Monday, February 21, 2011

Cyan Optics' Third Broadband Stimulus Win Shows Program Spending in Ramp Up

Rural Middle Mile Stimulus Opportunity Seen As Program Spending Ramps 02/21/2011 San Francisco - Newsflash: The broadband stimulus program is actually working. 

Cyan Optics, Inc. last week announced its third sales win from a service provider using broadband stimulus funding to expand its network. The announcement follows on the heels of weeks in January when it seemed not a day went by that Calix (NYSE: CALX), also headquartered in Petaluma, CA, announced another sales victory financed with stimulus monies.

So, take that wacky Republicans in Congress, and us you other critics of the program. The often maligned effort is now ramping up. The velocity at which financing is flowing to awarded projects is now increasing, here in 1Q 2011. That financing translates into real orders for equipment, contractors, and professional services. It translates into jobs for Americans.

We of all people know of the faults with the broadband stimulus program. We've pointed to more of them than most. We think those problems have been too often ignored by program managers, by the Obama Administration as a whole, and members of our own party in Congress. A small number of very bad awards and bad actors are only now starting to be properly investigatedDelays in scores of projects are well known, as are (now at least a handful) of award declines as seen in the give back announced last week by what passes for state government in Wisconsin.  

Aggressive Small Cap Firms Target Broadband Stimulus Opportunity
But...although the data remains obscure, thanks to the Obama Administration's continuing hypocrisy when it comes to open or transparent government, the simple undeniable is fact that money is now finally flowing at an increasing rate. Cyan is an exemplar of small cap firms that during the past 2 years of the broadband stimulus program have identified the specific niches and opportunities created by the unprecedented federal spending in the sector.

Cyan is joined by Clearfield, Inc. (NASDAQ: CLFD), Calix, Calix's acquisition target Occam Networks, Inc. (NASDAQ: OCNW), and Infinera Corporation (NASDAQ: INFN) in the forefront of smaller equipment manufacturers that early on launched broadband stimulus support programs to assist grant and loan applicants through the daunting federal process.

Cyan's Win with Woodstock Tel
Last week's announcement by Cyan focused on the equipment contract awards issued by Woodstock Telephone Company, an independent telco operating company based in Ruthton, Minnesota. Woodstock received a $ 15.184 million grant / loan combination award from the Department of Agriculture's Rural Utilities Service (RUS), announced by Agriculture Secretary Tom Vilsack on August 4, 2010. The Secretary's statement that day marked the agency's largest single announcement of stimulus awards.  

Woodstock chose the gear maker's Cyan Z-Series™ of multi-layer transport platforms, CyMS™ multi-layer management system and its recently-announced CyNOC advanced Network Operations Center (NOC) service to expand their fiber network with two transport rings to support over 3,600 premises in 15 communities across 3 counties in rural southeastern Minnesota. Woodstock, which has offered cable-Internet-telephone triple play services for years, is using the RUS funding to extend fiber-to-the-home (FTTH) high capacity infrastructure those communities.

Cyan Wins Highlight Middle Mile Stimulus Market
Cyan is a maker of optical transport equipment, a product set targeting middle mile sales opportunities among what the company tells us a current portfolio of "over 50 service providers in the US and Europe." The previous 2 stimulus funded wins by Cyan have been issued by the  National Telecommunications and Information Administration (NTIA) of the Department of Commerce.  The middle mile market opportunities for fiber and gear makers has been documented by many of us over the history of the broadband stimulus program.

The Cyan contract with Woodstock Tel however reveals a little seen middle mile opportunity within announced last mile projects financed by the Obama Administration's initiative. Most analysts have seen the broadband stimulus world as largely bifurcated by NTIA and RUS. The majority of projects funded by the former have been large scale middle mile new builds (i.e. Massachusetts), or expansions of existing  networks, often quasi public systems (Missouri, North Carolina, South Dakota), or expansions by carriers. Certainly the lion's share of RUS monies have been for access networks, with the larger portion of those awards breaking for FTTH projects over wireless.

Cyan's Woodstock Telephone award demonstrates the middle mile network opportunity created by the rural telcos and cable operators now expanding both their served area footprints and their higher bandwidth offerings. Cyan demonstrates the important middle mile opportunity within FTTH project fundings, not all of which is devoted to the access portion of the network. 

"Cyan participates most actively in the 'middle-mile' or transport portion of these BBS networks," the firm's VP of marketing, Frank Wiener, told us late last week over email. "There is growing consensus that the middle-mile networks are among the most efficient and effective investments in achieving the objectives of these programs as they provide an infrastructure which supports all regional institutions and end users for far less than the  cost of actually deploying a dedicated broadband drop to an individual subscriber."

Clearly this middle mile niche is additionally driven by the exploding mobile backhaul market. "One of the biggest inhibitors of many local loop or 'last-mile' broadband deployments," said Wiener "has been the lack of middle-mile connectivity from the broadband edge networks which provide connectivity of FTTH, DSL or Wireless subscribers to the internet and other compelling content sourced globally."

Previous Cyan Stimulus Projects at Clearwave and NebraskaLink
Cyan won its first stimulus supported project with NebraskaLink, as announced last September 13. NebraskaLink, a consortium of 7 service providers, won a $11.5 million stimulus grant from NTIA to deploy "450 miles of newly constructed fiber", connecting upwards of 1200 anchor institutions, 85,000 households, and 8,000 businesses, according to the company press release.

On January 18, Cyan announced that it and Juniper Networks (NASDAQ: JNPR) were designated the "strategic suppliers of transport and routing solutions rrespectively" by the Clearwave Communications unit of Delta Communications, LLC. Clearwave won a $31.515 million middle mile grant from NTIA which was matched with $11.351 million from the State of Illinois broadband program.

We expect more announcements by Cyan of "bbstim" fueled competitive wins now that federal funds are moving, and with the foundation of 3 public awards in-hand to date. "We also continue to see many new projects which are yet to be awarded," Cyan's Frank Wiener told us. 

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