Farm Aid

To some captains of high-tech industries, rural communities still seem like windows into the past. Or at least a simpler way of life.

But that view assigns the denizens of rural America the status of simpletons, clowns in the courts of aristocrats. Visiting rural America with such a view won't win you any friends, even in such places where courtesy is perhaps the most valuable natural resource. It may just win you a briefcase full of manure. Rural America is fast transcending quaint pictures of the past. It's joining the era of advanced and competitive telecommunications, not so far behind what the big city has to offer.

Heading into the 21st century, to be rural is to be wired. Or even wireless.

The progress is largely due to the efforts of rural public network operators that have realized they want to keep up with change, and even drive the pace of change to redefine the character of rural life. Increasingly, their customers feel the same way, right down to the pig farmers, police chiefs and storefront accountants.

It has reached the level of expectation, especially as high-tech-loving city dwellers have escaped the city's lesser charms for the considerable charm of country life. Busy professionals who use the Internet every day and perhaps many times per day. Potential telecommuters.

The promises of rural operators to meet the advanced needs of these newer customers, as well as the new needs of their existing customers, has won them respect in financial quarters. Rural is a good bet.

"We've seen a new service need developing among the rurals," says Rob West, senior VP of the telecom division at Denver-based CoBank. A rural cooperative financial institution chartered by the U.S. Farm Credit System in 1916, CoBank caters to different commercial industries working to better rural America's various infrastructures.

CoBank helps rural telcos fund acquisitions, both of line bunches and of other companies. It also provides funding for rural telcos building new infrastructure. Activity has been rising.

"There has been more loan volume. It's been very good," says West. "Things have been progressing on a very profitable and risk-averse basis."

The trend partly reflects the Telecom Act, the acknowledgement that competition will come, even to small markets (see story on page 20). However, the rural market action started several years before the act, West says. Around 1992, many Bell companies and larger ILECs began selling off their rural line bunches. Some were trying to focus on their larger more populated markets in anticipation of competition. Others were attempting to raise money, selling less profitable rural lines to help fund new technology investment in other markets. Nothing personal, just business.

West: "The big ILECs are exiting rural markets. It's something that [ILECs] have done every couple of years since and probably won't change. They sell lines at these intervals because the market just can't swallow everything at once."

When the sales happen, however, rural telcos try to swallow as much as they can. In a recent CoBank-assisted deal, Scott Telephone of Minnesota acquired $65 million worth of rural lines from U S West.

These rural companies are not content just to acquire lines and start collecting bills. "They need to remain relevant in the future in regard to a lot of different services," says West. "They have to position themselves to be formidable service providers in their communities." This means investing in Internet, broadband wireless and other technologies to support advanced services at an aggressive pace. It's been aggressive enough in some markets that many CoBank employees already telecommute from the homes in rural areas.

In another market outside Houston, a rural operator is using a few million raised by CoBank to install advanced infrastructure to support a planned upscale housing community.

There is another motive, though, for pushing the envelope. Post-act market realities may be bringing new carriers into lower-tier markets, but the carrier natives of these markets see it as an opportunity to turn the tables.

West cites "the donut theory." The donut hole: An urban-based ILEC has a grip on the communications business in the highly-populated economic center of a particular market. But outside that donut hole is the chewy deep-fried goodness, er, the market presence a rural operator has patiently amassed through line acquisition, corporate acquisition and good old marketing.

"It's not that expensive or difficult to move right into a new market," says West. Another banker with a different firm calls this an "attack-from-the-woods strategy."

Whether it's CLEC business objectives or bringing new technology down to the farm, rural telcos are positioning themselves to keep up, and rural-focused finance firms such as CoBank stand to reap what's been sewn.