LONDON (Dow Jones)--Cable & Wireless Group PLC (CW.LN), the U.K.'s second-largest fixed-line telecommunications company, Tuesday unveiled a recovery plan for its struggling U.K. operation that includes job cuts that could halve the unit's workforce.
The company said it expects to cut U.K. headcout from today's more than 5,500 to 3,500 or even 2,500 within the next four to five years.
C&W, which is holding an investor day Tuesday, also announced a plan to significantly reduce the number of customers it serves in the U.K. as part of a realigning of the business to focus on large corporate customers and public institutions.
C&W operates in the U.K. corporate telecoms services market, competing against incumbent operator BT Group PLC (BT) and a host of smaller players including Thus Group PLC (THUS.LN) and Kingston Communications PLC (KCOM.LN). The market segment is one of the most competitive in Europe and has been characterized by severe pricing pressure and aggressive competition, making progress difficult at C&W.
As a result, C&W purchased its largest rival Energis in 2005, a deal that brought John Pluthero, who now heads C&W's enlarged business, into the company. The controversial deal was justified by the potential cost savings yielded by bringing the two companies together as well as the increased scale of the business.
Cable & Wireless said that it will shed 350 staff in the second half of the current year as part of the wider drive to significantly reduce its workforce in the U.K.
The job cuts result from C&W's decision to stop serving the majority of its customers. As part of its decision to focus on large clients, C&W plans to reduce its customer base to about 3,000 large customers from around 30,000 at the end of February. It said that by September 2006, it expects to have already slashed its customer base to 18,000.
Narrowing its customer base will allow the company to concentrate on lucrative larger contracts and reduce its dependence on high-margin voice services. Voice services, which account for around 60% of C&W's revenue base, are most vulnerable to margin erosion as prices rapidly reduce with the introduction of new network technology such as voice over Internet protocol, or VoIP.
C&W said it aims to increase its retail revenue exposure to around 70% of its revenue base from 50% at this stage. It also targets a margin increase to around 40% from the current 33% - however it didn't provide a specific timeframe.
Dresdner Kleinwort Wasserstein analyst Sam Morton said the review of the U.K. business is in line with what was expected but said the statement is ideas driven, so will need to be fleshed out in more detail at the analyst meeting later Tuesday.
However, Morton was impressed with Pluthero's plans. "It's a very sensible strategic update," he said, adding that it is also "the start of a new era under Pluthero." The broker rates the stock at buy with a 120 pence target.