WINNIPEG – Over 750 employees will be let go in early 2006 as part of a multi-faceted push to cut costs at MTS Allstream.
Calling it the “Transition Phase II Plan” which will “position the company to grow profitably in the rapidly changing telecommunications industry,” the Winnipeg-based provincial telco – and CLEC when outside of Manitoba through its Allstream division – announced today it “is targeting a minimum of $100 million in expense savings over the next two years,” in the press release.
"We have a long tradition of successfully capitalizing on change at our company," said CEO Bill Fraser, who is retiring in 2006. "Our efforts through the first phase of our transition (beginning from when MTS purchased Allstream in 2004 in a $1.7 billion deal) have led to more than $40 million in annual cost savings, and have also identified opportunities for significant additional cost reductions. While the accelerated pace of market evolution creates nearer term challenges, which all industry participants are indeed experiencing – we believe by leveraging the many fundamental strengths of our organization together with proactively moving forward with TP-2, that the factors of change in our industry represent significant opportunity for long-term profitable growth."
Pointing to the pace of evolution in the telecom industry and the quickening shift towards IP solutions, the company is modifying the way it does business so that “in its business segment outside Manitoba, service offerings will be tightly aligned and tailored to the requirements of the large and upper mid-market customer segments,” said the press release,
As part of the cost cuts, “the overall employee base will be reduced by approximately 750 – 800 positions,” said the company, with the majority of the departures coming quickly, in the first half of 2006.
It is estimated that these staffing reductions will result in annualized savings of approximately $50 million to $60 million. A one-time charge will be recorded in the fourth quarter of 2005 for costs associated with the workforce management program. This charge will reduce the company’s reported 2005 after-tax earnings by an estimated $0.38 to $0.42 per share.
As well, MTS Allstream’s marketing functions across the entire company were consolidated under the position of chief marketing officer. Dean Prevost (formerly executive vice-president customer operations & service delivery, Allstream) was appointed to this role.
"Our initial integration effort delivered results that exceeded our expectations, and TP-2 is about furthering that cost reduction success," added Wayne Demkey, executive vice-president finance and CFO.
"2006 will see significant change in our business as we execute on the various projects making up TP-2. Among others these include, today’s announced workforce management program, improved network access costs, further integration of compatible functions and various process re-engineering initiatives," he added.
MTS Allstream expects to incur one-time restructuring and integration costs associated with TP-2 of approximately $100 million. "Overall, we are seeing very positive growth in our business IP portfolio of services, which we believe when combined with our refined market focus and aligned cost structure will deliver growth in profitability longer term,” said Demkey.
However, once the costs are wrung out of the company, look for it to be in play as potential suitors such as Telus and Bell will zero in.
