August 6-12: Jobs, Jobs, Jobs

August 6-12: Jobs, Jobs, Jobs

As July ended, we shared some stories on jobs instead of the then-pending debt deal. And, in the wake of the deal, the Obama Administration has been trying hard to focus attention on job creation, so we return to the subject.

Pivot to Jobs

Last week, Aneesh Chopra, the US Chief Technology Officer, traveled to the Silicon Valley and Blacksburg (VA) http://benton.org/node/86509/ ; he reports three take-aways:

• Immigrant entrepreneurs create American jobs.
• Silicon Valley’s "Open Ecosystem" fosters more American jobs.
• America's "So-Lo-Mo" (social-local-mobile) industry creates jobs.

Representatives from Microsoft, Hewlett-Packard, AT&T, Accenture, Siemens, and other companies joined President Obama at an event on August 5 to announce new efforts to help military veterans find jobs. Microsoft pledged to provide 10,000 technology training and certification packages to veterans.

On August 4, Federal Communications Commission Chairman Julius Genachowski joined business leaders from Jobs4America (1) – a coalition of call center companies -- in Jefferson, Indiana, to announce the creation of 100,000 new broadband-enabled, call center jobs over the next two years in the U.S., helping to revive some communities hardest hit by the economic downturn. Many of these call center jobs will be brought onshore from foreign countries and can be performed at a new cell center or through connectivity at home.

Workers Strike at Verizon

And although many look to technology and telecommunications for job creation (some companies are actually dealing with growing their labor force too fast), this week about 45,000 Verizon Communications workers began a strike after failing to reach agreement on a new contract with the company. Workers involved in the strike come from Verizon's landline division in Massachusetts, Rhode Island, New York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, West Virginia and Washington (DC) and are represented by two unions -- the Communications Workers of America and the International Brotherhood of Electrical Workers unions. At the center of the dispute between the nation's largest telecommunications company and the workers is the issue of benefits and who should pay for them -- particularly when it comes to healthcare coverage. Verizon said that most of its union-represented employees "pay nothing for health insurance premiums" and that the company "is proposing that its union-represented employees pay a portion of their health care premiums, much like the majority of other Verizon employees." The reason Verizon says it's asking for the striking workers to make the concessions is due to a decade of its landline business losing customers as consumers have turned to mobile phones or packages from cable providers that bundle landlines with TV service.

The Wall Street Journal's Martin Peers wrote that Verizon's management has little choice but to take a hard line with workers. Despite the health of Verizon's wireless business, cutting costs and improving profits from its landline business remain crucial. Most of Verizon's consolidated debt -- $40.4 billion out of $47.7 billion at June 30, net of cash -- is at either the parent company or the fully owned wireline business. And thanks to steadily falling landline subscribers, wireline's earnings before interest, taxes, depreciation and amortization dropped to $9.2 billion in 2010 from $14 billion in 2006. Wireline's ebitda declines may reverse in coming years, if Verizon's newly rebuilt network offering services like TV keeps attracting new subscribers. But other headwinds loom. As Sanford C. Bernstein has noted, the federal government's bonus depreciation tax break is due to phase out over the next couple of years. This break has kept Verizon's taxes low: Verizon's reported tax expense in 2010 was $2.5 billion, but filings show it only paid $430 million. Assuming the break doesn't get extended, Moody's estimates Verizon's cash taxes will rise to as high as $2 billion next year and to between $4 billion and $6 billion in 2013.

Verizon and the unions are deeply divided over the company’s assertions that its traditional landline business is performing so badly that it needs large-scale concessions. The unions’ refusal to believe Verizon is one reason, labor relations experts say, that the workers are dug in and braced for a lengthy walkout. Heightening the stakes, some industry analysts say Verizon sees the weak economy as a prime opportunity to chop union costs. Verizon has repeatedly stressed that it needs to cut costs in its landline business because that division’s customer base and profit margins have fallen over the last decade. Many consumers have dropped landlines in favor of competing options like mobile phones, cable and Skype. Verizon officials describe its heavily-unionized landline division as a laggard, while Verizon Wireless, a largely nonunion joint venture in which Verizon is majority shareholder, is hailed as the shining star, its hefty profits lifting the rest of the company. In the first six months of this year, Verizon Wireless had operating income of $9 billion, the company reported, while its landline business had operating income of $606 million. In defending the company’s push for concessions — including a pension freeze, fewer sick days and far higher employee health contributions — Verizon’s chief executive, Lowell McAdam, said, “The existing contract provisions, negotiated initially when Verizon was under far less competitive pressure, are not in line with the economic realities of business today.”

