Positive potential implications: Adtran (ADTN31 ***), Alcatel-Lucent (ALU3 ***), Cisco Systems (CSCO20 *****), Corning (GLW16 ****), Ericsson (ERIC10 *), JDS Uniphase (JDSU9 ****), ADC Telecommunications (ADCT13 ***), and Motorola (MOT8 ****).

In early 2009, the US government designated $7.2 billion in economic stimulus funds to extend nationwide broadband coverage, mainly in underserved rural areas. However, the government has been slow to release the funds, and some of the original funding was recently cut back. All in all, S&P Equity Research sees little impact from the telecom-oriented stimulus spending until 2011 at the earliest.



When President Obama recently signed into law a $26 billion fiscal aid package for the states to help them with their own budget issues, $302 million was cut from the broadband stimulus program.



Under the original timeline, funding of the broadband stimulus program was slated to be completed by September 2010 through three rounds of grant awards (subsequently cut to two rounds). However, an overwhelming response to the grant offering has hampered the two government agencies handling the process, with only a fraction of the allocated funds--roughly $2 billion--awarded during the first round that ended in April 2010. Both agencies plan to make the first grant and loan announcements for round two during the third quarter of 2010, and ERS noted a pick-up in telecom-oriented stimulus spending in July and August. Both agencies have announced plans for significant awards in September as well.



Nevertheless, only one major project arising from the stimulus is underway. SDN Communications, a South Dakota-based regional fiber network, broke ground on August 23 on a $25 million middle mile project, which will build a 359 route-mile fiber network across the state of South Dakota. The project will reportedly take three years to complete.



Under the terms of the original spending approved by Congress, all telecom-oriented fiscal stimulus projects were to be completed by September of 2013.





With its focus on promoting advanced broadband services, the stimulus package favors high-speed fiber, digital subscriber lines, and cable deployments, according to Standard&Poor's Equity Research Services (ERS). Stimulus spending should also provide a boost to the wireless market, as mobile access technologies like WiMAX are the most economical way to provide broadband access to hard-to-reach rural communities.





However, given the complexity involved in reviewing the program applications, ERS does not expect stimulus funding to have any real impact on industry spending levels until 2011.



In terms of vendors, equipment companies with exposure to the broadband access market--Adtran, Alcatel-Lucent, Cisco Systems, Corning, Ericsson, JDS Uniphase, ADC Telecommunications, and Motorola--are best positioned to benefit from the stimulus spending package, once the grants are awarded and projects begun.



--ARI BENSINGER, S&P Equity Analyst

01-Sep-2010 14:00:17 (15816619)   Copyright 2010 The McGraw-Hill Companies, Inc, Standard & Poor's, a division of The McGraw-Hill Companies, Inc., and their affiliates (collectively, "S&P"). Reproduction of this content in any form is prohibited except with the prior written permission of S&P.