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General Policies, Types of Loans, Loan Requirements-Telecommunications Program

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Rural Utilities Service, USDA.


Final rule.


The Rural Utilities Service (RUS) is amending its regulations to provide that applicants may seek financial assistance to provide mobile telecommunications service without regard to whether the applicant is providing basic local exchange service in the territory to be served. RUS is also clarifying its regulations with regard to the application of nonduplication provisions and state telecommunications modernization plans to mobile telecommunications services. In addition, RUS has included criteria for determining “reasonably adequate service” levels for mobile telecommunications service. This final rule is part of an ongoing RUS project to modernize agency policies in order to provide borrowers with the flexibility to continue providing reliable, modern telephone service at reasonable costs in rural areas, while maintaining the security and feasibility of the Government's loans.


This rule is effective July 11, 2000.

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Jonathan P. Claffey, Deputy Assistant Administrator, Telecommunications Program, Rural Utilities Service, 1400 Independence Avenue, SW., Room 4056, STOP 1590, Washington, DC 20250-1590. Telephone: (202) 720-9556.

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Executive Order 12866

This rule has been determined to be not significant for purposes of Executive Order 12866 and therefore has not been reviewed by the Office of Management and Budget (OMB).

Executive Order 12988

This rule has been reviewed in accordance with Executive Order 12988, Civil Justice Reform. RUS has determined that this rule meets the applicable standards provided in section 3 of that Executive Order. In addition, all State and local laws and regulations that are in conflict with this rule will be preempted; no retroactive effect will be given to this rule; and, in accordance with section 212(e) of the Department of Agriculture Reorganization Act of 1994 (7 U.S.C. 6912(e)), administrative appeal procedures, if any, must be exhausted prior to initiating litigation against the Department or its agencies.

Regulatory Flexibility Act Certification

RUS has determined that this rule will not have a significant economic impact on a substantial number of small entities, as defined by the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The RUS telecommunications loan program provides borrowers with loans at interest rates and terms that are more favorable than those generally available from the private sector. RUS borrowers, as a result of obtaining federal financing, receive economic benefits that exceed any direct cost associated with complying with RUS regulations and requirements.

Information Collection and Recordkeeping Requirements

This rule contains no new reporting or recordkeeping burdens under OMB control number 0572-0079 that would require approval under the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35).

Send questions or comments regarding this burden or any other aspect of these collections of information, including suggestions for reducing the burden to F. Lamont Heppe, Director, Program Development and Regulatory Analysis, Rural Utilities Service, 1400 Independence Avenue, SW., Room 4034, STOP 1522, Washington, DC 20250-1522.

National Environmental Policy Act Certification

The Administrator of RUS has determined that this will not significantly affect the quality of the human environment as defined by the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.). Therefore, this action does not require an environmental impact statement or assessment.

Catalog of Federal Domestic Assistance

The program described by this rule is listed in the Catalog of Federal Domestic Assistance programs under numbers 10.851, Rural Telephone Loans and Start Printed Page 42616Loan Guarantees, and 10.852, Rural Telephone Bank Loans. This catalog is available on a subscription basis from the Superintendent of Documents, the United States Government Printing Office, Washington, 20402-9325. Telephone: (202) 512-1800.

Executive Order 12372

This rule is excluded from the scope of Executive Order 12372, Intergovernmental Consultation, which may require consultation with State and local officials. See the final rule related Notice entitled “Department Programs and Activities Excluded from Executive Order 12372,” (50 FR 47034).

Unfunded Mandates

This rule contains no Federal Mandates (under the regulatory provisions of title II of the Unfunded Mandates Reform Act of 1995) for State, local, and tribal governments or the private sector. Thus, this rule is not subject to the requirements of sections 202 and 205 of the Unfunded Mandates Reform Act of 1995.


The telecommunications industry is becoming increasingly competitive. The Telecommunications Act of 1996 (Pub. L. 104-104) and regulatory actions by the Federal Communications Commission are drastically altering the regulatory and business environment of all telecommunications systems, including RUS borrowers. At the same time, changes in overall business trends and technologies continue to place pressure on RUS-financed systems to offer a wider array of services and to operate more efficiently.

