Fancy flipping photo phones dominated wireless-industry chatter Tuesday. Even so, some heads were turning at the spectacle of subscribers fleeing AT&T Wireless ( AWE).

The mobile communications business is thriving amid a new crop of gadgets and record levels of global demand. But don't expect AT&T Wireless to see much benefit: The No. 3 cellphone service, which struggled for years before finally being sold at auction, now appears to be losing users. That's just the kind of news the company's soon-to-be adoptive Baby Bell parents, BellSouth ( BLS) and SBC ( SBC), won't want to hear.

At the annual Cellular Telecommunications and Internet Association conference in Atlanta this week, the main focus has been on the latest crop of consumer-pleasing gizmos. Outfits like Korean electronics giants LG and Samsung have introduced an array of Net-ready camera phones that threaten to take greater share of the handset market from larger rivals Nokia ( NOK) and Motorola ( MOT).

To its credit, Nokia did break its mold and introduce a clamshell camera phone for code division multiple access, or CDMA, networks. And Motorola unveiled its first so-called world phone, a handset designed to be compatible with CDMA as well as Europe's popular global standard for mobile, or GSM, technology.

But while the handset makers were getting all the glowing attention, AT&T Wireless was making a poor impression on Wall Street types.

Smith Barney's Mike Rollins is the latest analyst to get a sinking feeling about AT&T Wireless. In a report Tuesday, Rollins says the company could see its total subscriber count fall in the first quarter. In other words, for the first time in company history, AT&T Wireless could lose more customers than it gains in a quarter.

A company representative declined to comment.

Shrinking subscriber numbers would be yet another blemish on the industry laggard. The company hit a rough stretch toward the end of last year as its low service-quality rating and glitchy network upgrade helped usher users out the door in droves, just as the new number portability rules kicked in.

Things got so bad, the company put itself on the block and finagled a $41 billion merger deal with No. 2 rival Cingular.

According to a filing Monday, AT&T Wireless shareholders will be asked to vote on the merger May 19 at the company's annual meeting in Wilmington, Del. Though Rollins notes there are some risks that could undo the deal, he gives it a 95% likelihood of getting done.

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