While Qwest (NYSE:Q) and Verizon (NYSE:VZ) dominate the headlines with their continuing and competing bids for MCI (NASDAQ:MCIP), a host of smaller telecom firms are focusing on rural niche markets, where the competition is a bit less fierce and customers don't have as many incentives to switch.

With that intro, cue up the applause for Alltel (NYSE:AT), which announced a solid first-quarter earnings report last week, with income from continuing operations up 15% and sales up 8% from increases in wireless sales and broadband expansion.

It's important for Alltel to nurture the wireless business, but I was also impressed with the performance of the wireline business, which is expected to slowly decline. It did just that, with sales declining by 1%, but the wireline margins are still very robust. And the longer Alltel is able to keep such high-margin sales in place as it ramps up the wireless business, the better for the business and for shareholders. This is where having more rural operations is an advantage.

Important to the livelihood of the wireline business is signing up customers for broadband services via DSL. Here Alltel showed continued improvement by signing up 39,800 customers during the quarter, to bring the total to nearly 300,000 customers. According to the company's 10-K filing, approximately 1.9 million of Alltel's customers live in areas where the company offers broadband, so there is still room for more growth and, in turn, retention of wireline revenues.

Changes in regulation are always a concern for incumbent local exchange carriers (ILECs); however, Alltel has done a great job of positioning itself and containing costs. It also pays out a dividend, which is lower than the 3.2% when Mathew Emmert initially recommended the shares last year to Income Investor subscribers, but still stands at a nice 2.6%.

At today's prices, the shares and the yield are not as attractive as they were a year and 21% in gains ago, but they aren't overvalued. As long as the business continues to perform well and the regulator environment doesn't materially change, shareholders should be able to enjoy slow but steady increases in earnings and dividends.

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Fool contributor Nathan Parmelee has no financial interest in any of the companies mentioned.