Mr. POAGE. There are three other witnesses listed for tomorrow.

Do any of you care to testify this morning? We are not asking anybody to be forced into anything but if somebody wants to testify this morning and get away we would be glad to hear you.

If not, the committee in the morning will devote the first 19 minutes to statements by power officials selected by Mr. Teague and Mr. Gatherings, 91⁄2 minutes each.

Mr. TEAGUE. I might have to get their names from you.

Mr. POAGE. There will be cross-examination, and then we will hear the three witnesses who are presently listed-Mr. Harmon, Mr. Peterson, and Mr. Wilborn.

The committee tried diligently to give everybody an opportunity to be heard. We have heard the power companies for over a month. Mr. Clapp took 19 minutes discussing the same subject. Possibly we should have given Mr. Clapp the same time that we gave to the representatives of the power companies.

Mr. TEAGUE. I have no objection.

Mr. POAGE. I am sure you would not.

Instead we will again hear power company witnesses tomorrow. The committee will stand in recess until tomorrow, and tomorrow we will heard anything that comes before us. I want everybody here. We might even discuss the flight of the astronauts to the moon. Mr. TEAGUE. Or open housing.

Mr. POAGE. That is right.

(Whereupon, at 11:45 a.m., the subcommittee recessed to reconvene at 10 a.m., Wednesday, September 14, 1966.)

RURAL TELEPHONE FINANCING

WEDNESDAY, SEPTEMBER 14, 1966

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON CONSERVATION AND CREDIT

OF THE COMMITTEE ON AGRICULTURE,

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

Present: Representatives Poage, Gathings, Stubblefield, Greigg, Callan, Dague, Harvey of Indiana, Teague of California, and Dole. Also present: Christine S. Gallagher, clerk; Betty Prezioso, staff; and Fowler C. West, staff.

Mr. POAGE. The subcommittee will please come to order.

The clock shows about 2 minutes after 10 o'clock. We have three witnesses listed here, and as was announced yesterday, those who objected to allowing Mr. Clapp to comment on matters yesterday, unless they had equal time this morning, we will hear anyone present who wants to exercise that privilege and use the time.

(No response.)

Mr. POAGE. Let the record show that nobody has asked to use the time.

Here comes Mr. Gathings now.

Mr. Gathings, we said yesterday that those who objected to Mr. Clapp's testimony would have an opportunity to present any statement in an equal amount of time this morning.

The Chair just asked if there was anyone who wanted to use the time, and no one responded.

Do you care to use the time?

We will be glad to have you do so.

Mr. GATHINGS. That is mighty generous, Mr. Chairman.

care to use the time allotted to me.

Mr. POAGE. Thank you, Mr. Gathings.

Is there anyone else?

(No response.)

I do not

Mr. POAGE. Let the record show that there is nobody else asking to use the time.

We will now call our first witness, Mr. Eugene J. Harmon, United States Independent Telephone Association.

(Discussion was had outside the record.)

Mr. POAGE. We will be glad to hear from you now, Mr. Harmon.

31

STATEMENT OF EUGENE J. HARMON, DIRECTOR, UNITED STATES INDEPENDENT TELEPHONE ASSOCIATION; ACCOMPANIED BY H. I. WILBORN, JR., PRESIDENT, ALLIED TELEPHONE CO., LITTLE ROCK, ARK., AND HAROLD PAYNE, TELEPHONE UTILITIES OF PENNSYLVANIA, EXPORT, PA.

Mr. HARMON. Thank you, Mr. Chairman and members of the committee.

My name is Eugene J. Harmon, and I am the director of the United States Independent Telephone Association, REA telephone program. As you know, most associations operate through committees, and I have with me today, on my right, Mr. Hugh I. Wilborn, from Arkansas, who is a member of our legislative committee and who is president of the Allied Telephone Co. in Arkansas, and on my left I have Mr. Harold Payne, who is chairman of our REA Borrowers Committee, and who is president of the Telephone Utilities of Pennsylvania.

