RURAL ELECTRIC AND RURAL TELEPHONE

SUPPLEMENTAL FINANCING

THURSDAY, MARCH 23, 1967

HOUSE OF REPRESENTATIVES,
COMMITTEE ON AGRICULTURE,
Washington, D.C.

The committee met, pursuant to recess, at 10 a.m., in room 1301, Longworth House Office Building, Washington, D.C., Hon. W. R. Poage (chairman) presiding.

Present: Representatives Poage, Gathings, Jones of Missouri, Stubblefield, Purcell, Foley, Vigorito, Dow, Brasco, Rarick, Belcher, Teague of California, Dole, Hansen, Wampler, Goodling, Miller, Burke, Mathias, Zwach, Kleppe, Price, and Myers.

Also present: Christine S. Gallagher, clerk; Hyde H. Murray, assistant counsel; Fowler C. West, assistant staff consultant; and Francis LeMay, staff consultant.

The CHAIRMAN. The committee will please come to order.

We are met this morning to continue the consideration of H.R. 1400 and related bills.

This morning will be devoted to the witnesses who are interested in the telephone question part of the bill, both the proponents and the opponents.

I know nothing of how this witness list was prepared.

I have here as the first witness Adm. William C. Mott, executive vice president of the United States Independent Telephone Association, accompanied by several of his associates.

We will hear from Admiral Mott and his associates at this time, following with Mr. Fullarton and his associates, and then with Mr. Peterson, and Mr. McGehee.

STATEMENT OF WILLIAM C. MOTT, EXECUTIVE VICE PRESIDENT, UNITED STATES INDEPENDENT TELEPHONE ASSOCIATION; ACCOMPANIED BY HAROLD PAYNE, PRESIDENT, TELEPHONE UTILITIES OF PENNSYLVANIA, EXPORT, PA.; EUGENE HARMON, DIRECTOR, UNITED STATES INDEPENDENT TELEPHONE ASSOCIATION, REA TELEPHONE PROGRAM; AND HUGH WILBOURN, PRESIDENT, ALLIED TELEPHONE CO., LITTLE ROCK, ARK.

Mr. MOTT. Mr. Chairman and members of the committee, my name is William C. Mott, and I am executive vice president of the United States Independent Telephone Association (USITA).

Here with me today is Mr. Harold Payne, who is the president of Telephone Utilities of Pennsylvania, as well as a member of the board of directors of our association and chairman of its REA Borrowers Committee.

On my left is Mr. Hugh Wilbourn, the president of the Allied Telephone Co. of Arkansas and a member of our association's committee on legislation. Also present at the table is Mr. Eugene J. Harmon who is the director of the USITA REA telephone program.

I might say for the benefit of the new members of this committee before whom we have not heretofore had the pleasure of appearing that the United States Independent Telephone Association is a trade association representing some 93 percent of the independent—that is to say, non-Bell-segment of the telephone industry. We have 1,100 member operating companies and some 250 manufacturer associate members. There are over 450 REA borrower companies which are members of our association, including some 70 which operate as cooperatives.

We have a broadly based board of directors comprised of some 36 operating company presidents and including one cooperative member from the State of Minnesota. Like most other trade associations, our policy is set by our board of directors after mature deliberation and debate.

I am sure it is going to be a pleasure for the members of this committee to hear from a witness representing an industry relatively free of controversy with respect to supplemental financing of its REA borrowers. When I say "relatively free" I mean relative to the testimony that you have heard from the electric industry in the last few days. The reason, of course, that we are relatively free of controversy with respect to this bill and the issue of supplemental financing, is that in the telephone industry we do not have G and T loans and we do not have that other source of exacerbation about which you have heard lack of territorial integrity. In the telephone industry it would be virtually impossible for one telephone company to invade the territory of another because we do have territorial integrity.

