NEW YORK (CNN/Money) - Legendary investor Warren Buffett has famously said that he only buys what he understands. So who knew the Oracle of Omaha was a fiber optic telecom expert?

Buffett's investment company, Berkshire Hathaway, announced on Monday that it was purchasing $100 million of convertible notes (bonds that can be converted into stock) in Level 3 Communications (LVLT: Research, Estimates), an operator of fiber optic networks. In addition, asset managers Legg Mason and Longleaf Partners are investing $100 million and $300 million in Level 3. (For Fortune magazine's take on Level 3, click here.)

News of the funding helped lift shares of Level 3 more than 50 percent on Monday, even though Berkshire did not buy Level 3's stock, which is 97 percent below its March 2000 peak of $132.25. "Having the stamp of approval from Warren Buffett, even if it's on the basis of a convertible investment and not the common stock, catches people's eye," says Rick Lawson, manager of the Weitz Hickory fund. As of March 31, the fund owned about 2 million shares of Level 3, according to FactSet Research.

In fact, many telecoms bucked the market's downward trend on Monday even as Congress began hearings about the WorldCom accounting debacle. Shares of Level 3 rival Qwest rose 15 percent while the stocks of long distance giants AT&T and Sprint and Baby Bells SBC Communications, BellSouth and Verizon all rose slightly.

One reason for optimism is that Buffett's investment could help speed up the pace of consolidation in the beleaguered telecom sector. In a press release about the convertible bond sale, Level 3 said that some of the proceeds would be used for acquisitions. "This is a sign that there are assets out there worth buying," says Lawson.

To that end, Jerry Paul, managing partner of Quixote Capital Management, a Denver-based hedge fund that invests in telecom securities, says that bankrupt Williams Communications Group could make sense for Level 3. Level 3, like Williams, operates a fiber optic network that is the backbone for transporting data over long distances for Internet service providers and telecom carriers.

And Level 3 is just one of a few upstarts in this industry that are still relatively financially healthy. Global Crossing, which also filed Chapter 11, is selling off assets as well. Other bankrupt networking companies that could be on Level 3's list are Metromedia Fiber Network and 360Networks. During a conference call on Monday afternoon, Level 3 CEO James Crowe said he specifically would be interested in buying assets of some of his fallen competitors in order to gain their customer bases, not their actual networks.

So now that Level 3 has the backing of some of the savviest investors in the world (in addition to Buffett, Legg Mason's fund guru Bill Miller and Longleaf Partners's Mason Hawkins are highly regarded names on Wall Street) does that mean that a telecom turnaround is on the horizon? Not so fast.

For one, Buffett invested in a private placement of Level 3 bonds with a yield of 9 percent that can be converted into stock at the price of $3.41 a share. Level 3's stock surged to $4.36 on Monday and the common shares do not pay a dividend. So Buffett is not only getting a discount to the market price, he's also getting paid to wait. That makes his risk a lot lower than the average investor who might buy Level 3's stock. And the average investor can't buy these convertible notes.

In addition, Buffett isn't exactly betting the ranch on Level 3. "This has to be put into context. $100 million is not a lot of money for Buffett," says Paul.

Buffett is also known for sticking with investments over the long haul. The fact that he is buying Level 3 bonds now is not necessarily a sign that he thinks a turnaround in telecom is imminent, just that it will eventually happen.

And even if Level 3, armed with a new war chest for acquisitions, sparks a new round of consolidation in the telecom sector, that won't help all telecom companies.

Shares of fiber optic equipment company Corning rallied on Monday for example. But it's unlikely that Corning, or other fiber optic equipment companies like JDS Uniphase, will benefit in the short-term since there still is a network capacity glut, says Jeff Kagan, an independent telecom analyst based in Atlanta.

There was a massive buildout of fiber optic networks in the late 1990s to satisfy the demands of customers for high-speed data services. As several network operators have fallen by the wayside, there has been an increased need for consolidation among service providers. That means that carriers are more likely to consolidate existing network assets as opposed to spending on new infrastructure.

All that said, the fact that an investor with the reputation of Buffett is making a bet on telecom at these levels is undeniably an encouraging sign.

"Investing is a game with an eye on the future. People lost track of that in telecom during the last several years when the finish line might have been tomorrow or next week," says Kagan. "This might get everyone else thinking that telecom is not doomed."