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Verizon (VZ) Wireline Workers Return to Work in Full Force

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The wireline division of Verizon Communications Inc. (VZ - Free Report) is again operating in full swing as the strike called by members of the two workers’ unions has officially come to an end on Jun 17, 2016.  Nearly 36,500 workers of the company’s wireline and cable TV (FiOS Internet and TV) segment went to strike since Apr 13, 2016.

On May 31, Verizon and the striking unions, The Communications Workers of America (CWA) and International Brotherhood of Electrical Workers (IBEW), entered into a tentative deal following which all striking workers resumed work from Jun 1. However, union members were given a deadline of Jun 17 to vote on the tentative contract. Accordingly, the members of both unions voted and ratified the tentative agreement.

Verizon and its wireline workers were at a stalemate over a labor contract. The company’s wireline employees were working out of contract since last August. In May 2016, the U.S. Secretary of Labor Thomas Perez met with the Verizon CEO and the heads of the two unions that represent the company’s striking workforce. Perez requested both sides to sit at the negotiation table to resolve the issues.

The New Contract

Under the new contract, Verizon will provide a 10.9% pay hike to its unionized workers over a period of four years, a small increment in pension benefit and a promise to create nearly 1,400 new union jobs. This will include around 1,300 new call center jobs and about 70 wireless retail store jobs. Importantly, the company agreed to reduce subcontracting and withdrew a proposal to relocate employees for extended periods. These two were the main issues of the strike. The new contract is valid up to Aug 3, 2019.

Pros and Cons

Though Verizon had to make certain concessions, it stood to gain on some points. The company will be able to reduce benefit costs by modifying employee health-care plans. Verizon stated that it will achieve cost savings through healthcare plan design changes, adopting Medicare Advantage plans for its retirees, maintaining limits on post-retirement healthcare costs, and freezing the mortality table for lump sum pensions using the GATT rate.

Verizon’s CEO had earlier warned that the company’s second-quarter 2016 financial results may be affected by the strike. Lowell McAdam had stated that the company is currently on track with respect to repairing and maintenance issues of the existing installed bases. However, the number of new installations of FiOS high-speed Internet and FiOS pay-TV has dropped significantly.  As a result, the company may suffer high-speed broadband and pay-TV customer attrition. In 2015, FiOS generated 29% of Verizon’s total revenue and slightly less than 7% of operating income.

Verizon is already facing severe competitive threat from its telecom rivals, AT&T Inc. (T - Free Report) , T-Mobile US Inc. (TMUS - Free Report) and Sprint Corp. (S - Free Report) . Therefore, a solution to the labor problem will definitely be a tailwind to its near-term growth. Verizon currently carries a Zacks Rank #3 (Hold).

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