The Bat Segundo Show: Timothy Noah

Timothy Noah appeared on The Bat Segundo Show #458. He is most recently the author of The Great Divergence.

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Condition of Mr. Segundo: Holding onto the remains of his wallet.

Author: Timothy Noah

Subjects Discussed: The 1984 “Morning in America” ad, why the American public gets suckered into the American Dream panacea, the Kuznets curve, the decline of the bank teller, Obama’s 2012 State of the Union speech, closing the skills gap as the present Democratic position for increasing jobs, the WPA, high school graduation rate decline and skilled labor demand in the 1970s, universal early education, the high school movement, Richard Vedder’s notion of janitors with PhDs, college tuition being priced out of reach for the middle crisis, the 1% vs. the 99%, the American inability to grapple with income inequality, overseas jobs, Germany’s ability to hang onto its manufacturing sector, the decimation of the American labor movement, Alan Blinder’s ideas about an increase in skilled overseas jobs, the Lewis Powell memo, Bryce Harlow, Wal-Mart’s war upon unions, the dismal dregs of union culture in 2012, Occupy Wall Street and anti-activist regulations, Walter Reuther, the gender gap in higher education and with job income, decline of the male median income, closing the gender gap in income, sexism’s strange legacy, how women have exempted themselves from the great divergence, how immigration developments during the 20th century impacted 21st century labor, Paul Samuelson’s views on immigration, the benefits of unskilled labor, high school dropouts and declining wages, the recent Mexican immigration dropoff, checking up on Jim and Ann Marie Blentlinger, Bob Davis and David Wessel’s Prosperity, upward mobility and government jobs, the collapse of the US Postal Service, the brief benefits of computerization, being honest about the decline in upward mobility, and the expiration date of American exceptionalism.

EXCERPT FROM SHOW:

Correspondent: What about overseas jobs? I mean, two-thirds of all the people who made or sold iPods in 2006, as you point out in the book, were located overseas — most in production jobs. One of your solutions in the “What to Do” section at the end is to import more skilled labor. What of these Apple production jobs? I think I’m returning to what we were talking about earlier, about the difference between skilled labor and unskilled labor and moderately skilled labor. Surely, there needs to be some sort of infrastructure in place. Some patch till we actually get to this great skills gap solution which we seem to be talking about. I mean, it just seems to me that we’re trying to fight a very difficult problem with a form of idealism that is just incompatible with that reality.

Noah: Well, it’s very hard to compete globally for low skilled jobs. Because it’s a race to the bottom. You end up engaging in wage competition with some of the poorest countries in the world and that’s not going to make anybody prosper. If you look at a country like Germany, they’ve managed to hang onto their manufacturing sector. But the way they’ve done it is they have gone after the highly skilled manufacturing jobs. Of course, they also have a much more healthy labor movement. Here in the United States, we’ve had the labor movement been decimated or down and out. 7% of all employed workers. So another part of the solution is to rebuild the labor movement. I’m not saying that it’s going to be easy to address these problems. But in talking about ways to address them, I decided there was really very little point in pretending that tiny little solutions were going to do much. I think it’s time to start a discussion about some of the more ambitious things we can do.

Correspondent: But as you also note, “If you have a job that you can perform from home, it’s worth asking yourself whether an English speaker could perform the job tolerably well from halfway around the world at one thirtieth the pay.” Do you think that America has the obligation to give everybody a job? That that might actually be the solution in some way? Or do you think the labor force really needs to revert to its inherent skills? Or skills that they can actually acquire to get those jobs? I think I’m trying to get an answer from you in terms of whether it’s actually the corporations’ fault or whether it’s education’s fault or whether it’s the people who are unskilled — whether it’s their fault.

Noah: Well, I don’t know whose fault it is, per se. I mean, I think our workers need to acquire those skills one way or the other. And anything we can do to encourage that would be good. Because offshoring is a real problem. Although interestingly, the projections from here forward are that offshoring will have a bad impact on our economy. But it won’t continue probably to have a very bad impact on income inequality. And that’s because those other countries are now coming after the skilled jobs. And it will be very interesting politically to see how that plays out. There are a lot of affluent people who, when you talk about other countries eating our lunch in manufacturing, they say, “Well, we need free trade. You have to have capital flow across borders. Otherwise, we won’t have prosperity.” Well, I wonder if they’ll still be saying the same thing when suddenly you have, for example, American radiologists competing with radiologists overseas. You’ve already got a bit of that. And there are any number of very highly paid jobs that could be performed offsite. And Alan Blinder, an economist at Princeton, he says that he actually thinks that slightly more of the offshore jobs of the future will be skilled rather than unskilled.

