BT's Workforce: It's Not Shrinking as Fast as You Might Think

News Analysis Iain Morris, International Editor 5/10/2019

Philip Jansen, BT's new boss, is trying hard to get the UK's flabby phone incumbent into a leaner and more "digital" shape. While he has denied reports that one quarter of all jobs could disappear under a more aggressive cost-cutting scheme, Jansen is slashing about 13,000 roles -- a figure that represents about 12% of the workforce as it looked in March 2018 -- under plans drawn up by Gavin Patterson, his predecessor and chum.

BT needs to realize those savings to fund a more extensive rollout of fiber broadband services to UK homes and businesses. Four million properties is now the coverage target by March 2021, compared with a previous goal of 3 million, and BT is eyeing 15 million premises by the mid-2020s -- if regulators play nicely -- up from 10 million originally.

The job cuts program should ultimately bolster margins and improve BT's appearance next to its peers. Right now, it generates lower revenues per employee than any of Europe's big telecom incumbents, and is a long way behind the major US operators on this measure.

But the operator's overall headcount looks stubbornly resistant to any pruning. BT slashed as many as 4,000 jobs last year under its savings scheme, mainly at its global services and corporate divisions, said Jansen. That meant annualized savings of £875 million ($1.14 billion) at a cost of £386 million ($502 million). Despite this, BT's workforce grew by nearly 1,000 employees, to exactly 106,742, according to its own data.

The problem is partly that new hires are offsetting any reductions. Openreach, the company's infrastructure unit, hired 3,500 trainee engineers last year and plans to recruit another 2,700 in the current fiscal year. Openreach had 33,156 employees in March, up from 31,187 a year earlier. And if BT is to build all-fiber networks to 15 million premises by the mid-2020s, it may need to retain those engineers for a long time, and even recruit additional ones. Currently, BT's all-fiber network is hooked up to just 1.2 million homes.

The part of the business that saw the biggest fall in employee numbers is what BT calls "other," which seems likely to include many of the back-office and managerial roles no longer required. In March 2018, there were 26,224 employees in this area. That number had fallen to 23,893 one year later. Yet the company's other divisions all witnessed growth. The consumer business grew by 1,534 roles, to 19,378, while enterprise added another 125 employees, giving it 13,352 overall.

Even global services seems to be growing again. Employee numbers here dropped by 671 between March and September 2018, but then grew by 329 in the subsequent six-month period -- to 16,603 -- at the end of March 2019.

Net labor costs at BT, accordingly, fell by just £100 million ($130 million), or 2%, in the last fiscal year, to about £4.8 billion ($6.3 billion). And BT's adjusted earnings (before interest, tax, depreciation and amortization) shrank 2%, to about £7.4 billion ($9.6 billion).

Of course, BT would look even more bloated if it had not made cuts. And if its workforce is more aligned with the needs of an increasingly digital and automated world, then its pruning makes good business sense. But the company may still look out of shape after its current program is finished. Cutting 9,000 more jobs and recruiting another 2,700 engineers would leave BT with 100,442 employees, and make little difference to its per-employee revenues unless sales increase markedly. Without revenue growth, BT would need to cut about 40,000 jobs to compare favorably with Spain's Telefónica, one of Europe's most efficient operators on this basis. No wonder there is so much interest in the size of Jansen's axe.

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— Iain Morris, International Editor, Light Reading