DALLAS CENTER, Iowa--Daniel and Linda Hawkins expected to lose some amenities when they moved to this small farming town, population 1,759, from a slightly larger city nearby. But they were so sure they would have high-speed Internet access that they had high-capacity wiring installed in every room in the house.
After all, many farmers who live nearby subscribe to a high-speed wireless service provided by Prairie iNet, a small company based outside Des Moines, and they zip effortlessly around the Web.
But to the couple's dismay, their new house, complete with a fishing pond in the back, lies in a wireless dead zone, one that Prairie iNet is not likely to fill soon. Turned down by a federal loan program meant to bring high-speed access to rural areas in 2004, the company is using its limited private funds to expand service to small businesses in the Des Moines suburbs rather than farmers and homes spread among the rolling corn and soybean fields of Iowa and Illinois, a constituency it started serving in 2000.
"There is demand on the commercial side, and we recover our costs quicker on that side," said Neil J. Mulholland, Prairie iNet's founder and chief executive. "And it's too bad, because there are a lot of people out in these areas that really want to get our service, and they will pay the $50. Many of them are paying $70."
Across rural America, entrepreneurs, lawmakers and Internet company executives say they are frustrated with a loan program created by Congress in 2002 to help extend high-speed Internet service to rural areas. Run by the Rural Utilities Service, an arm of the Department of Agriculture, the program has been allocated nearly $3 billion but the agency has lent less than half that.
As of Sept. 30, the end of the 2005 fiscal year, the utilities service had rejected 87 loan applications totaling $1.1 billion and approved 48 loans totaling $770 million. The agency had nearly $2 billion in unused money, and $556 million of that must be committed to new loans before the end of the fiscal year next September or its authorization will expire. Most of the loans carry the same interest rates as United States Treasury bonds, about 4.5 percent.
Critics say the agency's standards are so tough that applicants that have not been profitable for at least two years are rejected if they do not have enough cash on hand to cover a full year's operating expenses. When Prairie iNet applied for a $7.7 million loan in 2003, it was losing money (though it registered two small quarterly operating profits early in 2005). Its investors, among them Liberty Media, said they would chip in $4.2 million in new capital, but the lending agency wanted an investment of at least $7.7 million.
"This has created ridiculous situations where companies have sought $5 million and as a condition for approval they have been required to have that much money in the bank," said Senator Tom Harkin, Democrat of Iowa, who helped create the program and is now a big critic of the agency's handling of it. "If they have that much money in the bank, why would they need the loan?"
Slowed by the rules
Agriculture Department officials acknowledge that the program has had a slow start and agree that some of the financial restrictions may need to be revised. But the rules, those officials say, were meant to ensure that borrowers were financially stable and that the loans would be repaid in full.
"I am empathetic to those concerns, but we do have a responsibility to make sure that we utilize the taxpayers' dollars judiciously," said Tom Dorr, the Agriculture Department's under secretary for rural development. He declined to discuss Prairie iNet's application, saying he was not intimately familiar with it.
Started as the Rural Electrification Administration by President Franklin D. Roosevelt in the 1930s, the Rural Utilities Service has a storied record of underwriting loans that brought electricity and phone service to rural America. None of its telephone company borrowers have ever defaulted on a loan, though $30.4 million in loans for high-speed Internet access, or broadband, are in default now.
Dorr, whose family once owned a farm in Iowa, said that the agency historically lent to monopolies that had reliable and steady revenue and that most borrowers had no trouble qualifying for loans or repaying them. But with broadband, the agency has had to create new methods to assess the creditworthiness of start-up firms.
Indeed, 70 percent of its broadband loans have gone to established telephone companies, even though 42 percent of its applications are from start-ups. Companies that have received loans praise the program, but even they express some frustration with it.
http://news.com.com/Loans+for+rural+Internet+hard+to+get/2100-1034_3-5974420.html?tag=nefd.top
After all, many farmers who live nearby subscribe to a high-speed wireless service provided by Prairie iNet, a small company based outside Des Moines, and they zip effortlessly around the Web.
But to the couple's dismay, their new house, complete with a fishing pond in the back, lies in a wireless dead zone, one that Prairie iNet is not likely to fill soon. Turned down by a federal loan program meant to bring high-speed access to rural areas in 2004, the company is using its limited private funds to expand service to small businesses in the Des Moines suburbs rather than farmers and homes spread among the rolling corn and soybean fields of Iowa and Illinois, a constituency it started serving in 2000.
"There is demand on the commercial side, and we recover our costs quicker on that side," said Neil J. Mulholland, Prairie iNet's founder and chief executive. "And it's too bad, because there are a lot of people out in these areas that really want to get our service, and they will pay the $50. Many of them are paying $70."
Across rural America, entrepreneurs, lawmakers and Internet company executives say they are frustrated with a loan program created by Congress in 2002 to help extend high-speed Internet service to rural areas. Run by the Rural Utilities Service, an arm of the Department of Agriculture, the program has been allocated nearly $3 billion but the agency has lent less than half that.
As of Sept. 30, the end of the 2005 fiscal year, the utilities service had rejected 87 loan applications totaling $1.1 billion and approved 48 loans totaling $770 million. The agency had nearly $2 billion in unused money, and $556 million of that must be committed to new loans before the end of the fiscal year next September or its authorization will expire. Most of the loans carry the same interest rates as United States Treasury bonds, about 4.5 percent.
Critics say the agency's standards are so tough that applicants that have not been profitable for at least two years are rejected if they do not have enough cash on hand to cover a full year's operating expenses. When Prairie iNet applied for a $7.7 million loan in 2003, it was losing money (though it registered two small quarterly operating profits early in 2005). Its investors, among them Liberty Media, said they would chip in $4.2 million in new capital, but the lending agency wanted an investment of at least $7.7 million.
"This has created ridiculous situations where companies have sought $5 million and as a condition for approval they have been required to have that much money in the bank," said Senator Tom Harkin, Democrat of Iowa, who helped create the program and is now a big critic of the agency's handling of it. "If they have that much money in the bank, why would they need the loan?"
Slowed by the rules
Agriculture Department officials acknowledge that the program has had a slow start and agree that some of the financial restrictions may need to be revised. But the rules, those officials say, were meant to ensure that borrowers were financially stable and that the loans would be repaid in full.
"I am empathetic to those concerns, but we do have a responsibility to make sure that we utilize the taxpayers' dollars judiciously," said Tom Dorr, the Agriculture Department's under secretary for rural development. He declined to discuss Prairie iNet's application, saying he was not intimately familiar with it.
Started as the Rural Electrification Administration by President Franklin D. Roosevelt in the 1930s, the Rural Utilities Service has a storied record of underwriting loans that brought electricity and phone service to rural America. None of its telephone company borrowers have ever defaulted on a loan, though $30.4 million in loans for high-speed Internet access, or broadband, are in default now.
Dorr, whose family once owned a farm in Iowa, said that the agency historically lent to monopolies that had reliable and steady revenue and that most borrowers had no trouble qualifying for loans or repaying them. But with broadband, the agency has had to create new methods to assess the creditworthiness of start-up firms.
Indeed, 70 percent of its broadband loans have gone to established telephone companies, even though 42 percent of its applications are from start-ups. Companies that have received loans praise the program, but even they express some frustration with it.
http://news.com.com/Loans+for+rural+Internet+hard+to+get/2100-1034_3-5974420.html?tag=nefd.top
