Eircom is accelerating its cost cutting plans in a move which will mean up to 3,500 of the 11,000 jobs at the telecoms group will go over the next two to three years.
The restructuring is being driven by increasing competition in the Irish market since the take-over of Esat by British Telecom, by changes in the way customers are using telephone services and by international developments within the industry. In a trading update issued to the Irish Stock Exchange yesterday Eircom said that because of a "significant change in the overall mix of call traffic" towards business which produces lower profits, the company needed to reduce its costs. The latest restructuring plan will cost up to 406 million (£320 million) and is expected to deliver annual cost savings of up to 76 million (£60 million).
Of the planned reduction of 3,500 jobs about 800 job losses are already accounted for under the pre-flotation plan to cut employment by 2,500. But the remaining 2,700 represents additional job cuts aimed at improving cost effectiveness in the fixed line business.
Eircom has added a new approach in its latest restructuring plan. In addition to the voluntary severance arrangements already in place which cost the company about three years' pay per employee, the group is to enter into joint venture arrangements with commercial service companies and re-deploy existing Eircom employees to these companies. These service companies would provide services to Eircom initially.
Stressing that details of the restructuring have still to be worked out with the unions, Eircom chief executive Mr Alfie Kane said that it was too early to give a breakdown of how many of the 3,500 employees would be made redundant or re-deployed. "This is a mix issue but there will be significant numbers in each category", he said. Eircom is in discussions with some of the companies which supply services to the group and other potential service suppliers about both taking minority stakes in these operations and setting up new joint venture companies to supply other services, he explained.
"We will focus initially on the services of access networks and field operations. Initially these companies will provide services to Eircom but over time they would take on new customers.
Within three years we are aiming to have a number of skilled service companies which could supply skilled labour to Eircom as and when needed but the employees will not be Eircom employees," he said. Mr Kane said the need to cut costs reflected the way business was changing. The big increase in mobile phone use is reducing the use of fixed line telephones. In addition there has been a change on the fixed line "mix of minutes" traffic from higher margin local and national calls towards lower margin Internet access calls and inter-connector calls (calls to connect to other service providers).
For these reasons and because competition in the market is increasing Eircom needs to accele rate the repositioning of its fixed line service to reduce costs and increase its focus on data communication, multimedia and Internet services, he said.
