December 8, 2023

DealBook: Vodafone Approaches German Cable Giant Over Potential Deal

A branch of the cable operator Kabel Deutschland in Berlin.Fabrizio Bensch/ReutersA branch of the cable operator Kabel Deutschland in Berlin.

7:56 a.m. | Updated

LONDON – The British wireless giant Vodafone said on Wednesday that it had approached the German cable operator Kabel Deutschland over a potential takeover that could be worth more than $10 billion.

An acquisition would allow Vodafone, which owns 45 percent of Verizon Wireless, to expand its current cell phone operations in the fast-expanding cable and television market in Germany. A potential deal would also offset increasing competition from cable providers that are looking to increase their own cell phone services.

“This is a defensive move for Vodafone,” said Andrew Hogley, a telecoms analysts with Espirito Santo, in London. “They are trying to keep up with Deutsche Telekom that can already offer integrated services like cable, mobile phone and landline services.”

Vodafone, however, may face stiff competition from rivals, including John C. Malone’s Liberty Global that already operates Germany’s second-largest cable company.

Mr. Malone’s company has just completed its $16 billion acquisition of the British cable operator Virgin Media, and is focusing on Germany and its strong economic growth as a major part of its European expansion.


“The only other serious bidder would be Liberty Global,” said Mr. Hogley of Espirito Santo. “The German market is a top priority for these companies.”

For potential acquirers, Kabel Deutschland could be a target too good to pass up.

The Germany company is the country’s largest cable operator with around 8.5 million customers. Its current market capitalization totals 7.1 billion euros, or $9.4 billion, though analysts said any suitor would likely have to pay more than $10 billion to acquire Kabel Deutschland.

Vodafone is particularly interested in the company’s extensive cable television and broadband services, which would allow it to offer a combination of fixed-line, cell phone, television and Internet services, according to Ulrich Trabert, an analyst with the private bank Bankhaus Metzler in Frankfurt.

“This is not just about enhancing Vodafone’s mobile business,” Mr. Trabert said.
“This is about expanding Vodafone’s German market depth in TV and Internet.’’

Because Vodafone and Kabel Deutschland’s combined market share in landline broadband Internet would still be much less than that of the market leader, Deutsche Telekom, which has about 44 percent, there are not likely to be any anti-trust concerns, Mr. Trabert added.

“Deutsche Telekom, because of its dominance in broadband Internet would be prevented from doing anything by German regulators,’’ he said.

Kabel Deutschland’s shares rose 9 percent in afternoon trading in Frankfurt on Wednesday. Vodafone’s stock price fell 4.4 percent in afternoon trading in London.

The potential deal would be Vodafone’s largest acquisition since it bought a controlling stake in Hutchison Essar of India for $11 billion in 2007. The British telecommunications company, which has operations ranging from India to New Zealand, became a global player during the late 1990’s through a number of successful deals, capped by the $183 billion acquisition of the German wireless rival Mannesmann in 2000.

Representatives for Vodafone and Kabel Deutschland declined to comment further on the prospective deal. Both companies said that the discussions were at an early stage and may not lead to an official bid.

The move for the German cable operator is the latest in a number of acquisitions in Europe’s telecommunications and cable, as rivals like Mr. Malone’s Liberty Global and the Mexican billionaire Carlos Slim Helú jockey to buy assets.
Despite Europe’s sluggish economy, local consumers are using increasingly large amounts of data services, like superfast broadband and 4G cell phone packages, on which companies can charge a premium.

To tap into this growing market, Liberty Global has said it is looking to buy further assets in Europe, while Mr. Slim, who operates an extensive cell phone network across Latin America, has been increasing his stakes in European wireless carriers, including the Dutch company telecoms company KPN.

(Mr. Slim also owns a minority stake in The New York Times Company.)

Vodafone, one of the world’s largest cell phone operators, also has come under increasing scrutiny as speculation persists that its partner in the United States, Verizon, may buy out Vodafone’s minority stake in their cell phone joint venture, Verizon Wireless, for more than $100 billion.

By taking control over Kabel Deutschland, analysts said that the British telecommunications company could increasingly compete with local rivals by adding cable services to existing cell phone and fixed-line offerings in Germany.

Last month, Vodafone, which has more than 30 million customers in Germany, signed an agreement with its German competitor Deutsche Telekom to gain access to its local fixed-line network to offer Vodafone’s customers high-speed broadband.

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Despites Sales Growth, Ericsson Profit Plunges

But shares in Ericsson, based in Stockholm, rose by 0.3 percent through early afternoon trading, to 74.25 krona, as investors focused on underlying operating profits and comments by the chief executive, Hans Vestberg, who said he saw demand for new networks, its most lucrative business, accelerating this year.

