Updated from 2:20 p.m.

Sprint PCS

(PCS)

touched off a wireless selloff this morning following last night's warning that it expects to sign up far fewer subscribers than expected.

The tracking stock of the

Sprint

( FON) group warned that net additional subscribers for the year likely would be off 10% to 15% from its original expectations.

Moreover, second-quarter net adds would be 300,000, well off analysts' expectations of 600,000 to 650,000. Capital expenditures in the PCS group would also be $3.3 billion, about $100 million off original guidance. The guidance update was delivered after the markets closed last night.

The news roiled Wall Street, already shaken by week after week of Sprint affiliates reducing guidance, beginning with

Airgate PCS'

(PCSA)

sobering

reductions June 6. Investors fled the debt-strapped wireless operator, leading to a sectorwide downgrade by a number of sell-siders.

Today's downgrades touched off a sectorwide selloff that led to new historical lows for some companies: Sprint PCS shares lost $1.59, or 26.4% to $4.40, a new all-time low.

AT&T Wireless

( AWE) followed that up with a 60 cent loss, or 9.45% to $5.75, another all time low.

Verizon Wireless

(VZ) - Get Report

, which operates as a joint venture co-owned by the

Vodafone

(VOD) - Get Report

group and Verizon, dipped a more moderate 4 cents, or 0.10% to $41.31.

Nextel

( NXTL) rose 33 cents, or 7.9% to $4.48.

Triton PCS

(TPC) - Get Report

, an AT&T partner, lost $2.01, or 27.4% to $5.32.

Airgate lost 12 cents, or 7.8% to $1.42, an all time low.

Alamosa

( APS) slid to a new low, dropping 16 cents, or 10.9% to $1.31.

Leap Wireless

( LWIN)hit a four-year, all-time rock bottom, losing 10 cents, or 6.4% to $1.46.

Western Wireless

( WWCA) shares dipped 23 cents, or 7.1% to $2.90, yet another all time low.

The

Philadelphia Stock Exchange Wireless Telecom Sector Index

, which tracks 19 companies in the services and hardware wireless industry, dropped 1.19 points, or 2.5%, to 46.27.

Much of the action was driven by a series of sell-side downgrades.

"We believe that it is likely that Sprint Corp.'s debt could be downgraded to junk bond status within a few months," Salomon Smith Barney analyst Mike Rollins wrote in a note this morning. "This would put pressure on the balance sheet and would affect the way equity trades."

Salomon downgraded Sprint PCS Group to neutral from outperform.

Merrill Lynch wireless services analyst Linda Mutschler downgraded intermediate-term ratings of AT&T Wireless, Sprint PCS, Triton PCS, Alamosa, Nextel, and

US Unwired

(UNWR)

to reduce/sell.

Airgate, which bore the blame of much of today's actions, occupied a special status as a long-term reduce/sell rating.

J.P. Morgan analyst Thomas Lee also cut the firm's ratings on a broad range of operators including Sprint PCS, AT&T Wireless, Triton PCS, and Leap Wireless,

"As for wireless equities, in our view, the damage to valuations may be frightening," he said. "Any remaining investor confidence in this group is likely to be reduced. These stocks were fighting against darkening sentiment already and now, we expect investors to avoid this group for some time."

In particular, Lee offered insight into Sprint's guidance update, saying an "astounding" sales setback surprise at Radio Shack outlets hurt the company's prospects in the quarter.

The market's reaction to Sprint's performance also raises important questions about the wireless industry's overall retreat from aggressive promotions this year in favor of improving the quality of subscribers. Since the beginning of the year, most companies have cut expenses, which help them improve EBITDA performance. Sprint said capex would be cut by $200 million, about $100 million apiece for both the traditional business and the PCS group.

Qualcomm

(QCOM) - Get Report

shares were affected by Sprint's warnings, as Sprint is the third largest CDMA operator worldwide. In response, Deutsche Bank downgraded Qualcomm and cut its quarterly revenue and earnings estimates for fiscal years 2002 and 2003. Qualcomm shares were shaved $3.99, or 12.03% to $28.49.

It's no surprise that Sprint PCS used the opportunity to trump up its $800 million or better EBITDA for the second quarter and $3 billion for the year yesterday, reiterating estimates, in an attempt to appease shareholders worried that any bit of bad news from overleveraged wireless operators would raise debt covenant issues.

Despite the relative transparency, the steep subscriber growth decline -- especially at the historically growth-conscious Sprint PCS group -- has shaken the resolve of even the most staunch defenders. Had the second quarter net adds come in at around 500,000, analysts contend, the impact would've been far less severe.

Compounding the problem is Wall Street's insistence that the only way out of the funk is through consolidation. But at this point, it's unclear to the investment community exactly which unions make sense, especially before the Federal Communications Commission clarifies its guidelines on wireless mergers. Merrill Lynch pointed out that BellSouth chief financial officer Ron Dykes' comments on June 11 regarding his sentiments that the Nos. 1 and 2 wireless operator are unlikely to combine due to regulations.