There are as many opinions of the federal stimulus plans as there are people. For some, the stimulus plans have been the safety harness that rescued us from global collapse. For others the stimulus plans were a sneaky path to bonus heaven for greedy bankers. For some the job creation rate of the many and varied stimulus plans is far too small, far too slow. Judgments are probably equally split between favorable and unfavorable, but they come in all stripes.
So it is no surprise to read that some tier-two and tier-three RLECs (Rural Local Exchange Carriers) are “giving up” on the $7 billion+ federal rural broadband stimulus plans (http://blog.telephonyonline.com/unfiltered/2009/10/14/are-rlecs-giving-up-on-broadband-stimulus/). The article, in Telephony Online, points out that companies like CenturyLink (NYSE: CTL; http://www.centurytel.com/, $33.52) and Windstream (NYSE: WIN; http://www.windstream.com/, $10.03) — both midcap companies and out of our area — did not even apply for funding under the programs.
But an article last month in the same publication said there were 2200 applicants in the first round of rural broadband funding requests, asking for a total of $28 billion (4x the amount allocated): http://blog.telephonyonline.com/unfiltered/2009/09/10/broadband-stimulus-applicants-abound-who-needs-big-carriers/. So it is possible that only the largest and best-funded companies are hanging back, one might surmise. Speculation has always been that it is too expensive for the big telecom companies to take broadband to the hinterlands, so they might do best to sit quietly and not be noticed.
The Rural Utility Service (RUS, http://www.usda.gov/rus/ — one of the agencies tasked with soliciting and sifting applications for this stimulus program) says it is painfully aware that the process is confusing and flawed, and that it is looking for constructive suggestions: http://telephonyonline.com/independent/news/rus-improve-stimulus-application-process-0930/.
ABC News wonders if the stimulus money is being spent too fast: http://abcnews.go.com/Business/stimulus-money-spent-fast/story?id=8838798#. They point out that the FCC isn’t due to publish its National Broadband Plan until February 2010, which may put the broadband stimulus plan at 6s and 7s, as they say.
But there really is a rural broadband industry, although views of it differ depending on how you define “rural.” There are, for instance, various hardware suppliers who sell to countrified service providers — and those companies have a big stake in how the stimulus plans are structured. Privately owned Petaluma CA-based Calix Inc (http://www.calix.com) is selling backhaul devices, customer premise devices, and all manner of interface widgets to companies like the aforementioned CenturyLink. And Huntsville AL-based ADTRAN Inc (Nasdaq: ADTN; http://www.adtran.com/) is pumping along at about $500 million in annual revenue, reporting profits and paying cash dividends on the strength of its network access business. ADTN shares are trading at $25.61 at the moment, not far off the year-high of $26.14, for a market cap of $1.6 billion and average daily volume of 870,000 shares, pretty liquid by any measure.
Smaller rural companies do not loom large in the federal plans for big bucks, since it is harder to put a lot of dollars (and people) to work with smaller companies. Not to be buffaloed, though, Omaha-based KeyOn Communications (OTC BB: KEYO; http://www.keyon.com/) is a supplier of broadband and VoIP to western and midwestern rural markets. It features an ARRA logo on its splash page, and applied in August for $150 million in stimulus funds, and announced in September what sounds like an ambitious roll-up plan, though it is hard to come by specifics (not unusual). KEYO shares are not far off their 12-month high, selling today for $2.48 (vs a high of $2.60), though the market cap is still small at $36 million, and daily trading is rather low at 36,000. Given their stock chart, it looks like someone may have made a fair amount of money in a fairly short time.
Privately held Reno-based Yonder Media Inc* (http://www.yondermedia.com ) is also looking to pick up coverage in Smallville USA, and has installed its first 22 communities, all in Nevada and California at present. Much of the business plan is a roll-up map, with targets being small onesy-twosy locals who could benefit from new technology and marketing. Interestingly Yonder has announced a pending merger with South Jordon UT-based Bayhill Capital Corp (OTCBB: BYHL), which will serve 2 purposes. First it will act like a reverse merger for Yonder and take them public, though probably under a different ticker. More important perhaps, it gives Yonder Bayhill’s wholly owned Commission River subsidiary, an affiliate marketing organization with major growth potential and significant synergies with Yonder, whose YonderSpot web pages will benefit from the intensive marketing capabilities of Commission River. So far BYHL shares have not felt an updraft, trade lazily at $0.35 when they (yawn) trade at all. One suspects a bid would bring out some supply, though.
Some are looking for indirect access to stimulus dollars instead of going straight at them. League City TX-based ERF Wireless Inc (OTC BB: ERFW; http://www.erfwireless.com/) is a broadband supplier specializing in the energy industry in the US, with recently Canadian expansion announcements. They are looking for broadband stimulus dollars via partnerships with companies who are getting them from the feds: http://www.erfwireless.com/graphics/pdfs/StimulusPartnership.pdf. ERFW shares have been beaten down a bit, trading today at $0.33, vs a year-high of $1.67, for a market cap of about $42 million, on average daily trading volume of 239,000 shares.
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*client of Allen & Caron, publisher of this blog.