Centennial Communications (CYCL) CEO Mike Small likes to say his company has a unique approach to selling wireless service in the Caribbean.

Now, though, some observers are starting to wonder if the approach isn't a little too unique.

Shares of the Wall, N.J.-based telco have nearly tripled in the past year, largely on the strength of Centennial's offshore wireless performance. In Puerto Rico, where the company is the No. 1 cell-phone service provider, Centennial has enjoyed nearly two years of 20% annual subscriber growth.

On a conference call with analysts in April, Small highlighted Centennial's opportunity to make inroads by being flexible. "The Caribbean remains a great place to do business, a historically underserved $4 billion telecom market where we challenge our local managers to make decisions that are right for the local market," he said.

But at least one of those decisions is starting to draw raise red flags with some people.

Centennial leases phones to customers, rather than giving them away or selling them at subsidized rates, as rivals do. To be sure, the practice offers Centennial a legitimate way to stand out from competitors, in part by offering to replace lost or broken phones for free.

But in an added twist, Centennial has been booking wireless phone costs as a capital expense, says Bear Stearns analyst Phil Cusick in a research note Tuesday -- not as an operating cost, as is the wireless industry norm.

In 2004, Centennial charged $17.4 million phone leasing costs to capital expenditures, Cusick estimates. Observers say treating phone costs as investments rather than as expenses is at the very least an aggressive accounting practice. Cusick says the move prevents investors from comparing the company's results with those of other telcos.

While shifting operating costs to capital expenditures doesn't change a company's cash flow, it can skew other key measurements of financial performance, such as earnings before interest, depreciation and amortization, or EBITDA.

"It's extremely unusual," says one money manager who is short the stock.

Neither Centennial CFO Tom Fitzpatrick nor company spokesman Steve Kunszabo returned calls for comment.

Nearly every other phone company, from the

Cingular

venture of

SBC

(SBC)

and

BellSouth

(BLS)

to the

Verizon Wireless

partnership of

Verizon

(VZ) - Get Report

and

Vodafone

(VOD) - Get Report

, pays some or all of the cost of new customers' phones. But they then book those expenses as operating costs.

In fact, subsidizing the cost of fancy phones has become the telcos' main bait to hook subscribers onto one- and two-year calling plans.

Ben Wood, handset analyst for Gartner Group, says he has heard of just one phone company, a smaller player in Italy, that leases phones to users.

Leasing arrangements are fairly common in businesses like cable, where operators rent standard set-top boxes and remotes to users on a monthly basis. But the one-size-fits-all tactic hasn't been popular in the cell-phone field, which has tended to offer a broad range of features tailored to individual preferences.

Leasing practices aren't the only thing that sets Centennial apart.

Though publicly traded, the stock boasts a thin so-called float, with some 80% of the controlling interest in the hands of private equity investors. This structure doesn't exactly make all investors comfortable. The overhanging fear is that with Welsh Carson Anderson & Stowe holding 54% and an added 24% held by a unit of the Blackstone Group, the big backers could pressure the stock, should they look to cash in some of their chips.

Shares of Centennial dropped 58 cents, or 4%, to $14.70, as investors pondered the issues Tuesday.