1 CWA Wireless Workers Conference November 2016, San Antonio, TXWireless Industry Overview: The Impact of Competition and Financialization on Wireless Workers CWA Wireless Workers Conference November 2016, San Antonio, TX The wireless industry is a complex, constantly evolving industry. It is part of the overall telecommunications industry that includes landline telephone, cable TV and internet services. It involves device makers, network operators, retailers, equipment suppliers, and app and content developers and distributors. Today we want to highlight just a few aspects of the forces shaping the industry. First we’ll talk about the two major sectors within the industry – the content sector and the network carriers. These are the two most dynamic and lucrative sectors of the industry. Next, we’ll talk about the nature of competition among the major network carriers. Then, we’ll talk about financialization – about how some stakeholders in the industry are rewarded handsomely – CEOs and shareholders – while others – workers -- are not getting their fair share of the success of these companies. Finally, we’ll talk about a plan for workers in the wireless industry.

2 The Wireless Communications Industry is DynamicWireless coverage approaching 100%. Majority of households soon to be wireless-only Market penetration at 116% of subscribers Data is taking off! Today wireless coverage is approaching 100% of the U.S. population. – 99.5% of the population has access to at least one mobile service provider. 89% has access to at least 4 providers. AT&T Mobility reaches 99 % of the U.S. population, Verizon Wireless reaches 97%, T-Mobile reaches 94% and Sprint reaches 92% Wireless is so omnipresent that last year 48% of all households went without a landline. It is expected that very soon – in the next couple of years -- the majority of households will be wireless only. Wireless suits the needs of consumers today. We want connectivity and mobility – we want the ability to access information and entertainment and basic communications wherever we are at any moment. And many of us are connected in a variety of ways – mobile phone, tablet, laptop, desktop, wearables. There were 378 million wireless devices in use in the US in With all this connectivity, market penetration is at 116%, meaning many subscribers have more than one device or account. And, with all this connectivity, there was an 11-fold increase in wireless data traffic over the past five years, from 867 billion megabytes to 9.6 trillion megabytes of data traffic. Think of everything you do with your mobile device: (ASK THE AUDIENCE) -- text, send s, take and send photos, search on the internet, make payments, get directions, and stream music, stream video. And our use of data is growing exponentially. Experts estimate that data usage will increase from 9.6 trillion megabytes of data used in 2015 to more than 77 Trillion Megabytes in 2020.

3 Content Companies & Network Carriers in the Wireless Industry: A Virtuous CircleGoogle, Netflix, Facebook, etc. AT&T, Verizon, T-Mobile, Sprint Content: Web Sites Social Media Music Video VOIP Games Smart Car Smart Home Infrastructure: Cell sites Spectrum Satellites Fiber Copper Network Though the wireless industry is multi-faceted, it is really driven by a synergy between content companies and network companies. These two sectors generate the traffic and control the flow of traffic. Basic voice, text, , video and internet access, form the baseline of wireless communications, and can be provided by either network or content carriers. On the right, we show the network carriers. The major network carriers are AT&T, Verizon, T-Mobile and Sprint. These companies build and maintain the network, the infrastructure that allows information to flow over the airwaves and all of them provide the basic communications services. Together these four companies carry services to 98% of all wireless customers. The 4G network currently in place uses spectrum and antennas or cell sites to deliver digital signals from a wireless device, to another device or to a landline device or to a website. The network also relies on a mixture of fiber, copper, and satellites to provide the coverage, capacity and speed needed to connect customers and their devices to the information they are seeking. On the left, we show the content companies – including Facebook, Google, Netflix but hundreds of others. These companies have developed applications of all sorts – applications that deliver information or entertainment, or provide a service. It can be voice – think Skype. Social media, like Facebook or Twitter. Music like Pandora. Video like Netflix or Hulu. Games, like you name it. Your device can send signals over the wireless network to turn on your house lights for you or lock your car doors. And, the content companies are constantly developing new applications that push networks to expand speed and capacity. These two segments of the industry also compete for the profits available within the industry. The fight is this – the content companies push the network companies to improve the network speed and capacity but they balk at having to pay for using the networks. They create consumer demand. But they don’t want to pass on any additional costs of building and maintaining the networks to their customers. The debate over net neutrality was in large part about this – who should pay for the build out, maintenance and upgrade of the of the network. Both the network and the content companies generate revenue by charging subscribers fees for usage. The content companies also generate revenue through advertising. In fact, because of ad-supported apps and other content, the financial burden of paying for content and the services provided by the apps has shifted from subscribers or users to advertisers. In the third quarter alone this year, Google reported $19.8 billion in ad revenue. The CFO said mobile search and video are powering Google’s advertising business. Remember, Google owns YouTube. Earlier this month Facebook reported $7 billion in revenue for the third quarter % of that came from advertising. By the way, Facebook has about 1.2 billion active daily users, 1.1 billion of whom access Facebook through the wireless network. So these companies are making major money riding on the pipes built by the network companies – our employers – but they don’t want to help pay for the pipes. Content Services: Voice, Text, , Internet Access

