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Statement of Need: Since the Broadband Loan Program's inception, the Agency has faced and continues to face significant challenges in administering the program, including the fierce competitive nature of the broadband market, the fact that many companies proposing to offer broadband service are start-up organizations with limited resources, continually evolving technology, and economic factors such as the higher cost of serving rural communities. Because of these challenges, the Agency has been reviewing the characteristics of the Broadband Loan Program and has determined that modifications are required to accelerate the deployment of broadband service to the rural areas of the country. The Broadband Loan Program is important to the revitalization of our rural communities and their economies. A lack of private capital has been cited as a reason for slow broadband deployment. However, an adequate supply of investment capital alone may not be sufficient to universally deploy broadband facilities in rural America–primarily due to the high cost of deployment outside of more densely populated areas. Due to market uncertainties and risks associated with startup ventures, non-Federal sources of funding are restricting and raising the cost of capital, particularly in costly rural markets. Better access to low-cost capital is a primary initiative of this program in facilitating an increase in the rate of rural broadband deployment.

Summary of the Legal Basis: On May 13, 2002, the Farm Security and Rural Investment Act of 2002, Public Law 107-171 ("2002 Farm Bill"), was signed into law. Title VI of the Farm Bill authorized the Agency to approve loans and loan guarantees for the costs of construction, improvement, and acquisition of facilities and equipment for broadband service in eligible rural communities. On June 18, 2008, the Food, Conservation, and Energy Act of 2008 ("2008 Farm Bill") became law, significantly changing the statutory requirements of the Broadband Loan Program. As such, the Agency will be issuing a Interim Rule that implements the statutory changes and requests comment on sections of the rule that were not part of the Proposed Rule published in May 2007.

Anticipated Costs and Benefits: The program costs associated with lending activity are relatively low. The average subsidy rate since the program's inception is 2.4 percent, or $24,000 in appropriated budget authority for every $1 million in loans. The residents and businesses of rural communities are the beneficiaries. Rural Development is responsible for helping rural America transition from an agricultural base economy to a platform for new business and economic opportunity. Rural Development seeks to leverage its financial resources with private investment to facilitate the development of the changing rural economy. The Broadband Loan Program provides rural America with the platform on which to achieve these goals. With access to the same advanced telecommunications networks as its urban counterparts, especially broadband networks designed to accommodate distance learning, telework, and telemedicine, rural America will eventually see improving educational opportunities, health care, economies, safety and security, and ultimately higher employment. The Agency shares the assessment of Congress, State and local officials, industry representatives, and rural residents that broadband service is a critical component to the future of rural America. The Agency is committed to ensuring that rural America will have access to affordable, reliable, broadband services, and to provide a healthy, safe and prosperous place to live and work.

Risks: Building broadband infrastructure in sparsely populated rural communities is very capital intensive. The Broadband Loan Program continues to face risk factors that pose challenges in ensuring that proposed projects can and do deliver robust, affordable broadband services to rural consumers. These factors include the competitive nature of the broadband market, the fact that many companies proposing to offer broadband service are start-up organizations with limited resources, rapidly evolving technology, and economic factors such as the higher cost of serving rural communities. While many of the smallest rural communities understand the importance of broadband infrastructure to their economic development, they often have difficulty attracting service providers to their communities.