Verizon Sees Sales Topping Estimates on IPhone Debut

Verizon Communications Inc., the second-largest U.S. phone company, forecast revenue growth this year that topped analysts’ estimates, as it sells more smartphones including Apple Inc.’s iPhone.

The company will increase revenue 4 percent to 8 percent this year, Fran Shammo, chief financial officer, said today at an investor conference. The average estimate from analysts surveyed by Bloomberg was for 2 percent growth.

Verizon will start selling the iPhone in February, ending AT&T Inc.’s exclusive hold on the device in the U.S. Verizon may grow earnings per share by 5 percent to 8 percent if the company sells 11 million iPhones, Shammo said.

Verizon rose 55 cents to $35.79 at 4 p.m. in New York Stock Exchange composite trading. The stock rose 16 percent last year.

The forecast came after Verizon reported fourth-quarter earnings, excluding pension, severance and merger-integration items, of 54 cents a share. The average estimate from analysts surveyed by Bloomberg was 55 cents.

Customers were able to spend less on wireless calls because of discounts in family and unlimited plans. New York-based Verizon and other carriers are trying to combat this trend by promoting data plans that let smartphones download games and connect to the Internet.

“What we’re learning is voice is becoming almost like an app, and people are pricing around that,” said Jennifer Fritzsche, an analyst at Wells Fargo Securities LLC in Chicago. She rates the shares “outperform” and doesn’t own them.

Sales fell 2.6 percent to $26.4 billion from $27.1 billion a year earlier. Analysts had anticipated $26.4 billion in revenue, according to the Bloomberg survey. Net income was $2.64 billion, or 93 cents a share, compared with $617 million, or 22 cents.

Wireless Customer Gains

Verizon will make the iPhone 4 available to current customers on Feb. 3, and new customers will be able to buy it a week later. A version with 16 gigabytes of memory will sell for $199.99 and a 32-gigabyte model will cost $299.99.

Verizon will keep offering unlimited data plans through the device’s release, and will move to so-called tiered pricing later in the year, Lowell McAdam, chief operating officer, said in an interview in New York today. The unlimited plan will help the company compete for AT&T customers who still have access to unlimited plans under older agreements, he said.

“I’m not going to shoot myself in the foot,” McAdam said. “I’m going to bring those customers in first.”

IPhone Subsidies

In the wireless business, Verizon added 872,000 contract customers in the quarter. That beat the 650,000 that Fritzsche had forecast. Mike McCormack, an analyst at Nomura Securities International Inc., predicted the company would add 724,000 and Chris Larsen at Piper Jaffray Cos had estimated 600,000 subscribers.

Verizon will spend money to subsidize the iPhone for customers this year, which may hurt margins in the short-term, said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York. However, the popularity of the device, which has been exclusively available on Verizon’s largest rival AT&T in the U.S., will ultimately drive customer growth and higher bills, Moffett said in a note to investors.

The subsidy, at an estimated $400 for each phone, may cost Verizon $3 billion to $5 billion in its first year, analysts have said. John Hodulik, a New York-based analyst at UBS AG, said Verizon could sell 13 million iPhones this year, which would mean a price tag of about $5.2 billion for the carrier.

Landlines

Sales declined in the division that sells fixed-line service to businesses and homes, as customers cut home phone service and the company’s wholesale business, which sells service to other providers, contracted.

Revenue for the landline business declined 2.8 percent to $10.3 billion. The unit has become a less significant source of revenue for Verizon as customers have substituted their landline service for digital voice service from cable companies and mobile phones.

Verizon and Dallas-based AT&T made a change in the way they account for pension expenses last month, which trimmed billions off of past earnings for both companies. The accounts, which provide health and retirement benefits for former employees, took a hit in the recession. Rather than spreading the losses out in future earnings, the companies will account for gains and losses in the year that they occur.

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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