RUS regulations currently stipulate that an entity must provide or propose to provide the basic local exchange telephone service needs of rural areas to be eligible for RUS financing (7 CFR 1735.14, Borrower Eligibility) and that loans cannot be made for facilities to serve subscribers outside the borrower's local exchange service area (7 CFR 1735.17, Facilities Financed). The Telecommunications Act of 1996, however, made the term “basic local exchange service” obsolete. The law mandates that universally available and affordable telecommunications services, including access to advanced services, be made available to all US citizens—whether in rural areas or city centers, affluent or poor communities. RUS supports this mandate and the goal that, with the assistance of advanced telecommunications technology, rural citizens be provided the same economic, educational, and health care benefits available in the larger metropolitan areas. RUS believes that the most expeditious way to bring the full range of telecommunications services to rural areas is to make certain providers of services, in addition to providers of local exchange services, eligible for RUS financing. Mobile telecommunications services are included among the telecommunications services financeable under the Rural Electrification Act (RE Act) and among those contemplated in the Telecommunication Act of 1996. Therefore, RUS believes that, in addition to wireline service, mobile telecommunications services should be made available in all rural areas. As such, RUS is deleting its requirement that all borrowers provide local exchange service. Mobile telecommunications service, which allows the user to move within the service area while making and receiving telephone calls and other services, is fundamentally different from wireline service and is not, therefore, duplicative under the RE Act. Since mobile telecommunications services do not and cannot serve the same function as contemplated in state telecommunications modernization plans (TMPs) for wireline services (see 7 CFR 1751.106), RUS policy is to consider a borrower receiving a loan to finance such services to be participating in the state's plan so long as the loan funds are not used in a manner that, in RUS' opinion, is inconsistent with the borrower achieving the goals contained in the plan. RUS will continue to follow this policy regardless of whether the borrower provides any local exchange services. In addition, RUS has included criteria for determining “reasonably adequate service” levels for mobile telecommunications service.

RUS regulations are also utilized by the Governor of the Rural Telephone Bank in carrying out the loan program of the Rural Telephone Bank (the Bank); therefore, these policy revisions would apply to loans made by the Bank, as well.


RUS received eight comments regarding the proposed rule, published at 65 FR 6922 on February 11, 2000, which were taken into consideration in preparing the final rule. A list of the commenters and comment summaries and responses follows:

1. Cellular Telecommunications Industry Association (CTIA).

2. Farmers Telephone Cooperative, Inc. (FTC).

3. Joint comments submitted from the National Rural Telecom Association, Organization for the Promotion and Advancement of Small Telecommunications Companies, United States Telecom Association and the Western Rural Telephone Association, (the Associations).

4. National Rural Telecommunications Cooperative (NRTC).

5. National Telephone Cooperative Association (NTCA).

6. Noverr Publishing, Inc. (NPI).

7. Rural Telephone Finance Cooperative (RTFC).

8. Western Wireless Corporation (WWC).

Comment: NPI, a mobile wireless telephone service, supports the proposed amendments to the existing regulations, stating that they will increase rural access to advanced telecommunications technology. CTIA and WWC also support the expansion of the RUS loan program to facilitate the provision of wireless telecommunications services to rural areas. They believe that the proposed rule correctly recognizes that wireless services fall within the definition of “telephone service” as defined by Congress for RUS. CTIA and WWC support RUS' conclusion that prudent public policy ensures that consumers in rural areas have access to wireless and advanced telecommunications services comparable to that of their urban counterparts. However, CTIA, WWC, and FTC recommended that RUS go further to encourage the development of competitive telecommunications services in rural areas between wireless and wireline service providers. They stated that RUS policies should facilitate wireline-wireless competition. They further stated that the proposed rule should be amended by removing the word “incidentally” to allow rural consumers to receive the benefits of genuine facilities-based competition. RUS' new rules should encourage multiple competing carriers to provide service to presently unserved and underserved rural markets.

