BellSouth to cut 1,500 managers in buyouts

The Atlanta Journal-Constitution
Published on: 12/16/05

BellSouth plans to slice 1,500 people from its huge management work force — a move that is likely to have a heavy impact on Atlanta.

The telecommunications company announced Thursday it will eliminate about 8 percent of its management positions — or 3 percent of the company overall — most likely through voluntary buyouts. The cuts will not affect unionized employees.

The change will roil BellSouth's corps of managers, which totals about 21,000. Company spokesman Jeff Battcher said those managers are concentrated most heavily in Atlanta and Birmingham.

"Reducing work force is the toughest business decision a company has to make," BellSouth Chairman and CEO Duane Ackerman said in a prepared statement. "We have worked hard to avoid it, but many companies our size, and particularly our competitors, operate with lower overhead and fewer management layers."

Two weeks ago, BellSouth announced a partial reorganization of its operating units, including the elimination of two high-level executive positions. The latest cuts are the next step in that process and will ripple far deeper into management.

BellSouth's payroll has dropped sharply in recent years. The company employs about 63,000 people, compared with about 92,000 at the end of 2000.

Many jobs were moved to other companies when BellSouth sold its Latin American operations and when its cellphone staffers became part of Cingular Wireless. Altogether, those two changes involved more than 20,000 workers.

But BellSouth made cuts, too, including in 2002 when about 6,000 positions were eliminated, including 3,000 management jobs. More than half of BellSouth's work force also took time off without pay that year to help the company cut costs.

The older cuts, however, happened before many new developments in the industry. Telecommunications is changing faster than ever before, as BellSouth adjusts to growing competition from cable companies that are trying to steal phone customers and as wireless usage whittles away at landlines.

At the same time, BellSouth is focusing on building business in high-speed services, including its growing Internet offerings.

Major rivals are lurking, too. The new AT&T, created through the recently completed merger of SBC Communications and AT&T, poses fresh challenges to BellSouth, given that the company is likely to pursue more business customers in the Southeast.

Indeed, BellSouth is widely seen as an attractive acquisition candidate for San Antonio-based AT&T, which has holdings that stretch across much of the country. BellSouth's stronghold in its growing, nine-state Southeastern territory is seen as a logical fit to tuck into AT&T's vast system.

Analyst Jan Dawson, of the consulting firm Ovum, doesn't think BellSouth is cutting jobs to prepare for an AT&T buyout, however.

"It's not like BellSouth is unprofitable or has low margins or needs to improve to be attractive," he said. "BellSouth is facing new threats and doing everything they can to maintain their margins. This is more responding to the competitive threat than it is window-dressing for an acquisition."

Atlanta telecom analyst Jeff Kagan also said the changes are part of "the cost of competition" in telecom.

"Customers love what competition does for their phone bills, but it often comes at the cost of workers," Kagan said. "Real people lose real jobs to keep the companies cost-competitive. ... We can't have it all — competition, lower prices — and expect the companies to keep their employee counts the same."

The cuts are not expected to touch workers in sales, advertising and publishing, or network operations. In other words, no truck drivers or people who sell Yellow Pages ads.
Instead, spokesman Battcher said, the cuts are likely to focus on management-level positions in areas such as marketing, finance, human relations, advertising and investor relations.
Besides the competitive environment, BellSouth is preparing for a number of important leadership changes as Ackerman moves toward retirement in 2007. The heir apparent is President and Chief Operating Officer Mark Feidler.

Laura Lee Gentry, head of the Atlanta office of headhunter firm Egon Zehnder International, said BellSouth's buyouts could "make room for new talent" as the company evolves. Gentry, who worked at BellSouth from 1993 to 2000 and specializes in recruiting for the telecom industry, said one peril of the buyouts is that BellSouth could lose talented people.

"You could have the best and brightest cash out to do other things," she said.

Battcher said the company's buyout offer has several provisions:
• Workers will receive lump-sum payments equal to 5 percent of their base salary for each year of service. Those with 20 years, for example, would get 100 percent of salary. At most, a worker can get 120 percent. The minimum buyout is 5 percent, even for those with less than a year of service.

• Paid medical benefits for six months.

• Two years' paid tuition at a private or public college.

• Outplacement services, such as help with résumés.

BellSouth expects the cuts to lead to an after-tax charge of about $95 million. Approximately $50 million of that will be recognized in the fourth quarter.

The cuts should be done by April 30.

Based on experience, BellSouth projects most, if not all, of the reductions will come from volunteers. In 2002, all but about 100 of the 6,000 cuts came from volunteers, Battcher said.

Though many people who've taken past buyouts are veterans with retirement in sight, others have been younger people, Battcher said.