Correspondent: Wow. Well, in 1971, Lewis Powell wrote a memo: “The American economic system was under attack from Communists, New Leftists, and other revolutionaries,” as well as “perfectly respectable elements of society.” So this memo results in this tremendous flurry of pro-business lobbying from organizations and so forth. Various consumer-oriented laws are killed through this effective lobbying. And that was forty years ago. Now pro-business lobbying today is arguably more pronounced than then. You point out in the book the figure — that the Chamber of Commerce spent $132 million in 2010. As you point out, not a single labor union could be found among the top twenty lobbyists. So how then can any pro-labor organization make a serious dent with these particular states? I mean, what hope is there for a modern day Walter Reuther in this post-Taft-Hartley age?

Noah: Well, it is true that the corporate power in Washington has vastly increased. And it increased not just because of the Powell memo, but really throughout the late ’60s and the 1970s, you had corporations absolutely flipping out at the rise of the regulatory state and counter-culture politics and Ralph Nader. And one person I write about in the book a great deal is Bryce Harlow, who is best known as a White House aide in the Nixon White House, where he was kind of a good guy. He was trying to keep Nixon honest. Failed at that, but he was considered one of the few honorable men in the Nixon White House. That’s all true. But he had a separate role where he spent most of his career post-1960. And that was as the Procter & Gamble representative in Washington DC. In 1961, when he came to work for Procter & Gamble, there were just a handful of corporate representatives in Washington DC. And Harlow looked around and thought, “We need troops here.” And he started going around the country and evangelizing and giving speeches saying, “We need to build up corporate power in Washington.” And one of the things I really like about Harlow is that he didn’t mince words. He identified the enemy as a movement towards greater equality. Sometimes people say, “Well, what does the rise of corporate influence in Washington have to do with equality?” Well, Harlow himself made the connection. And he succeeded. And Lewis Powell wrote that memo in ’71. Succeeded. Over time, corporations were bestirred to increase their presence in Washignton. Increase their lobbying. And they get a lot more done actually through lobbying than they do through campaign contributions. And as a result, you saw a change in our politics. It hurt the consumer movement. And it hurt the general movement towards greater equality. So, yes, that makes the task a lot more difficult. But I don’t think there is a bigger, more important challenge to liberalism right now than to find a way to rebuild the labor movements somehow.

Correspondent: Do you have any ideas on this? Because it’s pretty decimated and gutted. As you point out, the Walmart situation is terrible.

Noah: Yes. In part of the book, I have a narrative about the attempt to unionize a Wal-Mart in Colorado. And the extent to which the deck is stacked against labor is not to be believed. It is literally true that nobody has ever managed to unionize a Wal-Mart, except for once when the meat cutters in some place in Texas managed to get themselves declared a bargaining unit. And they voted to unionize. And what do you know? About a week later, Wal-Mart said, “We’re not going to be cutting meat anymore. We’re just going to be selling prepackaged meat.” So it is very, very difficult. But there’s an interesting idea that’s been put forward by Richard Kahlenberg of the Century Foundation. Part of the underlying problem is simply a matter of law. I mean, laws favor management over unions. And the ultimate source of this is the 1947 Taft-Hartley law. Which was passed right before the peak of the union movement. But it acted as a slow-acting poison on the labor movement. So you need to roll back Taft-Hartley. And you need to revitalize the National Labor Relations Board. And Kahlenberg’s idea is: he says, “Look, nobody seems to really — it’s been multiple generations since anybody got really excited about workers’ rights. So rather than frame this as labor rights, why don’t we frame it as a civil right? Why don’t we pass a law saying that it is a civil right protected by the Civil Rights Act to organize a union?” It is actually illegal for a boss to fire somebody for trying to form a union. But the law is so weak that, as Kahlenberg says, it’s actually economically irrational for bosses to obey that law. But if you were to extend protection of the Civil Rights Act, then workers would be able to take their bosses to court and sue them. And that might change the equation. That might help.

Correspondent: I agree with you. But unfortunately, as we saw with the healthcare debate, framing anything as a civil right creates a protracted battle and constant gridlock and endless concessions. And as you pointed out with the Wal-Mart example, businesses are pretty much free to do whatever they want. If someone’s going ahead and being an irksome worker, well, we’ll go ahead and whack that part of our operations out. So is there any hope for labor when you have legislation against them and you also have this anything goes, unfettered approach from Wal-Mart and the like?

Noah: Sure. There’s always hope. There’s always hope. There was a time. If you go back to 1932, things were looking pretty bleak then too. And we got a government that was pro-labor And really the growth of labor unions was largely a result of the New Deal. So government could make it happen again. It’s very difficult in this environment, I will grant you. There is a huge amount of demonization of labor. I was talking with a liberal economics writer the other day. And he was saying, “The problem with labor unions is that labor unions in America, they have this culture that’s so adversarial.” And I said, “Culture? Culture? They’re down to 7% of the private sector workforce. You can have any culture you want. Because they’re going to be starting from scratch.” So I think there needs to be — as I say, it is the most difficult challenge. But I don’t think you’re going to see any substantial improvement towards equality without empowering workers. There’s just no reason for bosses to pay workers a lot of money if they don’t have to.

