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Verizon CEO: Hard decisions needed for landline business

New Chief Executive Lowell McAdam says concessions must be made to ensure continuing service for its wireline business.

After 45,000 Verizon workers walked off the job this weekend, Chief Executive Lowell McAdam issued a letter today to management justifying the need to extract better contract terms, saying that the company must make "additional hard decisions" to keep the cost of its wireline business in check.


The strike represents the first work stoppage for Verizon in 11 years and occurred after the union said the company wasn't taking the negotiations seriously. The reduced benefits Verizon is seeking is illustrative of the pressures its landline business faces, as its traditional phone and Internet services face pressure from cable and wireless alternatives.

"It's no secret that the wireline business has experienced a 10-year decline in our customer base and in profitability, despite investing billions in improving our network, processes and systems," McAdam said in a note posted on the company's Web site. "Now, we're asking our union-represented employees to help us on a variety of issues that could streamline our processes and further reduce our wireline cost structure while keeping their overall compensation and benefits among the best in corporate America."

Verizon has already taken steps to reduce its costs, including cutting jobs, increasing the amount that management employees contribute to their benefits and selling some of its wireline assets. But McAdam said that hasn't been enough.

"We've all felt the impact of these changes," he said. "We have arrived at the point where we must make additional hard decisions to address customer needs and the overall operating costs of the business."

The prior contract terms were negotiated when Verizon was under far less competitive pressure, McAdam said, noting they weren't inline with "the economic realities of business today." He added benefit costs have risen even as revenue from the wireline business has shrunk, and other competitors have signed similar deals with their employees.

Verizon's wireline business posted a 0.3 percent decline in revenue in the second quarter, an improvement from the 2.2 percent decline in the first quarter. While its traditional phone business continues to deteriorate, its FiOS service--which offers faster Internet and television services--has been a source of growth.

Union workers say the company remains competitive and have balked at the need for compromise. While McAdam said his team is working to resolve the differences, the union has said it remains far away from management.