Verizon Communications failed to gain market share against AT&T Inc in iPhone sales in its first full quarter selling Apple Inc's device, sending shares down as much as 3 percent.
On average, Verizon Wireless customers also spent less per month since it changed its data service price plans, further disappointing Wall Street.
While Verizon Wireless added three times more net subscribers in the quarter than AT&T, it only activated 2.3 million iPhones in the quarter compared with 3.6 million activations at AT&T.
Credit Suisse analyst Jonathan Chaplin said that while the subscriber numbers were strong on the surface they were the wrong kind of subscribers.
Subscribers using devices such as iPhone tend to spend more on data services a monthly basis than other wireless customers.
Verizon Wireless expects to sell a new version of the iPhone sometime in the autumn, which is roughly a financial quarter later than it previously expected.
As a result, it will take that much longer than expected to achieve its goal of having half of its subscribers using smartphones, which generate more revenue.
Citadel Securities analyst Shing Yin was disappointed that Verizon Wireless' growth in average revenue per subscriber dropped to 1.9 percent in the second quarter from 2.2 percent in the first quarter.
Still, Verizon Wireless, owned by Verizon and Vodafone Group Plc, added 1.3 million net subscribers in the quarter compared with the average expectation for about 930,000, according to seven analysts contacted by Reuters.
Stifel Nicolaus Chris King was impressed with Verizon's customer growth and its sale of 1.2 million high-speed wireless devices for a new network it is building.
I don't see anything in there that should be disappointing, King said.
While some investors had worried that the relatively expensive iPhone would hurt Verizon's profit margins, King said its wireless service margin of 45.4 percent was well ahead of his expectation for 43.9 percent.
Verizon's quarterly profit was $1.61 billion, or 57 cents a share, compared with a loss of $1.l9 billion, or 42 cents a share, a year ago. This was ahead of the average analyst expectation for earnings per share of 55 cents, according to Thomson Reuters I/B/E/S.
Revenue increased 2.8 percent to $27.53 billion, ahead of Wall Street expectations for $27.42 billion.
The company named Chief Operating Officer Lowell McAdam as its new chief executive, replacing Ivan Seidenberg, who is retiring from that role but remaining as chairman. It had announced the succession plan late last year.
Verizon shares were down 95 cents or 2.5 percent to $36.62 in early trading on the New York Stock Exchange, after falling as much as 3 percent shortly after the market opened.
(Reporting by Supantha Mukherjee in Bangalore and Sinead Carew in New York; Editing by Joyjeet Das and Derek Caney)