What a difference 103 years make. When Clifton Forge Mutual Telephone Co. was formed in 1897, the telephone had only been in existence for two decades. At the time, phones were a curiosity, techno-gadgets for the wealthy. But patents held by Bell System, the company founded on Alexander Graham Bell’s work, had just expired. Spunky competitors were moving in fast. One of them was a tiny Virginia start-up, Clifton Forge Mutual, which quickly linked rural residents on the edge of the Shenandoahs to the rest of the world.

Today that phone firm’s successor, CFW Communications, is in the midst of change that is just as dynamic. The Waynesboro-based company is taking advantage of competition brought on by the 1996 Telecommunications Act, which allows phone companies large and small to penetrate markets unthinkable just a few years ago. CFW has been scooping up properties left and right, building a small but respectable telecom empire in the mid-Atlantic. To boot, it has changed its trade name to nTelos, which has a more 21st century ring than the initials of two small towns in the Virginia hills.

What gives? Rural phone companies never were a hotbed of competition. Until now. As fallout from the 1996 federal law, monopolies like Bell Atlantic were required to give competitors, many of them start-ups, wholesale access to their vast networks. Some start-ups stumbled financially, however, and took a drubbing on Wall Street. Meanwhile, small- to mid-sized phone companies outside major markets found themselves surprisingly well-positioned. They already had in place critical infrastructure such as phone lines and billing systems, not to mention decent cash flow. "Clearly, the big guys are facing competition in the primary and secondary markets," says Hank Buchanan, vice president of industry affairs for the Herndon-based Rural Telephone Finance Cooperative.

Right now, there’s tremendous churn as the midsize players gobble up smaller ones for better position and critical mass. They’re also plotting ways to move into metro areas. Companies that are near big markets are looking at using their existing resources as a launching pad to move into more densely populated areas. "Most of them, when they sit down and do strategic planning, that’s one of the options they look at," Buchanan says. Smaller carriers, meanwhile, are seeking ways to stay alive, such as partnering with others to shore up their strengths. Or they are buying up properties. Virginia is in the midst of "merger mania on our own small scale," says Earl Bishop, executive director of the Virginia Telecommunications Industry Association.

To get an idea of how crazy it can get, consider nTelos’ shopping basket. In May, it announced a $131 million acquisition of Daleville-based R&B Communications Inc. That deal is expected to close early this month. The company also grabbed PrimeCo personal communications service (PCS) — the generic name for mobile voice or data telecommunications service — operations in Richmond and Norfolk, giving it more than 150,000 subscribers for its wireless PCS. With recent purchases, its PCS licenses will now cover eight mid-Atlantic states and a potential customer base of 11 million. Its Internet subscriber base is growing. It sold off its directory-assistance operations in order to focus on wireless growth, and it’s building a $9.6 million customer-service center — its third — in Portsmouth to handle the increasing subscriber base.

Publicly traded CFW won’t comment on where it’s heading, citing a quiet period imposed by securities regulations. But in a press release, CEO James S. Quarforth says the transactions "will accelerate the combined company’s strategy of becoming a major digital PCS provider in the mid-Atlantic region." It may be at the forefront of diversification, with services including digital PCS, dial-up Internet access, high-speed data transmission, high-speed Internet access through DSL, and local and long-distance services. "Their strategy is to be what they and a lot of people dub an integrated provider," says Bill King, president of the telecom consulting firm JSI Capital Advisors of Manchester, N.H.

In the process, King says that nTelos is morphing from an incumbent local exchange carrier to a wireless company. Buying R&B, for instance, might make nTelos better-positioned to compete in the Roanoke Valley. "They’re well-funded, have some good partners, a top-notch management team and have put together some good assets. But the ability for them to survive as an island of coverage is a question. You either continue to grow big or you stay small enough to stay off the radar" of the bigger players, King says. Quarforth has said the company can survive on what the big players ignore, but King believes that ultimately the company will need to grow larger or team up with someone else.

Not all of the smaller players are taking their cues from nTelos. Some are selling to bigger operators. R&B Communications is among them. Another is People’s Mutual Telephone of Gretna, with 7,000 access lines, which sold to Charlotte, N.C.-based Fairpoint Communications. Fairpoint has been a leading consolidator of rural telephone companies, acquiring about 250,000 access lines during the last five or six years, King says. People’s Mutual may have been an attractive target because it’s just outside the Lynchburg area.

