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AT&T Wireless

(AWE)

turned in a dreadful quarter Tuesday, posting a sharp rise in customer defections and a decline in revenue.

For its third quarter ended Sept. 30, the Redmond, Wash., wireless service provider earned $117 million, or 4 cents a share. That's down 25% from the year-ago $156 million, or 6 cents a share. Total revenue fell 3.7% from a year ago to $4.21 billion, and wireless services revenue fell a steeper 6.4%.

On the upside, the latest quarter featured higher data revenue and an increase in revenue from regulatory program fees. But the company suffered "lower monthly recurring charges" from its postpaid subscriber base and spent more to support customer retention efforts.

Even so, customer defections as measured by the so-called churn number surged to 3.7%. That's up from the previous quarter and the year-ago period, and in line with the level of attrition AT&T Wireless was suffering late last year, a customer hemorrhage that forced the company to put itself on the block.

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Average revenue per user, or ARPU, slipped to $57.40 in the latest period from $61.20 a year earlier. The company's problems are steepening even as other players in the wireless industry enjoy record quarters.

"We're encouraged by the continued sequential improvement in key metrics," said CEO John Zeglis. "Earnings per share, operating free cash flow, OIBDA and gross customer additions are all up from last quarter. And with quarterly gross sales again at record levels, we continue to demonstrate an ability to bring attractive offers to market.

"However, customer deactivations persist at unacceptable levels," said Zeglis. "We have a number of initiatives under way addressing this issue and are extremely focused as an organization on turning it around."

The company agreed in February to sell itself in a $41 billion deal to No. 2 cell-phone service provider

Cingular

. The companies expect to complete the $15-a-share deal later this year.

Late Tuesday, AT&T Wireless was flat at $14.80.