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Garmin closes first day up more than 40 percent


Garmin closes first day up more than 40 percent

By Rod Perlmutter,

OLATHE, Kan., Dec. 8, 2000 ( — Garmin Ltd.’s first day on the Nasdaq was a good one. Garmin shares closed Friday up 42.9 percent, or $6, at $20. The day’s range was $22.88 and $15.13, with some 8.6 million shares changing hands. The stock outperformed the NASDAQ itself, which rose 5.99 percent, or 164.77 points for the day, to close at 2,917.43.

The maker of Global Positioning System devices had priced its initial public offering at $14 per share.

However, the IPO had a rough ride due to market conditions before the shares began trading. Garmin initially priced its IPO at $18 to $20 per share on Oct. 8. In a filing with the Securities and Exchange Commission dated Nov. 15, the firm lowered the price to $15 to $17 per share.

The company offered some 7.87 million shares, while existing Garmin shareholders offered a further 2.6 million shares. When Garmin (NASDAQ: GRMN) filed for the IPO on Sept. 11, the company said it hoped to raise a maximum of $230 million from the offer.

Proceeds to launch new products

The company said in its SEC filings it plans to use the IPO proceeds for working capital and other corporate purposes, including possible acquisitions or strategic partnerships and expansion into other markets.

Gary Burrell, co-founder and co-chief executive officer, said Garmin intends to use some of the money raised to expand its operations in automotive technology. There are more than 5.5 million GPS car navigation systems in use now throughout the world, including about 1 million in the United States.

Garmin also intends to use the money to expand into wireless GPS services, Burrell said, as well as move into its new 240,000 square-foot facility in Olathe, which is more than twice the size of its current manufacturing and engineering plant. Garmin expects to occupy the building in February, and to hire more engineers and manufacturing staff, Burrell said.

Despite the market turmoil, Randy Hoffman, founder and former president of Magellan Inc., a competitor in the aviation and recreational GPS device markets, said if any company does well in today’s frantic stock market, it should be Garmin.

“Garmin is a great company, continues to generate excellent returns, and the stock price, barring external forces, should reflect that,” said Hoffman, currently the owner and founder of of Thousand Oaks, Calif. “With this year’s market, most companies pulled their IPOs. For Garmin to go forward shows how confident they are in ability to continue to make profits. It takes a brave and confident company to go public right now. ”

Change in regulation boosts value

One reason for Hoffman’s optimism and Garmin’s confidence: a change in federal regulations in May that literally makes Global Positioning System technology 10 times more accurate than they were before.

Garmin is one of more than 160 manufacturers who make products that use the Global Positioning System, a network maintained by the U.S. Defense Department to allow the military and civilians to determine their geographic location anywhere in the world.

The GPS system uses 24 satellites that each circle the earth in precisely determined orbits every 12 hours. The first satellites were launched in 1978. When the service was made available for commercial use in 1983, it spawned a boom that analysts predict will become a $13.9 billion market by 2005.

Mike Swiek, executive director of the U.S. GPS Industry Council of Washington, D.C, said the GPS market exists because the U.S. government spends about $500 million annually to maintain the satellite network.

But for years, the civilian version of GPS was not as precise as the military version. The Defense Department used “selective availability” – a process that deliberately degraded the civilian signal, making it accurate only within 100 meters.

That aggravated many GPS device users, like Will Kostelecky of Annapolis, Md. The Garmin unit he bought for his sailboat showed him colliding with a mark when he was actually more than 100 yards away. He was so annoyed he created a Website urging GPS users to lobby government to quit “dithering” the signal.

GPS manufacturers had more pressing concerns, Swiek and Hoffman said. During the Persian Gulf War, the government had so few GPS devices that it turned to Magellan and Trimble for its commercial devices.  That military success proved the power of GPS technology, but also provoked worries that GPS could be used against American interests.

Manufacturers formed the U.S. GPS Industry Council to prevent export restrictions on GPS devices, said Hoffman, who served as the council’s first chairperson. “Most of the people who were looking for export control didn’t know the GPS units were being made around the world,” Hoffman said.

In 1996, the White House Office of Science and Technology Policy stated that it was the government’s “intention to discontinue the use of GPS Selective Availability within a decade in a manner that allows adequate time and resources for our military forces to prepare fully for operations without (it).”

Kostelecky fumed. Why ten years? He said the military turned off Selective Availability  during Desert Storm to make GPS more precise, and the armed forces didn’t suffer. Furthermore, Kostelecky said, if adversaries wanted to manipulate GPS for their own anti-American schemes, they could use a Soviet-built system called Glosnass.

