Telekom Lay-offs
October 23, 2006
Out of a full time workforce of 167,000 employed worldwide by the Bonn-based telecommunications giant Deutsche Telekom, 74,000 employees are superfluous, according to the Sunday newspaper, Frankfurter Allgemeine Sonntagszeitung, which cited an internal company report circulated by the management board.
The internal memo made perfectly clear that the cost to consumers of subscribing to Deutsche Telekom's telephone and internet services is significantly higher than that of its competitors.
Competitors charge much less
Its T-Com fixed line and T-Online internet subsidiaries charge 71 euros monthly for flatrate connections or double that of a low-cost, no-name competitor, called 2play net.fon, for example. Other better known competitors, such as AOL and Arcor, which also offer high-speed DSL connections well below Telekom's rates, charge 55 euros and 50 euros for the same package, respectively.
One reason cited for higher prices that are passed on to consumers, are inefficient structures and duplication of services that reduce productivity and lead to bloated costs. Several German newspapers had reported over the weekend that in addition to 32,000 positions to be eliminated by 2008, an additional 23,000 jobs would be cut by 2010.
Additional job cuts cannot be ruled out
Ulrich Lissek, chief spokesman for Telekom could not confirm the figures, but told reporters that the conglomerate "has always said that in the face of regulatory and technological changes, we cannot rule out the elimination of additional jobs after 2008."
Meanwhile Telekom has been losing domestic clients for its fixed line services, while its T-mobile cell phone unit is growing mainly because of its US activities.
The additional job cuts at Deutsche Telekom do not come as a surprise since the former state-owned monopoly, which was privatised in 1995, has been cutting more than 10,000 jobs a year in the last decade in order to raise its profitability and competitiveness. Furthermore, Telekom chief Kai-Uwe Ricke has repeatedly said that moves to cut more jobs would not necessarily cease in 2008.
Telekom chief under heavy pressure
Even Ricke's own job could be on the line. Directors at Telekom are apparently mulling the future of their boss, whose contract expires in 2007. The decision to renew Ricke's contract or replace him is expected to be made in December. Since a profits warning was issued this August, Ricke has been under considerable pressure, as the number of fixed line subscribers has dropped and growth in the wireless sector has slowed down.
One name that has been bandied about to replace Ricke, is Ben Verwaayen, the chief executive of British Telecom, although the German government, which holds more than 30 percent of Telekom directly and indirectly through the state-owned bank kfW, could favour an internal candidate according to the Financial Times.
Political fallout from job cuts
The government's key consideration is to minimise the political fallout from job cutbacks in the fixed line business. Ricke had deferred to such political concerns last year when he reduced his demand for job cuts by half from 60,000 down to 30,000.
The worker's union Verdi claims that new Internet technologies will require fewer personnel, so that Ricke's talk of "streamlining operations" is irrelevant anyway.
Deutsche Telekom is not the only major German company slashing jobs on a massive scale. In the pharmaceutical sector, Bayer's recent takeover of Schering will result in the elimination of 6,000 positions, the insolvency of BenQ Mobile, the wireless manufacturer, has put 3,000 jobs on the line, while automobile giant Volkswagen plans to cut 20,000 jobs by 2009.