In the first three months of the year, 30 percent of Ericsson’s network equipment sales were made to the four big American network operators — Verizon Wireless, ATT Mobility, Sprint and T-Mobile U.S.A. — a record for the Swedish company. Those companies are Verizon Wireless, ATT Mobility, Sprint and T-Mobile U.S.A., which are expanding or planning to expand their mobile broadband networks.

“The networks division is going in the right direction,” said Hakan Wranne, an analyst with Swedbank in Stockholm. “This is being driven of course very much by the U.S market, which is basically the four big customers. That is also a risk.”

Net profit at Ericsson fell to 1.2 billion krona, or $180.7 million, in the three months through March from 8.8 billion krona a year earlier, when profit was inflated by a one-time gain of 7.7 billion krona from the sale of a 50 percent stake in SonyEricsson to Sony.

Sales in the first quarter rose 2 percent, to 52 billion krona, led by a demand in North America and Southeast Asia, where sales rose by 23 percent and 22 percent, respectively. That offset a 34 percent sales decline in China, Japan and South Korea, where the weakening Swedish currency and slowing network investments weighed on results.

Excluding these and other one-time effects, Ericsson’s operating income rose 50 percent in the period to 2.1 billion krona from 1.4 billion krona a year earlier.

Ericsson’s biggest rival, Huawei of China, has been effectively barred from selling equipment to U.S. operators because of national security concerns by American lawmakers — fears the Chinese company says are unfounded. The intense competition between Huawei and Ericsson has turned to Europe, forcing equipment prices and profits lower for both companies.

In the European market, which Ericsson defines to include Russia and some of the former Soviet republics, quarterly sales rose 6.3 percent to 11.9 billion krona.

“What we have been seeing for several years now, particularly in Europe with the modernization and huge swap-outs of networks, is that those contracts have been taken by Ericsson and Huawei at very low margins,” said Mr. Wranne, the analyst.

Mr. Vestberg, the Ericsson chief executive, said in an interview that he expected operators in Europe, North America and parts of Asia, to accelerate their equipment purchases in the second half of this year, as carriers upgrade networks to accommodate the demands of their new Long Term Evolution technology, which delivers the fastest mobile broadband speeds on the market.

Equipment purchases intended to raise the capacity of networks, like replacing routers and updating network software to improve the efficiency of networks, are typically among the most lucrative types of sales for Ericsson.

“You have a new technology push, a roll-out of a lot of coverage, you start upgrading and then you begin putting capacity in the networks,” Mr. Vestberg said. “In the way we are approaching this mobile broadband technology right now, it will have a major impact on our society. And it is definitely being driven by data and networks.”

Weighing on Ericsson’s results was a one-time charge in the quarter of 1.4 billion krona to eliminate jobs for 919 employees in Sweden, or about 5 percent of its domestic work force of roughly 17,200, and the costs of reducing staffing at its global network management business. Its global work force was about 110,000 at the end of last year.

In Latin America, Ericsson’s sales fell 9 percent to 4.4 billion krona in the quarter as operators postponed building new networks amid delays in auctions of radio-frequency spectrum.

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Digital Domain: Republic Wireless’s Plan Melds Wi-Fi and Network Calling

When I first saw this offer from Republic Wireless, I rubbed my eyes and looked for an asterisk leading to fine print that detailed a huge catch. But Republic, a division of a telecom company called, delivers exactly what it advertises. It can do so because the handset technology is a curious hybrid: it uses Wi-Fi when the customer is in a Wi-Fi area and Sprint Nextel’s 3G network when it is not.

The concept brings together the best of two worlds: the low cost of voice calls carried over the Internet and the convenience of making calls to any phone number using a major carrier’s cellular network when Wi-Fi isn’t available.

In my own case, on a typical day, I use my mobile phone mostly when I’m not actually mobile: I’m either at home or at work, perfectly positioned to use Wi-Fi at both locations. And I don’t even use the phone as a phone all that much. I use it mainly for e-mail and texts, neither of which requires enough bandwidth to benefit from the power of the fastest data networks.

If you walk into a Verizon Wireless store and buy an iPhone 5, you’ll pay $60 or more a month for an unlimited talk and texting plan, depending on the data allocation for Internet use that you select to go with it. Some of that monthly charge goes toward repaying the carrier for the discounted price that makes a $649 iPhone seem as if it costs only $200. But most of the charge is for gaining access to the carrier’s wireless network.