In that 1996 announcement, the White House said it would begin making annual determination on whether to discontinue Selective Availability in 2000. On May 1, President Clinton announced that Selective Availability was being stopped.

“The decision…is supported by threat assessments which conclude that setting Selective Availability  to zero at this time would have minimal impact on national security,” Clinton stated. “Additionally, we have demonstrated the capability to selectively deny GPS signals on a regional basis when our national security is threatened.”

Even though the GPS industry represents more than 100,000 jobs in an $8 billion market, Swiek said the council was not aggressively pushing for the end of selective availability.

“Some devices will benefit from the removal, but it was never a do-or-die situation,” Swiek said. “It was a prudent decision by the Defense Department. We didn’t want market forces to go too rapidly and leave U.S. forces vulnerable.”

The decision means that GPS products can now pinpoint a location within 10 meters, as opposed to 100 or more. That will help both GPS products in general, and Garmin’s valuation, Hoffman and Swiek said.

“A fisherman might say,  ‘For getting within 100 meters of my favorite fishing spot, I won’t spend money for that, but if I can get within 10 meters, that’s pretty darn close,'” Hoffman said.

“Any time you get more for no cost, that’s a good thing,” Swiek added.

But since the regulation came down, the removal of SA has not had much of an impact on the major public companies that make GPS products, said Laurence Baker, managing director of  Legg Mason Wood Walker in Baltimore, MD. This year, ORB has dropped from about $15 to $5, and LEIX from about $6 to $2. “None of these stocks have done well this year. These companies must have other issues.”

Finances in good shape, but faces dozens of competitors

For the 1999 fiscal year ended Dec. 25, Garmin reported net sales of $232.6 million, compared with $169 million for the previous year. The company reported net earnings of $64.2 million, compared with $35.1 million for 1999.

On Nov. 2, Garmin reported that for the first nine months of this year net earnings almost doubled compared to the previous year. For the nine-month period ended Sept. 23, net earnings were $78.1 million, compared with $43.6 million last year.

Net sales for the nine-month period totaled $260.1 million, a 58 percent increase over the $164.5 million recorded during the same period last year.

Garmin makes Global Positioning System devices that communicate with satellites to help people, such as fishermen and pilots, find their way. GPS, first made available by the U.S. government for commercial use in 1983, is a navigation system which enables the precise determination of geographic location using satellite technology.

Garmin’s SEC filing identifies at least 24 competitors in various GPS  device niches, including the subsidiaries of some publicly traded companies.

For example, Garmin’s 15 hand-held GPS devices, which range in price from about $119 to $699, face competition from devices made by Magellan Corp. of Santa Clara, Calif., a subsidiary of Orbital Sciences (Nasdaq: ORB) of Dulles, Va., Lowrance Electronics Inc. (Nasdaq: LEIX) of Tulsa, Okla.;  the Cetrek division of Teleflex (Nasdaq: TFX) of Plymouth Meeting, Penn., and several privately held firms, including Raytheon Marine Co. and Furuno Electronic Co.

These devices are favorites of hunters, hikers, fisherman and others. Garmin cited a report by the market research firm Frost and Sullivan stating that in 1999, its hand-held unit volume represent about half of the North American recreational market

Garmin’s six portable aviation GPS units, which range in price from about $600 to $1,500, compete primarily with Lowrance and Magellan. According to an Aircraft Electronics Association report, Garmin’s unit volume was 76 percent of the U.S. portable aviation market. Garmin’s two integrated avionics systems, which sells for about $9,500 and $15,000, compete with Honeywell (HON), Avidyne Corp. and Northstar Technologies. According to the Aircraft Electronics Association, Garmin units represent about 59 percent of that U.S market.

Though it sells more recreational hand-held units, a bigger reason for Garmin’s success is the aviation market, Hoffman said. While the lower cost hand held units have a profit margin of less than 15 percent, the aviation units, because they have to comply with strict federal regulation, have a profit margin of 20 percent to 30 percent, Hoffman said.

Garmin was founded in 1989 by Min H. Kao and Burrell, who are co-chief executive officers.

Garmin employs more than 1,200 people at manufacturing plants in Olathe and Taiwan, and is incorporated in Grand Cayman, Cayman Islands.

© 2000 is a trademark of, Inc. All Rights Reserved. granted permission to repost this article. 

