The tough global economic environment is having its impact on local businesses, with the tech industry feeling the pinch in South Africa as well. Telkom has announced it will retrench around 15 percent of its workforce as it suffers under current economic conditions. It will undergo a painful restructure, having entered into a formal consultation process under section 189 of the Labour Relations Act.
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“The process will impact all business units and subsidiaries and is intended to ensure the sustainability of the group,” Telkom informed shareholders via the JSE’s stock exchange news service. “As the group manages the delicate migration of revenue between old and new technologies, it is challenged with managing the costs associated with the different technologies, and the competitiveness and sustainability of the group,” it said.
It is by no means the company’s first staff reduction measures, of course. Telkom has dramatically reduced the size of its workforce over the past decades as the partially state-owned telecommunications operator was slow to adjust to new mobile and internet needs of its customers. It currently has around 11,500 staff members, of which about 1,725 people will be let go in the latest round of retrenchments.
“Management has therefore embarked on a restructuring programme, which includes the S189A process, to optimise group costs in line with evolving technology capabilities and demands,” Telkom said in its statement. “For Telkom to navigate the migration to new technologies as well as current economic headwinds effectively, the Telkom board has supported that management start a consultative process aimed at restructuring the organisation to meet future demands.”
Telkom has made big changes to its business strategy in recent years, which has put a major strain on its cash flow. The subsidisation of smartphones and other devices, designed to grow Telkom’s contract user base, is putting huge pressure on company margins and cash generation.
“The working capital investment in mobile handsets and post-paid cost of sales are immediate costs, with corresponding revenues recognised over 24 to 36 months and thereby do not immediately offset the upfront costs associated with growing our post-paid subscriber base,” Telkom said.
