By Pacific Coast Business Times Staff Monday, June 21st, 2010

In one of the biggest stimulus grants to filter down to a tri-county business, Goleta-based Occam Networks will supply equipment for a $101 million project to bring broadband access to rural Western Kansas.

Occam will provide networking equipment to Kansas-based Rural Telephone’s Nex-Tech, which will connect 23,000 households and businesses across 4,600 square miles.

“In terms of fiber to the home, this is the largest project to our knowledge in round one [of the stimulus],” said Juan Vela, director of solutions marketing and strategy for Occam.

Citing contract policies, Occam officials couldn’t say how much the company would get of the $101 million in federal funding. But they said 10 percent to 15 percent of such grants usually goes toward the kind of equipment Occam makes, meaning the firm could see $10 million to $15 million from the project over its three-year life.

Occam sits in a key position to catch broadband stimulus money. Its networking infrastructure equipment is aimed at small and mid-sized telecommunications companies who want to bring fiber-optic speeds to customers’ homes while still dealing with legacy copper lines in the same area.

In March, federal officials unveiled the National Broadband Plan, a roadmap for wiring some of the remotest parts of the country. While nearly everyone wishes the program went further — its bare minimum speeds of 4 megabits per second for downloads and 1 megabit per second for uploads aren’t that fast — it highlights what Occam has known for some time: investment makes a big difference in rural broadband infrastructure.

“You wouldn’t notice them on a map, but there are thousands of people out there” in Western Kansas, Vela said. Some of those communities have better networks than mid-sized cities because their rural co-ops make investments that the big players in mid-sized cities won’t.

“Unless it’s a tier-one market for them, [companies like Verizon] choose not to invest. They actually make those communities not just relevant, but competitive with any community in the country,” Vela said.

Vela said it was fitting that Occam’s first broadband stimulus contract came from Rural Telephone, because it’s worked with the company for nearly a decade.

“We consider them more of a partner than a vendor,” said Larry Sevier, general manager of Rural Telephone. “We’ve really put them to the test against other vendors, and we really like the way their equipment performs.”

The $101 million project will create jobs both in Santa Barbara and Kansas. Vela said it could create engineering and support positions at Occam. Rural Telephone will take on 17 full-time employees to run the upgraded services and expects to create 350 to 400 contracting jobs.

“While they’re working in Western Kansas, it’ll be a huge boon to our economy. They’ll be staying in our motels and eating in our restaurants,” Sevier said.

Occam’s leaders have been extremely cautious about its stimulus hopes, saying the money could roll in painfully slowly. Investors didn’t seem as cautious — as soon as word of a national broadband plan began trickling out last fall, they began pushing the stock up from the $3 range to around $7.

In a note to investors, Jefferies & Co. analyst George C. Notter urged investors to buy Occam stock. Even though the price went up somewhat on expectations that Occam would benefit from a national Internet push, Notter argued the stock was still undervalued and “still a good play on broadband stimulus.”

“While we remain cautious on timing, we still believe that the broadband stimulus plan is a significant revenue opportunity for Occam,” Notter wrote, though he warned that understaffing at the federal overseers of the funds could delay the flow of revenue to Occam. “Likewise, we would not be surprised to see carriers struggle to find the manpower necessary to trench fiber and install gear associated with the plan,” Notter wrote.

Still, broadband stimulus could provide a steady boost for Occam for several years.

“We continue to model a modest amount of incremental revenue from the stimulus plan in 2010 — $10 million to $15 million. Looking further out, we believe the project could be a material contributor to revenues in 2011, 2012, and potentially into 2013,” Notter wrote. “In the past … [Occam’s] management has suggested that 25 to 30 percent of the company’s customer base has bid specific proposals.”

While Occam stands to benefit over the next few years, Vela said the stimulus broadband plan has implications for the entire communications industry. It could help erase the digital divide for consumers, and empower smaller telecommunications companies to give the big providers an even tougher run for their money.

“The stimulus would be a first step in a long chain of events that could culminate in a rewrite of the Communications Act,” Vela said. “The real long-term story here is that the national broadband plan is going to have a material impact on rural communities everywhere. It’s something we’ll make sure to stay on top of.”

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