By Ryan Knutson 

The wireless industry's price war is taking a bite out of Verizon.

The nation's largest wireless carrier warned late Monday that its profits are coming under pressure at the end of the year as it rolls out discounts in an effort to win customers. The carrier also said more of its customers were leaving for other carriers this quarter than in the last quarter or last year amid heavy promotions from rivals.

Verizon Communications Inc.'s shares fell more than 1% to $48.35 in after-hours trading.

The company has long been able to charge a premium for wireless service, in large part thanks to its reputation for having a strong network. The comments, however, show that discounts and other deals from rivals T-Mobile US Inc., Sprint Corp. and AT&T Inc. are taking a toll.

Last week, for example, Sprint said it would offer half-price wireless service to customers switching from AT&T and Verizon. AT&T lowered prices for many customers earlier this year and more recently has offered extra helpings of data to encourage subscribers to stick around or switch from other carriers.

Verizon said its promotions were bringing in plenty of new customers, many of whom are choosing to buy their device without subsidies and pay for it in installments rather than sign a two-year contract. The percentage of subscribers taking that option doubled from the previous quarter to 24%, the company said.

The company said the cost of those promotions would hurt its wireless margins, overall margins and earnings per share. Verizon plans to report fourth-quarter results Jan. 22.

The price war comes at an awkward time for Verizon and AT&T, which are locked in a fierce government auction for airwaves that has drawn bids worth $41.7 billion thus far and isn't yet over. T-Mobile is also competing in the auction.

Write to Ryan Knutson at ryan.knutson@wsj.com

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