Summary

Concerns have been raised about the possibility that borrowers have been using loans from the Rural Electrification Administration (REA) to subsidize their cable or satellite television services. One-fourth of the REA borrowers responding to a GAO survey provide such services; respondents reported investments in these businesses totaling $357 million. REA borrowers may have a competitive advantage in their cable or satellite businesses. They have access, for example, to credit sources created to finance electric and telephone cooperatives. Many share space, equipment, and staff used for their utility services with their cable or satellite business. REA does restrict the amounts that borrowers may invest in nonutility activities. REA also has accounting and auditing controls, including annual audits of borrowers, designed to ensure that borrowers comply with their loan agreements. Regulation of REA borrowers by other federal agencies is limited. State regulation of borrowers and their affiliates varies, depending on whether the borrower is a cooperative or is investor-owned. GAO did not determine whether federal and state oversight prevents borrowers from cross-subsidizing their cable and satellite businesses.

GAO found that: (1) of the 416 REA borrowers that provide cable or satellite television services to customers, 152 provide only cable television services, 231 provide only satellite television services, and 33 provide both cable and satellite television services; (2) telephone utilities provide over 95 percent of the cable services and electric companies provide 77 percent of satellite services; (3) survey respondents reported that their investments in cable and satellite businesses totalled more than $357 million; (4) REA borrowers with satellite television services face greater competition than cable service providers; (5) independent cable and satellite businesses believe that REA borrowers have a competitive advantage because they have greater access to loans and utility resources; (6) regulatory oversight of REA borrowers' activities is limited; (7) state regulation of REA borrowers varies and is contingent upon whether the borrower is a cooperative or investor-owned; and (8) although REA places restrictions on borrowers' nonutility investments and utilizes accounting and auditing controls to protect loan security, REA authority is limited by statute.