4 The Companies Who Build and Service the NetworksNew Entrants: Google Cable Cos. Wired + Wireless Pure Wireless AT&T Verizon T-Mobile Sprint The four major network carriers are either pure wireless companies or wired and wireless combined. The parent companies of AT&T Mobility and Verizon Wireless are landline telephone companies. These parent companies control the fiber and copper that runs between cells and to homes. Profits generated by the legacy landline companies have helped to build their wireless subsidiaries. T-Mobile and Sprint are pure wireless companies. At least in the U.S. Both are controlled by foreign telecommunications companies. Deutsche Telekom, the German telecommunications giant, owns 65% of T-Mobile. Softbank, a Japanese telecommunications company with wide holdings, owns 80% of Sprint. T-Mobile and Sprint provide only wireless service in the U.S. And, at least in the case of T-Mobile, a portion of profits generated in the U.S. are sent back to the parent company. That gray cloud on the horizon represents a big concern to the big 4 wireless carriers – the entry of Google and Comcast into the wireless market. Google has been impatient at the pace of development of high speed broadband, and so it is expanding its role in the communications market in big ways. It has already laid fiber in some places – Kansas City, Austin and a host of other cities – but it appears to be halting or slowing down its fiber expansion, finding the building of a network to be very expensive and time consuming. Recently, Google acquired Webpass, a wireless internet service provider. With this acquisition, Google is developing a hybrid fiber and wireless approach. Google will take this approach to San Francisco, San Diego, Miami, Chicago and Boston. Comcast is leasing bandwidth on the Verizon network and will begin offering its own wireless service in mid So far, it has disclaimed interest in buying a pure wireless company. That may change. But the popularity of Google and the ability of Comcast to offer an attractive, competitive bundle are threats to all the network carriers. One analyst believes that AT&T and Verizon could lose 10% of their wireless customers to cable companies by 2018.

5 Networks Require Greater Investment than Apps & Social MediaThe wireless industry is capital intensive, requiring huge investments to keep up with demand. In the chart here, you can see the difference in levels of capital investment between the four wireless companies on the left and some of the content companies on the right. In 2015, AT&T posted $8.9 billion in cap ex, while Verizon posted $11.7 billion. The two larger companies invested about twice what the two smaller companies invested in that year. Looking to the right side of the chart, we see that, except for Google, the content companies posted less than half of what any of the network companies invested. Wireless has high recurring capital investments due to the constant upgrades required to constantly upgrade the network to accommodate increased use – users, devices, applications. And, network carriers are now preparing for the next generation of broadband -- 5G – which will require further investments. 5G is expected to rollout in 2020, though some trials are underway now. 5G will provide more capacity than 4G allowing more mobile broadband users. This is called the “densification” of the networks. Instead of antennas or cell towers, the 5G build out will be in densely populated areas, and require small cell boxes – about the size of a pizza box – to be installed on roof tops, on the sides of buildings, within yards of each other, not miles. This densification will accommodate more data consumption – stream HD media – by more people. To finance the 5G buildout, companies will push to add new customers or to retain existing customers. And the companies will seek to squeeze “efficiencies” from variable costs -- the workforce.

6 Employment at the Network Carriers Leveling Off – but watch out for contractorsThe red line shows the growth in employment in the wireless industry. The number of employees in wireless jumped from less than 3,000 in 1985 to almost 185,000 in 2000, peaking at 250,000 in That growth can be attributed to the growth in the subscriber base, the build out of the network. But over the last five years, that growth has leveled off. But we know that there is a lot more work going on in the industry than what is shown by the red line. What the line chart does not show is the increased reliance on contractors and third party vendors. We know there is more work being done to support the wireless industry than is shown by this line chart. We know that call center work is being outsourced, that corporate-owned retail stores are being replaced by authorized dealers, and that companies are using contractors to do tech work. The companies are not required to report the use of contractors, so it is difficult to put an exact number on the level of outsourcing. But the big green egg on the chart indicates that outsourcing is a big phenomenon and we need to better document it and understand how and to what degree the companies are using outsourcers and contractors. --

