Telco Job Prospects Go From Bad to Worse

These are worrying times for many ordinary telecom workers. In the last few weeks, five of the world's biggest service providers have collectively announced plans to cut 36,500 jobs, a figure that equals about 8% of their total headcount at the last reckoning (see table below).

The layoffs are a sign of the upheaval that is sweeping through the sector as a result of automation, merger activity and the relentless drive for efficiency. They will come after the world's 20 largest operators with headquarters in western Europe or North America slashed more than 107,000 jobs during the past two fiscal years. Four of the five players that have recently announced redundancy plans are among the 20. (See Big Telcos Have Slashed 107K Jobs Since 2015.)

Table 1: Job Cuts

Total headcount Job cuts announced Cuts as percentage of workforce Per-employee revenues ($) in 2016 fiscal year Per-employee revenues in ($) 2017 fiscal year
BT 105,800 13,000 12.3% 305,010 301,649
CenturyLink 51,000 1,000 2.0% N/A N/A
Deutsche Telekom 217,349 10,000 4.6% 396,166 407,774
Telecom Italia 59,429 4,500 7.6% 310,310 333,171
Telstra 32,000 8,000 25.0% N/A N/A
Total 465,578 36,500 7.8% N/A N/A
Source: Operators, Light Reading.

There may be worse ahead. Vodafone Group plc (NYSE: VOD), which cut about 2,300 jobs last year, ignoring the divestment of its Dutch business, hopes to merge subsidiaries in Germany and eastern Europe with Liberty Global Inc. (Nasdaq: LBTY), a cable operator. While the move has yet to secure regulatory approval, Vodafone is seeking annual cost savings of €535 million ($623 million) five years after it completes the deal. It expects to make cuts in areas including network operations, IT, central services and marketing and advertising. (See Vodafone Pounces on Liberty Cable Assets in €18.4B Deal.)

Another mega merger is afoot in the US, where Deutsche Telekom AG (NYSE: DT) aims to combine its T-Mobile US Inc. business with smaller rival Sprint Corp. (NYSE: S). The new player will "employ more staff than the previous companies put together," Deutsche Telekom has promised. But analysts and unions are skeptical. Deutsche Telekom is aiming for $6 billion in annual cost savings, starting in 2024, and has talked specifically of cutbacks in network operations, sales and marketing, customer support and IT. Communications Workers of America has previously warned that a tie-up would destroy 20,000 jobs, about a quarter of the total headcount at the two operators. (See T-Mobile, Sprint Combo Could Threaten German Digitization and T-Mobile & Sprint: Marriage made in hell.)

Want to know more about automation? Check out our dedicated automation content channel here on Light Reading.

But merger activity has little bearing on the layoffs that will happen elsewhere. Of the 36,500 cuts that five operators are planning, no more than 1,000, at CenturyLink Inc. (NYSE: CTL), will be an immediate result of consolidation. Every player bar Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) has drawn some connection between automation and cutbacks. Even CenturyLink has identified automation, and not its recent acquisition of Level 3, as the catalyst for some of the cuts it has planned. (See Automation, M&A Lead to 1,000+ Job Losses at CenturyLink.)

Despite this reality, some companies and spokespeople insist the purpose of automation is not to reduce headcount, but rather to improve customer services and working conditions. Thanks to automation, they say, employees will spend less time on boring and repetitive tasks. Another argument is that automation will give rise to new, unforeseen jobs.

The uncertainty is whether these jobs will be in the telecom sector. It is entirely conceivable that automation decimates this industry while others flourish. After all, such "creative destruction" has occurred in previous waves. The percentage of US workers employed on farms, for instance, has dropped from about 50% in 1900 to just 2% today.

Profitable cutters
Jobs have always looked vulnerable during periods of economic recession, or if companies are performing badly. What is especially alarming about the layoffs now planned is that all five operators in question remain very profitable during a period of relative good health in the wider economy.

Only CenturyLink and Telecom Italia (TIM) saw a meaningful decline in operating profits in the most recent fiscal year. None reported a fall in sales except BT Group plc (NYSE: BT; London: BTA), whose revenues dipped just 1%. Telstra, which is cutting a bigger percentage of its workforce than any other service provider, had a net profit margin of 15% in its last fiscal year. That is six percentage points higher than BT, the next most profitable company by this measure. (See BT's Patterson Gets Tasty CEO Bonus as Troops Suffer and Investors Unmoved by New Telstra 4-Year Plan.)

Table 2: Financial Performance

Revenue growth Operating profit/EBIT growth Operating/EBIT margin Net profit margin
BT -1.0% 7.0% 14.2% 8.6%
CenturyLink 1.0% -13.9% 11.4% 7.9%
Deutsche Telekom 2.5% 2.4% 12.5% 4.6%
Telecom Italia 4.2% -11.6% 16.6% 6.5%
Telstra 0.4% -1.1% 24.0% 15.0%
Source: Operators.

