South Africa's Telkom to Cut 40% of Jobs in Cost-Saving Move

  • Action needed `to secure the future sustainability' of Telkom
  • Africa's biggest fixed-line operater caught in mobile switch

Telkom SA SOC Ltd., the former South African telephone monopoly grappling with a long-term decline in its fixed-line phone business, plans to slash about 40 percent of its workforce to bring down costs closer to the level of its competitors.

The Pretoria-based company, still 39 percent owned by the government, plans to eliminate more than 6,000 jobs by July, according to an internal document obtained by Bloomberg News. Telkom had almost 14,000 employees as of Jan. 29, according to the plan, called Project High Ground.

“To secure the future sustainability of Telkom, we have to take serious actions to manage the very difficult environment within which we operate,” spokeswoman Jacqui O’Sullivan said in an e-mail Monday. “Data prices continue to drop while demand grows and we face all of this with a cost base that is not aligned to local competitors and global trends.”

Cuts so big underscore the enormous challenges confronting Telkom, Africa’s biggest land-line operator, in an era of rising mobile phone use. Chief Executive Officer Sipho Maseko has been trying to lighten the financial drag from the company’s vocal, older and well-paid workforce since taking the helm almost three years ago, while attempting to ramp up the mobile data business.

“This is a sad state of affairs,” Clyde Mervin, president of the Communications Workers Union, which represents the most Telkom workers with about 38 percent of the workforce, said by phone. “We understand Telkom’s financial difficulties, but believe there are other options. We want to look at how workers can be used elsewhere. This needs to be investigated.”

Telkom’s employee cost-to-income ratio is about 24 percent and the company wants to reduce that to 16 percent, the industry average, it said in the document. The company’s workforce is 69 percent male with an average age of 44, the document shows.

The company has identified 6,050 positions that it wants to eliminate from a total workforce of 13,895, according to the document. Those include outsourcing 3,750 positions and moving 2,000 to Business Connexion Group Ltd., which Telkom bought last year.

In addition, 300 jobs may be cut, revised downward from 500 in the original document, according to O’Sullivan, the company spokeswoman. Other changes have been made since the plan was written, she said, without giving further details.

The shares gained 1.9 percent to 53.98 rand at the close in Johannesburg, valuing the company at 28.4 billion rand ($1.79 billion). The stock has declined 16 percent this year.

Telkom plans to start wage negotiations with remaining employees and labor groups only after the job cuts and outsourcing initiatives are completed, the document shows. The operator will start the talks with a series of “key asks,” including a company-wide wage freeze, new employment contracts with flexible work times, and a restriction to a one-year deal. Telkom expects unions to counter with their own demands, the company said in the document.

“We met with the CEO late last week and he said nothing of this,” Marius Croucamp, a spokesman for Pretoria-based union Solidarity, said by phone. “Telkom is cutting jobs, but unable to sustain service levels. It’s being reckless with job cuts.”

The company has been investing in its mobile-phone service. Data-revenue from the unit increased 56 percent in the quarter ended Dec. 31 from the year before, compared with a 5 percent decline in the larger fixed-voice business.

The operator has already eliminated more than 4,200 jobs in the fiscal year that will end March 31 through voluntary severance packages and outsourcing, reducing the workforce from 18,333 employees at the end of the previous fiscal year.

Telkom revenue fell 2.5 percent to 31.7 billion rand in the year through March, the fifth consecutive year of declines. The company told employees on Feb. 25 it plans to cut 300 head-office jobs and outsource a further 254 to a separate company.

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