Telefonica S.A. (ADR) (NYSE:TEF): Cost Savings Will Cut 1,600 Full-Time Jobs by 2018

Telefonica S.A. (ADR) (NYSE:TEF) recently announced its plans to cut at least 1,600 jobs by 2018, in line with negotiations with the works councils. This accounts for approximately 18% of total 9,100 full-time jobs. The move follows its recent multi-billion dollars acquisition of wireless carrier E-Plus.

Former E-Plus head, Thorsten Dirks now leads the new entity as its CEO. He is mulling strategies to improve performance and halt further downfall in earnings. The executives are also considering measures to improve cost-efficiency and reduce tax bill. The companies have projected at least $7 billion in additional revenue and cost savings from the synergies.

Impact of Job Cuts

Telefonica S.A. (ADR) (NYSE:TEF)’s job cuts will primarily reduce positions across administrative functions, call-center workers and sales force teams. With sales traffic transitioning to online platforms, phone companies need fewer store staff to ensure smooth consumer operations.

People familiar with the matter also said that some employees may also be absorbed by Drillisch AG. Telefonica will require Drillisch to acquire at least 20% of the merged company’s network to secure European approval. Drillisch, which doesn’t own a network, will make this acquisition over the next five years.

Merger Synergies

The combined entity of Telefonica S.A. (ADR) (NYSE:TEF) and E-Plus, with 47 million connections, is Germany’s largest wireless carrier. In addition, it sidelines significant competition thrown by E-Plus over the last decade. During 2Q14, Telefonica added net 2.6 million connections, representing 40% QoQ increase. The company reported 2 million net additions in mobile contracts during 2Q14.

Network modernization initiatives seem to be paying off with quarterly revenues increasing to EUR 12,725 million. During 1H14, revenues increased 1.4% YoY in organic terms to EUR 24,957 million. Telefonica reported 4.9% YoY increase in net income to EUR 1,210 million or EUR 0.26 per share, during 2Q14.

About the Author

Coper graduated from the University of Chicagi with majors in political science and journalism.

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