BT Adds to Headcount Cull

Europe's telecom sector received another tough blow Thursday as BT Group plc (NYSE: BT; London: BTA) announced it will cut its global workforce by 10,000 during the current financial year, which closes at the end of March 2009.

News of the cuts, delivered as part of BT's second-quarter results, comes in the same week that job losses were announced by other European telecom firms. (See Europe Hit With Big Telecom Jobs Cuts and BT Reports Q2.)

BT began its current financial year with a workforce of about 160,000, of whom 50,000 were indirect staff (contractors, sub-contractors, agency staff, offshore workers seconded to BT), and the remaining 110,000 staff were direct employees. By the end of the financial year that total will be down to 150,000.

A BT spokesman says about 6,000 of the positions that will be cut are indirect, while about 4,000 are direct staff posts. He says about 7,000 people each year leave BT, either through retirement or by moving to another employer, so the carrier is confident it can make up the 4,000 direct job cuts through that sort of employee turnover. The difference between this financial year and others is that those positions vacated by such turnover will likely not be refilled.

The spokesman claims the plan to cut the positions was taken before the current fiscal year began in April, and says about 4,000 of the cuts are already accounted for, with that number comprising a reduction of 3,400 indirect and 600 direct positions to date.

The carrier says it's not disclosing how many jobs will be lost in the U.K. in the course of the reductions, and notes only that all parts of the carrier's business will be affected by the reductions.

Somewhat strangely, BT says it doesn't currently know how much it will save in annualized operating expenses by reducing its headcount by 10,000 -- that impact will only be properly known after this fiscal year is over, says the spokesman.

BT's problem child
While the carrier isn't providing a "line of business breakdown" around the job cuts, it seems likely the BT Global Services division will take a sizeable hit: Even before today's earnings report, BT had identified that division as a financial problem child, blaming its still high cost base for the group's full-year earnings revision. (See BT Under Pressure and BT Issues Profits Warning.)

The issue with Global Services became very apparent today as the carrier reported its second-quarter results: Revenues were up by 4 percent year-on-year at £5.3 billion (US$7.86 billion), but profits (before tax and one-off items) were down 11 percent at £590 million ($875 million).

That profits dip can be directly traced to Global Services. While the division's revenues are up an impressive 15 percent year-on-year to £2.16 billion ($3.2 billion) for the quarter, it reported an operating loss of £53 million ($79 million), compared with a small operating profit a year ago. BT noted it is disappointed with the division's performance, saying the slide in profitability is due to "slower than anticipated delivery of efficiency savings and the continued decline in higher margin UK business."

BT is already working on the cost problem, having installed former finance director Hanif Lalani as the new CEO of Global Services. (See BT's Barrault Bolts.)

The division has plenty of existing and new business for Lalani to work with: BT noted that Global Services' "total order intake in the [second] quarter amounted to £1.8 billion [$2.7 billion], up 11 per cent year on year, bringing the value of orders achieved over the last 12 months to £8.4 billion [$12.5 billion]."

BT's other divisions -- Retail, Wholesale, and Openreach -- are all operating in line with expectations, with each delivering improved or flattish operating profits in the second quarter. BT's overall revenues are expected to grow in the current financial year, but the carrier doesn't expect a quick enough turnaround at Global Services to avoid a decline in full-year earnings.

News of BT's cost-cutting efforts helped its share price rise by 9.6 percent to 123.3 pence ($1.82) on the London stock exchange Thursday.

— Ray Le Maistre, International News Editor, Light Reading

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