Verizon Communications

Verizon strike: Can both sides win?

August 16, 2011: 10:39 AM ET

Both Verizon's management and the unions are responding to immediate issues and changes, but they are both acting myopically. Both sides could have pursued a stronger strategy to get a piece of what they want.

By Richard Rumelt, contributor

FORTUNE -- There are very few surprised faces from either side of the Verizon picket lines. When a labor contract signed in buoyant times expires in a bleaker era – as is the case with the company's current 45,000-worker strike -- the stage is set for conflict.

Both Verizon's (VZ) management and the unions are responding to clear, immediate issues and changes, but they are both acting somewhat myopically. Each side could have pursued a stronger strategy. And there still exists the possibility of a grand cooperative outcome.

Verizon's management has asked the union workers to take fewer sick days, make larger contributions to their health plans, and accept a freeze on pension benefits. (The pension plan demands mirror changes Verizon made six years ago to 50,000 of its non-union employees.)

The Communications Workers of America and the Brotherhood of Electrical Workers argue that Verizon is a hugely profitable enterprise, with a net income (fully consolidated) of $10 billion in 2010. Union leaders also claim that management is trying to push profits even higher by "destroying middle-class lives," a policy of pure "greed."

Although Verizon is making decent profits, only 0.5% of its income is attributable to the slowly shrinking landline business where its unionized employees are concentrated. The difference between the wireless and wireline sides of Verizon's house is driven by its network architecture. In the wireline business, there are hundreds of thousands of miles of individual telephone and data lines, most sagging from aging telephone poles, exposed to the elements and accidents. After a major storm in southern California it may take 10,000 truck rolls to repair the damage. That is why the wireline business needs 111,000 employees -- about one-third more than the wireless business -- to support revenues only two-thirds as large.

In the huge, mass-market portion of the wireline business, Verizon competes with cable companies in offering triple-pay (video, Internet, and telephone) services. In that competition, cable companies have simpler networks and many fewer unionized workers, paying installers an average of about $19 per hour compared with Verizon's $26 per hour. More

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