In a wide-rang­ing in­ter­view with CNC3's Judy Kan­hai on Fri­day, TSTTS CEO Dr Ronald Wal­cott said the com­pa­ny was "head­ing down the path of in­sol­ven­cy" and had no choice but to cut staff. The com­pa­ny served re­trench­ment no­tices to 503 em­ploy­ees in the first phase of its trans­for­ma­tion thrust last week and 197 more will get their re­trench­ment let­ters in the com­ing weeks and months.

Wal­cott al­so re­vealed that at one the shut down of the com­pa­ny was con­sid­ered—sim­i­lar to what was done when BWIA was re­placed with Caribbean Air­lines

Here is the full in­ter­view:

You have just sent home 503 em­ploy­ees and you have in­di­cat­ed that it is just the first phase of this crit­i­cal trans­for­ma­tion ex­er­cise at TSTT. It is on­go­ing right now. The sec­ond phase, TSTT has said, will in­clude non-union­ized em­ploy­ees, which al­so in­cludes those at the ex­ec­u­tive lev­el. How many em­ploy­ees do you plan to send home at the end of all of this?

RW: Well, it’s go­ing to be 700 em­ploy­ees but I don’t want to start there and that’s fine be­cause that’s what is top­i­cal and what’s in the pub­lic do­main. I pre­fer to start if you will al­low me, to talk about the fact that this is a phase of a process of trans­for­ma­tion. We start­ed this ex­er­cise in 2016. When I took over as CEO in 2014, I in­di­cat­ed to every­body at that point in time that we have some fun­da­men­tal chal­lenges both as an or­gan­i­sa­tion be­cause we had been con­struct­ed in a lega­cy way and the telecom­mu­ni­ca­tions in­dus­try is chang­ing rapid­ly and if we don’t trans­form our­selves, we are go­ing to be­come ir­rel­e­vant, in­sol­vent and con­tin­ue to be a go­ing con­cern.

That was the ear­ly mes­sage. So we start­ed this trans­for­ma­tion in 2016 and de­vel­oped a five-year plan. We have four things . . . we have to evolve our tech­nol­o­gy which we have done, for the most part, we have to look for new lines of rev­enue be­cause tra­di­tion­al rev­enue is go­ing away, we have to im­prove our ser­vice de­liv­ery cus­tomer ser­vice and our em­ploy­ee costs and ef­fi­cien­cy have to be ad­just­ed. Our em­ploy­ee costs are 30 per cent of rev­enue which is twice times the in­dus­try stan­dard—some­times more than that—and our ef­fi­cien­cy is half of the in­dus­try stan­dard, so this phase of what is a greater part of a strate­gic plan that was a $4 bil­lion un­der­tak­ing that we start­ed in 2016.

Now how long have you been deal­ing with this is­sue of high em­ploy­ee costs?

RW: I’m in TSTT for 12 years now and since I start­ed in this or­gan­i­sa­tion that is one of the con­ver­sa­tions. In fact, in 2008 there was a plan that was called the Gi­ga­bit Plan. That plan was a sim­i­lar plan to the BWIA to CAL mod­el. It was es­sen­tial­ly to shut down the or­gan­i­sa­tion and restart with new rules, busi­ness con­tracts and so on. This has been a peren­ni­al prob­lem. That’s the point that I am mak­ing.”

TSTT rolled out this five-year strate­gic plan back in 2016 and we are wrap­ping up 2018. Why did you take so long to cut back on em­ploy­ees costs?

RW: Be­cause you have to put the sys­tems in place first if you are go­ing to move to­wards dig­i­tal trans­for­ma­tion, you have to put the au­toma­tion in place be­cause what would hap­pen is that you re­move peo­ple. But if you still have man­u­al process­es, then you are still go­ing to have some­one do the process­es. Our cus­tomers must al­ways be first, so in or­der to not im­pact the cus­tomers, we had to build the tech­nol­o­gy, build the sys­tem, put in the busi­ness sup­port sys­tems and then when it is all au­to­mat­ed and dig­i­tal, then you can act on the em­ploy­ees.

Be­fore you sent home that 503 em­ploy­ees, how many em­ploy­ees did TSTT have al­to­geth­er?

RW: Around 2,000 em­ploy­ees. We start­ed in 2013 with about 2,500. We had a vol­un­tary sep­a­ra­tion ex­er­cise in 2014. We’re down to about 2,000. We want to get to where we know we need to be at around 1,300 em­ploy­ees and that will take us to the op­ti­mum em­ploy­ee num­ber.

Your an­nu­al wage bill of $768 mil­lion. By the end of this ex­er­cise, how much do you ex­pect the an­nu­al wage to be?

