Labor Downsizing

I’ve been mystified for most of my career when large ISPs and carriers have significant layoffs at a time when they seem to be doing well. It’s a pattern that we’ve seen over and over during the last several decades.

The latest big layoff is coming from T-Mobile, which announced in August that it is eliminating 5,000 jobs, about 7% of its total workforce. The announcement made to employees is that the layoffs will involve corporate, backoffice, and some technology jobs. The company says this round of cuts will not impact retail and consumer care employees. The company expects to take about a $450 million one-time hit in the third quarter to reflect the cost of the workforce reduction. However, a reduction of this size will boost earnings in the future.

When John Legere purchased Sprint he promised employees that the combined company would protect existing jobs and add more jobs. Even before this current downsizing, T-Mobile was down 9,000 jobs since the merger. T-Mobile executives have been quoted in saying the current cuts are about coming efficiencies from AI, automation,  and other technology tools that will allow T-Mobile to operate more efficiently. But unless T-Mobile is onto some amazing innovations that the rest of the industry doesn’t know about, those future efficiencies are not here yet.

What mystifies me is that, from every public perspective, the company is doing great. In the last year, T-Mobile added 6.3 million postpaid cellular customers, 280,000 prepaid cellular customers, and over 2.1 million FWA broadband customers – an overall customer growth of 7.8%. Many of the employees being eliminated must have played an important part in that growth.

The company’s earnings are up, with the company announcing earnings per share for the year ending June 2023 at $5.02 per share, up significantly from $1.37 per share for the previous year. Stock prices have also been doing well, up 8.5% for the last year on the date I wrote this blog, and 15.3% for the previous year.

This has been a recurring theme in the industry. During my career, I’ve seen huge layoffs from other big carriers like AT&T and Verizon that also came when the companies were seemingly doing great. It’s easy to understand when companies have layoffs when times get tough. For example, a few of the vendors that sell 5G cell site equipment have had recent layoffs as the big carriers have cut back on equipment spending for 5G.

It doesn’t take a lot of digging to understand the real reason for the T-Mobile layoffs. In the last twelve months, T-Mobile has spent over $11 billion to buy back shares of its own stock, about 7% of all outstanding shares.

Buybacks are a huge drain on corporate earnings. The 465 companies in the S&P 500 Index spent well over $4 trillion on buybacks in the 2010s – equal to 52% of the net incomes of the businesses. The companies spent more than $3 trillion on dividends, another 39% of earnings over the period. Buybacks began in the mid-1980s when the Security and Exchange Commission adopted Rule 10b-18, that gave corporate executives a safe harbor against stock price manipulation while buying back stock.

Companies like T-Mobile are putting free cash into buying their own stock to the detriment of growth or employees. Corporations have drastically cut back on research and development at the same time as buying back stock. You have to wonder how large T-Mobile could grow in the long run if $11 billion per year was spent on R&D or expansion instead of stock buybacks.

I’m sure it’s no solace to the folks who are getting laid off that their jobs were largely sacrificed so that their corporate bosses buy back the company’s stock. While this is being explained as innovation and AI, the layoffs are all about executives valuing stock prices more than the employees that have brought them success.

3 thoughts on “Labor Downsizing

  1. OK, I think we have some basic model issues here. Subscriptions are saturated for mobile and internet. There’s no growth in the actual ISP business. As public companies they’re in the growth business.

    Let’s name some important R&D initiatives from the ISP side of the world that resulted in exciting new businesses. Right, ok. Check.

    Comcast/NBC/Universal, ATT/TimeWarner kind of says it all.

    So, they increase profitability by buybacks and layoffs. That’s way easier (and more effective) than increasing revenues, particularly in a saturated market. You can’t do it forever, but I think Occam’s Razor says they don’t have any better ideas. And, CEOs don’t last forever and they realize that they have a near term problem if they’re going to be richer, themselves.

    Maybe AI will open up grand new horizons that ISPs will exploit. Ahahahaha, just kidding.

    Maybe “edge computing” will be the lurch forward everyone’s expecting. Well, if you mean by “everyone” the hardware companies who aren’t selling very many PCs because of cloud computing, they’re more hoping than expecting and, no, this is (just like 5g) a solution in search of a problem.

    This is an industry that should be nationalized. It’s Dumb Pipes Generation two, three or four… whatever. They’re decomissioning and discarding businesses that people care about as fast as they can because they’re not up to top profit standards.

    But, to believe they are going to care about their workers is deeply out of sync with what they actually do or anything they’re likely to do in the future.

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