Reply: RUS appreciates the support for its efforts to expand modern telecommunications in rural areas. However, unless authorized by the provisions of the RE Act, RUS is prohibited from making a loan that results in “duplication of lines, facilities, or systems providing reasonably adequate services * * *.” (7 U.S.C. 922) (hereinafter referred to as “duplication”). Replies to other comments explain that RUS believes that wireline and mobile service do not duplicate each other. RUS' mission is to ensure that rural consumers have access to modern telecommunications service including wireless and advanced telecommunications services comparable to urban and suburban subscribers. The rule, therefore, Start Printed Page 42617promotes the financing of mobile service where such service is non-existent or is determined to be inadequate.

Comment: CTIA and WWC stated that RUS should modify its rules to specify that, because states are federally preempted from requiring certificates of convenience (CCN) and necessity for wireless providers, § 1735.12(a) of the rule does not apply to wireless carriers, and mobile wireless carriers should be subject to § 1735.12(b) instead.

Reply: The RE Act dictates what action RUS will take when borrowers have a CCN or do not have a CCN. RUS will make a nonduplication finding in those cases where one is required.

Comment: CTIA and WWC further recommended that § 1735.12(d) of the proposed rule be revised to insure that it does not impose greater requirements on commercial mobile radio service (CMRS) carriers than those imposed by the FCC. Thus, RUS should hold that the clarity, reliability and signal strength requirements contained in proposed § 1735.12(d)(2) and (3) are met so long as a wireless provider is operating within the parameters of its FCC license, and that the mobile 911 requirements of proposed § 1735.12(d)(5) are consistent with those established by the FCC. NRTC recommended that the proposed requirements for mobile telecommunications service be interconnected with the public switched telephone network (PSTN) and that mobile 911 service be available to all subscribers, should not be determinative of eligibility for RUS loans. NRTC stated that the safety advantages of wireless technology do not depend on access to the PSTN or 911. Businesses and individuals using mobile wireless services not connected to the PSTN may still report emergency situations at the scene, rather than going to the nearest telephone. NRTC recommended that RUS eliminate the requirements of interconnection (§ 1735.12(d)(4)) and 911 availability (§ 1735.12(d)(5)) in its proposed rule changes.

Reply: The criteria used in determining if service is reasonably adequate are designed to ensure that no rural area is trapped with inferior, substandard service. RUS has, therefore, established criteria to ensure that service being provided is adequate. RUS will consider all criteria in § 1735.12(d) before making a determination as to whether a loan can be made based on a finding of inadequate service. RUS and the FCC have different roles. RUS' function is to promote and finance telecommunications service in rural areas. RUS is prohibited from financing duplication. The service features described in determining adequate service are a minimum standard of service RUS believes present-day subscribers should receive.

Comment: CTIA and WWC recommended that RUS should also implement proposed § 1735.12(d)(8), which allows the Administrator to impose “any other criteria * * * determine[d] to be applicable,” in a manner that ensures that wireless carriers applying for RUS loans are not subjected to unreasonable requirements or provisions that conflict with FCC rules and policies. In addition, RUS should likewise implement proposed § 1735.12(d)(7), which precludes RUS loans from being used to provide service “at rates which render [it] unaffordable to a majority of rural persons,” in a manner that takes into account competition in the wireless marketplace.

Reply: RUS appreciates the comment and will consider all relevant circumstances in applying § 1735.12(d) in a manner designed to promote modern mobile service in rural areas. Allowing the RUS Administrator the discretion to establish or evaluate “other criteria” is necessary and prudent in the rapidly evolving technological environment of the telecommunications industry. In addition, since the Administrator is responsible to the taxpayers for the security of the government's loans, he or she must be afforded the ability to adequately assess unique or rare situations to determine what is in the best interest of the rural residents measured against a provider's ability to repay its debt. With regard to rates, the word “majority” in the proposed rule has been changed to “significant number.” RUS believes that the mobile service offered at unaffordable rates is not “available” if it is offered at rates that are unaffordable to a significant number of persons, and cannot, therefore, be adequate. Financing for mobile wireless service will only be provided where such facilities and the resulting service do not currently exist or is found to be inadequate.

