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Verizon's subscriber growth continues to hum, even as defections rise

A fourth-quarter jump in the customer turnover rate underscores the increasingly volatile environment for wireless carriers that even Verizon can no longer avoid.

Verizon is finally feeling the heat.

Verizon said three out of four smartphone upgrades came from a basic phone user or high-value customers. Verizon

After shrugging off multiple quarters of competitive pressure from rivals, the nation's largest wireless carrier by subscribers finally succumbed a bit to the myriad of promotional offers that launched during the year-end holiday period. While the company added 2.1 million net new connection in the fourth quarter, its contract customer turnover rate jumped 18 basis points from a year ago to 1.14 percent.

The turnover rate, which rarely rises above 1 percent, underscores the increasingly difficult environment for wireless carriers -- one that even Verizon, which has stayed above the fray thanks to its sterling reputation for network quality, can no longer avoid. The New York telecommunications provider's spike in turnover comes as T-Mobile and Sprint offer to buy out customers' early-termination fees, offer more data and slash prices on services. While customers are benefiting from better deals, the discounts are weighing on results.

"Verizon's results showed strong evidence of competitive pressures," said Jonathan Chaplin, an analyst at New Street Research.

Shares of Verizon fell 0.5 percent to $48.01 in premarket trading.

Verizon had telegraphed the results in early December, when it warned about higher disconnects and promotional offers and strong customer volume cutting into its profits. The company argued that three out of four smartphone upgrades came from "high-quality" customers, or subscribers with higher credit scores willing to pay for more expensive phone plans, or subscribers who previously owned a basic phone.

"We'll pursue upgrades that are financially beneficial to the company," Verizon Chief Financial Officer Fran Shammo said on an earnings conference call. He said for certain customers, he wouldn't compete on price.

In the fourth quarter, Verizon added 672,000 net new so-called post-paid subscribers, or higher-credit customers who pay at the end of the month. That figure includes a gain of 1.5 million 4G smartphones but also a loss of 828,000 basic phone and 3G smartphone customers. The company also added 1.4 million new 4G tablets in the period.

T-Mobile earlier this month said that it had added 2.1 million customers in the fourth quarter, while Sprint returned to growth with nearly 1 million new customers in the period.

Verizon posted a fourth-quarter loss of $2.23 billion, or 54 cents a share, compared with a year-ago profit of $5.07 billion, or $1.77 a share.

Results were hampered by one-time charges related to pensions and debt. Adjusted earnings were 71 cents a share, while revenue rose 6.8 percent to $33.19 billion.

Analysts, on average, had forecast earnings of 71 cents a share and revenue of $32.7 billion, according to Thomson Reuters.

On the landline side, the company added 387,000 net new Fios TV customers and 544,000 net new Fios Internet customers, both declines from a year ago. The Fios gains also slightly offset broader declines in voice and Internet connections.

For the full year, Verizon said it expects revenue growth of at least 4 percent and sustained levels of earnings before interest, taxes, depreciation and amortization. It also expects to invest $17.5 billion to $18 billion in capital expenditures.

Updated at 6:34 a.m. PT: To include executive and analyst comments.