Even tiny rural companies that aren’t acquisition targets see the need to diversify their offerings. Their customers are putting on the pressure, wanting the products, price and service offered by bigger players. After all, rural-route residents of Highland County want to e-mail relatives in Richmond without having to dial long distance or suffer poor service. "They’re really coming into their own as an integrated service provider with a full package," Buchanan says. "Many rural telephone companies are [Internet service providers], offer long-distance as well as local, and in many cases even digital video."

Partnering has proved to be another tactic. Before the acquisition, R&B and CFW had teamed up on a number of projects. Shenandoah Telecommunications Co. of Edinburg (Shentel) is also big on partnering. Shentel provides long-distance and local service, cable TV, Internet, cellular paging, PCS, DSL, cable modems and even alarm systems. It was the first to link up with American Personal Communications, a pioneer wireless PCS license winner in the Washington-Baltimore market. "They affiliated with us to serve the western portion of their market area," says President Christopher E. French. Under the agreement, Shentel built and operated the network in its region and was thus able to get PCS service to its customers sooner. "We had to do all the tower work and installation work, and they provided switching off of their network." Then Sprint bought American Personal Communications, and the relationship continued. Sprint found that partnering allowed it to more quickly build a national wireless network without having to chase after capital.

Partnering is part of Shentel’s history. French’s father, for instance, orchestrated the concept of ValleyNet, a fiber-optic consortium of smaller telecom companies, including CFW and R&B. The companies linked their fiber-optic networks, giving customers in their service area better, faster transmission of voice and data. Shentel began its Internet service in 1994 by partnering with a Northern Virginia group with more expertise and infrastructure. "We started putting modems in place and growing the business and never turned back," French says. Shentel eventually ended up buying out its partners. To add value to its Internet service, the company entered into an Internet banking partnership with Strasburg-based First Bank. French serves on the boards of both companies.

Will Shentel continue to focus on partnering? "There are always going to be niche players, and I don’t know if any one strategy is necessarily the right strategy," French says. "Maybe it’s more important to always be open to new opportunities."

The pressure’s on to do so. "There are so many things happening to the industry in general that we have to diversify as much as we possibly can, if it’s feasible to do it. And sometimes it’s not," says Ronald Smith, president and general manager of MGW Telephone. Keeping up with the latest telecom offerings isn’t easy in Smith’s region, where the nearest neighbor is often a mile down the road. In more densely populated areas, capital costs per customer are potentially lower. His company covers 600 square miles in rural Augusta, Highland and Bath counties. The 10-employee firm serves only 1,500 customers, but it recently started offering Internet connections after customers complained about poor service from other providers.

With pagers, cell phones, cable, Internet accounts and wireless data connections, the boom will continue. Competitors are vying, not so much to provide the old standbys to new customers, as to provide an ever-expanding line of products and services to existing clients. Verizon spokesman Paul Miller started working at the company in 1973. "Virginia had just introduced the second area code. Now we’re on the verge of eight," he says. "The reason we’re introducing so many area codes is second and third lines. ... Even with competition we’re still growing." The company’s biggest hurdle in Virginia now, he says, is being allowed to get into the long-distance business. Without it, Verizon can’t offer the same comprehensive package deals as competitors. "Hopefully, in the not too distant future, we’ll be applying to offer long distance in Virginia. ... We have to demonstrate that our markets are open to competition."

There may be good things in store for the CFWs of the industry. While they’re still on the periphery of significant metropolitan markets, they have the cash flows, facilities and the size to effectively compete with bigger players. They can leverage existing resources to move into other markets. "Although it’s a long-term proposition, if they weather the storm, they’ll start to make money," King says. But they’ll have to continue to grow. "There’s a limit to what you can do in the Shenandoah Valley."

Meanwhile, CFW continues its march. It wants to remain a niche provider, just out of the sights of the industry giants. As President Quarforth has said: "As the big communications companies get bigger, and regulatory constraints are lifted, they will be less interested in the rural areas. So CFW can be healthy, growing on what the larger companies choose to ignore." Like remoras on the backs of sharks, the smaller telecoms can survive quite nicely on scraps.