Rural telco Frontier Communications Inc. didn’t exactly assure regulators of its stability with its third quarter numbers, which features steepening line losses, slower data growth and drops in revenue.

Still, the telco’s top officials say the proposed $8.6 billion acquisition of most of Verizon Communications Inc.’s rural lines in 14 states is progressing on schedule, and meanwhile it is getting set to trial a new wireless voice service in a Tennessee test market.

For the quarter, the rural telco lost another 30,436 residential lines, up from 21,891 in the second quarter and 31,593 in the prior third quarter. That left Frontier with 1.4 million residential lines.

Line losses have slowed because of bundling, but there also has been a drop in the number of customers moving out of territory, Frontier Chairwoman and CEO Maggie Wilderotter noted during the third quarter earnings call.

“We are encouraged by these trends, and also note that our customers are seeing value in our voice services, with over 50% of our phone customers on multiyear price protection plans,” she said.

Frontier also has started to offer voice-over IP, and that service now claims 631,000 customers, for a 24% year-over-year increase. The service penetration now stands at 49% of residential lines. Overall, residential bundled penetration rose to 56% of primary lines.

Data services continued to see growth slow, adding 7,521 subscribers compared to 13,700 added in the second quarter and 12,646 added in the third quarter last year. That raised Frontier’s DSL headcount to 621,331.

During the quarter, Frontier offered no new promotions on the residential side other than its longstanding Smart Value double and triple play offer. Going into the fourth quarter, it has added an offer of six months of free Dish Network video service to customers that sign up for voice and high-speed data.

“In this difficult economy, we are pleased with our year-to-day growth rate,” Wilderotter said, adding that data ARPU stands at more than $40 and penetration of access lines has 29% and more than 43% of residential lines.

About 77% of residential high-speed data customers also are on price-protection plans, and more than 90% of all new customers are opting for the price guarantee.

The telco’s partnership with Dish Network, meanwhile, netted it 7,182 new subscribers, but that was well off the 11,343 added in the second quarter but ahead of the 4,754 Dish customers added in the third quarter 2008. Video penetration now stands at 12.9%, up from 8.2% in the third quarter a year ago.

Overall, residential ARPU rose to $66.90, down from $67.29 in the second quarter but up from $65.89 in the third quarter 2008.

In wireless, Frontier’s Wi-Fi network now covering 19 downtown areas and campuses, has attracted more than 15,000 licenses from business owners, universities and municipalities. That’s up 30% from the first quarter.

That may soon extend to voice. Frontier is set to start a trial in the fourth quarter in Tennessee in which it will offer a cellular voice service banking on its Wi-Fi network and wholesale capacity on an unnamed cellular carrier’s network. The resulting hybrid service would allow customers to take and make calls using the Frontier Wi-Fi network at home and in areas where its mesh Wi-Fi network is available, switching to the cellular network only when they go out of range of that network.

“We have tested this, and it is a seamless handoff for the customer,” Wilderotter said. “And we believe we can actually reduce cost for these customers in the 35 to 40% range on a monthly basis, because they are not using monthly minutes on the network when they are on our network.”

If successful, Frontier would look at expanding the service to other markets, she said.

On the financial side revenue reflected the downward voice trends, totaling $526.8 million compared to $532.1 million in the second quarter and $557.9 million in the third quarter last year. Net income came in at $52.7 million compared to $28.3 million in the second quarter and $47 million in the prior third quarter.

Frontier’s mixed results will likely generate more questions regarding its proposed acquisition of the Verizon rural incumbent operations. With former Verizon spinoffs resulting in Chapter 11 bankruptcy for Hawaiian Telcom and FairPoint Communications Inc., a growing number of consumer advocates have raised doubts about Frontier’s ability to take over the 4.8 million access lines from Verizon.

Frontier recently gained approval from majority of shareholders, and approval process is going forward with state and local regulators. The latest states to approve the merger are Nevada, South Carolina and California.

Thus far, Frontier has raised $600 million in long term financing to help fund the acquisition, and it plans to raise $3.3 billion in debt to fund the remainder of the transaction. It is now in talks with leading banks to raise these funds, Wilderotter said.

Meanwhile, Frontier has received from Verizon a rundown of customer metrics of the territories to be transferred. That includes access lines totaling 4,343,000, down 150,000 from the prior quarter.

DSL and FiOS fiber customers totaled 1,055,000, with net additions of 7,000 in the quarter. FiOS TV added 4,000 new customers to total 107,000.

“We see tremendous opportunity to improve these metrics post-closing as we implement our Frontier local go-to-market strategy,” said Frontier Chief Financial Officer Don Shassian.