(FORTUNE Magazine) – In July, Sprint fired the opening salvo in the latest long-distance price war, offering calls for 5 cents a minute. That move has fueled a rivalry as heated as any World Wrestling Federation-style smackdown, complete with old feuds, tons of self-promotion, and a need to save face at all costs. In fact, you can almost imagine the billing the WWF would give the matchup: Tonight at the Worcester Centrum Center--"Stone Cold" Bill Esrey of Sprint, Mike "The Maniac" Armstrong of AT&T, and Bernie "Buy 'Em Out" Ebbers of MCI WorldCom.

Though this struggle is great for consumers and mildly entertaining, Wall Street isn't pleased. The three telecom titans, already under pressure in recent months, have fallen hard. Now each is down significantly from its high earlier in the year: AT&T has plunged 28%, to $45; MCI WorldCom has sunk 19%, to $79, and Sprint has dropped 12%, to $50. Even though Sprint has fared the best of the three, analysts have been particularly tough on the stock, slapping it with a series of downgrades. "It's natural to think that when prices get cut in half, maybe the stocks should be too," says Bruce Roberts, an analyst at Dresdner Kleinwort Benson.

Wall Street's reaction is certainly understandable. It sees a price war as an attempt to gain market share fast--not as a way to attract a loyal customer base and boost long-term profits. And while these companies say they're morphing into data powerhouses, all three still get about 60% of their revenues from carrying voice traffic on their networks. Asking Wall Street to overlook the voice sector would be like Michael Eisner of Disney telling shareholders, "Forget about our theme parks and movie studios--they mean nothing." As if.

Granted, the big three have some flexibility to lower prices as the government dismantles a complicated set of tariffs that have kept long-distance rates artificially high. But these three companies also face an onslaught of competition. Level 3, Qwest, and others are building national networks, creating a huge supply of bandwidth. And the Baby Bells will soon enter the long-distance market, eager to grab share. The result? "You're going to see the same thing in telecom that happened to steel in the 1970s or commercial real estate in the early 1990s," says Mark Bruneau, president of the business strategy group at Renaissance Worldwide in Boston. "Excessive supply will lead to consolidation and irrational pricing."

There's another complicating factor: Internet networks have made the idea of distance less relevant--leaving regulators as the only ones who make that distinction. So long-distance service may end up being free one day, or bundled with local calling for a flat fee. In fact, you'll see the first step in this process next year, says Bruneau, as companies begin to unveil flat pricing plans for long-distance service.

Bombarded with complex regulatory, technological, and commercial complications, the big three of telecom have taken markedly different paths:

--Wall Street still has mixed feelings about the viability of AT&T's move into the cable business, which are reflected in its topsy-turvy stock price. The doubts won't be resolved soon. Both the cable systems themselves and the households they serve will require expensive upgrades before Ma Bell can provide local phone service. To find the money, AT&T is fighting hard to keep its costs in line. As this article went to press, there were reports that the company, which should generate $63 billion in revenue this year, was considering layoffs to further trim its administrative budget.

--MCI WorldCom, on the other hand, has the most buzz of the three--and rightly so. CEO Ebbers has deftly managed the company in acquiring and retaining talent, and in enlisting it to find the most profitable customers. MCI WorldCom looked expensive early in the year, when analysts were using 1999 earnings estimates. Now trading at about 27 times 2000 projections, it's more reasonably priced. What's more, rumors that the $33-billion-a-year company could make a costly wireless acquisition have recently quieted down.

--Sprint is perhaps the most interesting of the trio. Yes, Wall Street is wary. But investors may have heard some good news at Sprint's analyst meeting in Kansas City last month. There, execs said the problems surrounding the Global One international alliance (consisting of Deutsche Telekom, France Telecom, and Sprint) would be taken care of before the end of the year. (Hopefully, the union will be disbanded--it's been ineffectual and a tremendous drain on earnings.) They also promised to cut back on costs to bring Sprint's overhead more in line with industry ratios.

But Sprint can't do a lot about its biggest problem: It's already priced as if it were takeover bait, leaving little upside. Even Esrey's protestations haven't quelled the rumor mill. "You'd be short-sighted if you didn't look at Sprint as a target for Deutsche Telekom," says Jim Linnehan, an analyst at Thomas Weisel Partners in San Francisco. Adds Bruneau: "I think we're going to see [an acquisition] in the next two quarters." The worst part? Few see Sprint receiving a killer takeover bid, since the company has been rumored to be for sale for such a long time.

Still, long-term investors can't go too wrong with any of these companies. They're in a strong position, owning backbones that support entire e-commerce industries. But in the meantime, all three will experience big ups and downs as they try to capitalize on this potential. That is, unless one can enlist a master of reinvention. Think Jesse Ventura would be interested in a board seat at AT&T?