Loud Men Talking at a Starbucks Boiler Room Table

On the morning of February 3, 2015, ten aspiring entrepreneurs, all men, ranging in age from their mid-thirties to their mid-fifties (“I’ve been in this business for forty years. There is nothing you can say that will hurt me,” said the oldest man), gathered at a Brooklyn Starbucks to discuss their great plans. They took up the entirety of a long table constructed of affordable wood and talked extremely loud.

The men confused this common space for a boiler room. They seized one stool, a precious seat in a crowded place, because some arcane section in the business plan required that one of their sparsely packed backpacks could not rest on the floor. After all, these men were not riff raff. They were meant to be tycoons.

These men believed themselves to be paragons of originality, altogether different from other captains of industry. Yet not a single man at the table sported a suit, much less a tie or a shirt selected with an iota of care. Indeed, the men had not bothered to dress well at all. They regularly looked down at their laptops and often made references to “being on the same page.” They swapped such invaluable tips on how to send an Excel document to other colleagues by email and the best way to swallow a cough drop.

They were the team. They meant business, even though it often took ten minutes to set up a five minute meeting. They were going to kill.

What follows is an actual transcript of their conversation. It is presented here as a litmus test, a way to determine whether the men who are talking loudly in your Starbucks are, indeed, on the same page:

“Let me do my damn job!”

“I want you to do your damn job.”

“I have to do my damn job!”

“Relax. I want you to do your damn job. We’ll get you cold-calling tomorrow. Now about this guy…”

“Yeah.”

“He’s a good guy. But he’s very predictable.”

“Not like us.”

“No. But if he talks about salmon, you talk about salmon. If he talks about brisket, you talk about brisket.”

“Right.”

“And you’ll be able to do your damn job. Because you’re an original.”

“Alright, so let’s say Friday. We’re going to say 8:30. Now what time is the meeting?”

“Let’s be realistic. He’s on a train. You’re on a train. Let’s say it’s a 4:00 drop dead time on Friday.”

“Well, I should think we should have the meeting a little bit earlier.”

“We had a 4:30 cutoff on Friday. Realistically…”

“Listen. 2:00.”

“I don’t care. I’ll come home at 7.”

“Doesn’t matter.”

“We’re getting snowed in.”

“Let’s say we do a 4:30. We can concentrate on the meeting.”

“Is that okay with everybody?”

“Okay. 8:30 we meet, 4:30 we eat.”

“Nice rhyme.”

“Thanks.”

“Alright. So the next thing that we got throw at us. The Brooklyn Initiative. The theme is pretty much handling the scheduling on that, which is fine by me. Now here’s the thing with that. What day is it? February 3rd? What day do we got?”

“Not March.”

“We sat down with them and put together a strategy.”

“The Brooklyn Initiative.”

“Yes. These guys are conversating. The way I see it, they get compensated.”

“They get compensated?”

“In forty or so accounts.”

“We have the list.”

“The problem is that the person in charge of this Initiative wants more, which is pretty much impossible from a logistics standpoint. It’s going to be intricate changes. Impossible. So I’m going to make the Wednesday meeting with one of you guys.”

“Here’s the deal, guys. These guys are seasonal businessmen. I mean, it’s criminal. With that said, there’s not a lot of business out there. But those guys have about a twenty to twenty-two week season. So here’s the deal. Their owners start coming back in March. Whatever it is. By April, they’re back. These guys want to start. These guys gotta start putting their deals together.”

“Swinging.”

“Right. Swinging. But the moral to the story is — well, this is…”

“That puts it through to the end of April.”

“Right.”

“They’re going to start fluffing their pillows at the end of March.”

“I think we have four to five weeks with them tops.”

“Here’s more on that note. Thank you for opening that door for me. Because I’m going to walk through it. I need to make out the items that we’re going to sell.”

“We got beat up on Friday for saying that. I’ve seen the invoices.”

“So take ’em. This is all I suggest to you. Because the veterans of this table know about planning. No plan has failed.”

“An extra pair of eyes never hurts.”

The Bat Segundo Show: Maggie Anderson

Maggie Anderson appeared on The Bat Segundo Show #445. She is most recently the author of Our Black Year: Our Family’s Quest to Buy Black in America’s Racially Divided Economy.

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[PROGRAM NOTE: The universe did nearly everything in its power to prevent Ms. Anderson from appearing on The Bat Segundo Show. On the day that I was scheduled to meet Ms. Anderson in New York, I suffered from an acute and especially debilitating case of gastrointestinal poisoning. I was forced, much to my great dismay, to cancel our meeting at the last minute. Nevertheless, I felt that the book’s subject matter was important. So I made a rare exception to my “in person only” rule and talked with Ms. Anderson over Skype. But then this appointment was delayed — in large part because the universe conspired with similar health interventions against Ms. Anderson’s family. I am pleased to report that we did end up talking and that all parties are hale and hearty. And while the subsequent conversation was a fun and fruitful one, I should also note that Skype sent out an inconsistent signal for much of the conversation. My apologies to Ms. Anderson and the listeners for any lapse in quality.]

Condition of Mr. Segundo: Becoming more conscious about his volatile spending habits.

Author: Maggie Anderson

Su0bjects Discussed: The Empowerment Experiment, the decline in African-American owned grocery stores over the past few decades, how far the dollar goes by ethnicity, median wealth and income disparity by race, the decline of black labor in Milwaukee, African-Americans targeted by advertising in the 1970s, WEB Du Bois’s The Talented Tenth, the increasing popularity of Polo Ralph Lauren among blacks, Quiznos’s exploitation of franchise owners, the burden of attempting to persuade blacks to support black business, the Venn diagram between supporting black businesses and independent stores, buying local, Oak Park affluence, trying to rehabilitate the Chicago West Side, attempts to keep Karriem Beyha in business, the fading of black entrepreneurs, class divisions within the black community, the Washington Post‘s Eugene Robinson, class and race, the disintegration of black solidarity over the last few decades, hypocritical pride, factors that help create a racially divided economy, Magic Johnson’s business savvy, the problems in spending $48,943.89 to buy black over the course of the year (as Anderson did in her experiment) which cuts out working-class blacks, the privilege of shopping where you want, subscribing to The Chicago Defender, gentrification, Hyde Park and Bronzeville gentrified, attempts to find unity between working-class blacks and middle-class lifestyles as prices go up during gentrification, efforts to start a progressive chamber of commerce in Bronzeville with Mell Monroe, trying to balance progressive idealism with realism, securing affordable services in the black community, the original name of the Empowerment Experiment (Ebony Experiment) and legal threats from Ebony Magazine, interactions with Linda Johnson Rice, Bill Cosby, and hateration.

EXCERPT FROM SHOW:

Correspondent: You are responsible for a rather amazing idea called the Empowerment Experiment, which you document in this book, in which you spent the entire year buying from nothing but black-owned businesses, frequenting them and so forth. Just to get the ball rolling here, I want to discuss why this is necessary. You point out in the book that there were 6,339 African-American owned and/or operated grocery stores in the United States in the early decades of the 20th century. And then, by the time we get to the new millennium, only 19 African American owned grocery stores existed in the U.S. So a number of questions come to mind. First off, what specific figures are you relying on? Is this from the 2002 Economic Census? What ultimately accounts for this dramatic decline?