Correspondent: Do you think any movement that would actually amend some of these problems is not being adversarial enough? I mean, even Occupy Wall Street has to be careful. Because you have the police issuing all of these crazy regulations, as we saw with Federal Hall. And now you have competing statutes of how they can protest. The world’s most exclusive club at 25, as we saw. So the question is, well, they have to remain calm. Which is totally unprecedented if you look at our history. If you look at bombs going off in Wall Street decades before. So maybe the economics writer who you were talking to might, in fact, be right. That the problem is also cultural as well. Do you think that?

Noah: Well, you just need to be strategic about the proper methods to use. I think there are certain situations where an adversarial approach is called for. There are other situations where a cooperative approach is called for. One thing that distinguishes European — Western European — labor unions from American ones is they are more cooperative. They have a part of a three-part partnership between industry and labor and the government. Walter Reuther, who was I think maybe the greatest labor leader who ever lived, was the president of the United Auto Workers in the 1940s, the 1950s, and the 1960s. And he tried very hard to establish something like that European model here. And it’s fascinating. He was a brilliant man. And he was constantly proposing things to management that would actually help the company. He would say — for example, after World War II, he said, “My workers will sacrifice some pay because we need to worry about postwar inflation. They will sacrifice some pay. But they have to see that management will show some restraint too by not raising the price of cars.” And this was a time when auto sales were oligopolistic in the United States. It didn’t have a lot to do with supply and demand. So you could knock the price down of the car and still have plenty of profit. Reuther would say — there’s actually one instance — I can’t remember if it was that instance or another one — where he was actually told, “You know, Walter, that’s a really good idea. But because it’s your idea, we’re not going to do it.”

The Bat Segundo Show #458: Timothy Noah (Download MP3)

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The Bat Segundo Show: Ross Perlin

Ross Perlin appeared on The Bat Segundo Show #393. He is most recently the author of Intern Nation.

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Condition of Mr. Segundo: Wondering if he somebody signed him up for an unpaid internship.

Author: Ross Perlin

Subjects Discussed: Economic origins of the intern, Gary Becker and human capital theory, how economics contribute to intern culture, humane paid internships and varying definitions of “investment,” spending money to work for free, theological comparisons between internships and indentured servitude, free will and the virtual requirement of internship, Max Weber, the Fair Labor Standards Act, legal exemptions for trainees that permit unpaid internships to run rampant, Walling v. Portland Terminal, “employee” vs. “trainee,” the Department of Labor’s failure to enforce the FLSA, the loss of union and labor power in the last several decades, the six criteria for unpaid interns, why the internship phenomenon is largely white-collar, the many permutations of “perma,” college students who sacrifice considerable money but don’t get the college credit, education institutions who outsource oversight to corporations, the myth of academic credit in college interns, the assumption that college students know what they’re getting into, Lippold v. Duggal Color Projects (link to PDF), Lowery v. Klemm, sexual harassment of interns, discrimination and civil rights, interns forced to prove to the courts that they are legitimate employees before they can pursue grievances, power dynamics between interns and employers, the false sentiment that you can’t be a student and a worker, Marc Bousquet’s How the University Works, addressing correlation between increased wages and economic cycles, unpaid interns as the new temps, how short-term economic logic galvanizes present employment practice, middle-class hypocrisy as epitomized by Benjamin Kunkel, living wage movements, apprenticeships as both a legitimate alternative to internships and “the best kept secret,” the Fitzgerald Act, interns as the subject of cultural ridicule, the complicated class dynamics of internship, being privileged and exploited at the same time, interns and the working poor, the “winner take all” nature of the white-collar world, US vs. UK attitudes about interns, the difficulties of corroborating a secret world, and journalism as the first draft of history.

EXCERPT FROM SHOW:

Perlin: It’s really clear that interns are used to plug holes. They’re used to plug operational holes. They’re used when there’s a hiring freeze. Whenever the wall has been hit in terms of labor costs supposedly for the employer. So that much is clear. In terms of the businessman who says, “Well, economically I can’t pay these people. I can’t do this. I’ve got a business to run,” I would say that is short-term economic logic at best. And at worst, it’s kind of a dangerous move.

Correspondent: Well, elaborate on that. Short-term, dangerous — what do you mean by that?

Perlin: Short-term in the sense that, by every measure, paid internship programs are better than unpaid. And so cycling back to something we had mentioned earlier, taking the long-term view — investing in people, investing in interns, investing in your newest employees in general — is something that has been shown to pay great dividends. To make it more concrete, I mention one example in the book of an employer that saves substantial money through a paid internship program. Because they save on recruiting costs. It’s used as a talent pipeline. Their success metric — something like over 50% of their interns can be hired in full-time roles. They basically calculated that their costs, as opposed to just having to go out and recruit new full-time employees — would be lesser if they could bring people in as interns. Interns are always going to be lower paid than regular employees. The costs are not that great. I mean, if you’re just talking about minimum wage for interns, this is not something which is really going to affect the bottom line that much. I mean, in a huge number of companies, you can have 1,000 interns for the price of one executive. I mean, that is the kind of spread we’re looking at these days in terms of salaries. So a company like this sees the economic sense. They do hire people. So, of course, if you don’t hire people at all, then maybe this sense would break down. But there’s a huge difference between the company which just uses interns on a short-term basis — unpaid. They have access to a narrower applicant pool for their internships. They don’t have access to the widest array of talent. A number of people I talked to reported that when they were going from paid to unpaid, or unpaid to paid, the quality of the people you get changes a great deal. Because if you have a paid internship program, just about anybody can apply, relatively speaking. Also, if you advertise it transparently, if you put it out there kind of like a job more or less, you’re going to have access to a broad talented pool of people.

