The business of rural phones can be very cash generous or cash gobbling. Here are two that pay you -- and two that won't.

If you were to look at your monthly checks that you cut to companies providing communications it might end up being a bit of a shocker of a total.

All of us have expanded our demands to be able to speak with...text to...email with...plug into...as well as receive ever more entertainment and other content.

And we want all of it, all of the time. In our offices, homes, on the road, on planes, trains and every other place. And if we can't get and keep connected,  well, we won't be happy campers.

Turns out we're also willing to pay for it.

Over the past 15 years, communications and related content delivery companies have seen a continuing surge in services demanded and paid for by consumers, businesses and other organizations of every stripe. Think about it: Back in the early '90s you had basic landlines, possibly a cellphone the size of a small brick and, perhaps, cable.

But now, you likely have landlines...multiple cell phones...smartphones...data  connections for your laptop as well as for your homes...and cable, satellite and  many other subscription services that quickly add up to hundreds of dollars a  month for households.

And for businesses - the bills very quickly run into the thousands or even many thousands each and every month. From the early '90s through the last current  calendar year, the growth in spending has soared by nearly 200 percent on a  national average as tracked by the US Bureau of Economic Analysis (BEA)

Telecom Business Dynamics

This is an interesting industry to be in. For there's cash, lots of it - and that cash keeps coming in month after month and year after year, making for a very nice and steady stream of revenues that you can bank on to build and maintain a lucrative business.

But there are challenges. You have to keep investing in capital expenditures to maintain the services that you have - while also investing to build and expand to meet new and increasing demand for services. And in many markets, there are plenty of competitors just itching to poach some of your very nice cash cow customers.

Running a business in the communications world therefore comes down to maximizing revenues while controlling costs and keeping and building customer bases.

Profits in Out-of-the-Way Places

There are markets that have plenty of steady customers - but with less direct competition. Rural areas around the nation offer different market conditions than urban centers. Fewer providers means less competition and not only potentially better pricing power - but also customers more likely to stick with their current provider. For well-run rural telecoms, that spells more certainty that the cash will keep coming in not just over months - but years.

And there is an added benefit: Uncle Sam Incorporated is eager to see rural markets better served.

Back in the Franklin Roosevelt Administration, the US Department of Agriculture - and its Rural Development Division - began a major public investment to provide a host of utility services to households and businesses that were underserved by private companies more focused on urban areas.

With Uncle Sam providing underwriting and cash subsidies, rural  communications providers sprung up around the nation - often in the form of local operations. This continues through today, and has even expanded  considerably in recent years.

In 2005, the government broadened its mission to subsidize not just landline and wireless - but also higher-speed or broadband data transmission capability throughout the rural markets of the US.

And in the recent additional expenditures, including chunks of the Stimulus Package Legislation - billions upon billions of Uncle Sam cash is continuing to flow to companies providing and expanding communications in rural areas.

So, the bottom line is that this is a market that has lots of steady customers  and lots of Federal cash and credit to keep it going and expanding.

The result has been a move toward consolidation of many of the local companies serving rural markets. Over the past several years, companies have gone public and have acquired local service providers. In addition, in markets where the major Baby Bells have been operating, rural-focused companies have been buying out local rural services as the Baby Bells have been increasingly focused on what they see as their core markets in urban areas.

What Makes a Good Rural Telecom?

I got involved in this market years ago as I recognized that there were plenty of these companies that were operating good businesses with lots of cash - and were paying out large cuts to investors.

But like with any industry or market - even good ones like rural services - it comes down to finding the right companies rather than just the right segment.

The key to investing in the right company comes down to finding management teams who maximize cashflow while controlling costs. And who are selective about doing acquisition deals.

In addition, the number of landline customers is contracting around the nation, in both urban and rural markets. With alternative communications products and services available to customers, every telecom company, including rural providers, has to make up for losses of landline revenues with growth in other products and services to keep the cash coming in.