IMWorth hopes to clean up on screen scraping

IMWorth hopes to clean up on screen scraping

By Rod Perlmutter,

KANSAS CITY, Mo., Sept. 27, 2000( IMWorth Inc.’s business plan is based on the premise that, within a year or so, every day you turn on your computer, the first thing you’ll do is use a “screen scraper.”

No, the Kansas City, Mo.-based company doesn’t care about that half-inch of dust you let accumulate on your screen. (Your mother, however, would be appalled.)

It sells a software application to financial service providers who use “screen scrapers” – data aggregators which retrieve financial account information from the Websites of banks, brokerages, credit card companies, travel sites and other institutions.

Screen scrapers are the next big thing in financial services. According to a U.S. Bancorp Piper Jaffray report published earlier this year, the number of individuals using aggregation services is expected to increase from fewer than 1 million today to 90 million over the next five years.

IMWorth is hoping to be the key link between the financial service provider and the screen scraper. Working with the data provided by the screen scraper, IMWorth will provide updates of much of the account information in the user’s personal financial statement, such as the balances in his bank checking account or on his credit card.

By the end of this year, Yonker said, IMWorth expects more than 100,000 people will be using IMWorth’s services to help manage their finances online.

Pamela Yonker, IMWorth’s marketing and product development manager, said IMWorth thinks the applications it sells to banks and other financial service providers will encourage a daily, ongoing relationship with their customers.

For example, using the firm’s MarketingChannel, a bank will be able to send messages to all customers whose certificates of deposit are maturing in the next 30 days, to recommend other products to reinvest the proceeds, Yonker said. The messages, delivered through the IMWorth application, will provide a link for the users to click to go to a section in the sponsor’s site to receive more information about that product, or apply online for a product, or to actually make a transaction.

IMWorth also allows users to manually enter account information that is not available on the Web, such as data on real estate or personal property, including cars, boats, collectibles and other items.

“Our net worth application is structured in a way that a user could see a complete and up-to-the-minute financial statement, just like one a user would provide to a bank in applying for a loan,” Yonker said.

On Aug. 28, IMWorth announced plans to launch MarketingChannel, which Yonker said is currently in beta testing and should be available to the public within a month. The company hopes that the product will evolve into a “financial product exchange” by serving as a vehicle for distribution of products from IMWorth financial sponsors, who will broker products from outside their firms.

IMWorth was founded in December 1998 by John K. Goodwin, its CEO, and Sean K. Snyder, a board member who is involved in several business incubator projects in Kansas City and San Francisco through his business, SKS Ventures of San Francisco.

IMWorth received funding from iEmerge Ventures LLC, a Kansas City, Mo. based business incubator, and other investors. IEmerge, founded in January, has invested $250,000 to $500,000 in each of seven companies it has funded so far. The incubator identified IMWorth as being the “farthest along.”

Brad Cohen, iEmerge’s general partner, said he was impressed by Goodwin and his management team.

“I’ve known them for some time and I know they are able to carry out a good business plan,” Cohen said. “Their plan to partner with larger financial groups, being able to offer integration with financial institutions directly, is a smart approach.”

Much smarter than, say, allowing all that dust to sit on your expensive computer. Somebody really ought to tell your mom.

– – –


PRODUCT/SERVICE: Data aggregation software for financial services.

FOUNDED: December 1998.

MANAGEMENT: John Goodwin, chief executive officer; Gary Abram, chief operating officer; James Lloyd, chief financial officer.

INVESTORS: The company has been through its first and second rounds of financing from angel and institutional investors, including iEmege Ventures LLC. Total amount raised was not disclosed.


REVENUES: Company declined to state revenue, but estimates it will be in the black during 2001.

STRATEGIC PARTNERS: IMWorth has formal agreements with Advent Software and data processing firm Jack Henry & Associates. Other major partnership announcements will be forthcoming, the company said.

CUSTOMERS: Through its distribution agreement with Jack Henry, IMWorth will have access to approximately 25 million customers at more than 3,000 banks and credit unions. IMWorth’s User Application is currently available on Consumer Financial Network’s, under the “Personal Finances” tab. IMWorth expects to have in excess of 100,000 users by the end of the year.

COMPETITORS: Ameritrade’s OnMoney competes in some ways with them.

WHAT KEEPS THEM AWAKE AT NIGHT: “Balancing sponsor insight with customer control,” Goodwin said. “IMWorth’s responsibility is to ensure that financial service providers enhance customer relationships, while ensuring users’ financial information and privacy is within each customer’s control.”

