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Telcos urged to minimise jobs bloodbath amid Telkom retrenchments

Samuel Mungadze
By Samuel Mungadze, Africa editor
Johannesburg, 16 Jan 2020

Telecoms firms should fight hard to minimise job losses by prioritising shifting some of the affected employees into growing new revenue lines, analysts say.

Reacting to news that Telkom is set to reduce its workforce by 3 000, the analysts say SA’s telecoms sector is under pressure due to a weaker economy, regulatory uncertainty and increasing competition from non-traditional service providers.

However, they believe job losses may still be averted if government and telcos assist the affected workers by enabling them to acquire new skills.

Sabelo Dlamini, senior research and consulting manager at International Data Corporation, says: “Re-skilling and upskilling the workforce to be ready for the next industrial revolution would be one of the options government can go for, as this trend is not going to affect the telecoms industry alone.

“While regulatory and economic constraints may be highlighted as possible causes of the retrenchments, the company [Telkom] may have realised it can improve operations by adopting more digital processes with less human resources required.

“But more than this is required in the telecoms industry as the traditional revenue streams are shrinking. Telcos need to transform and develop new revenue streams in IOT, AI and robotics; we have seen others speedily moving towards fintech and financial services.”

Explaining further, he says: “The telecoms sector is at the centre of the digital revolution, and, as such, it will need to respond accordingly. In this digital transition, most industries are going through technologically-induced organisational changes and the telecoms industry will not be left behind. Actually, the telecoms industry should be leading in this digital transition.”

Dlamini believes most telcos are already going through digital transformation programmes, which will see the bulk of their operations automated with the adoption of technologies such as robotics and process automation.

However, he notes this comes with upskilling and re-skilling of the workforce, which may reduce the number of workers impacted by the digital transition.

More cuts to come

Similarly, Peter Takaendesa, head of equities at Mergence Investment Managers, says while more layoffs are a possibility, jobs could still be saved.

He points out more job cuts are a possibility, especially if the Competition Commission’s demands that some mobile data prices be cut by up to 50% in the next two months are enforced in this environment of weaker economic growth and spectrum allocation delays.

“However, we expect mobile operators to be less affected relative to fixed-line, so the pressure to reduce headcount should be less pronounced in that sector. It would be ideal if telecoms players could fight hard to minimise job losses by prioritising shifting some of the affected employees into growing new revenue lines.

“The recent trends in Telkom’s fixed-line voice business suggest the revenue line will be gone in the next three years if it continues to decline at the current rate.

“If one looks at the interim results to end September 2019 that Telkom reported, you will see Telkom’s balance sheet and profitability are under pressure and the company could get into trouble if nothing is done to change the trajectory,” Takaendesa notes.

“The share price collapse is one of the early warning signs that something has to be done and the company has indicated shareholders will also have to take some pain as the dividend will be cut or eliminated.”

Telkom’s share price went through a tumultuous time last year; for some time it traded above R100 a share before crumbling halfway through the year, losing two-thirds of its value.

Telecoms analyst Dobek Pater of Africa Analysis notes that new technology, which is becoming increasingly automated, requires less human involvement for operational and maintenance purposes, hence Telkom’s move to lay-off workers was inevitable.

He explains: “When Telkom began its restructuring process a number of years ago, the analyst community estimated Telkom Group should be able to operate efficiently with some 10 000 to 12 000 employees (Telkom and BCX combined).

“Over the past several years, Telkom has reduced its staff complement significantly and has outsourced some of the non-core functions. The ability to operate efficiently with fewer staff members is also driven by (or the result of) technological development and change in the mix of technologies used by end-users.

“With Telkom Mobile becoming more prominent, mobile operations are less human-resource-intensive. As an example, mobile operators such as Vodacom, MTN and Cell C operate with a much lower staff complement even though they have larger customer bases.”

The pricing dilemma

There are also external factors which weigh on telcos. Pater says: “Consumers and also businesses, to an extent, have been moving from historical services (typically more expensive) to new services which typically cost less. As an example, a move from traditional circuit-switched voice to various VOIP services. This results in declining revenues on historical services which are not necessarily fully replaced with revenue from new services. This also results in lower profitability of operators.”

He believes pressure to reduce retail prices even further is also a factor.

“The classical example in SA is the pressure applied mainly on the mobile operators to reduce the retail prices of data services; pressure from government institutions and segments of the society at large. Faster rather than more gradual or slower price decline will result in loss of revenue and profitability.”

The Competition Commission threw a curve ball to SA’s leading telcos last month, recommending they reduce their mobile data pricing by half.