Cost reductions are an effective way to neutralise the effect of falling revenues on the bottom line. The operators apparently see room to trim some fat off their bones. Tele2's CEO notably said at its recent capital markets day that the company was proud to have never had to resort to major lay-offs as it is constantly keeping an eye on costs. For Vodafone, a clue lies in its own recent strategy session, where it put the emphasis on being a "cost efficient organisation" as well as announced plans for pricing to be "radically simplified giving clear visibility of cost of ownership and lower complexity for IT and billing". At KPN, the latest job cuts are likely part of its existing plans to cut 5,000 jobs by 2015. KPN will give an update on its 'Strengthen Simplify Grow' strategy when it reports annual results on 05 February.
Still, the timing is somewhat remarkable: now, when all hands on deck are needed to develop new 4G propositions, the operators are trimming their organisations. This is yet another sign of disappointing results. The weak sales development is linked to the rise of over-the-top (OTT) services, which are replacing traditional services. This is especially true for the mobile market, as calls and SMS form a much larger part of mobile revenues than voice counts for in the fixed market. There is also the looming entry of Tele2 as the fourth mobile network operators in the Netherlands.
A common element in the strategies of Vodafone, T-Mobile and Tele2 is that they all aim for increased cross-border cooperation within the group, creating synergies between the different country operations. Deutsche Telekom calls this One DT Europe, Vodafone talks about "unifying network and IT management across multiple markets". Tele2 finds synergies in sharing 'best practices' and its regional structure, where the Netherlands is grouped in the West Europe segment with Germany and Austria. More efficient, new technologies (LTE as well as fibre) should also make cost savings possible, helping the providers serve more customers with fewer staff.
One could hope that the operators also took some offensive action. Rolling out LTE is good, although demand will not be immediately strong. Further expansion of Wi-Fi networks can also be expected. They can also try OTT apps, attacking the OTT market on its own ground (see our commentary 'Yelo targets Skype, BT goes for the whole OTT market'). To date it's been mainly fixed operators launching apps like this, as they have little revenue from mobile to lose, for example UPC (Poland), Com Hem (Sweden), Optima Telekom (Croatia), Virgin Media (UK) and BT (UK). The mobile sector also has its OTT apps, including the joint initiative Joyn, and individual efforts such as Bobsled from T-Mobile USA and CleverConnect at T-Mobile in Europe.
Conclusion: the timing of the latest job cuts is somewhat remarkable and is probably an early sign of a further contraction in the mobile market.