CONTACT: Pamela Yonker, 313 Lawrence Avenue, Kansas City, Mo. 64111 Phone: 816-xxx-xxxx ext. 11 Email:

© 2000 is a trademark of, Inc. All Rights Reserved. LocalBusiness,com granted permission to repost this article on this site.

Local online transport services on right path

Local online transport services on right path

Aug 28, 2000; 02:36PM ET

By Rod Perlmutter,


KANSAS CITY, Mo., Aug. 28, 2000  ( –Too many freight businesses are moving online to survive in the long term, but three Kansas City businesses are positioned to survive the coming shake-out, according to a trucking industry analyst.

Peter Coleman, senior equity analyst for Bane of America Securities LLC in New York, says, and seem to be pursuing strategies that will help them survive in a national market worth more than $500 billion in annual revenues.

Coleman believes many of the 100-plus companies that offer online freight services are likely to fail or be bought out in the next 12 months. The local online sites, on the other hand, can rely on Kansas City’s strength as the nation’s second largest freight hub, after Chicago.

Coleman said of Overland Park, Kan., should do well because of its high visibility. The company went online on June 30. It is a joint venture between Overland Park-based Yellow Corp. (Nasdaq: YELL), one of the nation’s largest trucking companies, and the venture capital firms TL Ventures of Philadelphia and EnerTech Capital Partners of Wayne, Pa. Together, they have pumped around $30 million into offers services to shippers, carriers, brokers and private fleet operators. Its shipment management services allow shippers to request a quote, select a carrier and create a bill of lading. A load matching system allows a shipper to link shipment postings with the available equipment postings of carriers. Since the company launched, more than 1,000 companies have registered for its services.

Unlike, most start-ups are what Coleman calls procurement exchanges, which are similar to online auctions. The exchanges make money on each transaction, but the margins are so smaller that a company can only survive if it maintains a high volume of transactions. However, buyer and sellers have been slow to use these exchanges and many are struggling, Coleman said.

A better strategy, Coleman said, are Internet services that are more than just auctions of freight services. He says two other local online services are doing just that.

Both and help the small truck fleets compete with the national carriers. The U.S. Transportation Department lists 194,500 freight fleets, of which 95 percent have fewer than 24 trucks. By themselves, there is no way they can compete with Yellow, which has more than 500 terminals, 12,000 tractors and 46,000 trailers., based in Lenexa, Kan., was founded in 1998 and went online in May 1999. In November, it received $10 million in funding from Morgan Stanley Dean Witter Private Equity and Menlo Ventures, as well as a $2 million investment from its owner, entrepreneur Tim Barton.

“We were one of the first to come out with a real-time marketplace mechanism,” said Julie Cirlincuina, marketing manager. “There is no posting a request and waiting a long time for a bid. We negotiate rates with about 70 carriers, and the shipper goes online, enters data on the product and where it has to go, and we return instantly with several bids.” frequently relies on the trucking firm Roadway, but it also works with Emery, Overnight and other big carriers. Freightquote.corn’s Website has enrolled more than 15,000 commercial customers. It says it has established relationships with national and regional carriers representing 225,000 tractors and trailers serving North America.

If is a “virtual carrier”, then is “more of a virtual forwarder,” Coleman said, because it is establishing relationships with both carriers and warehouses., based in Overland Park, is developing a network of warehouses and both small and large haulers. It is backed by funding from Kansas City Equity Partners and MidStates Capital. CEO Jim Bramlett says he expects the firm to post $5 million in revenue this year. The company is projected to move into the black in July 2001, Bramlett added, and should double its payroll, to some 100 employees, by December.

“The freightquotes and freightPros of the world, the procurement companies that are not dependent on skimming pennies on each individual transaction, are providing a different type of service, and they are likely to do better,” Coleman said.

Rod Perlmutter covers the Kansas City region for E-mail him with story ideas or comments.

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( was an Internet news service based in Ft. Lauderdale, Fl. that covered small business and venture capital in about 20 metropolitan areas throughout the United States. The news service closed in 2001. was originally named ““)

Broadcasters warn “don’t touch that dial”

Broadcasters warn “don’t touch that dial”

By Rod Perlmutter,

Aug 25, 2000 10:47 AM ET


KANSAS CITY, Mo. and ST. LOUIS, Aug. 28, 2000 ( — Just a few years ago, federal regulators looked upon Dennis Highberger, a Lawrence, Kan. attorney, and Michael Calderon, a Kansas City, Mo. deejay, as radio pirates. But soon, Highberger and Calderon may become radio pioneers – with the official sanction of the Federal Communications Commission.

