Telecom Layoffs Tapering Off?

As the Nasdaq Composite probed its lowest point in six years and observers continue to predict bleak outlooks in the telecom industry, a survey of technology job cuts over the past three months actually offers a shimmer of hope.

A survey by Challenger Grey & Christmas Inc., a Chicago firm that tracks employment trends and offers outplacement programs, found that the number of layoffs in the telecom sector fell 52 percent from the second to the third quarter this year, dropping to 39,717 from 83,318. This was 58 percent fewer layoffs than in the same quarter last year. And with only 6,956 telecom layoffs in September 2002, last month had the lowest number of job cuts in the industry since November 2000.

Of course, the law of small numbers is also at work: After 205,557 people in the sector lost their jobs during the first nine months this year, it might be harder and harder to find people to cut.

Still, some observers prefer to look at the glass as half full:

“That’s positive news. That’s the light at the end of the tunnel that we’re all waiting for,” says Jeff Kagan, an independent analyst based in Georgia. “But it’s not over. The pain is not over.”

While the slowdown in layoffs in telecom is substantial, analysts are reluctant to say that it indicates an industry rebound is on the way. “It is probably too soon to celebrate,” John Challenger, the CEO of Challenger Grey & Christmas, wrote in a company release late last week. “Some companies may be down to bare bones now and cannot afford to eliminate any more jobs without going out of business.”

In addition, cutting jobs, like the market, is a volatile thing. You might have huge cuts one month, only to see the numbers plummet to new lows the next. Just because it looks as if the layoffs are slowing down today doesn’t mean that we won’t be overwhelmed by a new tidalwave of job cuts in the months to come.

Beside the effects headcount reductions have on the employees who are let go, cutting jobs also jeopardizes customer service. When SBC Communications Inc. (NYSE: SBC) recently announced that it would soon slash 11,000 jobs, or 6 percent of its workforce, it said it couldn’t guarantee that service and customers wouldn’t suffer (see SBC's Fed Up, But So Are Its Critics).

“With every wave of job cuts that comes, we get closer and closer to where it impacts the customer experience,” Kagan says. “We’re not there yet, but we’ve got to be close.”

Because there has been so much upheaval over such a short period in the competitive carrier market, Phil Jacobson, an analyst with Network Conceptions LLC, says he’s not surprised that the layoffs have subsided a bit. But, he says, he expects we still have a long way to go before we see a long-term layoff lull. “I’m not surprised that it’s slowed down on the competitive side,” he says, “but there are still a lot of potential layoffs left to go on the RBOC side.”

Jacobson worries that the regional Bells have only just gotten started trimming down their operations and that there may be a lot more layoffs to come. While the RBOCs are fairly lean on the service side, they still have a lot of overhead they can cut, and they probably will. “They still have a lot of fat,” he says.

According to the survey, other technology sectors also saw a decline in layoffs over the past three months. Altogether, the telecom, electronics, computer and e-commerce sectors slashed 91,450 jobs in the third quarter this year, down from 132,953 in the previous quarter. While three of the sectors saw a dramatic reduction in cuts, the electronics industry actually saw a 175 percent increase in job losses for the quarter.

”It’s only natural that the job cuts are coming at a slower pace,” Kagan says of the telecom industry. “We’ve been at this for a couple of years now.”

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