Anderson: Well, the numbers are so important to us. And we’ve got to let your listeners know that we fashioned this as an experiment. It was, of course, a stand. But we really wanted these important numbers to be injected into the national dialogue. Those numbers. How we used to have so many businesses in the country in our community. We had hotel chains, department stores, hardware stores, drugstores. We don’t have any of that now. Grocery stores. And that when we have those businesses, our community didn’t suffer. We didn’t have the high unemployment. Our kids weren’t choosing gangs over college. We didn’t have all this drug abuse and violence and recidivism. So we really wanted to bear out that correlation. That when we had strong black-owned businesses, our community didn’t suffer. So if we can find a way to do little things to bring some of those businesses back, maybe we can counter the social crises that disproportionately impact our community. We wanted to show the numbers. The big number that we wanted to talk about was our $1 trillion in buying power and that less than 6% of that makes it way back to the black community.

Correspondent: Yes.

Anderson: If we can just get a little bit more of our own buying power to be recycled in our own communities, maybe we can bring those jobs numbers up. The other number is that black businesses are, by far, the greatest private employer of black people. Black unemployment, we know, is three times the national average of our white counterparts. Highest among any ethnic group. And in some places like Birmingham and Cleveland, we’re at black unemployment like 15, 16%. So maybe if we start supporting more black businesses that employ black people, we can stop black unemployment. So it was really just about making sure the conversation about the black situation in America is thorough and comprehensive. We can’t just keep talking about black unemployment and then not talk about black buying power and the fact that black businesses employ people and that none of our buying power is going to black businesses. So the numbers that we depended on — to get back to your question — you know, it’s just kind of known in our community how we don’t support each other. How if you walk up and down the street in a black neighborhood, none of the businesses there are black-owned except for funeral parlors, barber shops, and the braid salons. It’s just kind of known that most of the products on the shelves, none of the retailers in our community, none of the franchises are black. So we just kind of know that and joke about it. It hurts, but we just accept it. But it’s so hard to find data to bear that out. My roommate jokes about it. But we did find an interesting study — I think it was an economist, John Wray. Who did a study based out of DC that proved this horrible statistic about how long the dollar lives in different ethnic communities.* This statistic is used a lot in this conversation when people talk about “leakage,” economic leakage, recycling wealth in minority communities, that kind of stuff. This is a well-known statistic. That in the Asian community, the dollar lives close to 28 days. In the Jewish community, I think it was 19 to 21 days. Hispanic communities: 7 days. But for black people? The dollar in the black community lasts six hours.

Correspondent: Yeah.

Anderson: And it’s like, no wonder we live at the bottom! So we’re just so frustrated. And no one talks about that six hours. Because if you want to talk about the six hours, then you’re basically saying that all of these horrible things happen in the black community as a reflection of our propensity and our potential. Not a byproduct of how there’s a lack of support from black consumers — it’s our fault! — or black businesses. Sorry about the long-winded answer.

Correspondent: Oh no.

Anderson: I can’t leave that out. It’s such an open-ended…

Correspondent: I know. No, this is all very good. And there’s a load of threads to start from here. Actually, I’m sure you’re familiar — there was a study in 2010. A rather alarming study from the Oakland-based Insight Center for Community Economic Development, which revealed that the median wealth of a single white woman in the prime of her working years — roughly 35 to 49 — was $42,600. And the median wealth for a single black woman was only $5!

Anderson: Yes! Yes!

Correspondent: Yeah. I’m sure you’re familiar.

Anderson: I’m onto that one. I’ve heard about that. That’s just — man! The one that really blows me away. There’s the other one where I think we’re at 3% transferable wealth or whatever the definition of wealth. 3% compared to the white purse. [NOTE: I believe Ms. Anderson is referring to Arthur Kennickell’s “A Rolling Tide.” (PDF) The economist revealed that African-Americans had less mean wealth than white non-Hispanics.] But that thing about the single black woman, that’s ridiculous. I mean, we’ve been here 400 years. We have a black president now. We have folks like me.

Correspondent: Yes.

Anderson: We have living manifestations of the American dream at work. You know that my family’s an immigrant family.

Correspondent: Yes.

Anderson: You know, we have all of this and we still have that. And it’s going to be hard to make that kind of number a fair number. It’s going to be really hard. But at least, if everyday consumers like me were to try and find the businesses that were going to employ that woman or give her a fair wage or give her community a chance and invest in her community instead of just making money from that community and taking it away, maybe we can do something about that number.

Correspondent: And the statistics actually get slightly better when you account for marriage or cohabitation. The white woman has a median wealth of $167,500 and the black woman has $31,500. So better than $5. But still really troubling. I guess the question I have, since we’re talking about the idea of a black dollar not going so far, what do you think ultimately accounts for this failure to have the wealth reinvested in the community? In black neighborhoods? How can they be expected to invest their wealth in any concentrated matter? I mean, what are the underlying issues here? I’m curious.

Anderson: Right. And it’s so funny. Because when people just hear about the essence of our experiment — black families say they’re only going to support black businesses — there’s accusations of racism. And people will assume that the book is this thing of taking it to the Man. And getting back at Charlie. And all that stuff.

Correspondent: Getting back at Charlie. (laughs)

Anderson: The white man Charlie. But anyway, the book is really — if I’m yelling at anyone, it’s at black consumers. Because there’s a lot of history here that contributes to the bad situation we’re in. I’ll be really quick. A lot of it has to do with integration. Of course, we love what integration did in this country. Of course, we fought for it. But it had some really negative impact. Some deleterious impact into the black economy, if you will. Because we’re forced to, because we’re segregated, we built up our own businesses. We had a strong sense of entrepreneurship in our community. And we recycled our wealth. So that was just the fact. That was the way it was. And the University of Wisconsin just did a study** that showed in 2009, when there was over 50% black unemployment in Milwaukee, in the same area, where there used to be black businesses flourishing in the 1950s before integration, there was less than 7% unemployment. So it really bears out that when we have the businesses where black people work, black people are employed. So after integration, we were so anxious to be enfranchised. We were so happy to have that opportunity to shop at Woolworth, to go to Walgreen’s, that we did it in droves. And it was just kind of our way of saying, “Yeah! We’re going to show you that our money is just as good as white people’s money and we’re going to show you how important we are and how equal we are by spending as much money with you as we can!” And in so doing, we kind of abandoned our would-be Woolworth’s, which were already providing quality goods and services in the community. All of our consumers just left those local black businesses that helped our community shine to go out to these big corporations where we were denied the right to shop before. So that was the first punch. And then the second punch came in. Because these corporations started seeing the value of the black consumer dollar. So they started to market to us very positively. Another term that I’ll bring up, which is kind of funny. We used to say “colored on” at one point. Colored on. We were so excited if GM were to show a black family coming out of a house, driving their Cadillac to the family vacation. Or McDonald’s, where you’d have a black family enjoying a black family meal. We were so happy when we saw that and that was the best way for them to market to us. And we returned that honor with our dollar, with our loyalty. So that was the second punch. They started marketing to us more aggressively. And we started spending more money with them, with their businesses. And then the third punch was they started to recruit us. So when I was coming up — I’m 40 — so in the ’70s, when I was coming up, the big deal for black mothers, for black parents, for black grandparents, was for me that kind of shining star, that smart kid that hoped to get out of the ghetto, was for me to find a great job at a big white company. That was the goal. It wasn’t like with our Asian counterparts, even our Hispanic counterparts, to continuing the family business, to start a business, to stay in the community. No. It wasn’t that. It was get out and do so by getting that great job. So the would-be entrepreneurs or the Talented Tenth, if you remember that.

Correspondent: Yes.

