By Scott Moritz
April 21, 2008

By Scott Moritz, writer

The pinch on consumer spending continues to cause big hangups at phone companies where their core businesses — landline telephone service — is eroding faster than ever.

The latest round in the alarming decline in phone lines will come Tuesday morning, when AT&T (T) and Time Warner Cable (TWC) grab market share with their triple play offerings — video, Net and phone services.

If there’s one area that may help offset the landline defections, it’s wireless. But even AT&T’s high-revving mobile unit — the Apple (AAPL) iPhone’s only U.S. carrier —  is feeling the slowdown as the market becomes saturated. AT&T is expected to have added about 2 million net new mobile phone customers in the first quarter, a number that is down seasonally from the 2.7 million user it picked up in the busy holiday quarter that ended in December. Verizon Wireless — a joint venture of Verizon and Vodafone (VOD) — is expected to post a retail post-paid net subscriber gain of 1.5 million, down from 1.9 million in the fourth quarter. Verizon is scheduled to post earnings next Monday.

No.3 wireless player Sprint (S) has already indicated that it may lose as many as 1.2 million subscribers in the first quarter as users continue to flee its ailing service in mass.

AT&T’s so-called landline business accounts for about 59% of total revenue and about 55% of its profits. With the number of lines falling, AT&T has had to trim costs to keep in pace. Last week AT&T said it was cutting about 4,650 employees, or 1.5% of its staff in a “streamlining” effort.

Analysts expect AT&T on Tuesday to post a pro forma profit of 74 cents a share, up from 65 cents in the year-ago quarter. Sales for the first quarter are expected to be $30.7 billion, an increase over the $29 billion a year ago.

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