Comment: The Associations stated that RUS should not distinguish between mobile telecommunications service and wireline telecommunications service. The Rural Electrification Act defines “telephone service” so as to include both. The two kinds of service duplicate each other if both are offered in the same area.

Reply: RUS believes that mobile and wireline telecommunications services are easily distinguishable from each other. The most obvious difference is that wireline service reaches only a fixed location while a receiver for mobile service allows the subscriber to send and receive communications while moving within a wide area. There is also a significant difference in capacity, with the wireline facilities being able to handle a significantly larger volume of information. Wireline's greater capacity is reflected in the difference in the pricing of the two services with subscribers being predominantly charged a fixed monthly rate while mobile service subscribers are charged rates that are more sensitive to usage levels. The RE Act definition of “telephone service” is sufficiently broad to allow RUS to finance wireline services and mobile services. Neither the definition nor any other provision of the RE Act prevents the RUS from financing more than a single provider of non-duplicating services in a specific area.

Comment: The Associations stated that Congress never envisioned RUS financing telecommunications competition. Neither the RE Act nor the Telecommunications Act of 1996 gives RUS the authority to finance competition.

Reply: As noted in the reply to the previous comment, the mobile and wireline services are distinct and, therefore, do not duplicate or compete with each other when offered in the same area. Moreover, the RE Act prohibits RUS financing of duplication, not competition, so that RUS may provide financing in some situations, even though another provider purports to serve the same area. The RE Act makes another distinction, between (1) cases where there is “a state regulatory body having authority to regulate telephone service and to require certificates of convenience and necessity,” 7 U.S.C. 922, and (2) cases where there is not such a body. Non-duplication findings are required only in the second.

Comment: RTFC stated that RUS should concentrate on financing telecommunications services in rural areas, instead of promoting competition and also asserted that there are other sources of funds for mobile telecommunications services.

Reply: RUS' mission is to promote and finance the widest range of telecommunications services defined in the RE Act throughout rural America. RUS is not simply a lender of last resort as the comment implies. Just as RUS in the last 50 years led extension of telephone service in rural areas, it looks forward to leading in the deployment of mobile wireless and advanced Start Printed Page 42618telecommunications services currently underway.

Comment: The Associations stated that RUS, by financing wireless and wireline services in the same area, increases the risk of default on its loans and jeopardizes provision of services in the area.

Reply: RUS is alert to the possibility of the risks mentioned in the comment. The agency believes that mobile wireless and wireline are distinct and do not, therefore, duplicate each other to any significant degree. Therefore, entry of a mobile telecommunications provider into an area poses little financial risk to an existing wireline provider. The language in the regulation states that generally, RUS will not make a loan to another entity to provide the same service (i.e., mobile where mobile already exists) already being provided by a RUS borrower unless the borrower is unable to meet its obligations to RUS (this section, in proposed rule as an amendment to § 1735.14, will instead be added to § 1735.17). As a Federal lender, it is RUS' responsibilities to ensure, to the best of its ability, security for all outstanding and future loans, and to encourage telecommunications services in rural areas.

Comment: In the proposed regulations, the Associations assert that RUS fundamentally changed its definition of adequate telephone service by making the existing definition of adequate service apply only to wireline service and by adopting a new definition of mobile telecommunications services.

Reply: The RE Act requires the Administrator of RUS to determine that a loan will not result in the “duplication of lines, facilities, or systems, providing reasonably adequate services”. If the existing service is not reasonably adequate, an RUS loan to improve service does not result in duplication. Mobile service is distinct from wireline service thereby requiring a definition of adequacy that properly reflects its uniqueness. With rapidly advancing technologies, the quality of telecommunication service expected by all persons has risen dramatically in recent years. Therefore, the new definition of adequate mobile telecommunications service reflects these developments.

