How labour costs impact telecom operators Opex

Labour costs at telecom operators have touched $72 billion in Q1 2019, according to the latest research report from MTN Consulting.

Revenue per employee averaged $355K for the last four quarters. Labor costs per employee, on an annualized basis declined 1.1 percent in 1Q19 to $55.5K.

Telecom operators’ revenues declined 3 percent to $456 billion during the first quarter of 2019. The long-term revenue growth rate of the telecom sector is in the 0-2 percent range, the report said.

Telcos employed 5.2 million people in Q1 2019, in line with Q1 2018. “We expect employee totals to begin declining in the next 1-2 years. India alone may cut up to 100K employees in that timeframe, due to Jio’s consolidation and BSNL reforms,” MTN Consulting said.

Telco industry operating margins have been hovering at around 11 percent over the last 11 quarters, on an annualized basis. Many operators point to high labor costs as impacting margins, and plan layoffs and/or restructuring to cope.

On a per-employee basis, the global average for labor costs (on an annualized basis) in 1Q19 was $56k, down 1.1 percent compared to the year earlier. As 5G approaches, TNOs will keep up the pressure on their staff spending. They will look for ways to cut labor cost component of customer acquisition and retention costs through both technology investments and business partnerships.

The MTN Consulting report in 2018 said annualized operating profit margins have dropped for five straight quarters, from 13.7 percent in Q2 2017 to 12.7 percent in Q3 2018.

Telecom network operators’ labor cost was 15.3 percent of revenues for the 12 months ended Sept. 2018.

The report said mobile operators in emerging markets have the lowest labor cost burdens, in general: Bharti Airtel, Idea Cellular, the MTN Group and Axiata.

Japan-based KDDI reports labor costs totalling 8 percent of revenues.

Capex

Mobile operator Capex fell 3 percent to $70 billion during the first quarter of 2019.
Since the net debt of the global telecom operator sector was roughly half of revenues in 2018, few telecoms have room in their budgets for a 5G Capex splurge.

Capex for 1Q19 alone was 15.4 percent of revenues, the same as in 1Q18. Mobile operators’ average capital intensity will exceed 17 percent by the end of this year due to big spending on 5G network and fiber infrastructure in 2019-20.

The industry’s long-term Capex to revenue ratio is in the 16-17 percent range, on average (16.4 percent in 1Q19).

Baburajan K