reporting certainly from the 

rural telephone company perspective--we fill out volumes of reports 

and information for a variety of local, federal, and State officials. 

Perhaps some type of comprehensive amalgamation of those reports could also provide to a better reporting system for where 

broadband is already available and focus on the areas that it is not. 

Mr. FELTY. I would concur with Mr. Law. The Traditional Infrastructure Loan Program at the RUS had a zero percent default. 

They have never had a default on any of those loans since the inception of them, and I can see where they are nervous, they want 

to protect that record, but I feel that this process needs to be 

streamlined. And like Mr. Law said, let us get together with the 

FCC. We all file an FCC Report. We have the Public Utilities Commission report. That has our broadband penetration and access on 

it as an independent telephone company. 

Mr. GELLER. Congressman, I would say first I think we need to 

recognize that those communities that in 2007, do not have any access to broadband services are not exactly rural communities that 

are economically robust and vibrant, and we have to understand 

that these are tough places, and they are dealing with all kinds of 

issues about migration, economic distress, and so on. With that, we 

have to identify them, and I think that some of the issues of publicprivate partnerships that were discussed make sense. Just giving 

them a loan may still not be enough in some of these places, and 

obviously if, in fact, it is true that the program has never had a 

default, then clearly I think that one has to start dealing with taking on a little bit more risk in these places that are inherently 

more risky. 

Mr. FORTENBERRY. Thank you. Thank you, Mr. Chairman. 

46

Mr. MCINTYRE. Thank you, Mr. Fortenberry. A very pertinent 

question. Mr. Felty, I have one other question. You ultimately decided not to pursue a broadband loan through the program. What 

factors would have changed that decision? 

Mr. FELTY. I have a staff of 10 people in my company, and it was 

more of an administrative burden on myself and my staff to go 

ahead. We found a local bank that would finance that project. It 

was just administratively cumbersome. Like I said, I brought the 

application guide, which is 38 pages. The actual loan application I 

believe is 58 pages long. So that was my overwhelming decision. 

Mr. MCINTYRE. All right. Thank you, sir. And before we adjourn 

I invite the ranking member if she has any additional comments. 

Ms. MUSGRAVE. I do not, Mr. Chairman. Thank you. 

Mr. MCINTYRE. Thank you. And thanks to all of our members of 

our subcommittee and the committee who joined us today. I want 

to thank all who have testified, all of our guests. We also always 

show appreciation to our staff for their good work and although she 

left the room earlier during this hearing, lest anyone think I overlooked her, I make special note to welcome my wife, Dee, to this 

hearing earlier today. I know we all appreciate the support of our 

families and our staff in this important work here in this subcommittee, and also in the United States Congress. May God bless 

each of you and thank you for being with us. This meeting is now 

adjourned. 

[Whereupon, at 3:20 p.m., the Subcommittee was adjourned.]

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