But the strike isn't limited to Verizon's wireline business. Seventy striking union members are mounting a different fight -- they work for the company's highly profitable wireless unit. The wireless workers have already had pension accruals suspended, with no pensions for new hires, and its members already pay variable monthly rates towards their health-care premiums. Their benefits generally match those of nonunion employees on the wireless side, which has about 84,000 employees. Among the wireless workers' demands are a cap on their monthly health-care expenses, a restoration of the Martin Luther King Day holiday and increased pay for a special shift on late nights and weekends to help resolve emergencies. The wireline workers, on the other hand, have been asked by the company to do away with holidays for Martin Luther King Day and Veterans Day. "Verizon can't tell us they're losing customers, they can't tell us they're not one of the most profitable companies in America," said Dan Gutierrez, a CWA Local 1101 member helping to lead negotiations on the wireless agreement. "I don't see a reason why we can't get a better contract."

Verizon has sought court injunctions to prevent striking workers from blocking access to the company's facilities. Verizon got an injunction in Pennsylvania and filed for one in Delaware. While the company said it is holding high-level talks with union representatives, the injunctions are the latest sign of increasingly hostile relations outside the negotiating room. The CWA has accused Verizon managers of injuring picketers.

Several House Democrats from New York have sent letters to Verizon siding with the company’s unionized workers. Communications Workers of America President Larry Cohen wrote to every member of Congress on August 9, claiming Verizon is looking for $1 billion in concessions from its organized employees and refusing to budge from its demands.

Public Knowledge's Art Brodsky added an interesting analysis of the strike on August 11. He notes that in most sectors of the economy, there is international competition depressing prices and competition to see who can hire the cheapest overseas labor. But telecommunications is not one of those sectors. The industry has the type of jobs not easily shifted overseas. Maintaining a telecom network and serving customers has to be done by people in the area. Verizon is "stuck" with American workers and their salaries and benefits.

But, for Verizon, there's also little concern about competition? It has a near-monopoly on landline businesses in the areas it serves and could soon find itself in a duopoly on the wireless side of which it now has close to 40% of the market. If any companies are sitting pretty these days, phone companies come the closest. The industry has dominated the regulatory apparatus so that, in the name of “deregulation,” most competition and consumer choice has been eliminated. It has spread sufficient wealth in the legislature to members of both parties so that any attempts to impose any rules that enable competition, fairness or consumer choice are met with immediate denunciations and angry letters with many signatures.

As sympathetic as Brodsky is to Verizon's workers, he's also frustrated with CWA's support for anti-consumer policies that Verizon and AT&T advocate for. Brodsky recently pointed out that more consolidation in the telecommunications industry isn't likely to be good news for workers and, yet, CWA backs AT&T's purchase of T-Mobile. It would be nice, Brodsky writes, if coming out of this strike, and anticipating negotiations with AT&T or other companies, CWA would take a more enlightened stand toward consumers generally, along with concern for union members and jobs. Given the union’s history, however, it’s not likely.

Concerns about AT&T/T-Mobile

Jobs continue to be a major concern as regulators review the AT&T/T-Mobile deal. The Seattle Post-Intelligencer this week spoke with current T-Mobile employees. One characterized the deal this way: "In reality, it's more like a car-jacking. AT&T will strip us for 'parts' (spectrum, towers, customers) and throw the drivers (employees) to the curb. After all, when you steal a car, you don't need the driver anymore." This employee's sentiments appear to be widespread through the halls of T-Mobile's Factoria complex and across the country. T-Mobile employs about 38,000 workers in the U.S. at offices and retail locations. Sure, some T-Mobile workers aren't as cynical, but many are realistic that they may not have jobs in a year. Layoffs seem likely, especially in the face of AT&T's statements that it expects savings of $10 billion by "consolidating platforms, customer care centers and headquarters organization." Translation: Job cuts.

Rep. Jay Inslee (D-WA) said AT&T and T-Mobile USA have failed to satisfy his concerns about job losses resulting from the deal. Rep Inslee wrote to both firms last month expressing his concern that the merger could destroy jobs, particularly in his home district. He is running for governor and T-Mobile’s headquarters is just outside his district. In his letter, Rep Inslee asked for a detailed explanation of AT&T’s claim that the merger will result in $10 billion in savings through cuts to support and administrative services, including any estimated job losses. Rep Inslee said that both firms — and AT&T in particular — failed to adequately respond to his questions about jobs. His statement appears to place him with the small but growing number of Democrats opposing the deal, which would leave AT&T Wireless and Verizon with more than 80 percent of the wireless market. Rep Inslee also called for the Federal Communications Commission to hold field hearings on the merger.

The deal has gained significant support of late. Over 100 majors around the country cited potential job growth and improved mobile broadband access as reasons to support the deal. AT&T is quick to note that, in addition to the mayors, 26 governors and 11 state attorneys general have voiced support for the acquisition.

