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Staggering can look pretty good when everyone else is ready to keel over.

That alone explains the market's newfound respect for


(T) - Get AT&T Inc. Report

. The withering phone giant

forecast Wednesday that first-quarter revenue would decline sequentially, pressuring already thin margins and shrinking earnings yet again. Yet oddly enough, the company suddenly looks like a pillar of strength in a telecom industry that's headed for a shakeout.

While growth-poor AT&T's woes neatly mirror those of an industry in recession, its long-overlooked strengths -- solid finances and cash flows firmly in the black -- aren't so widely shared, analysts and investors say. Now Wall Street is returning to the view that only the big, well-capitalized players will survive, putting the likes of





(VZ) - Get Verizon Communications Inc. Report

in the winner's column and New Economy upstarts firmly in the losing camp.

"The capital intensity to run these businesses is so enormous, and the benefits of scale are so powerful," says Lehman Brothers analyst Blake Bath. "If you aren't No. 1 or No. 2 in the market, you got to get out."

As a result, Wall Street has spent the week flaying New Economy fiber optic outfits such as

Williams Communications

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Level 3


in the aftermath of Tuesday's collapse of onetime New Economy leader

Global Crossing

. A swirl of financing-related worries has pushed Williams down 19% and Level 3 down 36% since Monday. Meanwhile, despite its latest installment of dreary news, AT&T dropped just 36 cents, or 2%, to $17.45.

"Global Crossing showed us that the challenging business model is a failure, and we're beginning to see a capitulation by investors," says Michael Kaufman, a hedge fund manager with K Capital Partners who is long



. "This also could be the time to buy, since we know phone service isn't going away."

And therein lies some ray of hope for the likes of AT&T and its Baby Bell brethren SBC and Verizon. Defunct networks aren't likely to emerge from restructuring with the customers and assets necessary to challenge the reigning empires. The bottom line: fewer players in the industry and less cheap network capacity flooding the market.

That all makes sense in the risk-averse market environment that has largely prevailed since the Nasdaq peaked in March 2000. But it signally fails to shed any light on the strange case of



, the No. 2 long-distance provider, which appears solidly profitable and reasonably well-positioned but nonetheless has been flogged mercilessly this week. On Wednesday, the stock touched a five-year low, sliding 55 cents, to $9.85.

As discussed in this space

Tuesday evening, all manner of easily debunked rumors have swirled around WorldCom in recent days, ranging from a looming debt downgrade to bankruptcy. Perhaps the market is simply playing its favorite game, guilt by association, on the thinking that like another January whipping boy,


, WorldCom was until recently a voracious acquirer whose stock-based deals often left balance sheet readers scratching their heads. In any case, it's not clear when investors' deep skepticism might recede again.

"There is a wholesale panic out of telecom both in equities and bonds," says Kaufman. "There has been a complete loss of faith in the sector."