“We were looking at a mobile industry that had begun to charge extraordinary amounts of money, and we saw an industry opportunity that everybody else was missing: Wi-Fi is the new mobile,” says David Morken, co-founder and chief executive of Bandwidth, based in Raleigh, N.C.

Smartphone apps that offer voice calls using data plans, not minutes allocated for calls, are plentiful. Just last month, Facebook quietly added an option that lets users of the iPhone version of Facebook Messenger place free voice calls to other Messenger users. But using those apps to make a call means the recipient has to run the same app, an irksome requirement that never comes up when using phones alone.

Republic buys access to Sprint’s network on a wholesale basis for calls made outside of Wi-Fi areas. Its business model assumes, however, that Wi-Fi carries the load a majority of the time its phones are used. The company says that its service, even at $19 a month, is a profitable operation on a per-customer basis.

“We don’t have to force people, or even ask people, how to behave,” Mr. Morken says. “Over 60 percent of the time that the phone is being used, on average, our users are using Wi-Fi and that number is only going up.”

Last month, I tested a Republic handset, a Motorola Defy XT. It’s a light smartphone with a small screen, acceptable sound quality and great battery life.

Republic’s Web site gently warns against acting like a “data hog” and encourages its customers to “play nice and try to use Wi-Fi as much as you can.” But scolding isn’t needed: Wi-Fi is faster than 3G, so users have an incentive to opt for Wi-Fi wherever it is available.

The Motorola handset is the only one now offered by Republic, and it costs $259. The phone runs an older version of Android, and it has some first-generation glitches, like losing a connection when a caller starts out on a Wi-Fi network and then leaves the coverage area. (With a click, the call is resumed using Sprint’s cellular network.)

Today most Wi-Fi access requires a logon. But that shouldn’t prove a great inconvenience: you can simply set up the phone once with Wi-Fi at home, then once more at the office. At other locations, users can ignore Wi-Fi availability and use 3G instead.

Mr. Morken says a solution to the Wi-Fi-to-cellular handoff problem has been worked out in the company’s lab, and should be available midyear. Later this year, he also expects to offer more handset models, including one at the high end; he says they will run the latest version of Android.

Matt Carter, president of the Global Wholesale and Emerging Solutions division at Sprint, asserted that the company was happy to serve as Republic’s supplier. When I asked whether Republic’s Wi-Fi-centric model, with its drastically lower price to the consumer, would pose a serious threat to the incumbent carriers, including Sprint, he said, “If the world operated based on just economic decisions, people wouldn’t go buy the most expensive cars on the planet, right?”

Mr. Carter listed reasons that most consumers would prefer the wireless service obtained directly from a major carrier: a wider range of devices and the convenience of placing a call without having to tinker with Wi-Fi setup.

Republic “will resonate with a sliver of the marketplace,” Mr. Carter said. He compared wireless carriers to the major airline carriers, which still control a majority of the market despite low-priced upstarts like JetBlue or Southwest, which he described as appealing only to “a certain segment of the population.”

Philip Cusick, a J.P. Morgan analyst who covers telecommunications, says he doesn’t expect a major shift of customers to Republic Wireless. The price difference isn’t as great as it first appears, he says, when one considers that 80 percent of customers of ATT and Verizon are on family or employer-related discount plans.

MR. MORKEN of says he knows that his company must lower the price of its handset — the industry rule-of-thumb for no-contract wireless services is that a simple handset cannot cost more than $99 and a smartphone, $149. But if Republic can offer me an Android phone with a generously sized screen for a reasonable price, I don’t see why, with Wi-Fi available at work and home, I should continue to pay an expensive-sports-car price for my wireless service.

“There’s a reason why the carriers around the world don’t want you using Wi-Fi for voice and text,” Mr. Morken says. “You will soon realize you shouldn’t have to pay what you’re paying today.”

Randall Stross is an author based in Silicon Valley and a professor of business at San Jose State University. E-mail:

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DealBook: Sprint Offers $2.1 Billion for Clearwire and Its Spectrum

Masayoshi Son, left, the founder of SoftBank, and Daniel Hesse, Sprint's head, announcing their deal in October.Yuriko Nakao/ReutersMasayoshi Son, left, the founder of SoftBank, and Daniel Hesse, Sprint’s head, announcing their deal in October.

9:19 p.m. | Updated

With the help of a deep-pocketed new partner, Sprint Nextel is ready to spend money to shore up the future of its wireless network.

The telecommunications company offered on Thursday to buy out the part of Clearwire, the wireless network operator, that it doesn’t already own for $2.1 billion. The bid values Clearwire at about $4 billion.

Sprint agreed less than two months ago to sell a majority stake in itself to SoftBank, a major Japanese cellphone service provider.

