Bell Atlantic Corp. is in the midst of a "financial crisis" in its local telephone network and might have to let service quality slip to save money, according to internal company documents.
With net annual income running $63 million short of the company's target as of August, network operations managers have been ordered to slash overtime and de-emphasize maintenance, according to a memo signed by a high-ranking Bell Atlantic executive in Maryland and obtained by The Sun.
The Sept. 13 memo by Regina Novotny, Bell Atlantic's vice president for network operations in Maryland and West Virginia, offers a rare glimpse into the internal trade-offs made by a company that boasts in ads that its service is up 99.9 percent of the time.
"As we discussed on the conference call we are in a financial crisis which is bigger than our organization and our LOB [line of business]," Ms. Novotny's memo began.
The point is reiterated in notes from a conference call Ms. Novotny held with executives that same day. "This is being viewed as a financial emergency," the notes say. "We must address those issues over which we have some control: force, overtime, material, supplies, etc."
With unusual candor for a company document, the notes go on to say, "It has been acknowledged that results may slip as a result of the overtime policy [italics original]."
Dave Pacholczyk, a spokesman for Bell Atlantic, said that remark is an apparent reference to the company's internal service quality measurements. Those measurements focus on customer satisfaction over such things as how quickly a repairman arrives when a telephone goes out.
In an interview yesterday, Mr. Pacholczyk backed off from the language in the memo. "There is not a crisis," he said, dismissing the memo as "standard corporate fare" aimed at a single department with budget woes.
Bell Atlantic has many lines of business, but its wired network in six states and the District of Columbia is its core enterprise.
"Regina wanted to smack this department between the eyes with a 2-by-4, and she did," Mr. Pacholczyk said. He said Ms. Novotny was in a meeting and not available to comment.
Mr. Pacholczyk said the memos did not indicate the company's profits were declining, only falling short of management's targets.
"As a corporation we certainly expect to come in within the analysts' projections," Mr. Pacholczyk said. "We could still have record earnings this year and still have that gap."
Indeed, while $63 million is hardly an insignificant sum, it is a drop in the bucket for Bell Atlantic, which earned $1.4 billion on revenues of $13 billion last year, with total operating expenses at $10.2 billion.
In the first half of this year, Bell Atlantic recorded net income of $804.6 million, on revenue of $6.67 billion.
"I don't really perceive them as having trouble," said John C. Culver, a telecommunications analyst for the Duff & Phelps bond rating house in Chicago. "The tone of it sounds as if they're trying to instill a very realistic view of their situation."
But a warning was sounded during the Bell Atlantic executives' conference call about the damage that could be done on Wall Street if the company doesn't act decisively.
"We could conceivably materially impact the price of stock if we don't take action now to correct some of the indicated shortfalls," said the notes.
The documents make it plain that Bell Atlantic is focusing its attention on the $39 million in excess spending on its network operations. Ms. Novotny's memo, addressed to a half-dozen Bell Atlantic executives in Maryland and West Virginia, said "our share" of the $39 million is $6 million.
49-hour work week
In another memo, issued Sept. 15, Ms. Novotny outlined steps to be taken to control overtime, including a ban on letting any employee work more than 60 hours in any week without prior approval, with exceptions to be explained in writing to Ms. Novotny or one of her four general managers.
She set an overall target of no more than 49 hours per week per employee and ordered managers not to schedule "associates" -- hourly employees -- for a sixth day in a week or to call them in on their days off.
Under Bell Atlantic's contract with the Communications Workers America, overtime pay increases from time and a half to double time after 49 hours. Nevertheless, Bell Atlantic employees say network maintenance workers have regularly been putting in weeks of up to 100 hours during this year's stormy and icy weather.
"What's going to suffer is service," said Peter G. Catucci, District 2 vice president of the CWA, which has been protesting the company's recently announced plans to trim its work force by 5,600 jobs. "Initially it means they're going to ignore the customer, and that's unfortunate."
Ms. Novotny's memo also indicated that spending would be shifted from the maintenance budget, which is overspent, to construction, which is underspent.
Thus, Mr. Pacholczyk explained, if a cable were broken a technician might "replace it instead of repairing it."
He emphasized that these were "guidelines," not hard-and-fast rules.
But the Bell Atlantic documents indicate the cuts will extend far beyond maintenance and overtime:
* Training that isn't "mission critical," including classes for managers in handling a diverse work force and efforts to change Bell Atlantic's "culture," will be eliminated or deferred.
* Neither supplies nor materials will be purchased unless they are needed immediately.
* Employees will cancel travel plans for out-of-town meetings.
* Only "mission-critical" expenses will be allowed. "For example, I would not expect to see lunches included on vouchers," Ms. Novotny wrote in the Sept. 15 memo.
* Employees who have been on special assignment will be returned to basic network duties.
Mr. Pacholczyk said much of the overspending was caused by "stuff out of our control." He cited a series of storms that struck the region in June and July, requiring heavy overtime expenditures.
But Mr. Pacholczyk said Bell Atlantic customers will not be denied service if bad weather interrupts service between now and the end of the year.
"If there's some bad weather that's going to necessitate extra work spent, we're going to do that," he said.