RURAL UTILITIES SERVICE TELECOMMUNICATIONS PROGRAM

1. RURAL UTILITIES SERVICE TELECOMMUNICATIONS PROGRAM Telergee Alliance 2009 CFO & Controllers Conference Oct. 16, 2009 David J. Villano Assistant Administrator Telecommunications Program Rural Utilities Service

2. The Rural Utilities Service Telecommunications Program loan and grant programs • Infrastructure Loan Program: Loans to local telephone companies for improving telecommunications service in rural communities • Broadband Access Loan Program and Community Connect Grant Program: Loans and grants for local telephone companies and other service providers who offer Broadband (high-speed Internet) services in eligible communities • Distance Learning/Telemedicine Loan and Grant Program: Loans and grants for providing Distance Learning and Telemedicine services to rural residents • American Recovery and Reinvestment Act of 2009 (ARRA) Broadband Initiatives Program: Loans, grants and loan/grant combinations for broadband in rural communities

3. TelecommunicationsLoan Program Budget Infrastructure 2008 2009 2010 Proposed Hardship 5% $ 143,985,000 $ 145,000,000 $ 145,000,000 Direct, Treasury $ 248,250,000 $ 250,000,000 $ 250,000,000 Rate Direct, FFB $ 292,935,000 $ 295,000,000 $ 295,000,000 Total Telecom $ 685,170,000 $ 690,000,000 $ 690,000,000

4. Loan Program Budget Farm Bill Broadband: 2008 2009 2010(Proposed) Treasury Rate $ 792,000,000 $ 406,231,179 $ 531,698,895 Grants $ 13,405,000 $ 13,813,145 $ 13,406,000 Total Broadband $ 805,405,000 $ 420,044,324 $ 545,104,895

5. Loan Program Budget DLT and Public TV: 2008 2009 2010 (Proposed) Treasury Rate $ 28,265,000 $ 0 $ 0 Loans DLT Grants $ 29,790,000 $ 29,790,000 $ 29,790,000 Public TV Grants $ 4,965,000 $ 4,965,000 $ 0 Total DLT $ 63,020,000 $ 34,755,000 $ 29,790,000

6. Telecom Program FY2009 Obligations Infrastructure Loans: $690,000,000 Broadband Loans: $ 6,652,000 DLT Grants: $ 36,287,654 DLT Loans: $ 16,265,779 Community Connect Grants: $ 13,385,526 Public TV Grants: $ 5,086,460

7. Telecom Loan Investment $690 million in loans made in FY 2009 $3.7 billion in principal outstanding; 503 borrowers 92% of borrowers are providing Broadband service 90% of loans made in the last 2 years have been for fiber-to-the-home projects Infrastructure: Farm BillBroadband: • 96 loans have been made, for $1.2 billion, in 1,865 communities • More than 835 thousand households will receive broadband access under loans made

8. Revised Farm Bill Broadband Loan Program Regulations (under final departmental review): Promote deployment to rural areas with little or no service Limit funding in urban areas and areas where a significant share of the market is served by incumbent providers Clarify equity and marketing survey requirements Broadband Program

9. Revised Farm Bill Broadband Loan Program Regulations (continued): Increase the transparency of the application process Promote a better understanding of application requirements Ensure that projects funded are keeping pace with increasing demand for bandwidth Broadband Program

10. American Recovery and Reinvestment Act of 2009 (“ARRA”)

11. ARRABroadband Funding USDA Rural Utilities Service: $2.5 billion total budget authority authorized under the ARRA in the form of loans, grants and loan/grant combinations for broadband infrastructure The RUS Broadband Initiatives Program (BIP) First NOFA: $2.4 billion program level funding Up to $1.2 billion for Last Mile projects Up to $800 million for Middle Mile projects Up to $325 million for a National Reserve

12. ARRA Broadband Funding Department of Commerce – National Telecommunications Information Administration: $4.7 billion total budget authority authorized under the ARRA in the form of grants The Broadband Technologies Opportunities Program (BTOP) First NOFA: $1.4 billion program level funding Up to $1.2 billion for broadband infrastructure projects Up to $50 million for Public Computer Center projects Up to $150 million for Sustainable Broadband Adoption projects (Separate NOFA issued for $350 million in funds available to states for broadband mapping)

13. RUS BIP Project Requirements 75 percent of the areas to be served by a project receiving funds from such grants or loans shall be in a rural area without sufficient access to high speed broadband service to facilitate rural economic development; Priority shall be given to: Projects that will deliver end users a choice of more than one service provider; Projects that provide service to the highest proportion of rural residents that do not have access to broadband service; Current or former RUS Title II borrowers Projects that commence immediately upon approval.

