Verizon turns to buyouts for flexibility to manage workforce
By Tom Giles
Bloomberg News Service
Verizon Communications Inc., the biggest U.S. local-telephone company, is coming to grips with a union contract that limits its ability to cut jobs to compete with non-union cable-television operators such as Comcast Corp.
The accord, reached Thursday after three months of talks, curbs Verizon's plans to fire and transfer employees, leaving buyouts as the New York-based company's main means of trimming jobs. That may slow efforts to move work to faster-growing areas, such as high-speed Internet access, from a local-phone business that's in decline.
"Down the road, this is a major competitive disadvantage," said Daniela Spassova, an analyst at Principal Global Investors, which has $57 billion under management and owns Verizon bonds. "The opportunity to adjust your cost structure is important in this very competitive marketplace."
Under the five-year contract with the Communications Workers of America and the International Brotherhood of Electrical Workers, Verizon capped the pace of health-care cost increases and won new powers to fire future hires. The company agreed to raise wages 8 percent over four years, less than the three-year, 12 percent increase agreed to in 2000.
In exchange, Verizon backed off the job-transfer flexibility it sought and said it will continue to pay all healthcare premiums for active employees and retirees.
The contract "absolutely and unequivocally" gives the company the leeway it needs to eliminate jobs, said Verizon Vice Chairman Lawrence Babbio in a conference call. Stipulations that include letting the company pay more to induce workers to retire mean that "by the third year we will have plenty of flexibility to manage the force up and down."
Verizon customers have disconnected 7 million local lines in the past three years, some defecting to companies such as AT&T Corp. that lease Verizon's network at discounts set by the government. Verizon also is losing business to cable companies such as Comcast.