The second-largest U.S. mobile service provider AT&T Inc. (T) is facing serious labor issues on the East and West coasts, with as many as 20,000 workers being on strike for two days.
The union employees are from the company’s wireline division and are represented by Communications Workers of America (CWA). The strike involves 17,000 employees in California and Nevada, and 3,000 employees in Connecticut.
In April, about 40,000 employees in the East, Midwest, West and Legacy T Core warned the company of a strike should AT&T fail to negotiate the new labor contract, following the expiration of the existing contract.
This is the second major strike in the U.S. telecommunication space within a year. It has put AT&T in the same situation as Verizon Communications Inc. (VZ) was in August last year. Two labor unions, representing 45,000 employees, from Verizons’ wireline segment had called a strike as the company failed to negotiate the new labor contract with them.
Last month, AT&T inked a three-year tentative deal with the CWA labor unions in the Midwest region. This contract covers 13,000 workers in Illinois, Indiana, Ohio, Michigan and Wisconsin.
Separately, the company also entered into a three-year tentative deal with 5,700 CWA workers that manage corporate accounts and a one-year contract with the 7,000 IBEW employees in the Midwest.
In addition, AT&T reached a three-year tentative deal with the CWA and the International Brotherhood of Electrical Workers (IBEW) in the Southeast. The contract, involving wage boost and modest pension increases, covers about 22,000 employees in Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina and Tennessee. Overall, AT&T reached agreements covering 48,000 wireline employees.
The company’s wireline segment is currently struggling with persistent losses in access lines that are weighing on its revenues and margins. AT&T’s local phone business is contracting due to competitive pressure from voice-over-Internet protocol (VoIP) service providers and aggressive triple-play (voice, data, video) offerings by the cable companies.
Nevertheless, management expects positive business trends to continue going forward with wireline revenue returning to growth and margins becoming stable this year. The growth would be fueled by strong business revenue and more specifically, improving strategic services.
We will carefully watch how the company handles the issue and how labor unions react. Hence, we are maintaining our long-term Neutral recommendation on AT&T. The company retains the Zacks #3 (Hold) Rank for the short term (1-3 months).
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