Updated from 10:29 a.m. EDT

Shares of

Nextel Communications

(NXTL)

fell more than 20% Thursday as investors became increasingly worried about growth in the wireless telephone company's subscriber base and heightened competition, despite a smaller-than-anticipated loss in the latest quarter.

Nextel, as expected, added fewer domestic subscribers in the third quarter than analysts had initially predicted, and offered a rather vague prognosis for the rest of the year, contributing to a sell-off of its shares.

Nextel, based in Reston, Va., said it brought 540,400 new U.S. subscribers into its fold in the third quarter. At first, Nextel led analysts to expect at least an additional 550,000 subscribers, but warned earlier this month that it would miss that mark, setting off a 10% one-day drop in its stock price.

Nextel added once again to Wall Street's jitters Thursday. The company said it expected at least 500,000 new subscribers in the fourth quarter, but it did not offer a precise figure, leading analysts to believe it would fall short of estimates for the rest of the year.

Unlike Nextel, which goes after more lucrative corporate customers and thus seems less concerned about the sheer number of its subscribers, Wall Street was fixated on the customer base. Nextel's shares dropped sharply Thursday, down $7.31 to $28.81, after hitting a 52-week low of $27.63. The stock is down more than 65% from its 52-week high of $82.94, reached in March.

The issue of new subscribers overshadowed Nextel's accomplishment. It said its net loss narrowed to $236 million, or 31 cents a diluted share, from $361 million, or 55 cents a share, a year earlier. Analysts polled by research firm

First Call/Thomson Financial

had forecast a loss of 37 cents a share.

Nextel also said that its revenue climbed 59%, to $1.4 billion, in the third quarter ending Sept. 30.

The mixed third-quarter results prompted one brokerage firm,

First Union Securities

, to downgrade Nextel shares on Thursday to buy from strong buy. Yet Charles Disanza of

Gerard Klauer Mattison

, said he remains bullish, commending the company for its focus on the quality, not the quantity, of its customers in a bid to increase its cash flow.

Nextel's operating cash flow more than doubled in the third quarter, climbing to $359 million, according to the company. Nextel has said it seeks to strike a balance between reeling in new subscribers and stimulating cash flow.

"Investors get carried away with the subscriber metric," said Disanza, whose firm has done underwriting for Nextel and rates its stock a buy. "They're not going for customer count. The thrust is that they're marching toward the best customer. They're marching toward profitability."

The market's reaction also is linked to fears over increased competition for coveted business customers. Nextel acknowledged Thursday that it is aware of fiercer price battles on the horizon, but argued that is largely insulated from the climate because of its focus on high-spending corporations.

"If you take a look around, you see aggressive pricing and promotion in the marketplace," Tim Donahue, Nextel's chief executive, said in a conference call. "We are starting to feel some pressure as carriers target our business customers."

First Union Securities said in a research report issued Thursday that some larger national companies are "going after Nextel's unique market niche," shifting their cross hairs to

Direct Connect

, the company's digital two-way radio service.

"While we respect the fact that Nextel has chosen not to price irrationally to meet some of these offerings," the report read, "the concern remains that it may lose some market share" in the fourth quarter.

Competition was certainly was a factor for

Sprint PCS

(PCS)

, another provider of wireless service, which said last month that it, too, would fall short of growth projections for its subscriber base.

Sprint PCS had said it expected to add 800,000 wireless subscribers, about 100,000 shy of analysts' estimates. The Sprint group later delivered a better number this month, saying it had attracted 839,000 new subscribers in the third quarter, but still failed to reach the original goal.

Despite the shortfall, Nextel noted in a statement Thursday that its monthly cash flow per domestic subscriber is about $22, "among the highest in the industry." Nextel said it now has a total of 6.2 million domestic subscribers.

Corporate accounts made up about 20% of Nextel's new subscriber additions in the latest quarter, an auspicious sign in part because business customers are less likely than individuals to cancel their service or be disconnected, the company noted. Nextel's "churn," or turnover, rate was only 2% in the third quarter.

The sobering messages this fall from Nextel and Sprint PCS appear to suggest that growth is leveling off, but Nextel's Donahue sought to reassure skeptics that prospects for Nextel, along with the industry as a whole, are brighter than some seem to think.

"I think it's clear to all us that the wireless industry is on a pace to add record numbers of new customers this year," he said in a conference call with analysts. "Our customers are just really beginning to understand the utility and the value of the newly introduced wireless Internet services."