While Verizon's CEO and the new AT&T chief commanded the big stage at NXTcomm in Chicago three weeks ago, a panel of independent telcos took to the stage at the co-located Stifel Nicolaus Investor Conference to discuss their growth plans.

Jeff Gardner, president and CEO of Windstream; Michael Prior, CEO of Atlantic Tele-Network; and Steve Oldham, president and CEO of SureWest, were prompted by Chris King, vice president of Stifel Nicolaus, to be as forthcoming as leaders of public companies could be about their merger and acquisition (M&A) strategies. They also discussed their philosophies on IPTV, wireless bundling and what changes in the regulatory arena might make life better for rural service providers.

Being the guy with the most zeroes in his revenue stream, Gardner went first and made it pretty clear that he and his management team would not jump through hoops to meet the expectations of anyone but shareholders and Wall Street. Those hoops included IPTV and the quadruple play, neither of which Gardner feels are necessary right now.

Windstream has only been operating separately from Alltel for about one year, and Gardner has other priorities. “We're focused on how to change the organic trends of our business,” he said. “We're really trying to transform Windstream from a voice business to a broadband [business.]”

By the end of the year, the company will reach 83% of its customer base with broadband, albeit at varying speeds. With $3.2 billion in top line revenue, Gardner said the company will focus on finding new distribution channels, saving customers from defection and advertising more aggressively. It will continue to invest $400 million in its network annually, but that investment won't be going to fiber expansion and IPTV.

Windstream already has 1 million subscribers to its EchoStar service through one partnership that to Gardner “made the most sense financially and allowed us to get into the video business.”

The other video option, IPTV, is still an unproven entity. “We still have trouble looking at the long-term economics of fiber in our rural markets, and I don't think our investors want us to go out and make unnecessary investments,” Gardner said.

But some investments are necessary, especially for a company losing thousands of access lines per month, even if its line loss rate is among the lowest in the business. Those investments would be in more access lines. Windstream recently announced its “small” $585 million acquisition of CT Communications, where it will pick up 158,000 access lines and 29,000 broadband subscribers in a South Carolina market adjacent to its existing territory.

Gardner said current market conditions favor more M&A activity. “There has been very healthy activity over the past 12 to 18 months. There haven't been huge deals, but they have been meaningful,” he said.

He added that the M&A environment has been healthy for two reasons. First, regulatory policy today is favorable to mergers and, second, the [capital] markets have been good as well. But the drivers behind this activity are scale and lower cost structures, and you can't have one without the other, Gardner said.

“When we do these transactions, we realize very good synergies. And the one that can realize these synergies is the one who gets the deal,” Gardner said.

The synergies Windstream anticipated from its merger with Valor at the time of its spinoff from Alltel were fully realized by the end of last year and accounted for 10% of revenue for Windstream. Despite its success so far with realizing synergies, Gardner insists his company will be selective and strategic when looking at further activity.

Atlantic Tele-Network is in the game of making acquisitions. It's a consortium with CLEC assets in northern New England, a wireless business in the U.S. and a telephone company in South America. It is a holding company on the lookout for “assets in the cracks where other guys can make the [business] case,” Prior said.

He said there are three factors driving M&A activity in telecom: the synergies of consolidation, a permissive regulatory environment and significant availability of capital.

“When you have all this capital, things happen, and those that can make it happen will take advantage,” Prior said.

As a holding company, Atlantic Tele-network can't necessarily take advantage of the synergies that merging companies can. “We are as opportunistic and return-minded as anyone else, but we have to come at the value of a deal a little differently. We don't have big operational synergies, so we look for underserved markets and under-[funded] companies,” Prior said.

However, he cautioned that in 12 months, the capital markets could change, and the environment for M&A would change. That's part of the reason companies are striking while the iron is hot, but Prior said investment in infrastructure is just as important. He said more certainty in the regulatory environment would encourage investment.

“I am not sure making it easier for large-scale consolidation is the answer,” Prior said. “The driving decision should be living and working in a market, and adding certainty on the subsidy side would encourage investment.

SureWest's CEO can't wait for the certainty hoped for in Universal Service Fund (USF) reform. “USF reform will happen, but it is not influencing our decisions. We're looking for synergies now, rather than perpetually counting on USF subsidies,” Oldham said.

SureWest is considered fairly cutting-edge among independent telcos. It believes in the power of bandwidth to produce new revenue streams. It is 100% DSL-capable for its 125,000 access lines and 100% fiber to its 100,000 CLEC customers. Its goal? One hundred Mb/s to every household and more to every business.

Oldham said M&A activity should continue. “There is a lot of money out there looking for a place to nest,” he said. “And the cost of doing deals is historically low. So the fundamental reasons for looking at deals won't go away.”

Because of its fiber buildout, SureWest may have a higher cost structure than some, but Oldham said that the revenue opportunity for every customer is substantially higher. King suggested such an advanced infrastructure might make SureWest an attractive property to others looking to acquire. Oldham, clearly recognizing the possibility, simply said that either way, the company is positioned for growth.

“We clearly think the platform we have built is repeatable in other geographies. We have been to the school of hard knocks with IPTV, and our expertise is very transferable,” Oldham said. “We also believe we can edge out on our own and escape our existing footprint. We believe we can replicate our success elsewhere. There is plenty of room for growth for us alone, despite our size.”

Panelists agreed that leveraged buyouts in the industry may continue and even accelerate, but, as Prior said, telecom service providers are not typical targets for private equity firms. “Look at Alltel,” he said. “That kind of leveraged buyout looks good on paper, but technology changes, competition changes, and it can encumber you pretty quickly” (see story on page 6).

The environment for M&A will likely remain favorable as long as regulators believe it will drive broadband deployment and adoption. Gardner said regulatory policy can impact activity either way. “Today it is favorable, and our interests are 100% aligned with state regulators because our goal is to drive broadband out to customers as soon as possible,” he said.

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