Verizon President Bullish on Wireless, Not So Much on Wireline

There have been some initial challenges for Verizon Communications’ President and CEO Lowell McAdam after being on the job for fewer than two months, but he has hit the ground running. McAdam detailed some of them as he addressed an audience at the Goldman Sachs Communacopia Conference yesterday.

One of McAdam’s first headaches after succeeding Ivan Seidenberg (who remains chairman of the board) in August was a strike by union workers.

Approximately 45,000 union-represented wireline employees in nine states walked off the job Aug. 6 when contracts expired. During the two-week strike, Verizon suspended the installation of new FiOS Internet and TV services to focus on managing repairs and maintaining other operations. This resulted in a backlog of more than 100,000 FiOS orders by the time striking employees returned to work Aug. 22 without a contract. The company and the union are still negotiating.

McAdam said Verizon wants some "relief" from workers in two areas: the benefits package and work rules. "A lot of the rules that we deal with were made in the ’60s and ’70s, and the market has changed dramatically since then," he said. "The big issue for the union, I think, is jobs. And we have outsourced a large number of jobs just because the cost structure is different and we need to do that for our shareholders."

At this point, the union is preparing a comprehensive proposal. "I think right now we’re having a good, constructive dialogue; and I’m hopeful that by the end of the year, we will have this behind us and be able to move forward," said McAdam.

But he was somewhat negative about wireline’s growth potential.

"The opportunity to expand right now is very small," he explained. "One is to change the financial model from a labor perspective. The other is to change it from a technology perspective. We’ve brought some wireless suppliers that we’ve got great relationships in developing product with into the home, to say, ‘if I get fiber to the ONT in the basement, what are my options inside the house?’ so that I don’t have to do all of this coax wiring, which just takes a huge amount of time and is frankly a big opportunity for maintenance issues as you go forward.”

He continued, “And we see some possibilities to be able to handle all of the TV sets, even in a big house, wirelessly and be able to do all the HD and the 3D capability that we have today over that coax or CAT 5 in the house. We’ll have some trials in early 2012."

On the wireless side, McAdam believes Verizon will hit its target of 175 million LTE points of presence (POPs) by year’s end. (For more, see Verizon Wireless Continues LTE Rollout).

"I’ve been around the industry quite a while, and LTE is the first product in a long time that made me go ‘wow,’” he said. “If you look at the number of companies that cycle through our LTE innovation center up in Waltham, Mass., it is in the thousands. So people have tremendous ideas about how you can use that platform to expand the top line." (For more on Verizon’s innovation center, see The Buzz in Barcelona: LTE).

Regarding AT&T’s proposed merger with T-Mobile and the U.S. Department of Justice’s move to block it, McAdam said Verizon was taking a wait-and-see stance. But then he added, "I had breakfast with Chairman Genachowski this morning, and I have taken a position that the AT&T merger with T-Mobile was kind of like gravity. It had to occur because you had a company with T-Mobile that had the spectrum, but didn’t have the capital to build it out. AT&T needed the spectrum – they didn’t have it – in order to take care of their customers.

"So in my discussions with the FCC and folks on the Hill, if we want to stop or if the government wants to stop a merger like that, they need to then step up and say, ‘this is how we are going to get spectrum in the hands of people that can use it to serve our customers and to create jobs in the country.’"

McAdam suggested that auctions might be a good way to free additional spectrum, adding, "If you look at the path that wireless is on, clearly, we need to have more spectrum in the marketplace. And I think the FCC has got to be very focused on delivering that."

-Linda Hardesty