EU telcos' risk credit ratings on staff layoffs

European telcos face further pressure on their credit ratings as the opportunity to cut costs through layoffs wanes, Moody’s Investors Service warns.
In a special report issued yesterday, the credit agency notes most leading telcos in the region have already pared back staff as much as they can in a bid to improve efficiency, and states their inability to maintain the strategy is credit negative.
Of the telco’s covered by Moody’s, BT is reckoned to have the greatest flexibility in staff reductions. However France Telekom, Deutsche Telekom, Telekom Austria, Telekom Slovenije and Hellenic Telecommunications Organization will face difficulties maintaining a layoff strategy due to government involvement, the ratings firm cautions.
Moody’s assessed European telcos’ prospects by analyzing annual revenues per employee and staff costs as a percentage of revenues. The methodology highlights that carriers including Belgacom, TeliaSonera, Telenor and Telecom Italia are close to maximizing efficiencies through cutting staff, because they generate high revenues per employee, and have broadly low staff costs as a percentage of sales.
"The operators' fading ability to keep cutting staff costs is credit negative for our rated European telecoms service providers because cash flow generation will come under increasing pressure if revenues continue to decline," explains Ivan Palacios, a vice president and senior analyst in Moody's Corporate Finance group.
Palacios also notes that further layoffs could begin to affect telcos’ ability to maintain customer services, which would have an inevitable knock-on effect on “brand perception and the long term prospects of the business.”