What does the ending of the Verizon strike mean?

The Verizon strikers have returned to work under the conditions of their old contract while negotiations take place on a new one. The company is still demanding major concessions, but they have abandoned their tactic of issuing ultimatums and will now follow a collective bargaining process.

Undoubtedly the solidity of the strike and public support for the strikers caused Verizon management to back down. Moreover, complaints from their customers about installation and service problems were mounting: Verizon’s claims they could maintain service without their skilled technicians were so much PR propaganda.

In an interview with the press on Saturday, Larry Cohen, the communications workers’ president, said: “This was a strike really about bargaining rights and the bargaining process. We were seeking meaningful collective bargaining. We believe we have an opportunity for that now.”  The New York Times added: “More than any other union leader in the country, Mr. Cohen has sought to promote and preserve bargaining rights, and he often said that Verizon’s truculent approach to negotiations resembled those of state governors who wanted to abolish collective bargaining.”

The negotiations themselves will be a continuing struggle. Verizon will keep on pushing for a pension freeze for current workers, fewer sick days, an end to all job security provisions, far larger employee contributions toward health coverage, and freedom to do as much outsourcing as it wants. This represents a rollback of benefits achieved through strike struggles in the past, and part of the fight will be ideological. At the press conference, Verizon’s spokesman maintained that the current contract was “not sustainable.” As Larry Cohen noted, this repeated the identical rhetoric of Wisconsin governor Walker in relation to state workers.

Verizon’s assertion that their wireline business is unprofitable is only plausible because of an accounting trick: they can choose how to allocate their expenses across operations and thus conceal the interdependence of their divisions, presenting whatever picture they want about this year’s second quarter $1.6 billion profit. In any case, the reality is a lower level of profitability for wireline compared to wireless, whose high rate stems from locking consumers into yearly agreements and exorbitant fees for texting and data services, which cost the company little to provide. Verizon Wireless would not be as successful without the name recognition and expertise of wireline, and it’s hard to see how the company could retain their important government, hospitals and corporate customers without the provision of a reliable wireline service.

The claim of “unsustainability” for Verizon workers’ benefits essentially turns the situation on its head. What is unsustainable is the industry’s reliance on bank capital for long-term investment in infrastructure. The banks are demanding cuts in benefits to Verizon employees as one guarantee of repayment, just like the European banks are demanding cuts in living standards in Greece, or like Standard and Poor’s promotion of U.S. government fiscal austerity.

One of the factors behind Verizon’s original aggressive stand is the fact that they may have miscalculated over their introduction of FiOs, a high-speed fiber optic cable connection which replaces older copper cables. It requires a huge capital expenditure and it is doubtful a return on capital that will satisfy investors will be achieved in the short term. Moreover, it pushed the company into a strongly competitive cable TV market. The Associated Press reported: “Verizon’s heavily promoted FiOS TV service gained 191,000 customers [in third quarter 2009]. That increase was 18 percent lower than the level of a year ago and far less than the 253,000 expected by Wall Street, said Sanford Bernstein analyst Craig Moffett. He called the growth in FiOS a ‘clear disappointment.’ Verizon also lost 135,000 DSL customers in the quarter, which Moffett said was the company’s worst on record. In recent quarters, cable TV operators reported snagging DSL customers with higher broadband speeds, which can be key as online video usage increases.”

Although Verizon claims the FiOs service is profitable, industry analysts are skeptical. Moffett estimated earlier this year that “the project will end up having cost Verizon $4,000 per connected home. Moffett calculates the present value of acquired subscribers at $3,200 each. That would give FiOS a negative $800 net present value per customer.”

In March, Verizon issued a debt of $6.25 billion to cover debt from their 2008 buyout of wireless rival Alltel and to enable them to acquire cloud computing specialist Terremark Worldwide Inc. for $1.4 billion. According to Zacks Investment Research, “The acquisition represents Verizon’s enthusiasm to rapidly enter the cloud computing market that delivers corporate IT services over the Internet rather than an in-house IT department.” Their eagerness to enter this market also undercuts Verizon’s claims of unprofitability for wireline. Cloud computing for corporations requires secure high-speed connections which would not be satisfied by wireless.

It’s Verizon’s massive indebtedness that forces it to push for accelerated growth on the backs of its employees, while still retaining enough cash to pay dividends to shareholders and huge salaries to its top executives. But their climbdown reflects a change in the political climate. The public is not buying Verizon’s story: they identify with the union’s struggle to keep hard-won benefits and recognize in it their own desire to leave entitlements like Social Security and Medicare untouched.


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Filed under austerity measures, financiers, marxism, political analysis, state unions, strikes, Uncategorized, Verizon Strike, Wisconsin

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