Mumbai: To cut costs and provide some comfort to its debt-laden balance sheet, Reliance Communications Ltd (R-Com), the mobile telephony arm of the Anil Ambani-led Reliance Group, has managed to move 9,000 of its employees out of the payroll in a couple of months, without actually laying off anyone.
The firm employed 24,460 people on 31 March 2012, and details of the number it hired since aren’t available; but the 9,000 who have moved out of its rolls have been transferred to Alcatel Lucent and Ericsson that have signed contracts with R-Com to manage its wired and wireless network in India.
An email sent to R-Com on Monday did not elicit any response.
On Monday, R-Com issued a note saying it has signed a $1 billion management service contract with Swedish telecommunications firm Ericsson. Under the agreement, Ericsson will manage R-Com’s network in northern and western India for eight years and take 5,000 R-Com employees on its rolls.
Gurdeep Singh, chief executive of R-Com’s wireless business, said in the statement that it was banking on Ericsson’s expertise to “improve the producitvity of our network and ensure that it delivers to its full potential”. Ericsson is also expected to help in “optimization of resources” and provide “cost-effective solutions” to R-Com, Singh said. The statement also said this outsourcing would help R-Com “free up resources to focus on user experience”.
In January, R-Com had struck a similar $1 billion contract with French network and telecommunications firm Alcatel-Lucent to manage its network in eastern and southern India for eight years. Under that arrangement, 4,000 R-Com employees were to move to Alcatel-Lucent.
A back-of-the-envelope calculation shows the average cost per employee incurred by R-Com in fiscal 2012 was Rs.5.24 lakh, or Rs.43,710 per month. By this calculation, R-Com could save around Rs.472 crore a year.
Reducing headcount has been an ongoing process at R-Com. The number of employees on R-Com’s payroll as on 31 March 2012 was 16%, or 3,600 people fewer than the year earlier.
Outsourcing network management will help R-Com reduce network and employee costs, which together account for around 35% of its revenue and around half its overall costs, said a telecom analyst with a Mumbai-based brokerage, who spoke on condition of anonymity.
“It will ease cash flow position to some extent as vendors can be paid in 90 days, whereas salaries have to be paid every month,” this analyst said, although he added that staff being shifted to the partners weren’t likely to be high-cost resources.
The deals will help R-Com rationalize costs, according to Abhishek Anand, research analyst at Centrum Wealth Management Ltd. “It is similar to what other telcos have done for outsourcing non-core activities. The benefit of this outsourcing will reflect over a period of time,” Anand said. “Qualitatively, there are focused players to manage its network, so R-Com can then focus on its core activities.”
During a press conference in January following the announcement of the Alcatel-Lucent deal, Singh had said the deal could help R-Com reduce operating costs by up to one-fifth.
R-Com has tried to divest its telecom tower assets and raise equity in its undersea cables division to ease debt, but its efforts have been in vain. As on 31 December, R-Com had a net debt of Rs.37,360 crore.
R-Com’s shares lost 0.33% to close at Rs.75 on BSE on Monday, while the exchange’s benchmark Sensex index lost 0.12% to 19,460.57 points. Over the past year, shares of R-Com have fallen 20.17%, while the Sensex has risen 9.65%.