7 Wireless Market Share (and the fight over subscribers)Let’s look at subscribers – the market. With about 143 million subscribers, Verizon Wireless leads the pack overall with 35.1% of the wireless market. AT&T Mobility has 32.4% with 132 million subscribers, T-Mobile 16.6% with 67 million, and Sprint 14.4% with 58 million. But as we have seen, the market is saturated. So, to boost revenue the companies have developed three main strategies: First, steal subscribers from one another; second, get current subscribers to add more services or devices to their accounts; and third, find a new pathway to the overall market. T-Mobile and Sprint are more limited in their options. A partnership with another wireline carrier or cable company could help them develop new pathways, but for now, they are in hot pursuit of other carriers’ customers. So you see T-Mobile and Sprint advertisements that promise to pay early termination fees, offer no-contract service options and offer unlimited data plans. The strategy has been especially successful for T-Mobile. It used to be number 4 in the market. It is now number 3. AT&T and Verizon have followed the strategy of creating a new pathway. They are diversifying into content and video. AT&T bought DirecTV in 2015 and is trying to purchase Time Warner. The goal is to stream content to your mobile device. Already, DirecTV is offering a $35/month Internet TV package. Verizon is taking another tack. It is trying to get a foothold in the digital advertising business. It bought AOL in It is trying to buy Yahoo! This year. AOL, though much smaller than Facebook and Google, is another online advertising platform. Yahoo! gives Verizon access to 500 million accounts. Source: FierceWireless, August 15, 2016

8 Price Competition Drives Down ARPU (average revenue per unit)Negative ARPU trend puts pressure on network companies to deliver profits Company response: Sales programs to attract and retain customers “efficiency” programs to cut labor costs The metric that network companies use to measure their performance is ARPU – average revenue per user or unit. Verizon has the highest revenue per user (ARPU) largely because of the quality of its network and the fact that it has very few prepaid customers. AT&T has second highest ARPU. Again, it is the quality and density of its network but it has more prepaid customers than Verizon. T-Mobile and Sprint have higher levels of pre-paid customers. As you can see from the chart, ARPU has been declining at each of the carriers over time. Verizon has held the steadiest, with only a 5% drop in ARPU between 2010 and But the other three have seen declines ranging from 31% at AT&T to 41% at Sprint. This steady decline is happening despite rising consumption. According to Bank of America-Merrill Lynch, this is largely due to 1) the adoption of no-subsidy pricing (which now accounts for ~70% of industry subs) and 2) competition from T-Mobile and Sprint. These companies offer low-priced plans that eliminate charges for overage as well as domestic and international roaming. Bank of America Merrill Lynch, the source of this chart, say cable will add to this pressure. So the fierce price competition coupled with the threat of new entrants into the wireless market is putting increased pressure on companies to show a profit. And so, we see them constantly implementing new sales programs to attract and retain customers and we see them looking for ways to cut labor costs.

9 Company Response: Attract and Retain CustomersCompany Goals: Maintain current customers to stabilize churn Acquire new customers to increase profitability Increase number of devices, services, accounts per customer Company Tactics: Sales and marketing programs Bundling Early Termination Fee buyouts Free devices No contracts - EIPs Retention The companies have three overall goals regarding subscribers: First, maintain current customers to stabilize churn; then, get new subscribers to boost profitability, and thirdly, increase the number of services and devices per account or per customer in order to boost ARPU and profitability. This drive to attract and retain customers directly impacts our work. The companies life blood is about customers. Daily metrics are about who is adding or retaining subscribers and who is losing. That is why those of us who work in retail and customer service are constantly pushing new promotions and being driven to up our metrics. The company is constantly monitoring subscribers and sales and shifting sales incentives to push the newest shiny bauble. What are some of the tactics you see in the stores or in the call centers? -- Bundling -- Early Termination Fee buyouts -- Free devices -- No service contracts; Equipment Installation Plans -- Aggressive retention programs (to hold on to customers)

10 Company Response: “Efficiencies” to Target WorkersCompany Goals: Reduce overhead and labor costs Company Tactics: Performance metrics Monitoring “At risk” pay Outsourcing Replace workers with technology Forced overtime At the same time that the companies push for greater sales and higher subscriber numbers, they are pushing to cut costs. And labor costs are high on the list because they have a lot of options. What are some of the tactics you have experienced in your worksites? Performance metrics to keep sales high. Monitoring to push out poor performers. At risk pay for sales reps to keep them hungry and pushing for the sale. Outsourcing -- using lower-wage contractors and outsourcers to perform our work. The use of technology to replace workers – how many of you are being told to direct customers to websites or apps to handle basic sales and service tasks? Forced overtime to avoid hiring new employees.

