RURAL DEVELOPMENTTelecommunications Programs

Thomas P. Jensen, GFRRUS Telecommunications Program

thomas.jensen@wdc.usda.gov202-834-3393

Building our Connected Future: Minnesota’s Better with Broadband!

November 13-14th , 2012

RUS Telecommunications ProgramFrom inception to today…

1949 RUS (REA) Financing for basic telephone service Enabled ubiquitous service in U.S.

1995 RUS network requirement: broadband-capable

2002 Definition of “Broadband Service” vs ISP

2009 ARRA “BIP” Grant/Loan program

$2.6B, 320 Awardees 2013 completion deadline (2015) 2012 Future: Traditional role: Infrastructure & Broadband

Farm Bill 2012-13?

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RUS Investment in Rural America

$4.6 billion RUS loan portfolio:

$3.6 billion 487 borrowers Traditional program132 Minnesota

$0.5 billion 73 borrowers Broadband Loan Program 11 Minnesota

$1.1 billion 320 awardees ARRA 2009 BIP13 Minnesota

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Broadband Initiatives Program BIP• This was a one-time program• RUS provided loans and grants for:

– Broadband infrastructure (last mile) projects– Technical Assistance grants

• RUS is currently managing:– 259 infrastructure projects– $3.2 billion in loan/grant funds– Providing financial and operational oversight

• The majority of BIP projects are on track.– $2 billion of projects are under contract – $1.1 billion reimbursements to date– 27 projects are fully complete– 39 are substantially complete.

• Completion target 2013, extension to 2015

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Broadband Initiatives Program BIP

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RUS Telecommunications ProgramFY 2012 and 2013 Guestimate

 ”Bucket”Authorization 2012 Budget

2012 Available Funding*

2012 Obligations

2013 Proposed Budget**

Infrastructure Loans $690 million $690 million $79.7 million $690 million

Broadband Loans $169 million $736 million $68.9 million $169 million

Distance Learning & Telemedicine Grants $15 million $16.1 million $15.6 million $15 million

Community Connect Grants $10.4 million $14.2 million $5.5 million $10.4 million

*Available funding includes authorized budget and amounts carried over from the previous fiscal year.**NOTE: The Federal Government is under a Continuing Resolution for FY 2013 funding.

RUS Telecom Program Considerations

• Market Conditions• Technology• Products and Services• Pricing• Regulations• Competition

• Service Providers• Traditional• Non-traditional

• Lending Guidelines & Regulations• Plans and Specs

• What is proposed to be built?

• Operational plan: 5 year historical & 5 year projections• Subscribers & Services• Revenues & Expenses

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1. Wire line telephone => Cellular

2. Free VoIP phone service

3. Large bandwidth “Apps”

4. “Television” evolving

5. VOD & web streaming

Consumer wants: “Fat-dumb” pipe!High capacity - non discriminating broadband service - Net Neutrality

Market Trends

• High costs: Construction & Operating• Sparse populations coupled with long distances & geography

• Low revenue density – low subscriber density• Unregulated; no requirement to serve all residents

• Public Utility Commission mandate (Telco) • City franchise requirements (Cable)

• No Cost support & recovery mechanisms• Access fees• Universal Service Fund FCC

• Uncertainty of an evolving marketplace.

Result: Challenging funding of business plans!

Broadband Service Provider’s Business Plan ChallengesRUS Acknowledges

• Infrastructure (Traditional) Loans since 1949

• Broadband Loans since 2002

• Grants:

• Community Connect

• DLT Distance Learning Telemedicine

RUS Financing options:

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Infrastructure Loan ProgramRequirements/Terms

• Program provides financing for new and improved telecommunications infrastructure in rural communities of 5,000 or less.

• Applications are accepted year-round.• Interest rates are set at current U.S. Treasury rates, depending on loan

maturity at the time of each advance.• Term of loan is based on life of facilities financed.• Guaranteed loans from the Federal Financing Bank (FFB) and Hardship

loans at a fixed 5% rate of interest may also be available.• All infrastructure financed must be broadband capable.

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• Rural utilities

• Municipalities

• Commercial corporations

• Limited Liability Companies

• Public Utility Districts

• Indian tribes

• Cooperative, nonprofit, limited-dividend or mutual associations

Infrastructure LoanEligible Applicants

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Infrastructure LoanEligible Purposes

• Loan funds may be used to finance services in rural areas for: • New construction • Improvements • Expansions • Acquisitions (with restrictions) • Refinancing (with restrictions)

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Broadband LoanRequirements/Terms

• Serving rural communities of 20,000 or less not in urbanized areas• 25% of proposed service area is underserved (max. one provider)• Service area cannot overlap an existing borrower• maximum loan $100 million • Term of loan is based on life of facilities financed• One year principal deferment• 10% minimum matching equity investment from borrower required• All construction must be completed w/in 3 years from the date funds available• Minimum funded speed of 5 Mbps (up+down)• Technology neutral / agnostic

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Broadband LoanEligible Applicants

• Corporations

• Limited Liability Companies

• Cooperative or Mutual Organizations

• Indian Tribes

• Public Body

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Loan funds may be used to finance services in rural areas for:• New Construction• Improvements• Expansion• Acquisitions (with restrictions)• Refinancing (with restrictions)

Broadband LoanEligible Purposes

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Broadband LoanEligible Service Area

• Service area is completely rural

• 25% of household are underserved households

• Less than 3 incumbent service providers

• Does not overlap current Telecommunications Program borrowers or grantees

• Does not overlap a pending Telecommunications Program application

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Telecom Loan ProgramInformation: website

• Complete source of:– Program information and materials– Staff Contacts

• Code of Federal Regulations 1735• General Field Representative• Minnesota Rural Development Office

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USDA RUS Telecom Program

http://www.rurdev.usda.gov/RUSTelecomPrograms.html

Telecommunications Program1400 Independence Ave.Washington, DC 20250

http://www.rurdev.usda.gov/RUSTelecomPrograms.html

Contact Information

General Field Representatives: http://www.rurdev.usda.gov/UTP_GFRContact.html

Dominic Henderson

Thomas Jensen

Kristine Reddy (ARRA)

Minnesota USDA Rural Development Staff:

Colleen Landkamer, State Director

Telecommunications Program Headquarters Staff:

David J. Villano, david.villano@wdc.usda.gov; Assistant Administrator, 202-720-9554

Jonathan Claffey, jon.claffey@wdc.usda.gov; Deputy Assistant Administrator, 202-720-9556

Peter Aimable, peter.aimable@wdc.usda.gov; Director, Northern Division, 202-720-0806

Ken Kuchno, kenneth.kuchno@usda.gov; Director, Broadband Division, 202-690-4673

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