AT&T Wireless (NYSE:AWE), the third-largest wireless carrier in the U.S., posted profitable third-quarter results yesterday in a turnaround from the year earlier loss, but investors don't seem to be entirely convinced.

Earnings came in at $0.05 per share (reflecting a $0.05-per-share charge) vs. a loss of $0.76 (reflecting an $0.80-per-share charge) in the year earlier period. Total revenue grew by 7.7% to $4.37 billion. Free cash flow was also on track for the quarter with guidance raised slightly for the full year to slightly over $1 billion compared to negative free cash flow in 2002.

However, following a conference call after the markets closed on Wednesday, it was one of the most heavily traded stocks in Thursday's morning session and was off as much as 11% in late-afternoon trading.

So, it's Halloween, investors must be spooked by something, right?

Low subscriber numbers are haunting both Wall Street and Main Street with net additions (or gross subscribers) at 229,000, down from the second quarter of 446,000. Churn (or customer defections to other carriers) has increased by half a point from Q2 to 2.7%.

And the fourth quarter for AT&T Wireless promises to get even scarier. Wireless number portability (or WPN), which allows subscribers to change carriers and take their number with them, is set to go into effect Nov. 24 and is expected to increase churn for all wireless carriers. With some subscribers undoubtedly defecting to AT&T Wireless, the question remains whether that increased churn will affect net additions. On the earnings call, without getting into specifics, management pointed out that "a large number of contracts would expire in the fourth quarter" for postpaid subscribers

In order to improve its competitive position, AT&T Wireless has two new mantras: hard sell and sweet deals. The company is launching a new branding ad campaign and plans to offer a $50 credit to existing subscribers deciding to renew. The company plans to focus on two-year contract renewals. However, the subsidies required to sweeten deals and retain existing customers may lead to deteriorating margins and weakened earnings.

So, with Halloween just around the corner, AT&T Wireless customers can fill their goodie bags with credits, airline miles, and other incentives to remain loyal. If investors aren't in for a treat, at least subscribers will be.

If you want to find out what we've said about competitors, check out Nextel Connects Again. And for more treats, head over to the AT&T Wireless discussion board. Only on

You can reach Chris Cather at