UPDATE 3-Verizon profit falls, subscriber growth weak

* Q1 EPS $0.14 vs $0.58 year ago

* Q1 Rev $26.92 bln vs Wall St view $26.94 bln

* 423,000 postpaid adds vs analyst view 582,000

* Verizon shares fall 2 pct on NYSE (Adds executive comments, share price update, byline)

By Sinead Carew

NEW YORK, April 22 (Reuters) - Verizon Communications Inc VZ.N posted a smaller quarterly profit and wireless subscriber growth slowed more dramatically than Wall Street analysts' already low expectations.

Shares of the phone company fell 2 percent in early trading on concerns about its wireless growth prospects as most U.S. consumers already have cellphones and an increasing number are opting for cheaper services with less commitment.

Verizon depends on wireless to overcome declines in its traditional home telephone business.

Verizon also announced plans for annual cost reductions for $1.5 billion to $2 billion in the next two years from moves such as job cuts.

In the first quarter, its Verizon Wireless venture with Vodafone Group Plc VOD.L added only 423,000 postpaid mobile customers who are seen as the most valuable because they pay monthly bills and sign 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. In total, Verizon Wireless has 92.8 million customers.

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

“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 Chief Financial officer John Killian said the worse-than-usual first-quarter decline in postpaid subscriber growth was due to a particularly strong fourth quarter and consumer moves to cheaper unlimited prepaid services.

He said consumers would continue to move to prepaid, but he expects Verizon’s postpaid growth to improve as it aims to lure customers away from rivals with the latest smartphones and a network upgrade this year for higher speed data services.

“We don’t necessarily think we’ll be at 423,000 every quarter. We do think we have the ability to do better,” Killian said in an interview with Reuters. He declined to give more specific guidance.

The executive also said that one positive sign in the first quarter was some early indications of recovery in the business market, which suffered as big corporate customers had cut expenses and laid off workers.

In Verizon’s declining wireline business, Killian said the company’s key focus would be reducing costs including job cuts. He said the company cut 2,300 jobs in the first quarter as part of its previously announced plan to cut about 13,000 jobs this year, similar to 2009 cutbacks.

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.

Verizon shares were down 59 cents, or 2 percent, to $28.97 in early trade on New York Stock Exchange. AT&T shares were down 1.94 percent at $25.83.


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