Rural telcos doing better — but is it enough?

It’s a classic bad news, good news situation. The bad news: Independent telcos are losing value, at a pace of 12% between Jan. 1, 2008, and Jan. 1, 2009, according to a July report from Stifel Nicolaus.

So what’s the good news? That’s a much better performance than the larger Bell companies, whose value slipped about 30% over the same time frame, and a much better performance than the S&P 500.

Just doing better in a bad economy is hardly a goal, however, and certainly not what the Independents I’ve talked to have in mind. Most of them are pursuing new revenues — through advanced business services, wireless services or IPTV — considering how to help economic development within their service territories or worrying about wireline contraction.

But as Stifel Nicolaus also noted, rural access line revenue has a higher monthly average ($60 to $70 a month) versus Bell company rural lines. Rural telco margins run as high as 62%, and rural access line contraction has been slower, averaging 4% to 6% annually, while the Bell companies are losing 9% to 11% annually.

This all adds up to a higher valuation for rural telcos that may help them with investors in the near term, Stifel Nicolaus believes, because their stocks are still generally trading at prices below their value.

The one piece of serious fallout from the broadband stimulus discussion, it seems, has been a certain holding of breath where rural telcos are concerned, as everyone waits to see how the stimulus money is distributed and who benefits.

For most rural telcos, the core issues of finding new revenues and protecting a crumbling core from competition, particularly wireless replacement, are likely to remain once the stimulus money is spent.

E-mail me at carol.wilson@penton.com.