Under the terms of its proposal, Sprint will pay $2.90 a share for Clearwire, according to a regulatory filing. Sprint, which already owns 51.7 percent of Clearwire, needs the approval of both SoftBank and a substantial portion of Clearwire’s minority shareholders.

Clearwire said in a regulatory filing on Thursday that its board had formed a special committee to consider Sprint’s offer.

Shares in Clearwire have slumped more than 85 percent since they began trading over five years ago. But they leapt nearly 15 percent on Thursday, to $3.16. That suggests that investors believe a higher offer may be forthcoming.

The Sprint offer could benefit both companies. For Sprint, buying all of Clearwire would lock up spectrum that Sprint could use to build out its newest data network.

Long the No. 3 cellphone service provider in the country behind Verizon Wireless and ATT, Sprint has moved aggressively to bolster its position within a consolidating industry. Sprint’s deal with SoftBank gives it a well-heeled partner willing to infuse $20.1 billion into the company.

The Clearwire deal could also help fend off a newly revitalized T-Mobile USA, which has announced plans to merge with the smaller MetroPCS.

A deal would also give Clearwire, which has struggled for much of its existence, some much-needed cash — up to $800 million — after paying off some of its heavy debt obligations. The company reported having $1.2 billion in cash as of Sept. 30, which it expected to last about a year.

Formed with much promise as a next-generation wireless service provider, Clearwire has instead flailed after betting on WiMax, a high-speed wireless data standard that failed to gain traction.

A union of Sprint and Clearwire had long been expected. Soon after the SoftBank deal was announced, both Daniel R. Hesse, Sprint’s chief executive, and Masayoshi Son, SoftBank’s founder, intimated that acquisitions were in Sprint’s future.

“This is a scale game,” Mr. Hesse said in an interview in October.

Clearwire’s shares rose immediately after the SoftBank investment was announced, fueling speculation about a bid from Sprint. A few days later, Sprint increased its holdings in Clearwire, buying shares from Craig O. McCaw’s Eagle River Holdings. The transaction gave Sprint a majority stake in Clearwire.

Sprint is working to build out a Long Term Evolution, or LTE, network that can support the latest smartphones like the iPhone 5. Clearwire owns spectrum that is similar to the radio band that SoftBank uses, potentially creating a path for devices that can be used in both the United States and Japan.

And while Sprint has long been the biggest stakeholder in Clearwire, it hasn’t been able to exert full control over one of its most important partners.

Some of Clearwire’s smaller shareholders, including the investment firms Mount Kellett Capital Management and Crest Financial, have cautioned the company against selling out to Sprint for too low a price.

Mount Kellett has suggested that Clearwire consider selling a portion of its spare spectrum to other telecommunications companies, like ATT or T-Mobile. And Crest Financial said on Thursday that it was willing to take steps as drastic as petitioning government regulators to block Sprint’s deal with SoftBank, in an effort to win a higher price.

An analyst at BTIG Research, Walter Piecyk, estimated that Sprint would need to pay at least $5 a share to secure Clearwire.

But Sprint already has a fair amount of leverage over its smaller partner. It already controls a majority of Clearwire’s voting shares and is its biggest customer. And having posted a string of losses, Clearwire is running out of cash to keep itself afloat.

Sprint has already been in discussions with its major partners in Clearwire — a group that includes the cable operators Comcast and Bright House as well as the chip maker Intel — to convince them that its bid represents a big premium over Clearwire’s October trading position. It is also betting that those companies are eager to shed a losing investment.

Together, they control more than 12 percent of the total votes in Clearwire. Winning them over would put Sprint significantly closer to the roughly 75 percent of the vote it will need to buy control of the company.

A version of this article appeared in print on 12/14/2012, on page B6 of the NewYork edition with the headline: Sprint Offers $2.1 Billion for Clearwire and Its Spectrum.

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DealBook: Deutsche Telekom Nears a Deal to Buy MetroPCS

A branch of T-Mobile USA in Manhattan. The network operator is a unit of the German telecom giant Deutsche Telekom.Ozier Muhammad/The New York TimesA branch of T-Mobile USA in Manhattan. The network operator is a unit of the German telecom giant Deutsche Telekom.

12:54 p.m. | Updated

Deutsche Telekom said on Tuesday that it was in talks to buy MetroPCS and merge it with its T-Mobile USA unit, as the German telecom giant seeks to bolster its flagging business in the United States.

Under the terms of the proposed transaction, Deutsche Telekom would own the majority of shares in the newly combined American network operator.

