The American Recovery and Reinvestment Act of 2009, which was signed into law by President Obama on February 17, 2009, set aside $7.2 billion to be invested in the telecommunications industry via grants and loans which will be distributed over the next 22 months. The objective, of course, is to stimulate growth within the industry and create jobs to support this growth. The money is open to all sectors within the telecommunications industry and is fair game for private and public companies as well as various government entities including cities, agencies, and state governments.
The majority of the allotted $7.2 billion will be distributed via two government agencies: The Department of Agriculture’s Rural Utility Service (RUS) will be distributing $2.5 billion while the Department of Commerce’s National Telecommunications Industry Agency (NTIA) will be in charge of spreading around $4.7 billion. There are, however, restrictions and guidelines for how the money can be used and to whom the money can be distributed:
1. The company/entity receiving the funds must be generating jobs with the money, and the company who can create the most jobs with the least amount of money is more likely to win the bid for the funds.
2. The funds must be spent before the set deadline of December 2010. This puts pressure on companies to expand now instead of holding. This also is intended to create jobs immediately.
3. The funds distributed by the NTIA are to be spent on capital expenditures (CAPEX) only.
4. The projects to be funded by the grant money are to be ready to go by the time the company/entity receives the money. There should be no delay from the time the money is awarded to the time the projects begin executing.
5. At least one grant is to be awarded within each state.
6. Non-profit companies are eligible as long as they are deemed to be “in the public interest.”
The allotment is to be invested in every facet of the telecommunications industry to stimulate growth from every angle. There are four specified areas within the industry that the act requires a specific amount to be invested in:
1. $350 million in the State Broadband Data and Development Grant program to create a national broadband inventory map.
2. $250 million in innovative programs to encourage sustainable broadband adoption.
3. $200 million in grants for the expansion of public computer center capacity.
4. $10 million for the auditing and oversight of said grants and loans.
However, indirectly, the telecommunications industry is receiving much more from the Recovery Act. It is estimated that there is $110 billion in telecom opportunities branching from this Recovery Act. A big part of this comes from the $46.5 billion which is allotted for transportation infrastructure. In new roads construction, it is preferred to install “fiber or other high-speed conduits right into the roadway during construction.”
Also, schools across the country will be receiving $21 billion, which will be used in new construction and repair of existing schools. A portion of this will be used to add broadband and VoIP in these new and existing schools. On top of all this, another $650 million will be used for “in-class hardware, software and training.” Another $12 billion is being invested in public housing, which could be lucrative if they incorporate broadband capabilities into new or existing homes.
With the recent passing of the Recovery Act, many telecom companies are in line to be the beneficiaries. One such company is Elephant Talk Communications, Inc. (OTC Bulletin Board: ETAK). ETAK is the “supplier of choice” for telecommunications and content services for Business-to-Business customers. The majority of the Company’s business is in Europe and the Middle East; however, ETAK has negotiations in progress in the U.S. and has plans to “substantially” increase their presence in the U.S. during the current and subsequent years. ETAK could directly benefit from the Recovery Act and will also indirectly benefit with the boost of the industry as a whole. We estimate that the Company will have $15.1 million in revenue, which represents a 33% growth from 3Q08. The Company’s stock is trading at a discount near its 52-week low and looks to be steadily climbing. Just since our 3Q08 research update came out in December, the share price has increased almost 17%. Look for ETAK to continue to grow with the Recovery Act helping the industry. We have set a 12-month price target of $1.25 for ETAK which represents a 79% growth opportunity. ETAK is a long-term growth investment with many exciting prospects.