Telkom’s announcement yesterday that it would cut 15%, roughly 1800, of its workforce was not a surprise. In fact, the only surprise was that it was not a bigger cut, World Wide Worx CEO Arthur Goldstuck said yesterday.
This follows the mobile operator informing its shareholders yesterday that it would retrench 15% of total employees across the group, saying that it was challenged by managing its costs associated with the migration of revenue from old to new technologies.
Telkom said it would enter a formal consultation process with relevant stakeholders in terms of section 189 of the Labour Relations Act (S189A process) regarding the restructuring of certain operations.
“The S189A process will impact all business units and subsidiaries and is intended to ensure the sustainability of the group,” it said.
The group said it had managed the delicate migration of revenue between old and new technologies, but it was challenged with managing the costs associated with the different technologies, the competitiveness, and the sustainability of the group.
“Management has therefore embarked on a restructuring programme, which includes the S189A process, to optimise group costs in line with evolving technology capabilities and demands,” it said.
For the group to navigate the migration to new technologies, as well as current economic headwinds effectively, Telkom said its board believed that management should start a consultative process aimed at restructuring the organisation to meet future demands.
It was committed to minimising the impact of the restructuring and would engage with all relevant stakeholders and employees across the group, it said.
However, Goldstuck said the 15% retrenchment was quite a small number compared to previous cuts, also given the substantial shifts that had been happening in telecoms away from physical installation to mobile connectivity, and it was surprising that “it’s not bigger”.
“In its half-year results, released recently, Telkom said they had 10 788 employees. That means that around 1 700 to 1 800 staff will be affected.
“I think it’s not a lot relative to the size of the company and relative to the shift away from physical installation to mobile connections,” he said.
Goldstuck said the move was probably a combination of a strategic move, as well as an acknowledgement that the telecoms landscape had shifted significantly.
“Something to bear in mind is that the current headcount at Telkom was already half of what it was a decade ago because of the ongoing shift in telecommunications.
“When Telkom was a landline business, it was heavily dependent on having a massive workforce. As landlines have steadily disappeared, followed by ADSL lines also disappearing, the need for that workforce has continually diminished,” he said.
Goldstuck said it was important to note that Telkom had for much of the past 10 years or so been effectively run and managed.
Telkom’s shares closed 5.27% higher on the JSE at R35.94.
Commenting on the share rise, Goldstuck said typically when that kind of announcement was made, it gave the share price a big boost.
“Around the world, we often find that in companies if the share prices are under pressure. One of the ways that they address that is to retrench a proportion of the workers, and inevitably that increases the share price because investors like the idea of cutting costs, and cutting costs are the quickest way of shifting your bottom line,” he said.
Meanwhile, Mergence Investment Managers investment analyst Peter Takaendesa said what was happening at Telkom was a “painful thing” for all stakeholders who would be affected.
“Everyone is suffering. Shareholders are suffering as the share price has dropped over the past six months by 52%. The employees are also going to suffer. The reality is that management had no choice there as there is a structural decline,” he said.
Takaendesa said Telkom had to deal with tough competition (Vodacom and MTN) and operating a business in South Africa was costly.
“The cost of doing business in South Africa is becoming expensive. They also reported today that they had to pay R150 million related to load shedding,” he said.
Labour is not impressed with the move.
Communication Workers’ Union spokesperson Aubrey Tshabalala said: "Firstly, let me indicate that Telkom ambushed us an hour before the announcement. They actually called us into a meeting. We were not available and we were not even sure why they called such an urgent meeting.“
He said the union would study what the retrenchments entailed.
“There is a concerted effort to collapse the company. The move by Telkom is a clear indication they want to shut down the company completely.
“Remember not long ago, MTN wanted to buy Telkom. Now they're talking about the retrenchment. We had said once they talk about selling Telkom, they will want to institute retrenchments,” Tshabalala said, adding that the union had set a date to meet with Telkom.
Last year MTN and Telkom first announced they were in takeover talks, but the talks collapsed after after Rain tabled another offer to Telkom, proposing it should buy Rain in exchange for shares in Telkom. Those talks collapsed in January this year.
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