amounts, not to exceed $30,000,000 annually, for such purchases until such class A stock shall equal $300,000,000: Provided, That on or before July 1, 1972, the Secretary shall make a report to the President for transmittal to the Congress on the status of capitalization of the telephone bank by the United States with appropriate recommendations. As used in this section, the term 'net collection proceeds' shall be deemed to mean payments from and after July 1, 1967, of principal and interest on loans heretofore or hereafter made under section 201 of this Act, less an amount representing interest payable to the Secretary of the Treasury on loans to the Administrator for telephone purposes pursuant to section 3(a) of this Act. "(b) The capital stock of the telephone bank shall consist of three classes, class A, class B, and class C, the rights, powers, privileges, and preferences of the separate classes to be as specified, not inconsistent with law, in the bylaws of the telephone bank. Class B and class C stock shall be voting stock, but no holder of said stock shall be entitled to more than one vote, nor shall class B and class C stockholders, regardless of their number, which are owned or controlled by the same person, group of persons, firm, association, or corporation, be entitled in any event to more than one vote. "(c) Class A stock shall be issued only to the Administrator of the Rural Electrification Administration on behalf of the United States in exchange for capital furnished to the telephone bank pursuant to subsection (a), and such class A stock shall be redeemed and retired by the telephone bank as soon as practicable after June 30, 1982, but not to the extent that the Telephone Bank Board determines that such retirement will impair the operations of the telephone bank: Provided, That the minimum amount of class A stock that shall be retired each year after said date and after the amount of class A and class B stock issued totals $400,000,000, shall equal the amount of class B stock sold by the telephone bank during such year. Class A stock shall be entitled to a return, payable from income, at the rate of 2 per centum per annum on the amounts of said class A stock actually paid into the telephone bank. Such return shall be cumulative and shall be payable annually into miscellaneous receipts of the Treasury. "(d) Class B stock shall be held only by recipients of loans under section 408 of this Act. Borrowers receiving loan funds pursuant to section 408(a) (1) or (2) shall be required to invest in class B stock 5 per centum of the amount of loan funds so provided. No dividends shall be payable on class B stock. All holders of class B stock shall be entitled to patronage refunds in class B stock under terms and conditions to be specified in the bylaws of the telephone bank. "(e) Class C stock shall be available for purchase and shall be held only by borrowers, or by corporations eligible to borrow under section 408 of this Act, or by organizations controlled by such borrowers and corporations, and shall be entitled to dividends in the manner specified in the bylaws of the telephone bank. Such dividends shall be payable only from income and, until all class A stock is retired, shall not exceed the current average rate payable on its telephone debentures. "(f) If a firm, association, corporation, or public body is not authorized under the laws of the jurisdiction in which it is organized to acquire stock of the telephone bank, the telephone bank shall, in lieu thereof, permit such organization to pay into a special fund of the telephone bank a sum equivalent to the amount of stock to be purchased. Each reference in this title to capital stock, or to class B, or class C stock, shall include also the special fund equivalents of such stock, and to the extent permitted under the laws of the jurisdiction in which such organization is organized, a holder of special fund equivalents of class B, or class C stock, shall have the same rights and status as a holder of class B or class C stock, respectively. The rights and obligations of the telephone bank in respect of such special fund equivalent shall be identical to its rights and obligations in respect of class B or class C stock, respectively. "(g) After payment of all operating expenses of the telephone bank, including interest on its telephone debentures, setting aside appropriate funds for reserves for losses, and making payments in lieu of taxes, and returns on class A stock as provided in section 406(c), and on class C stock, the Telephone Bank Board shall annually set aside the remaining earnings of the telephone bank for patronage refunds in accordance with the bylaws of the telephone bank. "SEC. 407. BORROWING POWER.