Fat Cats Get Fatter as Jobs Go to the Dogs

Iain Morris

In Elysium, a 2013 science-fiction movie starring Matt Damon and Jodie Foster, the rich and powerful decamp to a luxurious space station, rather like a Sandals holiday resort in the stratosphere, while the rest of humanity clings to survival in the rotting slums of planet Earth.

This nightmare vision of extreme inequality is perhaps not as far fetched as most of us would like. Thomas Piketty, an acclaimed French economist, has identified a growing "wealth gap" between the rich and the poor. Automation threatens to make it bigger. In his award-winning book Rise of the Robots, Martin Ford frets that artificial intelligence will create mass unemployment and leave the super-rich with even more of the economic pie. Yuval Noah Harari warns of similar upheaval in his bestselling Homo Deus. (See Automation's Advocates in Downsizing Denial.)

Abandoning Earth
A future habitat for today's oligarchs and business leaders?
A future habitat for today's oligarchs and business leaders?

An analysis of pay and employment data for some of Europe's biggest telecom operators does not offer much encouragement. Of the 12 companies examined (see table below), six awarded double-digit percentage pay increases to their CEOs in the recent fiscal year. In a third of cases, the increase was more than 30%. While pay data for other staff is not as readily available, the median increase in wages per employee was just 1.9% at the seven companies that published this information.

Table 1: CEO Compensation and Labor Costs in Last Fiscal Year

CEO pay Change last year Personnel costs per employee Change last year Wages per employee Change last year
BT £2,307,000 71.5% £51,021 4.62% £39,972 2.88%
Deutsche Telekom €4,746,650 10.4% €68,553 1.14% N/A N/A
KPN €3,848,000 43.8% €86,704 -0.16% N/A N/A
Orange €1,744,999 12.9% €55,425 -0.27% €39,484 0.89%
Proximus €936,903 8.2% €90,957 -1.12% €51,154 -1.50%
Swisscom CHF 1,868,000 1.9% CHF 146,396 4.95% CHF 107,968 0.58%
Telecom Italia €361,000 N/A €61,014 20.28% €34,596 0.11%
Telefónica €5,359,332 -0.6% €55,917 -12.08% N/A N/A
Telenor NOK 14,100,000 1.6% NOK 412,968 20.41% NOK 346,806 16.44%
Telia SEK 23,485,000 0.2% SEK 529,954 4.45% SEK 409,626 4.52%
Veon USD 8,374,579 63.5% USD 23,211 25.77% N/A N/A
Vodafone €7,984,000 32.7% €49,889 -2.97% €39,374 -5.13%
Source: Operators, Light Reading. Notes: CHF is Swiss franc; NOK is Norwegian krone; SEK is Swedish krona.

Operators are rewarding their leaders at the same time as they cut jobs. Staff numbers at the 12 companies fell by 26,783 in the recent fiscal year, or 3% of total headcount. And further reductions are coming. The UK's BT Group plc (NYSE: BT; London: BTA) announced plans for 13,000 layoffs, around 12% of total jobs, shortly before CEO Gavin Patterson was revealed to have enjoyed a 72% rise in compensation last year. Deutsche Telekom AG (NYSE: DT) aims to cut 10,000 jobs, nearly 5% of its total workforce, at its T-Systems unit, which sells IT services. Timotheus Höttges, the German telco's CEO, received a 10% increase in total pay last year. (See Big Telcos Have Slashed 107K Jobs Since 2015, Efficiency Drive by Major Telcos Has Claimed 74K Jobs Since 2015 and Telco Job Prospects Go From Bad to Worse and DT Will Cut 10k Jobs at T-Systems – Report.)

Table 2: Staff Reductions in Last Fiscal Year and Planned Cuts

Staff reductions Headcount Cuts as % of headcount Planned cuts Planned cuts as % of workforce
BT -600 105,800 -0.56% 13,000 12.3%
Deutsche Telekom -992 217,349 -0.45% 10,000 4.6%
KPN -255 13,275 -1.88% N/A N/A
Orange -3,646 151,556 -2.35% N/A N/A
Proximus -242 13,391 -1.78% N/A N/A
Swisscom -621 20,506 -2.94% N/A N/A
Telecom Italia -1,800 59,429 -2.94% 4,500 7.6%
Telefónica -4,605 122,718 -3.62% N/A N/A
Telenor -6,000 31,000 -16.22% Circa 6,000 20%
Telia -545 25,472 -2.09% N/A N/A
Veon -2,056 39,938 -4.90% N/A N/A
Vodafone -5,421 106,135 -4.86% N/A N/A
Source: Operators, Light Reading.

This creates a huge ethical dilemma. With sales growth proving elusive, CEOs are trying to satisfy shareholder demands for bigger profits by cutting costs. Extreme automation should help, allowing operators to generate today's revenues with a smaller workforce. French incumbent Orange (NYSE: FTE) has already acknowledged that "digitalization" renders some roles obsolete. Deutsche Telekom thinks it can save about $750 million ($869 million) in annual staff costs through automation. But the pressure from investors that drives a CEO's strategy contributes to the Elysium effect. For governments and the general public, that is disconcerting, to say the least. (See DT Targets €1.5B in Automation Savings, Misses Former Target.)

This dilemma partly explains why some industry spokespeople continue to play down the impact of automation on jobs. UK-headquartered Vodafone Group plc (NYSE: VOD), for example, insists its own investments in automation are to improve customer services and release staff for more worthwhile activities. But from the investor's perspective, those activities will be worthwhile only if they fatten margins, which means boosting sales or slashing costs. (See Vodafone Prioritizes Automation as Efficiency Bolsters Margins.)

While automation might conceivably fuel a sales increase through service improvements, the market will be skeptical. After all, most telco attempts to unearth fresh sources of revenue growth have been ham-fisted. Moreover, hardly anyone thinks operators are automating operations mainly to boost sales. During a Light Reading survey in April, just 11% of 262 respondents said this was the principal aim of automation investments. By contrast, 31% chose reducing headcount and another 29% said automation was chiefly about cutting spending on manual processes. That can happen only if operators trim headcount, slash pay or cut working hours. (See Automation Is About Job Cuts – LR Poll.)

Next page: The high life and the slums

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6/30/2018 | 11:42:18 PM
new world
We're entering a strange new world with technology and automation. Fears mount over application of automation while companies continue to say all is fine. Sci-fi story arcs are plenty. 
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