And they won’t be the only trail-blazers. If federal regulators allow Steve Sorkin, a former state representative candidate from University City, Mo., to set up his proposed Low Power FM (LPFM) radio station, the airwaves of this St. Louis suburb will be filled with insightful social commentary and raucous political debate.

And if Scott Clem, who operates a struggling low-power AM station in West Frankfort, III., is given an LPFM license, his southern Illinois town of 8,500 will be treated to the tunes of Whitney Houston and Michael Bolton – as well as news about his community.

This modern day land rush for the airwaves worries Jerry Hinrikus, co-owner of six stations in eastern Kansas. He says the type of radio stations Highberger, Calderon, Sorkin and Clem want to pioneer may “kill commercial broadcasting as we know it,” and drive small, independently owned commercial stations out of business.

On Aug. 28, residents of Kansas and Illinois will be able to apply to the FCC for construction permits for LPFM stations. In November, Missouri residents will have their chance to apply. But by then, some radio trade groups say, Congress may have already approved legislation that will throw the entire LPFM licensing process in limbo.

That’s because LPFM opponents, such as Hinrikus, the National Association of Broadcasters, its affiliate chapters in Missouri and Kansas, and the majority of the U.S. House of Representatives, say the new service is badly planned “social engineering.”

Hinrikus, general manager of EBC Inc. of Salina, Kan., said LPFM might do the exact opposite of what the FCC said it was supposed to do. Hinrikus said the LPFM’s signal interference may discourage the only diverse voices in commercial radio: the small, independently owned radio stations.

Currently, commercial FM radio stations are licensed only if they can operate at 6,000 watts without causing interference at the selected location and channel.

But in January, the FCC adopted rules that created new classes of service. The new LPFM service will consist of two classes of radio stations, with maximum power levels of 10 watts and 100 watts. The FCC’s stated goal was to “increase opportunity for new entry and ownership diversity.” LPFM service licenses will be for exclusively non­commercial services, and will not be issued to “current broadcast licensees or parties with interests in other media -cable or newspapers.”

Such a move was necessary, radio critics said, because ever since ownership limits were lifted by Congress in 1996, conglomerates have been snapping up scores of stations in every major market. This has wiped a large number of small, locally owned stations right off the map.

That consolidation led many people to start up their own radio stations without federal approval. Highberger offered legal advice to KAW 88.9, which also offered an eclectic variety of music, from pow-wow to klezmer. Calderon, annoyed that “the needs of more than 100,000 Hispanics (in the Kansas City area) are not being served,” started his own 60 watt station at 107.9 FM.

“Radio listenership has been declining rapidly over the last five years,” Highberger said. “People are turned off by blandness and repetitiveness, and they are sick of it.”

Both KAW and 107.9 received warnings from the FCC that their stations were illegal, and by early last year, both had stopped broadcasting.

But if they are allowed back on the air, they’ll have plenty of company. FCC spokesman David Fiske said when the agency accepted applications from the first 10 eligible states in April, it received 780.

“I thought we’d see about 1,000 applications nationwide,” said Michael Bracy, executive director of the Low Power Radio Coalition in Washington, D.C. ‘The (April) numbers were awfully big. I think it is indicative of overwhelming demand for the stations.”

But major broadcasters are backing legislation that will stop the FCC from authorizing low power FM for six months. The legislation was approved by the House on April 13. The bill has gone to the Senate, but has not come to a floor vote.

Don Hicks says he is still concerned. The president of the Missouri Broadcasters Association, which represents about 230 radio stations, notes while Missouri residents can’t apply for LPFM until November, his group is watching what happens on Aug. 28.

About 65 percent of Missouri’s population resides within 30 miles of the state’s borders with Kansas and Illinois, and broadcasting issues, including interference, don’t stop at state borders, he said. The goal of increasing diversity on the radio is laudable, Hicks added, but not the way the FCC has proposed it.

“Everybody would like to own their own radio station, but the FCC has sold a bill of goods to these community groups, and that got their hopes up,” Hicks said. “But listeners will get a substandard signal, get upset and complain to the radio stations. Who wins from this process? Not the LPFM, not the current stations – nobody.”

     Rod Perlmutter covers the Kansas City region for E-mail him with story ideas or comments.

