Qwest (NYSE:Q) shares have fallen about 26% since I advised Fool readers to avoid the stock on Sept. 3 of this year, just after it reported less-than-stellar earnings for the second quarter. And although shares are up over 5% today after beating third-quarter estimates by a penny, there is still substantial risk here.

I should note that I'm not making reference to my call on the stock to pat myself on the back, as my opinion was much more about the need to properly balance risk and reward when chasing turnaround stories than trying to make predictions about short-term price fluctuations.

All in all, Qwest's news was a mixed bag, but there are some signs of life here. The company met its earnings number, but missed revenue estimates. However, the market appears pleased with the forward revenue guidance, which predicts decent growth for 2004.

Also, management announced it would redeem up to $2.25 billion in notes of varying maturities, meaning upon close of the redemption, Qwest will have reduced its debt load by more than $7 billion over the past year. It still has a long row to hoe on this front, as even after the reduction it will be carrying more than $19 billion in debt, but this is definitely positive news -- and it allows for a little more faith in management.

"While the industry environment is still challenging," says CFO Oren Shaffer, "we are seeing signs of stabilization in our business." Though the earnings report and comments such as this brighten the outlook for Qwest's business, the ever-looming accounting investigation is still enough to keep me away from the shares. It's still simply not possible to make a reasonable valuation call with such little quantification of the downside associated with this investigation.

I feel even better about the decision when I consider that other telecom firms, such as BellSouth (NYSE:BLS), SBC Communications (NYSE:SBC), and Verizon (NYSE:VZ), are turning their businesses around and paying substantial dividends to shareholders in the process.

Mathew Emmert owns shares of BellSouth. He's also the author of the Fool's latest newsletter, Motley Fool Income Investor. If you're looking for quality dividend-paying stocks, consider a free trial.