Giant Ukrtelecom Says It Needs To Fire Staff

KIEV, Ukraine -- Ukrtelecom, the country’s largest telecommunications company, will have to reduce its workforce by two-thirds to cut expenses and optimize its revenues, Ukrtelecom’s top management said last week.

Ukrtelecom ad for public payphone

“Our estimates show we ideally need 35,000-40,000 employees, which means we currently have some 80,000 redundant,” said Heorhy Dzekon, Ukrtelecom’s chairman of the board, during a June 15 interview in the daily business publication Delo.

Ukrtelecom, the state-owned fixed-line monopoly, has been in the news recently in connection with mixed announcements about when it will be privatized.

If the privatization takes place, analysts say it could be the second biggest privatization of state property in independent Ukraine after Kryvorizhstal, the giant steel mill that was sold to world steel giant Mittal Steel for $4.8 billion last year.

The state, which currently owns 92.86 percent of the Ukrtelecom’s shares, has repeatedly announced its intention to privatize the company since 2000, but the sale has been postponed time and again.

In November 2005, the Cabinet of Ministers under Prime Minister Yuriy Yekhanurov restarted the privatization process, urging the State Property Fund and the Ministry of Transport and Communication to prepare all the necessary documents. Until now, however, a clear tender date and the size of the stake to be privatized have remained unclear.

Meanwhile, analysts favor a fast privatization, as they say it would make Ukrtelecom’s restructuring inevitable and ensure more efficient management, two things that the company desperately needs right now.

According to Ukrtelecom’s financial reports, the company ended the first quarter of this year with a net profit of Hr 29 million – a reduction by 82.1 percent from the same period last year.

Ukrtelecom’s chairman Dzekon attributes the decrease in revenues to the growing use of mobile phones over land line phone connections, which his company mainly specializes in. Add the company’s surplus employees and virtually non-existent marketing strategy and it becomes clear that changes are needed to keep the company afloat, said Dzekon.

“Last year, we launched some 700,000 land lines, including 400,000 of those where we simply replaced analogue with digital,” noted Dzekon. “Compare this to some 15 million new clients that the country’s mobile operators attracted over the last year,” he said, noting that similar trends are evident in Europe, too, where land line operators have been loosing to mobile ones in profits lately.

According to Dzekon, they can improve the situation by cutting Ukrtelecom’s expenses, most of which are tied to employees’ salaries.

“We have tens of thousands of technical personnel trained to work with the analogue system, while the new digital one requires a lot fewer people,” said Dzekon, adding that it would be realistic to lay off some 30,000 employees in the next three years.

Although blessed with an overabundance of low-skilled technical staff, Ukrtelecom lacks good marketing specialists to promote its services and make the company competitive on the telecommunications market, said Dzekon.

Oleksandr Parashchiy, an analyst at Concorde Capital, said that Ukrtelecom suffers from a lack of flexibility stemming from its state ownership. He added that he does not expect any significant changes in the way the company is managed until after privatization.

“For one thing, tariffs for Ukrtelecom’s services are strictly regulated by the state and cannot be changed freely in response to the market situation,” said Paraschiy.

“Also, the state as an owner offers services that are beneficial in terms of social support but which are not profitable from the business point of view,” he added, giving the launch of phone lines in rural areas as an example.

According to Parashchiy, it’s not profitable for the company to launch phone land lines in villages, because the phone fees there are lower than the production costs.

“But the company does not have a choice, because it’s a state directive,” said Parashchiy, noting that in Europe special funds are created for this purpose and supported by contributions from all telecommunications companies in the country.

According to Parashchiy, laying off thousands of redundant workers at Ukrtelecom is inevitable but it won’t happen until a profit-driven investor comes in.

“The state won’t go for firing such a big number of employees, but it is necessary to make the company efficient,” said Parashchiy.

“The question will only be, of course, how to do it in a socially acceptable way,” he said.

Source: Kyiv Post