January 25, 2011 / 11:48 AM / in 7 years

Verizon sees stronger 2011 results, touts iPhone

<p>Verizon CEO Ivan Seidenberg leaves the stage after he delivered his keynote address on the opening day of the Consumer Electronics Show (CES) in Las Vegas January 6, 2011. REUTERS/Rick Wilking</p>

NEW YORK (Reuters) - Verizon Communications sees revenue and earnings rising as much as 8 percent this year even as it kicks off sales of Apple Inc’s iPhone, which tends to come with costly subsidies.

Verizon shares rose 1 percent after the bullish outlook. The outlook and reports of subscriber gains by its wireless venture overshadowed fourth-quarter results that missed expectations.

The company begins selling iPhone next month through its Verizon Wireless venture, bringing an end to AT&T Inc's exclusive hold on the wildly popular phone. (Adds graphic: r.reuters.com/suq67r)

Verizon, which waited 3 1/2 years to get a crack at selling the iPhone, said it would still be able to increase overall 2011 earnings per share by 5 percent to 8 percent even if it sells the 11 million iPhones analysts expect. Analysts had been worried about how much iPhone’s higher subsidies would hurt Verizon’s ability to increase profits.

Verizon said revenue should rise 4 percent to 8 percent in 2011. That compares with expectations among analysts that it would increase revenue at a rate close to 2 percent, according to data from Thomson Reuters I/B/E/S.

Chief Operating Officer Lowell McAdam said much of the 2011 growth would come from doubling the percentage of customers who use smartphones.

“I think we’ll be at 50 percent by the end of 2011 or even higher,” McAdam told analysts during the company’s conference call on quarterly earnings. Smartphone customers spend more on data services than those with regular phones do.

“It was surprisingly strong guidance,” said Mizuho analyst Michael Nelson, who was particularly impressed with Verizon’s earnings-per-share estimate. AT&T has often reported a drag on its profits from the hefty subsidies that it pays for iPhone.

Verizon also confirmed on Tuesday that it would keep its $30 monthly fee for unlimited data use for iPhone customers, potentially giving it an advantage over AT&T, which eliminated such plans. It said the unlimited service plan would not last forever but did not give a timeframe for the change.

Verizon’s upbeat forecast for 2011 followed a quarterly earnings report that showed that even without the iPhone, demand for its wireless services was humming along.

Verizon Wireless -- its venture with Vodafone Group Plc -- added 872,000 contract customers in the final three months of the year, compared with an average expectation for more than 646,000 from eight analysts contacted by Reuters.

“It was spectacular wireless (subscriber) growth,” said Stifel Nicolaus analyst Christopher King. He noted that some investors worried that a lot of customers would hold off signing up with Verizon ahead of the iPhone introduction.

PLANS TIGHTER VODAFONE PARTNERSHIP

Verizon also said that in just three weeks it added 65,000 customers for a new high-speed wireless service it started offering to laptop users in December on its advanced Long Term Evolution (LTE) network.

McAdam, who is expected to take on the CEO job later this year, also said Verizon plans to tighten its partnership with Vodafone, the 45 percent co-owner of Verizon Wireless, by joint planning on technology and creating joint account teams to handle international corporate clients.

Verizon was the first of the big U.S. telecommunications providers to report results for the fourth quarter. Its biggest rival, AT&T, is due to report on Thursday.

Overall, it posted weaker-than-expected earnings and revenue for the fourth quarter, but those results were largely overshadowed by the subscriber numbers and 2011 outlook.

Mizuho’s Nelson said Verizon likely took customers from rivals such as AT&T and No. 4 U.S. mobile service T-Mobile USA, a unit of Deutsche Telekom, in the fourth quarter.

Excluding one-time items, Verizon earned 54 cents per share, just below analysts’ average estimate of 55 cents. Revenue fell 2.6 percent to $26.4 billion, below analyst expectations for $26.48 billion.

Verizon shares were up 50 cents or 1.4 percent at $35.74 in afternoon New York Stock Exchange trading.

Reporting by Sinead Carew; editing by Derek Caney, Lisa Von Ahn, Phil Berlowitz

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