In comparison, Verizon (NYSE:VZ) has a P/E ratio of 15.6, Qwest Communications International Inc. (NYSE:Q) (Q) trades at 12.8 times its 2008 earnings estimate, and AT& T (NYSE:T) , which suffered the worst last week, has a ratio of 12.1.

"This has been overblown for the rural telecoms," SureWest Communications (NASDAQ-NMS:SURW) ( SURW) Chief Executive Steve Oldham said in an interview with Dow Jones Newswires on Monday. SureWest (NASDAQ-NMS:SURW) is expected to post a loss this year.

The attributes that made telcos so defensive still apply to the rural players. Customers are more willing to stick to their landline phone service because wireless coverage is less ubiquitous than in the larger markets. They also see less cable competition than the Bells because the markets aren't always worth aggressively pursuing.

More importantly, they're insulated from dramatic economic swings.

"When the economy was running really hot - even though we had Las Vegas and Florida properties - you did not see us lapping our peers," Embarq Chief Financial Officer Gene Betts said during the Citigroup conference. "Logically, one shouldn't expect... to be dramatically different if the economy is softer."

Even with the dramatic decline in housing starts seen in northern California, SureWest (NASDAQ-NMS:SURW) hasn't seen a slowdown in consumer sign-ups.

"A slowdown in new housing starts has little effect on our ability to go after new customers," Oldham said.

In rural markets, fewer people have signed up for Internet service, providing regional telcos with room to grow.

"Although broadband penetration tends to be lower in rural areas of the country, prospects for growth appear excellent," said Dave Novosel, credit analyst for Gimmie Credit.

CenturyTel (NYSE:CTL) , for instance, reduced its bad debt expense through the first nine months of the year. The company has a penetration rate of 29% for high-speed Internet, and Novosel said that could rise to 40%.

Feeling Some Pain

That's not to say the companies are completely immune. Embarq reported a 50% increase in its bad debt rate to $30 million in the third quarter.

It also expects only 220,000 new customers this year and 180,000 to 200,000 in 2009, marking a decline from the steady growth of around 250,000 over the past five years, Betts said.

SureWest (NASDAQ-NMS:SURW) , meanwhile, saw its line loss widen after Comcast Corp. (NASDAQ-NMS:CMCSA) (CMCSA) unveiled its voice service in April. Like the other telcos, the company is offsetting the phone losses with more video and data customers.

Corporate spending is another source of revenue that could be at risk if the economic picture looks murkier, Gardner said. For now, however, there doesn't seem to be any sign of a slowdown.

If a recession hits, the rural telcos will eventually enter into it and come out of it later, according to King.

"It's a muted, delayed economic reaction," he said.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

-By Steven Russolillo, Dow Jones Newswires; 201-938-2205; steven.russolillo@ dowjones.com

    (END) Dow Jones Newswires   01-15-08 1136   Copyright (c) 2008 Dow Jones & Company, Inc.