Correspondent: Well, I was going to say that just having a short-term viewpoint isn’t enough. I want to give you a very good example. It’s right on the cover of your book. You have Benjamin Kunkel. He is one of the editors of n+1. He’s blurbed this book and he’s called it “a fascinating and overdue exposé.” But n+1, they, by the way, have interns who are not paid, who are involved according to the n+1 website with “printing, distribution, publicity, subscriptions, web administration, transcription, carrying boxes, and bartending.” So, in other words, it doesn’t sound all that different from say the Disney College Program or even a government internship, which we haven’t even talked about. There’s even an alleged Twitter feed of the n+1 interns. And I’m not sure if it’s a joke or if it’s actually them. But if Kunkel can commend your book and call it a muckraking exposé, while simultaneously turning a blind eye to the fact that, well, he’s not going to be able to keep n+1 going without his interns, isn’t there a certain hypocrisy in this? I mean, if middle-class society uses and exploits interns, then what hope is there for changing people’s minds? Will they ever even see beyond the short-term? I mean, I agree with you that they probably should. But Kunkel, liberal-minded gent, look at what he’s doing.

Perlin: The publishing industry is one of the worst. It’s one of the worst offenders. The publisher of this book, Verso, has announced, making me very happy, that they have a well-paid, well-structured program. And I know they’re trying to spread that model in the world of independent, even left-wing publishing. But truly this has been an unpoliticized issue that it doesn’t rise to the level of consciousness. All kinds of people who see themselves as championing workers’ rights or who see themselves as liberal completely ignore this issue. Or they figure that all these interns are rich kids. So they can afford it. “It’s not a big deal if we don’t pay them.” Well, that’s an interesting statement. But, first of all, I would uphold the right of everybody to be paid for labor no matter what their background. And so I think to introduce a double standard is actually a dangerous idea. Even though people informally air that kind of opinion all the time. But, second of all, if indeed they are kids born with a silver spoon in their mouth, the question is: Why are those your interns? Well, because they’re the only ones who can afford to work for the non-pay that you’re offering. There probably are some smaller organizations getting off the ground that would have trouble surviving if they didn’t have interns. But in most cases, whether it’s a small liberal magazine in Brooklyn or a startup in the Midwest, whatever it is, they use interns to extend what they can do. To build up their capacity. To try and do more. They do it because they can. Because it’s there. And they haven’t questioned it. And one thing I’m hoping to do with the book is to politicize it such that anybody who wants to get up on soapboxes and say, “This or that is liberal. We should fight for workers. Protect workers and social mobility and social justice and talk about these kind of things,” will also look at their own workplace practices. But this is a much larger issue of people practicing what they preach, right?

Correspondent: Yes.

Perlin: In terms of work. In terms of labor. There’s so often a disconnect. Look at college campuses. Supposed hotbeds of liberalism. You walk into the lecture halls and you have Marxist professors elaborating on this or that. Until a few years ago, and this has only been in a limited kind of area, the people you had actually picking up the trash and keeping a campus running, cooking the food, etc., there was often very little connection between those big picture ideologies which are going on in the classroom and the treatment of those workers. The living wage movement on some campuses tried to rectify that and made a connection, but often you had people on those campuses theorizing about things that were happening in China or around the world, but not noticing the realities of work on their own campuses.

Correspondent: Well, interns — not only are they invisible to even the liberal-minded, but they also are something that people don’t want to see. I mean, you have people who are the working poor who are invisible. What is the solution to making them more visible? They are people too. They have debts they must pay. On the other hand, you also bring up apprenticeships in this book. But even electrician Don Davis tells you that apprenticeships remain the best kept secret. The interesting thing about apprenticeships is that they do pay an hourly wage. Some of them even provide healthcare, pension plans, day care, and the like. Is it really a matter of trying to make people more aware of something that’s secret? And if people in a business become more aware of something like apprenticeships, well, they may very well declare war upon them in the same way that they keep the concept of an intern invisible within their own folds. So do we start replacing internships with apprenticeships? Not necessarily just with books, but with people raising pitchforks in the streets?