Anderson: We didn’t do our Talented Tenth duty. We left the community and we gave all our talent to big corporations. All of these things contributed to the lack of support for black business and our lack of entrepreneurship in the community. The big deal is to get a good job, not be an entrepreneur. So the entrepreneurs we do have don’t have the capital or the training to compete. So we can only survive in the industries where no one else can do it better. And that’s by braiding hair, cutting black hair, and providing funeral services in our community. So that’s where we can still have a stronghod. Even in black hair, in beauty supplies. Even in all that kind of stuff, we’ve lost those industries. That was kind of the fourth punch when immigrant groups basically started to leverage this wonderful phenomenon of a whole class of people that loves to spend money outside our community. They set up shop in our communities. Not racist. Not trying to steal our wealth. But they set up shop there and did well there. And now we’re upset because we can’t find quality black businesses in our own neighborhoods when basically we invited the intrusion by not supporting the black businesses we did have. So all of this has led to the demise that we have now. So some of it, yes. Some of it, our racist history. A lot of it has to do with our consumers, our people, kind of seeing our own businesses in a negative way. It’s a real difficult thing to talk about outside the black community. It’s just kind of cultural. But the definition is another term. White man’s ice is colder.

Correspondent: Sure.

Anderson: Why go to a black business when you can go to a white business? The way we show that we’re equal is by buying Polo and Hennessy. By living in the white suburbs. That’s how we demonstrate our equality. Not by buying black products and supporting local black businesses. I know it’s kind of a disgusting thing to say, but that’s the truth.

Correspondent: Well, as an effort to unpack much of what you just said — for example, in this book, among the businesses that you include in the Empowerment Experiment are, for example, a black-owned Quiznos. But my understanding is that a white guy named Rich Schaden is the principal shareholder and that he and his company have this history of ripping off numerous franchise owners. I’m sure you’re familiar with the Quiznos franchise holder, Bhupinder Baber. He killed himself over this. So, yes, I agree that a black-owned Quiznos, it may indeed hire more black employees. But if the parent company is exploiting its franchise owners, I’m wondering if this cycle of exploitation has a negative impact on a black neighborhood or a black community. Shouldn’t one also consider the independent nature of a business as well? How does a black-owned Quiznos help a community more than, say, an independent family restaurant?

Anderson: Right. And this is a huge point that I have to contend with when I push this supply diversity franchise rediversity message into the community. And here’s how it goes when I’m talking to black folk who I’m trying to get to support black businesses. It should not be that tough of a fight, but it is. When I say this to them, they come at me, generally with stuff like “Well, we tried to Karriem [Beyah]’s grocery store. He didn’t have the thing that we wanted.” Or it wasn’t like going to our Jewel, the big grocery store chain around here. Or you can go to this black franchise. But I didn’t see a bunch of black employees there. Or how do I know Quiznos is a good franchise to be supporting? So I get a bit of a challenge. Then I say, “Well, you know what? How is that? I mean, what are you doing now?” Basically, we’re just out there supporting anybody. Not thinking about what the businesses are doing for us. Polo. I mean, Polo blew the lid off of black consumers. We have black Polo parties that we have for our kids. I mean, it’s just ridiculous how addicted we are to the Polo brand. I have nothing against Polo Ralph Lauren. But I did have a friend who works writing for the CFO of Polo, and I asked her to do some research for me. She’s a conscious consumer like me. HBS grad. Very well connected in the company. And she thinks they talked with the marketing folks, the procuring folks, everybody about buyer diversity. Do you do business? How do you invest in the black community? We have so much money coming in from the black community. And their answer to me was, “Well, our label comes out of Indonesia.” And it’s unbelievable. That’s the best we can do to reciprocate the loyalty that the black community’s giving you? So it’s like, “Yeah. Maybe.” And you’re totally right about the Quiznos thing. But the first answer to them is, “But you’re supporting Polo. And it’s not like you’re stopping in support of Polo.” And I’m not saying don’t support Polo. But if you’re so discriminating with how you spend your money, there’s a lot of things that we shouldn’t be doing that we ought to be doing.

* — This study can also be found in Brooke Stephens’s Taking Dollars and Making Sense: A Wealth Building Guide for African-Americans. There seems to be no online version of this.

** — After reviewing the study (PDF), I believe Maggie’s slightly off — that is, if she’s referring to the Marc Levine findings from January. But black unemployment is absolutely a problem a Milwaukee. There was a huge hit in the last several decades. 1970: 84.8% employment rate for metro Milwaukee black men in their prime working years. By 2010, that figure had fallen to 52.7%. Here’s the important paragraph from Levine’s report:

The city of Milwaukee, where almost 90% of the region’s black males live, has lost over three-quarters of its industrial jobs since the 1960s. As Table 5 suggests, this manufacturing decline has disproportionately affected the employment prospects of African American males. In 1970 54.3 percent of Milwaukee black males were employed in 1970 as factory operatives, more than double the white percentage. By 2009, only 14.7 percent of black males were working in Milwaukee factories, about the same percentage as white males. By 2009, in fact, even though working-age black males outnumbered Hispanic males by 55 percent in Milwaukee, there were more Hispanic male production workers (7,200) than black male production workers (4,842) in the region, a sign of the degree to which manufacturing is no longer the bulwark it has been historically for the Milwaukee black male working class.

The Bat Segundo Show #445: Maggie Anderson (Download MP3)

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Offices Within Offices

The office was ensconced within a vicious slab that prioritized desperate spendthrift tendencies over comfort and efficiency. The man who rented out this thin rectangle on the 33rd floor seemed to believe that the $1,200 he paid each month granted him some illusory status. He took advantage of the economic downturn and shouted at the receptionist every time she failed to mention his firm name. The powerless receptionist, who had initiated with an attorney to secure her job just after the Dow first plummeted below 10,000, was forced to comply with a smile. She hoped she wouldn’t have to lower her adulterous standards, but there were enough office rumors to make her suitably feared. She fed her priest all the sordid details in confession so that she could live with herself.

With special permission, the man who rented out this tenuous office could use the floor’s conference room, where he could hold meetings and attempt to persuade people that he rented out a substantial percentage of the 33rd floor. But every client with half a brain noticed his firm’s dubious placard situated next to the firm renting out the floor. So he took it upon himself to only meet with people who made less money than he did. And he took it upon himself to persuade them to give him money. There was never a question of morality. After all, he had office he had to pay for at $1,200 each month and he had to spend money on people who had more money than he did.

The receptionist was fired in June when the attorney ended the affair. After all, the attorney soon found himself more heavily supervised by the partners and he could not risk any half dalliance on the public record. He paid the receptionist a lot of money to shut up. But the receptionist could not find another job and, therefore, could not find another man with money to fuck. But since she had a lot of money — enough to rent out a small office for a good year — and since the man who rented out the thin rectangle had stumbled onto hard times, she decided to sublet his office. For $600 each month, the ex-receptionist rented out half of the man’s office. She was able to secure use of the conference room more effectively than the man because people on the 33rd floor still feared her. The attorney feared that she would reveal his affair and offered to give her more money if she would go away. Instead, she decided to sublet his office too. Soon, the ex-receptionist was traveling between her two sublets. The partners found the situation within the attorney’s office quite awkward and decided to let the attorney go. (Because the attorney was stressed out about the subletting situation, and because his anxiety increased because he never quite knew when the ex-receptionist would start working in his office, his work began to suffer.) The firm, thanks to the economy, had fallen on hard times. And the ex-receptionist, who ran an under-the-table cocaine operation within the 33rd floor’s otherwise ethical business makeup, then bought out the ex-attorney’s office. She also told the partners that she would rent out the thin rectangular office for $1,600 each month. Soon the honest man was told he had to leave and a pimp soon replaced him. The ex-receptionist began doing good business on the prostitution front. As the firm’s finances grew more shaky, and the ex-receptionist was feared more than ever before, she began — after establishing a reliable relationship with a fancy hotel two blocks away — recruiting various support staff to fuck the remaining men who had money to burn. The firm, seeing no other option for survival, then merged with the ex-receptionist’s lucrative business. And the ex-receptionist made a lot of money. She adopted a new philosophy, independently arrived at. Always meet with people who made less money than you did and be sure to take it.

