FCC Reductions in USF Support Cause Drop in Demand for RUS Loans, Vilsack Says

Communications Daily
Matthew S. Schwartz

Demand for Rural Utilities Service loan funds dropped to 37 percent of the total amount of loan funds appropriated by Congress in FY 2012, Agriculture Secretary Thomas Vilsack and Rural Utilities Service Acting Administrator John Padalino told FCC Chairman Julius Genachowski Feb. 8, according to a letter sent Friday (http://bit.ly/UEgr4z). Current and prospective borrowers say they're hesitant to increase their outstanding debt and move forward with planned construction due to "the recently implemented reductions in USF support" and intercarrier compensation payments, Vilsack and Padalino said. The FCC musttake action "to help restore certainty and stability for rural broadband investment," they said.

Vilsack and Padalino offered several recommendations they said could help ensure "the economic stability of rural America." The commission could accelerate broadband deployment in rural areas by "establishing a separate Connect America Fund" for rural rate of return carriers, they said, and by modifying the USF to increase broadband investment and adoption among consumers there.

The FCC should immediately adjust the regression analysis-based caps on certain reimbursable high-cost support "to correct the structural and data integrity concerns of rural carriers," said Vilsack and Padalino. They also asked that RUS get "confidential access" to the regression model so it could better manage its lending programs.

Genachowski "had a good meeting with Secretary Vilsack, where they discussed the benefits of the FCC's once-in-a-generation overhaul of the Universal Service Fund to close the rural-rural divide and bring broadband to unserved areas," said an FCC spokesman. "To achieve this on a budget requires increased fiscal responsibility and greater accountability for the smaller carriers that borrow from RUS. These carriers have historically received higher support levels with less accountability, including up to $20,000 per phone line per year in some cases. As implementation of our reforms continues, stakeholders will need to continue making adjustments and working constructively together."

Vilsack "continues to be my hero with his continual efforts to hold critical discussions" with the FCC, said NTCA CEO Shirley Bloomfield in a blog entry Monday (http://bit.ly/Y7qSLR). She praised Vilsack for creating a long-term and a short-term vision that can help telcos repay their existingloans, while generating certainty and investment. NTCA "very much" agrees with the proposals, Bloomfield told us. Many NTCA members have had to stop projects or turn back stimulus money for fear that they will run afoul of the annually retabulated caps, she said. "It has put a big chill on investment," she said. "The uncertainty is palpable."

A new NTCA survey found 69 percent of respondents had postponed or canceled projects, representing a lost or delayed investment of nearly $500 million (http://bit.ly/W279RD). "Limiting rural carriers' ability to recover the cost of bringing high-speed broadband to our country's most hard-to-serve areas is hindering efforts to plan and execute necessary network upgrades, resulting in millions of dollars in lost or postponed investments," Bloomfield said. "This troubling trend will mean fewer dollars flowing to communities for economic development and jobs, as projects continue to be put on hold or are delayed indefinitely."

The commission should put off any additional rulemaking on proposed caps and cost constraints on rural carriers until rural carriers can integrate the impact of existing caps into their business plans, Vilsack and Padalino said. They also encouraged the commission to "modify and expand the waiver process to support the maintenance or extension of broadband service in rural areas," and to help companies repay debt they incurred before the USF/intercarrier compensationorder was approved in fall 2011.

Western Telecommunications Association supports the letter's recommendations, said Derrick Owens, vice president-government affairs. "Our members are definitely holding back on investing, just because of a lot of the uncertainty that they're experiencing right now," he told us. WTA members are also refraining from trying to secure more loans because of the shifting regression caps, he said. Owens hopes a sixth order on reconsideration from the FCC addresses some of the uncertainty, and creates a sense of stability among WTA's members. Until then, he said "they don't feel comfortable drawing down any more money because they don't know what's going to happen to them in the next couple of years."

Rural-based industries that produce food, energy and other services rely on broadband to remain globally competitive, said Padalino and Vilsack. The U.S. agriculture sector, for example, has maintained a trade surplus for more than 20 years,forecast to be $30 billion in 2013, they said. As farmers "increasingly rely on advanced telecommunications to support their work on the farm, affordability and sustainability of broadband is imperative to maintain this trade surplus," they said.

Bloomfield said she worries that since so few companies are using the RUS loan money, Congress might cut back the amount they allocate. "Congress looks at that," she said. When determining ways to fix the budget, legislators look at how much was appropriated and how much was drawn down, she said. "They may choose to cut this program." -- Matthew S. Schwartz