NEW YORK (CNN/Money) - If the telecom sector were a patient in a hospital, it seems safe to say that its condition would be critical, but stable.

That may be better than this time last year, but it's not a reason to get overly enthusiastic.

Major telecom carriers have been cutting costs in a bid to bolster profits. And an improving economy should help going forward, since it could lead to an increase in corporate spending on telecom services.

Still, the top telecommunications companies face relentless pricing pressure, particularly in the local and long distance consumer markets, the ongoing defection of land line customers to wireless service, as well as more competition from cable companies.

Earnings hangups Most major wireline telecoms aren't expected to post profit growth this year. Company  1Q Est. EPS Gr.  2004 Est. EPS Gr.  Alltel  4%  6%  AT&T  -51%  -46%  BellSouth  -8%  -6%  SBC Communications  -24%  -12%  Sprint  -56%  -50%   Source:  Thomson/Baseline

Of the five major telecom companies that will report first-quarter earnings this week, only one, rural carrier Alltel (AT: Research, Estimates), is expected to post a year-over-year increase in both sales and earnings.

Long-distance giants Sprint (FON: Research, Estimates) and AT&T (T: Research, Estimates) and Baby Bells SBC Communications (SBC: Research, Estimates) and BellSouth (BLS: Research, Estimates) are also due to report this week, and none of them are expected to post higher profits than a year earlier.

For that matter, analysts aren't forecasting earnings growth for any of these four for the entire year. And Sprint is the only company for which analysts see a profit increase in 2005.

"Clearly, telecom has been a dismal business for the past couple of years and it's still a poor business," said Pete Wilson, chief executive officer of Telwares, an independent telecom consulting firm.

Adding to concerns is the fact that long-distance company MCI, formerly WorldCom, emerged from bankruptcy Tuesday.

The biggest worry is that a slimmed down MCI would start a price war to win back customers.

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"The whole long-distance industry will be getting shaken up. Nobody's sure how desperate MCI will be to regain business," said Kevin Calabrese, an analyst with Argus Research.

A price war sparked by MCI would probably affect Sprint and AT&T the most.

Sprint has a wireless business to fall back on, which is helping to offset some long-distance losses. Sprint's Sprint PCS (PCS: Research, Estimates), which currently trades as a separate tracking stock but will be folded back into the parent company Friday, reported a 16.6 percent increase in sales from a year ago Tuesday, as well as a narrower loss.

For AT&T, analysts will be paying close attention to how its rollout of Internet phone technology, referred to as voice over Internet protocol (VOIP), is doing so far.

Todd Rosenbluth, an equity analyst with Standard & Poor's, said AT&T, which was booted from the Dow industrials earlier this month, should start to see some benefits from its VOIP business, since it is cheaper for phone companies to route calls over the Internet.

To that end, Rosenbluth said AT&T could report a better-than-expected profit simply because expectations are so low. And the company is aggressively paying down debt, which should also help. Nonetheless, he doesn't think that fundamentals have improved all that much for AT&T so investors need to be cautious.

"It's not that things are getting better. But things aren't getting worse, as many are expecting," said Rosenbluth.

Turning to the two Bells reporting this week, investors will keep a close eye on how their wireless venture is doing. BellSouth and SBC co-own Cingular, which agreed in February to buy AT&T Wireless (AWE: Research, Estimates).

Rosenbluth said he's concerned that Cingular could lose customers to Verizon and other wireless carriers as BellSouth and SBC focus on the merger approval and integration process.

Although Cingular reported Tuesday that it added 554,000 new subscribers in the latest quarter, AT&T Wireless has had some high-profile technology problems as of late. As such, AT&T Wireless warned Tuesday that first-quarter revenues would be lower than expected since the company lost 367,000 subscribers.

Verizon, the big Baby Bell that doesn't report this week, is expected to post slightly stronger first-quarter results, thanks mainly to its wireless business. Verizon (VZ: Research, Estimates) is due to report April 27, with analysts predicting a 16 percent drop in earnings but a 4 percent increase in sales.

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But BellSouth and SBC could have encouraging news about broadband subscriber growth, said Greg Gorbatenko, an analyst with Marquis Investment Research.

Gorbatenko pointed to healthy numbers that Internet company Yahoo! (YHOO: Research, Estimates) reported earlier this month regarding its co-branded digital subscriber line (DSL) offering with SBC as evidence that DSL may be gaining ground against cable companies' high-speed offerings.

Telecoms have been locked in a tough battle against cable companies for broadband customers. The Bells cut monthly subscription rates for DSL last year, a move that was not matched by cable companies. So Gorbatenko said the Bells will need to prove that their rate cuts were the right move.

"This is vital for the Bells. DSL is very important for their long-term success," Gorbatenko said.

Overall though, there appears to be little to suggest that the telecom horizon will brighten anytime soon.

"Everything remains challenging in telecom," said Argus' Calabrese. "I'm not optimistic in the near-term."

Analysts quoted in this story do not own shares of the companies mentioned and their firms have no investment banking ties to the companies.