The office was ensconced within a vicious slab that prioritized desperate spendthrift tendencies over comfort and efficiency. The woman who rented out this thin rectangle on the 33rd floor seemed to believe that the $1,600 she paid each month granted her some illusory status.

The History of Verizon, Part Four (November 2000 to December 2000)

[EDITOR’S NOTE: This post continues my comprehensive history about the expansion of Verizon. This most recent installment takes the story through the end of 2000. Part One, which concerns itself with April to August 2000, can be found here. Part Two, which concerns itself with August 2000, can be found here. Part Three, which concerns itself with September and October 2000, can be found here.]

forsaledcLike any mushrooming company hoping to discharge its spores upon every square mile in a new field, Verizon had its lobbyists. In 1999 and 2000, Verizon, BellSouth, and SBC gave more than $7.1 million to political parties and federal campaigns, ensuring that they were among the top 25 donors. The funds were well-timed, arriving in Washington just as Congress was in the process of loosening restrictions.

AT&T perhaps had the most to lose from attempting to influence the reordering of the telecom guard. Faced with the October surprise of splitting itself up into four parts, AT&T alone had contributed $4.3 million during the 2000 election cycle. It was facing complaints from its investors.

Meanwhile, the telecommunications companies were beginning to enter more long-distance markets. Verizon, of course, knew when to steer clear of federal legislation or, more accurately, precisely when to time its actions in relation to governmental and competitive developments. Near the close of 2000, it withdrew its application for Massachusetts long-distance services. (Verizon was then under scrutiny from other telecom providers. In April 2001, it would receive federal approval in Massachusetts, where the competition would heat up.)

stockmarketdudeBy the end of October, Verizon may have been doing okay in the stock market. But its third-quarter profit was flat. The money that Verizon had spent to dominate DSL and long-distance markets with discount pricing had remained the same from the year earlier. Verizon profits in Q3 2000 were $1.99 billion, whereas Bell Atlantic profits had been $2 billion a year earlier. The m.o. involved spending and undercutting. But this seemed enough to assuage Wall Street.

Profits needed to come from somewhere. But there was also the matter of eager consumers trying to find the cheapest possible price on DSL. Local telephone service was the logical place to start jacking up prices. On November 1, 2000, while Verizon New Jersey proposed to double basic telephone rates from $8.19 a month to anywhere from $15-17 a month, regulators called a hearing. Elderly customers complained that they would be saddled with undesired expenses and undesired services. Verizon’s argument was that it cost them much more than $8.19 a month to provide basic telephone service to its customers, but Verizon spokeswoman Soraya Rodriguez did confess that there wasn’t much in the way of competition for local service

These sentiments were in sharp contrast to the Bell Atlantic days. In 1992, Bell Atlantic had brokered a deal with Trenton. They would rewire Jersey lines if the state loosened Bell Atlantic from a regulative loophole that forced it to lower rates if it made an unreasonable profit. In 1997, the New Jersey Board of Public Utilities had stood its ground. The result was that Trenton had managed to get its line rewired and New Jersey customers had experienced some of the cheapest local telephone service in the country. But Anthony Wright, the program director for New Jersey Citizen Action, would organize opposition to the plan and score a victory later in the year. This was, however, not the end of Verizon’s efforts to squeeze profits out of local telephone service, as subequent 2004 efforts in the Northwest would eventually reveal. (Indeed, in early 2008, Verizon would play this card again when telephone deregulation was on the table. Regulation was retained, but, by 2011, local Verizon telephone service in New Jersey will be set at $16.54 a month. Verizon, as it turned out, could fight just as hard as New Jersey Citizen Action could.)

Verizon had, by this time, seemingly escaped from the lingering smoke wafting from the August strike. In New York State, the backlog for new lines had been eliminated by October 23, 2000. Or so Verizon claimed. In November, there were still reports of new apartments waiting for service in a 33-story tower declared “The Ultimate in Brooklyn Heights Luxury.”

Verizon continued to expand. Verizon Communications owned 40% of Venezuela’s national telephone company. And there was the $1.5 billion acquisition of Price Communications Wireless, which served the Southeast, but also faced $550 million in debt that Verizon also took on. And, as previously documented, Verizon backed out of the NorthPoint deal.

vendorfinance

But what was particularly interesting was the amount of debt held by seven major telecommunications companies. In August 2000, Lehman Brothers analyst Ravi Suria wrote a report titled “The Other Side of Leverage,” which pointed to the weaknesses of vendor financing. Vendor financing was precisely what Verizon specialized in. It was a practice that permitted customers to buy their own equipment through unseen financial burdens managed by the company. Suria pointed out that the telecom companies had increased their share of the convertibles market from 5% in 1998 to 20% in 1999. (A convertible is a type of security that can be converted into another form of security — such as a share in a company.) Verizon had managed to pass off much of its debt through their convertibles, because there was no way to squeeze out significant profit from the networks at the time and there was no way to cover the interest payments on accumulating debt. Over the course of four years, the combined debt and convertible bonds of the seven telecoms that Suria was studying had dwarfed to $275 billion. As the New York Times‘s Gretchen Morgenson observed, this was a significant change from the $160 billion in junk bonds generated between 1983 and 1990.

And yet even Suria seemed convinced that there were promising possibilities in the telecom industry. Perhaps Verizon’s faith emerged from the possibilities of keeping customers on-board for life. After all, if you could wipe out the competition, eventually the customer would have no other choice but the Verizon network. And if you could lock a Verizon Wireless customer into a two-year contract, you could then tell your investors that convertibles were merely a “temporary” high-yield debt taken on while waiting for the almighty profits. Perhaps vendor financing represented a new method for Verizon to utilize Ricardo’s comparative advantage theory.

jamesluskThe equipment vendors buying into this infrastructure had to be somewhat concerned about this high-stakes gamble, but the possibilities of profit seemed to negate financial pragmatism. In Lisa Endlich’s Optical Illusions, Endlich reports that, in 1996, Lucent’s Controller was initially skeptical about expanding on such a significant lending risk. Jim Lusk, the Controller at the time, was an old-fashioned finance type who needed to see how the money was going to pay out and who believed that Lucent should stick to selling equipment rather than lending money, even he turned around for a contract that secured 60% of Sprint PCS’s contract. The cost? $1.8 billion, with payment of principal deferred for four years. Small wonder then when, four years later, Lucent was in bad shape, with the CEO replaced and investors demanding an overhaul. But then, by the end of 2000, the nine largest telecom equipment suppliers had a combined $25.6 billion in vendor financing loans to customers.

While such measures of financing may seem extraordinary from the perspective of 2009’s deep recession, keep in mind that such actions came shortly after the unprecedented economic boom of the 1990s. But, as we shall later see, Verizon’s investments in other properties were predicated on these companies, in turn, subsisting through additional vendor financing strategies. (By August 2001, Verizon was forced to write off half of its $5.9 billion investment portfolio.)

verizonfoundationVerizon also established the Verizon Foundation, with the intent to distribute 4,000 grants of $70 million, through an all-online process. This, of course, replicated the funds and the efforts of the Bell Atlantic Foundation. (Not counting for inflation, this figure would remain more or less consistent throughout the years. In 2008, the Verizon Foundation awarded $68 million in grants, roughly 6.4% of its profits from Q1 2008. The Verizon Foundation’s financial statements can be examined here.)

There were also advertising costs. The tab at Draft Worldwide and Zenith Media was $500 million.

