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Will This Strike Take a Bite Out of AT&T's Dividends?

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Unionized field workers for Verizon (NYSE: VZ  ) went on strike a year ago -- almost to the day. About 45,000 engineers, salespeople, and technicians threw down their tools to ask for a better contract. The walkout ended two weeks later, even though no accord had been reached at that point. The union basically backed down, and negotiations for a new contract continue to this day.

And now it's AT&T's (NYSE: T  ) turn to feel the sting of a strike.

Twenty-two thousand of Ma Bell's workers in Nevada, Connecticut, and California have walked out due to stalled contract negotiations -- much like the Verizon impasse. The company may have forestalled a much larger action by offering a deal with "modest" wage and pension boosts across nine other states, though union representatives have yet to sign that agreement.

AT&T wants to cut costs in the waning wireline business in order to focus with all its might on the more profitable wireless segment, but the unions say that the cost-cutting is going too far. Again, these concerns should ring true to both sides of the Verizon conflict as well. Given the unresolved nature of the Verizon talks, this work stoppage could trigger union action against Verizon, too.

If you wonder where Sprint Nextel (NYSE: S  ) stands in this mess, the answer is simple. After a crisis that nearly led to massive strikes in 2003, the company basically swore off union workers. Verizon and AT&T acknowledge their strained union relations in SEC filings. In contrast to this, Sprint's "employee relations" section of the latest 10-K filing boils down to a curt, "As of December 31, 2011, we employed approximately 40,000 personnel." Denying union contracts at all sure is one way to avoid contentious negotiations.

For the record, CenturyLink (NYSE: CTL  ) signed fresh union deals in order to secure approval for its merger with Qwest Communications, which should avert strikes and contract protests for the next few years. Frontier Communications (NYSE: FTR  ) is currently negotiating new contracts and has come under union fire for rank-and-file cost-cutting while executive salaries are soaring. You just never know when that tension might boil over into organized action.

Telecom investors must keep a finger on the pulse of labor relations. Strikes can be costly, and so can the concessions the companies might need to make in order to get their staff back to work. If you follow the industry on a global level, you might have noticed that European telecoms are slashing their dividends partly to make up for rising labor costs. Verizon and AT&T may need to do the same in the long run. Even the most solid of dividend policies isn't necessarily safe when the unions come a-knocking.

Speaking of dividend cuts, we've prepared a detailed premium report on Frontier Communications, which has sliced its payout twice in recent years. Brush up on the complex interplay of risks, growth opportunities, and changing business environments ahead of the rural communications specialist. Click here to get started, then enjoy a full year of Foolish updates.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (1) | Recommend This Article (4)

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  • Report this Comment On August 08, 2012, at 8:41 PM, skeptic94 wrote:

    With the stock price at 52 week highs, the authorised buy back to raise stock price and trigger exec bonus levels is a poor way to protect shareholder interests. This money would be better spent generating employee goodwill and/or increasing dividends,

    ATT Stockholder

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