Perlin: It’s amazing the extent to which apprenticeships — these are trade apprenticeships; blue-collar apprenticeships — are invisible to people who are not in that world, who are not in the trades. Especially in construction, which accounts for generally about 60%. 60% of all apprenticeships are engaged in construction overall. So unfortunately, yeah, if you raised more awareness about apprenticeships, it’s possible that there could be more of an attack on them. That there is legislation relating to it — the Fitzgerald Act, which established a registered apprenticeship program and standards that I see as a kind of model. Again, not incidentally, in the 1930s, as part of the golden age of labor legislation. I think that the reason apprenticeships have remained as they are is because these are generally heavily unionized fields where there are certain standards about what work should look like, what the humane experience is like, and because they work in a longer-term mentality. It’s something that’s been going on for seventy years. And from the employer’s point of view, a lot of employers welcome apprenticeships. And, in fact, the battle often is between the union and the employer over overuse of the apprentices by the employer. Because, even though apprentices are being well-paid and have a lot of benefits, as you say, relatively they’re still cheaper than using a post-apprentice union member worker. Which to me is indicative of the fact that internships would survive quite well, even if there was more regulation. Because again, interns will still represent quite a cheap reasonable solution for businesses to bring on new workers and to accomplish certain work. Even if they have to pay minimum wage, there will be quite a lot of scope for internships.

In terms of raising pitchforks in the street, I think apprenticeships are a real model for internships to look to. But it’s a huge hurdle to bring a blue-collar practice into the white-collar workforce in an era when the white-collar workforce is seen as the norm and the vanguard and setting the standard. It was shocking to me. And I think it’s shocking to a lot of people that here’s something that the blue-collar world is doing so much better. Training and bringing in young people and having a humane program. Invisibility? Yeah. I think there’s an invisibility about labor more generally. Interns are not invisible in the same way that apprentices or the working poor are. They’re featured in pop culture. Everybody sees them around. It’s known who’s the intern. They might wear a certain badge. Like in Washington DC, there’s a particular intern badge everybody knows on Capitol Hill. And people like to talk about interns. And it’s funny.

Correspondent: But they’re also the subject of ridicule.

Perlin: But often that visibility is that they’re kind of a laughing stock and that they’re figures of fun. But I think people do look at interns and they see middle-class kids. They see people who might become them, who they might work with later on. So there’s an atmosphere of civility. And there’s not the class distance often that there is with the working poor or with blue-collar workers, where there’s this feeling like, “Oh, that’s almost the other.” That’s a different somebody else. So that, in itself, represents an interesting problem. The class dynamics of internship are complicated for that reason.

Correspondent: But you’re dealing also with a certain dichotomy of perception. Wisconsin. People are really supporting the unions there. Interns? Not so much. Because of this idea: “Well, they knew what they were getting into.” It’s fascinating to me that there would actually be a strange inverted disparity with the unpaid white-collar worker versus the paid blue-collar worker. Or the paid social services worker. Do you think that’s part of the problem too? I mean, is there any way you can change that cultural perception? Especially since you have it supported not just by media reinforcement, but also by the fact that the U.S. government alone uses a lot of interns in various capacities. And it’s highly competitive. For the reasons we talked about earlier.

Perlin: Well, I think it’s hard to know what the degree of public support for interns is. In the UK, the public has been polled on the issue. And there’s a very strong feeling that interns should be paid. And a very strong majority feels that what goes on now is wrong. In the U.S., it’s hard to know. But I suspect you would still see most people thinking interns should be paid. But there are complex feelings. And I think that part of it is because there is, as you say, a strange dichotomy. Interns are both privileged and exploited at the same time. They’re privileged in the sense that they do have access to this experience that might put them over the top. That they can get into the white-collar workforce. They’re not in as bad a situation, arguably, as people who simply cannot pay to play and will never break into the white-collar workforce.

(Image: “The New Interns” by Nik Wilets)

The Bat Segundo Show #393: Ross Perlin (Download MP3)

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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.

The History of Verizon, Part One (April to August 2000)

[EDITOR’S NOTE: This is an experiment to see how blogging might be used to make sense of a rather enormous series of events. In an effort to understand why Verizon (formerly Bell Atlantic) became such a dominant force in the telecommunications industry, I am initiating the first in an open-ended series of inquiries that will be relying upon newspaper articles, public records, interviews, and any additional information I can get my hands on. My first step is to assemble a timeline with the available information. From here, I will then begin interviewing related parties to put these facts into perspective. I will be updating all of the posts as new information comes in. Please feel free to contribute any additional thoughts or leads in the comments section.]

[Subsequent installments: Part Two (August 2000). Part Three, which covers the months of September and October 2000, can be found here.]

In April 2000, Bell Atlantic was working out the details of a merger with GTE it had initiated the previous year. The deal was nearly done, awaiting FCC approval. But Bell Atlantic’s wireless communication unit needed a new name. Bell Atlantic’s wireless unit was in the process of merging with the wireless division of Vodafone AirTouch.