RW: It’s go­ing to go down by about $300 mil­lion, so it’s go­ing to be in that range.

Are you con­sid­er­ing oth­er ways of cut­ting costs at this stage and al­so oth­er ways to gen­er­ate more rev­enue?

RW: Ab­solute­ly. Now you see, that’s an im­por­tant point. When you look at a tele­coms op­er­a­tion and you look at the ef­fi­ca­cy of what they are do­ing, there are five met­rics you look at gen­er­al­ly for all tele­coms, that’s how you would get the par­i­ty. You look at gross prof­it mar­gin, em­ploy­ee costs as a per­cent­age of rev­enue, main­te­nance as a per­cent­age of rev­enue, op­er­at­ing ex­pens­es as a po­ten­tial rev­enue, and you EBIT­DA mar­gin.

You re­al­ly want to get to a prof­it be­fore tax of ten per cent or greater. If you look at our mar­gins, our gross prof­it mar­gin is 85 per cent, which is well above the in­dus­try stan­dard, so we are do­ing some good work there. Op­er­at­ing ex­pens­es at 17 per cent with­in in­dus­try stan­dard, main­te­nance costs at 16 per cent, 15 per cent, with­in in­dus­try stan­dard. So the point that I am mak­ing is that we will al­ways be—and that is a board-man­dat­ed pol­i­cy—we will al­ways look­ing for ways to re­duce costs but we are at a point where . . . and that is ac­tu­al­ly what’s been hap­pen­ing for these years as we are try­ing to mit­i­gate against the im­pact of the ex­ist­ing em­ploy­ee costs.

Now in 2015, TSTT made a prof­it of around $225 mil­lion. By 2016, you are look­ing at a loss of $300 mil­lion and for the six-month pe­ri­od April to Sep­tem­ber in 2018, you have record­ed a loss of $478 mil­lion. How?

RW: There are a cou­ple of things. Again, one of the chal­lenges with an or­gan­i­sa­tion like ours is that there are these one-off trans­ac­tions. If you go back to 2016 num­bers, at that time we had made an ac­count­ing pro­vi­sion for the vol­un­tary sep­a­ra­tion and then we al­so did an im­pair­ment ex­er­cise. We had close to a $600 mil­lion im­pair­ment of lega­cy as­sets, so that would have caused that.

One of the big is­sues we have with the six months just con­clud­ed is there is a new fi­nan­cial re­port­ing stan­dard, IFRS 9, which has a very spe­cif­ic way in which you treat with debt. We have some ex­ist­ing gov­ern­ment debts that we have to pro­vide for. We had to im­pair it, which we would not have nor­mal­ly done in the nor­mal course of busi­ness ex­cept that IFRS 9 in­sists that we must.

Out­side of that, the chal­lenge we have is em­ploy­ee costs. If you re­move the $336 mil­lion which is the im­pair­ment of gov­ern­ment debt, that is a one-off. The ex­ist­ing chal­lenge con­tin­ues to be em­ploy­ee costs. Now my view is that the tra­di­tion­al rev­enue is al­so erod­ing and that is part of why we ac­tu­al­ly have to make this move to de­vel­op new lines of busi­ness.

When you say tra­di­tion­al rev­enue ar­eas, what are those ar­eas be­ing erod­ed?

RW: That is be­ing dri­ven by the new tech­nol­o­gy now—over the top so­lu­tions. So what’s hap­pen­ing is that when you are able to send mes­sages via What­sApp or Face­book or in­stant mes­sag­ing and so on, SMS rev­enue goes away. When you can make phone calls via What­sApp us­ing wifi, voice rev­enue goes away, over­sea rev­enue goes away, roam­ing rev­enue goes away, in­ter­na­tion­al di­rect rev­enue goes away. So those are all tra­di­tion­al lines of rev­enue that are be­ing erod­ed by this new way of com­mu­ni­ca­tion. And then on the en­ter­tain­ment side, where­as be­fore peo­ple would take ca­ble tele­vi­sion and so on, now you have Net­flix and all the oth­er ways of ac­cess­ing via the in­ter­net, so it is just the re­al­i­ty. It is a new way of do­ing things.

How do you trans­form your busi­ness so that your rev­enue is not erod­ed or what new ar­eas are you go­ing to tap in­to to get more rev­enue?

