Aug. 8 (Bloomberg) -- A strike of about 45,000 Verizon Communications Inc. workers continued for a second day as the New York-based phone company struggled to make progress in talks with labor unions, signaling a standoff may be prolonged.
The strike, the first at the second-largest U.S. phone carrier in 11 years, may delay service calls and disrupt installations for phone and Web service. Verizon said it has trained more than 40,000 managers and contractors to step into the roles of union workers.
The striking employees, about a quarter of Verizon’s staff, work for the company’s traditional landline business, which is losing customers to cable-TV carriers’ calling plans and mobile phones. Verizon Chief Executive Officer Lowell McAdam said the company needs concessions from unions because of the division’s customer losses and eroding profitability.
“It is clear that some of 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,” McAdam said yesterday in a statement. “In fact, under these contracts, benefit costs have risen consistently even as the wireline business has shrunk.”
Verizon began negotiating with the Communications Workers of America and the International Brotherhood of Electrical Workers in July over terms of a contract to replace one that expired midnight Aug. 6. A proposal to change health-care benefits is one of the issues to be resolved, with Verizon and unions remaining sharply divided.
‘Attack’ on Unions
While the parties are continuing talks in New York and Philadelphia, they aren’t close to agreement, Bill Huber, a business manager for the IBEW, said in an interview yesterday.
“These aren’t negotiations, they’re an insult,” Huber said. “This is a clear attack on our unions.”
The CWA said in a statement workers are prepared to “continue the fight” until the two sides reach an agreement. AFL-CIO, the largest U.S. labor federation, said Verizon’s demand would hurt unionized employees’ wages, benefits and working conditions. The unions have called for rallies in more than 100 locations in New York and New Jersey today.
McAdam, who took over as CEO from Ivan Seidenberg on Aug. 1, had run Verizon Wireless for more than three years before becoming president of Verizon Communications last year. He said he wants to bring the competitive culture of the mobile-phone business to the parent company. In an interview last month, McAdam, 57, said changing the union contract would benefit workers because lower costs would help the business compete.
“If we do that, I think the union will have a much stronger future because the company will be stronger,” he said.
Verizon’s stock may drop during the strike, though it may recover once the action is over and therefore not be harmed in the long term, based on its pattern during a previous labor dispute in 2000, said Jonathan Atkin, an analyst at RBC Capital Markets in San Francisco. He rates Verizon shares “outperform.”
Verizon, whose larger and more profitable wireless unit is unaffected by the strike, fell $1.93, or 5.5 percent, to $33.12 at 4:02 p.m. in New York Stock Exchange composite trading. It was the stock’s biggest drop since January 2009 as stock markets tumbled. The shares have lost 7.4 percent this year.
Verizon’s revenue and profit fell last year as declines in the landline business offset growth in wireless. The number of fixed lines, including residential and business customers, slid 8.2 percent to 26 million at the end of last year, extending declines since 2003. Over the same period, wireless subscribers more than doubled to 94.1 million.
“Overall macro pressures in the enterprise and wholesale divisions only add to the need for a more rational cost structure,” Michael McCormack, an analyst at Nomura Securities International Inc. in New York, said in a note today. McCormack, who rates the shares “neutral,” called the contract talks “likely a painful positive over time” for the company.
Verizon’s competitors include AT&T Inc., the biggest U.S. phone carrier and second-largest wireless operator. AT&T has proposed acquiring Deutsche Telekom AG’s T-Mobile USA, allowing it to surpass Verizon Wireless as the No. 1 U.S. mobile carrier.
In his statement yesterday, McAdam also cited the competitive threat from cable-TV providers, saying they don’t have similar “contract constraints, enabling them to be more nimble and flexible meeting customer needs.”
Though Verizon’s unions authorized strikes in 2008 and 2003, they haven’t gone out on strike since 2000. That 18-day standoff affected 28 million customers and cost Verizon $40 million in revenue. The company settled the dispute by agreeing to a 12 percent wage increase over three years.
This time around, Verizon wants workers to contribute more for health insurance, including paying monthly premiums for the first time, while the unions say their members can’t accept the financial burden, given the current economy.
“We’re looking to bring our union more in line with what the rest of the workers pay,” said Rich Young, a Verizon spokesman, adding that about 135,000 of Verizon’s about 196,000 employees already contribute to health-insurance premiums. The company also wants to increase co-payments and deductibles for union workers.
“Some of our health-care proposals offer health-care plans for as little as $100 a month,” Young said.
Ron Collins, the CWA’s chief of staff, last month called the proposal a “radical change.” Verizon is a profitable company that pays senior executives well and isn’t in danger of going out of business, said Bob Master, a legislative and political director for the CWA.
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