Bell Atlantic had been formed in 1983. It was one of seven Baby Bells that had been formed in the aftermath of an antitrust suit filed against AT&T by the Department of Justice. Seventeen years later, with the Bell Atlantic-GTE merger set to make the new entity the largest local telephone carrier in the nation, Bell brass believed that the Bell brand was too old school, too dowdy, to fit in with the then contemporary emphasis on cutting-edge technology.

“‘We believe that we need to separate ourselves on a going-forward basis from the tradition and the limited perspective that a Bell name assigns to us,” said Bell Atlantic executive Bruce S. Gordon at the time.

The new name was Verizon, a clever case of lexical blending between “veritas” and “horizon” that was to find its way in only a few short years onto millions of cell phones, the logo attached to the apices of many skyscrapers.

Bell Atlantic had been perfecting an ambitious advertising campaign over several months that hoped to convert both Bell Atlantic wireless customers and Vodafone customers over to the new Verizon brand. Bell had employed the services of the Bozell Group, part of True North Communications. Bozell was best known at the time for its milk moustache campaign, which had featured pop culture figures such as Austin Powers and Lisa Simpson smiling with a thin strip of milk just above their upper lip. (When True North purchased Bozell in 1997, the deal made True North the sixth largest advertising company in the world. Bozell had rejected an offer from Omnicom, but True North had pledged to respect Bozell’s autonomy. This purported autonomy, however, proved incompatible with economic realities. In 2001, Bozell laid off 6% of its staff and “restructured” the creative department.)

The early Verizon logo featured the “V” sign in red, an attempt to mimic the Nike swoosh symbol. Was it an accident that both Vodafone and Verizon began with a V? According to New York Times reporters Stuart Elliott and Seth Schiesel, one person close to the campaign revealed that it was not.

By June, Lucent Technologies was named the primary equipment supplier to Verizon Wireless. Its stock jumped up from 3 1/4 to 59 7/8 a share on June 15, 2000. According to a letter of intent issued by Lucent, Lucent would provide network equipment to Verizon. And this relationship would then help Verizon to expand from the wireless business to high-speed Internet services, among other telecommunications possibilities. Verizon hoped that the Internet access might be one way to encourage customers to use their phones more frequently.

Two days later, on June 17, 2000, the FCC approved the Bell Atlantic-GTE merger, with the proviso that GTE would agree to spin off its Internet backbone operations. Verizon became the nation’s largest local telephony company.

Numerous documents about the merger, including the FCC’s specified conditions, can be located here. In his statement issued after FCC approval, FCC Chairman William E. Kennard noted, “By requiring that the Internet backbone asset be spun-off and through the other merger conditions, we have preserved the fundamental incentive structure of the Act, sought to stimulate competition, and to promote more and better service offerings for consumers. For these reasons, I support this merger.” In light of recent Verizon developments that have called these “more and better service offerings” into question and Verizon’s current presence on the Internet (to say nothing about the way in which Verizon skirted around the GTE condition, described below), and notwithstanding Kennard’s competitive position as a member of the Board of Directors at Sprint Nextel, one wonders whether Kennard would still support this merger. I hope to contact Kennard and see if he might offer an answer.

However, it’s worth observing that Kennard joined the Carlyle Group as a managing director shortly after resigning from the FCC in February 2001. Carlyle purchased Verizon Hawaii for $1.65 billion. On May 22, 2004, Kennard was quoted by the Honolulu Star-Bulletin about this deal: “A big part of our plan is to return Verizon Hawaii to its roots as a local phone company, empowering local management. It’s sort of a version of ‘Back to the Future,’ if you will.” Whether this flippant comparison to a Hollywood blockbuster movie was intended to insult the journalist who posed the question is unknown. But the purchase did earn the endorsement of Verizon’s union, even if competitors and Hawaiian locals expressed dismay with the Carlyle Group’s inexperience and connections with high-level political contacts. By 2007, however, Hawaiian Telecom (the new name of the company) had experienced serious problems when BearingPoint, Inc. — the consulting firm hoping to overhaul Verizon’s systems — couldn’t make it work and was ousted in favor of Accenture, Ltd. — best known for its role in Enron. If this was a case of Back to the Future, perhaps Kennard was more accurate than he realized. Relying on outside consulting firms seemed decidedly against Kennard’s promise to “empower local management.” And indeed, earlier this year, Hawaiian Telecom’s CEO was ousted in favor of interim CEO Stephen Cooper (Kenneth Lay’s replacement), more than 100 positions were axed, and Hawaiian Telecom was still pursuing a decidedly nonlocal restructuring plan to recover from its problems.

Whatever Kennard’s current feelings are for Verizon, one thing is beyond dispute. The FCC’s approval of the Bell Atlantic-GTE merger made Verizon the 2nd largest telecom company (after AT&T), permitted it to become the nation’s largest wireless operation, and made it a local telephone juggernaut. Verizon now had 63 million landlines across the country. In its first day of trading, Verizon’s stock rose $4.625 to $55 a share.

