Business Daily (Nairobi)
Michael Omondi
23 January 2008
More than half of Telkom Kenya employees are to be laid off over the next two weeks as the loss-making firm starts implementing a plan expected to help it return to profitability.
The Business Daily has established that the Telkom Kenya management will from tomorrow start issuing retrenchment letters to its 4,000 employees whose last working day has been slated for February 8.
The staff numbers currently stand at about 7, 521 after it sent home 9, 767 last year, earning the firm the distinction of having retrenched the most workers in Kenya's corporate history within a span of eight months.
The completion of this project marks the beginning of a major make over of Telkom Kenya under the new chief executive, Mr Dominic Saint Jean, who took over the top job in December after France Telecom bought the firm.
The layoffs will save Telkom Sh4.2 billion in labour costs annually.
Mr Saint Jean refused to comment on the story.
With this round of layoffs, Telkom will have retrenched 14,100 workers, in an ambitious turnaround plan that led to the government selling 51 per cent of the parastatal's shares to France Telecom for Sh26 billion. The layoffs, which have costs taxpayers over Sh10 billion, were a pre-condition for the sale.
Telkom has over the last decade been performing poorly because it has been heavily cannibalized by mobile phone firms and shackled by a bloated workforce, high cost structure, high debt load and a cash flow crunch that has prevented it from investing heavily in infrastructure to ward off competition.
At the end of the exercise, the once overstaffed firm will have 3, 150 employees on its payroll, a far cry from the 17,288 workers last February.
Besides reducing staffing costs by about Sh350 million per month, the layoffs are geared at boosting efficiency by having the appropriate human resource skills.
This comes at a time when the firm is preparing to head off competition from other operators in the increasingly competitive telecoms market.
The strategy of sending home 4, 000 employees is a departure from an earlier plan which had proposed to stagger the retrenchment over a period of between nine and 12 months.
This had been fronted by consultancy firm PricewatehouseCoopers on the grounds that this could only happen after complete automation of the firm's systems besides going big into outsourcing.
Sources at Telkom Kenya said the France Telecom led management refused to buy the argument and opted for the one-off retrenchment even after agreeing to it when they come on board last December.
The move could sour relations with Telkom's workers union.
"The union is against the mass retrenchment because its being done against its wishes and what was agreed earlier," said Mr Paul Nyaema, an official.
He expressed fears that the management might go back on the compensation terms agreed earlier given that they had changed tack on the retrenchment schedule.
Under the compensation package agreed earlier, each worker would be given a two month salary, two and half salary for the years worked, a golden hand shake of Sh150, 000 and a transport allowance of Sh40,000.
Payment for the job cuts amounting to Sh3.8 billion would be shouldered by the Government after it struck a deal with Telkom Kenya to clear all its debts in exchange for Telkom's 60 per cent stake held in Safaricom.
Once the retrenchment deal is done, the remaining employees stand to earn a pay increase that will push Telkom Kenya to the top 25 best paying in the country, putting it in the same league with its rivals- Safaricom and Celtel, a move informed by a need to hold on to the best brains at a time when human capital is emerging as the most sought after resource in the local telecoms market.
The job cuts comes a time when the new management at Telkom Kenya is keen on a strategy that will see it cuts costs besides growing its stagnant revenues, a strategy that the firm hopes will push the loss making firm to the profit zone in less then two years, and to champion it to the top of the telephony market in five years. For growth, the new majority shareholder is banking on Telkom's newly-issued mobile licence that will allow it to take on Safaricom and Celtel head on.
The entry of the French firm into the mobile telephony market is set to trigger a shift in the market structure, which Safaricom - which controls about 80 per cent of the local telephony subscriber market, or eight million subscribers - currently maintains a near stranglehold. This has turned it into the most profitable company in East and Central Africa, with net profits of Sh12 billion in 2007 on revenues of Sh47.4 billion.
To crack the local telecoms market, the French telephony giant is counting on its global telecoms experience, and its huge cash pile, to turn the tables on Safaricom and Celtel. But this will not come easy for the French firm, say a number of telecoms analysts, including the chief executive of Safaricom,
Mr Michael Joseph. "We are ready for them and of course will not make it easy for them," he said in an earlier interview, stressing that Safaricom would cement its dominant position in the market place and send a clear signal that a vicious battle between the markets' three top players would unfold this year.
Besides the mobile telephony, the French giant is also gearing up to offer "quadruple play" bundles of fixed and mobile telephony, broadband and television services. Globally, telecom operators are starting to integrate their fixed and mobile networks by offering special deals to customers who buy both services together.
On cutting costs, the firm had settled on reducing its staff count, which coupled with growing competition in the local telecoms markets, pushed Telkom Kenya into the loss-making territory for years
Figures contained in Telkom Kenya's website show that its financial performance has been declining over the last four years.
Its turnover has been declining at annual rate of 10.5 per cent over the last three years to settle at Sh16.3 billion in 2006 from Sh20.9 billion in 2003 as its competitors continue to munch its market share.
The firm's share of the lucrative voice business has faced a massive erosion following an onslaught by the two mobile phone service providers-Celtel and Safaricom- and a string of local loop operators.
This is underlined by its stagnant line connections that has remained at 300, 000 at a time when the cell phone companies have pushed their subscriber base beyond the eight million mark up from 90, 000 subscribers in 2000.
At the same time, expenses-driven by the bloated workforce have been increasing at a faster rate that the revenues and this has seen the state firm make huge losses and has starved it off cash to upgrade its infrastructure.
It has also seen the state giant fall behind in settling its outstanding loan, tax and pension obligations over the past seven years.
The firm notes that it expects to make a loss of Sh1.18 billion in 2007, which is a reduction from the previous year's figure of Sh2.7 billion.
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