Vodafone unveiled aggressive plans to automate processes across its business, raising the prospect of job cuts in the next few years, as it reported earnings for the recent fiscal year.

The update came as the UK-based operator revealed that CEO Vittorio Colao will step down later this year, with CFO Nick Read set to replace him in the leadership role.

Vodafone Group plc (NYSE: VOD) also reported a sharp rise in profitability despite shrinking sales for its recent fiscal year ending in March. Revenues were down 2.2%, to around €46.6 billion ($55.6 billion), while operating profits rose 15.4%, to €4.3 billion ($5.1 billion), thanks largely to cost efficiency initiatives, said Vodafone.

It also swung to a net profit of €2.8 billion ($3.3 billion), from a loss of about €6.1 billion ($7.3 billion) in 2017, when a write-down in India badly hit its financial results.

The operator did not provide details of headcount in its earnings statement, but a spokesperson told Light Reading that employee numbers across the business stood at 108,271 in March 2017.

Vodafone now says there is "substantial scope" for automating processes in IT and network operations, back-office functions and other administrative areas. It has set up an "automation unit" at its shared service centers and says around 200 "bots" were active in that unit in the first three months of this year.

Vodafone also said that "chatbots" would be used to handle 60% of customer contacts by the 2021 fiscal year, up from just 1% today. (See Chatbot Takes Charge: Vodafone's Customer Services Overhaul.)

Using artificial intelligence, chatbots can now handle many customer service requests and are replacing customer service assistants at some operators.

Colao said the operator's primary goal was to speed up the pace of digitization at the company.

The "Digital Vodafone" program, he said, represented "a unique opportunity to enhance our customers' experience, generate incremental value and improve cost efficiency."

However, a Vodafone spokesperson insisted the focus of current automation activities was not to reduce staff numbers but rather to simplify processes and improve services for Vodafone customers. The use of chatbots, he said, was changing the nature of the job for customer service assistants, allowing those employees to help Vodafone's subscribers in entirely new ways.

Vodafone, it should be noted, is one of a small number of Tier 1 operators whose staff numbers saw little change in the fiscal year ending in March 2017, compared with the previous year.

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Details of cost savings and the automation program will cheer investors looking for a margin boost while sales growth remains elusive. Vodafone's margin for earnings (before interest, tax, depreciation and amortization) was up from 32.9% in the 2017 fiscal year to 35.9%.

Vodafone said it was aiming for an organic increase of between 1% and 5% in adjusted EBITDA in the 2019 fiscal year, excluding its Indian subsidiary.

But the efficiency drive sends a troubling message to industry employees already reeling from news of planned headcount reductions at other service providers. UK fixed-line incumbent BT Group plc (NYSE: BT; London: BTA) last week announced plans for 13,000 job cuts in the next few years as it aims to become a leaner company. In the US, CenturyLink Inc. (NYSE: CTL) has said it will cut 2% of its workforce, or about 1,000 jobs, as it automates operations. (See BT's Patterson May Be Running Out of Time, BT to Slash 8% of Jobs in Efficiency Drive and

Merger activity also threatens a workforce cull in the next few years. Vodafone has just announced plans to acquire several European cable networks from Liberty Global Inc. (Nasdaq: LBTY), including the large Unitymedia GmbH business in Germany, and believes the tie-up will deliver annual cost savings of €535 million ($638 million) in future. It is also merging its Indian business with local rival Idea Cellular in a deal that will create a new market leader. (See Vodafone Pounces on Liberty Cable Assets in €18.4B Deal and

"We have made good progress in securing approvals for the merger with Idea Cellular in India -- which is expected to close imminently -- and appointed the new management team, who will focus immediately on capturing the sizeable cost synergies," said Colao in today's earnings update.

In the US, T-Mobile and Sprint, the country's third- and fourth-biggest mobile operators, are hoping competition authorities will approve their own merger plans. They say a tie-up will deliver €6 billion ($7.2 billion) in annual cost savings in future. (See T-Mobile, Sprint Combo Could Threaten German Digitization.)

Colao's decision to step down will cast a shadow over the Liberty deal, which European regulators will have to approve. He has argued passionately for the merger in the face of opposition from Deutsche Telekom, Germany's telecom incumbent. The task of convincing regulators a deal should go ahead will now fall to Read. (See DT CEO to Fight Vodafone-Liberty Deal.)

— Iain Morris, International Editor, Light Reading