But this week saw more concerns raised about the deal. Consumer Watchdog, a public interest group, sent letters to the FCC, the Department of Justice and the California Public Utilities Commission saying T-Mobile customers who are forced to migrate to AT&T’s network will have to buy new phones, agree to more expensive rate plans or cancel their contracts and pay a termination fee. Once known for its low prices, T-Mobile has already begun increasing its rates and decreasing options in anticipation of the merger, Consumer Watchdog said.

In a Sacramento Bee op-ed , Stanford Law School Professor Mark Lemley raised concerns about the loss of innovation in the wireless sector. He said, "innovation is a result of fringe competition in the marketplace. It was outsiders like Apple and Google and fringe competitors like T-Mobile, not Verizon or AT&T, that drove [the wireless] revolution. AT&T's proposed merger with T- Mobile, however, has the potential to fundamentally alter the wireless marketplace in a way that threatens innovation. The wireless market today is concentrated. AT&T and Verizon function as a duopoly with fringe competition from Sprint, T-Mobile and a few local firms. Economic theory has trouble predicting how duopolies will behave. Sometimes they work in parallel and act like monopolies. In other cases, they compete vigorously. But economics does teach us that fringe competition is critical to deciding whether duopolists will compete or collude. Fringe competition does not only influence price; it can – and does – drive innovation."

The stock market squeeze, the Los Angeles Times noted, is threatening to take the air out of AT&T's best argument for the regulatory approval of the deal. The company has argued that the combination would not stifle its rivals because there was already "intense competition" in the wireless industry. But with the market slide eroding the already troubled fortunes of many wireless companies, regulators may be wary of a deal that could leave newly-merged AT&T too strong in a market with debilitated competitors. Critics of the acquisition believe that with fewer companies competing for customers, it's easier for the strongest firms to raise prices and get away with lackluster service.

AT&T is facing tough scrutiny in California where regulators have raised questions about the deal’s effect on consumers and corporate customers. The state’s Public Utilities Commission has held seven public discussions of the bid, under the oversight of Commissioner Catherine Sandoval. She’s delving into how a merger would affect rural communities, corporations and the evolution of wireless technologies. Through her scrutiny, Commissioner Sandoval may help determine whether AT&T’s bid succeeds or fails. “This is pretty unheard of,” Brian O’Hara, a legislative director at the National Association of Regulatory Utility Commissioners, said. “California’s seems to be the most in-depth review. It’s amazing to me that the PUC is doing so much.” Sandoval’s review may come at a high cost for AT&T. If the commission decides the deal would hurt consumers, California could force AT&T to divest wireless assets in certain regions or guarantee service coverage and cheaper service for the poor, said Courtney Munroe, a group vice president at IDC. With the pressure from California and other regulators, AT&T may have to divest 30 percent to 40 percent of T-Mobile USA’s spectrum and subscribers nationwide, Michael Nelson, an analyst with Mizuho Securities USA, said.

The FCC decided this week to combine its review of AT&T’s attempt to buy rival T-Mobile with a smaller deal in which AT&T is attempting to purchase the wireless licenses currently held by Qualcomm. The FCC concluded that there is enough evidence that the impact of the two deals is related and that they will be considered at the same time. A coalition of public interest groups pushed the agency to consolidate the two reviews in late April, arguing that the two deals in tandem give too much market power to AT&T. Free Press, Media Access Project, Public Knowledge, Consumers Union and the Open Technology Initiative of the New America Foundation argued that the two deals have a multiplier effect. Cincinnati Bell Wireless, MetroPCS Communications, NTELOS, the Rural Cellular Association, the Rural Telecommunications Group and Sprint Nextel also asked for the combined review for similar reasons.

Finally, the deal may face a test in the courts as well. The Bursor & Fisher law firm is hoping to use arbitration complaints to stop the deal. The firm said that more than 1,000 people have agreed to file challenges to the deal. Bursor & Fisher, which has specialized in law suits against wireless carriers, last month said it was aiming to use AT&T’s mandatory arbitration clause against the firm. “There seems to be a real groundswell against this merger,” lawyer Scott A. Bursor said. “The good news is that it can be stopped. AT&T’s contracts give every customer the right to arbitration. And we've assembled a team of lawyers standing by ready to represent them on a purely contingent basis, with no out-of-pocket costs whatsoever.” AT&T maintains the arbitrators have no authority to weigh in on the T-Mobile deal.

Summer Break

Headlines will soon be taking a long summer break. Our weekly round up will not return until September 2. For a view of upcoming events and deadlines, see our telecom policy calendar. And, if you're interested in getting Headlines on your smartphone, visit the Android Market.

See you next month.

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