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Telefónica kicks off 2024 with plan to cut 20% of Spanish jobs

Following an agreement with trade unions, Telefónica will lay off more than 3,400 employees at its domestic business.

Iain Morris

January 4, 2024

4 Min Read
Telefónica's sign on a company building
(Source: Telefónica)

Many Europeans trudge back into the workplace with a hangover and a despondent feeling after the long Christmas and New Year break. For staff at Spain's Telefónica the mood is likely to be especially somber this January following a deal between company management and trade union reps on layoffs. UGT, CCO and Sumados will claim to have saved jobs, having reportedly warned of more swingeing cuts in December, but a substantial percentage of the workforce will be saying adios (or something ruder) to the telco.

Under the agreement publicized this week, it will limit redundancies at the Spanish arm of the company to the rather precise figure of 3,421. That compares with the 5,100 job cuts Telefónica was seeking in December, according to unions cited in an AFP report then. In Spain, Telefónica employed a total of 20,947 people at the end of 2022, the operator disclosed in that year's annual report, but headcount was just 16,500 in December, according to AFP's report. The number of layoffs agreed with unions, then, equals about a fifth of the entire Spanish workforce.

The ax is expected to fall heaviest on older workers, meaning anyone who will be at least 56 years old in 2024 and has spent more than 15 years at the company, according to the short update issued by Telefónica on the latest plans. It is no great surprise. Senior workers tend to be more expensive and are likelier to have obsolete skills in a sector being rapidly transformed by technology.

But the cuts won't be cheap. Telefónica estimates they will cost about €1.3 billion (US$1.4 billion) to implement, almost a quarter of what it spent across the entire international business on personnel expenses last year. Telefónica, however, says there will be no "cash impact." It expects to generate annual savings of about €285 million ($312 million) from 2025 and foresees a positive impact on cash generation starting this year, with employee exits to begin this quarter.

Focus on efficiency

It all marks the continuation of a long-running trend in a European telecom sector beset by sluggish sales growth, intense rivalry, high costs and what telco executives perceive to be overbearing regulators. The response has included a sector-wide prioritization of efficiency measures and cost-saving moves designed to safeguard profits. Since 2016, Telefónica itself has cut more than 23,500 jobs across the entire global organization after selling assets, pooling resources with competitors and switching off old technologies. It finished 2022 with 103,651 employees.

Its recent unflattering financials explain the approach. While revenues for the first nine months of 2022 were up 2.4%, to about €30.5 billion ($33.4 billion), annual sales have fallen from about €52 billion ($57 billion) in 2016 to less than €40 billion ($43.8 billion) last year. Net profits for the nine-month period dropped 15%, to about €1.26 billion ($1.38 billion), and Telefónica was still carrying hefty net financial debts of about €26.5 billion ($29 billion) at the end of September. On the Spanish stock exchange, its share price has halved in the last five years.

Outsiders may be wondering how a provider of supposedly critical infrastructure can expect to lay off one in five domestic employees and still function. But there are clues in the capital markets day presentation that bosses gave as recently as November. Telefónica is way ahead of most other European incumbents on the rollout of full-fiber networks and expects to decommission its older copper-based network this year, eliminating many processes at the same time.

It is also winding down support for the ageing 2G and 3G mobile standards, as well as decommissioning some of its antiquated business and operational support systems. At a group level, said the company, all such activities should allow it to operate with 18% fewer employees and 31% fewer executive positions than it had in 2016. With the job of rolling out fiber almost finished in Spain, Telefónica no longer needs so many technicians to install it. Capital intensity – expenditure as a percentage of revenues – is forecast to drop from about 14% last year to just 12% by 2026.

But the real potential game changers for Telefónica and other telcos are extreme automation and artificial intelligence (AI). The virtualized and more software-programmable networks that operators are building can feasibly be maintained with less manual effort. Telcos dangle terms such as "zero touch" in reference to systems that operate without human intervention. The arrival of generative AI has triggered a wave of telco investment in chatbots, minimizing the need for customer service assistants of the flesh-and-blood variety. Through gen AI systems such as the Microsoft-backed GitHub Copilot, network software can increasingly write itself.

Proof some telcos can operate similar-sized businesses with a smaller workforce than previously is there in the numbers. Revenues at France's Orange, for instance, have been relatively stable since 2016, and yet its workforce has lost about 18,600 employees, roughly 12% of the former total. It has not been quite so good for Telefónica, with sales down 23% and headcount by 19% over the same period. But only the meaningful sales growth that has proven so elusive for telcos seems likely to stay the executioner's hand. And there is no guarantee of that.

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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