Deutsche Telekom AG plans to cut its workforce by 19,000 over the next three years as German corporations forge ahead with major restructuring despite political gridlock. The world's second-largest telecommunications operator by revenue is grappling with growing competition at home from smaller, cheaper rivals. The cuts represent more than a tenth of its German workforce.
The company's actions contrast with near-paralysis in Berlin, where politicians have been haggling for nearly two months over how to form a new government. Businesses had hoped that elections in September would yield changes to help spur growth. Instead, the results yielded a "grand coalition" of the two major parties, and their inability to divvy up power prompted one national newspaper to dub the government a "grand confusion."
Meanwhile, corporate Germany has been busy cutting costs, moving production abroad to cheaper locations and increasing productivity. In September, the German-U.S. automaker DaimlerChrysler AG said it would cut 8,500 jobs at its Mercedes car group division in Germany. Siemens AG also said recently it would cut 2,400 jobs from its German workforce in hopes of trimming losses at its information technology services division.
That has been good for profit and the stock market, with the German DAX rising more than 16 percent since the beginning of the year. But unemployment has shot up to nearly 12 percent, giving strength to left-leaning parties that want to slow down or reverse overhauls and protect as much social spending as possible.
Deutsche Telekom's steps are especially telling because the company is still 37 percent state-owned. That will make its layoffs especially costly; to ease opposition, the company estimates it will cost $3.96 billion to reduce personnel through voluntary measures such as severance payments.
Most of the cuts are being aimed at the company's fixed-line division, where revenue has shrunk for several quarters, as German consumers turn to alternatives such as wireless calls and cheap dialing over the Internet in a crowded playing field. "It's basically the problem of a huge Goliath struggling with lots of little Davids," said Per-Ola Hellgren, a telecommunications analyst at Landesbank Rheinland-Pfalz.
At the same time, Deutsche Telekom has appeared flat-footed in other European markets, where consolidation is gaining steam. It was widely seen as a potential bidder for Britain's fast-growing mobile carrier O2 PLC, before Spain's Telefonica SA stepped in with an offer Monday. Yesterday, Deutsche Telekom formally announced that it would not bid on O2.
That news, coupled with the layoffs, helped the company's stock increase 2.6 percent.
Deutsche Telekom plans to beat back some of the competition at home by investing $3.6 billion to upgrade its high-speed fiber network. But management warned it may introduce more severe job cuts if local regulators force it to share the use of the network with smaller rivals at cheap rates.
"The world-wide realignment of the industry, the rapid pace of technological development and, in particular, the tough competitive environment in the fixed network and broadband sector in Germany imposed by the regulatory situation, intensify the challenges facing the entire Deutsche Telekom Group," Kai-Uwe Ricke, the company's chief executive, said in a statement.
G. Thomas Sims contributed to this report.