The now ubiquitous practice of SMS text messaging was, near the end of 2000, not widely practiced in the United States. This was a bucolic and more innocent time in which people ate dinner with each other and actually had to wait several hours before telling other friends who they were hanging out with. You might say that before 9/11 “changed everything,” SMS “changed everything.”

While businessmen in Japan and Europe texted each other during meetings, it was not until the fourth quarter of 2000 that telecom communities began rolling out two-way SMS service, and cell phone customers could send text messages to each other of no more than 160 characters. The problem, in the United States, involved conflicting and competing standards.

It is necessary to begin at the beginning and briefly (but, by no means, sufficiently) explain these developments. In the early 1980s, emerging cellular telephone systems were creating numerous incompatibilities and frustrations. Enter a group of fussy European telecommunications administrators determined to solve the problem with a compatible system called Global System for Mobile, or GSM. At the risk of skipping over some vital SMS/GSM history and leaving out a good deal of important and interesting figures, let’s just say that they sorted everything out. (I hope to expand this section in the future.)

On December 3, 1992, in the United Kingdom, the first SMS message was sent by engineer Neil Papworth through the Vodafone network (before it was merged into Verizon Wireless). It read MERRY CHRISTMAS. But it would take seven years before the phrase, “Text me,” would enter into the lingua franca.

It took some time. But upon establishing a cost of about 10 cents per message, text messaging became popular in Europe, particularly in Scandinavia, where many of the GSM originators resided. In October 2000, 157 million European wireless customers were SMS-ready. 9 billion SMS messages were sent every month. The price point created a premium that seemed affordable to teenagers and doctors alike, but this was a lucrative markup that remains a source of controversy today. (Indeed, in October 2008, Verizon Wireless had plans to tack on an additional 3 cents per text message.)

chatboardThe SMS standard used in Europe was GSM, but the US used three separate standards: TDMA (Time Division Multiple Access), CDMA (Code Division Multiple Access), and a GSM variation that, much like the American NTSC television standard abandoned in 2009, was incompatible with numerous global territories. A Verizon Wireless customer in 2000 could not send a text message to a AT&T Wireless customer. And this lack of global SMS compatibility, together with the then-awkward requirement of typing an email address before sending a text, didn’t exactly win customers over.

AT&T Wireless got many of its customers hooked on text messages by offering SMS for free through February 2001. (AT&T would initially charge $4.99 for 500 messages a month, a considerable bargain compared to Verizon’s text message rates today.)

One unexamined consideration is whether Verizon, which owned and maintained all the pay phones in the New York subway stations, deliberately let these pay phones fall into disrepair. After all, why not move these disgruntled pay phone customers onto cell phone plans? And why not work with the city to establish a cell phone network within the cavernous subway system? Verizon, as it turns out, was better at repairing pay phones in 2000 than the year before under Bell Atlantic. According to the Straphangers Campaign, 18% of subway station pay phones were broken in October and November of 2000 (compared to 25% in August 1999). Whether the drop came from reduced crime or reduced pay phone use, it is difficult to say. But as Farouk Abdallah of the Straphangers pointed out at the time, Verizon’s contract with the MTA called for 95% of the pay phones to be “fully operative and in service at all times.”

payphonebellPay phones, however, were on the wane. When the City of New York announced that it would construct 2,262 new public pay phones, a number of Upper East Side residents, who presumably possessed the expendable income needed to pay for a cell phone, complained about the 1,000 pay phones appearing in their neighborhood. Never mind that only half of New York residents had cell phones and 20% of residents in poorer neighborhoods didn’t even have regular phones. The pay phone kiosks would be an eyesore. Verizon, interestingly enough, did not apply to operate the new phones.

Three months before the United States would enter a nine-month recession in 2001, shares in Verizon fell $3.94 on December 20, 2000 to $51.88. Despite the 3,500 DSL lines that Verizon claimed it was installing daily, Verizon seemed more interested in promulgating financial projections for 2001 and 2002 rather than coughing up any data about the present. (Lucent, that seemingly dependable equipment vendor who had bet the farm on vendor financing, announced two days later that it would lose more than it had anticipated and that layoffs were forthcoming.)

And the customers wanted more. They wanted nationwide coverage that wasn’t lossy. Analysts suggested that the infrastructure wasn’t there and couldn’t support the dramatic uptick in customers. Could the customer understand that a cell phone was entirely different from a landline? Did they know the difference between an analog and a digital phone? Did they understand that using all those minutes in the package was a trap to get customers reliant upon cell phones? Did they consider that maybe it was the telecom companies who held all the cards in the relationship? Or perhaps increasing and often unreasonable demands were a way for the customer to feel that he had some power or confidence?

The History of Verizon, Part Three (September to October 2000)

[EDITOR’S NOTE: About a year ago, I began a comprehensive history about the expansion of Verizon. I don’t know if I will ever finish the narrative, because the story is quite complicated. But here is the next installment in the series. Part One, which concerns itself with April to August 2000, can be found here. Part Two, which concerns itself with August 2000, can be found here.]

With the August strike eating eighteen days of steady service, Verizon Communications faced a considerable delay in work orders. There were 50,000 delayed repairs and over 200,000 orders for new service that needed to be fulfilled. And if a customer wanted to go to another competitor — such as AT&T or MCI WorldCon — well, that customer would end up facing the same delays. Because by the summer of 2000, these companies relied heavily on Verizon’s networks.

There were, however, positive developments from the new contract emerging from the strike. In early September, Verizon offered its 210,000 employees 55 million shares of stock options. 85,000 union workers would receive 100 shares a piece. Verizon Wireless employees weren’t included in the contract, but this was a victory for the unionized workers. For analysts were also suggesting that Verizon stock was a good buy.

dickarmeyCustomers service reps, bearing the brunt of too much stress, were given five 30-minute breaks each week. The new contract also made it difficult for workers to be shuttled around from one national region to another, which caused BusinessWeek to raise an opportunistic eyebrow. The New Economy demanded “labor flexibility,” which seemed to BusinessWeek to involve unhitching one’s residential roots like a serviceman constantly on the move from one military base to another. (Ironically, there had been four rounds of base closures over the past twelve years, where some 152 bases were closed or curtailed courtesy of legislative efforts from Rep. Dick Armey. Perhaps it was believed that the New Economy’s private entrepreneurship might miraculously provide for government workers shifting around in the Old.)

Still, as New York Times labor reporter Steven Greenhouse pointed out, the Verizon contract — like the Firestone and United deals at the time — had worked out somewhat well for workers because the industry was unionized. Unions had sacrificed their power in the past four decades, but at least one remaining bundle of workers was able to secure a victory. Not even the steel or the auto industries had been able to do this in the 1980s without some serious backpedaling.

oldtelephoneFor eager customers, however, the more important question was whether or not Verizon could roll out its DSL services faster. Verizon, like Flashcom, was sometimes taking as long as six months to install DSL service, particularly in New York. In New York, Verizon blamed the problem on the ancient wiring systems. But since Verizon remained in control of the telephone wires, perhaps Verizon’s failure to roll out DSL service had more to do with the competitors. If Verizon held out in New York, other companies would have to expend considerable resources building their own wires. Road Runner, however, continued to flourish with its cable services.

Verizon approached this competitive dilemma by slashing its DSL prices in some territories from $49.95/month to $39.95/month. The augmented coverage territory secured by the GTE-Bell Atlantic merger would result in reduced prices for both residential and business DSL service. And the DSL modem was free if the customer committed to a one-year contract. But was it really free? Sure, you’d save $120 in one year if you signed up for a one-year contract. But the modem itself was worth only $99.

