KT Cuts 6,000 Employees to Reduce Costs

In a company statement released yesterday (28 December), KT said 5,992 of its staff will leave the company this week through an early retirement programme. The figure represents 16% of the company’s workforce. The retirement package was offered to those employees who had spent more than 15 years with the company and 65% of those leaving are in their fifties. The union has supported the deal because the terms are favourable, according to KT.

Outlook and Implications

• Job Cuts for Cost Reduction: The job cut is the largest ever conducted by KT, which previously made 5,500 employees redundant in 2003 through a similar programme aimed at streamlining the organisation. This time around, the job cuts are mainly aimed at cutting costs while also attracting younger employees and fresher ideas into the company. KT estimates that the early retirement programme will help it save about 460 billion won (US$393 million) in annual labour costs. The company has said that it will hire around 700 new workers and interns, partly to replace those who leave. "The retirement package will serve as a trigger for KT, which was seen as a slow dinosaur, to become a fast, efficient and strong organisation," Kim Han-suk, KT's vice-president in charge of human resources, was quoted by Financial Times as saying.

• KT Convergence Strategy: KT, which absorbed its wireless unit, KT Freetel, in June 2009, also seeks to generate cost savings from the reduction of sales commissions through joint marketing; the reduction of outsourcing costs for wireless network maintenance; and the integration of procurement, billing, call-centres, and research and development costs (see South Korea: 1 June 2009: KT Absorbs Wireless Unit KT Freetel). The dominant fixed-line operator and the country’s second-largest mobile operator has experienced continuous revenue decline in its fixed-line telephone businesses. Its sales in the third quarter of this year rose by a modest 3.9% year-on-year (y/y), while its operating profit for the period dropped 12% y/y (see South Korea: 3 November 2009: KT Q3 Operating Profit Down 12% Y/Y on High Marketing Costs). The company is now pushing ahead with a convergence strategy to help drive revenue growth and reduce costs. Competition in South Korea’s highly mature telecoms markets is also intensifying with the forthcoming merger of LG Telecom and two other LG telecoms units to create an integrated telecoms group (see South Korea: 15 October 2009: LG to Merge Three Telecoms Units Next Year).