Comment: The Associations assert that RUS does not have authority to determine the affordability of wireline or wireless service.

Reply: The new regulations state that “mobile telecommunications service is not provided at rates which render the service unaffordable to a majority of the rural persons” is one of the criteria RUS will use in determining whether existing mobile telecommunications service is adequate (7 CFR 1735.12(d)(7)). RUS believes that service available only at extremely high rates that render it inaccessible to a significant number of rural subscribers is not adequate service. The evaluation of whether rates are affordable to rural subscribers is made only to determine whether RUS will make a loan in the particular situation and is clearly different from the regulatory judgement of whether rates are reasonable. Therefore, RE Act purposes would be furthered by a loan to finance mobile telecommunications services at reasonable rates that are affordable to rural persons who would not otherwise have access to such services.

Comment: The Associations believe that RUS should not eliminate the requirement in its existing regulations that borrowers must provide basic exchange service. Instead, RUS should amend its regulations to authorize the financing of mobile and other advanced telecommunications services for providers that are also providing basic exchange service.

Reply: Telecommunications providers offering basic local exchange telephone service are eligible for RUS loans currently and will continue to be eligible under the new regulations. The facilities used to deliver mobile services are distinct from wireline facilities, including those facilities that provide basic exchange service, and RUS believes that treating mobile services separately will expedite their expansion in rural areas. Limiting RUS funding of mobile services to those companies providing basic exchange services would in most instances mean that the existing telephone company could decide not to provide mobile services and then prevent persons and businesses in its service area from receiving the service from any other company as well.

Comment: The Associations stated that RUS cannot exempt carriers from the statutory State telecommunications plan (TMP) requirements.

Reply: The RE Act requires, as a condition of receiving a loan, that “the applicant is a participant in the [TMP]” for the state in which the proposed service is located, “if the plan was developed by telephone borrowers under [the RE Act]” (7 U.S.C. 935(d); 7 U.S.C. 948(b)(4)(B)). The statute sets forth requirements for a TMP that contemplate only wireline carriers (see 7 U.S.C. 935(d)(3)) and existing regulations have been developed utilizing that interpretation (7 CFR 1751.101(d)). RUS believes that technologies that allow mobile service to meet TMP standards will not be practical for a considerable time, if ever, and that it was not Congress' intention to delay expansion of mobile services in rural areas. Under the existing interpretation of the TMP standards, RUS does not require that all of the wireline services provided by a borrower be upgraded to comply with the TMP, including services not covered by the loan. Instead, RUS requires that loan funds be spent in a manner consistent with the borrower achieving TMP standards (7 CFR 1751.103). RUS interprets the provision in the same way for mobile loans—the borrower must not use the funds in a manner inconsistent with achieving TMP standards. This interpretation will facilitate both accomplishing TMP standards at the earliest possible date and the expansion of mobile service in rural areas.

This rule becomes effective on the date of publication in the Federal Register because any further delay would contribute to denying benefits to residents in rural areas. This rule is part of an Administration initiative to ensure that rural areas receive access to all types of telecommunications services—services already available to urban residents. Part of the intent of that initiative is to provide funding, this fiscal year (fiscal year 2000), to entities to provide mobile telecommunications service where that service does not exist or is inadequate. In order to do that, applicants must have time to prepare and submit applications in accordance with this and other applicable RUS regulations; RUS must also have adequate time to process and approve eligible applications. A delay in the effective date of this rule of 30 days, coupled with application preparation, review and processing times, would undermine the ability to provide funding this fiscal year, thereby denying benefit to rural residents.

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List of Subjects in 7 CFR Part 1735

  • Accounting
  • Loan programs—communications
  • Reporting and recordkeeping requirements
  • Rural areas
  • Telephone
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For the reasons set forth in the preamble, 7 CFR chapter XVII is amended as follows:

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The authority citation for part 1735 is revised to read as follows:

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Authority: 7 U.S.C. 901 et seq., 1921 et seq., and 6941 et seq.