11 Outsourcing – Tactic to Cut CostsUse non-union, low-wage call centers AT&T has presence in the Philippines, Mexico, and elsewhere VZ contracted out over 5,000 jobs in the Philippines, Dominican Republic, and Mexico TMUS has 17 in-house and 25 outsourced centers Sprint has cut 6,000 customer service jobs in three years due to technology and outsourcing Shift retail function to third-party, authorized dealers GameStop now owns 1,421 AT&T authorized stores 20% of 10,000 T-Mobile retail stores, are corporate owned All carriers sell through Best Buy, Costco, Target, etc. One way to cut labor costs is to eliminate jobs and contract out the work. Work is being outsourced both within the US and offshore. And the outsourcing is happening for call center, retail and tech work. We do not know the total number of outsourced AT&T Mobility jobs. We believe that up to 50% of the work could be directed to outsourcers. We know that there are 40 company locations in the U.S. doing customer service work for Mobility. We know from our global allies that AT&T outsources work to the Philippines, to Mexico and to the Dominican Republic and some of it is likely to be Mobility work. During the Verizon strike in Spring 2016, CWA learned that Verizon had at least 5,000 workers in the Philippines, Dominican Republic, and Mexico. T-Mobile has 17 in-house call centers but sends work to 25 call centers outside the company. At least 10 of those call centers are in the Philippines, but others are in Mexico, Dominican Republic, and Guatemala. Sprint cut 2,000 workers from customer service in early 2016, claiming they were being replaced by phone-based apps and other digital applications. That brings to a total of 6,000 jobs cut in three years with some known to have been shipped abroad to India, the Philippines, and Mexico. The companies also outsource the retail function. And this trend appears to be increasing. GameStop now owns over 1,400 AT&T stores. Of 10,000 stores selling T-Mobile exclusively, CWA found that only 20% were owned by T-Mobile, the rest were owned by third parties. And all the companies sell service and equipment at Best Buy, Wal-mart, Target etc..

12 Unreasonable Metrics Drive Bad Customer ServiceThe saturated market and the hot competition for subscribers, coupled with the need to constantly build out the network incents network carriers to demand that workers generate ever higher revenues and greater profits. One way to do that is to urge us to upsell aggressively. The Change to Win Retail Initiatives Group analyzed Federal Trade Commission data on consumer complaints and found that all wireless network carriers had customer complaints about fraudulent enrollments. T-Mobile had the highest incidence of complaints of the four wireless carriers. We have heard from our own members and T-Mobile workers that management pressure to meet performance objectives puts workers in the uncomfortable position of pushing a customer to buy a device or service they don’t need or can’t afford or risk losing a bonus or being disciplined for failure to meet metrics. Workers should not have to face these moral dilemmas on a daily basis as part of their jobs. This kind of pressure doesn’t foster good customer service and it drives job stress. We have seen through our bank workers campaign that this sort of sales pressure exists in the financial sector too. And the Consumer Financial Protection Board fined Wells Fargo for its egregious and fraudulent sales practices. The CFPB said tying bonuses or employment status to unrealistic sales goals could encourage illegal practices and deceptive sales tactics. We need to raise the issue of accountability and consumer protections in the telecom sector as well.

13 In This Competitive Environment, Some Prosper More than OthersWho benefits from this hot competition in this dynamic industry? It is not workers. As an example, Let’s take a look at AT&T Mobility where we have had Texas workers under contract for a long time. Between 2004 and 2015 productivity at Mobility improved 108% for the company as a whole – and that growth came primarily from wireless. AT&T shareholders were well rewarded during that period, experiencing a 147% increase in the value of their shares. But this mobility worker saw her wages rise by 43%. Not bad at all when compared to CPI which rose 28% over that period. But not what we would call a fair share in light of the productivity gains.

