Broadband Program For Rural Areas Raises Concerns

WASHINGTON — On the western edge of a burgeoning city, Home Town Cable is expanding its broadband network with federal aid originally intended for rural America.

In 2005, the Port St. Lucie-based company received a $14.5 million loan from the U.S. Department of Agriculture to deliver broadband service to areas of St. Lucie County where cows could be found roaming aimlessly.

But Home Town Cable knows this territory won't stay undeveloped for long.

"We picked Port St. Lucie because it is one of the fastest growing communities in the U.S.," the company boasts on its Web site.

The USDA's broadband loan program, authorized in the 2002 Farm Bill, was meant to provide loans to companies introducing broadband to struggling, rural communities of less than 20,000 people.

But as it has evolved, the program has also issued loans to wire high-growth areas, affluent suburbs of metropolitan cities and communities where broadband providers already existed.

Now, as it prepares to renew the legislation, Congress is taking a closer look at the program amid concerns that it has strayed from its core mission of linking rural America to the 21st century global economy.

'A NATIONAL REQUIREMENT'

The broadband loan program is one of 40 loan programs in the USDA's Rural Development program, which was inspired by President Franklin D. Roosevelt's efforts in the 1930s to bring electricity to remote corners of the country.

Recent studies have directly tied the deployment of broadband to improving the quality of life in rural America by enhancing learning, medicine and the overall economy.

Since its inception four years ago, the USDA's broadband loan program has handed out more than $1.1 billion in low-interest loans, financing high-speed Internet access in places like Eagle Butte, S.D., population less than 1,000.

"Broadband is a national requirement now," said Jim Dolezal, a telecom analyst for Suss Consulting in Jenkintown, Pa. "With the expansion of the Internet, people are demanding it, regardless of their location."

But as the centerpiece of President Bush's goal to create universal, affordable access to broadband by 2007, the program has fallen short.

Only about 34 million homes, or 30 percent of U.S. households, had broadband connections last year, according to eMarketer, an Internet research company.

A 2005 Government Accountability Office study found one reason why: The USDA's Rural Utilities Service, which operates the loan program, had not spent all of its funds because it rejected many applicants with unsustainable business plans.

Such reports have drawn the ire of lawmakers who are eager to take credit for directing loans to their districts. Sen. Hillary Clinton, D-N.Y., has introduced her own legislation to expand rural broadband access.

At a House hearing on the program last month, Rep. Rosa DeLauro, D-Conn., said: "We haven't seen significant improvement in broadband access that really was hoped for in the rural communities."

FUELING COMPETITION

Meanwhile, a 2005 report by the USDA's Inspector General found that 31 percent of the broadband loans have gone to areas with preexisting broadband service. The GAO study found cases where loans were used in areas with several other broadband providers.

"It is not clear whether these funds are being provided to communities most in need," the GAO said.

CTURN Corp., based in Salem, Ore., received a $24.5 million loan in 2006 to deliver broadband to parts of Oregon and Washington with at least one other broadband provider. But CTURN Corp. President Pat Turnidge makes no apologies.

"Are there some competitors out there? Sure," Turnidge said, "but there's virtually no place in America where there isn't some sort of broadband."

Turnidge said his company offers wireless broadband, which is less expensive to deliver to rural areas.

"We go where the cable industry won't," Turnidge said.

En-Touch Systems Telephone Company Inc., which received a $22.9 million loan in 2004 to wire new subdivisions outside of Houston, also acknowledged it is in a competitive environment.

En-Touch President Rich Gerstemeier said the broadband loan program "was geared to fostering competition" by "forcing the rural companies to get busy."

Rep. Stephanie Herseth Sandlin, D-S.D., plans to introduce a bill next week that would ensure loans are not given to broadband providers with competition.

DEFINING 'RURAL'

The legislation would also redefine "rural" and "urban" areas "to ensure loans are being used in truly rural communities and not suburbs," she said in a statement.

Thomas C. Dorr, the undersecretary for USDA's Rural Development division, told a House committee last month that his office is also looking at changing the guidelines.

"In the long run," he acknowledged, "I'm not sure that we're ever going to be able to put together a perfect broadband deployment program because of the competitive nature in the field."

The Inspector General also found that the program had directed loans to communities near metropolitan areas, citing $45 million to finance 19 planned subdivisions on the outskirts of Houston.

The broadband program's definition of "rural area" is "too broad to distinguish between suburban and rural communities," the report said.

However, at least one company that has received loans is trying to serve both.

TeleShare Communications Services, which received a loan to wire areas around Austin, says on its Web site that it provides high-speed Internet service "to rural Texas cities as well as the suburbs of major metropolitan areas where high speed access is lacking."

En-Touch Systems says it was founded "specifically to provide bundled telecommunications services to quality master-planned communities" outside the Houston metropolitan area.

One community En-Touch received a loan to wire, Sienna Plantation, has an 18-hole golf course and homes worth over $1 million.

A BREAK FOR PORT ST. LUCIE

After hurricanes devastated the Treasure Coast in 2004, Congress inserted language in an agriculture spending bill that waived the population threshold of the broadband loan program for St. Lucie County.

At the time, Port St. Lucie was the fastest growing city in the country, and former Rep. Mark Foley said the aid was crucial to supporting its exponential growth.

"With more people moving in each year, the need for enhanced communications has grown exponentially," Foley said in a statement.

And with the city's growth showing no signs of slowing, the cow pastures where Home Town Cable has staked its claim will rapidly become new subdivisions, said Larry Daum, chairman of the St. Lucie County Department of Growth Management.

"The area just west of 95 is going to develop and develop fast," Daum said.

Home Town Cable already has subscribers in The Estates at Tradition, a new subdivision just west of the interstate that advertises "a unique combination of luxury and relaxation" with single-family homes valued at more than $500,000.

The company's CEO, Mitchell Rubenstein, said he wouldn't have needed the loan before the hurricanes temporarily slowed development.

"I was trying to be entrepreneurial and look for money with decent interest rates," said Rubenstein, who also owns a controlling interest in Treasure & Space Coast Radio, one of the largest radio station groups in South Florida.

"This program, while not designated for this purpose, makes good business sense," Rubenstein said.