-The telephone bank is authorized to obtain funds through the public or private sale of its bonds, debentures, notes, and other evidences of indebtedness (herein collectively called 'telephone debentures'). Telephone debentures shall be issued at such times, bear interest at such rates, and contain such other terms and conditions as the Telephone Bank Board shall 84-234-67 determine: Provided, however, That the amount of the telephone debentures which may be outstanding at any one time pursuant to this section shall not exceed eight times the paid-in capital and retained earnings of the telephone bank. The telephone bank shall insert in all its telephone debentures appropriate language indicating that such telephone debentures, together with interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United States or of any agency or instrumentality thereof other than the telephone bank. Telephone debentures shall not be exempt, either as to principal or interest, from any taxation now or hereafter imposed by the United States, by any territory, dependency, or possession thereof, or by any State or local taxing authority. Telephone debentures shall be lawful instruments and may be accepted as security for all fiduciary, trust, and public funds, the investment or deposit of which shall be under the authority and control of the United States or any officer or officers thereof. "SEC. 408. LENDING POWER. (a) The Governor of the telephone bank is authorized on behalf of the telephone bank to make loans, in conformance with policies approved by the Telephone Bank Board, to corporations and publie bodies which have received a loan or loan commitment pursuant to section 201 of this Act, (1) for the same purposes and under the same limitations for which loans may be made under section 201 of this Act, (2) for the purposes of financing, or refinancing, the construction, improvement, expansion, acquisition, and operation of telephone lines, facilities, or systems, in order to improve the efficiency, effectiveness, or financial stability of borrowers_financed under sections 201 and 408 of this Act, and (3) for the purchase of class B stock required to be purchased under section 406(d) of this Act but not for the purchase of class C stock, subject, as to the purposes set forth in (2) hereof, to the following provisos: That in the case of any such loan for the acquisition of telephone lines, facilities, or systems, the acquisition shall be approved by the Secretary, the location and character thereof shall be such as to improve the efficiency, effectiveness, of financial stability of the telephone system of the borrower, and in respect of exchange facilities for local services, the size of each acquisition shall be not greater than the borrower's existing system at the time it receives its first loau from the telephone bank, taking into account the number of subscribers served, miles of line, and plant investment. "(b) Loans under this section shall be on such terms and conditions as the Governor of the telephone bank shall determine, subject, however, to the following restrictions: "(1) All loans made hereunder shall be fully amortized over a period not to exceed fifty years. "(2) Notwithstanding any other provision of law, all loans made pursuant to this Act for facilities for telephone systems with an average subscriber density of three or fewer per mile shall be made under section 201 of this Act but this provision shall not preclude the making of such loans from the telephone bank at the election of the borrower. (3) Intermediate loans shall bear interest at a rate equal to (i) a rate determined by the Secretary of the Treasury, taking into consideration the current average market yield, during the month of May preceding the fiscal year in which the loans are made, on outstanding marketable obligations of the United States with remaining periods to maturity comparable to the average maturities of such loans, or (ii) 4 per centum per annum, whichever is lower. All other loans made hereunder shall bear interest at a rate which shall reflect the average cost of moneys to the telephone bank, including (a) interest on its debentures, and (b) the return on funds provided by the United States for the purchase of class A stock pursuant to section 406(a) of this Act, and (c) administrative expenses, and (d) reserves, and (e) estimated losses of the telephone bank. Intermediate loans shall not be made to a borrower which is determined by the Governor of the telephone bank, under standards to be established by the Secretary, to be capable of both paying the interest rate applicable hereunder to loans other than intermediate loans and achieving the objectives of the Federal rural telephone loan program. The authority to make intermediate loans hereunder shall terminate on June 30, 1982, or such earlier date as conversion take place under section 410(a): Provided, That on or before July 1, 1972, the Secretary shall make a report to the President for transmittal to the Congress on the status of the intermediate loan program with recommendations concerning its continuation thereafter. "(4) Loans shall not be made unless the Governor of the telephone bank' finds and certifies that in his judgment the security therefor is reasonably adequate and such loan will be repaid within the time agreed. "(5) No loan shall be made in any State which now has or may hereafter have a State regulatory body having authority to regulate telephone service and to require certificates of convenience and necessity to the applicant unless such certificate from such agency is first obtained. In