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WASHINGTON - The federal government is hot to send money to service providers deploying broadband access in rural areas.
But with at least one proposal effectively putting broadband access at the same priority as universal phone service, the question may be: Are such subsidies necessary?
Broadband-oriented rural service subsidies are coming both from the executive branch and from Capitol Hill in several forms.
The Rural Utilities Service (RUS), part of the U.S. Department of Agriculture, is making $100 million in loans available to rural broadband providers under a loan program included in the USDA's fiscal 2001 budget. The RUS started accepting applications on Dec. 5 and will continue to do so until Sept. 30, 2001, in a program intended to address the perception that rural residents are underserved by broadband.
Scott Reiter, the senior telecommunications specialist for the National Telephone Cooperative Association (NTCA), says the $100 million loan program "is a step in the right direction." But he adds, "It won't address the totality of the issue." Reiter believes that the high cost of adapting rural telephone lines, specifically those beyond 18,000 feet of the central office) to digital subscriber line service at an estimated cost of $10,000 per line argues for a much more emphatic federal financial commitment.
The Rural Broadband Enhancement Act introduced by Sen. Byron Dorgan, D-N.D., in 2000 probably would qualify as a much more muscular approach. Dorgan would make available $3 billion in loans at annual interest rates of no more than 2 percent from 2001 to 2005. The RUS loans will charge interest of between 5 percent and 6 percent.
Barry Piatt, Dorgan's press secretary, says the RUS $100 million loan program does not obviate the need for Dorgan's bill. Piatt says Dorgan likely will reintroduce that bill in the new Congress this month.
Both the Dorgan and RUS programs are open to communities with fewer than 20,000 people. Providers of wireless, telephone, modem and satellite broadband service qualify. Loan funds could be used for the same kind of equipment in both programs.
In addition to the added attractiveness of the cheaper, more plentiful Dorgan loans, his broadband bill would authorize a second, much more important component: the direct underwriting of broadband installation via payments from the FCC's Universal Service Fund. The USF provides $5 billion a year in subsidies for delivery of phone and Internet connections to rural and inner city schools, libraries, hospitals. But no money has been made available yet for broadband build-out.
Regardless of the parameters of any rural broadband loan program, an analysis done last November by the NTCA raises the question of "demand." Fifty-five percent of respondents already offer broadband to residents and 61 percent to businesses. Those numbers will approach 80 percent by the end of 2001. Fifty-four percent of all broadband loops are within 12,000 feet of a central office; 83 percent are within 18,000 feet.
Yet the "take" rate for broadband services is about 1 percent. Given that fact, and the cost to a telephone company of adding broadband in loops beyond 18,000 feet - the biggest chunk of the unserved market -- many rural telephone companies may not feel like jumping at the $100 million RUS loan fund.
Thirty-eight percent of the NTCA's 500 local exchange carriers in 44 states responded to the survey.
Also noteworthy is that the RUS offered anywhere from $100 million to $200 million a year in loans between 1997-2000 to rural hospitals and schools for setting up distance learning and telemedicine systems. Claiborn Crain, a spokesman for the RUS, says there has been minimal demand for those loans.
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