Bell Canada Plans for Job Cuts to Stay Competitive
UNDER pressure from regulators and fierce competitors, Canada's largest regional phone company - Bell Canada - is taking a tough step to try to remain profitable in future years.
Despite earnings of $931 million (Canadian; US$698 million) last year, the Canadian telecommunications giant announced last week it would cut 5,000 jobs. The move will save $466 million in salaries on top of a $300 million trim in next year's capital spending budget.
Robert Kearney, chief executive officer, told employees that the hit was being taken to ``secure the future of our business.'' This followed a decision last month by regulators to deny Bell its request to hike local phone rates by up to 40 percent. It was the Bell's first request for a local rate increase in 10 years, Mr. Kearney said. Increasing competition
Until last year, Bell Canada had to itself all the lucrative long-distance business in Ontario and Quebec, the two most densely populated provinces in the country with about 16 million people.
But since last fall, Unitel, Call-Net, ACC TelEnterprises, Fonorola, and other long-distance competitors have gotten into the game. The result is a decline in long-distance profits from business calls, the company's bread and butter.
Last year Bell Canada's $931 million in profits came from $7.9 billion in sales. In January, Bell projected that its 1993 profit would be $893 million. But earnings estimates were revised downward in May to $700 million, and may turn out to be even lower, analysts say.
If the rate increase had been accepted, earnings would have been somewhere between a 12 and 13 percent return on equity. Kearney said this year's return on equity would probably not achieve the 11 percent return permitted by the Canadian Radio-television and Telecommunications Commission (CRTC), which denied the rate increase.
With the economy tough everywhere, some analysts say even the lower return is not bad.
``They've been on a cost-plus basis since time immemorial,'' says Timothy Denton, an Ottawa-based telecommunications policy analyst. ``Very few industries on earth are guaranteed anything, much less the 12 and 13 percent they were hoping to get.''
The job reductions continue a downward trend in the company's work force. In 1990 the company had 55,000 employees, compared with 46,000 at present. After layoffs, the company will have about 41,000 employees in Ontario and Quebec, the area traditionally served by the company.
``They're getting into a much more customer-oriented focus, involving a cultural change within the corporation,'' Mr. Denton says. ``Ever since competition began to loom on the horizon, they've been taking steps to make themselves more efficient.... But they're in a technology-driven industry. So it's not surprising that they're going through these changes to adjust to a world in which other people can enter the same business.''
Still, customer service will be hurt because of the cuts, Kearney says, since many technicians and operators will lose their jobs. Union officials were not surprised by the announcement. Unions in agreement
``They want to remain a profitable corporation and employees also want to work for a profitable company,'' says Janice McClelland, a member of the negotiating committee of the Communications, Energy, and Paperworkers Union, which represents about 18,000 Bell operators and technicians.
But critics say the cuts are coming too low on the totem pole and there should be more cuts on the management level.
``They're acting like they're angry with consumers because consumers thwarted their efforts for this huge increase,'' says Chris Ballard, executive director of the Ontario division of Consumers' Association of Canada, which opposed the rate increase. ``This is not how you treat customers in the competitive 90s.''
But Kearney denies the cuts were an angry reaction to the turndown of the rate increase.
``We absolutely have to squeeze this money out of the business,'' he says.