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.

Mothlight and the WGA Strike

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America’s troubled soul snaked around two building corners on a late Monday afternoon. It read books. It offered quizzical pikers when WGA strikers handed out pink papers containing the phone numbers and emails of eight Viacom head honchos. It took pictures of the fourteen placard-holders as if on holiday. But there were no visible signs that it was registering the hypocrisy of standing in line for a show that was allegedly progressive (and pro-union) in tone as strikers quietly expressed their rights with signs. Maybe the strikers were performance artists or buskers who had escaped the subway. I kept vigorous watch, hoping that a few audience members would feel disgusted and walk away, only to be readily replaced by those in the standby line. But they held onto their tickets like hard-won candy.

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The eager audiences waiting to see Jon Stewart and Stephen Colbert lob a few unscripted bons mot about the state of politics remained uninvolved. They were there to be entertained. A bald man in his early forties disseminated circulars. He told me that the strike had been a success.

“Is it?” I asked. “These people are still standing in line.”

He didn’t give me his name and he declined to be interviewed at length. But we did talk for a few minutes.

I was interested in this man, because I had seen him trying to quietly persuade people in the Daily Show standby line, who appeared to take these flyers more readily than those who had tickets. One young man told him, “If we’re close in any way to the front, we’ll do what we can.” “Do what we can.” It essentially amounts to nothing.

To be fair, The Daily Show admitted its audiences at the pre-determined time, permitting its audience to see the WGA strike. The Colbert Report, by contrast, shuttled in their audiences well before the 5:00 PM start time so that the strikers would not be seen or, at least, endured as infrequently as possible. “What a mess!” proclaimed a plump woman standing protectively near the Colbert Report doors. She complained that there had been no progress in two months. The strikers were gnats to be swatted away on a wintry day.

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With the exception of a funny interviewer from Associated Press TV who quipped to one Colbert Report audience member, “Enjoy the show,” shortly after challenging his need to be entertained, the media was, for the most part, out to lunch. A New York Post reporter spent most of her time talking on the phone. “Sorry, I’m so spacey!” she said as she talked with WGAe President Michael Winship. The outlets who came included CNN, NY1, and me — if I am indeed an outlet.

“It’s only ten after four?” bitched one reporter. “I thought I’d been here for a day. Jesus.”

He had arrived only fifteen minutes before.

I was extremely saddened to see that nobody waiting in line really cared. There was no reaction from these audience members. No acts of dissent. The pink flyers were folded inside newspapers, deposited on the sidewalk like stray trash. Just as American audiences had chosen Leno over Letterman, despite Letterman busting his hump to cut a separate agreement with the Guild, the audience here opted for entertainment over integrity.

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The strikers silently holding up placards circled up and down the queue, appearing to be mostly comprised of WGA members from other productions. (One writer I talked to was from All My Children. There’s a podcast interview below.) If there was a Daily Show writer in the bunch, the writer did not announce himself. I asked a few strikers if there was anyone here from The Daily Show and they told me they did not know. One gentleman declined to answer. Perhaps answering involved a confession of failure.

Since the bald flyer man refused an interview with me, I approached the WGAe publicist Sherry Goldman, asking if I could interview her. She wouldn’t talk to me on tape, snapped at me, and turned briskly away to answer her cell. I had seen her talking in front of a camera. I approached her again and said, “Excuse me. You’ll talk to CNN, but you won’t talk with me?” She then very kindly led me to WGAe President Michael Winship. I also talked with All My Children writer Kate Hall. You can listen to the podcasts below.

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Winship: And let me say that all of these guys have been very supportive of the strike thus far and that we are not protesting them as people. They’ve been great. They’ve been supportive of the strike. They’ve been supportive of their writing staffs. But their companies — the big companies, the media conglomerates, the penny-pinching producers if you will — will not allow them back on the air because they won’t bargain a fair and respectful contract.

Correspondent: Now do you consider Jon Stewart and Stephen Colbert to be hyphenates. Are they actually, by going back to work, kind of going against the nature of the strike here?

Winship: Jon Stewart and Stephen Colbert are both members of the Writers Guild of America. They have both been given copies of the strike rules. They know the kinds of work that they’re not allowed to do. And they know that there are penalties that can take place if they, in fact, perform what we consider struck work.

Correspondent: But if The Daily Show were to show a clip in advance, if they were to design it in advance and have Jon Stewart comment on it, would that constitute an act of writing in your eyes or…?

Winship: If Jon is spontaneously ad-libbing and responding to a clip that’s on the air, we don’t consider that struck work.

Correspondent: What would you consider out of the boundaries of what he can do today?

Winship: Well, in terms of things that he can and cannot do, one of the things that he could not do is to write a monologue in advance or go on the air with material that appear on cue cards or a teleprompter.

Correspondent: Yeah. Gotcha. But anything else pretty much? Ad-libbing, he’s fine then.

Winship: Well, the rules are pretty specific about things that he can and cannot do. He cannot write questions in advance for interviews, for example. He cannot write the monologues, as I said. He cannot write any kind of sketch material for the show.

Correspondent: But let’s say that there’s a guest who appears, who has like a book or something like that. He’s going to have to read it in advance. Does that constitute writing or preparation?

Winship: I don’t think reading constitutes writing. If he was writing down his questions in advance and so forth, that would struck work. But if he has a guest on the air whose book he has read and he asks questions off the top of his head, that is not struck work.

I was fascinated by Winship’s criteria about what “writing” entails. One cannot prepare a show entirely in one’s head. There must be the need to write words down. And nearly all of Jon Stewart’s clips feature those trusty blue pieces of paper. Or are these sheets mere props?

As it turned out, the January 7, 2008 episode of The Daily Show did indeed have a guest: conflict resolution specialist Ronald Seeber, presumably a friendly nod to the WGA strike. But did Stewart take notes before this interview? Did Stewart prepare his questions in advance? And if he did, is there any real way for the WGA to enforce this?

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It’s also important to observe the distinction put forth by WGA. In the WGA’s eyes, Jon Stewart is not the enemy. Viacom is.

From my interview with Kate Hall:

Hall: We’re not striking The Daily Show or Jon Stewart. I think everybody here for the most part — I can’t speak for them, but I would imagine that they’re all big fans of his and the show. So we support him. We just won’t support Viacom’s decision to put him back on the air without the writers.

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But if the WGA wasn’t striking The Daily Show, what were they doing in front of The Daily Show building? Is not Viacom providing the resources to run The Daily Show? And is not Jon Stewart, in going back to work, complicit in allowing Viacom to continue running The Daily Show? It seems to me that he gets off on a technicality.

But let’s take a look at the strike rules, as Mr. Winship suggested.

Since Jon Stewart and Stephen Colbert are hyphenates, Rule 12 applies to them:

The Guild strongly believes that no member should cross a WGA picket line or enter the premises of a struck company for any purpose. Under applicable law, however, the Guild may not discipline a hyphenate for performing non-writing services. This legal restriction only extends to services that are clearly not writing services. (Emphasis in original.)

If Stewart or Colbert write so much as one word on a sheet of paper, either before the show, during the show, or after the show, then they are in violation of the agreement.

It is impossible to imagine either The Daily Show or The Colbert Report succeeding in any way without writers or a scrap of paper.

However things ended up, the moths were there, attracted to the light. Unconcerned with who provided the electricity.

(Many thanks to Sarah Weinman for assisting in this report.)