RW: That’s why we cre­at­ed what I call a pri­ma­ry man­date. The man­date is we need to trans­form from a lega­cy tele­coms to be­com­ing an ag­ile broad­band com­mu­ni­ca­tions com­pa­ny be­cause we saw where every­thing is be­ing dri­ven by broad­band and is an app off of broad­band, so we are in that mode. For ex­am­ple, what we are do­ing with cop­per is we are re­mov­ing our en­tire cop­per plant and re­plac­ing it with an en­tire wire­less net­work that is best in class and is go­ing to go to 5G be­cause 5G stan­dards are writ­ten for six fixed wire­less ac­cess. We are well in train, we have built the net­work al­ready and our vi­sion is that every house­hold in Trinidad and To­ba­go should have af­ford­able broad­band, we are work­ing to­wards that and that is how you build new lines of rev­enue when you are able to pro­vide ubiq­ui­tous broad­band.

Is that enough to get TSTT out of the red right now?

RW: Our em­ploy­ee costs, get­ting that in line will take us out of the red im­me­di­ate­ly.

So by the end of your fi­nan­cial pe­ri­od, which will be March 2019, and af­ter you have cut back staff by 700, do you ex­pect to turn things around and record a prof­it or even break even? What are your pro­jec­tions?

RW: Ab­solute­ly. Our first year of op­er­a­tions, we ex­pect that we will get prof­itabil­i­ty back to over $100 mil­lion and we will build from there. Rev­enue growth is im­por­tant. The thing with rev­enue growth is that you have to put sys­tems in place so we ac­tu­al­ly had to re­or­ga­nize our busi­ness to be able to take ad­van­tage of the op­por­tu­ni­ties.

That $768 mil­lion in an­nu­al wage, how much of that is linked to ex­ec­u­tives?

RW: Let me put it an­oth­er way—82.3 per cent of that is ju­nior and se­nior staff and $135 mil­lion or so com­bined, in­clud­ing ex­ec­u­tives, makes up the rest. So when you look at the rev­enue per em­ploy­ee, the month­ly rev­enue of ju­nior and se­nior staff, the to­tal is around $40,000 per month. The non-union­ized staff is around $35,000 per month, so we ac­tu­al­ly have in TSTT a com­pres­sion chal­lenge where we have se­nior staff em­ploy­ees who are earn­ing more than pro­fes­sion­al staff and that’s one of the chal­lenges we have.

Did TSTT pay out bonus­es to its ex­ec­u­tives in 2017?

RW: TSTT, in 2017, paid around $4 mil­lion in bonus­es to non-unioned em­ploy­ees that mer­it­ed a bonus pay­ment. What we did at that point in time is we de­signed a full pay for per­for­mance sys­tem. Let me go back one step first. Non-union­ized em­ploy­ees don’t get salary in­creas­es. We don’t do that, there are no mer­it in­creas­es like with union­ized em­ploy­ees. Every year, ei­ther through ne­go­ti­a­tions or through a court award, they get these five or sev­en per cent salary in­creas­es be­cause CO­LA is con­sol­i­dat­ed. That is not so with non-unioned em­ploy­ees, so be­cause we didn’t make our fi­nan­cial tar­gets we weren’t able to ex­e­cute a full bonus sys­tem but there were per­sons with­in the or­gan­i­sa­tion who pro­vid­ed yeo­man ser­vice and per­formed ex­cel­lent­ly and man­age­ment and board felt that they should ho­n­our that and they did, in fact, pay out some bonus­es.

Did this in­clude ju­nior and se­nior staff?

RW: No. Ju­nior and se­nior staff are gov­erned by the col­lec­tive agree­ment, so any pay­ments to them must come through that mech­a­nism.

So this would have been just ex­ec­u­tives?

RW: No, this was non-union­ized em­ploy­ees. There are 369 non-union­ized em­ploy­ees.

Are some of those non-union­ized em­ploy­ees ju­nior and se­nior staff?

RW: No. All ju­nior and se­nior staff are union­ized.”

Who are the non-union­ized em­ploy­ees?

RW: We have pro­fes­sion­als in IT, we have sec­tion man­agers, we have se­nior man­agers, we have pro­fes­sion­als, we have an­a­lysts in fi­nance and oth­ers parts of the or­ga­ni­za­tions. Those kinds of po­si­tions are con­sid­ered non-union­ized.

And those are the kinds of po­si­tions that would have got­ten bonus­es? Are you plan­ning to pay out bonus­es at the end of 2018?

RW: No. That’s the short an­swer to that. What we are go­ing to do post this trans­for­ma­tion is, of course, have a new busi­ness met­ric. We are go­ing to have new per­for­mance cri­te­ria, we are go­ing to de­cide new ac­count­abil­i­ty tar­gets and based on that, we are go­ing to de­sign a com­pre­hen­sive pay-for-per­for­mance sys­tem that we will im­ple­ment.

Your line min­is­ter had said that TSTT can­not con­tin­ue to op­er­ate in its’ present form. If you did not make these cut­backs right now, what would have been TSTT’s po­si­tion in a year’s time?

