Broadband Penetration

Broadband Penetration: 7 Ways to Profit From Our Biggest Infrastructure Need

by David Fessler, Advisory Panelist, Investment U
Friday, November 14, 2008: Issue #886

As is usually the case, I’m sitting here writing from my comfortable home office in rural northeast Pennsylvania. I often marvel at the fact that even from my remote location, I’m able to do research and submit copy over a broadband connection.

Of course, 20 years ago we never would have thought of broadband penetration as a necessary component to our nation’s infrastructure. Back then most of us interacted with our televisions far more than with our computers.

Now, it’s hard for most of us to imagine life without a high-speed Internet connection, especially if you work from home as I do. For millions of Americans, broadband is the enabler for telecommuting, giving many more options when it comes to who to work for and where to work. Most homes are quiet environments with limited distractions, and generally result in higher productivity than their noisy company office counterparts.

It wasn’t too many years ago that I was saddled with dialup. Trying to be productive with a dialup connection is like trying to type with your nose. It can be done, but it takes a lot longer…

Broadband Penetration Across The United States

It is somewhat ironic that the most powerful nation in the world ranks twenty-fifth when it comes to broadband penetration. Indeed, only a little over 50% of American households have high-speed Internet connections. Compare that to South Korea, which has a broadband penetration of nearly 90%.

Before you fault the U.S. Congress, know that there are no less than three broadband expansion bills that were introduced in 2007. While there has been much debate (hot air) regarding a national broadband initiative, Congressional action hasn’t been forthcoming. What a surprise…

But if President-elect Obama has his way, every household could soon have the opportunity for a high-speed hookup. As he states on his website: “America should lead the world in broadband penetration and Internet access.” He thinks we should provide “true broadband to every community in America.”

If Congress and the new President are searching for a broadband penetration model to work from, they need look no further than one of America’s own states: Kentucky.

Broadband Penetrates Kentucky By 95%

Just a few years ago - 2004 to be exact - only 60% of Kentuckians had access to a broadband connection. Three years later 95% had access… an increase of 60%. But this didn’t just happen by accident.

“ConnectKentucky” is the bluegrass state’s arm of the larger, national, non-profit Connected Nation. Widely seen as the national model for digital inclusion, Connected Nation promotes higher broadband penetration and adoption.

Although it initially targeted four states - Kentucky, Ohio, Tennessee and West Virginia - the ultimate focus is all 50. Connected Nation’s research states that every 7% increase in broadband adoption could result in the following benefits:

Job creation of around 2.4 million
Annual health care cost savings of $692 million
Annual fuel savings of $6.4 billion
3.2 billion fewer pounds of CO2 emissions per year
3.8 billion hours saved by accessing broadband from home
$134 billion in direct economic impact

If Connected Nation’s numbers are anywhere close to those above, President-elect Obama might just be on to something. Of course, this gargantuan task translates into some real investment opportunities on this side of the fence.

7 Ways to Connect to Broadband Penetration Profits

One way to play the broadband penetration build-out is via specialty chipmakers that supply chips to the equipment companies. The following four companies all specialize in producing broadband chips:

Broadcom (Nasdaq: BRCM)
Conexant Systems (Nasdaq: CNXT)
Texas Instruments (NYSE: TXN)
Standard Microsystems (Nasdaq: SMSC)

Another way is via equipment makers like Cisco Systems (Nasdaq: CSCO) and Juniper Networks (Nasdaq: JNPR). Cisco and Juniper’s equipment - at the heart of all broadband networks around the world - controls many different kinds of Internet traffic and directs it to its final destination.

A third way would be via Corning (NYSE: GLW), one of the world’s largest manufacturers of optical fiber, optical cables and other hardware and equipment components for the telecommunications industry.

It’s clear that President-elect Obama has many challenges facing him once he sets up shop. But you can bet that this Blackberry-toting, tech-savvy guy wants to be connected everywhere he goes. And so do we.

Good investing,

David Fessler

Today’s Investment U Crib Sheet

Earlier this week, Dave - our resident infrastructure and energy expert - showed us how Obama could take a page from Roosevelt’s “New Deal.” In the full article, you’ll get seven ways to profit from the “new” economic fuel.

Dave also showed us two infrastructure companies that aren’t just surviving the current economic malaise: They’re thriving.

One of them, Airgas, produces specialty gasses and products used from dental offices and hospitals to construction sites. And this company is on fire, in a good way.

The other recession-resistant company produces specialty parts that aren’t found in your average hardware store. It supplies everything from nuts and bolts to just about everything else its customers - from manufacturers to institutions - need to keep the lights on. WW Grainger is a healthy infrastructure play that deserves a look.

These are the companies that we literally can’t live without, and that’s what makes them so important to a well-balanced portfolio.

With endless amounts of trash being produced daily, waste management companies are about as recession proof as you’re going to get. The surprising thing is how “green” they’re getting - and it’s not just the environment they’re improving. To get broader exposure to this ever-vital sector, here’s an ETF that focuses on environmental services.