For Deutsche Telekom, staff cuts will be easier to justify on the basis of financial difficulties. The entire reduction will reportedly affect T-Systems, the company's IT services business, which suffered a net loss of €76 million ($88 million) on revenues of €1.7 billion ($2 billion) for the first three months of 2018. Bloomberg reports that T-Systems has accumulated operating losses of more than €3.2 billion ($3.7 billion) since 2012. (See DT Will Cut 10k Jobs at T-Systems – Report.)

Even so, the Deutsche Telekom group did witness an increase last year of nearly 3% in revenues per employee, a metric that may become more important as operators are compared increasingly with highly automated technology specialists. Telecom Italia performed even better on this front, boosting per-employee revenues by 7.4%.

Indeed, discounting CenturyLink, where numbers were distorted by the Level 3 takeover, 13 of the 19 big operators in Light Reading's study increased their per-employee revenues in their most recent fiscal year. For European incumbents like Spain's Telefónica and France's Orange (NYSE: FTE), some "attrition" seems largely responsible. Both companies have early-retirement initiatives in place, for example. And while Orange denies it has any kind of program to slash headcount through automation, it acknowledges that some roles are no longer required in the digital age. When its employees retire in France, only one in three is now replaced.

One way or another, the industry's overall headcount is shrinking.

— Iain Morris, International Editor, Light Reading

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Duh! 6/25/2018 | 1:38:22 PM
Re: Job cuts Yup.

Losing all of those back-office and copper jobs weakens the unions' negotiating position. Unions that have in the past been able to keep contractors out won't have the leverage to keep job protection clauses in the contracts. OTOH, as long as those job categories are in short supply, and there are lots of contractors, they can job hop in order to get the pay and conditions they want.
brooks7 6/25/2018 | 1:15:06 PM
Re: Job cuts  

I don't think of automating network construction as much as I do getting those jobs off of direct payroll and into sub-contractors.  This makes these jobs much more flexible and much less union.

Duh! 6/25/2018 | 11:17:53 AM
Re: Job cuts Check out Telecomcareers.net or  LinkedIn.

4G densification, LTE-A, LTE-M, NB-IOT, etc. upgrades, and 5G roll-outs, plus maintenance of all the existing sites requires tower climbers and RF techs to do the work. All the new fiber that's going in for BDS, FTTH, fiber-deep, densification, DCI etc. is getting put in by fiber techs. Maybe these jobs can be automated away at some point in the future, but for now, labor shortages in these kinds of disciplines are a big headache.

Software engineers with current skills are constantly in high demand -- including for implementing the kinds of automation that puts call center workers and provisioning specialists out of work. Demand growth has outstrips productivity growth. That shows no sign of changing.

On the other hand, COBOL is not a language of choice for building cloud-based apps or web-based transaction processing systems. Those few COBOL programmers are getting hired to do maintenance on legacy systems that are too painful to replace or to prepare for migration to modern platforms.  Modern mainframes (and, no, that's not an oxymoron, at least according to IBM) don't have 9-inch magtapes or punch cards or operators to mount them. Almost all of the vintage big iron that did need operators went to the scrap yard years ago.
Mitch Wagner 6/24/2018 | 5:10:01 PM
Re: Job cuts Sorry, I think I'm the one who didn't get your point. I was thinking of tower climbers, etc., as positions that are not growing but which are still necessary. As a result of this, jobs are going unfilled for want of applications. 

We are literally seeing that with mainframe operators and COBOL programmers. People with these skills are retiring, younger people aren't being trained in the work, and meanwhile - despite the growth of the cloud and other newer technologies - these technologies are still needed. They're not going anywhere. 

As a result, COBOL programmers and mainframe operators are literally being tempted out of retirement to go back to work, because they're being offered piles of money to do so. 
Joe Stanganelli 6/23/2018 | 7:03:12 PM
Re: Correction I wonder how recent Eurozone political upheaval will continue to affect things here. While mega telcos have some degree of border-crossing presence, I tend to think that BT and CL (and even DT, which is a plurality stakeholder in T-Mobile) will be better positioned/diversified to manage things a bit better.
iainmorris 6/23/2018 | 4:06:01 AM
Correction The story previously said that Telstra’s net profit margin was six percentage points higher than Deutsche Telekom’s. That comparison should have been with BT, of course, as the table shows. The story has now been updated.
Joe Stanganelli 6/22/2018 | 6:22:00 PM
Re: Job cuts > While farm jobs are down precipitously

I see wut u did thar #rainhumor

Joe Stanganelli 6/22/2018 | 6:20:58 PM
Re: Job cuts @Mitch: This is part and parcel of my standard advice for people getting into budding devs/engineers/IT personnel. First, learn the fundamentals of coding along with a good scripting language or two (Ruby on Rails, Python, Perl, etc.).

Then, learn COBOL and/or FORTRAN.

Job security.
Duh! 6/22/2018 | 3:12:30 PM
Re: Job cuts I'm not getting your point. Surely, you don't think that network infrastructure self-assembles?

Mitch Wagner 6/22/2018 | 3:03:30 PM
Re: Job cuts Similarly for COBOL programmers and mainframe operators in the enterprise.
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