Verizon Communications Inc posted first-quarter earnings and revenue that beat Wall Street expectations as customers increased their spending on services such as wireless data, sending its shares 1.6 percent higher.

While wireless customer growth slowed, Chief Financial Officer Fran Shammo said the company's mobile venture, Verizon Wireless, saw the fastest growth in mobile service revenue in three years as more customers used smartphones.

Any signs of data revenue growth would be a relief to carriers such as Verizon Wireless as they have been paying phone vendors such as Apple Inc hefty subsidies for every smartphone they sell and spending billions of dollars to upgrade their networks to support these smartphone users.

It's critical they're able to increase revenue from all this upfront investment, said Credit Suisse analyst Jonathan Chaplin.

Verizon Wireless average monthly revenue per user (ARPU) for contract customers rose 3.6 percent in the quarter to $55.43 compared with expectations for growth closer to 3 percent from two analysts. This was helped by data service revenue that grew 16 percent to $23.80.

Shammo said the growth should continue as more people buy smartphones and the company starts to offer new shared data service plans under which customers will be able to connect more than one device under a single data service plan.

We're confident we'll continue to accelerate our growth in this area, Shammo told analysts on a conference call.

Shammo told Reuters that customers using Verizon's fastest network are paying more for data services because the higher-speed data rates encourage them to spend more as they use additional services such as video streaming.

When it is launched this summer, Shammo said the new shared data plan would bring incremental revenue for each device connected to the company's network.

Many analysts have suggested that a shared data plan would make more sense for operators as most consumers have shied away from connecting devices such as tablet computers to cellular networks because they do not want to pay a second monthly fee on top of their data plan for smartphones.

Verizon shares were up 61 cents at $38.27 in afternoon trading on the New York Stock Exchange on Wednesday.

REVENUE UP BUT CUSTOMER GROWTH SLOWS

ARPU growth is especially important since customer growth is declining. Verizon Wireless added 501,000 contract customers in the quarter, roughly in line with the average expectation for just over 511,000 from five analysts polled by Reuters, but down from fourth quarter additions of 1.2 million.

Given that Verizon, the first of the big U.S. operators to report first quarter results, typically posts the strongest customer growth, its sluggishness may foretell a sharp slowdown across the industry.

People were upgrading, but there doesn't seem to be as many new people coming in to wireless, said Piper Jaffray analyst Christopher Larsen, adding that Verizon's mobile growth was in line with his recently lowered estimate.

However, Larsen was impressed with the company's financials.

It looks like it was a good quarter over all. Earnings per share was slightly ahead of the Street. Revenue was a little bit better, Larsen said.

The slower customer growth also comes with a silver lining as the Verizon Wireless profit margin rose to 46.3 percent from 42.2 percent in the fourth quarter, when an Apple Inc iPhone fueled growth, but also required hefty subsidies.

The company said it sold 3.2 million iPhones in the quarter and 2 million phones using its fastest network based on Long Term Evolution (LTE) technology.

Verizon earnings rose to $1.69 billion, or 59 cents per share compared with Wall Street expectations for 58 cents per share according to Thomson Reuters I/B/E/S. In the year-ago quarter it reported a profit of $1.44 billion, or 51 cents per share.

Revenue rose to $28.24 billion from $26.99 billion and compared with analyst expectations for $28.17 billion.

Verizon Wireless is a venture of Verizon and Vodafone Group Plc. Its biggest rival AT&T Inc and Sprint Nextel, the No. 3 U.S. mobile service, report quarterly results next week.

(Reporting By Sinead Carew; editing by Gerald E. McCormick, Dave Zimmerman and Andre Grenon)

Apple inc. Broadband Iphone