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MSO testifies against U.S. rural broadband program; NCTA weighs in

Thu, 05/18/2006 - 7:41am
Brian Santo, CED

The clash between free market principles and the desire to foster competition for the benefit of consumers broke out again on Tuesday when a representative of Midcontinent Communications criticized an obscure loan program in testimony before a Senate committee.

The U.S. Department of Agriculture's (USDA) Rural Utilities Service Broadband Loan Program is providing loans to second and third broadband providers in many areas, and is failing to properly evaluate loan applications, according to testimony given yesterday by Tom Simmons, Midcontinent's VP of public policy.

Simmons complained the USDA is not performing its "primary function" with the RUS program, which is to extend loans to companies planning to provide broadband service where it is unavailable - a goal Midcontinent says it supports. Instead, Midcontinent said, the USDA is subsidizing competition.

The rules and regulations governing RUS direct the USDA to give preference to companies that intend to provide broadband where it's not available, but if there are no applicants for loans to provide broadband in unserved areas, the USDA is directed to provide loans to qualified applicants aiming to provide competitive service.

The rules state: "Second, RUS will consider applications proposing to provide service where rates are not comparable to similar service in urban and suburban areas, or quality of service is not satisfactory, the 'underserved' communities." [sic]

The other half of Midcontinent's complaint, Simmons testified, is that "RUS rules make it difficult for anyone - existing providers, the public, and even RUS staff - to assess the status of existing broadband service in the market the applicant proposes to serve, whether the applicant's assertions about such broadband are accurate, and whether, given the level of competition and service already in the market, the requested loan is likely to be repaid or is otherwise an appropriate use of taxpayer funds."

With those comments, Simmons was essentially summarizing an audit of the RUS program by the USDA Inspector General, which criticizes the RUS program administration for "losing its focus" of supporting the rollout of service in unserved areas.

The audit attacks the definition of the RUS program, details how the program works under those definitions and criticizes the program administration for working under those definitions. It then goes on to question the very justification for the program, created by Congress four years ago. The program has a duration of six years.

National Cable & Telecommunications Association President & CEO Kyle McSlarrow backed Midcontinent with a letter to U.S. Department of Agriculture Secretary Mike Johanns encouraging the secretary to personally consider Midcontinent's objections to the USDA program, known as RUS.

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