It's going to take years before the dust settles in the new telecommunications landscape. With all the plans for spin-offs and tracking stocks that have been announced lately, it's hard to know where to put your money.

But there are a few early trends starting to emerge as the major long-distance companies begin their costly transformations. And if you play your cards right, there's still money to be made in telecom. The question is, where?

AT&T, Worldcom, and Sprint overhauled their businesses in suspicious synchronicity last month, all trying to distance themselves from their slow-growth albatrosses, otherwise known as long distance.

Investors have clearly not been impressed with these companies' breakup plans. Since AT & T announced last month that it would set up tracking stocks for AT & T Consumer and AT & T Broadband and spin off its existing tracking stock, AT&T Wireless, the company has shed 28 percent of its market value. The stock closed at $18.94 on Tuesday, a new 52-week low.

Similarly, Worldcom's news on November 1 that it would be splitting itself in two -- with a new tracking stock created for its long distance and dial-up Internet service called MCI (Nasdaq: MCIT) -- failed to inspire Wall Street. Coupled with an earnings warning, the news sent the stock tumbling 20 percent the day of the announcement, and it has plunged another 20 percent since then.

Sprint may have been wise not to employ the tracking-stock strategy for its long-distance assets -- although it already has a wireless tracking stock for Sprint PCS -- but investors didn't enthusiastically applaud its reorganization news either. The stock has been relatively flat, up about 1 percent since Sprint announced it would concentrate less on its long-distance voice operations.

RBOC AROUND THE CLOCK

The big telcos left more than a few questions in their wake as they systematically deлmphasized long distance, the most important being whether bundling of services will work. While at first glance it would seem that long-distance service is the scourge of all communications, the regional Bell operating companies (RBOCs) are finding a way to make it work in their favor. And analysts have found a new favorite integrated telecommunications company: Qwest Communications.

RBOCs like Verizon Communications, SBC Communications, and BellSouth have been gobbling up long-distance customers as fast as they can, waiting for regulatory approval to enter an area, then stealing customers from the big guys. For the RBOCs, the long-distance business costs little and affords them the cash flow they need to build out data and wireless networks. Ultimately, most experts believe that voice calls will be free to consumers, but in the meantime, RBOCs are sucking it dry.

Ironically, RBOCs have the best opportunity to capitalize on the bundling strategy that AT & T banked on years ago. By bringing digital subscriber line (DSL), long distance, and wireless services to consumers, many RBOCs already bring a total package that will compete with cable providers for consumer business. Verizon and SBC have been among the most aggressive in rolling out these new services.

Looking to next year, analysts are predicting earnings growth of 5 percent for Verizon, 8 percent for BellSouth, and 14 percent for SBC. This may not sound all that exciting, but at least earnings for these Baby Bells are increasing. The long-distance triumvirate of AT & T, Worldcom, and Sprint are all expected to post declines in earnings next year. But for the RBOCs, long distance is a welcome addition, serving as a way to snag customers and offer them higher-margin, data services.

A TRIBE CALLED QWEST

While many arguments could be made for buying next-generation telecoms -- such as Level 3 Communications and Global Crossing -- instead of the RBOCs, analysts are skeptical of concept companies that have yet to produce earnings. Neither company is expected to turn a profit this year or next. But one profitable next-generation telecom that is on the tip of every expert's tongue right now is Qwest.

Qwest has built new businesses, like its Qwest Cyber.Solutions applications services, while keeping its focus on high-margin, data-rich business such as broadband and Web hosting. The company has one of the most sophisticated networks as well as an international presence through its joint venture with Dutch provider KPN. And most importantly, the company has actually succeeded in creating the type of service bundling that AT & T found so elusive.

"The issue with bundling isn't that consumers don't want it, the issue is with execution," says Jim Linnehan, an analyst at Thomas Weisel Partners. "When you try to bundle diverse services together, you get diverse sales forces, diverse cost structures. When you don't have the legacy to contend with, it gets easier. Qwest has one sales force."

WHO TO BUY

We think there is clearly more shakeout in the telecom market on the way, and until they prove otherwise, the old guard of AT & T, Worldcom, and Sprint look like dead money to us, even though they are now trading at rock-bottom valuations. Sprint, trading at 15 times 2001 earnings estimates, is the most expensive, while Worldcom and AT & T trade at just 12 and 13 times 2001 estimates, respectively.

The RBOCs have momentum on the regional side and are trading at attractive valuations to boot. Verizon and BellSouth are valued at 17 times 2001 earnings estimates while SBC has a multiple of 22 times 2001 estimates. These are more expensive than the long-distance companies, but earnings are actually on the upswing.

Still, Qwest is our best bet among the telecom sector. Of course, the market has already designated Qwest as the telecom leader. The stock is undeniably expensive, trading at 64 times 2001 estimated earnings. But Qwest's earnings are expected to increase 20 percent next year and at an average of 25 percent annually over the next three to five years. You're not going to find a profitable telecommunications company with stronger fundamentals than Qwest.

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