Deutsche Telekom to Cut 32,000 Jobs

German incumbent will take $4B charge as it cuts its workforce dramatically during the next three years

November 3, 2005

2 Min Read
Deutsche Telekom to Cut 32,000 Jobs

Deutsche Telekom AG (NYSE: DT) surprised the industry and analysts Wednesday by announcing that 32,000 staff will leave the carrier during the next three years. The plan will cost the operator €3.3 billion (US$4 billion) over the next three years. (See DT to Cut 32,000 Jobs.)

Most of the cuts will be made in Germany, amounting to about 19 percent of the total 169,000 staff employed in its home market. Globally, DT employs about 244,000 staff. The reductions will come from retirements and voluntary redundancies initially, with DT saying it won't make any compulsory redundancies before 2009.

That's further bad news for the German telecom sector. Siemens Communications Group is also cutting staff numbers. (See Siemens Cuts IT Services Jobs.)Deutsche Telekom CEO Kai-Uwe Ricke said the cuts were necessary because of the "worldwide realignment of the industry, the rapid pace of technological development and, in particular, the tough competitive environment in the fixed network and broadband sector in Germany imposed by the regulatory situation."

That regulatory imposition is the recent decision that forces DT to allow rivals access to its fixed-line voice and broadband networks at new, lower costs.

Of the 32,000 staff affected, 7,000 support staff will be transferred to new employers as part of a call center outsourcing scheme, while 25,000 jobs will be discontinued.

But there is also the potential for the creation of 6,000 new jobs, noted the carrier, so the net reduction of jobs will be 19,000.

"On the one hand, we have to cut jobs in old core markets; on the other, there are opportunities to create jobs in new innovative markets," noted the CEO.

However, in its official statement the carrier made it clear that the new jobs were dependent on favorable regulatory conditions surrounding DT's planned €3 billion ($3.6 billion) fiber-to-the-curb project. (See DT Flings Billions at Fiber Access.)

"Future and present employment potential is greatly dependent on regulatory decisions. For instance, if the development of a high-speed fiber-optic network were endangered by regulation of this new market, an additional 5,000 jobs would be jeopardized," stated DT in its press release.

Analysts applauded the decision, with the team at Lehman Brothers saying the move is "value enhancing." Lehman has raised its target price for DT's stock to €21.80. This morning the stock is up slightly on the German stock exchange to €14.91.

Meanwhile, Daiwa Securities SMBC Europe analyst James Enck notes in his daily blog that "a net reduction of 19,000 is a lot of people, but at only 7.8% of the total headcount as at June 30, is it enough?"

German union representatives think it's too many. Franz Treml, leader of Verdi, Germany's services trade union, told Reuters: “What they are suggesting are horrific numbers.”

— Ray Le Maistre, International News Editor, Light Reading

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