U.S. telecommunications group Verizon Communications Inc posted a record quarterly profit thanks to its wireless business, even as corporate customers delayed renewing contracts amid continued economic uncertainty at home and abroad.
Verizon said on Thursday it was on track to meet 2012 financial goals, with capital spending for the year expected to be lower than the $16.2 billion total in 2011.
Like rivals AT&T Inc and Sprint Nextel Corp, Verizon Wireless is spending billions of dollars to upgrade its network to support booming demand for services like web surfing and video on smartphones like Apple Inc's iPhone. Higher data usage can translate into better profits.
"Wireless achieved record profitability in a quarter in which we reported the highest number of retail postpaid gross and net adds in four years," Chief Executive Lowell McAdam said in a statement, referring to new customer numbers.
For the third quarter, Verizon's profit rose to $1.59 billion, or 56 cents per share, from $1.37 billion, or 49 cents per share, in the year-ago quarter, when the firm was hit with costs from a two-week workers' strike and weather damage.
Revenue increased to $29.01 billion from $27.91 billion in the year-ago quarter. Analysts, on average, expected revenue of $28.96 billion, according to Thomson Reuters I/B/E/S.
Excluding unusual items, the company earned 64 cents per share, in line with expectations.
Shares rose 3.6 percent to $46.33 near midday.
Macquarie Capital analyst Kevin Smithen said in a note that Verizon was "the undisputed champion of US wireless and perhaps global wireless."
Its Verizon Wireless venture with Vodafone Group Plc added 1.8 million net new subscribers in the quarter, compared with 882,000 in the year-ago third quarter.
Verizon Wireless, the No. 1 U.S. mobile provider, posted a 7.5 percent increase in quarterly service revenue to $16.2 billion.
IMPROVED PROFITS IN WIRELINE
Chief Financial Officer Fran Shammo did not comment on prospects for 2013, except to say the company anticipated improved profitability in its wireline business and that he hoped large businesses would "renew their investing activities in 2013."
Chief investment officers have been holding off on new contracts and investment decisions, remaining cautious "with regard to uncertainties involving the election outcome, the pending fiscal cliff, potential tax reform and other policy changes that may take place," Shammo said on a call with analysts.
He added that the situation in Europe was particularly challenging for enterprise and wholesale revenues and that the economic pressures there would also be felt in 2013.
"Unfortunately we don't see anything different than we see today," Shammo said.
Overall, Verizon's wireline revenue declined 2.3 percent to $9.9 billion, broadly in line with expectations. However, its consumer wireline business grew 4.6 percent to $3.6 billion.
NEW DATA PLANS
At the end of the third quarter, smartphones constituted more than 53 percent of the Verizon Wireless customers who are billed monthly, up from 50 percent at the end of second quarter of 2012, the company said.
On June 28, Verizon overhauled its price structure to allow families and individuals to share a data allowance among multiple devices. As part of its new plans, it raised fees for data services like mobile web surfing while offering unlimited calls and texts for a flat fee.
The idea of the new plans was to encourage customers to connect more devices, including tablet computers to its cellular network.
As a result, Verizon Wireless now reports average revenue per account (ARPA) instead of average revenue per user (ARPU) since customers can share data among multiple devices.
Verizon said by the end of the quarter it had 34.8 million accounts billed on a monthly basis, compared with 34.6 million in the second quarter.
Average revenue per account rose 6.5 percent to $145.42 from $143.32 in the second quarter and $136.57 in the third quarter the year before.
About 35 percent of an estimated 1.9 billion cellphones that are sold worldwide this year will be smartphones. Between 20 percent and 25 percent of people in the world already own smartphones, with the penetration rate rising to a range of 50 percent to 55 percent in the United States, according to research firm Gartner.
Macquarie's Smithen added that Verizon had nothing to fear from Sprint and Japan's Softbank Corp because the two would not be able to be disruptive until at least the second quarter of 2014.
Sprint last week agreed to sell 70 percent of itself to Softbank in a $20 billion transaction.
Shammo said the move by Softbank was evidence of the strength of the U.S. market and "the growth potential that is still available within this market."
(Additional reporting by Neha Alawadhi in Bangalore.; Editing by Hans-Juergen Peters, Mark Potter and Jeffrey Benkoe)