Deutsche Telekom warned that “significant issues” had yet to be resolved. But people briefed on the negotiations said that a deal could be announced as soon as Wednesday.

If completed, a deal would come nearly a year after T-Mobile’s proposed $39 billion sale to ATT collapsed amid fierce opposition from antitrust regulators. And it would help shore up the Deutsche Telekom subsidiary’s position as a lower-cost alternative to Verizon Wireless and ATT.

Shares in MetroPCS shot up nearly 18 percent on Tuesday, to $13.60, after Bloomberg News reported talks between the two sides. That valued MetroPCS at about $4.9 billion.

Representatives for Deutsche Telekom and MetroPCS declined to comment or were not immediately available for comment.

Deutsche Telekom has been keen for years to find a way to strengthen its American subsidiary, which has lost customers to bigger rivals that offer faster data services and, perhaps more importantly, the iPhone. With 33,168 customers T-Mobile trails its bigger competitors, which also include Sprint Nextel, by considerable margins. And it lost 205,000 subscribers in its second quarter this year, quadruple what it reported a year ago.

Adding MetroPCS would give T-Mobile 9.3 million customers, though their phones operate on a different network technology.

Based in Richardson, Tex., MetroPCS has long been seen as a target for consolidation in the cellphone service industry. The company’s deal to sell itself to Sprint for stock and cash collapsed this year after the bigger network operator’s board vetoed the proposed transaction.

MetroPCS and another low-cost service provider, Leap Wireless, have considered merging several times over recent years, though those talks broke down repeatedly over price.

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Bits Blog: Verizon Unveils Wireless Plans That Cover Several Devices

Amy Sancetta/Associated Press

4:54 p.m. | Updated Adding commentary from a consumer-rights advocacy group and an analyst.

4:02 p.m. | Updated Removing commentary from an analyst who called this a price hike. Verizon has clarified that customers on its current tiered data plans can stay on them.

In a first for the American wireless industry, Verizon Wireless said on Tuesday that it was introducing plans that would allow customers to pay for a certain amount of wireless data and share that allotment across their family’s smartphones, tablets and laptops.

To Verizon, this is an evolution of family plans for cellphones, which offer a shared pool of calling minutes and text messages. The new plans include unlimited calls and texts, but they put limits on wireless data — at a time when mobile Internet use is cutting down on time spent talking and texting.

The shared plans could help Verizon offset the decline in revenue that the trend is causing. Verizon is not the only carrier that recognizes this: ATT, the second-biggest American carrier after Verizon, has also said that it plans to introduce shared plans this year.

Consumers may find the new plans more appealing than having to get separate data contracts for, say, an iPad and a teenager’s phone. But the idea of paying for unlimited texts and calls may not sit well with everyone.

“Verizon is finally delivering something that everybody wants — in a way that nobody wants,” said Jan Dawson, a mobile analyst at Ovum, a research firm. “There are people who want a shared data plan and minimal voice and text messages, and that just isn’t available.”

For Verizon customers, the shared plans are an option, not a replacement for their current phone plans, which involve paying a monthly fee for a certain amount of minutes, text messages and data.

Brenda Raney, a Verizon spokeswoman, said customers with these older plans would not be required to switch to a shared plan, even when they upgraded to a new device.

“The point of this is customer flexibility and value,” Ms. Raney said. “If you have a smartphone and you don’t have a tablet, but you’re at the beach one day and your friend has a tablet, you can activate it right then and there because it’s included in the data plan.”

The shared plans may have repercussions for customers who are clinging to unlimited data plans. Verizon discontinued these last year, but customers who wanted to keep them were allowed to do so. After the shared plans come into effect later this month, Verizon’s unlimited data customers who want to get a new phone at a discounted price will have to pick either a limited data plan or a shared plan. They can keep their old plans only if they buy a new smartphone at its full, unsubsidized price — often hundreds of dollars.

Customers who choose a shared data plan will pay a monthly fee for each device on their account. A smartphone would cost $40 a month, a normal cellphone $30 and a tablet $10. Then there is an additional monthly fee for the shared data pool, ranging from $50 for 1 gigabyte to $100 for 10 gigabytes. A family of three with an iPhone, a regular cellphone and an iPad that wants 10 gigabytes would pay a total of $180 a month.

When an account is close to using up its data, each device on the shared plan receives an alert asking if the customer wants to buy an extra 2 gigabytes of data for $10, Ms. Raney of Verizon said. But if they ignore this and go over the limit, they have to pay $15 for every extra gigabyte they use, she said.

