The wireless division of Verizon Communications, despite renewed challenges from T-Mobile US and Sprint, enjoyed strong revenue and subscriber growth during Q3 – boosted by a surge in tablet sales – although operating income was only up 1 per cent year-on-year.

Service revenue at Verizon Wireless grew 4.8 per cent, to $18.4 billion, for the three-month period. Total operating revenue (which includes equipment) increased 7 per cent, to $21.8 billion – a sharp contrast to Verizon’s wireline unit where sales were flat. Verizon Wireless now accounts for around 70 per cent of group operating revenue.

Attracting more postpaid customers has helped fuel Verizon Wireless’ growth. The unit added 457,000 postpaid phones during the quarter, but added an even more impressive 1.1 million postpaid tablets.

By the end of September, smartphones accounted for 77 percent of Verizon Wireless’ retail post-paid customer phone base, up from 75 per cent three months previously.

Getting customers onto more expensive tariff plans has helped boost retail postpaid ARPA (average revenue per account), which increased 3.5 per cent over the quarter, to $161.24 per month.

Verizon Wireless had a total of 106.2 million total retail connections by the end of Q3 (a net increase of 1.5 million over the period), of which 100.1 million were retail postpaid connections.

More worryingly, however, operating income at the wireless division could only grow by 1 per cent over the period, to $6.95 billion, while Q3 operating income margin was squeezed to 31.9 per cent (Q3 2013: 33.8 per cent). The rising cost of services and sales is a big factor, which were up 24.6 per cent, to just over $7 billion, during the quarter.

At a group level, total Q3 operating revenue was $31.6 billion, a 4.3 percent increase compared with third-quarter 2013. Total revenues at Verizon Communications’ fixed-line unit were $9.6 billion over the period, an 0.8 per cent decline year-on-year.

Operating income for the group was down 3.3 per cent, to $6.9 billion, while net income attributable to Verizon fell 32 per cent, to $3.8 billion

“We have great confidence heading into the fourth quarter, as Verizon continues to deliver consistently strong operating and financial results,” said chief executive Lowell McAdam. “We see continued, healthy customer demand for wireless and broadband services, and we are encouraged by the growth we are starting to see in the areas of video delivery and machine-to-machine. Our cash generation remains strong, and last month we were pleased to announce board approval of a quarterly dividend increase for the eighth consecutive year.”