a State in which there is no such agency or regulatory body legally authorized to issue such certificates to the applicant, no loan shall be made under this section unless the Governor of the telephone bank shall determine (and set forth his reasons therefor in writing) that no duplication of lines, facilities, or systems, providing reasonably adequate services will result therefrom. "(6) As used in this section, the term 'telephone service' shall have the meaning prescribed for this term in section 203(a) of this Act, and the term telephone lines, facilities, or systems' shall mean lines, facilities, or systems used in the rendition of such telephone service. "(7) No portion of any loan made under this Act shall be used to finance any political activities prohibited under sections 600, 601, 610, 611, and 612 of title 18, United States Code, and prior to the making of any loan the borrowing entity shall agree in writing not to engage in any such prohibited political activities during the term of such loan. If the Telephone Bank Board finds a violation of this provision to have occurred, it shall so notify such borrower in writing and thirty days thereafter such loan shall become due and payable in full. "(8) Notwithstanding any other provision of law, no borrower of funds under section 201 or 408 of this Act shall, without approval of the Administrator, sell or dispose of its property, rights, controlling interest, or franchise to a holding company, until all indebtedness, including all interest charges, to the Rural Electrification Administration or the telephone bank shall have been repaid. "(c) The Governor of the telephone bank is authorized under rules established by the Telephone Bank Board to adjust, on an amortized basis, the schedule of payments of interest or principal of loans made under this section upon his determination that with such readjustment there is reasonable assurance of repayment: Provided, however, That no adjustment shall extend the period of such loans beyond fifty years. "SEC. 409. TELEPHONE BANK RECEIPTS.-Any receipts from the activities of the telephone bank shall be available for all obligations and expenditures of the telephone bank. "SEC. 410. CONVERSION OF OWNERSHIP, CONTROL, AND OPERATION OF TELEPHONE BANK.--(a) Whenever after retirement of class A stock issued to the United States has begun pursuant to sectiou 406(c) of this title, the total amount in stated value of class B and class C stock outstanding equals two-thirds of the total amount in stated value of class A, class B, and class C stock outstanding, as determined by the Secretary "(1) the powers and authority of the Governor of the telephone bank granted to the Administrator of the Rural Electrification Administration by this title IV shall vest in the Telephone Bank Board, and may be exercised and performed through the Governor of the telephone bank, to be selected by the Telephone Bank Board, and through such other employees as the Telephone Bank Board shall designate; "(2) the five members of the Telephone Bank Board designated by the President pursuant to section 405(b) shall cease to be members, and the number of Board members shall be accordingly reduced to eight unless other provision is thereafter made in the bylaws of the telephone bank; "(3) the telephone bank shall cease to be an agency of the United States, but shall continue in existence in perpetuity as an instrumentality of the United States and as a banking corporation with all of the powers and limitatious conferred or imposed by this title IV except such as shall have lapsed pursuant to the provisions of this title. "(b) When all class A stock has been fully redeemed and retired, loans made by the telephone bank shall continue to be subject to the restrictions prescribed in the provisos to section 408(a)(2). "e) Congress reserves the right to review the continued operations of the telephone bank after all class A stock has been fully redeemed and retired. "SEC. 411. LIQUIDATION OR DISSOLUTION OF THE TELEPHONE BANK.--In the case of liquidation or dissolution of the telephone bank, after the payment or retirement, as the case may be, first, of all liabilities; second, of all class A stock at par; third, of all class B stock at par; fourth, of all class C stock at par; then any surpluses and contingency reserves existing on the effective date of liquidation or dissolution of the telephone bank shall be paid to the holders of class A and class B stock issued and outstanding before the effective date of such liquidation or dissolution, pro rata, and any remaining surplus and contingency reserves shall be distributed to those entities to which they are allocated on the books of the bank at the time of the liquidation or dissolution.". SEC. 2. (a) Subsection (f) of section 3 of the Rural Electrification Act of 1936, as amended, is amended by inserting "rural electrification" immediately following the words "interest on" in both places where it appears in said subsection and by inserting the words "for rural electrification purposes" after the words "Secretary of the Treasury" the second time they appear in said subsection. (b) Section 201 of the Rural