Verizon's Shammo says ongoing union negotiations are hindering wireline cost savings

A high level Verizon (NYSE: VZ) executive sees the contract negotiations currently taking place with its union wireline workforce as an important element that is driving higher costs in its wireline business.

Speaking during the UBS 43rd Annual Global Media and Communications Conference, Fran Shammo, EVP and CFO of Verizon, told investors that it won't be able to see the true benefits of cost improvements in its wireline business until it finalizes the contract with the CWA (Communications Workers of America).

"I think we'll make a lot of progress, but not to the tune we initially thought due to the union contract," Shammo said. "The union contract is still not closed and we're still in negotiation with the representation and it's going very slow so that's going to hinder some cost savings that we had counted on with that new contract."

Shammo said that Verizon looks at finalizing the union contract "as a timing issue, not necessarily a give up issue so that will come in 2016, but it's a matter of when we can solidify this final contract."

Wireline workers who are represented by the CWA have been working without a contract since August.

CWA and Verizon have not been able to come to terms on a number of points such as how to structure pension benefits and health care contributions, and removing restrictions on the company's right to contract out and offshore union jobs.

With its sale of its assets in California, Florida and Texas moving toward completion, questions around what other wireline assets Verizon may sell continue to emerge.

Stopping short of making any particular declarations about the wireline segment, Shammo said that it will continue to look at all of its options.

"We're extremely happy with the asset portfolio we have right now, but as we always say we continue to look at all things," Shammo said. "Just like the towers, we said we would not sell the towers and then we got to a great financial position and we sold our towers so we look at everything every day and if something makes sense that we can return value to our shareholders and it's not a strategic fit we'll obviously look at that."

When it completes the sale of its wireline properties to Frontier, Verizon will have a footprint that will be concentrated on the East Coast from Washington, D.C., to Boston.

In these markets it sees opportunities to grow its existing FiOS FTTH broadband and video service revenues.

"We spent a lot of time and money investing in our broadband infrastructure with FiOS and now we have probably one of the plum markets on the East Coast from Washington, D.C. up to Boston," Shammo said. "If you're going to launch a market that's probably where you'd want to do it and because of the population there there's a lot of growth there in broadband and in TV."

Despite calls from various communities to have the provider bring FTTH to their communities, Verizon will continue to concentrate on wrapping up builds in key markets like New York City and Philadelphia. The provider continues to reach into new areas set in existing local franchise agreements (LFAs) by penetrating new small to medium business (SMB) locations.

"We have gone beyond our LFA requirements today and we continue to build down streets where there are a lot of businesses," Shammo said. "There could be some opportunities, but we're focused on fulfilling our LFAs in New York City and Philadelphia, which are the main markets we need to complete."

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