Disconnecting staff to reach the right number: BT's aim to be the world's leanest telecoms company comes at a price, finds Mary Fagan

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HEADS keep rolling at British Telecom and, according to chairman Iain Vallance, there is a lot more swinging of the axe to come. The latest estimates, confirmed by the company, are that the workforce could shrink to 100,000 from around 150,000 today. The time frame is not specified but it is likely the target will be achieved before the end of the decade.

BT has already cut staff by one third, with 90,000 employees leaving the group, since 1989. In 1984, when the company was privatised, no one could have foreseen the transformation that BT would have to undergo in its struggle to cope with the Government's vision of competition in the telecommunications market.

The inexorable drive to reduce staff is the result of a cocktail of pressures on the company.

At home, competition from Mercury, the cable television industry, and an increasing number of niche telephone operators, is beginning to bite. At the same time regulatory pressures are becoming harsher. Prices on BT's basket of basic services must now be kept to inflation minus 7.5 percentage points. Although that also affects rivals attempting to keep a competitive edge, BT argues that it suffers most because it maintains a network that runs the length and breadth of the UK and has hefty overheads.

Internationally BT and big rivals, including AT&T of the US and France Telecom, are battling for the pockets of multinationals that want one supplier for all their telecoms needs. BT needs to be as lean as possible to sign those gold- plated customers.

Finally, there is the march of technology. Once, BT needed armies of engineers to maintain old exchanges and modernise the network. Now, much of the work is complete. New digital equipment is easier to maintain with less manpower. Consequently, thousands of people are no longer needed.

In the City, there is nothing but praise for the slimming-down process. Reliable relative measures of efficiency are scarce but one reasonable yardstick is the number of telephone lines per employee. On this measure, BT compares badly with rivals overseas. At the end of last year, the company had 152 lines per employee compared with more than 250 for the average 'Baby Bell' regional company in the US. SIP, Italy's main operator, had 240 lines per staff member and the Dutch PTT had 238.

Those comparisons, however, are crude. The US Bell companies are largely local operators, while European telecommunications companies cover the range from local and national to international. In Italy and Spain, the picture is muddier with a greater use of contractors.

According to Paul Norris, an analyst with Barclays de Zoete Wedd, BT is better than the figures indicate. If the company whittles staffing down to 100,000 as planned, it will have 230 lines per employee. 'The figures, while crude, show broadly where BT is heading for, which is the best practice worldwide,' Mr Norris said.

The unknown factor is how many of the people that once worked for BT have walked into other jobs in telecommunications. Mercury Communications, set up 10 years ago to compete with BT, employs about 10,500. The cable television industry is mushrooming, but many of those employed are short-term contractors taken on only for the build-up of television and telephone networks.

The National Communications Union says it is not the case that jobs lost at BT are simply recreated elsewhere. A recent European Commission study said liberalisation of telecommunications across Europe would cost at least 250,000 jobs more than any competition created. The NCU is attempting to find out what those who have taken redundancy at BT have done, and how many have set up small businesses which then work as contractors for BT.

According to the NCU, morale in the company is at 'rock bottom', particularly among the management grades which BT is now targeting for cuts. It hopes thousands of managers will volunteer for redundancy this year.

A spokeswoman for the NCU said: 'It's very difficult to see how 50,000 people would volunteer to go in a short period. Anyone who wanted to, or who has seen an opening outside the company, has already gone.' The union, once willing to accept the effect of technology on jobs, now believes that BT is going too far and that standards of service will suffer.

Under the tightening screw of regulation, BT is managing to improve profits and performance. Last week the company increased its first-quarter pre-tax profit by about 2 per cent to pounds 781m in spite of low inflation and the price cap.

The performance is creditable in the eyes of City analysts. One says BT is 'doing staggeringly well' given the toughness of the regime in which it operates. The bad news is that there are thousands of unhappy people out there with no job to go to, and thousands more who fear that they will be next to be shown the door.

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