The world is getting smaller, the means of reaching one another becoming that much easier with each passing day. And, within this shrinking world, it is assumed, the more one knows, the more one grows. Part of the transformation of America since Barack Obama assumed the U.S. presidency 100-plus days ago is a desire to put High-Speed Internet at everyone’s fingertips during the life of his administration. To that end, President Obama earmarked $7.2 billion U.S., as part of his American Recovery and Reinvestment Act of 2009, to ramp up the rise of High-Speed Internet, particularly in rural areas.
While industry experts grumbled about the lack of specifics in the Act as to what kind of technology would receive the funds, they acknowledged the new legislation would enable tech companies, telecom companies and Internet Service Providers (ISPs) to compete for broadband grants that will be administered by both the National Telecommunications and Information Administration (NTIA) and the United States Department of Agriculture.
It is also admitted that, with the vast array of broadband technologies either available or soon to be available, both federal agencies would have lots of options to choose from when deciding how to dole out the cash. As you may gather, much of the concentration of funds and knowhow would be centered on rural areas without as much access to broadband technology as their cousins in the city.
In 2007, the worldwide telecommunications market grew to $1.8 trillion and was expected to expand 7.6 per cent in 2008 to $2 trillion. From a regional perspective, North America remains the largest telecommunications market. North American telecom revenues were forecast to reach $511.6 billion in 2008, a 4.5-per-cent increase from 2007. Technologies such as Voice-over-Internet Protocol (VoIP) and broadband video are key drivers of telecommunications industry growth.
Among the big operators, Denver-based Qwest (NYSE: Q) has had its problems, one being that, unlike the two other large phone companies in the country, AT&T and Verizon Communications, Qwest doesn't own any of its own wireless infrastructure. The company sold the last of its wireless spectrum and cell phone infrastructure to Verizon Wireless in 2004 for $418 million in cash. So any new move in wireless would require it to either acquire new spectrum or work closely with another provider, which will likely not provide the same upside as its telecom brethren will enjoy. (CNet article, February 2008)
In the first quarter, while total revenue reached $3.2 billion U.S, which reflects five per-cent year-over-year growth in data, Internet and video revenue, that figure was offset by a decline of 11 per cent in voice revenue and lower wireless revenue. Overall revenues were down seven per cent and net income increased 37 per cent, but at the expense of a 10-per-cent reduction in their workforce, or 3,700 employees.
Q’s stock price has faded almost into the realm of small cap, having hit the heights around $5.24 in early May of last year, fading to $2.35 last October.
The price lulled around $4.50 in early May 2009.
Another big-budget operator, with ties to the beginnings of the telephone and Alexander Graham Bell, is Montreal-based BCE (TSX, NYSE:BCE), and also catering mostly to the large, urban business market. For all its Bell ties, BCE stumbled during the last quarter of 2008, during which the company posted a net loss per share of six cents Canadian, despite a hike in Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of 2.2 per cent on the year.
BCE was encouraged to learn it had signed up 80,000 wireless net subscribers over the last year, but may have found its growth plans nipped in the bud by a decision last December by the Canadian Radio-television and Telecommunications Commission (CRTC), which it says could threaten to slow and even eliminate such network investments in many communities by forcing telecommunications companies to provide competitors with regulated access to their newly constructed next-generation networks, such as the high-speed Fibre to the node (FTTN) being rolled out by Bell, BCE and other carriers. The company is asking the Canadian federal cabinet to overturn the CRTC decision.
Earnings Per Share during 2008 Q4 included net losses on investments of $372 million, or $0.47 per share and restructuring and other costs of $0.14 per share. Net losses on investments this quarter relate to write-downs on non-core investments as a result of the decline in capital market valuations experienced in the last quarter of the year. BCE still traded above $22 U.S. on the NYSE in early May.
One company that could find itself servicing the rural markets that the big boys have missed is Indiana-based Omnicity Corp. (OTCBB:OMCY). Omnicity plans to be the premier consolidator of rural market broadband nationwide. Omnicity's strategy is to provide a total broadband solution and continue rapid growth through acquisitions, organic growth and continue to partner with Rural Electric Membership Co-ops and Rural Telephone Companies to provide a comprehensive broadband solution.
About 80 per cent of rural counties in the United States rely on the services of Rural Electric Membership Cooperatives, which represent the largest electric utility network in the United States with over 40 million member-owners. Over the next five years, OMCY plans to grow its customer base to 170,000 subscribers and increase EBITDA to the $57-million U.S. range. OMCY plans to extend its services into 100 new rural markets over the next 18 months.
In the first week of May, OMCY carried out more of that plan of aggressive growth by signing an agreement with rural operator Swayzee Telephone, Inc., under which Omnicity will attach to the fiber optic network in Swayzee, Indiana to deliver services to a number of counties in northeastern Indiana. CEO Dick Beltzhoover and his team spent time in Washington in recent months, meeting with Indiana congressional representatives to figure out how to tap into the money earmarked for the rural market.
Accordingly, the stock price climbed to a new 52-week high in early May on the heels of these new developments to 73 cents.
As the economy takes its time to heal, look for companies such as OMCY to take its cue from the Oval Office, to use the funds from this stimulus program to introduce wireless services to these mostly untapped markets, doing it more economically and with an aggressive growth strategy, building their business one county at a time.
About AllPennyStocks.com:
AllPennyStocks.com is a website devoted to Canadian and American Stocks and Penny Stocks. Some features in the website include quotes, news and charts. The site also offers weekly write-ups of financial news, weekly penny stocks to watch, daily top 50 penny stocks info, technical analysis, a portfolio manager, a section for visitors to input their own penny stock picks, as well as an elaborate amount of information for beginning investors. Visitors can sign up to the AllPennyStocks.com mailing list to receive more penny stock articles, stock profiles and more. AllPennyStocks.com is a well developed and recognized financial site among the investment community.