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House panel OKs bill to thwart imaginary ‘Schnell’

House panel OKs bill to thwart imaginary ‘Schnell’ 

By Rod Perlmutter, News Editor, Media Central

KANSAS CITY, Mo., May 12, 2000 (Media Central) –This week, Congressman Schnell couldn’t find anyone on Capitol Hill who would back his proposal to impose a surcharge on every e-mail.

That’s because nobody could find Congressman Schnell.

On this, both Republicans and Democrats agree: there is no Congressman Schnell. He doesn’t exist, nor does his imaginary piece of legislation, “H.B. 602P.”

But rumors about the imaginary congressman and his proposal were enough to get the House Commerce Committee to approve a bill on Wednesday that specifically prohibits the Federal Communications Commission from placing access charges on Internet service providers.

Rep. Rick Boucher (D-Va.) said the bill was unnecessary. The FCC has said repeatedly that it has no plans to impose access charges on ISPs. Even Republicans agree that the FCC has not imposed an access charge, and nobody in Congress wants one, Boucher said.

“It’s an imaginary problem to address an imaginary bill by an imaginary congressman, and the process is ludicrous,” Boucher said Friday from Washington.

But Rep. Billy Tauzin (R-La.), in a statement posted this month on his website, said the bill was needed as a preemptive measure “to close this door and guarantee that such charges will not be imposed.”

      The deluge of e-mail

The House Commerce Committee passed an amended version of the bill, H.R. 1291, the Internet Access Charge Prohibition Act, on Wednesday. Both the original bill and the amended version were proposed by Rep. Fred Upton (R-Mich.)

For more than a year, the FCC had denied that it wanted to impose an Internet access charge. According a press release posted on the FCC website last year, the commission “has no intention of assessing per-minute charges on Internet traffic or changing the way consumers obtain and pay for access to the Internet.”

The FCC press release said false fears about ISP access charges resulted from a statement last year that the commission was considering public comments on carrier-to-carrier payments, or fees paid from one local telephone company to another for completing a local call that is placed by one of its competitor’s customers.

But that denial didn’t stop the rumors, which Boucher and others assumed were spread through the Internet.

“Every office on Capitol Hill has received e-mail about Congressman Schell,” Boucher said.

One variation of the rumor was denied by a press release posted by Rep. Billy Tauzin.

The rumor was that “Congressman Schnell has introduced Bill 602P to allow the federal government to impose a 5-cent surcharge on e-mail messages delivered over the Internet,” the Tauzin message stated. “It states that the money would be collected by Internet Service Providers and then turned over to the US Postal Service.

“The rumor, of course, is completely false,” Tauzin’s statement continued. “The fact of the matter is that there is no such Congressman and bills are not named in this fashion. Officials with the U.S. Postal Service have stated that they would never contemplate such legislation, nor would they support this legislation.”

Upton, in testimony submitted to the House Telecommunications Subcommittee on May 3, said he and other Congressmen had received thousands of e-mail messages about Schnell and his proposal. But the rumor mill continued to grind.

“Around the same time, another, similar e-mail campaign suggested that the FCC was going to impose a per-minute access fee on Internet use,” Upton said in his statement. “Again, our constituents flooded our offices with e-mails to express their outrage.

“Upon closer examination of this rumor, the FCC was asked if it was going to authorize a per-minute access fee on Internet use. In reply, the FCC stated that it had no plans at the present time to authorize such a fee.

“While I am glad that the FCC has no plans at the present time to assess such a fee, I am troubled … that there is nothing to prevent the FCC from doing so tomorrow, or the next day or the next.”

That’s why he introduced H.R. 1291, Upton said.

Boucher said the bill was both unnecessary and a political ploy by the Republicans.

“This is one piece in a series of bills that are being rushed to floor without benefit of hearings and subcommittee markups, simply for purpose of allowing the majority party to make a statement that they are committed to do something about information technology issues,” Boucher said. “This bill is designed to resolve an imaginary problem created by a lot of e-mail traffic.”

Boucher said that the only good that may have come out of the bill was its symbolic aspect.

“It puts Congress on the record as stating that it does not want to institute any per-minute Internet charges,” Boucher said. But no one has said they want per-minute Internet charges, he said. The bill is similar to a non-binding “sense of the Congress” resolution, he said.

Upton, Boucher differ on the digital divide

Over the past several months, members of both parties have made statements about their concern about the “digital divide,” the growing gap between those Americans with access to the latest in telecommunications and communications technology, and those without. Members of Congress have, at various times, described the divide as between rich and poor, or between urban and rural.

