Verizon Communications Inc posted a higher-than-expected quarterly profit due to growth in cell phone customers, solidifying its market leadership following the acquisition of smaller rival Alltel.

But the first-quarter results on Monday also showed Verizon suffered a heavy loss in traditional phone subscribers, as more consumers went completely wireless or opted for cheaper alternatives offered by cable and Internet companies.

Verizon Wireless, a venture of Verizon and Vodafone Group Plc , added 1.3 million net customers in the quarter, giving it 84.1 million retail customers in total, including additions from the Alltel acquisition.

That exceeded the average estimate of 1.2 million additions from six analysts, and surpassed the 1.2 million additions by rival AT&T Inc, which was the biggest U.S. mobile phone carrier before Verizon bought Alltel in January.

They appear to be executing extremely well given the economic challenges and everything else, said Stifel Nicolaus analyst Christopher King. The fact that they continue to outpace AT&T even without the iPhone is pretty outstanding.

AT&T is the sole U.S. carrier for Apple Inc's iPhone. Verizon executives declined to comment on a USA Today report that Verizon was in talks with Apple for a future iPhone deal, except to say that Verizon has a strong product line-up and is open to discussions with various suppliers.

WIRELINE WEIGHS ON SHARES

First-quarter profit, excluding Vodafone's share in the wireless business, rose to $1.65 billion, or 58 cents per share, from $1.64 billion, or 57 cents a share, a year earlier, Verizon said.

Earnings per share excluding items rose to 63 cents a share from 61 cents, exceeding analysts' average forecast of 59 cents, according to Reuters Estimates.

Revenue rose 11.6 percent to $26.59 billion.

Over the past few years, Verizon has relied heavily on its wireless service for revenue growth amid a slowdown in its traditional phone business.

Total access lines fell 9.8 percent in the quarter from a year earlier. Some analysts said that dampened enthusiasm over the wireless numbers, and Verizon shares fell 43 cents, or 1.4 percent, to $30.57 in afternoon trading on the New York Stock Exchange. The stock has risen more than 20 percent in the past six months.

Bernstein Research analyst Craig Moffett said the access line trends remains genuinely awful, and reiterated his underperform rating and $27 price target on the shares.

Verizon said it is adjusting to the slowdown in its wireline business by cutting costs in that area and shifting its focus to more profitable areas, including upgrading its systems to IP (Internet protocol) networks.

In addition to wireless, Verizon has been banking on growth in Internet subscribers, investing heavily in its own fiber-based network called FiOS that delivers high-speed Internet and video services to compete with cable television operators such as Time Warner Cable Inc and Comcast Corp .

Verizon said it added 299,000 FiOS TV customers, bringing its total to 2.2 million, and 298,000 FiOS Internet customers, for a total of 2.8 million.

We've evolved to a stronger position over the last few years by investing in our crown jewels -- our wireless network, our FiOS network and our global IP network, Verizon's Chief Operating Officer Denny Strigl said on a conference call.

(Reporting by Ritsuko Ando and Sinead Carew; Editing by Brian Moss and Gerald E. McCormick)

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