Hearing on Loan Guarantees and Rural Television Service

Prepared Testimony of Mr. Richard Sjoberg
Sjoberg's Incorporated Cable Systems

10:00 a.m., Tuesday, February 1, 2000 - Dirksen 628

Mr. Chairman, members of the Committee, my name is Dick Sjoberg. I am President and Chief Executive Officer of Sjoberg's, Inc., a privately held cable company located in northwest Minnesota. I serve as chairman of the National Cable Television Association's Rural and Small System Operators Committee and am also a member of NCTA's Board of Directors.(1)

My family entered the cable television business in 1962. In those early days of the industry, our main goal was to bring broadcast signals to communities that could not receive them over-the-air - especially in rural areas. My company built its own facilities, beginning with a cable system in Thief River Falls, Minnesota - a small town of 8,010 which was approximately 92 miles from the nearest broadcast station at the time the system was built. Some of our systems today are as many as 133 to 200 miles away from the nearest broadcast station they carry.

Today, our company serves approximately 7,400 customers in 33 small rural towns and townships, with densities ranging from 12 to 22 homes per miles of cable plant (see attached chart). Since 1993, we have installed fiber to connect each of these towns. In 1998, we began offering our customers digital cable service, recognizing that we needed to provide more channels to compete with DBS. At present, we offer our subscribers a total of 148 channels of cable and broadcast programming.

As a company, we are committed to delivering new broadband services not only to our residential customers, but also to the schools in the rural communities where they live. For example, as part of our company's commitment to the cable industry's High Speed Education Initiative and Cable in the Classroom, we have wired all 18 schools in our service area with cable TV and are currently providing a free cable modem and high-speed Internet access to five schools. All 18 schools will have free, high speed access to the Internet by the end of the year. We have also interconnected all of the schools in one of our districts with fiber optic cable. Furthermore, half of our residential customers currently have access to high-speed cable modems, while the rest will have access to broadband services by the end of 2000. We have invested substantial amounts of private risk capital to bring these services to our customers and do not rely on public funding.

To date, my company is the only video service provider to make this kind of investment in these rural Minnesota communities. I am a resident of the area, participate in community activities, and pay approximately $30,000 per year in franchise fees to local franchising authorities. My goal as a local businessman is to ensure that my customers have access to the same services as their counterparts in more populated areas. Moreover, I am not alone. As the FCC Cable Bureau's report, Broadband Today (October 1999), indicates, small and rural cable systems across the country are deploying broadband facilities and services.

My cable company and others continue to deploy digital video and broadband services in rural America, even though the required upgrades are very expensive and capital intensive. We are willing to undertake the risk of deploying advanced networks in low-density, high-cost areas because of the stable regulatory environment provided by the Telecommunications Act of 1996 and because we believe that these services appeal to the rural communities we serve.

NCTA and many small cable systems supported the Satellite Home Viewer Improvement Act of 1999 - pro-competitive legislation which changed the law to permit satellite companies to retransmit local broadcast signals into local markets, including rural markets. We also understand this committee's policy goal of providing improved access to broadcast signals and are prepared to compete with other video providers. We are concerned, however, about proposals that might provide government subsidies to some industries - but not others - in an otherwise competitive video marketplace.

Small cable operators like myself compete against DBS in every market we serve, including rural markets. Our DBS competitors already have certain advantages because they can reach every home without the high marginal costs that limit a small cable operator's ability to provide service to less densely populated areas. They also have the technical capability to provide more channels than a typical small cable system. Some of the proposals for expanding local-into-local service compound our competitors' advantages by having the federal government subsidize DBS's capacity to provide local broadcast signals - even though these competitors are owned by companies with market capitalizations of $21 billion (EchoStar) and $16 billion (GM/Hughes) and have annual revenues of $1 billion to $6 billion.

As a small cable operator, I already carry all local broadcast signals on my systems. In fact, I am required to do so by the must carry provisions of the 1992 Cable Act. I raised the money to carry these signals and others in private capital markets. The fear of many small cable operators is that any rural loan guarantee program will be interpreted as a Congressional mandate to build another satellite - at discounted, federally insured rates - to carry local broadcast signals into markets which local businesses could serve more cost-effectively through other technologies.

For example, my company has cost-sharing agreements with Roseau County and Lake of the Woods County to transport over-the-air broadcast signals into areas they would otherwise not reach. (I use a combination of fiber optic cable, microwave signals, and translators to provide this service, even though the signals compete with those on my own cable system.) Note that in these areas, the local rural co-operative acts as the selling agent for DirecTV. The rural co-op provides its customers with dual antennas to receive both satellite signals and local broadcast signals in direct competition with my cable service.

If Congress decides to move forward with a federal loan guarantee program, I would ask that it adopt one that is:

TECHNOLOGY NEUTRAL, giving small "Main Street" businesses the opportunity to extend the reach of local broadcast signals in a more cost-effective way. Small cable businesses and others could use loan guarantees to extend their facilities to areas that are not currently economical to serve - typically areas with fewer than 10-12 homes per mile. They could also use other technologies, such as translators, microwave links, repeaters, relay stations, and new wireless systems, to improve access to broadcast signals. The need for such technology neutrality is especially important since companies like mine are providing rural consumers with broadband services and high speed access to the Internet, thus helping to bridge the digital divide.

NARROWLY FOCUSED ON UNSERVED OR THE MOST UNDERSERVED MARKETS - Any government funding or loan guarantee program should focus on areas with the least local broadcast signal coverage and should not be used to subsidize DBS service in urban and suburban markets.

SET UP IN A MANNER THAT MINIMIZES THE PAPERWORK BURDEN ON APPLICANTS - The program should be set up in manner that creates the smallest paperwork burden possible, encouraging smaller businesses to apply and provide cost-effective, local solutions.

Thank you for your attention. I stand ready to work with this committee as it moves forward on legislation to provide better television service in rural and underserved areas.

List of towns and townships served by Sjoberg's Inc.
Community Population
Thief River Falls, MN 8,010
North Township, MN 150
Rocksbury Township, MN 486
Roseau, MN 2,396
Jadis Township, MN 162
Spruce Township, MN 228
Middle River, MN 369
Spruce Valley Township, MN 9
Greenbush, MN 820
Hereim Township, MN 31
Warren, MN 1813
Warrenton Township, MN 20
McCrea Township, MN 36
Red Lake Falls, MN 1481
Red Lake Falls Township, MN 42
Warroad, MN 1,679
Lake Township, MN 1,630
Enstrom Township, MN 61
Cedarbend Township, MN 16
Moranville Township, MN 66
Holt, MN 61
Viking, MN 88
Karlstad, MN 921
Deerwood Township, MN 59
Newfolden, MN 382
Badger, MN 498
Stokes Township, MN 20
Baudette, MN 1146
Wabanica Township, MN 160
Wheeler Township, MN 211
Gulrid Township, MN 72
Spooner Township, MN 101
Baudette Township, MN 109
Total 23,333

1. NCTA represents cable companies serving more than 90 percent of the nation's 68.5 million cable customers and more than 100 cable program networks.

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