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Verizon Aims to Lower Costs Through Employee Retrenchment

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Verizon Communications Inc. VZ is aiming to reduce operating costs by retrenching its huge employee base. The company recently offered a voluntary severance package to 44,000 employees to cut costs. Verizon intends to utilize the freed-up capital to thwart competitive pressures through higher investments in technology upgrade and state-of-the-art infrastructure for faster deployment of 5G.

Verizon expects to save about $10 billion in costs through the layoff scheme. The employees eligible for the severance package were offered three weeks’ pay for every completed year of service, subject to maximum limit of 60 weeks.

The success of 5G technology hinges on substantial investments to upgrade infrastructure in the core fiber backhaul network to support anticipated growth in data services. Although these investments will eventually help minimize service delivery costs to adequately support broadband competition, rural coverage and wireless densification, short-term profitability is likely to get eroded leading to earnings dilution. In the view of such circumstances, the decision to lower costs by eliminating excess workforce seems to be prudent.

Verizon is also transferring some of its information technology employees to Infosys Limited INFY in India as part of a $700 million outsourcing agreement. This involves about 2,500 employees, who would be primarily involved in application development and management services, and business process management services.

Per the company directive, the transferred employees are not eligible for any severance package and would not be entitled to receive any bonus in 2018 if they decline the opportunity to shift base to India. Although this has led to some resentment among senior employees, it is likely to reign supreme for the broader interests of the company.

Verizon is gearing up to launch 5G services in multiple U.S. markets by the end of 2018. A couple of other companies aiming to deploy 5G technology in select cities across the United States in the near future are T-Mobile US, Inc. (TMUS - Free Report) and CenturyLink, Inc. CTL.

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