On July 4, 2000, the New York Times reported that Verizon was trying to sell off its GTE cable systems in Florida, California, and Hawaii. And to get new customers hooked, Verizon cut the prices of DSL by 20% in some parts of the United States. So while the GTE cable backbone was, per the FCC condition, technically being cut off, Verizon managed to augment its Internet services through the phone lines. Verizon, in other words, was merely swapping one type of broadband services for another. (And, indeed, that same month, the New York Times‘s Seth Schiesel would report that Verizon hoped retake ownership of Genuity, the cable network in question, in a few years.)

But it wasn’t enough for Verizon to use its legerdemain to flaunt the deal of the Bell Atlantic-GTE deal. Verizon’s legal team also felt compelled to rail against the FCC. On August 21, 2000, William Barr, the top attorney for Verizon and a man who had served as the 77th Attorney General under President George H.W. Bush, fulminated against the FCC at the Progress & Freedom Foundation’s Aspen Summit 2000 conference. In a panel titled “Perspectives on the Future of Telecom Regulation,” Barr took issue with the language of the 1996 Telecommunications Act: specifically, the manner in which the Bells were instructed to charge competitors at affordable prices in order to use their networks and discourage monopolization.

“Rather than letting the market drive competition,” said Barr, “[the] FCC has issued a host of rules to try to manage that competition and, in doing so, they have preserved a siloed approach.” This “siloed approach” also extended to the FCC’s organization itself, which was divided into separate divisions devoted to wirelsss, broadband, and telecommunications. “This comes at direct expense of intermodal communications, and it is disfiguring the telecom landscape as it evolves into the Internet landscape.”

(Eighteen months later, Barr would get his wish. At the beginning of 2002, the FCC began a campaign to reorganize its bureau. A Wireline Competition Bureau was established, containing the vestiges of the Common Carrier Bureau. In March, additional structural changes were made. The impact of these internal structural changes at the FCC, as they pertain to Verizon and the telecommunications industry, will be revisited in a future installment.)

Meanwhile, with AT&T facing both the burgeoning success of Verizon, as well as SBC Communications’s entry into the long-distance business in Texas, AT&T chairman C. Michael Armstrong was starting to get nervous. The man who had made IBM shine was now fighting for his life, working 18 hours a day, trying to figure out a way to combat flagging revenue. But what Armstrong didn’t know was that long distance plans were about to change in a very big way.

But Armstrong wasn’t going down without a fight. In July 2000, AT&T filed a federal complaint charging that Verizon was steering its customers illegally to its own long-distance service. AT&T charged that Verizon had failed to offer new phone customers a listing of long distance providers, as required by law.

Adding insult to injury on the long distance front, on July 18, 2000, a Federal appeals court ruled in a case that has serious consequences for AT&T and granted Bell Atlantic a great victory. The court, overturning rules established by the FCC, ruled that outside long distance companies (such as AT&T) using copper lines owned by a local telephone company (such as Bell Atlantic) would have to pay an increased fee to the local telephone companies. Thus, with Verizon offering long distance service through its “local” landlines, it could evade the fees. But AT&T customers would have to pay.

Verizon was also looking to wireless data as a source of revenue. The company had observed the success of Sprint PCS’s Wireless Web, which had been in place since November 1999. (And while Sprint was then the wireless web leader, its wireless network ranked fourth behind Verizon, SBC, and AT&T Wireless. It did not help Sprint any when it was forced the next month to abandon its attempted $115 billion merger with WorldCom.) But how could Verizon get customers to pay a monthly fee of $7 to $10, along with a per-minute fee through wireless data? Web access? With the telecoms engaged in aggressive price wars, they were looking to any possible form of additional income to obtain some leverage. And the then snail-paced wireless web access was having difficulties catching on with consumers. The wireless data revenue would come later through an unexpected source that nobody had anticipated: text messaging. But this was still sometime away.

There was some concern over the relationship between third-party vendors offering products to Verizon and Verizon’s dominance in the telecom industry. In July 2000, the New York Times reported that Audiovox, a mobile handset provider, was selling 80% of its handsets to Verizon. “When you have one customer that controls 80 percent of your revenue, they’re basically telling you what to price it at,” said a portfolio manager who had sold 50,000 of her 300,000 Audiovox shares. Sure enough, this portfolio manager’s predictions proved true. In February 2004, Audiovox sold off its cell phone division to Curitel, a Korean manufacturer. Was Verizon’s advantage here one of the motivating factors that caused Audiovox to sell? It’s worth noting that Toshiba had a 25% ownership of Toshiba. One clue into the internecine struggle might be divined by this press release. David Kerr, Vice President of the Strategy Analytics Global Wireless practice, was quoted as follows:

Toshiba wished to be free to exploit its own strong brand with flow-through impacts from its high performance notebooks and other electronics product portfolio. Now, Toshiba is faced with bowing to the wishes of a threatening competitor targeting the same segment Toshiba has traditionally targeted. Toshiba, a minority interest holder at Audiovox, is likely to lose its opportunity for garnering a meaningful share of the 19 million units flowing through to end users at Verizon Wireless.

