News

Cable Firm Taps Loan Program for Rebuild

9/28/2007 8:00 PM Eastern

A rural New York cable operator is nearing completion of an upgrade to provide high-speed Internet access to businesses and residential customers within its service territory, fueled in part by a federal loan program that has come under fire in the past for providing loans to cable competitors.

Mid-Hudson Cablevision, a Catskill, N.Y.-based independent cable operator, was the first company in New York State to gain approval under the U.S. Department of Agriculture's Rural Broadband Access loan program. Its service territory, in New York's Hudson Valley region, is home to numerous dairy farms, apple orchards and other agricultural operations.

By the Numbers
How Mid-Hudson Cablevision is using its $5.3 million loan from the USDA Rural Broadband Access Loan Program:
SOURCE: Mid-Hudson Cablevision
$2.4 million Equipment expense
$1.6 million Cable and fiber
$1.3 million Labor

LOANED $5.3 MILLION

The independent operator — it has about 20,000 video subscribers and about 10,000 high-speed Internet customers in Greene, Columbia and parts of Albany counties — secured about $5.3 million through the program to complete the upgrades.

Mid-Hudson was awarded the loan in April 2006. The $5.3 million will be used to update and expand broadband service to more than 7,000 subscribers in seven towns in Upstate New York — Greenville, Prattsvile, Westerlo, Ashland, Taghkanic, Durham and Rensselaerville.

Mid-Hudson has offered high-speed data service at speeds of between 2 Megabits per second and 4 Mbps to a large chunk of its footprint for several years.

Mid-Hudson CEO James Reynolds said that the company had begun its initial upgrade to 750 Megahertz capacity about 10 years ago. The seven towns that were named in the grant were those areas that hadn't been upgraded yet.

“When we rebuild our system for the HFC [hybrid fiber coax] platform that will deliver not only broadband but also voice and video services, it [the loan program] allows us to have access to longer-term, longer amortization and lower-cost financing for this capital project,” Reynolds said. “That's been one of our big challenges as an independent operator in a smaller system.”

While terms of each loan are different, they usually are for 10- to 15-year spans at interest rates of between 4% and 5%.

Reynolds said Mid-Hudson already had a separate commercial credit facility in place to finance the bulk of the upgrade. He estimated that the company will have spent a total of between $22 million and $24 million on the project, including the USDA loan, when it is completed in the fourth quarter of this year.

Reynolds said that he was unsure how large an effect the completed upgrade will have on Mid-Hudson's subscriber rolls, but added that it would be positive.

When the upgrade program was started 10 years ago, Reynolds added, some customers opted to switch to satellite TV rather than wait for new cable services to come to their areas. However, with the upgrade mostly completed, Mid-Hudson has been able to win many of those customers back.

“Once the rebuild is complete, it may take six to 12 months before you start to see all those conversions take place and you gain subscribers,” Reynolds said. “But in every place that we've done the rebuild, we've noticed an uplift in subscribers.”

While Mid-Hudson was the first cable operator in New York State to receive a loan as part of the program, applications from two out-of-state companies — Crossroads Wireless RDUP Broadband of Oklahoma City and Open Range Communications of Centennial, Colo. — have applications pending for several New York counties.

And though the USDA program has come under criticism in the past because it has issued loans to companies considered to be competitors to rural cable operators — who would have to fund upgrades either through their own balance sheets or via more costly commercial loans — Reynolds said the federal agency is strict in its criteria for issuing loans.

“It's a lengthy process to get approval,” Reynolds said. “The program is very tightly administered so that you really get funded based on your completion of projects. … It's my judgment that they prefer an applicant that has an established track record, established cash flow and business experience.”

PROGRAM Has ADAPTED

The Rural Broadband Access loan program was formally initiated by the USDA in 2002 — a two-year pilot program, funded with about $180 million was launched in 2000 — and according to the federal agency, has made 70 loans in 40 states for a total of $1.22 billion.

The program came under fire earlier this year after two industry trade groups — the National Cable and Telecommunications Association and the American Cable Association — complained that the program was granting millions of dollars in low-cost loans to companies in direct competition with cable systems that must fund their broadband projects at prevailing market rates. The two groups also complained that loans were being made to providers near large metropolitan areas.

An independent report by the USDA Office of the Inspector General agreed with some of the cable groups' complaints, adding that about 12% of the loans were made to companies near large cities. In response, the Rural Utility Service — the USDA unit responsible for administering the program — pledged to stop offering the loans in any densely populated urban area or in any city or town with 20,000 or more inhabitants.

June