Telecom's customers win more than $100M in grants

[caption id="attachment_22951" align="alignright" width="360" caption="Calix access equipment serves rural carriers' subscribers."][/caption]

PETALUMA – Calix (NYSE: CALX) raised close to $200 million to leverage stimulus grants of $7.2 billion to rural carriers. Now the first round of grantees has chosen vendors, and some analysts say the Petaluma telecom access equipment maker's strategy is already paying off.

Last week the company announced that Texas carrier XIT's choice of Calix equipment for a major upgrade – partially funded by a $3.1 million grant – has brought the aggregate amount won by nine Calix customers to more than $100 million.

"We won nine out of 12 carriers who received grants for last-mile buildouts," said Calix Senior Vice President of Corporate Marketing Geoff Burke.

Since the Broadband Stimulus Program was launched in early 2009, Calix raised $100 million in debt and investment funding and $82 million in a public stock offering in anticipation of the rural carrier market, which it dominates building out its last-mile networks.

Typically about 15 percent of a last-mile buildout goes to access equipment.

Although some of the stimulus funds are slated for broadband adoption and public Internet access, most of the money is being deployed in last- and middle-mile – large network – upgrades. Calix's rural and independent telecom customers, which number about 500, will mostly require last-mile access.

The first round of grants awarded $114 million to carriers. The second round, announced this month, will award $795 million.

"There may have been some reluctance at first on the carriers' parts, concerns over strings attached and government control, but now the dust has settled," said Matt Davis, director of broadband services of telecom research and marketing firm IDC.

"The money will be spent one way or another, and the carriers are worried that if they don't move now the government will take control of the upgrades," he said. The federal government is mandated to provide rural communities with the same level of telecommunications enjoyed by urban dwellers.

According to Mr. Davis, Calix's lobbying efforts have been instrumental in shaping public policy on access issues.

"All that hard work is going to pay off for them as the grants continue," he said.

But future funding could be curtailed. David Obey, House Appropriations Chairman, recently said he'd like to slash $600 million from the allocated funds in order to support the war effort in Afghanistan and Iran.

"We're paying attention to this development," said Mr. Burke, "but overall it only represents about 8 percent of funds allocated, and it's still in the talking stages. Also, when it comes to budgetary authority, these agencies have levers they can use to adjust if need be. For example, the grants might shift to loans."

He believes that given Calix's wins during the first round of funding, the company will do very well going forward.

"They'll easily surpass what they've done so far," said Teresa Mastangelo, principal analyst for Broadbandtrends.com, a market research company. "We see the Calix strategy paying off in a big way."

Although the stimulus-funded projects are yet to begin, Calix already reported a 30 percent revenue increase for the first quarter of fiscal 2010. The company had $48.2 million in quarterly revenue compared with $37.1 million for the same period last year.

Mr. Burke said the company is hiring locally. Calix employs about 420, mostly in its Petaluma headquarters, and some in offices in Minneapolis, Boston and China.