Telcos could be forced into job cuts

Increasing competition could drive telcos in the region to cut jobs to make up for falling revenue, according to leading industry analysts Gartner.

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By  Diana Milne Published  October 15, 2006

Increasing competition could drive telcos in the region to cut jobs to make up for falling revenue, according to leading industry analysts Gartner. Leif-Olaf Wallin, research vice president specializing in enterprise mobility at Gartner, said he believes that job cuts could be the only way for telcos to survive as deregulation and new competition in the market drives down the cost of phone calls. Speaking at the firm’s Mobility event in Dubai last week, he said the situation in the region could mirror that in other parts of the world, such as Europe or the US, where mobile operators have workforce reduction plans of between five to 10% on average. “The problem is that the voice revenue will keep on declining even though the usage will increase,” said Wallin. “The overall revenue is going down so most operators need to find new services to deliver over their network or they need to cut costs quicker than the revenue decline of voice. In this region we believe that operators will be challenged to cut costs that aggressively,” added Wallin. “There are number of things you can do from a technology side to reduce operating expenses but the biggest driver is people." “It means losing people, it means firing people, reducing costs,” he claimed. Wallin believes that the first strategy to be adopted by operators will be to introduce new value-added services, such as selling data content over the network, games or news content. “I think they will prefer to increase revenue by providing additional services as opposed to aggressive cost cutting,” said Wallin. “They could generate more revenue by selling additional services - the most obvious is selling content – that could be games or could be religious content." “But unless they are successful in increasing revenue and sustaining innovation at some point in time they will have to resort to cutting costs - and that typically translates to workforce reduction,” he added. Wallin cited the UAE as an example of a country where greater price competitiveness is expected with the arrival of the second operator Du and where the incumbent telco Etisalat will have to find creative ways to increase its revenue. He predicts that prices will start to become more competitive in the country around 2008. “We’re seeing Du being introduced into the marketplace which we believe will change the landscape. We believe that Du will introduce initially more competition on service." It will offer single point of contact, consolidated billing, basically being easier to do business with. So the incumbent competitor will have to improve in those areas. The next logical step will be that it will also introduce some price competitiveness since Du seems to focus on wanting to bundle different services into packages which typically reduces prices and puts pressure on the incumbent. Mark Rotter, programme manager for telecoms in the EMEA region at IDC does not agree that telcos will be forced to cut their workforce and is confident that “they will succeed in boosting revenue through the provision of new and innovative technology and other interesting value-added services." “I think that’s a very long stretch - I wouldn’t go that far at all,” said Rotter. “I think that operators are typically really good at figuring out the long term pain points and cost benefits and so on." “As a typical consumer one is not yet exposed to how vendors and operators are planning this. But as an analyst we’ve exposed to some of the conceptual thinking of how they are planning to make that up.” He cited next generation networks, internet multimedia subsystem and fixed mobile convergence, as some of the technologies operators will be capitalizing on. Rotter believes too that consumer behaviour will enable operators to continue making adequate revenue – on the grounds that customers will continue to spend the same amount on mobile services even if the price of calls is reduced. “We make our budgets on the basis of historical spending – you don’t make our budgets on the basis of that particular service is now cheaper so I only have to spend one tenth of what I spent last year.” “We may spend less on international voice calls and we will spend more on the ability to handover calls seamlessly from our office phone to home phone for instance,” he went on to say.

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