Neutral Tandem: Uniquely Positioned in Telecom

Feb.19.09 | About: Inteliquent, Inc. (IQNT)

Sleeper Stocks… Are There Any Left?

Regular readers know I’m an old propeller head (retired engineer). As such, my focus has been on the energy, infrastructure and technology sectors.

Since the beginning of the year, I’ve been on the lookout for stocks that stand to benefit as a result of President Obama’s stimulus package, and the energy policies his administration plans to enact during his term as President. As investors – regardless of our political persuasions – we are looking at some exciting months and years ahead and some great opportunities. You can learn more about them here.

Tuesday I went searching for a “sleeper” stock. You know the type: a boring company that just sits there, making money, day after day, resistant to the recession. All while no one notices – that’s the important part. Hard to imagine I’d have any luck finding one these days. But I did.

The “Referee” of the Telecommunications Industry

I found a little-known telecommunications company that has a unique position in the industry. It provides the neutral interface between nearly every national and regional wire-line carrier, wireless carrier, cable company, and competitive local exchange carrier (CLEC).

If that sounds too much like tech-babble, let me break it down for you.

In the United States, we refer to the entire telecommunications system as the Public Switched Telephone Network or (PSTN) for short. It includes all the telephone switches and lines, regardless of which system or whether it's wireless or wire-line based.

Nearly all voice, data and broadband signals travel over the PSTN at some point in their journey. The problem arises when a telephone call or a broadband signal has to go from one carrier to a competitor. In the past, these guys didn’t treat each other’s signals very well. As signal switching and interconnections became more complicated, carriers had to deal with network blocking, network inefficiencies and expensive tolls from competitors.

All this had the net effect of stifling competition and customers bailing to competitors.

Enter Neutral Tandem, Inc. (Nasdaq: TNDM), the creator of the largest tandem switched network in the country. It currently provides tandem-switching capabilities to over 90 wireless, CLECs, cable and broadband providers terminating in over 391 million phone numbers.

Neutral Tandem’s network is, well, neutral. Every signal gets routed, switched and delivered to its destination as fast as possible, no matter where it came from or where it’s going.

Neutral Tandem’s lack of bias is critical to fostering the vigorous competition that has spawned the cheap telecommunications services we all take for granted. It’s virtually eliminated bickering among the major carriers, since once the signal hands off to Neutral Tandem it’s as good as delivered.

It’s no wonder that Investors Business Daily gives the stock one of its highest rankings. And in the last year, when most other stocks in the telecom space have been hammered in half or more, Neutral Tandem is up 2.5%. That’s better than 94% of all publicly traded companies.

And management recently guided its 2009 revenues above the consensus. How many companies have you seen do that lately? President Obama’s stimulus bill has plenty of money available for broadband network expansion, and I expect Neutral Tandem will be a direct beneficiary.

Given its position in the network, Neutral Tandem’s revenue stream is all but guaranteed… to keep on increasing, that is. Think about that the next time you pick up the phone.