RW: We would be look­ing at in­sol­ven­cy. As I said, what’s been hap­pen­ing over the years as we tried to deal with em­ploy­ee costs, we have been meet­ing with all stake­hold­ers, in­clud­ing the union. We’ve had no end of dis­cus­sions with the union on all the pos­si­bil­i­ties and re­al­i­ties of what’s hap­pen­ing. You just have to look around at right here in Trinidad, re­gion­al­ly and in­ter­na­tion­al­ly. You are see­ing where there is a fun­da­men­tal change and if we didn’t ad­just the way we op­er­at­ed, we would be chal­lenged. But as rev­enues be­gin to fall now with the move­ment away from the tra­di­tion­al com­mu­ni­ca­tion meth­ods, you have de­clin­ing rev­enues and in­creas­ing costs. You are head­ing down a path of in­sol­ven­cy.

You have a debt of $1.8 bil­lion of which $700 mil­lion in­cludes set­tle­ment of back pay to ju­nior and se­nior staff. Where is the rest go­ing to?

RW: That was the tech­no­log­i­cal up­grade. In or­der to evolve our tech­nol­o­gy, one of the chal­lenges we had is that we were not build­ing out the net­work prop­er­ly in years gone by, so we took a de­ci­sion. We had an end of life net­work. We up­grad­ed our mo­bile net­work, web­site, ac­cess, ag­gre­ga­tion, all of that.

In 2017, TSTT in­di­cat­ed to the Pub­lic Ac­counts En­ter­prise Com­mit­tee of Par­lia­ment that the com­pa­ny in­curred a li­a­bil­i­ty of ap­prox­i­mate­ly $91 mil­lion for va­ca­tion leave. What is that fig­ure to­day?

RW: It’s around 70 mil­lion. That’s part of the chal­lenge we have with em­ploy­ee costs and it’s im­por­tant to know that those are con­ver­sa­tions we had with the union. Our em­ploy­ee costs are com­prised of salaries and then all of these oth­er emol­u­ments such as pen­sion, over­time, va­ca­tion leave. Most of our em­ploy­ees get four, five, six weeks va­ca­tion and that’s a li­a­bil­i­ty.

What ben­e­fit has TSTT de­rived from the Massy ac­qui­si­tion so far?

RW: The Massy ac­qui­si­tion that’s been talked about—and maybe I can put this to rest. At the time Massy was a com­peti­tor. We were in a phase of build­ing out our fi­bre tech­nol­o­gy. Our plan was to pass 150,000 homes in a par­tic­u­lar time pe­ri­od. We were chal­lenged for a num­ber of rea­sons, not the least of which was ac­cess to for­eign ex­change. At the same time, Dig­i­cel had al­ready passed over 100,000 homes and Massy had passed 35,000 homes and was adding cus­tomers faster than we were able to be­cause of some of the lega­cy chal­lenges we had.

So when the op­por­tu­ni­ty pre­sent­ed it­self to ac­quire Massy, it meant we were able to get 35,000 homes passed im­me­di­ate­ly, add 6,500 cus­tomers, not look for the US$20 mil­lion it would have cost us to build out that part of the net­work, re­move a com­peti­tor, get syn­er­gies of the two busi­ness­es and con­tin­ue to add. What we have done since we ac­quired Massy is we have passed 130,000 homes and we have over 25,000 cus­tomers. That has been an ex­cel­lent deal, not to men­tion that it’s been au­dit­ed and we have paid around $40 mil­lion less than the val­ue so it’s been an ex­cel­lent deal.”

So if you look at the rev­enue gen­er­at­ed by that par­tic­u­lar ac­qui­si­tion, do you have a fig­ure for that?

RW: It would be some­where in the re­gion of $40 mil­lion for the past year. We ac­quired Massy in Ju­ly 2017.

When you launched the $3.8 bil­lion five-year strate­gic plan, fund­ing was sup­posed to come from the lo­cal bank­ing sec­tor of which $1.9 bil­lion was un­der­writ­ten by Re­pub­lic Bank. How much have you spent so far?”

RW: We have done most of what we need­ed to do in terms of the tech­nol­o­gy be­cause it was a front-loaded plan. We need to build out the tech­nol­o­gy first be­fore we could move else­where, so we have ac­tu­al­ly done that. We spent the $1.8 bil­lion on what we need­ed to do but re­mem­ber $700 mil­lion was for back-pay. That was one pay­ment.”

What do you say to Trinidad and To­ba­go? You are send­ing home em­ploy­ees at this par­tic­u­lar time. It's a dif­fi­cult time for TSTT. What’s your plan go­ing for­ward and what do you say to Trinidad and To­ba­go about the fu­ture of .