By Sinead Carew
NEW YORK, Oct 17 (Reuters) - Verizon Communications Inc on Thursday posted stronger- than-expected third-quarterearnings and revenue driven by wireless growth, sending itsshares up 4 percent.
While wireless customer growth was slightly below WallStreet estimates, its Verizon Wireless venture with VodafoneGroup Plc posted good profit and revenue growth ascustomers spent more on data services. Verizon has agreed to buyout Vodafone's 45 percent share of the venture.
The subscriber shortfall caused some concern that thecompany, the first U.S. telephone operator to report thisquarter, was losing market share to rivals such as T-Mobile USInc.
New Street analyst Jonathan Chaplin said that whileVerizon's financials were "outstanding," "there were clear signsthat a resurgent TMUS is impacting even Verizon."
Chief Financial Officer Fran Shammo conceded somelower-spending customers moved to rival services in the quartereven as he told analysts on the company's quarterly conferencecall that "we continue to gain market share."
Instead, he blamed the subscriber shortfall on shortage of Apple Inc's iPhone 5S. About one-half of the VerizonWireless smartphone activations were iPhones, representingroughly 3.9 million iPhone activations.
"The shortage on the 5S was a significant issue for thequarter," Shammo told Reuters in an interview.
The executive said that 8.4 percent service revenue growthat Verizon Wireless was sustainable in the short term butexpected the growth rate to decline in the future.
Verizon Wireless added 927,000 net retail subscribers in thequarter, compared with Wall Street expectations of about 1million customers, according to eight analysts, with estimatesranging from 900,000 to 1.2 million.
While much of Verizon's growth was from customers connectingdevices like tablet computers, Verizon said phone customers,still made up the most of its growth at 481,000.
Verizon said it expects wireless customer growth to improvesequentially in the fourth quarter but did not give specificestimates.
Verizon reported a third-quarter profit of $2.2 billion, or78 cents per share, compared with $1.59 billion, or 56 cents pershare, a year ago.
Excluding unusual items, Verizon earned 77 cents per sharein the quarter, compared with Wall Street expectations of 74cents, according to Thomson Reuters I/B/E/S.
Its wireless profit margin was 51.1 percent, based onearnings before interest, taxes, depreciation andamortization(EBITDA) as a percentage of service revenue, andabove its target range of 49 percent to 50 percent for the fullyear.
Hudson Square analyst Rethemeier said the profit marginwould likely come down in the fourth quarter due to steepholiday season costs, since the company kept its wireless margintarget for the year despite the strong third-quarter number.
Revenue rose 4.4 to $30.28 billion from $29.01 billion. WallStreet expected $30.16 billion, according to Thomson ReutersI/B/E/S.
Strong wireless service revenue growth for the quarter wasoffset by a decline of 3 percent in its global enterprisebusiness and a slower 4.3 percent rise in its consumer business,which includes its FiOS television service.
Verizon's enterprise business was affected by governmentbudget cutbacks and cost cuts in the private sector, accordingto Shammo, who expects the business to remain flat in 2014.
"Generally speaking, enterprise customers continue to becautious regarding new investment decisions," Shammo said.
Verizon, which competes with cable companies in televisionand broadband services, said it added 173,000 net FiOS Internetconnections and 135,000 net FiOS video customers in the quarter.
Shammo said Verizon terminated a technology joint venturewith cable rivals Comcast Corp, Time Warner Cable and privately held Brighthouse Networks for competitivereasons.
The venture, which had worried some consumer advocates, wasset up to develop converged wireless and wireline products forconsumers when Verizon agreed to buy wireless spectrum for itscable rivals.
The cable operators still resell Verizon Wireless servicesin markets where they do not compete but Shammo said that thetechnology venture was killed because of competition concerns.
"What was realized was that the cable companies didn't wantto jointly develop something that FiOS was going to get at theend of the day and of course we weren't doing to jointly developsomething that FiOS wouldn't get," Shammo said. "There was nomeetings of the minds."
Verizon shares rose 3.9 percent to $49.14 in afternoontrade on the New York Stock Exchange.
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