Wireless-giant Verizon Communications (VZ -4.67%) ended 2022 on a high note. After losing retail postpaid phone subscribers over the course of the first nine months of 2022, the company managed to tack on 217,000 net postpaid phone subscribers in the fourth quarter. Businesses accounted for about 80% of those gains.

Including all devices, Verizon recorded retail postpaid net additions of more than 1.4 million, the best quarterly performance in seven years, according to the company. This big jump was driven by fixed wireless access, tablets, and wearables.

These figures exclude the impact of the shutdown of Verizon's 3G network, which occurred at the end of the fourth quarter. The end of 3G service led to just over 900,000 wireless postpaid subscribers being removed from the customer base.

Relative to analyst estimates, Verizon's fourth-quarter results were positive. Total revenue grew 3.5% to $35.3 billion, beating the average estimate by $160 million, and non-GAAP earnings per share (EPS) of $1.19 was in-line with analyst expectations. But the company's guidance for 2023 was a bit worse than expected.

A multiyear profit slump

Verizon expects to produce wireless service revenue growth between 2.5% and 4.5% in 2023. For comparison, the company managed 8.6% growth in 2022. While Verizon struggled to win wireless subscribers throughout much of last year, revenue was boosted by customers migrating to unlimited plans and higher prices implemented midyear.

The weak growth outlook suggests that Verizon doesn't expect to be able to pass off higher costs to its customers in 2023, and the tailwind from customers moving to unlimited plans will be much smaller this year. The outlook is actually worse than it looks -- included is an expected benefit of 1.9 percentage points, stemming from a reallocation from other revenue to wireless service revenue.

Verizon expects to produce non-GAAP earnings per share between $4.55 and $4.85 in 2023. If the company's estimates prove accurate, it will be another year of declining profits. Verizon produced non-GAAP EPS of $5.18 in 2022 and $5.50 in 2021. Analysts were expecting earnings guidance to come in at $4.97 per share.

Higher interest payments are part of the problem. The company said that at the end of year, total interest payments were $400 million higher than initially expected, a consequence of rising interest rates. Verizon recorded $3.61 billion in interest expense in 2022, up from $3.49 billion in 2021. Higher operating expenses also contributed. Total operating expenses rose 5.1% in 2022, faster than the company's 2.4% revenue growth.

A tough year ahead

Despite the pressure being put on consumers from historically high inflation and rising interest rates, Verizon said it doesn't expect payment trends from its customers to dip below pre-pandemic levels. Competitor AT&T, which will report its results on Wednesday morning, noted last year that it was seeing some delayed payments from its customers.

While that's reassuring, Verizon is going into a tough economic environment already struggling to grow its bottom line. Depending on whether a recession strikes this year, as well as the depth and duration of that potential recession, the company could see customers delay phone upgrades, resist upgrading to pricier plans, and even downgrade to cheaper plans.

Verizon stock looks extremely cheap, but that's been the case for months. At the low-end of its 2023 earnings guidance, the stock trades below nine times earnings, and its dividend yield, which tops 6%, is certainly enticing.

But the company paid out $10.8 billion in dividends and produced just $14.1 billion of free cash flow in 2022. Back out the $3.6 billion spent acquiring wireless licenses, and there wasn't anything left over. This situation seems fragile, especially as the economy is seemingly headed for a recession.

With Verizon's profits headed lower in 2023, AT&T may be a safer bet. We'll know more about the latter's results and outlook on Wednesday morning.