Colorado’s Open Range Communications has joined Solyndra and Beacon Power Corp. as companies receiving enormous government loans only to wind up in bankruptcy court. All told, the company received $267 million in loans from the U.S. Department of Agriculture’s Rural Utilities Service, leaving taxpayers on the hook for $73 million while owing as much as $26 million to businesses that performed work for the company.
Questions are now being asked by the House Committee on Energy and Commerce regarding this large loss of taxpayer funds. Committee Chairman Fred Upton (R-MI), in a letter to the USDA dated November 9, questioned earlier testimony that was given regarding Open Range and sought information regarding other loans provided by the Rural Utilities Service.
Upton demanded more information on the review process for these loans, the total number of these loans, updates on other companies that may be in financial trouble after receiving loans, and an explanation of the quality of oversight the USDA is providing for these loans.
Open Range Communications was founded in 2004 to provide wireless broadband services to new markets. The company began to develop WiMAX products and expanded its offerings to include wireless voice and data transmission solutions. According to Congressional testimony, Open Range approached the USDA in 2007 to secure a loan to considerably expand its operations, promising it would develop broadband connections in 17 states to serve more than 500 rural communities as part of the USDA’s Rural Broadband Loan Program.
Serious Business Setbacks
Open Range received a $100 million investment from JPMorgan Chase in 2009 and received $267 million in American Recovery and Reinvestment loan guarantees from the USDA—the largest loan the agency granted to a single company.
After receiving the loans, Open Range Communications suffered serious business setbacks. According to bankruptcy filings, the company had bad technology, bought shoddy equipment, and experience early cash flow problems, which it blamed on the USDA’s slow and inefficient disbursal of monies.
The company’s problems worsened in 2009 when the Federal Communications Commission ruled the Globalstar satellite network Open Range had planned on employing didn’t comply with agency specifications, leaving Open Range without spectrum and unable to provide services to its customers.
Open Range secured new spectrum from LightSquared, but the USDA delayed funding because it found Open Range was using loan money to target areas that already had broadband service or were not rural.
160 Communities, Not 500
Facing cash-flow problems in August 2010, the company cut sales representatives, laid off numerous employees in October of that year, and in December warned the USDA it was revising its business plan to connect only 160 rural communities, down from its originally approved total of 500.
In 2011, the USDA reduced its funding commitments to Open Range to $180 million, and by summer it ceased making payments altogether. On October 4, the USDA asked Open Range to pay back $19.6 million that had been “improperly forwarded” to the company, according to bankruptcy filings. The next day, CEO Bill Beans resigned and the company declared bankruptcy.
Kyle McGrath ([email protected]) writes from Waterford, Michigan.