4th UPDATE: Verizon Posts 2Q Loss; Gains On Smartphone Traction

(Updates to add additional background) By Roger Cheng Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Verizon Communications Inc.'s (VZ) wireless arm added a third more contract customers in the second quarter than AT&T Inc. (T), which benefits from its exclusive agreement to sell Apple Inc.'s (AAPL) iPhone. Verizon Wireless, jointly owned by Verizon Communications and Vodafone Group PLC (VOD, VOD.LN), outpaced its rival through a steady rollout of Droid phones, which run on Google Inc.'s (GOOG) Android software. The results underscore the growing influence of rival devices beyond the iPhone and the narrowing gap between Verizon and AT&T, which boasts the largest base of smartphone users. "We still see a lot of upside here now that we're in a much better position from a device line-up perspective," Verizon Chief Financial Officer John Killian told Dow Jones Newswires. Verizon's wireless arm added a net 665,000 contract customers in the quarter. AT&T, meanwhile, said Thursday it added 496,000 contract customers despite the launch of the iPhone 4 at the end of the period. Verizon Wireless has lagged behind in its selection of smartphones, leaving it with a larger base of customers with feature phones. But the carrier has quickly made up ground over the past several months with the introduction of several Droid devices. High-profile smartphones have become the key tool carriers use to win over a shrinking base of high-end consumers willing to sign a long-term contract. They also contribute to a higher monthly phone bill because they require pricier data plans. Verizon Wireless said the percentage of smartphone users grew to 20% of its customer base in the second quarter, compared with 15% at the end of last year. Two out of every five customers purchased a smartphone in the period. AT&T still holds a significant lead, with more than 53% of its postpaid base carrying either a smartphone or messaging device, compared with 35% for Verizon Wireless. The iPhone also remains a top revenue driver among devices, increasing the average monthly phone bill for AT&T customers up 3.4% to $62.63, versus $51.56 for Verizon Wireless customers. But the increased adoption of Droid phones had Verizon Wireless outpacing AT&T in data revenue growth, although AT&T still generates more per customer. Verizon Wireless launched two high-profile devices in the quarter, the Droid Incredible by HTC Corp. (HTCXF, 2498.TW) and the Droid X by Motorola Inc. (MOT). The steady release of multiple flashy smartphones kept the carrier's postpaid subscriber growth relatively strong. "Verizon likely took share in the quarter despite the launch of a new iPhone," said Mike McCormack, an analyst at J.P. Morgan. The carrier likely benefited from the timing of the iPhone 4 launch, which hit the market with only a week left in the quarter. AT&T and Apple primarily sold the device to existing subscribers in the second quarter, limiting how many new customers could get their hands on the phone. A wider supply of iPhone 4s could draw in new consumers. AT&T Chief Financial Officer Rick Lindner said in an interview that he expects subscriber growth to rebound in the third quarter. Verizon reported a loss of $198 million, or 7 cents a share, compared with a profit of $1.48 billion, or 52 cents a share, a year earlier. Excluding the impact of its divestiture of landline assets to Frontier Communications Corp. (FTR) and Alltel wireless assets to AT&T and Atlantic Tele-Network Inc. (ATNI), as well as charges for its voluntary work force reduction program, earnings fell to 58 cents a share from 63 cents as revenue dipped 0.3% to $26.77 billion. On Thursday, AT&T reported a 26% increase in second-quarter earnings, with strength in the wireless business driven by sales of Apple's iPhone and iPad and continued cost cuts. Like Verizon, the number of new contract customers fell from a year earlier. The results don't bode well for Sprint Nextel Corp. (S) and T-Mobile USA, both of which are struggling to return to postpaid customer growth. Verizon shares rose 3.1% to $27.84 in recent trading. -By Roger Cheng, Dow Jones Newswires; 212-416-2153; roger.cheng@dowjones.com (END) Dow Jones Newswires July 23, 2010 13:15 ET (17:15 GMT)