When Etisalat took over PTCLs reins in 2006, it faced a choice: manage whatever business was left from the previously state-run entity; or transform into a truly integrated telecom services provider. Clearly, it chose the latter, which meant battling on many fronts, not least of which was the rationalisation of a huge workforce of over 60,000 employees in 2006.
Pushing for diversification of revenue streams away from the Voice and LDI business alone wouldn cut it, so cost control measures were initiated, the hallmark of which was a Voluntary Separation Scheme PTCL had offered to its employees in 2007-08. The VSS was offered to 50,000 employees, out of which 35,000 applied, and 30,000 were eventually let go.
Four years later, it appears that PTCL wants to conclude what it started in 2008, by launching a new VSS for some 16,000 employees. Excluding those above 17 grades, all regular and contractual employees are reportedly eligible to participate in the fresh scheme. Perhaps, that is why this scheme won be as costly an affair as it was in FY08.
The previous scheme is said to have cost Rs.41.4 billion for 30,000 employees to leave the Company voluntarily-of which PTCL paid Rs.23.9 billion and the Government of Pakistan (PTCLs majority shareholder) paid the rest. The 2012-13 VSS scheme is expected to cost between Rs.8-10 billion in total, due to lower annual salaries of the targeted employees.
It is not clear, however, if the government would pitch in this time around. In case it does not, PTCL would have to book this expense during FY13, just like it did in FY08 and it subsequently went into loss. Yet a maximum expense of Rs.10 billion is going to be a one off event-one that would certainly dampen the FY13 profitability-but whose billions in cost savings would become visible in FY14 and beyond.
With the Companys announcement, the share price slipped last week, possibly due to investors concerns about dividend announcement and short-term profitability. However, analysts at various brokerage houses are eyeing the Company move positively. Maintenance of a uy stance on the scrip is owing to the schemes favourable impact on long-term operational costs and earnings.
Apart from financial implications, the scheme can also be instrumental for PTCL to align its future plans with its operational footprint. As the Company moves increasingly towards emerging segments like broadband, corporate services and enterprise solutions; functions like billing, maintenance and services can be performed more efficiently with a limited workforce.
Yet the said scheme is in its infancy, and it is not clear what stance the government will take about supporting the proposal as well as sharing the cost burden. The employees, too, would have to think long and hard before taking the deal, given that the economy and jobs situation is nowhere near as it was in late 2007 when a VSS was offered last time.
In any case, success of this deal would augur well for the Companys long-term viability.