Despite sluggish economy, rural ILECs doing well, claims report

According to a new report from the Yankee Group, the relatively unknown rural ILEC sector has been surprisingly successful in the currently economy.

The Yankee Group's analysis of the publicly held rural ILECs revealed the following:

* The predominant coverage area for most of the companies in the rural ILEC sector is small towns and cities of fewer than 50,000 people.

* When the local phone monopoly segment of their overall business was broken out, the operating margins were on average 33%, a very high margin for the service provider industry. Overall margins for the rural ILECs, including all services and products they sell, were 16%.

* Over the last few years, the rural ILECs have been purchasing millions of phone lines from the RBOCS, such as Verizon. Analysts expect this trend to continue, resulting in the rural ILECs gaining considerable market share over the next several years.

* Including 8.3 million lines from Sprint and 1 million lines from Cincinnati Bell, two ILECS that serve rural areas, the Yankee group estimates that the rural ILECs control between 5% and 10% of the 268 million switched and dedicated phone lines in the United States.

"The low populations of the areas that the rural ILECs serve make it less appealing for other telecom service companies to come in and compete with the rural ILECs, whether they be other service providers, wireless providers, phone system vendors, or data service or equipment vendors," explains senior analyst Joe Gagan. "This enables the rural ILECS to control the customer relationship for most telecom products and services."

The Yankee Group (Boston) provides research, custom consulting, and one-to-one client interaction encompassing all areas essential to business success: the Internet, electronic commerce, communications, wireless, computing, and enterprise applications. For more information, visit the company's Web site at www.yankeegroup.com.