Citizens Communications (News - Alert) Co. probably illustrates both the challenges and strategic opportunities faced by independent telcos serving rural markets. Citizens has 2.387 million local access lines in 23 states, so it is one of the larger independents. It doesn't own a wireless network. It has lagged in digital subscriber line deployment, says Cindy Whelan, Current Analysis (News - Alert) senior analyst.

 

Citizens serves areas with relatively light business user density, so has focused primarily on consumer users and services. The company is losing access lines and had first quarter 2008 profit margins of 8.4 percent, down from 17.4 percent in the same quarter of 2007.

 

The company can expect reduced revenue from subsidies for serving high-cost areas as well. So what does Citizens do?

 

Focus on data services, for starters. Citizens is relying heavily on data and Internet services for future growth, and offers data transport options including fractional and full T1 lines, ADSL and SDSL, higher-speed connections up to SONET OC-48, as well as dial-up, DSL, and dedicated service for Internet access through its Frontier brand, says Whelan.

 

And though business density is low, Citizens also is ramping up commercial services. Frontier Business Class High-Speed Internet service includes a static or dynamic IP address, ten e-mail boxes with 25 Mbytes of Web space each, installation, and 24/7 support. Frontier offers ADSL service up to 12 Mbps download/1 Mbps upload in select markets.

 

Citizens has improved options and packages for small business users, and it has launched a business bundle for business users needing up to ten lines, says Whelan. Citizens has offered Frontier Small Business Advantage since 2006 for small office/home office users.

 

Small Business Advantage provides two business or Centrex lines with seven calling features (including voice mail), unlimited local calling, a block of national long distance minutes, and business high-speed Internet up to 2 Mbps downstream and 512 kbps upstream at a flat monthly rate.

 

Citizens launched Frontier Business Unlimited (FBU) bundles in September 2007 for business customers that require up to ten phone lines. FBU offers a flat monthly rate per line for local and national long distance calls, five calling features (including voice mail), high-speed Internet service, and a wireless router.

 

Citizens has also launched its “Frontier Peace of Mind” product suite, which is a portfolio of support services designed to manage the customer’s computer environment and protect the customer from catastrophic meltdowns.

 

Customers can opt for the hard drive back-up service for $4.99/month/PC; back-up plus tech support for $9.99/month/PC; or back-up, tech support, and inside wire maintenance for $12.99/month/PC. The carrier offers its Peace of Mind services to customers inside and outside of its service territories.

 

But there is additional upside for Citizens if it can operate in adjacent business markets that are more dense. The cable networks Citizens competes with overlap approximately 57 percent of Citizens’ access lines, and those cable builds are usually located in larger population centers, which have the highest concentrations of businesses.

 

Citizens wouldn't be the first independent telco to discover that it can grow fast if it starts concentrating on selling services to business customers in adjacent, higher-population areas with higher concentrations of business customers.

 

But Citizens won't be able to wait very long. Cable companies will start attacking the small business market in their areas in 2008, so Citizens probably will do best working the larger business sites.

 

One way or the other, it appears the commercial segment will be more important for most small independent telcos who operate adjacent to larger markets.