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In AT&T in Trouble Due to California & Nevada Service Issue?

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According to a recent report by technology-news coverage website Ars Technica, on Mar 14, U.S. telecom behemoth AT&T Inc. (T - Free Report) faced a notice from a group of elected city officials of California and Nevada and from the members of the Communications Workers of America (CWA) who represent the said states. The notice is in relation to its landline phone and high speed broadband services provision as well as reduction of workforce from the two cities.

AT&T was charged with failing to provide access to 21st century high speed connections to many communities and lack of maintenance of the copper lines that are vital to landline phone access, 911 and emergency services and basic Internet services. AT&T also did not bother to put up extra efforts for the expansion and better performance of its broadband and telephone services in rural areas.

Additionally, AT&T was accused of cutting down as many as 2,500 employees in California, affecting communities from San Diego to Sacramento over the past five years. The company had also shut down call centers in Bakersfield and Anaheim, CA. These corporate changes hurt local economies, draining out good-quality jobs overseas.

To this end, members of CWA got engaged in a labor contract negotiation process with AT&T for 17,000 customer service workers and technicians in California and Nevada for a new contract. However, reports state that neither side could arrive at a consensus over key issues such as outsourcing of call center jobs overseas, salary or healthcare costs.

AT&T’s Response

AT&T denied all the charges put up by the unions and the city leaders from California and Nevada.

Further, AT&T claims to have invested more than $7.25 billion in California’s wireless and wired networks in the past three years to support broadband expansion and network maintenance. The company officials even claimed being the largest capital investor in the U.S., sequentially for the fifth time. 

As for the union labor negotiations, AT&T assured that it will reach a fair contract, as it has done with the 28 other bargaining units in the past. Moreover, the company also assured of not cutting down any labor force in the near future. Rather, the company is planning to construct a large union-based workforce and expand it throughout 2017. The company also claims to have hired nearly 3,300 people last year alone in California, of which over 2,700 were union-represented. Also, it is looking to hire more union workers in California this year.

Current Lawsuits

Last week, U.S. national wireless carrier Sprint Corp. (S - Free Report) won $139.8 million as a damage recovery payment from Charter Communications Inc.’s (CHTR - Free Report) Time Warner Cable unit for breaking digital voice telephone services’ norms. Time Warner Cable was found guilty of intentionally violating five patents for Voice-over-Internet Protocol. Charter Communications is the second largest cable multi-service operator (MSO) in the U.S. after Comcast Corp. (CMCSA - Free Report) .

AT&T is also trying to resolve its DirecTV’s deceptive advertising lawsuit filed by the Federal Trade Commission (FTC) in Mar 2015. AT&T’s DirecTV was accused of misleading its customers through false marketing campaigns and not disclosing all its terms, which violated one of the FTC’s Acts.

Bottom Line

Lawsuits or legal proceedings, along with their related fines, act as major dampeners toa company’s financials and long-term growth. Sometimes, these charges also affect the company’s credit ratings. To remain clean in every aspect, a company should avoid illegal business practices, illicit and unlicensed dealings, and try to complete the allotted work on time.

We hope AT&T will easily recover from this notice of service disruption and labor reduction, and easily resolve the labor union issues. On Mar 6, as per a FierceTelecom report, both AT&T and the Communications Workers of America (CWA) approved a labor agreement related to 280 CWA-represented former DirecTV employees in Delaware, Maryland, New Mexico and Oregon. If this proposed agreement between AT&T and CWA goes through, the former will have sealed a total of 19 different labor agreements for the 2016 and 2017 period, collectively covering over 81,000 employees.

Over the past three months, AT&T grew 0.76%, while the Zacks-categorized Wireless National industry declined 0.83%.

AT&T currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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