Loans recently made to small telcos by the Rural Utilities Service would no longer be “financially feasible” if the FCC caps the Universal Service fund, according to data filed by the RUS with the FCC last week. The telecom group of the RUS, part of the Department of Agriculture, has historically funded telecom and broadband network construction throughout rural America.

The filing came to light just as the nation’s largest and smallest telephone companies announced they had reached accord on Universal Service and inter-carrier compensation reform. Although the large carriers apparently have agreed on a USF cap to the areas they serve, the smaller carriers are recommending that Universal Service funding for their service areas be allowed to continue to grow— and the new RUS data offers strong support for that recommendation.

The RUS summarized its portfolio in the following way:

  • Telecommunications Infrastructure Program (1949) 487 borrowers; $5.3 billion loans approved (net) since 2001
  • Broadband Loan Program (2000, 2002, 2008) 62 borrowers; $1.1 billion loans approved (net)
  • Broadband Initiatives Program (ARRA 2009) 242 borrowers/grantees; $1.2 billion loans approved (net)/$2.3 billion grants approved (net)

According to a slide deck prepared by the RUS, Overview of Telecommunications and Broadband Loan and Grant Programs, the agency based its observation that recent loans would not be financially feasible on an analysis of 46 loans made to rural telcos to date in Fiscal Year 2010-2011. RUS assumes those 46 borrowers “…represent the ‘universe’ of all RLECs…” In its analysis, RUS measured the impact of capping Universal Service funding at the 2009 aggregate level and reports, “At that level, the pool of the 46 loans would not be financially feasible.”

Additionally, RUS suggest that an increase of $128 million in Universal Service funding would be required to viably support that examined loan portfolio. The RUS has a total of $4.2 billion in telecom loan principal outstanding, according to the data presented, as outlined below (dollar figures in millions):

Program Amount Total
Cost-of-Money, Hardship, other $ 2,625
Rural Telephone Bank $ 445
Guaranteed – Federal Financing Bank $ 690
Total Traditional $ 3,760
Broadband, including ARRA $ 507
Total – all of Telecom $ 4,267

The RUS data also underscored how critical RUS loans are to rural carriers and to supporting broadband build-out. According to the RUS, all but four of the 480 telcos that have borrowed money through the RUS telecommunications infrastructure program receive high-cost USF support, and more than 70% of RUS borrowers receive more than 25% of their operating revenues from the USF.

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10 thoughts on “Does USF Reform Put RUS Loans at Risk of Default?

  1. Exactly. Cap USF, but then create billions in default on government backed loans. Sure – that makes sense.

    1. Perhaps the submitted plans to the FCC need to include making the USDA whole, like the recovery mechanism hopes to be for the RLECs. 😉

  2. The left hand and the right hand don't know what they are doing, or the right hand (FCC) chooses to ignore it. RUS will have to either create a new division to run all the rural phone companies it is going to own, or make incredible refinancing terms available to all its borrowers.

  3. Perhaps all borrowers and USF recipients shoud have a 1 hour lights off exercise to show the FCC the effect of thier proposals. shut all systems down for one hour so they can see how well the cell phones, radar stations, local governments, doctors offices, etc are going to work when we are out of business.

  4. Exactly Bill. Tee FCC dosen't understand the technology it's trying to regulate. They think that the cellular technology they're so bent on pushing will continue to operate if all of the rural carriers shut their doors. Hello people, cell towers don't talk to each other wirelessly, and someone has to build and maintain that landline infrastructure. And if they think the large carriers are the ones to do it, check out their customer satisfaction numbers. And why should the rural carriers, who built where the large carriers refused to after picking the low-lying fruit, be forced to hand over their operations to these big bullies?

    1. I believe it is called Beltway Blindness. The young staffers think Washington, D.C. is a true representation of the rest of the U.S. Just give 'em all a cell phone and iPad; that will do the trick!

      1. You can't blame the young staffers. I've heard it directly from the lips of the wireline director, and she's no young 'un.

  5. To Bankrupt – You are correct, the vendors won't know what hit them in that segment of the industry. However, as a vendor employee I can tell you two key points: first the vendors left in telecom infrastructure and core services are for the most part multinationals or multinational owned(with maybe one or two american made and american owned) that manufacture, support and in some cases design a large portion of their equipment outside of the US so they don't have a vested interest in the US economy welfare; secondly, for most of these vendors the RLECs and ILECs only constitute a very small segment of their business not critical to their survival or growth. At the end of the day the RLECs are suffering and with them the customers they serve.

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