March 7, 2021

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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