A day after a ratings downgrade renewed investors' worries about

WorldCom's

(WCOM)

finances, Wall Street was taking a long look at two other financially strapped telcos,

Qwest

(Q)

and

Sprint

(FON)

.

The darkest clouds continued to circle over WorldCom, just a week after the company replaced longtime CEO Bernie Ebbers in an effort to repair its rapport with investors. Since the end of March, WorldCom stock has lost more than 70% of its value as the company has been hit by news of a

Securities and Exchange Commission

investigation, repeated debt downgrades and earnings shortfalls. The stock had dropped 30 cents to $1.71 around midday Friday.

But WorldCom's woes aren't its alone, and investors were worrying Friday where the next shoe might drop. Qwest and Sprint are the natural candidates because both have had financing problems during 2002's telecom meltdown; like WorldCom, Qwest has been the subject of an SEC investigation of its accounting practices. Both Qwest and WorldCom have maintained that their accounting was proper; Sprint hasn't been named in any probes.

Despite all the worries, Qwest and Sprint say they'll be able to ride out the storm. But Thursday's events stand to make already cautious investors even more risk-conscious as the telcos explore asset sales and talk with lenders. Sprint had fallen 29 cents to $15.14, while Qwest had dropped 51 cents to $5.39 midday Friday.

Same Old Same Old

In the case of Qwest, investors are worried that promised asset sales won't be enough to fend off liquidity problems. The stock rose briefly earlier in the week, after the long decline of the past year, as news reports raised the possibility the company would be able to sell its Yellow Pages.

"A sale of the Yellow Pages business would be positive for Qwest, as investors would cheer any move that would mitigate the company's potential insolvency risk," Tom Horan of CIBC World Markets wrote in a report published Friday. Like WorldCom, Qwest has proposed selling noncore assets to pay down debt and raise cash as business deteriorates. In late April the company trimmed its financial guidance for 2002, just before posting weaker-than-expected first-quarter results.

Qwest has recently completed the first rounds of bids for the business, which is expected to fetch about $4 billion, says another analyst. That is sharply down from the numbers the company was bandying about just after it put the unit on the block. Yet, even should it succeed in raising cash with the Yellow Pages sale, the company could still face liquidity concerns, says Drake Johnstone, who covers the stock for Davenport.

"There still would be the potential risk that Qwest could end up in violation of its bank covenants by year-end," says Johnstone, who rates Qwest sell and whose firm hasn't underwritten for the telco.

Not in Kansas Anymore?

Meanwhile, the rumors swirling around Sprint are less worrisome -- the company's financing situation hasn't generated any buzz in a month or so. All the same, the talk may point to another emerging trend in the telecom business.

While saying it has no plans to eliminate the structure under which its phone business and

Sprint PCS

(PCS)

wireless operation trade separately, Sprint on Thursday

acknowledged that it would consider such a move down the road "depending on market conditions."

That's a nod in the direction that many investors expect WorldCom to go concerning its

MCI

(MCIT)

consumer-unit tracking stock. Goldman Sachs downgraded both WorldCom and MCI on Friday, noting the question marks that continue to hover over the companies. MCI was off 50 cents at $2.59.

Many observers expect WorldCom to fold the MCI tracker back in because they believe the company will be unable to sustain MCI's dividend payments. MCI currently pays shareholders 60 cents a share quarterly, which adds up for a company in WorldCom's financial straits, analysts say.

WorldCom's problems aside, though, there are those who say the tracking stock has outlived its usefulness, if it ever had any, in a day in which investors are demanding greater clarity from companies on financial matters.

"Tracking stocks were a bull market phenomenon," Johnstone says. "I think in this environment investors are fed up with hard-to-understand businesses."