14. Creating the ARRA Broadband Programs – Joint Endeavor between RUS and NTIA A joint Request for Information was published by RUS and NTIA in March and public comments were solicited on how the program should be developed Examples of issues: How should broadband be defined? What should be the role of the state governments? How can broadband help in the economic development in rural communities? Public meetings were held in Washington DC, Las Vegas, NV and Flagstaff, AZ. Public comments were reviewed and were considered during the development of the program

15. First Round of Funding under ARRA for BIP and BTOP First Notice Of Funds Availability (NOFA) was announced by Vice President Biden, Agriculture Secretary Vilsack and Commerce Secretary Locke on July 1, 2009. The joint BIP/BTOP NOFA was published in the Federal Register on July 9, 2009 Application window opened July 14 Electronic application portal available from July 31-August 20, 2009 Outreach and Training: Ten how-to-apply workshops were held jointly by RUS and NTIA from July 7-24, 2009 FCC also participated in the workshops 2,474 non-Federal government attendees Pre-workshop seminars targeted to minorities and tribes Applications are currently being reviewed Awards are expected to be announced in November 2009 All funds must be awarded by September 30, 2010 All projects must be substantially completed in two years and fully completed in three years

16. Key Definitions in the First NOFA : BB - 2-way data transmission w/ advertised speeds of at least768 KBPSdown+ at least 200 KBPS upto end users, OR providing sufficient capacity in a middle mile project to support provision of BB service to end users. REMOTE - an unserved, rural area 50 miles from limits of a non-rural area. RURAL- any area, as confirmed by the latest decennial census, NOT located within: 1) a city, town, or incorporated area w/ pop. greater than 20,000 people; or 2) an urbanized area contiguous and adjacent to a city or town w/ pop. greater than 50,000 people -- URBAN - a densely populated territory as defined in the latest decennial census. UNDERSERVED - a proposed service area, composed of one or more contiguous census blocks meeting certain criteria -- Specifically, proposed service area may qualify as underserved for Last Mile projects if at least one of following factors is met: No more than 50% households in proposed service area HAVE ACCESS to facilities-based, terrestrial broadband service at greater than minimum BB transmission; NO fixed or mobileBB provider w/advertisedBB speeds of at least 3 MBPS downstream; or BB subscribership for proposed service area = 40% of households or less --A proposed service area may qualify as underserved for Middle Mile projects if one interconnection point terminates in a proposed funded service area that qualifies as unserved or underserved for Last Mile projects.

17. Key Definitions in the First NOFA (continued): UNSERVED - proposed service area, composed of 1 or more contiguous census blocks, where at least 90% of households lack access to facilities-based, terrestrialBB service, either fixed or mobile, at minimum BB speed. A household has access to BB service if household can readily subscribe to service upon request. LAST MILE– Last Mile project means any infrastructure project the predominant purpose of which is to provide broadband service to end users or end-user devices (including households, businesses, community anchor institutions, public safety entities, and critical community facilities). MIDDLE MILE - Middle Mile project means a broadband infrastructure project that does not predominantly provide broadband service to end users or to end-user devices, and may include interoffice transport, backhaul, Internet connectivity, or special access.

18. Applications Received – Disclaimer: statistics are based on applicant-provided information (pending verification) Information on the applications received is available on www.broadbandusa.gov, including a searchable database of the applications and access to maps of the proposed service areas; the public has the opportunity to comment on the description of the proposed service areas as being unserved or underserved Applicants proposing to serve rural areas had to apply to BIP but could file jointly with BTOP 401 BIP only broadband infrastructure applications were received, for $4.9 billion in requested funding Last Mile Remote: 214 applications, requesting $1.4 billion Last Mile Not Remote: 131 applications, requesting $2.9 billion Middle Mile: 56 applications, requesting $710 million

19. Applications Received continued 833 joint BIP/BTOP broadband infrastructure applications were received, for $12.8 billion in requested funding Last Mile Remote: 169 applications, requesting $2.4 billion Last Mile Not Remote: 502 applications, requesting $5.8 billion Middle Mile: 162 applications, requesting $4.6 billion

