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Verizon, awaiting wounded Yahoo, faces its own pressures

The company loses phone customers as consumers eye cheaper options elsewhere.

Sarah Tew/CNET

Is Yahoo the shot in the arm that Verizon needs?

That's a debatable sentiment. In the past few weeks, Yahoo -- which Verizon is planning to acquire for $4.8 billion -- drew the kind of headlines that make you cringe.

It suffered what could be the biggest hack of all time, coughing up the account information of at least 500 million customers. Then came reports that Yahoo helped the government sniff through its users' e-mail, sparking a controversy in which the company now wants the US to provide some answers.

Despite Yahoo pulling in a surprisingly strong profit, that's the kind of run that has to elicit buyer's remorse from Verizon, right?

Verizon has had a tough stretch itself. The company on Thursday posted third-quarter results that showed it was under siege in its core wireless phone business by smaller rivals T-Mobile and Sprint. It turns out that Verizon's reputation for network quality isn't worth what it used to.

The New York telecom giant said it lost 36,000 phone customers, a blow that leaves a mark on the overall gain of 442,000 customers, driven by tablet sales and its Hum telematics device for cars.

The results underscore a tougher competitive environment as each carrier bends over backwards to win your business. You saw it after Apple unveiled its iPhone 7 last month -- within days, all of the carriers were ready to let you trade in an old device for a free new phone. Indeed, the appearance of a new iPhone likely caused a big shift among the wireless players. Customers tend to re-evaluate their wireless plans when they upgrade to a new phone.

Verizon CFO Fran Shammo, speaking on a call with analysts, defended the numbers, noting the company was able to retain its most valuable, high-spending customers. He blamed the issues on several one-time events: Competitors T-Mobile and Sprint introducing new unlimited data plans, the recall of the Galaxy Note 7 and a backlog on iPhone 7 orders.

Rivals, meanwhile, argue that the gap between the carriers isn't as wide as it used to be. Sprint released preliminary financial results on Tuesday that saw its level of postpaid customers rise five times over the year-ago period (although it fell short of Verizon's tally). Likewise, T-Mobile is projected to continue growing at an impressive clip.

While T-Mobile and Sprint unveiled new, lower priced unlimited plans, Verizon rolled out new plans that in some cases removed overage fees and added rollover data.

Verizon posted a turnover rate for postpaid customers of 1.04 percent, up from a year ago as people dropped the service on their tablets.

The company reported a third-quarter profit of $3.75 billion, or 89 cents a share, down from a year-ago profit of $4.17 billion, or 99 cents a share. Excluding one-time items, the company earned $1.01 a share.

Revenue fell 6.7 percent to $30.93 billion.

Analysts, on average, had expected earnings of 99 cents a share and revenue of $31.09 billion, according to Yahoo Finance.

Verizon didn't go into detail about its pending Yahoo deal in the financial report. The company had said it is evaluating the "material impact" that the hack could have on the deal. Shammo said the company was still looking into what the hack means, and said it would likely take time to process the new information. He added that Verizon's lawyers met with Yahoo yesterday.

In premarket trading, Verizon shares fell 2.4 percent to $49.17.

Originally published at 4:51 a.m. PT.

Updated at 6:29 a.m. PT: To include additional comments from a Verizon executive.