Analysts Think Bitter Verizon Strike Looms

With hours left before contracts expire for 80,000 unionized Verizon Communications Inc. workers in the Northeast, telecommunications companies and analysts are bracing for what many see as a likely protracted and disruptive strike whose effects could ripple through the telecom industry.  

Verizon's network is heavily automated, and the company in past strikes has been able to shift managers to cover for many striking technicians. But a long strike could cause delays for Verizon customers seeking to have phone lines installed and repaired. Homeowners and small businesses would probably be given less priority than government agencies and big corporations.

A multiweek strike could also snarl operations for competitive phone companies that rent Verizon lines and, some analysts said, potentially slow down revenues for struggling telecom equipment vendors.

Both Verizon and leaders of its two major unions, the Communications Workers of America and the International Brotherhood of Electrical Workers, said they hope to avoid a strike after the Aug. 2 contract expiration. But Verizon has begun canvassing retirees seeking potential volunteers to come back to work in August, and some union locals have already printed up ''Strike 2003'' T-shirts. Some union members suspect Verizon executives want to provoke a strike as a real-world test of how many employees it actually needs to run its 57 million-line network, so it can figure out how many of its 230,000 jobs it could eliminate over time.

Unions, furious over recent layoffs and what they call lavish executive pay packages, are dead set against Verizon's drive to raise employee health insurance costs. Suffering the third year of a telecom slowdown and mounting competition from wireless and Internet carriers, Verizon is expected to push for deep concessions to shore up its finances and resist labor's drive to get Verizon to ease its opposition to labor efforts to unionize Verizon Wireless workers.

The situation leaves many analysts seeing a strike as likely, possibly on the scale of the bitter, 100-day walkout at Verizon predecessor Nynex in 1989, which included scattered acts of vandalism and sabotage that snarled phone service. Stephen Kamman, a telecom industry stock analyst with CIBC World Markets Corp., said: ''I'm operating on the assumption that we likely have a strike. The duration is the question. There's a general sense that it's a more likely outcome than not.''

Besides possible delays for phone-line installations and repairs for Verizon customers in the Maine to Virginia region, including more than 3 million businesses and homeowners in Massachusetts, a Verizon strike could snarl operations for companies that use its lines. It could delay capital spending by the nation's largest phone company, potentially affecting third-quarter revenues for struggling telecom equipment vendors such as Lucent Technologies Inc.

CIBC's Kamman estimates that Verizon will generate 5 to 10 percent of Lucent's wireline revenues during the third quarter. If Verizon is preoccupied with maintaining service and deploying executives to work 14-hour days filling in for technicians, Kamman said, it could slow or shelve capital expenditures in the summer quarter. Other Verizon vendors that might face smaller impacts than Lucent include Nortel Networks Ltd., Alcatel, and Juniper Networks Inc.

For Lucent, Kamman said: ''It's a material headache. It's less an issue that the spending won't come in ever, it's more that it might come in later. If the strike drags on, then I think you'll start to see growing concern.''

Lucent spokeswoman Mary Lou Ambrus said the company, based in Murray Hill, N.J., believes ''it would be inappropriate to comment at this time'' on the possibility of a strike.

The chief executives of two competitive phone companies serving Massachusetts and the Northeast that rely on some Verizon lines to serve customers, Broadview Networks Inc. of New York and Conversent Communications LLC of Marlborough, say they are speeding up orders for Verizon lines this month, expecting workers will strike soon after current three-year labor pacts expire Aug. 2.

''I think management is really trying to bust the union on this one,'' said Conversent CEO Robert Shanahan, stressing he is personally neutral. ''I think they're prepared to let them strike until they break. As a result, every line we need that we can get in now, we're trying to get in.''

Shanahan and Bob Carp, president of Galaxy Internet Services Inc., a Newton Net service provider that rents Verizon lines, said they have begun looking for alternative carriers to provide phone and data lines.

''We are attempting to work with all of our customers to notify them that a strike may be imminent, and if so, installation for new service may be backed up by weeks, if not months,'' Carp said.

Broadview CEO Vern Kennedy, who was a Nynex executive during the 1989 strike, said he worries that Verizon may use a strike and its aftereffects as an excuse to drag its feet providing lines to competitors.

''I've got enormous skepticism about Verizon playing fairly during this difficult time,'' Kennedy said. ''They absolutely cannot use the smokescreen of a strike to advance an anticompetitive agenda, but I don't have a lot of confidence that they won't try.''

Verizon spokesman Eric Rabe said competitors' predictions about the likelihood of a strike are an understandable ''sales tactic,'' but reiterated Verizon's hope that a new contract can be in place by Aug. 2.

''We are at the absolute posturing stage of negotiations here,'' Rabe said. ''You're going to hear the most incendiary language'' before negotiations begin in earnest later this month, Rabe said.

However, union officials including CWA president Morton Bahr contend Verizon is already spending millions in preparation for a strike, including soliciting retired managers and union retirees to come back to work. ''Obviously, they're gearing for a potential strike,'' Bahr said.

Rabe confirmed such letters have gone out, but described them as only ''general prudence and contingency planning.'' However, Rabe also said Verizon thinks customers would face substantially smaller problems in a strike this year than they did in 1989 because of technology advances including Web-based ways for customers to directly order service upgrades that do not require physical work on phone lines.

Some analysts question whether the CWA and the IBEW could successfully pull off a strike that forces Verizon to negotiate a more favorable settlement. ''This is a very, very weak time in the industry,'' said Patrick Comack, a telecom stock analyst with Guzman & Co. in Miami. ''Unions are going to have to work with management.''

Peter J. Howe can be reached at howe@globe.com.

If you find this newsletter valuable, then please pass it on to any colleagues or friends who may benefit from this information. Thank you!

Comments? Questions? Suggestions? Please do e-mail us at info@atso.com.

Subscription Instructions:

 Terms of Use l Privacy Statement l Contact Us
Copyright 2008 (Advanced Technologies & Services, Inc.) All Rights Reserved