By Malathi Nayak and Devika Krishna Kumar
(Reuters) - Verizon Communications Inc (NYSE:VZ) on Tuesday lowered its full-year revenue target as it fends promotions from its competitors.
Investors shrugged off higher-than-expected second-quarter earnings, which resulted mostly from a jump in tablet subscribers, and sent shares of the largest U.S. wireless service provider down as much as 3 percent.
Smaller rivals such as T-Mobile US Inc have stirred up an industry price war, and wireless carriers have been offering heavy promotions and discounts on tablet and phone plans to keep or increase subscribers.
The companies have replaced traditional two-year contracts of subsidized phones and tablets with monthly installment plans that have lower service fees.
Customers shifted to the installment plans at a higher rate than Verizon had anticipated earlier in the year, resulting in a decline in service revenue, Chief Financial Officer Fran Shammo said in an interview.
Verizon said it expected full-year revenue growth of at least 3 percent, below its previous forecast of 4 percent.
Average revenue per user fell 3.8 percent to $153.73 in the quarter from a year earlier and missed the analysts' average forecast of $154.99, MoffettNathanson analyst Craig Moffett said in a note.
Despite pressure on revenue per user, "Verizon's wireless margins remain the envy of the industry," Moffett said.
Net income attributable to Verizon rose to $4.23 billion, or $1.04 per share, from $4.21 billion, or $1.02 per share. Analysts on average were expecting $1.01 per share, according to Thomson Reuters I/B/E/S.
Revenue increased to $32.22 billion from $31.48 billion, below analysts' estimates of $32.87 billion.
Verizon added a net 1.1 million wireless retail postpaid subscribers, who pay each billing cycle based on usage. That met estimates from analysts polled by market research firm FactSet StreetAccount.
Net tablet additions came to 852,000.
Customer defections at Verizon's wireless postpaid business fell to a three-year low of 0.90 percent, while FactSet had expected 0.99 percent.
Revenue from Verizon's FiOS high-speed Internet, TV and phone service rose 10 percent to $3.4 billion.
After its $4.4 billion purchase of AOL Inc in June, Verizon is gearing up to introduce its online video service to generate new revenue from mobile video and targeted advertising.
Verizon shares were down 1.9 percent at $47.20 on the New York Stock Exchange after trading as low as $46.57.