Verizon strike signals shift in telecom business

Verizon's wireline workers strike as the company focuses on more profitable products

A strike by two unions at Verizon Communications announced Sunday could signal the start of a long struggle between wireline workers and companies in the telecom industry, some analysts said.

The strike, by members of the Communications Workers of America (CWA) and the International Brotherhood of Electrical Workers, affects Verizon's wireline services in the Northeast and Mid-Atlantic. The 45,000 workers serve a wireline division at Verizon that's shrinking as many former customers ditch their traditional phone service for mobile or VoIP plans."If we take Verizon's side, they're seeing business in terminal decline," said telecom analyst Roger Entner, founder of Recon Analytics. "On the other hand, you have employees who want to feed a family. They are used to certain rights, certain expectations and a standard of living."

Entner sees this strike as the first round of a longer fight between wireline unions and large telecom carriers as the companies focus less on traditional phone service and more on mobile, broadband and television services, he said. "I'm surprised it took this long for these struggles to show up," Entner said. "They're at the beginning, not the end, of this struggle."

The strike represents a shift in the U.S. telecom business, added Jeff Kagan, an independent telecom analyst. Carriers "have to look at the changing marketplace and adjust," he said. "Unfortunately, that means some workers have to take a hit, but if Verizon does not adjust, then all workers will take a bigger hit when Verizon loses business, due to costing too much."

At Verizon, a big question is whether the company's growing mobile business should subsidize the shrinking wireline business, Entner said. Complicating the issue is the fact that Vodafone Group owns 45 percent of Verizon Wireless.

"Should Vodafone subsidize Verizon's wireline side?" Entner said. "I think both Verizon and Vodafone would say, 'Absolutely no.'"

The two unions argue that Verizon, as a whole, is highly profitable. In the second quarter, Verizon reported net income of US$3.6 billion, and the company reported its strongest year-over-year revenue growth in 10 quarters.

Verizon added 2.2 million mobile customers during the quarter, and mobile revenue was $17.3 billion, up 10.2 percent from a year earlier. Wireline revenue dropped 0.3 percent, although that's a significantly smaller decline than in several recent quarters. In the previous six quarters, wireline revenue declined between 2 percent and 4 percent, compared to the year earlier.

The unions noted that Verizon Wireless paid out $10 billion to Verizon and Vodafone in January. Verizon's top five executives received $258 million in compensation over the past four years, the unions said.

Workers will return when Verizon shows it's willing to "bargain seriously," the unions said. "Since bargaining began on June 22, Verizon has refused to move from a long list of concession demands," the CWA said in a press release. "As the contract expired, nearly 100 concessionary company proposals remained on the table."

Verizon said Sunday that customers should see little difference in service. The company has trained "tens of thousands" of management employees, retirees and other workers to fill in, the company said.

Both Kagan and Entner said they expect the two sides to work out a compromise. Neither side is being unreasonable, Entner said.

"Verizon isn't doing it because they're mean, heartless bastards," he added. "The unions aren't doing it because they're obstructionist and greedy. But the backdrop is, the business is disappearing."

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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Tags business issuestelecommunicationCommunications Workers of AmericaVodafone GroupRecon AnalyticsVerizon CommunicationsVerizon WirelessJeff KaganInternational Brotherhood of Electrical WorkerspersonnelRoger Entner

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