Upton and Boucher both said the Internet access charge debate is one part of the digital divide. But while Upton said his bill addresses the problem, Boucher said it ignores a looming problem for rural residents.

“A per-minute charge would fall disproportionately on lower income families,” Upton said in a press release issued when he introduced the bill in March. “I get thousands of emails from my constituents every month – many would be less able to afford to email me otherwise. Any measure that has the possibility of shutting out anyone out of the process disturbs me.

“But it goes way beyond that,” Upton said. “Keeping the Internet free from per-minute charges keeps communication between families who have loved ones overseas or in another state affordable. Forcing folks to watch the clock when communicating with their loved ones is just not fair.”

Boucher said on Friday that the debate about the imaginary Schnell ignored the issue of long-distance Internet telephony, and its possible effect on subsidies for rural phone service.

Since the 1930s, all telephone companies that provide telephone services between states pay a fee to the federal Universal Service Fund, which pays subsidies to make phone service affordable and available to all Americans, including: consumers with low incomes; consumers who live in areas where the costs of providing telephone service is high; schools and libraries; and rural health-care providers. The telephone companies pay a fee of less than four percent of the amount they billed in the previous year to residential and business customers. The exact percentage that companies contribute is adjusted quarterly based on projected universal service demands.

Local phone companies recover the costs of their universal service contributions through “access charges” levied on long distance companies.

“One reason we don’t hear anybody talking about an ‘analog divide’ is that, through the Universal Service Fund, about 96 percent of Americans can afford phone service,” Boucher said. This Universal Service Fund is crucial to Boucher’s constituents, many of whom would not be able to obtain phone service if the fund subsidies didn’t bring the price down to affordable levels, he said.

But what happens if millions of American change from traditional voice-based long distance service to Internet telephony long distance? Local phone companies, under the current system, will not be able to charge access fees, because the Internet connection will be local.

If the traditional voice-based long-distance services drop, that means so will charges paid to the Universal Service Fund. If that continues, that would endanger subsidies for rural phone service, and the price of service could rise so high as to be out of reach of most rural residents, Boucher said.

“At the proper time, as telephony migrates to Internet and replaces long distance voice traffic, some mechanism will have to be found to replace the funding for the Universal Service Fund,” Boucher said.

Upton’s amended bill made a nod in that direction, Boucher said, though it was not explicit.

The original bill made no mention of Internet telephony services. The amended bill stated that the FCC will be allowed to impose access charges on the providers of Internet telephone services.

“The result is that the commission is not prohibited by this bill from creating a mechanism to continue to sustain Universal service,” Boucher said. “I’m confident at no point in time will the FCC impose a per-minute charge on individual ISP users for sustaining Universal service. But the commission might consider some form of flat charge, probably imposed on the Internet Service Providers.”

While some of those charges may be passed down onto long-distance Internet telephony users, these consumers may still end up saving money because they are no longer paying bills for the traditional voice-based telephone service, Boucher said.

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© 2000 Media Central, an IndustryClick community. All rights reserved.

Permission to repost article granted by IndustryClick. 

Rural TV loan bills get closer to reality

Rural TV loan bills get closer to reality

By Rod Perlmutter, News Editor, Media Central

KANSAS CITY, Mo., March 31, 2000 (Media Central) – Proponents of a $1.25 billion program to help bring local broadcast television signals into rural areas may soon go to President Clinton to sign into law.

The question is which version of that program will go to the White House?

This week, the Senate and House discussed their own versions of the bill, which are similar but not identical.

On Thursday, by a 97-0 vote, the Senate approved S. 2097, the Launching Our Communities Access to Local (LOCAL) Television Act. The bill provides a loan guarantee program that will encourage television providers to develop technology to send local content to rural areas.

On Wednesday, the House Commerce Committee approved a similar bill, H.R. 3615, the Rural Local Broadcast Signal Act, with some amendments. The bill, sponsored by Bob Goodlatte (R-Va.) and Rick Boucher (D-Va.), had already received unanimous approval of the House Agricultural Committee.

Both bills originated out of the need to help rural viewers. On Nov. 29, President Clinton signed into law the Satellite Home Viewer Act, permitting satellite providers to, for the first time, distribute local broadcast signals within their local TV market. But the law meant nothing to many rural households, who could still not get the TV service they wanted.

