Bad financial results and violent leadership changes have been roiling the European telecom carrier market in recent months. Now the large layoffs are starting to roll in, and analysts expect it may be just the beginning.

"Europe is lockstep 18 to 24 months behind the U.S.," says Craig Johnson, an independent analyst based in Portland, Ore.

Deutsche Telekom AG (NYSE: DT) announced today that its fixed network division, T-Com, will cut nearly 30,000 jobs, or 11 percent of DT’s total workforce, over the next three years (see T-Com to Slash 30,000 Jobs). Of these cuts, 7,200 of the jobs will disappear by year-end, 14,000 more will be cut next year, and the company will axe another 8,300 jobs by 2005.

According to a company report, Deutsche Telecom had 254,806 employees listed for the first half of 2002; T-Com accounted for 154,282 of those.

Even for an industry hardened by more than a year of nearly daily layoff announcements from telecom companies based in the U.S., the DT numbers are astounding. And for Europe, they are mind-boggling. Unlike American corporations, which can basically slash jobs as they see fit, European companies, especially the ones like DT that used to be state-owned monopolies, face a whole different political and regulatory landscape that make job cuts difficult, and sometimes impossible.

“[G]iven the legal difficulties in Germany of cutting workers, the announced job cuts represent a serious commitment to DT’s survival,” Peter Cohan, an analyst with Peter S. Cohan & Associates, writes in an email to Light Reading. “As a caveat, DT will need to be careful in the job cuts not to remove people who contribute to DT’s profits.”

As the worm turns, actions are being taken at other large European telecom companies.

According to a Wall Street Journal article today, 80 percent of France Telecom SA’s approximately 146,800 workers in France were still classified as government civil servants at the end of last year, making it almost impossible to fire them. Apparently France Telecom has started quietly transferring employees to other government positions to help slim down its operations.

"I don’t believe that the number [of civil servants] is as high in Deutsche Telekom," Johnson says. "But then again, it’s kind of hard to tell."

A high concentration of government employees in DT could explain the carrier’s efforts to dispose of excess positions without forcing people out. In a statement today, the company said the nearly 30,000 job cuts will be achieved by cutting vacant positions, offering early retirement, and retraining personnel for other positions within and outside the corporation.

Even if the employees affected aren’t classified as civil servants, fair treatment of them is essential for political reasons. Johnson points out that the layoffs were probably planned a while ago, but for political reasons, the company decided to wait until after Gerhard Schroeder had been elected to announce them. “European politicians are very sensitive about labor issues right now,” he says. “This announcement comes, what, two weeks after the elections? The layoffs were going to have to happen.”

Of course, it was no secret that DT was planning a massive headcount reduction. The former chairman of the company, Ron Sommer, who was ousted in July, said back in May that the company planned to cut 22,000 jobs by the end of 2004. And Helmut Sihler, Sommer’s interim successor, warned in August that the company was thinking about cutting even more jobs.

On a side note, news reports today suggested that a replacement for Sihler might be found by the end of this month, and that Karl-Uwe Ricke, the head of T-Mobile International AG is the favorite candidate.

The former German state phone monopoly said that the cuts were part of its plan to increase efficiency, improve results, and accelerate the reduction of its more than €64 billion debt load (see Debt Weighs on Euro Carriers).

"We are in tough competition in Germany, and we have to adjust our staff to these conditions,” says Hans Ehnert, a spokesman for DT. "These cuts should not affect the customers or the service."

Analysts say that, unfortunately, it also may not have the desired effect on the financials. "Since the announced job cuts represent about [11 percent] of DT’s total workforce, it is unlikely that the job cuts alone will be able to contribute enough in and of themselves to make a substantial dent in DT’s debt,” Cohan writes.

While Deutsche Telekom may be the first European service provider to announce layoffs on this scale, it won’t be the last, Johnson says. “All of them will have to follow suit. The bankers are calling, the debts are coming due. If your assets are worthless, then your only alternative is people.”

— Eugénie Larson, Reporter, Light Reading
www.lightreading.com