The smaller carriers, most of which are primarily focused on the contract-free prepaid business, have risen in popularity, but at the same time have been a victim of their own success. As competition in the prepaid space has heated up, prices have continuously come down, and the Tier 1 carriers have responded with their own offers. As a result, the third quarter was marked by a slowdown or — in many cases — a decline in subscriber growth for wireless operators Deutsche Telekom (NYSE:DT)–owned T-Mobile, MetroPCS (NYSE:PCS), Telephone and Data System’s (NYSE:TDS) US Cellular and potentially also Leap Wireless (NASDAQ:LEAP).

T-Mobile today reported subscriber losses totaling 77,000, which it attributed to higher churn among its contract customer base. The fourth-largest carrier’s subscriber base is now 33.4 million. T-Mobile has spent the last month dealing with bad PR from lost data on its Sidekick line of phones and widespread outages, but it has also been trying to position itself as more competitive with the cheaper prepaid providers. Last month it introduced new unlimited, contract-free service plans, in addition to its $50 unlimited offering introduced earlier this year for its existing long-term customers.

US Cellular also reported earnings today, including a 3% drop in revenue and 2% drop in average revenue per user (ARPU). As a regional, but primarily postpaid provider, US Cellular sees competition from the Tier 1 carriers as well as from the prepaid providers targeting a similar demographic. In total, the company lost 24,000 subscribers during Q3, leaving its customer base at 6.13 million.

Regional CDMA provider MetroPCS reported disappointing customer growth, even according to Roger Linquist, chairman and CEO. On the company’s earnings conference call today, he blamed the competition and high unemployment among its customer base for the slowdown in subscriber additions. The prepaid carrier did add about 66,000 subs in the quarter, but it was a significant decrease from 249,000 year-over-year and 206,000 sequentially. It also increased both its ARPU and churn rate by 1% and posted a 64% increase in Q3 profit.

MetroPCS is looking toward its plan for 4G coverage and expanding its smartphone portfolio, including with Google Android–based handsets and its own app store, to drive recovery, but Linquist said that will take into the second half of next year.

Leap Wireless will also report its earnings later today, and its stock has already taken a hit, as analysts expect a similar performance to MetroPCS.

As a result of the competition in the prepaid space, Tier 1 providers are adapting their service plans and introducing competitive options. Even Verizon Wireless, which has maintained it will stay out of prepaid to focus on its postpaid customers, is getting on board. The carrier today introduced a prepaid broadband option for its customers who use its USB760 modem on Windows-, Mac- or Linux-based laptops. It is also seeing considerable success with its subsidiary, Tracfone, offering a cheap unlimited Straight Talk plan exclusively through Wal-Mart. Likewise, Sprint has had the most success with its prepaid arm, Boost Mobile, and recently announced plans to fully acquire its prepaid mobile virtual network operator Virgin Mobile. AT&T is also delving more into prepaid, last month launching a $60 prepaid plan with unlimited nationwide calling and free text messaging.