Verizon previously outlined to investors how these plans would help it make more money. Francis J. Shammo, Verizon’s chief financial officer, said at a recent investors’ conference that the company believed that its faster fourth-generation LTE network would encourage people to stream video and generally be heavier users of data, eventually prompting them to buy the more expensive plans. He added that the new plans would help push the old unlimited customers off those plans.

“It is going to be more important that people will start to upgrade in their tiers as they start to really realize the benefits of the LTE network,” Mr. Shammo said. “Over the future time, as they add more devices, they are going to have to buy up into tiers.”

Michael Weinberg, senior staff lawyer at Public Knowledge, a consumer-rights advocacy group, said he was puzzled by one aspect of the new plans. He said he found it odd that customers had to pay an additional fee per device when they were already paying for the data they were using.

“I’m already cutting Verizon a check for a pool of data,” he said. “Why do I have to pay a monthly extra fee just for the pleasure of adding a device to my account?”

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Bits Blog: Verizon Drops Plan for $2 Fee on Some Bill Payments

Brian Snyder/ReutersCustomers at a Verizon Wireless store in Boston.

4:05 p.m. | Updated Adding background and analyst comment.

In a remarkably swift reversal, Verizon Wireless has canceled plans to impose a $2 “convenience fee” on some bill payments, just a day after announcing the new policy.

The company said in a statement that it was dropping the plan in light of customer feedback.

“Verizon Wireless has decided it will not institute the fee for online or telephone single payments that was announced earlier this week,” it said. “The company made the decision in response to customer feedback about the plan, which was designed to improve the efficiency of those transactions. The company continues to encourage customers to take advantage of the numerous simple and convenient payment methods it provides.”

Objections to the fee came fast and furious, and highlighted just how quickly things race around the feedback loop now, even when a company attempts to deliver the bad news during what is supposed to be a slow news week when fewer people are paying attention.

The commentary appeared first on Twitter, where many people mistakenly believed that it would be applied to all credit and debit card payments for Verizon products. Instead it was meant to apply to one-time payments that Verizon Wireless customers made via phone or on the company’s Web sites.

Some people started petitions on the same Web site where a similar campaign helped convince Bank of America to rescind its now infamous $5 monthly debit card fee. Many others insisted that they would switch to paper billing, in effect to punish the company for its actions by finding the most cost-consuming way to pay their bills each month that did not require them to pay a fee.

Consumer advocates, like Edgar Dworsky, a lawyer who runs the Web site Consumer World, began the morning vowing to investigate whether Verizon Wireless’s fee violated the terms of its merchant agreement and federal laws that limit card surcharges.

And later in the day, the Federal Communications Commission said it was planning to question Verizon about the new policy, saying it was “concerned about Verizon’s actions.

At which point the company had apparently had enough. A Verizon Wireless spokesman did not immediately respond to a request for comment.

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Verizon Landline Unit at Heart of Strike

The unions’ refusal to believe Verizon is one reason, labor relations experts say, that the 45,000 workers who went on strike Sunday are already dug in and braced for a lengthy walkout. Heightening the stakes, some industry analysts say Verizon sees the weak economy as a prime opportunity to chop union costs. Verizon has repeatedly stressed that it needs to cut costs in its landline business because that division’s customer base and profit margins have fallen over the last decade. Many consumers have dropped landlines in favor of competing options like mobile phones, cable and Skype.

Verizon officials describe its heavily unionized landline division as a laggard, while Verizon Wireless, a largely nonunion joint venture in which Verizon is majority shareholder, is hailed as the shining star, its hefty profits lifting the rest of the company.

In the first six months of this year, Verizon Wireless had operating income of $9 billion, the company reported, while its landline business had operating income of $606 million.

In defending the company’s push for concessions — including a pension freeze, fewer sick days and far higher employee health contributions — Verizon’s chief executive, Lowell McAdam, said in a letter to employees, “The existing contract provisions, negotiated initially when Verizon was under far less competitive pressure, are not in line with the economic realities of business today.”

Officials with the striking unions — the Communications Workers of America and the International Brotherhood of Electrical Workers — insist that the landline division is doing just fine. They note that its profit margins have increased over the last five quarters and that its FiOS TV and Internet service is growing strongly.

The unions further argue that members in the landline division should not be pressured to accept concessions just because Verizon Wireless is doing better. Union officials maintain that Verizon is seeking concessions worth $1 billion a year or about $20,000 a year per union member.

“It’s true that wireline is losing lines, but many of them are going to Verizon Wireless,” said Robert Master, a spokesman for the communications workers. “And regardless of how many lines they’ve lost, they’re obviously operating as an enormously profitable company. Considering these profit numbers and the huge amount that Verizon’s top executives are being paid, it’s not fair that our members are the ones to have to make sacrifices.”

