Updated from 10:05 a.m. EDT

Verizon ( VZ) matched Wall Street's estimates with its third-quarter profit Monday, as gains in its wireless segment offset weakness in its wireline business.

The New York phone giant recorded net income of $1.67 billion, or 59 cents a share, compared with net income of $1.27 billion, or 44 cents a share, in the year-ago quarter. Adjusted for one-time items, Verizon said it had a profit of 66 cents a share, which matches the average estimate of analysts polled by Thomson Reuters.

Sales rose 4.1% from a year ago to $24.8 billion; that figure exceeded Wall Street's expectations. Analysts had been looking for a $24.5 billion top line.

Verizon Wireless -- jointly owned by Verizon and Vodafone ( VOD) -- continued to show strength, adding 2.1 million net subscribers in the second quarter. The monthly customer defection rate remained at an industry low 1.33%, with post-paid churn slightly above 1%. The wireless unit generated revenue of $12.7 billion, up 12.5% year over year.

Following rival AT&T's ( T) own earnings report Wednesday, which showed greater-than-expected growth in its wireless division thanks to Apple's ( AAPL) iPhone 3G, there was concern Verizon Wireless would see slower growth.

"We did see some churn to the iPhone during the quarter," said COO Denny Strigl on the Verizon's conference call, before adding that the wireless division still outperformed expectations. "Our plan is to certainly grow at the kinds of numbers you have seen in this quarter. We'll meet the competition head on."

On the wireline side, Verizon's core business continued to erode, just as AT&T had reported last week. Wireline revenue fell 1.7% from a year ago to $12.2 billion as customers disconnect second lines or shift to competing services. Residential access lines fell 12% from a year ago, and business lines were down 4.2%.

The company also said it added 233,000 net new FiOS TV customers taking the total to 1.4 million at the end of the quarter. Verizon said it added 225,000 fast Internet subscribers, offsetting a decrease of 96,000 DSL-based Verizon High Speed Internet connections.

"We're not surprised at the access line loss," said CEO Ivan Seidenberg on the conference call. "DSL was going to become less potent. It's tough to balance on the head of a pin. We feel we have momentum in all of the growth areas ... so we can continue to show a lot of growth."

Seidenberg said that the general consensus among vendors and customers is that customer and business spending will lessen through the holidays and into next year. For the rest of 2008, Seidenberg said, earnings per share should rise by 8% for all of 2008. He said it is a "good result" when combined with the 7% dividend, considering the macroeconomic conditions.

Seidenberg also offered clarity on Verizon's pending acquisition of privately-held Alltel. In June, Verizon Wireless said it would buy the equity of Alltel, the fifth-largest U.S. wireless carrier with 13 million subscribers, for approximately $5.9 billion. Based on Alltel's projected net debt at closing of $22.2 billion, the total value of the transaction is $28.1 billion.

Doubt had surfaced over whether the transaction would be completed, as macroeconomic and credit market conditions have worsened considerably.

Seidenburg said the transaction would proceed if the Federal Communications Commission approves the merger Nov. 4. "Our goal, of course, is to close the deal as fast as we can," he said.

Verizon shares gained $1.84, or 7.3%, to $26.92. AT&T was off by 9 cents, or 0.4%, at $24.59. Sprint Nextel ( S) was slipping 7 cents, or 2.2%, to $3.09.