Verizon profit falls, subscriber growth weak

NEW YORK Thu Apr 22, 2010 8:49am EDT

NEW YORK (Reuters) - Telephone operator Verizon Communications Inc (VZ.N) posted a smaller quarterly profit and wireless subscriber growth slowed more dramatically than Wall Street analysts' already low expectations.

Verizon shares fell 1.2 percent in premarket trading as analysts worried about the company's prospects for growth in wireless, on which it has been depending to offset declines in its traditional home telephone business.

Verizon said its Verizon Wireless venture with Vodafone Group Plc (VOD.L) added only 423,000 postpaid customers -- subscribers who are seen as the most valuable because they pay monthly bills and commit to long-term contracts.

This was well below the average expectation for 582,000 postpaid additions from five analysts contacted by Reuters. The estimates ranged from 480,000 to 725,000.

"Expectations for postpaid were already low but they weren't low enough. The postpaid pool has just about dried up," said Bernstein analyst Craig Moffett.

"It certainly raises profound strategic questions of where you go for growth in this industry," he said.

On Wednesday, Verizon's biggest rival AT&T Inc (T.N) had reported postpaid additions of 512,000, which was also sharply below previous growth.

Verizon's first-quarter profit fell to $2.28 billion, or 14 cents per share, from $3.21 billion, or 58 cents per share, in the same quarter last year.

The latest quarter included a hefty charge of 42 cents per share, most of which came from a non-cash charge related to U.S. healthcare reform laws. Verizon said earlier this month it would take such a charge.

Piper Jaffray analyst Christopher Larsen said that while subscriber growth was disappointing, it helped Verizon's wireless profits because it meant a reduction in the costs such as phone subsidies that Verizon incurs for adding new customers.

Larsen said the slowdown in subscribers means the company would have to push more than ever to expand the revenue it receives from each customer.

"Expect topline growth to slow but this isn't going to go to a zero growth business," he said.

Revenue rose 1.2 percent to $26.92 billion, compared with analysts' expectations for $26.94 billion, according to Thomson Reuters I/B/E/S.

(Reporting by Sinead Carew; editing by Derek Caney and Maureen Bavdek)