Verizon officials say that FiOS is not — as the unions say— going to be the financial savior for the landline business.

Verizon’s chief financial officer, Fran Shammo, said Wednesday at a conference that FiOS’s profitability was increasing. But he said that because of the huge upfront costs involved in laying the fiber optic network, FiOS would never be as profitable as the early telephone business, which had little competition.

FiOS, he said, faces a “very fierce competitive environment with the cable companies,” adding, “The legacy core business is a real drag. And we have to fix that cost structure.”

George Kohl, a special assistant to the communications workers’ president, said Verizon used billions of dollars in profits from its traditional landline business to finance its expansion into wireless. Verizon Wireless, he noted, just announced a $10 billion dividend to its shareholders, with $5.5 billion going to Verizon.

“The wireline guys sweated day by day to make the profits to create wireless,” he said. “And now they want to take away the middle-class life from the wireline employees who made the investment in wireless possible.”

Craig Moffett, a telecommunications analyst at Sanford C. Bernstein Company, said the tables had turned in recent years, and profits from wireless were financing the huge investment in FiOS.

Mr. Moffett agreed with Verizon’s arguments that its landline business was hurting.

“Verizon FiOS is a very good network, but it hasn’t stopped the bleeding in wireline,” he said. “Wireline is a business that is earning about a 1.6 percent return on investment and it has a 7.5 percent cost of capital. It isn’t coming close to earning enough to cover its cost of financing.”

The financials of Verizon’s landline business are not the only set of numbers that company and union are fighting over. Union officials dispute the company’s estimate that each employee receives $50,000 worth of benefits each year. In that number, the company includes $14,700 for medical and dental insurance, $10,900 for retiree health care and life insurance, $10,800 for pension and $7,500 for time off.

Union officials say total benefits average $25,000 a year. Mr. Kohl, the union official, disputed the $10,800 yearly figure for pensions, noting that Verizon’s annual report said the company’s 2010 contributions to the union’s defined benefit plans “were not significant.” Verizon officials said the $10,800 was an average annual amount.

Mr. Kohl also said the $10,900 retiree health care figure was greatly exaggerated, asserting that many retirees had worked years to pay for that care so the cost should not be attributed to current employees.

Mr. Kohl also quarreled with Verizon saying the value of time off — vacation, sick days and personal days — was $7,500. He dismissed that as double-counting because that number was already counted in wages.

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Citing Stalemate, Verizon Workers Strike

The strike involves Verizon telephone field technicians, call center workers and cable installers from Massachusetts to Virginia and is expected to cause some delays in repairing and installing land line phones and Verizon’s FiOS television and Internet service.

Officials with the two unions, the Communications Workers of America and the International Brotherhood of Electrical Workers, said Verizon was demanding far too many concessions — on health coverage, pensions and other matters — and was not backing off many of them.

Verizon executives say far-reaching concessions are needed because of a long-term drop in revenue and profit in its land line telephone business and because of intense competition in television and Internet services.

The strike involves Verizon’s wire lines division, which include its traditional land lines to homes and business as well as FiOS. Unlike Verizon Wireless, a joint venture in which Verizon is the majority owner, the wire lines division is heavily unionized, with the Communications Workers representing 35,000 employees and the Electrical Workers 10,000.

In announcing the strike at 12:20 a.m., the communications workers complained that almost 100 of Verizon’s demands for concessions remained on the negotiating table.

“Since bargaining began on June 22, Verizon has refused to move from a long list of concession demands,” the union said in its post-midnight statement. “Even at the 11th hour, as contracts were set to expire, Verizon continued to seek to strip away 50 years of collective bargaining gains for middle class workers and their families.”

Early Sunday morning, Verizon issued a statement saying its attempts to reach a construct with the two unions were unsuccessful. The company said, “In anticipation of this development, Verizon has activated a contingency plan to ensure customers experience limited disruption in service during this time.”

Mark C. Reed, Verizon’s executive vice president of human resources, said, “It’s regrettable for our employees and our customers” that the two unions “have decided to walk away from the table instead of continuing to work through the issues.”

But Candice Johnson, a spokeswoman for the communications workers, said at 12:30 a.m. that the talks were continuing, emphatically denying that the unions had broken off talks.

In its statement, Verizon said it had “trained tens of thousands of management employees, retirees and others to fill the roles and responsibilities of its union-represented wireline workers.”

Mr. Reed said, “We are confident that we have the talent and resources in place to meet the needs and demands of our customers.”

