For the first time in months, the sun broke through the clouds Thursday for

MCI WorldCom

(WCOM)

.

On what turned out to be a bright day in the tech sector, WorldCom surprised a skeptical Wall Street by

delivering a strong first-quarter earnings report. The Street, which was bracing for a shortfall from the Jackson, Miss., telecom giant, responded with glee, sending WorldCom shares up 11%.

That reaction suggests investors may be ready to take a second look at the onetime highflier, whose shares have suffered a painful 31% decline over 10 months, missing out on the frothy action (both up and down) in the

Nasdaq

. In the meantime, don't be surprised to hear deal talk swirling around the telecom industry's most acquisitive address.

All the Right Moves

"They had good strength in all the right areas, and they sounded confident about the outlook," says

Lehman Brothers

analyst Blake Bath, referring to Thursday's analyst call. "There is clearly a hope that expectations have bottomed and we have something to build on here." Bath has a buy rating on WorldCom, and Lehman advised

MCI

on the WorldCom merger.

Beyond the earnings report, another positive for MCI WorldCom -- though not a new development -- is its deal to carry traffic for

AOL

(AOL)

. On the call, MCI WorldCom CEO Bernie Ebbers was keen to emphasize the renewed five-year contract, which was announced earlier this month.

Analysts say the deal is significant because it signals MCI is having success in competing with more data-centric carriers such as

Level 3

(LVLT)

,

Qwest

(Q)

and

Global Crossing

(GBLX)

.

Rise and Fall

The WorldCom juggernaut was a strong investment story through last year, when the company agreed to a massive merger with No. 3 long-distance carrier

Sprint

(FON)

. The deal (expected to be complete early next year) capped a string of acquisitions by WorldCom, including

WilTel

,

Brooks Fiber

and

MFS

, which were seen as building blocks for an advanced meganetwork. However, rivals outflanked WorldCom by laying state-of-the-art networks more cheaply and efficiently than it could patch together older ones.

Subsequently, WorldCom shares had been declining, erasing all of last year's gains and falling back to 1998 levels.

Investors have shown little patience as the company tries to offset declining long-distance revenue by pushing services to businesses and concentrating on Internet sales. The company has also faced challenges in integrating its networks, most recently those of MCI and

Skytel

, a national paging service provider.

Go East, Young Man

The company now faces the expensive proposition of entering the wireless market in Europe. Ebbers says he is more or less committed to making some sort of deal to gain a foothold in that market. Analysts say that could take the form of investments, swaps, partnerships or perhaps an acquisition of

Orange

,

Mannesman's

soon-to-be-divested wireless network.

Ebbers says he's weighing these options, but observers say he may have little time to dawdle.

Europe's wireless market is rapidly consolidating, says

Giga Information Group

analyst Lisa Pierce: "You've got to get married now. These deals aren't going to be waiting around for long." Giga has consulted with nearly all of the major telecom firms.

Unless Ebbers has suddenly lost his taste for deals, analysts say WorldCom will soon find a way to have a wireless presence in Europe.

And with all the pieces eventually pulled into place, Lehman's Bath says the long view is bright.

"Over the next several years, a company like this -- a double-digit grower with assets in all the right telecom markets and strong management -- ought to be viewed as a core holding," says Bath.