NEW YORK -(Dow Jones)- The rural telephone companies may have gotten a bum rap on fear that the telecommunications industry - once seen as a defensive sector - has become vulnerable to a slowing economy.

Investors indiscriminately punished the telcos last week after AT&T Inc. (NYSE:T) (T) blamed macroeconomic factors on a spike in customers not paying their telephone and high-speed Internet bills. Particularly hard hit were the rural players, but now some are saying the group - which pay even higher dividends than their larger peers - are a bargain for those seeking safe investments.

"Are they perfectly defensive? No. Are they more defensive than the Bells? Yes," said Christopher King, an analyst at Stifel Nicolaus & Co. "If we're entering a recession and they need telecom exposure, that's where they should be."

AT&T's (NYSE:T) comments forced Wall Street to question telephone service's status as a consumer staple, particularly as wireless substitution becomes a factor. But rural players still exhibit many of the qualities associated with traditional phone service.

The rural phone companies serve in smaller markets that are less affected by the wild swings in the economy. They also face less competition from the cable companies, which are busy battling the likes of AT&T (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) (VZ) in the big markets, or from wireless, where coverage is spottier.

Attempting to ease concerns, many regional phone company executives - speaking at the same Citigroup-hosted conference where AT&T Chief Executive Randall Stephenson made his comments - reassured analysts that the economy hasn't been a factor.

"Our core business has been steady throughout," said Jeff Gardner, president and chief executive of Windstream Corp. (NYSE:WIN) (WIN). "Remember we're in the rural markets. Our defensive nature is by design. That's what attracted investors to this space in the first place."

Big Deals In Small Places

The recent declines in the share price of the rural telcos make them cheap when compared with their larger rivals.

"These are companies that will generate an enormous amount of cash flow whether there's a recession or not," King said.

For the most part, the rural companies trade at a discount to their larger peers. Embarq Corp. (NYSE:EQ) (EQ) trades at 10.1 times its 2008 earnings estimate, Windstream Corp. (NYSE:WIN) (WIN) has a price-to-earnings ratio of 12, and CenturyTel Inc. (NYSE:CTL) (CTL) has a P/E ratio of 12.2. Iowa Telecommunications Services Inc.