October 22, 2010 / 4:17 PM / in 7 years

Verizon mobile subscriber goal disappoints

NEW YORK (Reuters) - Verizon Communications Inc expects to attract only half as many high-value subscribers this holiday shopping quarter compared with last year‘s, its chief financial officer told Reuters.

The forecast came after Verizon’s third-quarter results on Friday showed the top U.S. mobile provider lost more ground than expected to AT&T Inc, the exclusive U.S. provider for Apple Inc’s iPhone.

Verizon shares closed down 1.3 percent after falling as much as 2.3 percent.

Until Verizon’s wireless venture with Vodafone Group Plc begins selling the iPhone next year, as is widely expected, it is seen having difficulty competing with AT&T for new customers.

Verizon Chief Financial officer John Killian told Reuters he sees the mobile business adding 550,000 to 600,000 net new monthly-bill paying customers this quarter, compared with 1.2 million in last year’s fourth quarter. “We think we can continue to grow at that kind of rate,” he said.

He added that rising numbers of smartphone users may be a more important growth trend as these customers spend more on mobile data fees. “Even if I didn’t add subscribers I can grow revenue very nicely because of what’s happening with data.”

While Verizon’s third-quarter profit and revenue beat expectations, analysts were unimpressed with a fourth-quarter growth that is merely in line with the preceding quarters.

“It would represent a material slowdown,” said Mizuho analyst Michael Nelson who noted that the December quarter is usually the strongest as consumers shop for holiday gifts.

For the past year, Verizon Wireless has relied heavily on cellphones based on Google Inc’s Android software, including Motorola Inc and HTC Corp phones.

But those devices, while popular have not been enough for it to beat AT&T’s iPhone-backed growth. Verizon’s total mobile customer growth of 997,000 in the third quarter fell short of analyst expectations of more than 1 million.

Nelson said consumers are excited about the prospect of Verizon selling the iPhone but added, “Nobody knows for sure when they’re going to get iPhone. Verizon hasn’t done anything to satisfy investors interest.”

In the third quarter Verizon Wireless added 584,000 net new monthly-bill paying customers, compared to the average expectation for 580,000 from six analysts. and behind AT&T’s 745,000 additions, reported the day before.

Killian, who is retiring later this year, said investors should focus on Verizon Wireless’s revenue, accelerating revenue growth.

Data services could lift the current 7 percent service revenue growth rate closer to AT&T’s 10 percent, he said.

He also noted that Verizon has more room to grow because a smaller percentage of its customers already own smartphones.

Verizon said about 23 percent of its customers have smartphones. AT&T says 57 percent of its customers have advanced devices geared for data service.

“They’re ahead of us with the percentage of customers that have a smartphone,” Killian conceded in the interview but added, “That’s upside for us.”

The executive also noted that Verizon Wireless’ profit margin, of 47.2 percent, is wider those of its rivals. For example, AT&T, which was hurt by hefty iPhone subsidies, had a margin of 37.6 percent.

Verizon’s third-quarter net profit fell to $881 million, or 31 cents per share, from $1.18 billion, or 41 cents a share, in the year-ago quarter. Excluding special charges, earnings per share were 56 cents, 2 cents ahead of the average analyst estimate, according to Thomson Reuters I/B/E/S.

Revenue, after adjusting for asset sales, rose 2.1 percent to $26.48 billion, slightly ahead of the average analyst estimate for $26.35 billion.

Verizon said its adjusted earnings for the second half of 2010 would be at the high end of its previously announced forecast range for a 5 percent to 10 percent increase from its $1.01 earnings per share in the first half of the year.

Verizon added 226,00 new customers to its FiOS high-speed Internet service and 204,000 new FiOS video customers, slightly ahead of some analysts’ expectations.

Verizon shares closed down 43 cents at $32.09 on the New York Stock Exchange on Friday. AT&T shares fell 0.18 percent to $28.29. Both companies shares had risen in the months prior to the results. (Reporting by Sinead Carew; Editing by Derek Caney and Richard Chang)

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