Sonera announces major job cuts

In August 2001, the Finnish telecommunications operator Sonera - of which the government is the main shareholder - announced that it would cut its workforce by 10%, to the shock of its employees. The job cuts are seen as reflecting a crisis in the whole sector, arising the recent auction by many European governments of expensive 'third-generation'mobile telecommunications licences

In spring 2000, the mainly state-owned Finnish telecommunication operator Sonera participated in the 'third-generation' mobile telecommunications licence auctions held in various European countries. As a result, the company got into heavy debt and is now trying to find a way out by cutting its costs. In August 2001, the company announced major staff cuts aimed at achieving cost savings. It thus started talks under the provisions of the Cooperation Act with employee representatives over cutting its 11,000-strong workforce by 10%. The goals of the personnel reductions and structural changes are to eliminate overlaps and make Sonera's operations more effective.

Problems for international telecoms operators

European telecommunications operators and mobile telephone producers are currently preparing to move on to the next generation in mobile telecommunications technology. This third generation – 'universal mobile telephone services'– follows the existing analogue and digital services, and will allow users to access the internet and receive video on their mobile telephones, with a greatly enhanced delivery speed. For this to occur, networks must be built, and these require licences to operate on the relevant radio frequencies. In many European countries (though not all), governments decided to distribute these licences by means of auctions. These auctions resulted in not only Sonera but also the major operators such as Vodafone, British Telecom and Deutsche Telekom getting into considerable debt.

Sonera decided on a strategy of joining in the licence auctions in various European countries with the other operators, so as not to be left a marginal actor in the market. However, the licences proved very expensive in relation to the turnover of the company. The most expensive was the German licence, which the company successfully applied for as a member of the Group 3G together with the Spanish Telefónica. The licence cost EUR 8.47 billion. Sonera's share of this cost was about EUR 3.6 billion, while its turnover in 2000 was EUR 2.057 billion. In the same year, its operating profit was EUR 1.748 billion, while its net debt was EUR 5.641 billion.

Before the new technology can be brought into use, the costs of building the necessary mobile network will have to be added, and no exact figures are yet known for these. In connection with the debts it has built up, Sonera's share price has collapsed, as has that of many other companies. At the same time, the stock market has become uncertain of the future prospects for the entire telecommunications sector, and share prices have dropped on stock exchanges all over the world.

The largest shareholder in Sonera is the Finnish government, which has been waiting for a suitable moment to sell its shares at a good price. In mid-2000, the share price was still at a record-high level, but the final sum paid at the licence auctions, with the debts involved, caused the price to plummet thereafter. The government sold part of its stock during spring 2000, at the time of high prices, thereby reducing the public debt. However, the politicians decided that the government should retain a majority share. This majority ownership has meant that the company has become a battle ground for political conflicts. In spring 2001, the company still had an administrative board consisting of political appointees, though this was dissolved at the most recent shareholders' meeting.

Unions react strongly against cuts

Sonera, burdened by its heavy debt, has tried to find a way out of this difficult situation. It has attempted to pay off the debts by means of revenues that it has received through selling its shares in foreign operators. This money has not been enough and so, in order to cut more costs, the company has now decided to reduce its workforce. This has brought strong reactions from the trade unions, which consider its recruitment and expansion policy as irresponsible.

The Metalworkers' Union (Metalliliitto) and the Finnish Confederation of Salaried Employees (Toimihenkilökeskusliitto, STTK) have sharply opposed the job cuts from the very beginning. The former has demanded the resignation of the Minister of Transport and Communications, Olli-Pekka Heinonen, who is responsible for overseeing the government's stake in Sonera. The chair of the Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK), Lauri Ihalainen, has expressed the hope that Sonera will arrange a training package for those in danger of losing their jobs. The unions' have also criticised strongly the large share options of the company's managers, which were granted on the grounds that otherwise it would not have been possible to attract sufficiently qualified management personnel. The unions final statement on the issue will be published after the result of the cooperation negotiations is known.

The former Sonera chief executive, Kaj-Erik Relander, who was in charge of buying the licences, and the chair of the board, Markku Talonen, had already resigned in June 2001 after strong public pressure was directed against the company's management.

Commentary

Sonera's intention to make such drastic personnel cuts has aroused a lot of attention and debate. Underlying the crisis are the decisions by many European governments to sell the next-generation mobile telecommunications licences by auction. It had been forecast in some quarters that this would slow down Europe's transition to the third-generation telecommunications technology, causing it to lag behind Japan in this area. With the current downturn in the economic cycle, the prices raised at the auctions are now looking excessive even for the biggest European actors in the field.

The Finnish and Swedish governments decided to issue their licences free of charge, which may have been wiser from the standpoint of the telecommunications sector as a whole. However, the fact that many governments decided to hold auctions does not eliminate the responsibility of the companies for attempting to win the expensive licences.

On these grounds, Sonera's management share-option arrangements appear questionable now that the company is in deep trouble due to management decisions. The job cuts have aroused political passions, too. The pressures on the right-wing Minister of Transport and Communications to resign are growing steadily. The previous Minister had been implicated in a stock scandal involving a previous Sonera chief executive, and had to resign. The company has been in trouble many times before, and managers have come and gone through 'revolving doors'.

The redundant employees may take comfort in the fact that the job prospects for professionals in this growth sector are still quite good. The trade unions' chances of saving the jobs at this stage are very slight, because cooperation negotiations mainly signify the implementation of decisions already made. (Juha Hietanen, Ministry of Labour)

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