July 30 (Bloomberg) -- Verizon Communications Inc., the second-biggest U.S. phone company, said quarterly profit rose on an increase in mobile-phone subscribers, and its wireless unit agreed to buy Rural Cellular Corp. in a bid to catch AT&T Inc.

Net income climbed 4.5 percent to $1.68 billion, or 58 cents a share, in line with analysts' estimates. Verizon Wireless, co-owned by Vodafone Group Plc, will pay $757 million for Rural to add customers after trailing AT&T in new business last quarter.

The wireless venture posted a 13 percent gain in subscribers in the second quarter from a year earlier. The business accounted for at least 45 percent of revenue the past two quarters as home-phone users switched to mobile handsets or voice plans from cable companies. AT&T won more customers as it began selling Apple Inc.'s iPhone in June.

``Customer growth is something that's going to be harder to come by as we move into 2008,'' said Todd Rosenbluth, an analyst at Standard & Poor's in New York. ``Growth is going to slow from where it's been in prior periods.'' Rosenbluth rates Verizon shares ``hold'' and doesn't own any.

Verizon shares dropped 49 cents, or 1.2 percent, to $41.51 at 4 p.m. in New York Stock Exchange composite trading. Rural Cellular advanced $10.95 to $42.76, a 34 percent gain, on the Nasdaq Stock Market.

Rural Acquisition

Sales at Verizon climbed 6.3 percent to $23.3 billion, beating the $23 billion average estimate of 18 analysts in a Bloomberg survey. New York-based Verizon had net income of $1.61 billion, or 55 cents, a year earlier.

Excluding some items, profit was 58 cents a share, Verizon said. That missed the 59-cent average of estimates compiled by Bloomberg and met the average from Thomson Financial.

The wireless unit will pay $45 a share for Alexandria, Minnesota-based Rural, 41 percent more than Rural's close on July 27. Including the assumption of debt, the price is $2.67 billion, Basking Ridge, New Jersey-based Verizon Wireless said.

The deal gives Verizon Wireless 716,000 more clients. The company has networks in rural and suburban parts of 15 states including North Dakota, Wisconsin and Alabama, areas ``where previously we had little or no presence,'' Verizon Wireless Chief Executive Officer Lowell McAdam said today in a statement.

This is at least the third purchase this year of a U.S. mobile-phone service that caters to rural and suburban areas. AT&T, the largest U.S. phone company, last month agreed to buy Dobson Communications Corp. for $2.8 billion. In May, Goldman Sachs Group Inc. and TPG Inc. announced plans to purchase Alltel Corp. for $27.5 billion.

Subscriber Rolls

Verizon Wireless expects to complete the purchase in the first half of 2008. The mobile-phone company had 62 million wireless subscribers at the end of the second quarter, compared with 54.8 million a year earlier. The company added 1.3 million net new subscribers in the period, compared with the previous one. AT&T won 1.5 million.

Verizon had 26.3 million home phone lines at the end of June, a 10.3 percent drop from a year ago. The phone-line unit's operating profit margin, a measure of the company's efficiency, fell to 9 percent from 9.1 percent in the previous quarter, less than the 9.6 percent forecast of William Power, an analyst at Robert W. Baird & Co. in Dallas.

``Their sales and marketing expense was up'' to help boost revenue, said Power, who rates the shares ``neutral'' and doesn't own any. ``Their view is that the scale advantages of higher revenue will benefit margins over time. The question mark is whether those sales and marketing expenses will stay higher.''

Fiber Network

Verizon added 203,000 Internet users and 167,000 television subscribers to its new fiber-optic network, topping the estimates of UBS AG analyst John Hodulik, who expected 200,000 Internet and 160,000 TV customers. Verizon is spending $22.9 billion to build the network, offering TV service to compete with cable companies including Comcast Corp.

Losses from the network sapped 10 cents a share from earnings, down from 11 cents in the first quarter. Hodulik predicted losses of 9 cents.

High-speed Internet customers, including users of FiOS or of the older digital subscriber line technology, increased by 288,000, missing the 343,000 estimate of Christopher Larsen, an analyst at Credit Suisse in New York.

``That's a recurring theme,'' said Larsen, who rates Verizon shares ``outperform'' and doesn't own any.

AT&T and Comcast reported fewer high-speed Internet customers in the second quarter than analysts expected, he said.

AT&T added 1.5 million customers for its wireless business in the quarter, according to a statement from the San Antonio- based company this month. AT&T activated 146,000 iPhones, which combine Apple's best-selling iPod music player with an e-mail phone, in the first two days of their exclusive sales agreement.

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

Last Updated: July 30, 2007 16:10 EDT