Category / Business

by Edward Champion

Loud Men Talking at a Starbucks Boiler Room Table

This invaluable field report of loud men talking at a Starbucks boiler room table will help you determine whether the men talking loudly in your cafe are on the same page.

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

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

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

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

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

“Let me do my damn job!”

“I want you to do your damn job.”

“I have to do my damn job!”

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

“Yeah.”

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

“Not like us.”

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

“Right.”

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

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

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

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

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

“Listen. 2:00.”

“I don’t care. I’ll come home at 7.”

“Doesn’t matter.”

“We’re getting snowed in.”

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

“Is that okay with everybody?”

“Okay. 8:30 we meet, 4:30 we eat.”

“Nice rhyme.”

“Thanks.”

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

“Not March.”

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

“The Brooklyn Initiative.”

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

“They get compensated?”

“In forty or so accounts.”

“We have the list.”

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

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

“Swinging.”

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

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

“Right.”

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

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

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

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

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

“An extra pair of eyes never hurts.”

by Edward Champion

The Bat Segundo Show: Maggie Anderson

In this one hour radio interview, we talk with Maggie Anderson, author of Our Black Year, about income disparity, black unemployment, supporting African-American businesses, gentrification, and the overlap between buying indie and buying black.

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

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

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

Author: Maggie Anderson

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

EXCERPT FROM SHOW:

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

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

Correspondent: Yes.

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

Correspondent: Yeah.

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

Correspondent: Oh no.

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

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

Anderson: Yes! Yes!

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

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

Correspondent: Yes.

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

Correspondent: Yes.

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

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

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

Correspondent: Getting back at Charlie. (laughs)

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

Correspondent: Yes.

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

Correspondent: Sure.

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

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

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

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

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

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

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

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by Edward Champion

Offices Within Offices

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

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

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

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

by Edward Champion

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

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

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

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

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

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

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

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

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

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

vendorfinance

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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