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2. In § 1735.2, the following definitions are added in alphabetical order to read as follows:

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Mobile telecommunications service means the transmission of a radio communication voice service between mobile and land or fixed stations, or between mobile stations.

* * * * *

Public switched network means any common carrier switched network, whether by wire or radio, including local exchange carriers, interexchange carriers, and mobile telecommunications service providers, that use the North American Numbering Plan in connection with the provision of switched services.

RUS means the Rural Utilities Service, an agency of the United States Department of Agriculture, successor to the Rural Electrification Administration.

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3. Amend § 1735.10 by:

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A. Revising paragraph (b);

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B. Redesignating paragraphs (c), (d), and (e) as (d), (e), and (f), respectively; and

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C. Adding a new paragraph (c).

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This revision and addition read as follows:

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(b) RUS will not make hardship loans, RUS cost-of-money loans, or RTB loans for any wireline local exchange service or similar fixed-station voice service that, in RUS' opinion, is inconsistent with the borrower achieving the requirements stated in the State's telecommunication modernization plan within the time frame stated in the plan (see 7 CFR part 1751, subpart B), unless RUS has determined that achieving the requirements as stated in such plan is not technically or economically feasible.

(c) A borrower applying for a loan to finance mobile telecommunication services shall be considered to be a participant in the State's telecommunication modernization plan so long as the loan funds are not used in a manner that, in the opinion of the Administrator, is inconsistent with the borrower achieving the goals set forth in the plan.

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4. Amend § 1735.12 by:

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A. Revising paragraph (c) introductory text; and

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B. Adding new paragraphs (d) and (e).

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The revision reads as follows:

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(c) RUS shall consider the following criteria for any wireline local exchange service or similar fixed-station voice service in determining whether such service is reasonably adequate:

* * * * *

(d) RUS shall consider the following criteria for any of mobile telecommunications service in determining whether such service is reasonably adequate:

(1) The extent to which area coverage is being provided as described in 7 CFR 1735.11.

(2) Clear and reliable call transmission is provided with sufficient channel availability.

(3) The mobile telecommunications service signal strength is at least −85dBm (decibels expressed in miliwatts).

(4) The mobile telecommunications service is interconnected with the public switched network.

(5) Mobile 911 service is available to all subscribers, when requested by the local government entity responsible for this service.

(6) No Federal or State regulatory commission having jurisdiction has determined that the quality, availability, or reliability of the service provided is inadequate.

(7) Mobile telecommunications service is not provided at rates which render the service unaffordable to a significant number of rural persons.

(8) Any other criteria the Administrator determines to be applicable to the particular case.

(e) RUS does not consider mobile telecommunications service a duplication of existing wireline local exchange service or similar fixed-station voice service. RUS may finance mobile telecommunications systems designed to provide eligible services in rural areas under the Rural Electrification Act even though the services provided by the system may incidentally overlap services of existing mobile telecommunications providers.

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5. Amend § 1735.14 by:

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A. Removing paragraph (c)(1); and

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B. Redesignating paragraphs (c)(2) and (c)(3) as (c)(1) and (c)(2) respectively.

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6. Amend § 1735.17 by:

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A. Removing paragraph (c)(3);

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B. Redesignating paragraphs (c)(4) and (c)(5) as (c)(3) and (c)(4), respectively, redesignating paragraph (d) as paragraph (e); and

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C. Adding new paragraph (d):

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The addition reads as follows:

Facilities Financed.
* * * * *

(d) Generally, RUS will not make a loan to another entity to provide the same telecommunications service in an area served by an incumbent RUS telecommunications borrower providing such service. RUS may, however, consider an application for a loan to provide the same type of service being provided by an incumbent RUS borrower if the Administrator determines that the incumbent borrower is unable to meet its obligations to the government, including the obligation to provide service set forth in its loan documents and to repay its loans.

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Dated: July 5, 2000.

Jill Long Thompson,

Under Secretary, Rural Development.

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[FR Doc. 00-17474 Filed 7-10-00; 8:45 am]