Embratel stock is still in free fall, with the long-distance carrier?s preferred stock closing Wednesday, June 12, on 3.67 reals per 1,000 shares, down 3.93% on the day and down more than 60% since January. Most analysts believe the stock is now severely undervalued even considering local currency depreciation, which affects the telco?s foreign debt, and looming competition as deregulation kicks in. The financial problems faced by WorldCom, Embratel?s U.S.-based parent, have also affected the Brazilian telco?s stock performance. The analysts justify their opinion in two ways: (1) Embratel has a significant portfolio of customers in the corporate segment, where the barriers to entry are high given the cost of acquiring customers; and (2) although Telefonica is likely to overturn an injunction won by Embratel effectively preventing competition in domestic long distance, the fixed-line telcos still have to convince Anatel and CADE, Brazil?s competition tribunal, that they aren?t guilty of unfair dealing. It isn?t only a matter of interconnection rates. Here?s the rub, notes one analyst: What will the regulators say, not to mention ordinary consumers, if the LECs are found to be cross-subsidizing long-distance tariffs with expensive rates for local calls?