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Steven Syre | Boston Capital

Verizon’s future is in flux

By Steven Syre
Globe Columnist / August 12, 2011

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The power of technology revolutions can overturn entire industries and the lives of many thousands who work in them. It can convince 45,000 employees to walk out on strike in the midst of an stalling economy that may tip into recession.

A kind of technology revolution most of us hold in our hands every day - the explosion of wireless communications - and a steady decline in the old ways of staying in touch are at the heart of the strike by Verizon Communications Inc. employees, now nearly a week old.

All of those employees who went on strike work for the part of Verizon that manages wire-line communications.

The company insists that business is hurting financially as fewer people use conventional landline services. It wants employees to acknowledge that with concessions that would hit their wallets and reduce job security.

Union officials insist Verizon’s wired business is not in nearly as dire financial condition as the company suggests, but they still recognize the generational changes technology is driving in something as basic as talking on the telephone.

Phone companies and their employees are hardly the only businesses to go through this kind of drama.

One obvious example: Companies that publish newspapers have spent the better part of a decade scrambling to find a way to survive in a business that once earned fat, reliable returns and provided relatively comfortable job security for employees like me. The world is changing for all of us.

The shift in telephone economics has been obvious and powerful. Verizon reports that the number of wire lines it maintains has shrunk by more than half - from 55.5 million to 25 million - since 2003 to the middle of this year.

Those figures include more than 5 million lines that were actually sold to other companies, but the direction of the business is impossible to miss.

Now look at how those trends translate into dollars and cents. In 2002, Verizon reported that its revenue from wired communications was $40.8 billion, with an operating profit of nearly $9 billion.

Eight years later, the wired business delivered revenue of $40.2 billion but earned less than $1 billion on an operating basis.

Again, several details distort those numbers. Revenues were declining from 2002 until 2006, when Verizon bought MCI’s business. Then wired revenues began to decline again and, in fact, fell by about 20 percent over the next four years.

Verizon’s wire-line operating earnings have been falling sharply in recent years, largely because the company has been spending billions to upgrade capacity and introduce FiOS, the high-speed service intended to compete with cable companies such as Comcast.

The financial story of Verizon’s wireless operations is very different. In 2002 they posted revenue of $19.5 billion - less than half the comparable figure of its wired business. Operating profit was $3.6 billion, also less than half that of the wire-line unit.

But the wireless business boomed over the next eight years. It generated revenue of $63.4 billion by 2010 and earned operating income of $18.7 billion last year. Those are big numbers.

Verizon has spent billions on FiOS because it believes competitive broadband services are the best chance for the future profitability of its wired business.

Union employees hope it can help preserve their future. Analysts are skeptical.

For now, Verizon and its wired employees face the business problem common in technology revolutions: negotiating the jump from the past to the future.

Verizon’s wireless communications business has boomed for more than a decade, just as most analysts predicted.

Now it accounts for the vast majority of profits at Verizon, and that gap is only going to grow wider in the future.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.