Sector Snap: Rural local exchange carriers

An Oppenheimer analyst said Wednesday he is taking a more cautious stance on shares of rural local exchange carriers because of regulatory concerns.

Rural local exchange carriers are local phone companies that serve mostly rural areas.

Analyst Timothy Horan wrote in a note to investors that the Federal Communications Commission's ongoing Universal Service Fund audit could affect rural carriers throughout the sector.

The service fund subsidizes phone service for rural and low-income customers through a surcharge on almost all long-distance bills. Horan said the FCC is conducting about 400 audits as part of the campaign, up from 50 last year.

"We believe RLECs involved in improper accounting practices are primarily small/private companies, but impact on (free cash flow) and dividends would be felt throughout the sector," Horan wrote.

Among telecom stocks, shares of San Antonio-based AT&T Inc. slid 26 cents to $34.46 in late morning trading, while New York-based Verizon Communications Inc. fell 38 cents to $35.51 as the broader market also declined.

Shares of Overland Park, Kan.-based Embarq Corp., meanwhile, fell $1.88, or 4.1 percent, to $43.96. The stock has traded between $38.28 and $64.54 in the past year.

Little Rock, Ark.-based Windstream Corp. fell 35 cents, or 2.7 percent, to $12.77. Shares of Sprint Nextel Corp. slipped 14 cents to $8.20. Monroe, La.-based Centurytel Inc. fell 85 cents, or 2.6 percent, to $31.58, near its 52-week low of $30.55.