updated 10/30/2006 11:28:37 AM ET 2006-10-30T16:28:37

Verizon Communications Inc.’s profit edged up in the third quarter, beating Wall Street forecasts as a powerful showing by Verizon Wireless and the addition of the MCI long-distance business helped boost the phone company’s revenues nearly 26 percent.

But a disappointing performance in the traditional phone and broadband Internet businesses, as well as higher-than-expected costs in Verizon’s risky fiber-optic network upgrade, hurt the company’s stock which fell 3 percent.

The company said Monday it earned $1.92 billion, or 66 cents per share, in the July-September quarter, up from $1.87 billion, or 68 cents per share in the same period last year. Per-share results fell because Verizon has more shares outstanding than a year ago.

The latest results include expenses for special items including pension settlement charges, headquarters relocation expenses and merger integration costs. Excluding those factors, Verizon’s per-share profit came to 68 cents, exceeding the average forecast of 66 cents among analysts surveyed by Thomson Financial.

Third-quarter revenue totaled $23.25 billion, up from $18.49 billion a year earlier.

Verizon Wireless accounted for $9.87 billion in revenue, an increase of 18.2 percent from the third quarter of 2005, as its customer base swelled by 1.9 million subscribers to 56.7 million. The operating profit margin for the cellular business was 26.2 percent in the quarter, the highest ever for Verizon Wireless, which is owned in partnership with Vodafone Group PLC.

The customer growth, well in excess of what many industry analysts were expecting, further narrowed the lead held by market leader Cingular Wireless, which finished September with 58.7 million customers.

Though it still trails by 2 million subscribers, Verizon made of point in Monday’s report of declaring victory on the revenue front as its quarterly sales edged Cingular’s for the first time. Cingular’s third-quarter revenue totaled $9.55 billion.

Verizon Wireless also improved on its industry-leading customer retention rates. The business reduced its “churn” rate to 1.24 percent of its customer base per month. Cingular, by contrast, was losing 1.8 percent of its subscribers per month in the quarter.

Beyond cellular, Verizon’s results were less stellar.

Total revenue from its traditional wireline phone and data network totaled $12.8 billion in the third quarter, an increase of 35.5 percent from a year ago. But that was assisted by the takeover of MCI, which came in early 2006. If the year-ago comparison is adjusted to include MCI’s results, revenue for the latest quarter fell 4.7 percent. Nonetheless, third-quarter revenue edged 0.1 percent higher from the second quarter, the second such improvement in a row.

Growth in broadband Internet customers came in below expectations, with Verizon adding 448,000 connections in the quarter. Some analysts had been forecasting closer to half a million in new broadband customers.

About two-thirds of the subscriber additions were for DSL lines. The company also signed up 147,000 new customers for broadband delivered via “FiOS,” a fiber-optic network in which Verizon has decided to invest tens of billions of dollars to build.

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