Verizon Wireline Profits All About the Job Cuts

Verizon Communications Inc. (NYSE: VZ)'s FiOS fiber-to-the-home initiative is garnering customers in the way the company always hoped it would, and the global enterprise business is up slightly. But as today's second-quarter earnings call made clear, that hasn't brought profitability to the telecom giant's wireline business. What is keeping that business in the black is Verizon's ongoing effort to shed jobs and cut costs. (See Verizon Reports Q2.)

FiOS revenues were up by almost one-third year-over-year, and the FiOS TV service has reached 26 percent market penetration. The average revenue per user for FiOS hit $145 a month and the average consumer ARPU rose to $81.

But the numbers that seemed to count the most were these: 11,000 Verizon employees in the Mid-Atlantic and Eastern regions accepted an "enhanced" retirement package, and 3,800 of those went off the payroll this quarter, enabling Verizon to improve its wireline unit EBITDA margin by 100 basis points.

According to John Killian, executive vice president and CFO of Verizon, the need to continue cutting costs on the wireline side isn't abating. Verizon will benefit in the third and fourth quarters from the departure of the rest of the "volunteers" and is considering "additional force reductions" in the coming months on the wireline side.

For example, similar "enhanced" offers will be made to Verizon employees in Western states, notably California and Texas, in hopes of generating more voluntary departures to save cash.

At the same time, Verizon is cutting its real estate, energy and supply chain costs, consolidating operations and vacating buildings, he added.

The race to the bottom makes sense when you consider two other numbers: Despite improved enterprise sales and better FiOS penetration, both global enterprise revenues and mass market revenues were essentially flat. On the global enterprise side, declining wholesale revenues were at fault while on the mass-market side, access lines continue to decline.

Those numbers set the stage for continued cuts on all fronts by Verizon, and other wireline operators.

— Carol Wilson, Chief Editor, Events, Light Reading

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shygye75 12/5/2012 | 4:29:00 PM
re: Verizon Wireline Profits All About the Job Cuts

This explains why phone outages now last for days rather than minutes, or even hours, in my VZ neighborhood. Competition is envisioned as raising the bar for performance, but it also can result in a lowering of the common denominator -- for telcos, "5 nines" has devolved to "no better or worse than cable."

wanlord 12/5/2012 | 4:29:00 PM
re: Verizon Wireline Profits All About the Job Cuts

VZ is doing whatever they can to reduce costs instead of growing the business, including cutting in growing areas such as FiOS.  Ivan doesn’t give a hoot about health care for his employees other than his out of pocket expense costs.  He turned on the Obama plan when didn't think things helping his bottom line. Check out this letter to him from the Congress. Serves him right!




Oh yea Ivan, how is Hulu doing?



cnwedit 12/5/2012 | 4:29:00 PM
re: Verizon Wireline Profits All About the Job Cuts

Of course, if Verizon doesn't make cuts, they get hammered by Wall Street. The service providers who have survived aren't those who provide the best customer service, sadly, nor the ones that are the best employers. They are the ones that figured out how to strike a balance between what they deliver to consumers and what they deliver to investors. They offer services that compete where they have to really compete, while doing whatever it takes to keep Wall Street and their investors happy. In the wireline business right now, that means cutting costs.

shygye75 12/5/2012 | 4:28:59 PM
re: Verizon Wireline Profits All About the Job Cuts

You've identified a fundamental irony of our age: Deregulation and privatization for the most part involves breaking free of one set of masters (government agencies and regulators) only to fall under the rule of another (investors and shareholders). Frying pan or fire.

paolo.franzoi 12/5/2012 | 4:28:58 PM
re: Verizon Wireline Profits All About the Job Cuts


One of the hidden things about FiOS is that it allowed Verizon to reclassify many union jobs and update their automation.  Theoretically it should allow them to run a more efficient organization - aka with fewer people.  Unlike AT&T they are dumping rural properties so that they can focus basically on their FiOS footprint.  Again, trying to dump OPEX heavy properties.

Will this work?  TBD.



cnwedit 12/5/2012 | 4:28:58 PM
re: Verizon Wireline Profits All About the Job Cuts

Yes, and while the frying pan is prone to long bouts of debate and uncertainty about the rules it wants to impose, the fire is completely absorbed by short-term thinking. This is where I think the U.S. telecom industry suffers the most. Verizon, ironically for this discussion, was one of the companies that took a leap of faith in deploying FTTP, despite getting hammered by Wall Street back in 2004. I wonder if this is an indication that the 10s of millions the company has pored into its wireline access network aren't going to generate the profits expected.

shygye75 12/5/2012 | 4:28:57 PM
re: Verizon Wireline Profits All About the Job Cuts

Self-service and remote diagnostics are reducing truck rolls (good for Verizon) but reduction in tech crews is expanding downtime when failures do occur (bad for customers). Playing the percentages, Verizon probably is doing the right thing for its profitability by cutting back on its tech road crews. Savings likely will more than make up for the number of customers it's likely to lose because of poor response time to failures. To your original point, Carol, this is an exercise in cost containment rather than business expansion -- and it may be one reason for the growing perception that cable companies are gaining ground on the incumbent telcos.

cnwedit 12/5/2012 | 4:28:57 PM
re: Verizon Wireline Profits All About the Job Cuts

Good point -- Verizon has also done a lot of things to pioneer customer self-service, most of which is positive stuff. But, if the overall results is a deterioration of service, as previous comments state, then consumers ultimately lose.

So you are right, it's TBD.

shygye75 12/5/2012 | 4:28:55 PM
re: Verizon Wireline Profits All About the Job Cuts

As a now-overgrown child of union laborers, I'll recuse myself from that part of the discussion. Except to say that in the past, cable operators in the US were perceived to have decidedly inferior repair service/response compared with the phone companies (dealings with arrogant, bureaucratic monopolies aside). That perception has changed significantly, and no doubt because of some improvement on the cable side, and a greater degree of slippage on the telco side.

paolo.franzoi 12/5/2012 | 4:28:55 PM
re: Verizon Wireline Profits All About the Job Cuts


Well, I want to make sure you have added in the Union bit here.  The basic problem in a union shop is that they push for very narrow job categorization.  So, for example it takes 4 different union technicians (in 4 different job categories) to install a copper phone line.  This was collapsed to 1 in FiOS.  The cable companies avoided all of this by contracting a whole lot of their workforce (even a lot of the folks driving a Comcast truck are not Comcast employees).  This makes their workforce more flexible and therefore less costly.

Basically, the deal is that you have a union company (Verizon) facing non-union competition (cable) and they are getting killed on costs in comparison.  They can't afford to keep people so they are reacting.  Good - bad - no idea - but it has to change.



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