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.