Telefonica subsidiaries face labor unrest

Thursday, June 27, 2002

Spain's Telefonica (NYSE: TEF) faces strikes at two of its Latin American subsidiaries as a result of cost cutting measures implemented this year, according to local and international press reports.

Labor unions at Telefonica del Peru (NYSE: TDP) and Telefonica CTC Chile (NYSE: CTC) are threatening to walk out next week if the telcos do not relent on their cost-cutting efforts.

Telefonica del Peru said on Wednesday in a statement that it had laid-off an undisclosed number of workers due to the country's economic recession and increased competition. The company's union claims that 480 people were fired, according to a Dow Jones Newswires report.

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The company offered the workers job reassignments and severance packages, Aldo Quintana, chief research analyst at Peruvian investment bank BBVA Continental, told BNamericas. However, Telefonica eventually sacked the workers when they refused the offer.

The unions have threatened to hold a general strike if the workers are not reinstated, according to press reports.

Meanwhile in Chile, incumbent telco CTC and its labor unions have gone nowhere in their wage negotiations, and Rene Tabilo, director of the federation of CTC unions (FUT), has said he has no doubt that the majority of CTC's 4,500 workers will vote Thursday in favor of striking, Dow Jones reported.

CTC returned to profitability in 4Q01, after several consecutive quarters of losses, thanks largely to its aggressive cost-cutting program, centered on the dismissal of about 1,700 employees or 18% of its workforce last year.

The unions are demanding a termination bonus and a labor stability clause, Tabilo said. The latter would require CTC to pay employees an additional two years salary on top of legal severance requirements in the case of layoffs during the life of the contract.

Both CTC and the FUT have acknowledged that they expect to see most workers down tools from Monday.

CTC seems prepared to go ahead and put up with a strike; company sources have said they have a contingency plan in place, and while service will no doubt be affected by the strike, it expects to be operating as normally as possible.

UBS Warburg analyst Ben Laidler told BNamericas from Santiago that a strike would not be so bad for CTC because a significant portion of its workforce - including the sales, IT and mobile divisions - are not affected by the negotiations.

Laidler said it is important for CTC to hold the line, though he does not expect the company to be willing to replace striking workers, something that Chilean law permits after 15 days of strikes. CTC would want to come to a deal, because it would be too costly to replace a large number of skilled workers, he said. In the end, Laidler expects a compromise, but warned that anything more than a 1-2% wage increase would be difficult for CTC to swallow.

Telefonica has a 97% stake in Telefonica del Peru and a 43.6% controlling stake in CTC. The companies dominate the fixed line business in their respective markets.