Irish tycoon Denis O'Brien says AI will cull half of telco jobs

Denis O'Brien flew into one country shortly after the end of the pandemic to find staff at his local telecom operation lounging around in singlets. "They all looked as if they were out playing basketball for the day," the Irish billionaire recalled on a recent Telecoms.com podcast. "The CEO got the gate the next morning."

The dismissal came after O'Brien, who founded Digicel in April 2001, saw that low sartorial standards were a sign of much deeper rot within the unidentified operation. Various performance measures that telcos track closely were heading south. To O'Brien, it exposed a negative consequence of the lockdown. Amid office closures, some employees had metaphorically "gone missing."

His recollection of that quite recent episode came as he shared his views about the impact artificial intelligence (AI) – and especially the generative flavor that has taken off in the last year – will have on the telecom sector. O'Brien's group-wide response to apparent lockdown lethargy was to sack about 750 Digicel employees, a huge number for a company whose website currently boasts 7,000 workers across 25 operations in the Caribbean and Central America. But O'Brien thinks AI will be far more swingeing.

"Unfortunately, we are shrinking all the time, and we are trying to introduce technology to make up for that and AI will have an integral part of that," he said during a wide-ranging, two-hour discussion on the weekly podcast hosted by Telecoms.com, a Light Reading sister site. "Telcos will lose 50% of their staff in the next five years."

Headcount has already fallen dramatically in recent years at major telcos tracked by Light Reading. Between 2018 and 2022, AT&T, BT, Deutsche Telekom (including T-Mobile US), Orange, Telecom Italia, Telefónica, Verizon and Vodafone cut about 190,400 full-time jobs, according to annual reports and regulatory filings. The figure equals about 16% of the 2018 total.

Headcount at major telcos

(Source: Light Reading, companies)
(Editor's note: BT data and Deutsche Telekom data on US staff are for full-time employees.)

Cuts have happened while telcos have struggled to boost profits through sales growth. Complaining about higher costs and the relentless need to upgrade networks, operators have sold assets, outsourced IT resources to the public cloud and begun sharing infrastructure. With automation and new advances in AI, some executives now believe telcos will be able to function with even fewer employees in the future.

Evidently among them, O'Brien has already witnessed the rollout of chatbots within Digicel, reducing the company's need for customer service assistants of the human variety. He expects more retail outlets to close and thinks network operations staff will also be affected. "We are in an industry where margins and profitability are under ferocious pressure and we can't get price increases," he said. "We can't get price increases even halfway to what the inflation rate is or the interest cost of capital." It is, he told podcast listeners, a "dog-eat-dog industry."

No fan of Google

AI expertise is likely to flow from Microsoft, thanks partly to its massive stake in OpenAI, the highest profile of the main generative AI players. That's because Digicel has already selected Microsoft as its public cloud, owing largely to O'Brien's antipathy toward the alternatives. "We weren't going to give it to Google, to be honest with you, because of their behavior," he said.

Like some other telco executives, he is scathing about Internet players, deriding them as "over-the-top" companies that piggyback on network infrastructure without paying for the ride. "Why should Netflix have free distribution?" said O'Brien. "This is the best business model anybody has ever seen."

Critics of his argument say that although Netflix paid distribution fees when it started out as a DVD rental business – saving customers the postage costs – subscribers to broadband networks have already been charged for the online equivalent. There is also opposition to the idea that Big Tech companies are "large traffic generators." Netflix and others merely develop content and applications, say O'Brien's detractors. It is the businessman's own customers who decide which applications to stream.

Telcos' arguments have failed to sway European authorities, which have postponed any decision on so-called "fair share" until 2025. But O'Brien, who says expecting consumers to pay higher connectivity fees would be unrealistic, is confident that change lies ahead. "I am bouncing out of bed in the morning now because I know this is going to happen," he said. "This has to change because we're talking about market failure otherwise and the telecom sector being uninvestable."

Digicel's next chapter

O'Brien clearly thinks life would be more lucrative for Digicel in a fair-share world. But the company's financial problems have other causes. It announced plans for a debt restructuring amid the pandemic, when a filing with the US Securities and Exchange Commission revealed about $7.4 billion worth of debt and a doubling of pre-tax losses for the March-ending fiscal year, to about $154.7 million. It has subsequently offloaded various assets, including six operations in the Pacific that were sold to Australia's Telstra.

What went wrong? O'Brien blames a multitude of external factors including higher interest rates, currency weakness, the pandemic and the war in Ukraine. "We invested $5 billion and we were borrowing money at 7% or 7.5% and it is now 15% because of what's happened in Ukraine and interest rates and everything," he said. Revenues in Haiti, the biggest Caribbean market, fell $100 million because of a local currency crash. "I could struggle on trying to borrow money at 15% and try to make a business out of it or say we are going to do a debt restructuring for equity," O'Brien said.

His own account is that bondholders rejected his offer of all the keys to the kingdom, insisting he remain involved. As of last month, O'Brien has ceded control and been left with a 10% stake in the business and a non-executive role. Rajeev Suri, a former boss of Nokia, has succeeded him as chairman, while a consortium led by PGIM, Contrarian Capital Management and GoldenTree Asset Management now controls the business.

No doubt, operating conditions in the Caribbean and Pacific were often unfavorable for O'Brien, who paid $47.5 million to enter Jamaica in 2000. Huge sums went into the construction of mobile towers and the rollout of fiber-optic lines in countries where average revenue per user is still often low. The experience led O'Brien to rule out investment in 5G without regulatory change.

"We're not doing it because the Caribbean 9, which is all the main operators, have come together and said to Caricom and the telecom union we are not rolling out 5G until you do something about fair share because there is no business case," he said. "4G was a shocking business case. 5G is a disaster."

A bad scenario today would be a government decision forcing Digicel to replace its current networks. The company remains heavily reliant on China's Huawei and ZTE, according to O'Brien, who said he was pressured by Mike Pompeo, the US secretary of state under Donald Trump, to switch vendors. O'Brien was unimpressed and worries the issue has not gone away.

"You are probably talking about $1 billion to change out all our networks for Huawei and ZTE, and I just said I can't do it," he reported. Nor, in his view, have Ericsson and Nokia been good at execution in emerging markets. Huawei, by contrast, was not even slowed down by warehouse looting, attempted kidnapping, the exchange of gunfire and what the Irishman calls "all the run-of-the-mill things that happen in Haiti every day."

O'Brien was not on the island of Hispaniola when it was struck by the devastating earthquake of 2010. It left Digicel's only network switch dangling from the fourth floor of the company's Haitian headquarters but still functional. Employees secured it by rope, ensuring that some survivors trapped under fallen buildings could use their phones and say where they were. Critical infrastructure is a term thrown around too casually by industry bigwigs. But years later, that tragic event illustrates just how important networks can be.