October 21, 2014 / 11:55 AM / in 3 years

Verizon posts higher revenue as consumers use more data

WASHINGTON (Reuters) - Verizon Communications Inc’s (VZ.N) quarterly revenue rose 4.3 percent, matching forecasts, as price cuts attracted more customers and growing mobile video traffic boosted data usage.

The Verizon building in New York December 12, 2013. REUTERS/Eric Thayer

Subscribers’ tendency to use more than one device, plugging in tablets and vehicle consoles to its network, also bolstered results. Postpaid customers connected nearly three devices per account, an increase of 3.7 percent.

Verizon, the largest U.S. wireless carrier, added 1.5 million postpaid subscribers, or those who pay for service after use, beating Wall Street estimates of about 1 million customers.

“Overall it was a good quarter for Verizon in terms of new additions. It is still a very competitive landscape and the fourth quarter could be challenging on a margin front as you look at a promotional period with a new iPhone,” said Angelo Zino, analyst at S&P Capital IQ in New York.

As subscribers watch more videos on their phones, the amount of data they consume is increasing. Customers on Verizon’s “More Everything” shared-data plan, which accounts for over one-half of its customers, are using 50 percent more data than a year ago.

“It is not just about a smartphone customer, it is about how we build a base of revenue,” Fran Shammo, chief financial officer, told investors on a conference call.

Subscribers were also drawn to the carrier by cheaper prices. Verizon has been cautious in cutting prices in a hyper-competitive environment, but recently launched a series of promotions following reductions by rivals.

“Quite honestly, this puts us back in the market. Given all the pricing moves, we were quite honestly out of the market,” said Shammo.

The service margin for Verizon’s wireline sector fell 1.6 percent to 49.5 percent, pressured by equipment financing plans that have lower service fees. Increasing competition and lower prices are expected to squeeze margins across the telecom sector this quarter.

AT&T (T.N) reports earnings on Wednesday, followed by Sprint (S.N) and T-Mobile TMUS.N next week.

Recent price cuts and aggressive promotions has some investors worried the industry has entered a price war, as carriers compete for customers in a near saturated market.

In response, many wireless carriers have replaced traditional two-year contracts with equipment financing plans that charge lower service fees but do not subsidize devices.

But Verizon has been reluctant to dump the two-year contract. The carrier saw a tepid rise in customers subscribing to such plans in the most recent quarter but expects the percentage of those signing up to double in the fourth quarter.

Verizon reported third-quarter profit of 89 cents per share, up from 78 cents per share a year earlier but a penny shy of the average analyst estimate, according to Thomson Reuters I/B/E/S. Revenue rose 4.3 percent to $31.6 billion, matching forecasts.

Total revenues for Verizon’s wireless business grew 7 percent year over year, while falling 0.8 percent for its broadband internet and video product.

Verizon shares rose 10 cents to $48.58

Reporting by Marina Lopes; Editing by Lisa Von Ahn, Jeffrey Benkoe and Cynthia Osterman

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