This comes in two ways. First, add additional services - from wireless to higher-cost data, entertainment and media services. Second, buy up other markets at a faster pace than what is being lost to declining demand for landlines.

The first is harder. For it involves improving services and sales as well as making additional capital expenditures. The second can be easy in the shorter term, but it comes with lots of potential downsides - including overpaying for customer bases and the costs of integrating the acquired customers into the existing businesses.

Two Rural Telecoms Stocks to Buy

There are two companies that continue to prove out on both approaches and two that should be avoided.

On the buy side, there's Otelco (NSDQ: OTT) and Iowa Telecommunications (NYSE: IWA).

Otelco is based in Alabama and has operations in rural markets in that state as well as in central Missouri, select areas of Maine and Massachusetts and West Virginia. The company is a cost container - one of the better ones - and it continues to grow overall revenues by an average annual rate of over 20 percent. Margins are fat with gross running in the 63 percent. And more importantly, the company keeps lots of cash on hand and controls debt, with debt-to-assets running at only 76 percent.

For investors, the company's shares are structured as an Income Deposit Security (IDS) in which each share is made up of one common share of stock and one intermediate corporate bond.

The dividend is made up of cash from operations paid to the common stock  and the interest payment to the bond. That gives us a lot more certainty and security of the dividend - while also continuing to focus management on serving shareholders.

Paying a steady dividend of 42 cents - the yield is running in the 13 percent  range - Otelco should continue to be bought under 16.

Iowa Telecommunications operates as its name implies - throughout the state of Iowa. It has a decline rate in local landline services running at an average annual rate of 3 percent - yet, like Otelco, it continues to ramp up additional data and bundled services both to households and, increasingly, to business customers - resulting in overall revenue gains in these complementary and offsetting services amounting to average increases of 20 to 40+ percent.

And also like Otelco, it's a cost controller with heavy gross margins in the 60 plus range and less debt with debt-to-assets running only in the low 60 percent range.

This well-focused rural operator pays steady every quarter and has kept paying 40.5 cents giving you a yield from its regular common stock of justshy of 13 percent. It's a buy under 16.

Rural Telecoms to Run Away From

On the sell or avoid side, there's Fairpoint Communications (NYSE: FRP) and Frontier Communications (NYSE: FTR).

First on the sell side is Fairpoint. It's been on the sell side from me for the last few years, stemming from a grave departure by management away from shareholders.

This company continues to be more focused on acquisitions rather than local business growth. The results have been that the company has entered into a series of deals that have come at too high a cost and have resulted in a debt strain that potentially puts the company at risk for bankruptcy.

Two deals in particular are responsible for the continued slide. Both have been bought from Verizon - one in Maine and the other in Vermont. In both cases, the company failed to do enough diligence to determine what they really were buying, which included antiquated switching systems and, unfortunately, only a portion of the business customer base.

Adding to the troubles were local union leaders who saw the deals as threatening their power. With Verizon, the unions could always threaten other major markets to get want they wanted. But with Fairpoint, this leverage would be reduced.

The resulting union-inspired campaign against the deals attracted interest from the local Public Utility Commissions, resulting in Fairpoint making major concessions - including cutting back on dividend distributions.

Now, as the deals have been done, revenues are lacking and capital needs are outstripping the ability of the company to fund them. Dividends are now suspended and debt rating agencies are finally weighing in with downgrades  and negative outlooks. Fairpoint Communications should be sold or avoided.

The other sell side rural operator, Frontier Communications, has been following a similar and increasingly aggressive deal making campaign over the past few years. And while not currently as financially challenged as Fairpoint has become, Frontier's debt load - particularly with maturities in the next couple of years - will be challenging to roll over.

And with local landline business attrition, Frontier's other services are not expanding as rapidly as Iowa and Otelco have been able to generate. This puts its dividend further in jeopardy and is why I am recommending selling and avoiding Frontier Communications.