The 20 largest telcos with headquarters in Europe and North America slashed more than 63,000 jobs last year, and ten of them have cut nearly 21,000 roles in 2017 as companies automate their operations and bolster efficiency metrics, according to a recent Light Reading article.
Not surprisingly, the layoffs were accompanied by an increase of nearly 5% in the average figure for revenues per employee (from about $448,000 to roughly $470,000) because revenues have not been dropping at the rate expected by an industry that seems, rather unfairly, to have lost favor with investors.
In India, the cutbacks have been even more dramatic with the Economic Times reporting that the telecom sector lost a quarter of its workforce, or some 75,000 employees, in the last year as operators, tower firms and vendors consolidate to remain afloat in that severely competitive market.
The article went on to say, “In the telecom industry, manpower accounts for 4-5% of the costs, but in the last few years there was no reining in of salaries. Now that expenses need to be harnessed, employees will be the first casualty.”
Ratings agency Moody stated that the fierce competitive environment in India has meant that it will be the only Asian country where telecom revenues have declined. In the other emerging countries, analysts expect revenue growth of about 3.5% in 2018, lower than forecast GDP growth of about 5.8%. And revenue growth in the developed markets in the region will remain in line with expected GDP growth of around 1.5%.
In recent years APAC telcos such as Singtel and Telstra have shifted their growth strategies to information-communication technology operations including cybersecurity, cloud services and digital health applications. To survive in the era of technology disruption, Singtel has moved from investing in overseas telecoms companies to expanding its digital businesses, which made up a quarter of the company’s total revenue for the July-September period.
Global operator Vodafone recently reported what was perhaps its best first-half results of the past several years – most geographic segments experienced moderate strength, with cost management helping to drive solid EBITDA growth.
There is no doubt that growing economies speeds up the demand for real-time voice, data and video services, and these in turn force communications service providers to undertake large network extensions and transformation of internal processes. This in turn gives a boost to the demand for hardware and software vendors.
Additionally, a major characteristic of the industry is that it is immune to international geopolitical disturbances, even when these lead to economic fluctuations. For customers, being connected is no longer optional – it is fast becoming a necessity that shows no signs of abating.
So why are telcos being shunned by investors seemingly in favor of “sexier” digital businesses – largely untested and highly speculative in nature – that seem to suck in billions of dollars, often with no real business case or revenue-generation plans?
Maybe it’s because the industry is so tightly regulated that the only scope for growth is by acquisition (also under the keen eye of anti-competition bureaucrats) or by international expansion. Yet neither has delivered sustained growth.
Is it because CSPs are continuously scouring the money and bond markets for seemingly endless network expansion/updates and transformation projects – both of which don’t always show tangible results in terms of increased revenues or improved efficiencies?
Is it because mobile operators in particular are constantly being forced to bid for spectrum just to meet the growing demands of customers and minimum service obligations imposed by regulators?
Is it because they are viewed as stodgy, old-fashioned leftovers from a bygone era of monopoly and government ownership being hindered by legacy assets that are being sweated to the nth degree?
Or are there concerns that attempts to reduce costs by reducing head count (as illustrated above) are short-term solutions that compound stress levels of remaining staff and add considerable risk to the business? Remember the Orange tribulations a few years back when a wave of stressed out staff (23 in total) committed suicide and the CEO resigned?
Whatever the reason(s), the fact remains that despite their consistent ability to turnover vast amounts of cash and be profitable, telcos just don’t attract the new money being thrown at digital things. As one financier put it, “today it’s all about growth” – and risk, it seems, takes a back seat almost reminiscent of pre-dotcom bust days.
Governments around the world, reluctant to invest in telecoms infrastructure themselves, expect CSPs to foot the bill as part of their cost of doing business. European countries, with supposedly developed economies, are wondering why they are falling behind in the connectivity stakes as they put more and more pressure on telcos to invest.
What incentives are there, especially for mobile operators who also get hit in the spectrum bidding wars as well? Maybe, just maybe, they are expecting the big digital players like Google, Amazon, Facebook, Netflix and their ilk to step in and save the day. But why would they throw good money at those unsexy telcos when they get all the benefits of connected customers without the headaches?
Would it be fair to say that the proverbial is about to hit the fan? If one big network operator falters, will we see a domino effect? Stay tuned, 2018 could well be the year.