NEW YORK - 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 up more than 2 percent.

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 like Verizon Wireless as they have been paying phone vendors like 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 Caplin.

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 this summer 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.

Verizon shares rose 2.4 percent to $38.65 in morning trade on the New York Stock Exchange 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 of its peers, its sluggish growth may foretell a sharp slowdown in growth 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 that 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.

(This story corrected spelling of data in headline and story date to April 19)

(Reporting By Sinead Carew; Editing by Gerald E. McCormick, Dave Zimmerman)