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Rural Telcos: The Steady Hand

There's a place where telecom remains a profitable business ruled by regional monopolies.

No, we're not talking Twilight Zone or flashing back to pre-divestiture. Within sixty miles of many U.S. cities, rural local exchange carriers (RLECs) are more or less happily escaping the downturn while delivering cutting-edge services to a growing roster of subscribers.

The RLEC designation embraces a combination of assets, including local phone companies, independent telcos, cooperatives, and even some rural CLECs. Five of the top RLECs are profiled in "Rural Telecom Stability," this month's Light Reading Insider, Light Reading's paid subscription research service (formerly known as Optical Oracle). The five are: In a detailed financial analysis, the report ranks the five according to a range of financial performance criteria, putting Alltel at the top of the list. It also isolates the differences between the RLECs and other kinds of carriers by comparing financial metrics of leading RLECs with those of leading RBOCs.

What emerges is a general thesis that the rural and independent telcos are more stable and more profitable than the larger incumbent carriers at this time. While their total spending in 2002 was in the $3 billion range -- quite small, compared with RBOC spending -- their outlay is reliable and predictable and therefore attractive to many players, especially startups.

A key area of expansion is access. Today, most of the areas RLECs govern are underserved by broadband. This has led to a range of technological deployments, mostly using DSL over copper, but also including passive optical networking, fiber to the home, and even satellite.

In order to grow and compete with multiservice operators, many rural and independent telecom companies are trying to build on the success of these services by offering the "triple play" of video, data, and voice.

An example is SureWest Communications (Nasdaq: SURW), whose approach to the triple play is profiled in the report. This RLEC is forging ahead with video-over-IP services that work over both copper and fiber. And like many rural telcos, it's evaluating equipment from a string of incumbent suppliers and startups in search of the right combination of voice, data, and video support in a small footprint.

The combination of stability and relatively positive outlook has captured the interest of many investors in the RLEC market. With a couple of exceptions (noted in the report), figures suggest that investors are willing to pay a larger premium to participate in the revenue growth of the three highest-ranked RLECs than they are for any of the ILECs or RBOCs. While that has its downside, too, it's a strong indicator of the mindshare this segment has achieved.

— Mary Jander, Senior Editor, Light Reading

The current Light Reading Insider report, “Rural Telecom Stability,” is available here. A single-user license to the report is $400. Annual single-user subscriptions to the Insider, which include access to the complete archives, the current report, and each of the monthly reports issued over the next 12 months, is available for $1,250 per year.

USA 12/5/2012 | 12:12:45 AM
re: Rural Telcos: The Steady Hand What ever happened to the acronym IOC (Independent Operating Company), that we have used for years?
mrackin 12/5/2012 | 12:12:02 AM
re: Rural Telcos: The Steady Hand It probably was taken out of use because of threats from the infamous International Olympic Committee!
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