Verizon Communications expects revenue to rise as much as 8 percent this year as customers rush to buy more smartphones, particularly Apple Inc's iPhone.
Verizon, whose shares climbed more than 2 percent following the better-than-expected outlook, will begin selling iPhone next month through its Verizon Wireless venture, bringing an end to AT&T Inc's exclusive hold on the wildly popular phone.
Verizon, which waited 3 1/2 years to get a crack at selling the iPhone, said it would still be able to increase overall 2011 earnings per share 5 percent to 8 percent even it sells 11 million iPhones -- the number analysts on average expect it to sell. Analysts had been worried about how much iPhone's higher subsidies would hurt Verizon's ability to increase profits.
Chief Operating Officer Lowell McAdam said much of the 2011 growth would come from doubling the percentage of customers who use smartphones.
I think we'll be at 50 percent by the end of 2011 or even higher, McAdam told analysts during the company's conference call on quarterly earnings. When they get those smartphones in their hands, the usage goes up.
These customers spend more on data services than those with regular phones do.
Verizon said revenue should rise 4 percent to 8 percent in 2011. That compares with expectations among analysts that it would increase revenue at a rate close to 2 percent, according to data from Thomson Reuters I/B/E/S.
It was surprisingly strong guidance, said Mizuho analyst Michael Nelson, who was particularly impressed with the earnings-per-share forecast.
AT&T has often reported a drag on its profits from the hefty subsidies that it pays for iPhone.
Verizon also confirmed on Tuesday that it would keep its $30 monthly fee for unlimited data use for iPhone customers, potentially giving it an advantage over AT&T, which eliminated such plans.
Verizon's upbeat forecast for 2011 came during an investor presentation that followed its quarterly earnings report, one that showed that even without the iPhone, demand for its wireless services was humming along.
Its Verizon Wireless -- a venture with Vodafone Group Plc -- added 872,000 contract customers in the final three months of the year, compared with an average expectation for more than 646,000 from eight analysts contacted by Reuters.
It was spectacular wireless (subscriber) growth, said Stifel Nicolaus analyst Christopher King. He noted that some investors worried that customers would hold off signing up with Verizon ahead of the iPhone introduction.
But the quarterly figures suggest that appears not to have had an impact.
Verizon was the first of the big U.S. telecommunications providers to report results for the fourth quarter. Its biggest rival, AT&T, is due to report on Thursday.
Overall, Verizon posted weaker-than-expected earnings and revenue for the fourth quarter, but those results were largely overshadowed by the subscriber numbers and 2011 outlook.
Mizuho's Nelson said Verizon's strong subscriber growth probably meant the company stole customers from rivals such as AT&T and No. 4 U.S. mobile service T-Mobile USA, a unit of Deutsche Telekom.
Verizon said that excluding one-time items, its earnings per share were 54 cents, just below the analysts' average estimate of 55 cents.
Revenue fell 2.6 percent to $26.4 billion from the year-earlier quarter before asset sales. Analysts were expecting $26.48 billion.
The company added 197,000 new FiOS Internet customers, ahead of King's expectation for 190,000. And its 182,000 FiOS TV customer additions beat the analyst's expectation for 175,000.
Verizon shares were up 2.2 percent at $36.01 in midday New York Stock Exchange trading.
(Reporting by Sinead Carew; editing by Derek Caney and Lisa