Dialing Up Profits In Regional Telecom

The immense growth in the wireless services and handheld mobile industries has put the major telecommunication companies in the spotlight. Big players like AT&T (NYSE:T), Verizon (NYSE:VZ) and Sprint Nextel (NYSE:S) have been battling one another for market supremacy in the "new" telecom industry. On the other hand, regional firms have grown their customer base in the more traditional land-line business while still being able to participate in the wireless realm.

While the focus of most investor attention is on those big familiar names, we're going to show some love to some regional players that investors looking for exposure to telecom should consider taking a look at.

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Big Dividends
The first regional on the list comes in at a whopping 10% dividend yield. Frontier Communications (NYSE:FTR) is a Connecticut-based telecom provider which struggled to gain any real momentum with its shares in 2010, currently down about 3% YTD. Much of this has to do with earnings, which have fluctuated from a large miss in Q4 2009 (estimated: 15 cents, actual: one cent) to a minor earnings beat in Q1 2010. Going into Q2 earnings, which will be announced Aug. 2, it's really anyone's guess whether they will hit the 16 cents consensus estimate -judging from their up and down earnings in the past year.

Frontier, however, has some definite good news going forward, as the company was given FCC approval to purchase roughly 4.8 million rural phone lines from Verizon for about $5.25 billion in stock. This purchase gives Frontier a good market share and allows the company to grow its reach throughout Middle America. The deal is expected to close on July 1. As a result of the purchase Fitch recently upgraded Frontier's Issuer Default Rating from BB to BB+, a clear sign that the company's future looks stronger as a result of the deal. Depending on how Frontier fares on the earnings front next month will go a long way in determining where the stock goes for the rest of the year.

Other Regional Options
Denver's Qwest Communications (NYSE:Q) is a major player in the western part of the country and has seen its share price run-up a 27% gain since January. Qwest trades at a reasonable 14-times forward earnings and at a discount to sales. And like many of its regional telecom peers, Qwest offers up a sizable dividend yield of 6%. The company has also seen an increase in options activity as of late, most likely signaled when the share price crossed over its 50-day moving average a few weeks ago. Qwest could be an interesting stock pickup for investors looking for regional exposure with large-cap security.

Two other firms that might be of interest are CenturyLink (NYSE:CTL) and Windstream Corp. (Nasdaq:WIN). CenturyTel comes in with a yield of 8.6% and trades at a P/E of about 12.25, a shade cheaper than some similar-sized regional telecoms. Windstream also pays out a sizable dividend of 9.2%, and is expecting strong growth in the coming year. Windstream also recently completed the purchase of Iowa Telecom for a reported $1.2 billion in shares and cash. The acquisition gives Windstream some market share in Iowa and Minnesota.

The Bottom Line
Investors that can see past the big names in telecom to some of the stronger regional players have an opportunity to catch some growth with these reliable businesses. (For more, see Dial Up Choice Telecom Stocks.)

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