The major development in the first quarter of 2011 in the Greek Telecom and mobile Telecom market is the unprecedented announcement of Hellenic Telecom OTE regarding the laying off of 120 employees in OTE’s mobile arm, Cosmote.
OTE is a major tier 1 telecom service provider whose market share and size position OTE as a leading indicator of things to come in the Greek telecom market.
A difficult year for Hellenic Telecom OTE
2010 was a watershed year for former Greek incumbent OTE.
Hellenic Telecom OTE announced in the Saturday February the 26th edition of the newspaper Kathimerini an 8% drop in consolidated earnings (5,5 billion Euro), a 20,5% drop in operational profits (EBITDA at around 1,75 billion Euro) and a 40 million net profit- a drop of 90% from year 2009. Hellenic Telecom’s OTE standalone revenue dropped about 10% while its mobile arm - Cosmote -r evenues dropped at about 7,2 percent; revenue drops were also experienced by Cosmote subsidiaries Globul in Bulgaria and AMC in Albania.
Hellenic Telecom OTE blamed its performance on the dismal regional economic climate, regulatory constraints, the costs of the 2005 voluntary retirement program; the mandatory government imposed contributions, as well as the depreciated value of its Romanian subsidiary, Romtelecom.
OTE 2005 Voluntary Retirement Program
About 5,000 Hellenic Telecom OTE employees subscribed to the voluntary retirement program of 2005 which according to the 27th of February edition of newspaper Free Sunday, cost about 200,000 Euro per retiring employee with a total cost around 1,1 billion Euro; 85% of the cost being covered by Hellenic Telecom OTE and the remaining 15 % by the transfer of 4% of Hellenic Telecom’s shares from the government portfolio to OTE’s health and benefits organization, TAP-OTE.
Layoffs in Cosmote
Saturday’s dismal announcement foreshadowed an executive decision taken by OTE Boss Michael Tsamaz to proceed with lay offs in OTE’s mobile arm, Cosmote while also taking decisive action to curb OTE’s costs. One reason Cosmote was chosen is because current government involvement in OTE limits management’s human resource cost cutting options in the mother company.
Tsamaz announced on Monday the 28th of February that 120 employees will be laid off from Cosmote, whose operations may eventually be converged, consolidated or absorbed by OTE, and that numerous benefits enjoyed by OTE employees will be stricken from the OTE benefits package; one such example is the free transport that OTE employees enjoy from certain parts of the city to the corporate headquarters on Kiffissia street and back. The working hours will also be extended to match private sector working hours.
Other cuts include, as recorded by the March first edition of newspaper Kathimerini, 15 % reduction in mobility related benefits, reductions in any extra wages related to overtime, weekend or holiday work, and reductions in actual overtime.
All measures will take full effect by May the 1st 2011.
OTE – Cosmote Union Response
The OTE union, OME OTE as well as the almighty GSEE union have jointly challenged Tsamaz’s decision, outlining that the layoffs are unnecessary due to Cosmote’s strong earnings, and accused Tsamaz of bowing to Deutsche Telecom streamlining demands whose thirst for profit maximization, according to union officials, knows no bounds.
Cosmote Layoff : Possible Collateral Effects
OTE management decisions to proceed towards the unprecedented mass layoffs in Cosmote will probably prompt a strong collective union response but may also have circumstantial or otherwise collateral implications.
For example, the technical staff of Wind Hellas, another mobile operator and mobile service provider operating in the Greek market, have announced strike action as protest against earlier management decisions to reduce substantially their benefits package. This may be unrelated to the tribulations of their Cosmote colleagues, but may highlight a strong signal of the times that are at hand.
Secondly, one strategic advantage that Hellenic Telecom has with a spill over to Cosmote, is its large employee base. This base was used by Cosmote in its beginnings to secure a loyal customer base, and is still a churn deterrent against other fixed or mobile competitors attracted to OTE's market share.
OTE employees for the most part are loyal to the company (since they also enjoy a number of cost benefits) insofar as subscriptions go, and also encourage immediate family members and friends to continue, or subscribe to OTE services.
Since Greek society places a high value on referent power, and since subscription to any service is largely determined by valued references- since a service cannot be assessed before it is consumed - it goes without saying that a service’s success depends largely on the service’s reference network and of course its quality.
The implications on Hellenic Telecom’s and Cosmote’s customer base with possible mass OTE and Cosmote layoffs cannot be determined at this point but will certainly provide food for thought for the OTE and Cosmote competitors WIND, Vodafone, Forthnet, ON Telecoms, NetOne and so forth.
Telecom Market Implications
The Greek economy is expected to shrink about 3 percent in 2011; Greece is adhering to the IMF and EU memorandum but external shocks such as the Libyan, Algerian and Egyptian crisis, and resulting impacts on oil may require further measures in an already strained economic and social fabric.
Greek telecom operators faced a difficult 2010 and will continue to be hard pressed in 2011.
On the one hand the difficult economic circumstances, which may get even more difficult, have prompted consumers to be vigilant with their spending habits. Indeed, for the first time in a decade Greek mobile users try to restrict their talk time within the free minutes offered by their mobile operators. Also lagging mobile service demand has prompted the Greek Association of Mobile Operators to request that the government diminish the VAT related to mobile services with the hope that such action will stimulate demand.
The resulting market and economic constraints may prompt telecom operators to adopt an introverted approach focusing only on cost cutting (something that the Greek government has been accused off with respect to its handling of the continuing economic crisis) and missing out on business enhancement and growth opportunities.
Regardless, 2011 will prove to be a trying year for Telecom Service Providers operating in the Greek market and will require diligent, effective and socially sensitive management practices to ensure successful challenge handling, and the ability to forge an effective roadmap towards the future.
Sources:
- Kathimerini, March 1st 2011,pg.25, article by Vaggelis Mandravelis
- Free Sunday, February 26 2011,pg. 26, no author cited
- Kathimerini, February 26 2011,pg. 5, no author cited
Antonis Hontzeas - Antonis Hontzeas has been in the forefront of the Telecommunications industry for over twenty years. Tenures include positions ranging ...
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