HELLO! IT’S GOOD BYE Tele­com M&As could make a third of three lakh jobs re­dun­dant

The Economic Times - - Companies: Pursuit Of Profit -

Dev­ina Sen­gupta, Sreer­adha D Basu and Deepali Gupta

Mum­bai: The 45-year-old tele­com ex­ec­u­tive be­lieved he was set for life. He would eas­ily be able to fund his son’s dream of study­ing mu­sic abroad, for in­stance. But all that’s changed over the past few months. He, like many oth­ers in the tele­com in­dus­try, is faced with the prospect of los­ing his job.

Call it the price of the big­gest wave of con­sol­i­da­tion in the tele­com sec­tor af­ter it was thrown open to non-state com­pa­nies in 1995. Ex­perts and ex­ec­u­tives vary on mag­ni­tude, but there’s una­nim­ity that mas­sive job losses are in­evitable.

Staff cost is around 4-4.5% of rev­enue, but the real crunch will come in sales and dis­tri­bu­tion, which in tele­com is en­tirely peo­ple costs, said a hu­man re­sources head. Sales and dis­tri­bu­tion comes to around 22% of rev­enue at ma­jor com­pa­nies, he said. The sec­tor’s rev­enue is es­ti­mated at an an­nual .₹ 1.3 lakh crore, putting peo­ple costs at .₹ 34,000-35,000 crore.

“There is no doubt that staff at the head of­fice and cir­cle (of­fices) are on shaky ground,” said an HR head, putting 10,00025,000 jobs at risk, he said. Add those in­di­rectly em­ployed and the num­ber could rise to as much as 1 lakh. ET spoke to more than a dozen an­a­lysts, re­cruiters and com­pany ex­ec­u­tives who said tele­com em­ploy­ees are scared about jobs be­ing on the line de­spite as­sur­ances. Em­ploy­ees spoke on con­di­tion of anonymity. “Op­ti­mi­sa­tion across op­er­a­tions, work­force and sup­port­ing in­fra­struc­ture will be key and could po­ten­tially ren­der nearly one fourth or more peo­ple re­dun­dant,” said San­deep Chaud­hary, chief ex­ec­u­tive of­fi­cer, Aon He­witt Con­sult­ing.

The In­dian tele­com in­dus­try em­ploys over three lakh peo­ple di­rectly and in­di­rectly. A se­nior ex­ec­u­tive at a telco en­gaged in a merger talks said as many as a third could be­come re­dun­dant in the next 18 months as con­sol­i­da­tion plays out.

“Peo­ple have been reach­ing out to me, look­ing for op­por­tu­ni­ties. Every­body has fi­nan­cial com­mit­ments,” said a se­nior tele­com ex­ec­u­tive whose com­pany is not in the merger mar­ket. Ku­mar Man­galam Birla-owned Idea Cel­lu­lar and Voda­fone Plc are ex­plor­ing a merger to com­bat Reliance Jio, which has dis­rupted the mar­ket with free­bies. Air­cel and Anil Am­bani-run Reliance Com­mu­ni­ca­tions (RCom) are look­ing to


com­bine, al­though this is threat­ened by a case in­volv­ing Air­cel. Rus­sia’s MTS has been folded into RCom while Nor­way’s Te­lenor will ei­ther merge with the RCom-Air­cel com­bine or be ac­quired by Air­tel.

Con­sol­i­da­tion has taken hold of an­cil­lary op­er­a­tions as well, es­pe­cially tow­ers. Last year, Amer­i­can Tow­ers (ATC) bought Viom Net­works and low­ered the com­bined work­force by about a third, said peo­ple aware of the mat­ter. This was fol­lowed by the $1.6 bil­lion takeover of RCom’s tow­ers by Brook­field. Ev­ery tower com­pany is in play — Idea and Voda­fone want to sell stand­alone op­er­a­tions as do smaller out­fits like Tower Vi­sion. The larger Bharti In­fratel and In­dus Tow­ers are also ex­pected to see a change in con­trol.

“I can­celled my for­eign trip with my child be­cause I’d rather have some money saved up just in case,” said a mid­dlelevel ex­ec­u­tive at a tele­com firm that is in the mid­dle of merger talks. He has been at the firm for four years. Idea, Voda­fone, RCom and Air­cel em­ploy a to­tal 48,000 peo­ple, ac­cord­ing to com­pany data. De­spite shrink­ing, the Tata tele­com busi­ness has 7,000 em­ploy­ees. Most ex­perts feel the op­er­a­tions have to find a new home sooner than later.

Ad­di­tion­ally, HR chiefs es­ti­mate that for ev­ery per­son di­rectly em­ployed in a tele­com com­pany, there are four han­dling sales at an out­sourced agency. In­clud­ing net­work and busi­ness process out­sourc­ing con­tracts, the ra­tio is 1:6.