Critics of last year’s law said that the response of the satellite providers was to focus first on urban areas. Based on the economies of scale, and the low population density of rural areas, it is more profitable for a satellite provider to give service to urban areas over rural areas.

Rural areas lag behind urban areas in their ability to get local television news and weather information, Goodlatte said, and he fears that the gap will only get worse as more stations convert from the analog to digital systems. According to the National Rural Telecommunications Cooperative, more than half of the nation’s households will not have access to local digital service, and at least 20 states will be left out entirely.

Proponents of the bills said the only way to get television services providers to invest the millions of dollars needed to get modern service to rural areas is a government-backed loan guarantee program.

But last fall, Sen. Phil Gramm, (R-Texas) opposed a loan guarantee program that was in included in the Satellite Home Viewer Act because he feared it would be a giveaway to wealthy corporations. He insisted that the Senate Banking Committee, for which he is chairman, hold hearings on the proposal first. The Senate stripped the loan guarantee program out of last year’s bill, and hearings were held in February. Gramm is one of the cosponsors of the bill passed on Thursday, which is also sponsored by Sen. Conrad Burns (R-Mont.), and Sen. Richard Lugar (R-Ind.).

Both the House and Senate versions call for a $1.25 billion loan guarantee program. Both say that the U.S. Agriculture will have a say in how the loans are approved.

But the bills differ in several ways:

  • Maximum loan. The House bill states that the maximum loan allowed under the program would be $625 million. But there is no such limit is on the Senate bill.
  •  Supervision. The Senate version creates a three-member board consisting of the Treasury Secretary, the Agriculture Secretary and the Federal Reserve chairman to approve all loan guarantees. The House version says that the program will be supervised by the Agriculture Department’s Rural Utility Service.
  •  Extent of loan guarantee. The House bill states that the federal loan guarantee can extend to 100 percent of the applied loan, but the Senate bill limits it to 80 percent.

On Wednesday, the House Commerce Committee further amended its version. By voice votes, it approved amendments by Billy Tauzin (R-La.) and Michael Oxley (R-Ohio.) The Oxley amendment conditioned approval of any loan guarantees under the bill to the Federal Communication Commission conducting an independent test of harmful interference to satellite services that are eligible for loan guarantees. The Tauzin amendment limited the number of local broadcast signals that must be carried by a multichannel video programming distributor (MVPD) to no more than the largest number of local broadcast signals carried by the cable system serving the largest number of subscribers in that market.

The committee rejected:

  • By a 24-6 vote, a proposal by Ed Markey (D-Mass.) requiring that borrowers seek loans from commercial lenders on reasonable terms before obtaining guaranteed loans from the Rural Utilities Service (RUS).
  • By a 28-7 vote, a proposal by Christopher Cox (R-Calif.) to require that at least one of the officers or directors of an applicant for a loan guarantee under the bill personally guarantee the repayment of sums owed the United States as a result of default on the loan.
  • By a 20-16 vote, another Cox proposal to require the loan board to collect a “loan guarantee origination fee” to cover the administrative costs of the program.

Rep. Tom Bliley, (R-Va.) the committee chairman ruled that a proposal by Rep. Bart Stupak (D-Mich.) to make the bill address other concerns about the “rural digital divide” were not germane to the bill. Stupak’s proposal directed the FCC to initiate a proceeding to provide federal universal service support for the deployment of broadband service to eligible rural communities.

One amendment to the Senate bill came this week when agreed to allow financial institutions without federal deposit insurance to take part.

That satisfied the demands of Senator Tim Johnson, (D-S.D.) and the National Rural Telecommunications Cooperative, which said that some organizations that provide funding for improving rural infrastructure, such as the Cooperative Finance Corp., are not FDIC-insured. The CFC is the financial arm of the National Rural Electric Cooperative Association, a lobby representing about 1,000 electric co-ops in 46 states.

Gramm said he looked forward to the House passing its version of the bill, so that he could meet with their representatives to hammer out a final bill. In a press release posted on the Senate Banking Committee’s website, Gramm said.

“Number one, we want to try to enhance the chances that people who live in rural America, especially in isolated areas, can receive their local television signals,” Gramm said. “Second, we want to be good stewards of the taxpayers’ money. We want to guarantee to the best of our ability that not only will the loans be made, but that they’ll be paid back. It doesn’t do us any good to make bad loans. Bad loans don’t produce local TV signals. Bad loans simply cost the taxpayer hundreds of millions of dollars and do no good.”

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