Embarq Corporation

Ever since the government-imposed breakup of Ma Bell, the proliferation of geographically dispersed companies that have spawned and re-spawned in the intervening period have confused and infuriated customers. Prices have certainly fallen for all manner of data and telephony services, but it remains unclear whether or not the breakup played any significant part in that.

Embarq Corporation is the largest independent local phone service provider in the nation. It has customers in 18 states, although its largest customer base is in Las Vegas, Nevada. Embarq's balance sheet is weighed down by the more than $6 billion in debt that was transferred from Sprint Nextel when Embarq was spun off from the parent company. On a company with revenues of only $6 billion, the debt burden is quite significant.

Embarq faces highly limited competition in its core markets. While cable companies and new entrants like Vonage have sought to get into the highly lucrative local phone service market, any weakness from increased competition is easily overcome by the introduction of new high-speed data and wireless services. Almost all customers have much higher combined phone bills today than just a few years ago, and even though they consume much more services, Embarq is also making much more money.

Embarq Corporation is one of the larger local exchange carriers, but the company is heavily weighed down by debt. Telecommunications is finally coming around after years of lethargy, and Embarq will certainly ride that wave. Nonetheless, high debt keeps stock symbol EQ a hold in even the best of circumstances. Most portfolios should underweight Embarq in favor of the larger Baby Bells or wireless and cellular communications providers.