Electrification Act of 1936, as amended, is amended by inserting to public bodies now providing telephone service in rural areas", immediately after the word "areas" in the first sentence and also immediately after the word "areas" in the first proviso of the second sentence. SEC. 3. Section 201 of the Government Corporation Control Act, as amended (31 U.S.C. 856), is amended by striking "and" immediately before "(5)" and by inserting and (6) the Rural Telephone Bank" immediately before the period at the end. SEC. 4. The second sentence of subsection (d) of section 303 of the Government Corporation Control Act, as amended (31 U.S.C. 868), is amended by inserting "the Rural Telephone Bank," immediately following the words "shall not be applicable to". SEC. 5. The right to repeal, alter, or amend this Act is expressly reserved. STATEMENT OF HAROLD R. BOLLINGER, PRESIDENT OF PIONEER Mr. BOLLINGER. Mr. Chairman and members of the committee, before I read my testimony, I would like to introduce my associates who are here with me. On my right is Hugh Barnhart, president of the Rochester Telephone Co., of Indiana, and on my left is Mr. Robert Fegan, president of the Junction City Telephone Co., of Kansas. And I am Harold R. Bollinger. All three of us have had a long and continuing, and very sincere, interest in the telephone industry-the independent telephone industry. We welcome this opportunity to appear here before you to present our facts on this legislation, this proposed bill. As it is presently drafted we would be opposed to it, but with minor amendments, which we will comment on here shortly, we would support this bill. Also associated with us are the companies listed as follows: Pioneer Telephone Co., Minnesota. Central Telephone Co. and affiliates. Ellensburg Telephone Co., Washington. General Telephone & Electronics Corp. Geneseo Telephone Co., Illinois. Illinois Consolidated Telephone Co., Illinois. Junction City Telephone Co., Kansas. Lincoln Telephone & Telegraph Co., Nebraska. Rochester Telephone Co., Inc., Indiana. Urban Telephone Corp., Wisconsin. These companies also support the position which we will present to you. Mr. Barnhart, on my right, operates the Rochester Telephone Co., Inc., of Indiana, and he has in this one exchange 4,600 telephones. Mr. Bob Fegan, on my left, operates the Junction City Telephone Co., of Kansas, and he has five exchanges of 9,000 telephones. Both of these gentlemen have long and continuing interest in the business: Mr. Barnhart since the early 1930's, and Mr. Fegan since the 1920's. Also Mr. Fegan's father started the telephone company in Junction City in 1910. Both of these gentlemen have been active in the association's affairs, both in their own States and in the national association. Mr. Fegan served as a director of our national association for a number of years. Mr. Barnhart is presently a member of the board of directors of our national association and also a past president. My own company operates in Minnesota and North Dakota, and we have 52 exchanges. We operate 54,000 telephones. I will now proceed with my prepared statement. Mr. Chairman, members of the committee, I am Harold R. Bollinger, president of Pioneer Telephone Co., a Minnesota corporation, which will become a United Utilities, Inc., subsidiary later this year. With me today are Robert Fegan, president of Junction City Telephone Co., of Kansas; and Hugh Barnhart, president of the Rochester Telephone Co. of Indiana. I have been president of Pioneer since 1963. Between 1945 and 1963, I was vice president and general manager, the chief operating executive, of Pioneer. My telephone career started in June of 1922, and between that date and 1963 I worked principally in rural telephone exchanges in Minnesota, Iowa, Illinois, and Wisconsin. In keeping with my longstanding interest in the independent telephone industry which serves principally the smaller communities and rural areas of America, I was president of the Minnesota Telephone Association in 1954 and 1955, and was president of the U.S. Independent Telephone Association (USITA) for the 1962-63 term. The telephone companies which I have already named and which appear on the cover sheet of this prepared testimony have asked me to present to you this statement on behalf of all of us. After you have heard my presentation, if any of the committee members have questions concerning our position on any aspect of this proposed legislation, as related to rural telephone company operations, we will attempt to answer them for you. Mr. Chairman, first let me assure you we are not here to oppose the broad objectives of H.R. 12066. We are here to suggest and recommend some clarifying changes and some amendments to the bill which, we believe, will better serve the interest of the public and rural telephony. The Rural Electrification Act provides a needed source of financing for telephone companies which serve the more sparsely populated rural areas. Certainly, low-cost loan funds are necessary if adequate service is to be provided in exchange areas where there may be three or fewer subscribers per square mile and a low level of economic activity and development. |