As Forbes‘s David Simons observed, the $39.95 price point was a boon for mass adoption, even if it wasn’t particularly profitable for ISPs. (And if you were a smaller ISP, you’d pay more for the installation and upkeep of a DSL line. ISP Planet‘s Jim Wagner pointed out that the $39.95 price point gave other providers only $7.45 a month to earn back service costs, as wel as the $400 installation.) Perhaps the strategy here was to get Verizon customers hooked on long-term contracts, with an emphasis on high-volume profit by giving customers extra incentives to sign on for other services under the “savings” imprimatur. Verizon also offered two other deals that year: a 30-day money back guarantee and $5 off every month if you also had one of Verizon’s local calling packages. Aggressive marketing helped spread the message.

The question of just how aggressive Verizon was in 2000 with its customer sales representatives may not be easily answerable. But there are some suggestions that Verizon customers were not only signed up for DSL service that was not only unavailable in their area, but forced into two-year contracts. A former Verizon worker posted this story to complaints.com in July 2001 (I preserve the spelling and grammatical mistakes):

After going through the so called ‘training’. A group of about 20 of us were thrown to the ‘wolves’, so to speak. After a few weeks of lying to people…my conscience started bothering me. It was a particular customer, an old lady…very sweet. She reminded me of my grandma. She literally started crying on the phone, About how she could never get connected to the internet. The first thing I did was to check to see if service was even available in her area, or if some ass had sold her “verizon high speed internet” some where, where it wasnt even available.(I had already seen a few cases where customers had signed 2 year contracts, and they didnt even have service in their area!). And sure enough, after I checked on the system…the service wasnt even available in her area. I just told her the truth “mam, verizon high speed dsl internet service is not even available in your area….” she had been going back and forth with “Technical Support Agents” for about a year…and no one had even told her that service wasnt even available in her area. Yet she was signed up for a 2 year contract and was even paying!

The Associated Press’s Peter Svensson reported in September 2000 that Verizon was even putting a stop to other ISPs who were using Covad lines. A Brooklyn customer named Dana Smith hoped to get DSL service through a smaller provider who used Covad. But since the DSL installation involved her Verizon landline, Verizon was uncooperative and hindered Covad’s attempts to fix problems on her line. And when she called Verizon, the company tried to sell her on its DSL service.

The FCC became Verizon’s unwitting accomplice. In October 2000, the FCC considered rules forcing commercial landlords to allow any telecommunications carrier (referred to as a “CLEC,” which stands for “competitive local exchange carrier”) access into its buildings to install new lines. In mid-October, the FCC ruled 4-1 in favor of the CLECs. The landlords lost. And it seemed as if the tenants had won freedom of choice. But how many of the tenants had to contend with Dana Smith’s scenario? If “choice” involved being steamrolled into one-year contracts through deep discount price cutting and uncooperative skirmishes with Covad, did the customer really opt for the service?

drlauraIt’s worth pointing out that Verizon did listen to its customer base from time to time. The company had pulled its ads from Dr. Laura Schlessinger’s show after Schlessinger had uttered hateful remarks about gays.

While Verizon wasn’t winning any friends among the early adopters, the telecommunications giant was then boasting that those who called for directory assistance were now spending 3.6 seconds on the phone, compared to 5.5 seconds in 1996 under Bell Atlantic. (Customer service, of course, would prove to be an issue for Verizon in the years to come.)

In mid-September 2000, the Justice Department had also approved Verizon’s purchase of OnePoint. (Here are the FCC documents.) OnePoint, known for providing high-speed Internet services in nine major metropolitan markets (particularly apartment buildings), would permit Verizon to expand its DSL service. (Indeed, Verizon didn’t waste any time. Only one month later, OnePoint was building a 4,000 square foot telecommunications facility in Atlanta.)

Meanwhile, on the mobile phone front, on August 31, 2000, the Justice Department granted approval for a merger between SBC Communication and BellSouth, making it the nation’s second-largest mobile-phone company. The new venture combined 17.9 million subscribers, just trailing Verizon’s 25.4 million customers. (The competition was also heating up on the local phone service front. By October 2000, SBC had revealed hopes to nab $1 billion in local service revenue over the next two years.)

Verizon responded to this competitive threat by amping up its advertising. In addition, Verizon had settled upon Burrell Communications Group to handle a brand introduction campaign. These advertising costs were estimated somewhere between $20 million to $30 million.

As Verizon continued to expand its operations, the erection of copious cell phone towers spawned some controversy. In addition to the cell phone tower’s eyesore aesthetic, Tiburon telecommunciations consultant Ted Kreines observed real estate prices drop for property near the towers. At the time, Verizon spokeswoman Tracey Kennedy noted that Verizon was doing its best to keep facilities from looking unsightly.

Verizon’s aggressive efforts to woo its customers for flashy services at cut-rate prices weren’t limited to DSL. Near the end of September, Verizon hit upon a strategy to target mobile phone consumers. A new program called New Every Two offered a customer a free cell phone if the customer signed on for a two-year contract. There was also the option of a phone upgrade. Verizon was the first of the then six wireless carriers to offer these options.

And in October 2000, the Vodafone Group, which was Verizon Communications’s partner in Verizon Wireless, was also eyeing Eircom, an Irish telecommunications conglomerate. A brief summary of Irish telecommunications: Telecom Éireann was a company assigned to overhaul the Irish telecommunications structure. The company, with a majority stake owned by the Irish government, exceeded its expectations and converted the entire network to digital by the 1990s. But in 1999, the Irish government sold off its 65% stake. Eircom was the parent company of Eircell, which represented the mobile division of Telecom Éireann. In other words, a company, largely bankrolled by a government, that had built up one of the most effective telecommunications networks in the world was gobbled up by one of Verizon Wireless’s principals. Innovation built with public money was snatched up by Vodafone in 2001, and Eircell became Vodafone Ireland, a private entity that sponsored Who Wants to Be a Millionaire? without apparent irony.

Verizon Wireless was also expanding on local fronts. On October 10, Verizon Wireless acquired 24.2% of Sacramento Valley L.P., which provided cell phone service in Northern California and Nevada. (Verizon’s stake in Sacramento Valley L.P. was now more than 76%.)

With all this buying and all this expansion, was an initial public offering in the cards? There was an initial plan in mid-October and the IPO was expected to bag about $5 billion, but economic conditions scrapped that. It was expected that the IPO would take place by the end of 2000. (As it turned out, the IPO was delayed considerably longer.)

There were also a few innovations that anticipated application developments on the smartphone. Years before Snaptell, Verizon teamed up with BarPoint, where Verizon customers could punch a bar code into their phone and determine how much it was at an online store. (BarPoint, which would wither away like many companies of its type, may have had the right idea at the wrong time.) Verizon also had an idea of charging customers $36 a year to list their email addresses in the phone book, little realizing that such information would be instantly findable through search engines in very little time.

cellphonedriverVerizon took great care in presenting itself as a corporation that cared about the public. In October, Verizon spokesman Kevin Moore praised a New Jersey Senate study to examine whether cell phones distracted drivers. (Of course, Verizon’s message always changed with legislative developments. A mere seven months later, another Verizon spokesman named Howard Waterman begged then New York Governor George Pataki to wait three years on banning cell phones in cars. Waterman didn’t mention public safety or distracted drivers. His motivation for the delay was “to allow wireless customers time to upgrade their phones because some of them simply do no have handsfree capability.”)

Verizon had a terrifying knack for transforming its message and its motivations seemingly overnight. The spokesman you dealt with today might be somebody else tomorrow. One division might be another or absorbed into another next month. A small carrier leveraged out during this expansionist fervor might have its stationery replaced by Verizon in weeks. At least the unionized workers still had some protection. But the customers accepted all this without question. The economy was in bad shape. There were exciting technological advancements, such as cell phones and DSL, to be had for a pittance. But would any of us know the real prices we paid for our convenience?

