Barely half a year after it sank into insolvency,

WorldCom

is back in the black -- for the first time in who knows how long.

In a monthly update filed Wednesday with the U.S. bankruptcy court in Manhattan, the company said that it swung to a profit in January, posting a net income of $155 million on revenue of $2.17 billion. That compares with December's $580 million loss on $2.2 billion in sales.

The numbers indicate that the company's turnaround CEO, Michael Capellas, is seeing results from his efforts to remake the troubled telco, whose reported profits over recent years evaporated last summer into a dark cloud of accounting fraud. The company's slower-than-expected revenue decline and its surprising bottom-line strength suggest its customers aren't as eager to flee as many observers had assumed.

In that regard, WorldCom's surprising progress also could spell trouble for the rest of the struggling telecom industry. Clearly some observers see a bankruptcy-enabled debt-service holiday as an asterisk next to Wednesday's bottom-line achievement. Now, investors will be eager to see where WorldCom's road -- recently marked by $80 billion worth of

writedowns, the replacement of nearly its entire top management tier and the elimination of some 22,000 jobs -- takes it next.

Mixed Bag

On first glance, much of Wednesday's news appears good for WorldCom and bad for its many competitors. Though monthly revenue continues to slip, the pace of the sales decline remains slower than many observers had expected. Rivals

AT&T

(T) - Get Report

and

Sprint

(FON)

have boasted that they continue to win a share of WorldCom's business as it reorganizes, but the leakage appears to be more of a trickle than a torrent.

And if AT&T and Sprint investors found little to cheer in WorldCom's news, backers of the regional Bells fared little better. Wall Street's already flagging confidence in the group dropped another notch Wednesday as Bear Stearns lowered 2003 earnings projections. Citing continued sales declines, pension obligations and medical benefits costs, Bear Stearns analyst Robert Fagin cut

SBC's

(SBC)

2003 earnings-per-share estimates by 17% to $1.40.

BellSouth

(BLS)

and

Verizon

(VZ) - Get Report

fared better, with 2% and 3% EPS estimate cuts. respectively.

WorldCom's new profits may revive concerns among investors that the company owes much of its new financial strength to the protections it has in Chapter 11 -- most notably the suspension of payments to its many creditors. With nearly zero debt payments, WorldCom's leaner cost structure makes it a formidable contributor to the industry's ongoing instability.

Boom and Bust

Of course, instability is nothing new to WorldCom watchers. During the late '90s, the insatiably acquisitive company was held up as a great exemplar of the New Economy. Investors bid the stock up on the bet that the company would dominate the evolving telecom business from its stronghold on the Internet.

But last year, as revelations of a $9 billion accounting scandal surfaced and details of former CEO Bernie Ebbers' $408 million personal loan were revealed, the Clinton, Miss., company was forced into history's largest Chapter 11 bankruptcy protection request. The company has yet to complete its final accounting review of the past three years, but with so much cost-tampering already disclosed, it is unlikely that WorldCom had much by way of legitimate profits during the height of its glories.

At the time of its Chapter 11 filing, the company claimed $104 billion in assets. Now, after writing down most of the value on its bloated balance sheet, WorldCom has about $10 billion in assets.

The sudden jump in profits also has to do with the heavy charges taken in December, when WorldCom recognized $514 million in restructuring expenses for items such as severance, penalties to break unprofitable contracts and lawyer's fees.

But as some observers point out, WorldCom has been able to make enormous repairs on its cost side during a period of top-line stability. That could change when WorldCom emerges from bankruptcy as planned later this year. One of the protections a company has in Chapter 11 is that customers cannot tear up contracts and flee to another supplier. Those ties may not hold so well once a company comes out of Chapter 11.