As part of its Jan. 26 earnings announcement, Verizon said it expects to lay off 13,000 more employees to help alleviate diminishing revenues. While revenues are better in its wireless division, legacy land-line revenues continue to decline as more and more customers are dropping land lines, going solely wireless or finding Internet-based telephone services such as Vonage or Skype or the competing voice-over-IP products from cable companies.
"There are three conditions that we are working very hard to offset: temporary economic pressures, ongoing secular changes, and incremental pension and benefits expense," John Killian, Verizon Communications' chief financial officer, said on the earnings call. "I can assure you that we have a strong focus on our cost structure and we have taken several actions that will help us in 2010. We reduced our wire-line-related force by 13,000 people or about 9 percent in 2009. About 5,000 of these employees came off the payroll late in the fourth quarter, and we expect a similar level of annual force reductions in 2010."
In each of the past two years, Verizon has cut between 13,000 and 17,000 jobs, based on news reports and public statements from Verizon. The new cuts amount to roughly 5.8 percent of a total 222,927 employees, according to the Wall Street Journal. During the Q&A session of the Verizon earnings call, Killian went into more detail about the challenges of the wire-line business and the effect on layoffs. (PDF)
"Wire-line business in total, we reduced about 13,000. We've reduced the total work force by about 17,000. About 4,000 of that was related to Alltel integration, so the pure wire line-but it was much more back-end-loaded, so we didn't see as much of the benefit of that in '09 as we would have liked to have seen. We will see the benefit of that in 2010."
At issue is a realignment of Verizon's business and consumer priorities, which are evolving toward wireless and Internet-enabled services (think FiOS) only and away from land-line, DSL- and other telephone-based services used by large populations in rural parts of the United States. At present, Verizon is trying to sell off the land lines of 14 states to Frontier Communications, using what some consider a tax loophole to shift land-line debt to Frontier while gaining significant tax breaks. The tax loophole is known as a reverse Morris Trust, which is a tax-free merger between two companies.
The problem, as some who oppose the deal see it, is that the smaller company is saddled with Verizon's debt while service suffers, networks are not built out and major job losses occur, and Verizon pays no taxes on what is essentially a divestiture. Here is the AFL-CIO's take on the Verizon-Frontier deal (which it claims will give Verizon a $600 million tax break) based on similar divestiture deals made in its recent past:
"Less than three years after Verizon's sale of its New England landlines to FairPoint Communications, FairPoint has filed for bankruptcy. Now, workers face cutbacks and job losses, [and] customers complain about deteriorating service and the lack of high-speed broadband and other new technologies. Hawaiian Telecom also filed for bankruptcy after Verizon used the same tax loophole to dump its landlines in Hawaii. If the Verizon/Frontier deal is approved, Frontier would be saddled with some $3.3 billion in debt while consumers and workers in the 14 states would be in the same dire situation as those in New England and Hawaii. Not only is current service likely to deteriorate, but Frontier's $3.3 billion debt makes it doubtful it would be able to build out high-speed broadband or provide other advance telecommunications services to consumers."
Karl Bode of DSLReports put it this way:
"While the economy gives Verizon a justification for the layoffs (execs conveniently insist they don't see economic improvement in the cards until 2011), in reality Verizon's engaged in a complete business overhaul that also has very real human costs. What happens to huge swaths of Verizon customers on taxpayer-subsidized networks Verizon is no longer interested in owning (and the workers who maintain them) should be one of the bigger questions of 2010."
When will the Verizon layoffs occur? Verizon CEO Ivan Seidenberg gave his take: "If you look at 2009 and 2008, the force reductions were about the same in both years; for the core wire-line business, about 13,000 each, in each year. So if you look at 2010 and assume it's about the same number, it's fair to say that the way you calendarize it, it's probably about a third to 40 percent that will be done in the first four to six months of the year. And then you will see some reductions a little bit after that with a heavy concentration toward the end of the year, just like we did in 2009. And the fourth quarter of 2009, I think our number was 5,000."