Oct. 29 (Bloomberg) -- Verizon Communications Inc., the second-largest U.S. phone company, posted a 34 percent drop in third-quarter profit after winning fewer Internet subscribers.

Net income fell to $1.27 billion, or 44 cents a share, from $1.92 billion, or 66 cents, New York-based Verizon said today in a statement. Sales climbed 5.8 percent to $23.8 billion, compared with the $23.7 billion average of estimates compiled by Bloomberg.

Verizon added 285,000 high-speed Internet subscribers, 41 percent less than a year ago. That missed the 296,000 estimated by UBS AG analyst John Hodulik. Last week cable rival Comcast Corp. also reported customer gains that missed analysts' predictions, saying a ``less-robust'' economy may discourage customers from spending as much.

``We haven't seen the full economic impact in telecom yet,'' Standard & Poor's Todd Rosenbluth said in an interview before the results. ``In other sectors of the economy we're seeing pressure. We're concerned it may have an impact on broadband growth.'' The New York-based analyst rates the shares ``hold.''

Verizon had costs of 16 cents a share after setting aside money to pay tax on a possible dividend from its stake in Vodafone Omnitel NV, Italy's largest wireless carrier. Excluding costs such as that tax expense, profit was 63 cents, compared with the 62-cent average of estimates compiled by Bloomberg.

The stock climbed 69 cents to $45.60 on Oct. 26 in New York Stock Exchange composite trading. Verizon has advanced 22 percent this year.

Fiber TV

The company added 202,000 new customers for its fiber-optic television service, bringing its total to 717,000. Verizon is spending $23 billion to build out the network to compete with cable operators such as Comcast.

Verizon's wireless joint venture added 1.6 million subscribers, or 1.8 million excluding wholesale customers. Most of the non-wholesale customers were on long-term contracts, compared with an increase of 1.2 million at AT&T Inc., the biggest U.S. phone company, and a loss of 337,000 at Sprint Nextel Corp. Contract subscribers are lucrative because they're more loyal than customers who pay in advance for service.

During the quarter, Chief Executive Officer Ivan Seidenberg contended with a challenge from Apple Inc.'s iPhone, which AT&T has exclusive rights to sell in the U.S. The device, which blends an iPod media player with an e-mail phone, was AT&T's top seller in the quarter and the fourth-best selling handset in the U.S., according to Boston researcher Strategy Analytics.

In the past year, Verizon has sold phone-line businesses in Puerto Rico and the Dominican Republic. It spun off its directory publishing unit last year to form Idearc Inc.

To contact the reporter on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net

Last Updated: October 29, 2007 07:54 EDT