The largest U.S. mobile service provider Verizon Communications’ (VZ) wireline division is facing serious labor issues, with as many as 45,000 employees calling strike over the last two days.
Two labor unions, represented by Communications Workers of America and International Brotherhood of Electrical Workers, went off work after the company failed to negotiate the new labor contract with them.
The striking employees are from the company’s wireline division in the Mid-Atlantic and Northeast regions that is losing money to cable-TV carriers. The company’s Wireline segment is currently struggling with persistent losses in access lines that are weighing on its revenues and margins.
In the new labor deal, Verizon wants to enhance the employee 401(k) plan and increase contribution to healthcare insurance premiums by freezing pension plans. This deal would hurt employees’ wages, benefits and working conditions.
We believe the strike would hurt the company’s wireline growth if it goes on for as long as it did in 2000, when about 80,000 workers were off work for three weeks. This had affected 28 million customers and took a $40 million toll on Verizon’s revenue.
If the dispute is settled without much ado, we see Verizon as 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 relative to its peer AT&T Inc. (T). Verizon will now be able to expand its advanced business in order to offset declining revenues from traditional fixed lines in the long-term.
The company’s wireless division, a joint venture with Vodafone Group Plc (VOD), remains unaffected 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 wireless growth prospects remain strong, driven by customer additions, higher smartphone adoption, and the sale of iPhones that will lead to improved revenue growth.
We are maintaining our long-term Neutral recommendation on Verizon. The stock retains the Zacks #3 Rank (Hold) for the short term (1-3 months).
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