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Covid sees 2degrees cut workforce 10 per cent

Mark Aue 2degrees CEO.
Mark Aue 2degrees CEO.

Rob O'Neill at Reseller News writes 2degrees slashes costs, 120 jobs to go.

Telecommunications provider 2degrees is planning to cut its 1,200-strong workforce by 10 percent as it braces for the impact of the coronavirus pandemic.

2degrees also briefed its people today on a range of cost reductions to respond to the impact, advising that while agreed measures went a long way, more would be required through staffing changes.

The company is therefore proposing a 10 per cent reduction in the company’s workforce.

In addition the company plans to reduce capital spending and defer non-essential projects, reduce operating costs including a freeze on recruitment, renegotiate supplier rates and vendor costs and an accelerate cost saving initiatives from 2021.

Aue said that although 2degrees’ people are its biggest asset, the “harsh reality” was that the company had to take decisive action, reducing staff numbers or the hours worked for some roles.

Covid blamed

Covid was always going to be awful for businesses. New Zealand, and for that matter the entire world, has never seen such a dramatic and fast slump in demand.

Yet telecommunications companies, especially those with their own mobile network ought to be doing well out of Covid. After all call volumes and demand for broadband services are at an all time high.

One problem is that thanks to the emergence of unlimited call and data plans there is no longer a direct correlation between demand and revenue. 2degrees can carry twice as many phone calls and deliver twice as much data without earning much more.

At the same time roaming revenue is close to zero. Roaming has become much cheaper in recent years, we no longer see headlines about people returning from overseas to face horrific telephone bills. Even so, roaming is still lucrative for mobile carriers. It costs them little and the margins are high relative to the rest of the business.

Profitless growth

Telcos have faced profitless growth for some time now. Margins are wafer thin. I recall Vodafone CEO Jason Paris telling me some time ago that the industry has competed away most of its profit.

Phone companies like 2degrees need to continue to invest in new technologies and add capacity to meet demand while revenue flatlines. Losing roaming may even see total revenue drop this years. It doesn’t help that 2degrees’ parent company is not healthy at the moment. Unlike Spark and Vodafone, 2degrees has yet to jump into the expensive business of a 5G network upgrade.

Horrible as it is to make people redundant, Aue is right to act early. Things can get worse. They probably will get worse. It’s possible we will see a wave of industry consolidation in the coming months. 2degrees is the telco most likely to face change as events shake down.