In the talks that have been held in recent weeks in New York and Philadelphia, Verizon has asked its unionized workers to start contributing to their health care premiums, proposing that workers pay $1,300 to $3,000 for family coverage, depending on the plan. Verizon executives say the contributions would be similar to those already made by its 135,000 nonunion employees.

Verizon has also called for freezing pensions for current employees and eliminating traditional pensions for future workers, while making its 401(k) plans somewhat more generous for both. It would also like to limit sick days to five a year, as opposed to the current policy, which company executives say sets no limit.

In addition, Verizon wants to make it easier to lay off workers without having to buy them out and wants to tie raises more closely to job performance, denying annual raises to subpar performers.

Union officials say these proposals are the most aggressive Verizon has ever made.

Verizon called its unionized employees well paid, saying that many field technicians earn more than $100,000 a year, including overtime, with an additional $50,000 in benefits. But union officials say that the field technicians and call center workers generally earn $60,000 to $77,000 before overtime and that benefits come to well under $50,000 a year.

The crux of the clash is Verizon’s financial health. The company says its traditional wire line division is struggling, while the union says Verizon’s overall business, including Verizon Wireless, is thriving.

Verizon earned $6.9 billion in net income for the first six months of this year, amid strong growth in its majority-owned Verizon Wireless cellphone operation. And its hefty investment in FiOS is starting to pay off.

But the company has repeatedly said it needs to rein in costs in its wire lines division because it has lost business to wireless companies, to Internet companies like Vonage and Skype and to cable television companies, many of them nonunion, like Comcast and Time Warner.

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To Rebound, RIM Courts the Carriers

Many wireless carriers are starting to feel threatened by the growing prominence of Apple and Google, especially as phones take on a variety of new tasks like replacing credit cards. Nor are the carriers keen about having just two companies controlling a major part of their businesses. As a result, many carriers want a revitalized RIM to serve as a counterbalance, analysts and telecommunications consultants say.

“The carriers are looking for guard dogs to keep Apple down and keep Google down,” said John Strand, a telecommunications consultant in Copenhagen. “BlackBerry has had very good relationships with carriers.”

Peter Rhamey, an analyst who follows North American carriers for BMO Capital Markets, said, “There are a lot of people out there at the carriers who want them to be successful.”

Craig McLennan, RIM’s regional managing director for North America, said, “Strong carrier partnerships are a strategic priority for RIM and we think our constructive alignment with carriers will continue to be an advantage as this market grows even larger.”

Verizon does not share the dim view many investors now hold of RIM.

“RIM continues to be a very important strategic partner,” said Marni Walden, the chief marketing officer at Verizon Wireless. “We have found RIM to be meaningful in the consumer space and critical in specific enterprise segments.”

Michelle Leff Mermelstein, a spokeswoman for Sprint, said the company “has an incredibly strong relationship with RIM.”

ATT, citing company policy of not discussing issues involving suppliers, declined to comment.

While the carriers do not openly talk about the threat of Apple and Google, analysts say the two companies have fostered a system that could make carriers slow-growing utilities selling little more than generic network access. The revenue from apps, which provide entertainment, news and other services, do not flow to the carriers.

In an apparent bid to exploit those concerns, RIM has repeatedly told carriers that, unlike Apple, it believes that they deserve a portion of revenues from its apps store and as well as future services. Although given the relative paucity of BlackBerry apps, the offer has relatively little financial value as of now.

Keeping the carriers on its side will not solve RIM’s problems. But, at the very least, it could provide the company with breathing room until it introduces a revamped product line running on its new operating system. The carriers choose what phones to sell and which ones to heavily market. Because carriers subsidize the price of most handsets in the United States and Canada, their decisions about what phones to support and promote arguably make them the most important force in the market.

Publicly at least, carriers are reluctant to criticize RIM. Indeed Rob Bruce, the president of the wireless unit at Rogers Communications, Canada’s largest carrier, was not willing to even acknowledge that anything was wrong with RIM. “They’ve been incredibly successful and I don’t necessarily think they’re going through a bad patch,” said Mr. Bruce, whose company was the first carrier in the world to offer BlackBerry service. “I just think people’s expectations on a company like RIM always run very, very, very far ahead of the realities any of these companies can deliver.”

Tellingly, however, the first handsets Rogers will offer for its recently introduced high-speed Long Term Evolution network will use Android and be manufactured by HTC and Samsung, because RIM has yet to introduce a compatible BlackBerry.

Peter Misek, an analyst who follows RIM for Jefferies Company in New York, said the relationship between RIM and carriers was entering a critical phase. “RIM’s support, especially in the U.S., has lagged over the last 18 months,” he said. “The support of the carriers is tenuous.”

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