Long-time observers of AT&T and Verizon may be wondering how low they can go on headcount. In mid-September, Verizon made the telecom news with a securities filing that warned around 4,800 jobs would be cut by March next year at a severance cost of about $1.8 billion. Without any hiring to offset those cuts, this would leave it with fewer than 100,000 employees for the first time this millennium. Just as many people shrivel in their advanced years, the ageing US telco has continued to shed weight in the form of its workers.

The same is true at AT&T, Verizon's oldest rival. At the turn of the century, the two companies employed more than 475,000 people. By the end of June this year, that number had plummeted to below 250,000. Shapeshifting and mergers over nearly quarter of a century have obviously had a big impact on this total. But the downsizing of recent years has been especially dramatic. In January 2018, months before completing its takeover of Time Warner, AT&T claimed 252,000 employees. It was left with just 146,000 at the end of June. Verizon's headcount has dropped from 155,400 to 103,900 over the same period.

Much of this shrinkage looks like the usual cost-cutting response to a fall in sales and related business challenges, especially at AT&T. Annual revenues at the company are down by $38.1 billion between 2017 and 2023. Yet Verizon has gained $7.9 billion in annual sales over this period. And both operators look considerably more productive. Last year, AT&T made about $813,500 in sales per employee, up from around $573,200 in 2017. Verizon's figure has grown from $811,000 to more than $1,271,000.

Profitability, though, has not enjoyed a similar increase at both companies. In fact, between 2017 and 2022, Verizon's basic operating margin fell from 22% to 17%, while selling, general and administrative (SG&A) costs rose 9%, to $32.7 billion. With its zealous axing of jobs, AT&T looks to have done better, growing its operating margin from 13% to 19% and cutting those SG&A costs by 17%, to $28.9 billion. But there is a limit to what "rationalization," as AT&T CEO John Stankey might call it, can achieve when sales have fallen so much.

(Source: SEC filings, companies)

Labor, of course, is only one of multiple costs borne by the average telco, accounting for just 25% of total expenses at a typical European operator, according to research carried out by Moody's. In the US, wage inflation and severance packages will have partially counteracted the effect of cutting jobs. Some tasks, moreover, have merely been outsourced. Verizon, frequently criticized by the Communications Workers of America, a union, for the practice, struck a controversial IT outsourcing deal worth $700 million with India's Infosys in late 2018, for example.

Other jobs have disappeared as the operators have exited certain markets. AT&T's decision to spin off Time Warner and quit the TV game, along with Verizon's sale of AOL and Yahoo, two ailing Internet properties, explain a chunk of the workforce reductions. Then there is the phenomenon of bloat or what David Graeber, an anthropologist, referred to as "bullshit jobs." Over time, bosses unnecessarily accumulate subordinates who contribute little actual value. The fatty layer of so-called "middle management" in some organizations is a sign of this trend. Excising it is often a quick response to financial problems.

Rise of the robots

The concern of the day is that automation via artificial intelligence (AI) will make remaining staff ultimately redundant. Even before the flap about generative AI, there were signs automation and what people sometimes call "digitization" were chewing into headcount. This happened in the pandemic simply because consumers stayed away from physical stores and shopped online, meaning telcos (and other businesses) had less need for high-street staff. Behavior did not immediately revert to the old normal after the end of the health scare.

Multiple other factors are at play. With predictive maintenance and more software-fixable equipment, operators have less use for hardware technicians to mend boxes. Network operations centers can be operated with a handful of people where previously they would have required hundreds. Chatbots, the main fruit of generative AI, can handle basic customer queries as well as any person. Software-writing software leaves human programmers with free time to write more advanced code or polish barista skills – depending on your perspective.

Telecom, meanwhile, uses the same rating system as the car industry to measure the level of automation. Level 0 is an old Ford, a network that demands full human effort to steer and control. Level 5, a fully autonomous "zero touch" network, drives itself while the person who once gripped the wheel lolls with feet on the dashboard. To reach Level 4, described by industry body the TM Forum as a "highly autonomous network," technology is not the main barrier, according to Shankar Arumugavelu, Verizon's chief information officer.

"Today, some of the key decisions that are being made by humans – are we comfortable letting that go and having the machine make that decision?" he said at a press briefing the TM Forum organized at the start of this year. "I think that is the bridge we have to cross."

Not just for nervous passengers

Yet many executives dismiss suggestions AI will leave behind only a skeleton crew of staff, kept on like the "drivers" of fully automated trains to reassure nervous passengers. More programmable and advanced 5G networks are far more complicated than anything that preceded them. All AI does is in this world of greater complexity is help telcos to avoid hiring even more people. Executives like Scott Petty, the chief technology officer of Vodafone, defend the argument that AI can liberate employees from some tasks and allow them to focus on others.

"Because you can give people back portions of an hour, or portions of a day, someone will put it in Excel and say you need 1,000 less people, but it doesn't work that way," said Petty at a Vodafone press conference in July. Network planners were not fired when Vodafone figured how to use generative AI to summarize lease arrangements at mobile sites, he told reporters. "We just said you don't have to look at leases anymore and can focus more on network coverage and performance and have more time to do the things that add value."

All this would make the analogy of the self-driving car inappropriate. While former drivers snooze, the fully autonomous network will continue to need technical staff and other employees, if Petty is right. The concern for those people is generative AI or even artificial general intelligence – the goal of Sam Altman, OpenAI's CEO, among others – learning the additional skills that "add value." And even today, AI seems better at creative and more fulfilling tasks than it is at drudgery, a more proficient writer of sonnets and music than a skilled stacker of shelves.

While Verizon's announcement about 4,800 redundancies caught the business world's attention, AT&T cut its headcount by a similar number in the first six months of this year without anyone seeming to notice. Nobody anticipates a recruitment drive that would reverse the long-running trend. But the combined headcount of the two companies in mid-2024 would have looked inconceivably small just a few years ago.