As the economic downturn continues, there is still a lack of clarity on the extent, depth and duration of its impact on telecoms in the developed economies of Europe and North America. Telecoms services are protected to some degree because of their utility nature, but are not entirely immune from pressure on revenue. Company failures, job redundancies, fear of unemployment and broader worries over financial security give 2009 all the hallmarks of difficult year.
Telcos tend to reduce prices to maintain market share in a difficult economic environment, but the resulting decline in revenue will contribute towards a decline in profitability. The somewhat obvious and logical conclusion is that telcos will need to place an increased focus on cost control. This is not a radical departure from previous strategies, since telcos have been engaged in cost and organisational transformation for at least the past ten years.
Most telcos have attempted to streamline their businesses in recent years, and have used headcount reductions as a fundamental part of their strategy to improve operational performance. Table 1 shows percentage change in the number of workers directly employed by some major operators. These top-level figures can mask the impact of major organisational changes, such as acquisitions.
| Operator |
Percentage change in number
of employees, 2004–2008 |
| TDC |
-28% |
| Telecom Italia |
-13% |
| France Telecom |
-10% |
| Deutsche Telekom |
-7% |
| BT Group |
8% |
| TeliaSonera |
11% |
| Vodafone |
25% |
Table 1: Percentage change in number of employees for selected telcos,
2004–2008 [Source: Analysys Mason, 2009]
Furthermore, most telcos have achieved growth in the amount of revenue generated per employee, with an average of almost 11% among selected telcos between 2004 and 2008 (see Table 2). Figure 1 shows revenue per employee on an annualised basis.
| Operator |
Percentage change in revenue
per employee, 2004–2008 |
| France Telecom |
26% |
| TDC |
24% |
| Telefónica |
19% |
| Deutsche Telekom |
14% |
| TeliaSonera |
14% |
| Telecom Italia |
11% |
| BT Group |
6% |
| Telekom Austria |
0% |
| Telenor |
-14% |
Table 2: Percentage change in revenue per employee for selected telcos,
2004–2008 [Source: Analysys Mason, 2009]
Figure 1: Revenue per employee for selected telcos, 2002–20081
[Source: Analysys Mason, 2009]
Of all the measures selected to control operating costs, reducing staff numbers is one that many telcos have used during the past year (see Figure 2). Within most of these companies, the pattern of job losses is clear: they lie mostly in fixed services and group operations.
Figure 2: Workforce reductions announced by selected telcos in 2008
[Source: Analysys Mason, 2009]
If revenue growth remains flat in 2009, workforce reductions would appear to be the obvious means of maintaining previous levels of revenue per employee. The recession may force operators to take immediate action to control operating costs, but they do need to take a long-term view when considering the business cases for transforming these costs. As restructuring and cost transformation are already the norm, it is prudent to regard socalled ‘one-off costs’ as part of the ongoing costs of a business.
Insourcing and outsourcing trends tend to be cyclical in the telecoms industry. Reducing operational gearing through outsourcing can be an effective short-term measure in a recession, but can leave a business exposed to inefficiencies in operating costs and over-dependence on key suppliers when they re-enter a growth phase or when competition between suppliers is less intense. Operators need a very solid business case (for example, recurrent savings of more than 20%) for a cost transformation initiative, not just a marginal one.
It is critical that operators manage costs in such a way that they will be best-placed to take advantage of the economic upturn when it comes. This strategy could encompass transforming the business to take advantage of shifts in value from legacy fixed telephony to growth markets in mobile telephony. Equally, telcos should consider outsourcing low-value employee activities while retaining more-skilled and high-value employees.
1 Euro figures stated at the year-average exchange rates for 2007.
Analysys Mason’s report, Planning for the upturn: recession strategies for telecoms operators, answers the questions that most operators will need to address in order to emerge from the recession with an enhanced competitive advantage.
The report was published as part of Analysys Mason’s Industry Strategy research programme, which provides business leaders with unique analysis of underlying intra- and inter-industry dynamics, as well as their relation to macro-economic and social factors at a country, region and global level. In addition to reports and other publications, the programme provides analyst support and strategy sessions to help clients develop long-term strategy and investment plans.