14 Some Prosper More than Others, Part 2In contrast, CEOs have been well-rewarded. We compared CEO pay to worker pay at three locations – T-Mobile call center in Wichita, KS, Texas call centers (Fort Worth, Richardson, and San Antonio), and retail stores in Brooklyn. T-Mobile’s CEO John Legere earns almost 700 times what a Wichita call center worker earns. At AT&T Randall Stephenson made 566 times what a CSR made in Texas. Verizon’s Lowell McAdam made 410 times what the average retail worker made in Brooklyn. So how do the CEOs do so well? Their pay is not tied to productivity, but instead it is tied to shareholder value. When shareholders are rewarded, so are CEOs. This sort of compensation scheme disconnects the CEO from the workers, and from the actual performance of the company and instead connects the CEO’s self-interest with the investors in the company, not the producers of product and the profit.

15 Financial Strip Mining at AT&T and VerizonFinancialization = Financial strip-mining: Company is seen as a cash cow Rewards flow to shareholders Shareholder Reward = Dividends + Share Buybacks 126% of net income at AT&T, 98% of net income at Verizon, This disconnect of CEOs and shareholders from the productive mission of their company is a result of financialization. The company is no longer seen as a producer of a product or a service provider but as a cash cow. And that cash cow is milked for all it is worth. And all the rewards flow to the shareholders. A look at AT&T and Verizon illustrates this phenomenon. Over the last five years – 2011 to 2015 – these two companies have made decisions to return all, if not more than all, of the profits we produced to shareholders in the form of dividends and share buybacks. At AT&T the combination of dividends and share buybacks – rewards to shareholders -- have been 126% of net income, at Verizon 96%. Why is this important? If all or more than all of the company’s profit is given back to shareholders, there is little else a company can do to grow the company and to carry out its business without going into debt or without cutting costs or both.

16 Consquences of Financial Strip-Mining in a Competitive IndustryCompetition exerts pressure on revenue and earnings Financialization siphons off profits for investors and execs, so less money is available for cap ex and wages and benefits Could lead to Increases in debt Delay in network upgrades Decline in network quality Decline in service quality Increase in income inequality Financialization came about as investors lost focus on building and expanding and producing quality goods and services for the long term to a focus on Wall Street, on short term returns. Insert financialization in a hotly competitive industry, and we see reductions in cap ex, and employee wages and benefits. With so much money flowing to investors, companies are hampered from building for the long term – their ability to invest in the company or to compensate employees in line with productivity gains, is limited. When all profit is returned to investors, if there is growth, it is financed out of debt or out of slashing expenses or both. In the wireless industry, such strip mining could result in delay of network upgrades, decline in network quality, decline in service quality, and an increase in income inequality – as shareholders and executives get wealthier and workers see the value of their compensation stagnate. The bottom line is that workers are being asked to make sacrifices while shareholders and top management thrive.

17 Summing Up… Wireless industry is dynamicContent companies are thriving but not paying their fair share of building the network Network carriers in fierce competition Pressure to cut costs harms workers Aggressive sales tactics harm customers and may be unethical CEOs and shareholders rewarded handsomely To summarize the points we’ve just covered: The wireless industry is a dynamic, growing and innovative industry. It is cutting edge. Content companies within the industry are making billions in profit, but are not helping to fund the state of the art networks needed to deliver the connectivity, mobility and speed required to deliver their video, their apps and innovations yet to be imagined. Competition among network carriers is hot, leading to aggressive sales tactics and drives to cut costs Aggressive sales tactics lead to poor customer service and could even harm customers, but also can create moral dilemmas for workers. Network carriers are rewarding top officers and shareholders handsomely while worker compensation stagnates by comparison. So where do we go from here?

18 The Challenge for CWA CWA’s Goals: Increase union presenceNegotiate for our share of success Take on Wall Street One Industry, One Workforce, One Fight The fight to improve wages, working conditions and living standards for workers in the wireless industry must take place on multiple fronts. We must expand the union presence in the industry in order to level the playing field for all wireless workers. As long as two-thirds of the wireless industry is unorganized – and that is not counting the contractors and outsources that are taking our jobs – then, our efforts to improve the living standards for our current members is in jeopardy. Therefore, a top goal for CWA is to increase our union presence. Helping workers at T-Mobile to organize will continue to be a prime objective and we will also help more Verizon Wireless workers get a union voice on the job. But we won’t stop there. Other goals include: In our upcoming negotiations with AT&T Mobility, we will escalate our demands to improve compensation and sales practices and to assure job security by taking on outsourcing. We must take on Wall Street to eliminate CEO pay disparities and tackle the drain on our companies resources from enormous stock buy backs. We must mobilize as never before to demonstrate that wireless workers are united in our demands for a fair share of the success of this industry – our mission will be One Industry, One Workforce, One Fight! Solidarity!