Vodafone's new boss Margherita Della Valle plans to cut 11,000 jobs in three years, raising questions about the European operator's direction.

Iain Morris, International Editor

May 16, 2023

5 Min Read
Vodafone job cuts throw 'tech co' strategy into doubt

Margherita Della Valle has swiftly made herself the Madame Guillotine of European telecom. Vodafone's new boss, who recently secured the role after spending several months as acting CEO, must have been sharpening her blade in the corridors of power before she finally revealed that 11,000 heads will roll over the next three years of terror. It amounts to roughly 11% of Vodafone's workforce in March 2022, with the operator yet to publish details of headcount for the more recently ended fiscal year.

It's a gloomy start to her tenure, marked by rather depressing (if accurate) statements by Della Valle about Vodafone's performance not being "good enough." Formerly chief financial officer (and still in that role until Vodafone identifies a permanent replacement), Della Valle appears short of ideas about how operators can spur sales growth – a quality that does not distinguish her from Europe's other telecom bosses. Grumbling instead that return on capital employed (ROCE) in Europe's telecom sector is lower than the cost of capital, she is targeting workers for savings.

Figure 1: Vodafone CEO Margherita Della Valle, the Madame Guillotine of telecom. (Source: Vodafone) Vodafone CEO Margherita Della Valle, the Madame Guillotine of telecom.
(Source: Vodafone)

Shareholders often love this sort of thing, but Vodafone's share price in London was down more than 7% in afternoon trading, suggesting investors have doubts about the turnaround story. "It's a long road back for Vodafone after years on the slide," said Kester Mann, an analyst with CCS Insight, in emailed comments. "But the vision of a leaner, simpler and more efficient organization is the right one, and the move to axe thousands of jobs shows Della Valle is not afraid to make difficult decisions."

Are things really so bad? Vodafone's sales of about €45.7 billion (US$49.6 billion) were essentially flat for the fiscal year that ended in March, but core earnings (after various adjustments) fell 1.3%, to less than €14.7 billion ($16 billion). Vodafone is far less indebted than it was a year ago, with net debts of about €33.4 billion ($36.3 billion) in March, about a fifth less year-on-year. Yet full-year free cash flow (also adjusted) dropped 11%, to about €4.8 billion ($5.2 billion).

Dark days in Europe

Vodafone's performance was especially bad in some of its biggest markets, though. Sales fell 1.6% in Germany and core earnings were down 6.1%. Revenues fell 5.4% in Spain and 2.9% in Italy. Of its main European assets, only the UK business showed any growth, with sales up 5.6% for the full year. Investors worried about returns have not seen Vodafone able to participate (so far) in any of the consolidation promised by Nick Read, Della Valle's predecessor, although a UK merger with Three is currently being reviewed by competition authorities.

"Vodafone's shares have underperformed the market and are down more than 58% over the past five years over concerns about slowing revenue across Europe," said Will Rhind, the CEO of GraniteShares, a fund manager, in emailed comments. All that puts immediate pressure on Della Valle to deliver a turnaround, he said.

Figure 2: Vodafone share price in London ( GB pound ) (Source: Google Finance) (Source: Google Finance)

A merger with Three would address ROCE concerns in the UK (arguably now the country where Vodafone is under the least pressure, given the reasonably positive sales performance last year). But it remains far from certain. European regulators, including the UK's Competition and Markets Authority, have taken a dim view in the past of mergers that reduce the number of mobile networks. That said, a recent government strategy paper on the telecom sector drew attention to the ROCE problem identified by Della Valle.

Even if a deal goes ahead, Vodafone would still be lumbered with sluggish businesses on the continent. "Turning around results in Germany, the firm's biggest market, should be a leading priority, but there is also much work to do to arrest perennial struggles in Spain and Italy," said Mann in his commentary.

Still unclear is whether the 11,000 job cuts will be the net reduction or partly offset by other recruitment activity. The former would probably leave Vodafone with fewer than 86,000 employees worldwide, assuming headcount did not change significantly last year. That's 25,600 fewer than it employed back in 2016 after years of divestitures and downsizing.

Cuts on this scale could have implications for plans announced under previous management to add about 7,000 software engineers to a department that had 9,000 of them just a couple of years ago. Vodafone's goal was to make itself less dependent on external suppliers and have people in-house able to work on future software-based (and hopefully revenue-generating) new services.

All Vodafone has said is that there will be "both HQ [headquarters] and local markets simplification," implying cuts will be made across various departments. It also told Connecting Africa, Light Reading's sister publication, that the program would not affect Africa, where Vodafone employed about 8,000 people across its Vodacom subsidiaries during the previous fiscal year. That means about 12% of jobs outside Africa will disappear.

The big question is how an operator can expect to remain competitive, serving customers and building out networks at scale, after slashing so many roles. Perhaps Vodafone has had lots of people sitting around on their hands. Or maybe Della Valle believes she can automate tasks thanks to ChatGPT and other forms of artificial intelligence. It's a troubling thought for employees.

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— Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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