In fact, if you will look at the provisions of H.R. 1400 which govern the establishment of the telephone bank you will find on page 48 a statement that no loan shall be made, absent a certificate of convenience and necessity to the applicant, or in those very few places where there is no State regulatory body authorized to issue such certificates, the governor of the bank must determine and set forth in writing that there will be no duplication of lines, facilities, or systems. This is the provision of the bill which has already been referred to with what seems to me to be considerable envy by Mr. Herbert B. Cohn, the vice president and general counsel of the American Electric Service Corp.-see his testimony, first paragraph, page 11. We are fortunate but not smug about the fact that we do not have these two great problems which have occupied so much of the committee's attention in previous testimony.

With respect to the issues before this Committee in H.R, 1400, our board of directors resolved that the USITA REA borrowers committee, in coordination with the chairman of our committee on legislation-and Mr. Wilbourn here is a member of that committee, and Mr.

Payne is chairman of the REA borrowers committee-should support legislation now before this Congress which will provide supplemental financing for REA telephone companies in the form of intermediate financing and a telephone bank.

I would be something less than frank if I were to tell the committee that the independent telephone industry is absolutely and completely unanimous in its thinking with respect to all of the provisions of H.R. 1400. But it has been my impression from listening to the testimony here, and examining the bills that pop from the hopper that there is no segment of either industry touched by this bill which is unanimous in its support. But our association through deliberation and due process under its by-laws has decided to support the concept of supplemental financing as epitomized in this bill because it recognizes a great need for capital and would like to see REA borrowers get away from 2 percent money insofar as possible.

As the chairman and those members of the committee who were here last year are aware, the United States Independent Telephone Association has supported in prior testimony given by my colleague, Mr. Harmon, the general concept of H.R. 1400.

The most recent statement of our Association in support of this bill is to be found on pages 32 through 46 of the hearings before the Subcommittee on Conservation and Credit of the House Committee on Agriculture on September 13, and 14, 1966. I would be hopeful that new members of the committee might be willing to refer back to our detailed testimony given previously because it is not my purpose today to do more than reiterate our general support of supplemental financing for our REA companies as set forth in the bill under consideration. There is one provision of the bill about which I feel compelled once again to register our concern. And I do this reluctantly, but I feel that a record should be made on this particular issue. I refer to the provision in the bill-on page 37, line 25 after the words "two-year term," and on page 38, lines 1 through 5 ending with the words "by such entities"; and again on page 38, line 12 after the word "stock" and including all of lines 13 through 17-which arbitrarily and artifically prescribes by statute that of the six telephone members of the board three be representatives of cooperative type entities.

We are supporting all provision of H.R. 1400 which we feel sound in logic or reason. We have found no reason for 50-50 representation of commercial and co-op companies which is bottomed in logic. We have found no reason given in the record.

Members of the committee should be aware that roughly three-quarters of the REA borrower companies are commercial type and roughly one-quarter are co-ops. We fail to see why any segment of the industry should be entitled to 50 percent or any other fixed percentage of representation on the Board of Directors unless there is some reason, some experience of discrimination to justify such fixed percentage.

I doubt that anybody could point to any discrimination under the administration of the current act. In fact, I asked Mr. Clapp, the Administrator, yesterday by telephone, whether in fact he knew of any such discrimination, and he said that he did not. Certainly, as long as the Government is in control of the bank there should be no fear that anybody who is eligible as a potential borrower will be

favored over anybody else. We see no justification for any fear that this would be the case in the future when the Government is no longer in control of the bank. So why the provision?

It would make just as much sense, Mr. Chairman, for those private electric power companies and public bodies which are electric REA borrowers, and I understand they total over one hundred companies, to demand 50 percent or some fixed percentage of the members of the REA Electric Bank Board. If you will turn to page 10 of your bill you will find there is no such provision.

To go one step further, if the amendment of the Puerto Rico delegate, Mr. Polanco-Abreu, is adopted, which is designed as I understand it to make one or two public bodies now providing telephone service eligible to borrow in the telephone program, why should they not be entitled to some fixed or even equal representation on the Board?