20. Timeline for Next Round of Funding One additional round of funding is planned A joint NTIA/RUS Request for Information will be published later this month Seeking comments on the first NOFA, such as the requirements and the processes NTIA and RUS will take comments into account in developing the NOFA for the second round of funding A second NOFA will be announced in mid to late December 2009 This date is subject to change The second NOFA may include modifications to the requirements, definitions and processes of the first NOFA Application window is not known at this time Again, all awards must be obligated by September 30, 2010

21. Accounting, Monitoring and Reporting Compliance Requirements for ARRA Broadband Loan and Grant Recipients

22. Loans and Grants

23. ARRA Accounting, Monitoring and Reporting Requirements continued Accounting requirements, which are specified in the award documents, include, but are not limited to, the following: i. Awardees must adopt a GAAP system of accounts acceptable to RUS; ii. Awardees must submit annual audited financial statements along with a report on compliance and on internal control over financial reporting, and a management letter in accordance with the requirements of 7 CFR 1773.

24. 7 CFR Part 1773 Annual audit prepared by an independent auditor/audit firm must include: Auditor’s report Report on compliance and on internal control over financial reporting Management letter (Examples are found in Appendices A & B of 7 CFR Part 1773)

25. ARRA Accounting, Monitoring and Reporting Requirements continued Reporting Requirements: There are general OMB reporting requirements and RUS specific reporting requirements (see NOFA for detailed requirements) OMB requirements: The awardee and each contractor engaged by the awardee must submit the following information to the relevant agency: The total amount of Recovery Act funds received; The amount of Recovery Act funds received that were expended or obligated to projects or activities; A detailed list of all projects or activities for which Recovery Act funds were expended or obligated, including detailed information on any subcontracts or subgrants awarded by the awardee to include the data elements required to comply with the Federal Funding

26. ARRA Accounting, Monitoring and Reporting Requirements continued BIP-Specific Reporting Requirements (see NOFA for detailed requirements): Awardees must submit to RUS 30 calendar days after the end of each calendar year quarter, balance sheets, income statements, statements of cash flow, rate package summaries, and the number of customers taking broadband service on a per community basis utilizing RUS’s Broadband Collection and Analysis System (BCAS). Annually on January 31, starting the first January 31 after completion of the project, awardees must submit to RUS, using the electronic reporting system provided by RUS: Number of households and businesses subscribing to broadband service; Number of households and businesses subscribing to broadband service that receive improved access; and Number of educational, library, health care, and public safety providers receiving either new or improved access to broadband service. Awardees shall specifically state in the applicable quarter when they have received 67 percent of the award funds. Reaching this threshold will indicate that the awardee has substantially completed its project.

27. Functions of Field Accountants Compliance Reviews Verify receipt and disbursement of all loan and grant funds Verify all loan and grant costs

28. Recordkeeping & Documentation RUS shall have reasonable opportunity, at all times during business hours and upon prior notice, to have access to and the right to inspect the broadband system, and any other property encumbered by the mortgage or security agreement, and any or all books, records, accounts, invoices, contracts, leases, payrolls, timesheets, cancelled checks, statements, and other documents, electronic or paper of every kind belonging to or in the possession of the awardee or in any way pertaining to its property or business, including its subsidiaries, if any, and to make copies or extracts therefrom.

29. Contact Information Rural Development Telecommunications Program 1400 Independence Ave. Washington, DC 20250 www.usda.gov/rus/telecom 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 Mary Campanola, mary.campanola@usda.gov; Outreach Coordinator, 202-720-8822 Ken Kuchno, kenneth.kuchno@usda.gov; Director, Broadband Division, 202-690-4673 Gary Allan, gary.allan@usda.gov; Acting Director, Distance Learning & Telemedicine Program, 202-720-0665 General Field Representatives: Broadband Specialist GFRs: Tony Tindall, anthony.tindall@wdc.usda.gov; 612-721-6432; Randy Jenkins, randy.jenkins@wdc.usda.gov; 316-733-7604 Other GFRs: http://www.usda.gov/rus/telecom/staff/gfr-state-list.htm

30. ARRA Compliance Contacts bipcompliance@wdc.usda.gov kenneth.ackerman@wdc.usda.gov james.murray@wdc.usda.gov diana.alger@wdc.usda.gov