The largest U.S. mobile service provider Verizon Communications (VZ) will now operate at normal rates after a 14-day strike by 45,000 employees.
Two labor unions, represented by Communications Workers of America and International Brotherhood of Electrical Workers, called off their strike as the old contract, which expired on August 6, was extended indefinitely with the prior terms.
The striking employees were from the company’s wireline division in the Mid-Atlantic and Northeast regions that is losing money to cable-TV carriers. Persistent losses in access lines are weighing on revenues and margins of the division. Hence, Verizon was trying to amend the terms of the labor contract. The company proposed to enhance the employee 401(k) plan and increase contribution to healthcare insurance premiums by freezing pension plans.
The workers did not approve of the revised terms of the contract. Their opposition stemmed from the fact that the landline business supports the growing wireless business, which can afford their current benefits. Many of the striking technicians install and maintain the company’s new FiOS fiber-optic network, which represents an integral part of the carrier’s long-term growth strategy.
During the recently concluded second quarter, Verizon added 184,000 and 189,000 new customers to its FiOS TV and FiOS Internet services, respectively. The penetration rate (subscribers as a percentage of potential subscribers) of both FiOS Internet and FiOS TV surged to approximately 34% and 30%, respectively, across all markets from the year-ago levels of 30% and 26%. Further, Verizon earned $3 billion of profits in the first half of the year.
Moreover, Verizon is poised for healthy wireline growth through the deployment of strategic service offerings, including expansion of VoIP and international Ethernet capabilities, managed network and cloud services, and security solutions. The acquisition of cloud and managed IT infrastructure leader Terremark Worldwide Inc. in April has significantly improved its competitive position over AT&T Inc. (T). Verizon will now be able to expand its advanced business to offset declining revenues from traditional fixed lines in the long term.
Disputes have cooled off in the last 14 days and talks are ongoing on major issues such as benefits, work flexibility and job security. No details were provided on the completion of the new contract.
Out of the total Verizon 196,000 workers, 135,000 do not belong to any union and are employed in its wireless division, a joint venture with Vodafone Group Plc (VOD). The division was not affected by the strike. Verizon remains the leading provider of wireless voice and data communication services in the U.S. as it continues to expand its 3G and 4G Long-Term Evolution mobile broadband networks. Further, Verzion’s wireless growth prospects remain strong, driven by customer growth, higher smartphone adoption and the sale of Apple Inc.’s (AAPL) iPhone that will lead to improved revenue.
We are maintaining our long-term Neutral recommendation on Verizon. The stock retains the Zacks #3 (Hold) Rank for the short term (1–3 months).