Cir­cle chiefs, hu­man re­sources and fi­nance teams at the cen­tral and ser­vice area lev­els are among those that are likely to be cut as du­pli­ca­tion is stamped out. This has in­ten­si­fied com­pe­ti­tion among man­agers to show re­sults not just within or­gan­i­sa­tions but against peers in other com­pa­nies, not easy in the cur­rent cli­mate. “This is such a ter­ri­ble time. There is no way to show a strong re­sult when there is an operator of­fer­ing ser­vices for free,” said a cir­cle chief at one of the merg­ing com­pa­nies. Merg­ers have been sparked by in­tense com­pe­ti­tion. Reliance Jio’s free of­fers con­tinue un­til March end and more such in­cen­tives are ex­pected. That’s low­ered the re­al­i­sa­tion per cus­tomer for ev­ery operator. “Ev­ery ru­pee or frac­tion thereof thus saved goes straight to the bot­tom line, boost­ing earn­ings per share and mak­ing the M&A trans­ac­tion an ac­cre­tive one,” said Ri­tu­parna Chakraborty, ex­ec­u­tive vice pres­i­dent, TeamLease Ser­vices.


Con­sult­ing firms have al­ready been as­signed the task of map­ping the work­force. For ex­am­ple, EY has been se­lected by Voda­fone Group and Aditya Birla Group has picked up Deloitte for due dili­gence that in­cludes a de­tailed look at the work struc­ture. “I am glad I am past my 40s and my kids are set­tled now. The wor­ries of build- ing a home for re­tire­ment are over. This is a bad time to be in the tele­com sec­tor,” said a se­nior tele­com ex­ec­u­tive. A Voda­fone spokesper­son dis­missed queries about job cuts. “Your queries are ir­rel­e­vant and spec­u­la­tive,” the per­son said. “We would like to em­pha­sise that for us at Voda­fone In­dia, the busi­ness con­tin­ues as usual and we re­main fo­cused on grow­ing our mar­ket share and con­tin­u­ing to build upon our NPS (net pro­moter score) lead­er­ship by of­fer­ing the sim­plest and most ef­fec­tive ex­pe­ri­ence to our cus­tomers.” Idea and Te­lenor de­clined to com­ment. Air­cel and RCom did not re­spond to ques­tions. Com­pa­nies like NSN, Eric­s­son and Huawei Tel­cos have mul­ti­mil­lion-dol­lar con­tracts for net­work man­age­ment from tel­cos. One tech­nol­ogy chief es­ti­mates a15% over­lap in staff as op­er­a­tors halve to three. “The con­tracts may not ter­mi­nate be­cause the in­fra­struc­ture to man­age will re­main the same. They may be con­sol­i­dated to one com­pany rather than be­ing split over a cou­ple.”

Then there are the out­sourc­ing con­tracts. Voda­fone has an an­nual $700 mil­lion con­tract with IBM on soft­ware ser­vices. Idea and Te­lenor have also out­sourced work to IBM, whch did not re­spond to ET’s queries.

As for call cen­tres, staffing is based on sub­scriber num­bers. Re­dun­dan­cies will de­pend on SIM con­sol­i­da­tion, said one of the HR ex­ec­u­tives cited above. This could also lead to changes in over­all sub­scriber num­bers, cur­rently at 900 mil­lion. Ex­perts said the num­ber could drop 8-10%.


When RCom an­nounced its merger with Air­cel last Septem­ber, the com­pa­nies said cost syn­er­gies would be about .₹ 20,000 crore. Costs would halve fol­low­ing the merger, they said. Much of this will come from job cuts since the in­fra­struc­ture is al­ready in place and it’s un­likely leas­ing and rental agree­ments will change dras­ti­cally, ex­perts said.

“In or­der to achieve the syn­er­gies from the merger some peo­ple will need to be part of the re­struc­tur­ing,” said Chris Lane, se­nior tele­com an­a­lyst for Bern­stein on this merger. “While it is tough to say the ex­act num­ber, we as­sume at least 20% of the com­bined en­tity may ul­ti­mately be made re­dun­dant.”


At a re­cent meet­ing headed by Anil Am­bani-led Reliance Group group man­ag­ing di­rec­tor Satish Seth, se­nior ex­ec­u­tives were told the Air­cel-RCom merger was around the cor­ner.

“Where there is du­pli­ca­tion of roles like two CMOs of com­pa­ra­ble com­pe­tence/ex­pe­ri­ence or two CFOs will be the hard­est hit and also mid­dle man­age­ment down­wards,” said feels Vikram Ch­hachhi, prin­ci­pal, global con­sumer mar­kets, Hei­drick & Strug­gles, a global ex­ec­u­tive search firm. Voda­fone has al­ready be­gun mak­ing the struc­ture leaner — the com­mer­cial and en­ter­prise busi­ness roles have been merged un­der the COO. They used to be sep­a­rate po­si­tions un­der the CEO.

To be sure, any lay­offs may take about 12-18 months. The merged en­tity will have to first en­sure that distrib­u­tors main­tain the net­work and op­er­a­tors con­tinue to ex­pand. But the fear is that hang­ing around won’t make sense as those even­tu­ally asked to leave may be left with few op­tions.

“The big­ger ques­tion is where the peo­ple who are made re­dun­dant will go,” said K Su­dar­shan, man­ag­ing part­ner, EMA Part­ners In­ter­na­tional. “Where are the jobs, es­pe­cially if they are outand-out tele­com guys or peo­ple in their late 40s or 50s and yet to be­come CXOs? The sec­tor is pretty much sat­u­rated.”

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