T-Systems joins the job-slashing brigade with 10k cuts

Deutsche Telekom is the next telco to axe employees, with its T-Systems division set to reduce its headcount by as much as 10,000, almost a quarter of employees.

According to Bloomberg, 10,000 jobs will be cut over the next three years, 6,000 of which will be in Germany, as the struggling unit redirects focus onto more lucrative segments such as cloud, cyber security and IoT. The headcount reduction is aimed at saving the telco roughly €600 million by 2021.

While job losses are never a pleasant topic of discussion, it is becoming much more common. BT hit headlines in recent months with plans to slim down the workforce by 13,000, while Vodafone decided to cut jobs but maintain executive bonuses and earlier this week, Telstra announced it was axing 8,000 as part of its Telstra2022 strategy.

In each of the above examples, the message has been simple; jobs from underperforming or soon to be redundant business units are being removed. There might be some additional hires as the telcos pivot to new areas, though the facts are plain; the telcos more jobs are being lost than created. This is another example of the times; telcos are generally not ready for the digital economy and restructuring initiatives to future-proof the business are something we should get used to.

At T-Systems, CEO Adel Al-Saleh seems to be living up to his reputation as a man who can turn around troubled business units. The T-Systems business has long been viewed as the problem child of the Deutsche Telekom family, consistently losing business to the likes of AWS and Microsoft who can offer faster and cheaper IT services through the cloud, and now the Al-Saleh effect seems to be coming into the equation. Having joined the business in January, Al-Saleh is now focusing on more profitable contracts, quality over quantity, as well as more lucrative ventures, such as cloud, cyber security and IoT. Such a shift in business priorities does not come without repercussions however.

Looking at the financials for the first quarter, total revenues at T-Systems declined 2.3% year-on-year to €1.704 billion, with EBITDA shrinking 40% to €57 million. It does seem DT has realised it cannot compete with the more agile cloud players, and has finished throwing good money after bad, instead focusing on areas where it can be more influential.

Elliott looks to chase Vivendi out of Italy

Vivendi’s influence over TIM despite not owning the company is remarkably strange and it seems activist hedge fund Elliott has finally had enough of it.

According to the FT, the hedge fund is looking to shake things up at TIM by trying to run Vivendi CEO Arnaud de Puyfontaine, who also acts as TIM’s Executive Chairman, as well as four other Vivendi ‘friendlies’ out of the board room. The showdown is set to take place during the annual general meeting next month, but Elliott is wasting no time in vocalising its distaste for the situation. The issue is a simple one; Elliott thinks the share price should be higher and it wants to make changes to ensure it does go upwards.

The last couple of months have been quite incredibly when it comes to the balance of power. Despite only owned 24% of the telco, Vivendi seems to be in an incredible position of power to influence activities at TIM, which did raise some voices of concern from the Italian government. Spinning off the fixed infrastructure business into an independent, but still wholly owned, business does seemed to have appeased the government, but Elliott is still standing defiantly.

Elliott has told TIM it wants to remove de Puyfontaine from his position, as well as four others who have strong links to the French media business. To replace the five, Elliott has put forward its own preferences, all of which have weighty reputations in the Italian business world. The suggested replacements are as follows: Fulvio Conti, Massimo Ferrari, Paola Giannotti De Ponti, Luigi Gubitosi, Dante Roscini and Rocco Sabelli.

This is of course not the first time Elliott has been hitting the headlines for making noise. In 2015 the hedge fund was incredibly vocal in trying to stop dodgy dealings regarding the acquisition of Samsung’s construction business by another part of the family for an incredibly low price. It might have failed to get its way in this example, but this is the only example of failure in the 50-odd activist campaigns it has launched over the last five years. Usually when Elliott starts making noise, people listen.

It isn’t tough to see why either. Elliott is regularly ranked in the top 10 hedge funds worldwide, with roughly $34 billion of assets under management. Its known for seeking out distressed organizations which are underperforming and helping formulate a turnaround. It has a rather unpleasant nickname of being a ‘vulture fund’, but it is generally successful at what it does.

And it does appear that the message has been received by Vivendi. The French media giant has released a statement in which it confirms it has heard the concerns and like Elliott has an interest in raising the share price of TIM. de Puyfontaine is even considering suspending his executive functions at TIM as a means to disarm the situation.

With the Vivendi push for power, the revolving door of executives, government involvement, spinning off of assets and now the intrusion of an activist shareholder, TIM is proving to be one of the most interesting companies in the telco space right now!