The History of Verizon, Part Two (August 2000)

[EDITOR’S NOTE: This is a continuation of my ongoing history of Verizon. Part One, which covers the months of April through August 2000, can be found here. Part Three, which covers the months of September through October 2000, can be found here.]

James Earl Jones, the voice of Darth Vader, became the voice of Verizon. Jones had proved popular as the voice of Bell Atlantic and his services were extended to talking up this new brand with his instantly recognizable baritone. But the Baltimore City Paper‘s Joe MacLeod was having none of this. “You never once in your whole entire life said the word, ‘Verizon,’ I’ll bet, unless you knocked back too many highballs or were wacked out on that Special K or Vitamin C or one of those other letters, but now you’re going to say ‘Verizon’ all the time like it’s a real word, and you’re going to write checks to Verizon and call Verizon, and say stuff like, ‘The goddam Verizon’s on the fritz again.’ But it’s not. There’s no such thing as a Verizon. Don’t believe James Earl Jones. It’s a made up bullshit word, and they (and you know who ‘they’ are) probably paid James Earl an ass-load of money to pitch the Verizon on the teevee.”

Whatever “ass-load of money” was paid to Jones, eight years later, Verizon’s name now trickles across the cochlea without cognitive dissonance, thanks in part to Jones’s efforts. The campaign, overseen by Bozell, ensured that the last dregs of Bell Atlantic would be cast asunder for this great leap forward. Jones would later use his position at Verizon to siphon off a hearty combo of Verizon and NEA money for a Magna Carta exhibit, present a $25,000 literary-tech grant to a San Ysidro school, present literary grants, and hand off awards to Russian cinematic talent. In 2002, Jones, testifying before a House Subcommittee on Education Reform, would declare, “I could not be more proud to be associated with an exceptional company like Verizon.” Even when speaking at the 2007 Buffalo Book Fair on literacy, Verizon was indelibly attached to Jones’s words.

In 2007, Jones walked away. While Jones served as a pitchman, Verizon’s contract had restricted Jones from any long-term commitments. Jones’s contract kept him off the Broadway stage until 2005. Jones, in fact, would not appear in any films between 2001 and 2004. In an interview with NWA WorldTraveler, Jones explained, “[Verizon] let me be silly for 15 years on camera — breakdancing and all that. I was as silly as I dared get. They understood that this guy usually is taken as dignified, with a big voice, so they said, ‘Let him be silly,’ and it’s worked!”

But was this really a position for an actor of Jones’s dignified stature to be in? How many dramatic presentations or Broadway performances were lost because Verizon required his services? With a strike heating up in August 2000, the Workers World News Service went further: “Who’s on the board of directors? Not James Earl Jones.” The WWNS proceeded to name names. “Your may not see these folks in the Verizon ads. You may not see their faces on your telephone bill. But these corporate interests are part of the system of exploitation that dominates our lives from telephones to political offices.”

But was Verizon really maintaining a system of exploitation? Or was it just practicing the most ruthless business practices necessary to get ahead?

With the Bell Atlantic-GTE deal receiving FCC approval, Verizon began making quiet payments to ensure its continued expansion. GTE paid $2.7 million to end an inquiry concerning allegations that it had refused to let local phone equipment in GTE offices without the construction of special facilities. Even though the FCC permitted local phone companies to place equipment at their central offices, GTE had insisted upon special equipment cages. The FCC had permitted the local phone companies to place their equipment in COs without the cages, but that hadn’t stopped the phone companies from complaining. Thankfully, money was one of those magical mechanisms that helped end such gripes.

Meanwhile, the forthcoming strike threatened to halt Verizon operations. More than 86,000 telephone workers from Maine to Virginia planned to walk out. On August 4, 2000, Verizon submitted a proposal to the unions. Verizon agreed that it would increase wages by 3 to 4 percent a year for union employees and improve pension plans. But with the income disparity between union and nonunion workers still unaddressed, and the details on job security and very specific demands still unclear, the unions balked. As one particularly prescient Verizon worker said, “Because the company would rather farm out work, this means one company installs the line on the outside of the building, which is us, and another on the inside, which is them. This results in a big headache for the customer, who has to be at home for two days instead of one, and a loss of income to a nonunion company.”

There are other interesting figures to consider here. In 2000, Verizon’s wireless operations generated $532 a year in revenue from each customer. A telephone company customer earned a meager $324 a year. Verizon’s wireless employees were nonunion and its telephone company employees were union, thus resulting in considerably more revenue from its wireless operations. In other words, Verizon had a vested interest in ensuring that its wireless employee basis would remain nonunion. In a competitive market and a declining economy, profit was king. And one Wall Street analyst, speaking to the New York Times under anonymity, suggested that if Verizon’s wireless unit were completely unionized, it would cost the company $300 million a year.

On August 7, 2000, with no negotiations in sight, the workers walked out. Basic services were not affected, but repairs and installations were. Verizon created a stopgap by deploying 30,000 managers — all working 12-hour shifts — to cover services that were normally performed by employees. One technician opined of the managers, “‘I think none of them are qualified to do what we do. Most of [the managers] were educated in college, but they’re not technically inclined.”

The union members were dressed in red, picketing in solidarity. One customer service reporter told the New York Times that she was “tired of being treated like a second-class citizen within the company,” but declined to give her name. Verizon had informed employees that they would be fired if they discussed joining the union at work. Most of the striking workers were former Bell Atlantic workers. The GTE units were not directly involved.

News of the Verizon strike hit many outlets, but some overlooked the company’s considerable expansive efforts. As The Motley Fool‘s Chris Rugaber reported, “While that story is important, investors interested in the telecom sector should pay just as much attention to the company’s announcement yesterday that it has already signed up 1 million long-distance customers in New York.” The company’s goal was to reach the one million mark by the end of 2000, but Verizon was five months ahead of schedule. Verizon pledged to donate $1 million to New York charities to celebrate this achievement.

By August 8, 2000, the strike had gone on for three days, with neither side coming to an agreement. “We continue to frankly plug through some of the more difficult issues that confront us,” said Verizon spokesman Eric Rabe. “It’s become sort of an intense, exhausting sort of a process.” Rabe claimed that there had been 455 acts of vandalism, violence, and harassment of Verizon managers over the previous six days. Eggs and bottles were thrown at those who crossed picket lines. Verizon offered a $250,000 reward. These acts went further. On August 8, 2000, the New York Times reported that vandals had begun slashing telephone cables in New York, causing thousands of New Yorkers to lose service. But Communications Workers of America vice president Al Luzzi declared, “We don’t condone vandalism; we never did, we never well.” Luzzi suggested that Verizon managers might be responsible for the cut cables. Nevertheless, two striking Verizon workers were nearly electrocuted when they confusedly cut through a power cable that they believed to be a phone line.

James Henry, a Bear Stearns analyst, observed that if the company could maintain service without its 85,000 employees, this would be an effective marketing tool. One that would give the company solvency, so long as the strike didn’t last beyond a week. Indeed, in the early days of the strike, Verizon customers did not experience considerable disruptions in phone service.

That same day, Verizon announced that it would be teaming up with NorthPoint to build a new broadband company. The move was on to shift broadband services to DSL. Lawrence T. Babbio, Verizon’s vice chairman and president, boasted that he was putting in 3,000 DSL lines a day. With the new company under NorthPoint’s name, Verizon was looking at a service capacity of 600,000 DSL lines. With Verizon making an $800 million investment in the new company, with $450 million of these funds allocated to network expansion and product development, NorthPoint only needed federal approval, which was expected in mid-2001. NorthPoint was an appealing acquisition because of its business customer base. Business customers could be counted upon to generate more revenue than the garden-variety consumers that Verizon had within the Bell Atlantic network.

