Lucent Technologies and Nortel Networks were among the first wireless companies to encounter this problem when earlier this year they were forced to renegotiate covenants. But now, according to Standard & Poor's most recent industry report card for the telecom and cable industries, the problem is widespread.

The ratings agency notes numerous instances of wireless carriers violating or becoming in jeopardy of violating covenants on credit arrangements. Besides unlimited local calling provider Leap Wireless International, which already has defaulted on its vendor credit facility, carriers at risk include Sprint PCS affiliates and rural carriers.

The declining headroom appears against the backdrop of a variety of well-documented industry challenges, including slowing subscriber additions due to penetration exceeding 50 percent and a highly competitive environment. The high degree of competition forces carriers to keep adding minutes to buckets just to keep average revenue per user levels flat.

But those challenges aren't entirely limited to industry dynamics. The economy has played a pivotal role, too.

The affiliates, the S&P report states, "have increasingly faced a multitude of financial risks, ranging from possible near-term financial maintenance covenant violations to tightened liquidity." The $26 million currently held by AirGate PCS, for example, doesn't appear to provide "adequate cushion against execution risks." As well, the carrier needs to beef up operating cash flow in order to meet two leverage requirements in the first quarter of 2003.

Alamosa Holdings amended its covenants in late September to account for lower subscribers, lower operating cash flow and higher debt. Even though Alamosa has rolled out more competitive local calling plans to bolster growth, the ratings agency views its $96 million cash cushion as insufficient.

Horizon PCS recently amended its covenants to allow for lower operating cash flow but higher revenue. While relatively insulated at least through 2003 by its $233 million cash position, the agency notes the carrier has no immediate free-cash-flow target.

Sprint affiliate iPCS, which was bought by AirGate, is perhaps in the most precarious position. According to S&P, it's in danger of violating covenants for minimum subscribers, minimum revenue and maximum operating cash flow "in the very near term."

UbiquiTel was downgraded earlier this month. S&P believes the carrier has the potential to violate its minimum subscriber covenant even though it modified its bank covenants in July. US Unwired also was downgraded on concern over bank covenants that tighten in 2003.

Rural carriers, meanwhile, face increased business risks due to declining roaming revenue. This source of cash flow, in the agency's determination, "has become increasingly risky" due to national carriers teaming up in joint ventures to expand coverage into rural areas. Dobson Communications and Rural Cellular Corporation both are cash-flow positive and increasing the number of roaming minutes to offset potential revenue declines. Western Wireless, however, has the potential to violate its debt-to-operating-cash-flow covenant in 2003.

Among other regional players, Nextel Partners and Triton PCS are doing well. S&P rates their outlook as "stable," in contrast to the Sprint PCS affiliates, which have a "negative" outlook.

National carriers are on better footing by virtue of their size and better funding. All, except the highly leveraged Nextel Communications, are rated as stable. Among them, the two largest carriers, Verizon Wireless and Cingular Wireless, have the highest ratings. Significantly, both are somewhat protected by being part of larger integrated phone companies.