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Verizon Rides Sub Steamroller

Investors expect to see big user gains in Monday's report.

With Cingular improved and Sprint (S) - Get SENTINELONE, INC. Report still stumbling, the stage is set for another bangup wireless performance from Verizon Wireless.

Sources familiar with the

Verizon

(VZ) - Get Verizon Communications Inc. Report

and

Vodafone

(VOD) - Get Vodafone Group Plc Sponsored ADR Report

joint venture say the No. 2 wireless shop added 1.8 million net new users in the third quarter, outpacing all rivals.

The gains would match the second quarter's subscriber growth pace and mark the seventh consecutive quarter that Verizon has taken market share from

AT&T

(T) - Get AT&T Inc. Report

and

BellSouth's

(BLS)

Cingular venture.

Verizon is also expected to have the cell-phone sector's lowest monthly customer defection rate, at around 1.2%. That level of loyalty edges out Cingular's 1.5% user cancellation rate and is just half Sprint's 2.4% monthly churn.

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Both Verizon and Cingular have been the beneficiaries of Sprint's inability to seamlessly integrate Nextel's customers into the combined operation. The industry's highest-paying and most loyal wireless customers are fleeing the new Sprint for the greener pastures at Verizon and Cingular, say analysts.

Sprint has also been

struggling again with nonpaying customers. When you are the third player in a strong field, you have to open your doors extra wide to keep up the subscriber growth pace, say industry observers. That sales push has created a recurring problem at Sprint, which finds itself once again trying to remove deadbeats from its customer rolls.

In a media conference call Thursday, Sprint executives said their tightening of credit approvals will help the company cut the exposure to customers who won't pay for cell-phone service. The executives also pointed out that there are sales opportunities even with risky customers. "Subprime customers aren't all bad," said one Sprint executive.

But while Verizon comes out shining on the wireless front, investors will probably wince at the shrinkage of the telco giant's core phone business. Verizon's access-line count is expected to fall 10% from year-ago levels, say people familiar with the numbers.

If true, that represents a troubling plunge from the industry's already worrisome 6% line-loss rate in quarters past.

The more rapid erosion of basic phone lines, meaning customers, is largely a function of the success of Net phone offerings from cable outfits such as

Comcast

(CMCSA) - Get Comcast Corporation Class A Report

and

Cablevision

(CVC)

. Comcast, for example,

reported Thursday that it's triple play of TV, phone and Internet services was catching on with bundle buyers. Comcast added 483,000 phone customers in the third quarter.

Verizon is set to report third-quarter earnings Monday. Analysts are looking for an adjusted net income of 66 cents a share on $23 billion in sales.

Verizon shares were up 43 cents to $38.73, and Sprint shares were up $1.12 to $18.84 in afternoon trading Thursday.