While Verizon expanded and earned more profits, its workforce was becoming increasingly unhappy. On July 28, 2000, the Communications Workers of America authorized its leaders to call a strike at 12:01 AM on August 6, if Verizon would not meet its demands.

With both Verizon and the unions unable to settle upon a new contract, telephone operators and line technicians walked off the job. Two unions — the CWA and the International Brotherhood of America — represented 33% of Verizon’s workforce. (The CWA represented 72,500 Verizon workers.) One of the major stumbling blocks for this strike involved the employees at Verizon Wireless, the majority of whom did not have union representation. The CWA’s Jeff Miller pointed out at the time that there was a staggering pay difference between a union-covered customer service representative (topping out at a $44,000 annual salary) and a non-union CSR ($33,000). There were also concerns by the unions about undue stress placed upon CSRs. The workers weren’t getting adequate breaks and were often working forced overtime. And the nonunion workers were paying out of pocket for their health plans. In the days before the strike, Verizon took steps to prevent pro-union literature from being distributed at call centers and further asked which of its workers supported the unions. Like the treatment that Verizon would extend to its customers, Verizon was insisting on a five-year contract instead of a short-term contract accounting for the rapid changes in the telecom industry.

Of course, just as it had eluded the FCC, Verizon also had a plan in place to deal with its workers that would eventually involve outsourcing its labor to India. And the exact way in which Verizon overhauled its workforce will be taken up in future installments of this series.

The Bat Segundo Show: Steven Greenhouse

Steven Greenhouse appeared on The Bat Segundo Show #213. He is the New York Times labor reporter and the author of The Big Squeeze. My review of the book can be found here.

Condition of the Show: Reporting upon the darker truths of America.

Author: Steven Greenhouse

Subjects Discussed: Whether economic factors of the 1970s or Eleanor Roosevelt’s famous maxim caused the current strife between corporations and workers, the social contract that came from 20th century labor negotiations, why workers settle for less, temps exploited by HP, being treated like dirt, mock memos circulated to cope with downsizing, The Office, why workers aren’t revolting, Bowling Alone, The Pursuit of Loneliness, how what we do for fun has transformed in the past few decades, the worker-friendly company policies of Patagonia, prodigious cafeteria options for workers, the shocking disparity of parental leave policies in different nations, tracking the lunch hours of workers, computers vs. martinet managers, call center workers, workers who slack off vs. a robust economy, Cooperative Home Care Associates and the benefits of workers on the board of directors, independent contractors, job security, the New York Times hiring freeze, Neutron Jack Welch, The Disposable American, companies who display “too much loyalty” to workers, workers who “get used to” hard and immoral company tactics, climbing the Wal-Mart ladder, the workplace as a cult, unrealistic American dreams, billable hours, the allure of promotion, Greenhouse’s proposed solutions, and a living minimum wage.

EXCERPT FROM SHOW:

Correspondent: Look at Jennifer Miller, who is this woman who worked at HP for ten years. She didn’t have to work as a temp for that long. She could have easily cut out. She could have gone and demanded more from the HP managers. So I would argue that the workers who have allowed themselves to be placed in these particular conditions are perhaps just as responsible as these businesses and these corporations that are trying to squeeze out more profits and also trying to combat the influx of low-cost imports.

Greenhouse: Again, Ed, you ask a good question, and it’s hard to say. Jennifer Miller was a worker at HP. High school graduate. Very little college. She started as a McDonald’s worker. She became a McDonald’s manager. She got tired of that. Then she got a permanent job at HP. That job was sent overseas. So she was kind of bought out. Then a few months later, she was approached. “How would you like to return to HP as a temp?” She thought it was going to be a two-month gig. And as I explained in the book, she was there for ten years as a temp. She said that the job was good. It used a lot of advanced skills. She was often treated with respect, but she said the bad thing was she was a temp and didn’t get the same benefits as HP workers. She didn’t quite get the respect. So you ask why didn’t she quit?

Correspondent: And I should point out that she was even barred from the company parties. I mean, this is a key indicator. In my view, I would say, “Well to hell with this. I’m going to find someone who I can be on staff with.”

Greenhouse: It wasn’t just she. But all temps were barred from the company — you know, they might create a wonderful new piece of software, created a wonderful printer, and all the regular permanent employees could go to the party and celebrate and go for the two-day ski holiday to celebrate. But the temps who work alongside the regular workers in a crazy situation, they weren’t invited to the parties. So yeah, for someone like Jennifer, there was some eating humble pie there. So the question is why didn’t she quit? She said, “For me, Jennifer Miller, a mere high-school graduate living in Idaho, that was a terrific job. I was making $30 an hour. I was really using my brain. I was often working alongside terrific people. Sort of semi, somewhat treated as an equal. But on the other hand, no.” And she said, considering what else was out there, going back to McDonald’s working as a manager, which isn’t such a bad job, but she said working at HP as a temp was better. Her argument was HP was good in many ways, but there was this one big negative. That she was treated as a temp.

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