I should like, if I may, Mr. Chairman, at the outset to tell the committee just about who we are and something about the independent telephone industry, and when I say "independent telephone company industry," I refer to telephone companies other than those in the Bell System.

The independent telephone industry operates in 49 of the 50 States, and it serves Hawaii, Alaska, Puerto Rico, and the Virgin Islands in their entirety

The United States Independent Telephone Association has been in existence for over 59 years, representing the independent telephone industry in the United States. We have over 1,000 member companies, and those 1,000 or over member companies represent 92 percent of all of the independent telephones in the United States.

In addition, we have 250 associate members that range in size from automatic-electric down to little outfits that supply nuts and bolts. The reason that we are here, Mr. Chairman, is because in our membership we have 450 companies, individual telephone companies, that are REA telephone borrowers. Of those 450, 67 do business as cooperatives.

We are well aware, as I am sure the committee is aware, that in order for any telephone company, whether it be a REA borrower or otherwise, to exist, three things are necessary: (1) the capital; (2) manufactured products, such as switchboards, cables, et (3) personnel in training.

The latter two, by and large can be taken care of by the independent manufacturers, and by the independent companies themselves. However, when it comes to capital we there touch the Achilles heel of development in the telephone industry.

There has been a tremendous need for capital in the telephone industry, and by the REA telephone borrowers. This has been the result of many, many factors, all of which I am sure that you are familiar with, but I should like to bring them to your attention to complete the picture.

First of all, we have had in this country a tremendous population growth. The Census Bureau indicates that the greatest percentage of this growth is in the 18- to 25-year-old age group. Those are your new homemakers, your new subscribers.

In addition to the increase in population, we have experienced a tremendous shift in population, from urban to suburban to rural, and then, in addition, there has been another phenomenon that has taken place in this country, and that is the decentralization of big industry, and we find that General Motors, for example, is dropping plants in pasturelands and that the United Carbon is going out into the rural areas with factories and building homes for the men who work in them who will require and demand telephone service, new subscriber service.

In addition to those two points, I should like to bring before the committee another thought, and that is the effect of the tremendous increase in usage habits of the American people. It has tripled in less than 5 years, so that what used to be an old 8-party line is now the equivalent of about a 24-party line.

This new subscriber demand and the tremendous demand for upgrading service has created a demand for capital in increasing amounts. This is a healthy growth, and with excellent return predictions if capital is available. If capital is not available stagnation will result. Systems will burst the seams with overloads and obsolescence, which is a very unhealthy situation.

I might cite just an example: If you will recall just recently we had an airline strike, and if any of the members of the staff or the Congress tried to call the airlines that were not on strike you would find that you got a busy signal almost around the clock. In fact, they went on the radio and on TV to tell you that they were still in business. That is simply a few overloaded circuits, but when you start overloading systems you get the same result. And may I just add, it runs to your emergency calls, to your fire departments and to your police departments and to the hospitals, and so on down the line.

I mention that we have a need for capital in the independent telephone industry. And in order to determine how much capital we need, rather than take figures from the REA, and so on, the Independent Telephone Association, the United States Telephone Association, got together with the NCPCA and NCREA, and conducted a joint survey last March. We got a 75-percent return on the survey which, as you know, is a fine base for a survey. The survey showed that for fiscal 1967-the year has already started as of July 1 for fiscal 1967, the need for the REA telephone borrowers would be in excess of $3 million to take care of back loads and new loans for fiscal 1967. As it turned out this figure was very close to the actual figure that the REA had on hand as of June 30.

The need for capital is evident--the need for capital is real. So, the question is: Where is this capital coming from?

Now, let us take at the REA as its source. The REA does not manufacture money. Congress appropriates the money for the REA and the Congress receives in January a budget request which is submitted by the administration, and we know that there are budget problems. We know that the budget is close to $100 billion. We have a war going on in Vietnam, and we also know that in the budget the money appropriated for the REA loans looks like it is money that is going to be spent in salaries, for defense spending, or other purposes, and it does not show at all that it is a loan that will be paid back with interest.