Iowa Telecommunications Services Inc. is rolling out its high-speed Internet services, sometimes at the rate of one or two towns per day, chipping away at the one-quarter of the state that still lacks access to some form of high-speed Internet connection.

The Newton-based company, which made its initial public offering of stock in November on the New York Stock Exchange, serves more than 400 rural communities across Iowa. According to Alan Wells, Iowa Telecom’s president and chief executive officer, since the company began in 2000, it has implemented a series of upgrades to its service areas, culminating with its $17.4 million initiative, Connect Rural Iowa, to provide digital subscriber line service in each town it serves by this summer.

“Nobody we served had DSL service or, in some cases, any kind of Internet service until we came along,” Wells said. “We made it a priority to bring dial-up to all these communities from the very beginning, and now we’ve brought DSL to about 160 towns. I’m proud of the fact that we’ve had a significant positive impact on development throughout the state, particularly in small towns.”

According to a report released last month by the Iowa Utilities Board, about 73 percent of Iowa’s rural communities had some sort of high-speed Internet access as of mid-2004, up from only 28 percent in 2000. Still, the Federal Communications Commission’s data shows Iowa is still a technological laggard; it’s second only to South Dakota in the percentage of ZIP codes where no high-speed Internet access is available. Wells said Iowa Telecom recognizes the important role DSL service can play in economic development in the state’s rural communities.

“We want to make sure that there is nobody who decides not to locate a business in one of the communities we serve because of telecommunications,” Wells said.

One reason Wells said Iowa Telecom feels strongly about equipping its service areas with the latest technology is that the company’s profitability is directly linked to how many people live in those areas.

“We’re pretty tied to the Iowa economy,” he said. “We’re only located in Iowa, so as Iowa grows, we grow, and vice versa.”

When Iowa Telecom began in 2000, some towns in its service areas did not even have dial-up Internet access. Prior to Iowa Telecom, these communities were served by GTE Midwest Inc., a Dallas-based telecommunications company. GTE had not invested much in its Iowa business, Wells said.

“Most of the decisions about what was going to be invested in Iowa came from people who had never been here,” Wells said. “A lot of our technicians across the state probably saw GTE in Iowa as a forgotten outpost. It’s no longer that way. We’re an Iowa company. It’s a lot different when all of our employees live here and have pretty strong ties all across the state.”

As Iowa Telecom updated its network and brought more services to the communities it serves, it also had to look at how to position itself for the future. Wells said becoming a publicly traded company seemed like the best way to pay off debt and generate capital for growth.

“We knew that our existing shareholder base – private-equity folks who had invested – had an interest at some point in time of exiting their investment,” Wells said. “We always saw the public market as being a good way to both facilitate their exit and position us for the future. The market was right, so it looked like the right thing to do at the right time.”

Iowa Telecom, which trades under the ticker symbol IWA, made an IPO of 19.1 million shares of common stock at $19 per share. A strong public response to the sale promoted it to offer another 2.9 million shares. The company’s founding shareholders – Iowa Network Services and FS Private Investments of New York – sold 10.8 million shares, and from the rest of the shares sold, $146 million was used to pay off some debt. Of the remaining cash, a majority is being returned to shareholders in the form of dividends.

“One of the nice things about stock is that we anticipate paying a pretty good dividend,” Wells said. “Our intent is to pay a dividend of $1.62 per share. On a $20 stock, that’s about an 8 percent yield, which is a good return.”

Iowa Telecom’s stock has been hovering somewhere above $20 since it began trading. Last month, Raymond James & Associates, an investment firm that follows the stock, initiated an “Outperform” rating and a $23.50 price target for the year.

Iowa Telecom also has another reason to feel good based on recent actions within the state to deregulate telecommunications in areas where competition exists. Iowa Telecom, which is the incumbent local exchange provider in most of the communities it serves, can now better compete with its challengers in 14 Iowa communities. Wells said he hopes the Iowa Utility Board’s decision to approve telecommunications deregulation in these communities is a sign of what’s to come.

“The communications industry has changed, and is a whole lot more competitive than it was when the Telecommunications Act of 1996 was written,” Wells said.

“People can use all these different forms of communications for business, and we’re still the only one that’s really regulated. It’s harder and harder to compete with other folks that aren’t regulated for the same business. The IUB has determined there is enough competition in some of these towns that the market will take care of making sure nobody prices too high or takes advantage of their customers. I think it’s a continuum of ultimately moving toward deregulation nationwide.”

Now, Iowa Telecom has an opportunity to be more competitive in some Iowa communities, setting its prices “based on the market, just as a car dealer would,” Wells said.

“Our hands have been tied behind our backs in the towns where we have these competitors, and we couldn’t offer some of the same pricing that they could and some of the same bundles and features that they had because our rates were regulated and theirs weren’t,” he said. “The deregulation allows us a lot more flexibility to compete than we had before.”