Restructuring and job cuts in the telecoms sector

In February 2002, substantial job cuts were announced by British Telecom and its now demerged mobile phone business, mm02, affecting employees in the UK and Germany. This feature examines the background to the job cuts and the wider restructuring currently taking place within the telecommunications sector across Europe.

February 2002 was a bad month for employees in the telecommunications sector. At the beginning of the month, the mobile phone operator mm02, which was recently demerged from British Telecom (BT), announced that it was to cut 1,900 jobs across its British and German operations. Less than a fortnight later, the BT group announced that it was to cut 1,000 jobs in the UK, a move which came hot on the heels of the announcement of 500 job cuts in its German operations. This feature examines the details of these job cuts in the context of the restructuring in the sector more generally.

Restructuring at British Telecom

Following privatisation in 1984, management at BT embarked on a programme of organisational change which had significant consequences for employees: employment fell from 240,000 at the time of privatisation to 170,000 a decade later; collective bargaining over pay and conditions was decentralised to divisions; a number of the firm's new subsidiary companies refused to recognise unions at all; and shift patterns were changed so as to allow management much greater flexibility in the deployment of labour. In the mid-1990s, BT, now operating in a much more competitive market than hitherto, particularly in the mobile and business markets, continued to shed jobs in response to pressure from the financial markets to cut costs. It was the intensification of these pressures that led to the radical restructuring of the firm late in 2001.

Under pressure from investors for much greater transparency concerning the performance and value of the different parts of its business, BT announced that in November 2001 it would demerge its mobile phone business. The new company, called mm02, includes Cellnet in the UK, Viag in Germany, Digifone in Ireland and Telfort in the Netherlands. The BT group now consists of five principal divisions:

• BT Retail, which serves private customers;

• BT Wholesale, which provides network services to companies in the UK;

• BT Ignite, which offers services to customers internationally;

• BTOpenworld, which provides internet services; and

• BT Exact Technologies which is the research and development arm.

Job cuts announced

Within three months of the demerger, both mm02 and BT were announcing large numbers of job losses. The 1,900 job losses at mm02, representing 20% of the firm's entire workforce, are part of a move to achieve cost savings of GBP 70 million a year. The majority of the job cuts will come in the UK where 133 of mm02's 320 retail outlets will be closed, reducing employment by 1,400 to 6,100. The company would not make any guarantees concerning how the job cuts would be achieved but stressed it was aiming for voluntary redundancies. Connect, the trade union that represents skilled technicians in the industry, said that the prospect of compulsory redundancies 'would not be taken lightly'. The remaining 500 job cuts are to fall in the Viag subsidiary in Germany, leading to a cut in employment to 3,400.

The cutting of 1,000 jobs at the BT group, meanwhile, was to come primarily in the call centres that form a part of its BT Retail arm (UK9912143N). The company has the biggest network of call centres in Europe and plans to 'significantly reduce' the number of locations from 150. These latest job cuts follow a reduction in employment of 2,000 over the past year at its call centres, as the firm seeks to make greater use of new technology to reduce its workforce. Managers sought to reassure the workforce and the unions that the cuts would be achieved through voluntary means, something that will be facilitated by the relatively high labour turnover rate of around 10%. The loss-making BT Ignite division has also announced cutbacks, with its German subsidiary bearing the brunt of this move. Managers are looking to lay off as many as 500 of its German workforce of 1,500, the majority of whom are based in Munich.

Commentary

The job losses at BT and mm02 partly reflect the conditions in the telecoms sector generally. After several years of rapid expansion, the market for mobile phones in particular has neared the point at which it is saturated, leading the manufacturers of mobile phones, such as Ericsson, to make cutbacks (SE0104193N) as well as the operators of the networks. The high cost of the licences for the so-called 'third-generation' mobile phones, through which people are able to access the internet, that were auctioned off in most countries in 1999 and 2000 when sentiment in the market was still optimistic, have saddled the phone operators with substantial debts. Job cuts have not been confined to the mobile part of the sector, however. In recent months, the Finnish telecommunications operators, Sonera, has cut 10% of its workforce (FI0108100F), while KPN of the Netherlands has also announced 2,800 job cuts along with pay cuts for remaining staff (NL0111103N). These developments have taken place, of course, in the context of the slowdown in growth in most developed countries.

The cutbacks at the two British-based firms are not only attributable to the sectoral conditions, however, but are also caused by factors specific to the UK. The intensity of the pressures to deliver 'shareholder value' appear to be greater in the UK than elsewhere, and this was a major factor in the radical restructuring of BT's business. The performance and value of the different parts of what was an integrated telecommunications company are now much more visible to outside investors. Moreover, the ease of takeover in the UK means that unsatisfactory performance can lead to a change in ownership, and the smaller size of each of the demerged firms makes it easier for another company to fund an acquisition. Indeed, rumours are already circulating that mm02 may become a takeover target for a firm such as Telefónica of Spain.

The prospect of a possible takeover by a firm based elsewhere in Europe highlights the internationally integrated nature of the key players in the sector. A few years ago, each country in Europe had one integrated telecoms provider, which was normally state-owned. Following privatisation and the development of a range of new technologies, the sector is characterised by a number of firms with significant international reach (TN9912201S). Consequently, decisions on job cuts and restructuring more generally have effects on employees across borders. This is demonstrated not only by BT but also by Deutsche Telekom, which made cutbacks at its British subsidiary One2One in November 2001, laying off 900 workers representing 13% of total employment. Vodafone, the largest mobile phone company in the world, has also made job cuts recently, with the workforce being reduced by 600 late in 2001. With competitive pressures intensifying at the international level, and with technological change continuing apace, the wave of cutbacks shows little sign of abating. (Tony Edwards, Kingston University)