I repeat, Mr. Chairman, we do not see any logic or reason in this provision and we would not support a fixed percentage of the bank board for REA commercial borrowers were they to request it. They might with some justification request that the board be composed of at least four and possibly five commercial borrowers because they comprise 75 percent of the telephone borrowers. We think that the borrower members should initially be appointed to this board and afterward elected from the best men in the industry whether they be commercial borrowers or co-ops. As I have before mentioned, our board of directors includes a co-op manager, Mr. Robert Bunke, of the Ace Telephone Association in Houston, Minn. I called him on the telephone yesterday and read this particular testimony to him. He has reviewed the position I have expressed with respect to telephone bank board composition and has authorized me to state it has his full approval.

I have attached to my statement a proposed amendment which would provide that the membership of the Board of Directors of the Telephone Bank be determined without regard to whether they be representatives of a commercial, cooperative, or public body type operation.

Mr. Chairman, my thanks to you for this opportunity to appear before you. This concludes my statement but I shall be happy to try and answer any questions on this general subject matter which you or members of the committee may have.

I would like to add, Mr. Chairman, that our proposed amendment might be construed as a minor one; nevertheless, I though a record should be developed on this.

(The proposed amendment to H.R. 1400 follows:)

PROPOSED AMENDMENT TO H.R. 1400

The USITA recommends that H.R. 1400 be amended to provide that the members of the Board of Telephone Bank Directors be elected without reference to whether they be a commercial or a cooperative type of operation.

This can be accomplished by striking in H.R. 1400 all of the words after "a two-year term" on page 37, line 25 and by striking on page 38, all of lines 1, 2, 3, 4, and a portion of line 5 ending with the words "such entities" and again on page 38 by striking on line 12 all of the words after the word "stock" and by striking lines 13, 14, 15, 16 and 17 in their entirety.

Section 605 (d) will then read as follows:

Within twelve months following the appointment of the six members of the initial Board as provided in subsection (c), the Governor of the telephone bank shall call a meeting of all entities then eligible to borrow from the telephone bank and organizations controlled by such entities for the purpose of electing members of the Telephone Bank Board. Each such entity and organization shall be entitled to notice of and shall have one non-cumulative vote at said meeting. Six members of the Telephone Bank Board shall be elected for a two year term. These six members shall be elected by a majority vote of the entities and organizations eligible to vote and such entities and organizations may vote by proxy.

and Section 605 (e) will read as follows:

Thereafter, in accordance with the bylaws of the telephone bank, the six members of the Telephone Bank Board shall be elected by holders of Class B and Class C stock. These six members shall be elected by majority vote of the entities and organizations eligible to vote and such entities and organizations may vote by proxy.

The CHAIRMAN. Admiral Mott, do you care to have your associates here with you present a statement?

We had hoped that this morning there would be some time for questioning, but we want to make sure that all of the witnesses listed on the witness list are heard first.

Do any of them care to make any statement? Do you care to do that, or do you care to present them, or what?

Mr. MOTT. I have already presented them for the record.

The reporter has it in his notes.

They do not have any prepared testimony, but they are here to answer any questions which might be asked by members of the committee at an appropriate time.

The CHAIRMAN. Very well. If you will step aside while we hear Mr. Fullarton and his group, we will appreciate that.

We are very much obliged to you, gentlemen.

We will be glad to hear now Mr. David C. Fullarton, executive manager of the National Telephone Cooperative Association, who is accompanied by B. Maynard Christenson, president, NTCA, Volin, S. Dak., and Mrs. James L. Bass, general counsel of the NTCA, Carthage, Tenn.

We will be glad to hear from you now.

Mr. FULLARTON. Mr. Chairman and members of the committee, with me today, on my left is Mr. Christenson, president of the National Telephone Cooperative Association, and on my right is Mr. James L. Bass, general counsel of the Association.

With your permission, Mr. Christenson would like to make a brief verbal statement.

The CHAIRMAN. We will be glad to hear from him.

STATEMENT OF B. MAYNARD CHRISTENSON, PRESIDENT,
NATIONAL TELEPHONE COOPERATIVE ASSOCIATION

Mr. CHRISTENSON. Mr. Chairman and members of the committee, I want to express the appreciation of the national association for the opportunity of appearing here before your committee. I am the president of the National Telephone Cooperative Association.

Our national association is composed of cooperative members which receive their financing from the REA. The control of our association