Germany's Deutsche Telekom is targeting €1.5 billion ($1.8 billion) in annual indirect cost savings outside the US market by 2021, with half of that amount to come from staff reductions.
The scale of the planned cuts, revealed at Deutsche Telekom's capital markets day in Bonn last week, may alarm employees after the operator said it would use automation and digital technologies to achieve savings.
Under an earlier strategy, the operator had been targeting €2.4 billion ($2.8 billion) in annual indirect savings outside the US, compared with costs in 2014. A spokesperson for the operator described today's program as a successor to that initiative and said did not reflect any lowering of targets.
But asked if that implied cumulative savings of €3.9 billion ($3.6 billion) by 2021, compared with 2014, the spokesperson confirmed that Deutsche Telekom AG (NYSE: DT) had failed to achieve the €2.4 billion ($2.8 billion) target.
The cost lag, which Light Reading had anticipated in earlier reporting, may partly reflect the German incumbent's failure to realize a 2018 target for all-IP transformation. In last week's announcement, Deutsche Telekom said it would not conclude that process for consumers in Germany until next year. (See DT 'Cost Lag' Could Overshadow Transformation Agenda.)
Under the latest cost program, it expects about €750 million ($881 million) in savings to come from the sale of real estate and other measures related to the all-IP transformation, including the shutdown of older IT platforms.
The other €750 million ($881 million), it seems, will come from headcount reductions at the business. The operator is not disclosing its targets for planned job cuts, said Deutsche Telekom's spokesperson, but has already struck agreements on staff reduction measures, including a phased retirement initiative that will come into effect at the end of this year.
The remarks hint at positive progress during talks with German labor unions, which have previously held up efforts to reduce the size of the overall workforce.
Deutsche Telekom cut only about 1,000 jobs last year, leaving it with around 217,350 employees in total at the end of 2017. Those cuts followed a much bigger cull in 2016, however, when nearly 7,000 roles were terminated.
A commonly used accounting measure, indirect costs are expenses that cannot be allocated to a specific project or function, such as a facility or service a company has developed. They often include many personnel and administrative costs, for example. Together with direct costs, which can be attributed to particular items, they make up a company's operating costs.
— Iain Morris, International Editor, Light Reading
This is an edited version of a story that was originally published on Telco Transformation's sister site, Light Reading. To see the full story, click here.