Telco giant Telstra Corporation Ltd (ASX: TLS) has a plan to boost its profit and share price by cutting a further 10,000 jobs on top of the net 8,000 job cuts that has already been announced.
According to a report in the Australian Financial Review, Telstra plans to shed a further 10,000 indirect jobs.
The AFR quoted CEO Mr Penn as saying "Looking to the next financial year and beyond, our focus will be increasingly on our indirect workforce. Over the past year we have reduced our indirect workforce by 5000 and we would anticipate reducing this further by over 25 per cent in the next two years."
What does Telstra mean by indirect workers?
Telstra is referring to technical contractors, call centre staff and customer service staff. Job cuts are delicate for the company and horrible for the staff who learn they will no longer have their earnings.
Mr Penn said that human dimension of the number was challenging but the company has created an extensive program of support for affected employees.
However, the speech that Mr Penn gave wasn't all about job cuts. He also talked about the potential with its 5G network, although the telco isn't sure about what the next big change will be.
He said "One question I am often asked is what will 5G's killer app be? What will be the primary use case? When we launched 4G nobody knew for sure how it would transform video streaming to the point today where video makes up the majority of traffic on 4G. It will be the same with 5G. The best way to answer this question is to get it into the hands of our customers and developers as soon as possible."
I think 5G is a very exciting technology that could unlock new services we haven't thought of yet. But, it's a question of how much will Telstra benefit from 5G? It was the big tech companies that benefited enormously from 4G, not necessarily the telcos. The same could happen again.
Foolish takeaway
The Telstra share price is up 1.4% in response to this news.
Telstra is currently trading at just under 15x FY20's estimated earnings. It's good to see Telstra has a cost reduction plan, but I don't think job cuts alone will be enough to grow profit – I want to see how Telstra's revenue is going to grow before saying Telstra would be a good long-term buy today.
