Stock Gumshoe

This one has been floating around for a week or so, and if I’m right about the company that’s being teased it has already taken flight thanks in part, I expect, to the incessant marketing from Jonathan Kolber’s Emerging Capital Report. Whether it will stay up in the intermediate term, I don’t know.

But I’m getting ahead of myself: What is this company?

The teaser offers very few actual clues that are specific in any way, so it’s difficult to be sure that I’ve got it right. But I’ll provide an educated guess for you.

This is what we know about the company:

Kolber believes that the Sprint/Clearwire WiMax rollout is going to dramatically increase Wimax usage among consumers, and reduce the cost of the equipment as volume climbs. He thinks that will make it feasible to use this microwave transmission standard to provide broadband access in rural and exurban America, in the hinterlands where the “last mile” costs of running fiber or cable are very high.

He says that the company best poised to profit from this is one that already has WiMax experience and is providing some long range microwave-based broadband access now, and is already in rural america providing broadband access with other technologies. Their existing national presence in rural areas will help them to get customers, I guess, and provides them with infrastructure for billing and everything else.

And the only specific clue is that this was a $3.55 stock about a week and a half ago, and a $4 stock when the email was updated a few days ago.

So what do we have here?

As I said, I can’t be absolutely certain … but I think it’s

KeyOn Communications (KEYO, trades over the counter)

This is one of the larger rural broadband providers in the country, serving small and medium sized areas in 11 states, mostly in the West and Midwest. They’re headquartered in Nebraska, right in the middle of their served areas.

And the shares have been on fire lately and had a reverse split, so the shares are no longer at $3 or $4 — you could pick up shares at the close on Friday at about $11, following a week of gains, a 1-2 reverse split, and a 20% gain just on Friday as the split went into effect. So, if we ignored the split, the shares would be at about $5.60 at the moment. Not a bad week. In conjunction with the reverse split they also changed the ticker, so you’ll see some information about the company tied to their old ticker symbol KYCS if you want to delve deeper.

This is a very thinly traded and small company, of course — as are most that trade over the counter, and they appear to be quite a long ways from becoming profitable. Kolber says the firm has found a way to acquire customers in big chunks, and to get them for far less than the cable and large telecom operators have to pay, but that doesn’t necessarily mean they’re worth acquiring. Part of their advantage might be that the competition in their rural and suburban areas is not particularly robust.

So, if this is the company being teased, what is their future going to look like? I don’t know Jonathan Kolber, but I’ll accept the premise that he’s well connected in this world and knows a good prospect when he sees it … but if I were investing with my own money, I’d certainly want to delve into their financials, see how they’re going to finance what would be a very expensive buildout of Wimax in their rural markets (remember, even in the urban areas they’re focusing on Sprint/Nextel and Clearwire are planning to invest billions in building their networks).

And, of course, I’d want to look at the competition — this will compete with the existing broadband that’s offered to some of their areas, including some ISDN and satellite broadband, which are admittedly lower speed and, in the case of ISDN, geographically limited. It also means they’re potentially competing against the big wireless companies if they opt to provide their data networks in more suburban and rural areas, like Verizon’s EVDO network … and Qualcomm recently developed a chip that will allow users to hop back and forth on the various commercial high speed wireless networks, so that could potentially provide some competition as well.

Direct competition might also come from a new company, Open Range Communications (openrangecomm.com) that’s just formed with a big loan from the US government — if they happen to go after the same geographic areas. The federal government has a controversial program that has lent out massive piles of cash to various entities to build out broadband access in these underserved areas, so it’s not necessarily a clean market that will go to just the best service — there’s a lot of “free” money floating around out there.

Other info about KeyOn? They just did an offering to raise a bunch of cash, most of which they’re going to use to buy bandwidth and spectrum and otherwise try to expand. And I’m sure it will be ages and ages before they’re profitable … but still, if they do get reduced costs and a massively increasing market, maybe Jonathan Kolber will be right. What do you think?

The author will always disclose any direct long or short equity, debt or option position in any stocks written about as of the day of publication, and will not trade in any stocks mentioned for three days (72 hours) after publication. Full disclaimer is at the bottom of the page.

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