WASHINGTON — Three years after opening the door to greater phone competition in cities, federal regulators are considering whether to do the same thing in rural areas, where experts say it costs more to provide phone service.
Several recent analyses--and a few rural phone company executives--suggest the rural phone industry is much healthier due to falling equipment prices and other efficiencies and may no longer need as big a share of the billions of dollars in subsidies it receives from federal and state governments.
One report, issued in May by the investment house Legg Mason Wood Walker Inc., claims that rural companies are more profitable than their urban counterparts and are viewed by some as attractive investments.
Last month, for instance, US West sold a collection of rural phone properties in Colorado and eight other states to Citizens Utilities for $1.65 billion in cash. And El Paso Telephone, which for nearly a century remained a closely held family business with about 2,000 phone lines, was sold to a Charlotte, N.C., investment firm earlier this year for an undisclosed amount.
Rural phone companies "have distinctive mixes of revenue and costs supporting higher revenue per line and superior margins, as well as relatively little competition and a favorable regulatory environment," said the Legg Mason analysis, written by Michael J. Balhoff.
Paul Shultz, director of communications for National Telephone Cooperative Assn. in Arlington, Va., said of the Legg Mason study: "They are probably right; some rural phone companies probably are a good buy."
Of course, it remains far more expensive to string telephone wire in sparsely populated areas than it does in urban neighborhoods, where new facilities are often built pre-wired for telephones and other communications services.
Edwin B. Parker, a Gleneden Beach, Ore., telephone consultant, has estimated that removing federal subsidies for rural telephone carriers could nearly double the rural residents' average monthly phone bill to $74.53 from $43.20.
The Federal Communications Commission later this year could alter that arithmetic as the agency moves to fulfill a congressional mandate to overhaul telephone subsidies.
The commission was ordered by Congress in 1996 to make the more than $20 billion in annual telephone subsidies explicit, rather than buried in phone companies' accounting statements. As part of that effort, the FCC has been analyzing the true cost of providing phone service--an effort that has already caused some long-distance carriers to add new phone charges that have boosted consumers' monthly bills by a dollar or more.
