Verizon Communications Inc. (VZ.N) posted strong first-quarter profit and raised its forecast for the year. But a lower-than-expected subscriber gain may be a concern for investors as the company narrows its focus on wireless services.

Earnings were US$1.20 a share last quarter, excluding some items, while analysts anticipated $1.17 on average. Sales were in line with forecasts. Total wireless subscriber numbers increased by 61,000, as a loss of 44,000 phone customers was offset by increases in hotspots and other connected devices. The total gain was much lower than the 207,000 analysts expected.

Key Insights

-Unlike rivals such as T-Mobile US Inc. and AT&T Inc., Verizon didn’t push a lot of price promotions and phone giveaways during the quarter. The willingness to stand down in the face of aggressive competition may explain the sluggish subscriber growth.

-The boost in profit forecast, however, helps validate new CEO Hans Vestberg’s big bet on wireless services.

-Vestberg, who joined Verizon in August after decades working at network-equipment maker Ericsson AB, has shrunk investments in areas like media to fully focus on network expansion, particularly toward fifth-generation or 5G technology.

-Verizon took an early lead in the race to 5G, becoming the first carrier to sell 5G phones in parts of Chicago and Minneapolis. But the services won’t start adding to the telecom company’s growth until 2020, according to Bloomberg Intelligence. That’s when more handsets, including iPhones, are expected to become available.

Market Reaction

-The shares were up 0.9 per cent to US$58.90 in early U.S. trading.

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