The second-largest U.S. mobile service provider,
AT&T Inc.
(
T
), fears potential setbacks following the expiry of four labor
contracts this weekend.
About 40,000 of its workers, represented by Communications
Workers of America, could call the strike should AT&T fail to
negotiate the new labor contract with them. Talks are still on at
both sides related to issues such as healthcare costs, job
security, benefits and work rules.
The union employees are from the company's wireline division in
the East, Midwest, West and legacy. The company's wireline segment
is currently struggling with persistent losses in access lines that
are weighing on its revenues and margins. AT&T's local phone
business is contracting due to competitive pressure from
voice-over-Internet protocol (VoIP) service providers and
aggressive triple-play (voice, data, video) offerings by the cable
companies to the consumer market.
Nevertheless, management expects positive business trends to
continue going forward with wireline revenue returning to growth
and stable margins this year. The growth would be fueled by strong
business revenue and more specifically, improving strategic
services.
In addition, healthy growth from its U-verse video (U-verse TV
and bundled satellite) services is helping AT&T to counter
increasing competition in the business. The company expanded its
U-verse network deployment to 30 million customers last year.
We believe the expansion of U-verse services will continue to
boost data revenue and ARPU (average monthly revenue per user) in
the wireline segment. The company is taking advantage of the
growing managed hosting and cloud services business.
The proposed strike by AT&T workers will be the second major
strike in the U.S. telecommunication space within a year. And this
would put AT&T in the same situation as
Verizon Communications
(
VZ
) was in August last year. Two labor unions from Verizons' wireline
segment went on strike as the company failed to negotiate the new
labor contract with them. However, the workers returned to the work
later in the month despite being able to come to terms with
Verizon.
Approximately 55% of AT&T's 256,000 employees are
represented by CWA. Six contracts covering 70,000 workers in the
wirleine business are scheduled to expire this year.
We will carefully watch how the company handles these issues and
how labor unions react. Hence, we are maintaining our long-term
Neutral recommendation on AT&T. The company retains the Zacks #
3 Rank (Hold)for the short term (1-3 months).
AT&T INC (
T
): Free Stock Analysis Report
VERIZON COMM (
VZ
): Free Stock Analysis Report
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