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|
|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.)
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.
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|
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