London-based Mercury Communications Ltd is to make job cuts, but the planned 2,500 redundancies by December next year is more than double the figure suggested after parent company Cable & Wireless Plc’s interim results last month (CI No 2,541). At that time, Mercury announced profits down 3% to UKP96m on turnover up 12.2% at UKP797.0m. Mercury is also splitting itself into two divisions, Network and Services, and is abandoning pay phones and its work on infotainment, and farming out directory enquiry services, all in a bid to increase its profits. Mercury will take a UKP120m pre-tax hit on its year-end results in March associated with redundancy and asset writedown costs. Of that figure, UKP40m will be linked to staff costs and UKP80m to the other. Analysts say Mercury’s action represents a significant shift in strategy, brought about by increasing competition from British Telecommunications Plc and new cable operators. Newly appointed chief executive Duncan Lewis said, without actually admitting that Mercury had made mistakes, We’re commited to providing more and more choice but we’d reached the point where there were several large competitors with services and networks. Nobody can be a broad line supplier of everything to everybody. Telcos have to face up to the real world of customer choice and customer service. Lewis said Mercury had been planning the cuts since the middle of the year and in all, the changes to the company are expected to reap savings of UKP50m a year. Mercury will be a strong business to be developed in a focussed way, Lewis said. The job cuts will include 2,000 permanent jobs from administrative and support functions as well as some from the group’s networks division, but the company could not give specific details saying it was in discussion with staff. The remaining 500 will come from contract and temporary staff. Lewis said the company would offer voluntary redundancy terms to most staff affected by the cuts. But it would not say the level of compulsory redundancies. It would attempt to redeploy staff with key skills in growth areas of the business and to improve customer service.

Sold for scrap

The redundancies will be phased: 1,200 by March next year, another 6,000 by September and 600 by the end of 1995. Once all the staff are made redundant, and the customer premises equipment division that employs 1,000 is sold, possibly in a management buy-out, Mercury will employ around 8,000, compared with the current 11,400. Directory services will be provided through third party suppliers and the 2,700 payphones, the street furniture will simply be sold for scrap, subject to Mercury’s licence obligations, during 1995. Mercury said these two sections of its business have lost money since day one. Nor does it believe pay phones can ever be profitable: the increase in the use of mobile phones, phone charge cards, pagers and so on, are all nails in the coffin of the humble pay phone. As for the company’s restructuring, Lewis said it had been broadening its business but had now come under attack from small, niche market operators and Mercury had to break out of this untenable position. When compared with the best telecommunications companies, Mercury was just not as efficient. To become more efficient, Mercury’s Services’ division will be split into five market segments: international, UK corporate, small and medium enterprises, home business and targeted residential and mass market consumers via television cable, working with partners. Each section will offer packages of products to its customers and would be backed up by a customer service division and the Network division. Mercury’s announcement comes days before an expected consultation paper from the UK regulator, the Office of Telecommunications. Lewis said that regardless of what Oftel planned, Mercury was acting to protect itself.