But in November, Verizon decided to pull out. Verizon claimed that it terminated the deal because it didn’t care for NorthPoint’s deteriorating business and operating conditions. NorthPoint, counting upon the $800 million, was apoplectic. Said Liz Fetter, NorthPoint’s Communications President and CEO, “I am stunned to get the news after months of conversations with Verizon on the strong business opportunities available to the combined entities. Verizon was not entitled to terminate these agreements, and we are exploring all our options, including funding options and legal remedies.”

There was no breakup fee for terminating the deal.

NorthPoint had seen its stock decline from $39.12 a share to $2.50 a share in just under a year. The Verizon setback caused NorthPoint stock to plunge to a mere 75 cents per share. Verizon’s stock, by contrast, gained 81 cents that same day. Brown analyst Michael Bowen said to CNN, “If they lose Verizon they don’t have much of a future.” Sure enough, Bowen was right. After a round of lawsuits that NorthPoint had filed against Verizon, a NorthPoint shareholder sued NorthPoint about accounting malpractice. Because of these circumstances, 19% of NorthPoint’s workforce was laid off just before Christmas. In March 2001, NorthPoint would eventually file for Chapter 11.

Did Verizon have every intention of backing out of the NorthPoint deal? It is difficult to say with any accuracy, but I do intend to investigate this.

It should be pointed out that NorthPoint enjoyed a great success between 1999-2000, with its stock rising 68% on its first day of trading (like many dot coms) and alliances brokered with the likes of Microsoft. Led by CEO Elizabeth Fetter, a 41-year-old antique collector with a penchant for restoring historic homes, NorthPoint had relied on the Baby Bells to install DSL, but was often dissatisfied with the speed at which it could roll out its service. And although the future looked bright for NorthPoint (and fellow competitor Covad) in light of recent regulatory advantages, NorthPoint had been hit, like many, by the downturn in the economy. Verizon’s cash influx was just the kickstart that would help NorthPoint expand. But NorthPoint, expecting a fair deal, relied on the money instead of questioning it.

So why did Verizon go after NorthPoint? Did it make similar overtures to Covad? Was NorthPoint simply too hungry to expand? And why didn’t NorthPoint’s counsel ensure that the Verizon deal was airtight? Did Verizon see NorthPoint as a competitor it could whittle down? Or did it have even some intention of cooperating with Verizon all along? These questions will require investigation.

On August 9, 2000, the New York Times reported that Verizon and the unions were nearing a negotiation that “might make it easier for the unions to organize workers” at the Verizon Wireless unit. But the strike had heated up. Verizon reported 455 strike-related incidents of assault, harassment, and vandalism to the police in twelve states. With the New York summer heat rising, tempers were too. A Verizon maintenance truck run by a nonunion Verizon contractor was battered and remained stuck under a maintenance gate when a striker gained access to the gate’s remote control. New York State Supreme Court Judge Louis York granted a temporary restraining order that barred picketers from preventing workers and managers from conducting their work. Verizon increased its $10,000 bounty to $25,000.

On August 8, 2000, Verizon’s shares plunged, dropping 14%. It was Verizon’s sharpest one-day freefall since 1987. The NorthPoint deal hadn’t helped. Nor had Verizon’s bid to acquire OnePoint Communications. The terms of the OnePoint sale were not disclosed, but OnePoint was known for the DSL services it provided to apartments and office buildings in nine major U.S. metropolitan markets. Unlike NorthPoint, OnePoint had remained private.

Back on the picket lines, the struggle remained tense. 24 union members had been arrested. Waste and birdshit were tossed upon five Midtown South Precinct officers monitoring picket lines, dumped from the top of Verizon’s 41-story headquarters. The police did not plan to rule out management or strikers. And the 8,000 workers protesting outside Verizon’s headquarters participated in a rally the next day that spilled over into Bryant Park. Even presidential candidate Ralph Nader made an appearance on the Fall Churchs, Virginia picket line. Meanwhile, one advertisement featuring a Verizon worker in a hardhat with the slogan, “Bell Atlantic has a new name,” remained in circulation.

Some commentators, such as the New York Times‘s Mary Williams Walsh, suggested that the customer-service complaints had become a new labor issue. Walsh pointed to Verizon’s requirement by CSRs to ask customers, “Did I provide you with outstanding service today?,” which made at least one feel like an idiot. But if the CSR did not answer the question, then a supervisor listening into the call would deduct points from the performance score. Was the burden of having to be nice all the time something to fight over? Walsh depicted the typical Verizon worker working four hours in the morning, four hours in the afternoon, with an hour off for lunch and two 15-minute breaks. But the stress arose because a supervisor kept track of every workstation using a color-coded grid. In one glance, the multihued squares would reveal whether a CSR was keeping someone on hold for too long and when a CSR signed on and off. One CSR named Patti Egan pointed out that there was only a two-second window between calls, without time to type up the order of the last caller. Often, unfinished orders were set aside, to be presumably completed during one spare two-second moment. Factor in the pressure for CSRs to upsell callers on features and the incentive for a call center to sell $60,000 worth of products a month if the CSRs want to move out of customer service and into jobs without sales duties, and the pressures that the workers were fighting for became all too clear.

By August 14, 2000, Verizon had made a new offer to the unions. But Communications Workers of America spokesman Robert Master declared it “old wine in new bottles.” But the picketeers has started to thin. The thousands of workers who had struck in the previous week had been reduced to 750. Nine days into the strike, employee Danny Marino remarked, “I didn’t think that it would come to this, definitely; I thought this would last only two or three days.” He had been married the previous month. Meanwhile, managers continued to take care of the 80,000 requests Verizon was receiving each day.

On August 16, 2000, the unions declared that they would break off negotiations with Verizon if they could not reach an agreement by midnight the next day. Mandatory overtime and job security remained the two 900 pound gorillas swinging in the room. But the next day, the workers continued talking past this deadline

As the strike took a considerable toll on Verizon’s stock share and federal rules prohibited companies from owning more than one license in a metropolitan market, Verizon unloaded wireless franchises in Chicago and Cincinnati to an investment group led by J.P. Morgan.

Finally, Verizon and the unions reached a tentative agreement. Nonunion wireless employees were permitted to organize. Two-thirds of the strikers settled on a contract two days later. The workers agreed to a three-year contract, procuring a 12% wage increase over three years. And Verizon had imposed a condition upon wireless union organization: if 55% of the employees at a work location agreed to sign cards, they’d have a union. Union telephone workers won the right to conduct more work, such as the installation of high-speed Internet lines. Mandatory overtime would be reduced, but it would still be mandatory. On the work stress issue, the unions were given five 30-minute periods each week whereby the CSRs could perform work that didn’t involve calls. But the two-second window between phone calls had gone unacknowledged.

Three years later, when the contract ran out, there would be another strike. But the next time around, Verizon would not cave. Verizon and the unions would agree to a new contract in September 3, 2003, with a one-year wage freeze, new hires not covered by the job security provisions, and one that would last five years. Five years. The precise length that Verizon had insisted in 2000. The precise length that had worried the unions because of the rapid changes in the telecom industry.

Yesterday, the New York Times reported that the unions were preparing to strike again. The numbers now? 86,000 in 2000. 65,000 in 2008. I will examine how this workforce figure was reduced and go into the 2003 strike in forthcoming installments. But for now, I’ll simply observe that the renegotiated five year contract expires on August 2, 2008. Whether the Communications Workers of America and the International Brotherhood of Electrical Workers will learn a few lessons from these previous two strikes remains to be seen.