By Malathi Nayak and Anya George Tharakan
(Reuters) - Verizon Communications Inc said on Thursday that quarterly revenue rose 6.8 percent as it added more customers during the competitive holiday season but profit margins narrowed in its wireless business due to pricing and promotions.
Shares in Verizon fell 2.5 percent to $47.06 on the New York Stock Exchange, while the S&P Telecom Services Sector fell 1.8 percent.
Verizon earned 71 cents per share, excluding items, in the fourth quarter, as revenue rose to $33.19 billion from $31.07 billion. The profit per share matched Wall Street estimates, according to Thomson Reuters I/B/E/S, while revenues came in slightly above expectations of $32.69 billion.
The largest U.S wireless company added 2 million postpaid subscribers, or those who pay for service after use, topping the 1.5 million subscribers added in the last quarter.
"The real question here is ... do they have to potentially more aggressively reprice their existing base as we go through 2015 because of competitive pressures," Mike McCormack, an analyst at Jefferies & Co, said.
Investors are concerned the ongoing price wars to attract and keep customers could come at the cost of growth in a nearly saturated wireless market.
In 2015, Verizon will continue to go "after that high-value, high-quality network user who is going to pay a premium for that network and we're not just going to compete on price," Chief Financial Officer Fran Shammo said in an interview.
Verizon's retail postpaid average revenue per account rose to $158.82 from $157.21, but was below the $161.64 estimated by analysts polled by research firm StreetAccount. Profit margins in its wireless business narrowed to 42 percent in the quarter from 47 percent a year ago.
"Verizon is the best house in a bad neighborhood," said Craig Moffett, an analyst at MoffettNathanson. "You're seeing for the first time the old measure that is average revenue per user starting to fall."
Customer defections, known as churn, in postpaid accounts rose to 1.4 percent. Verizon had said it expected to see the churn rate elevate in the fourth quarter.
Some wireless carriers have replaced traditional two-year contracts with equipment financing plans that allow payments in monthly installments. The plans charge lower service fees but do not subsidize devices.
Verizon posted a 25 percent rise in customers adopting its no-subsidy "EDGE" plan for upgrading devices.
Verizon, however, reported a net loss of $2.23 billion, or 54 cents per share, attributable to the company for the fourth quarter compared with a profit of $5.07 billion, or $1.76 per share, a year earlier, mainly due to valuation of benefits plan and pension adjustments.