Dear CenturyLink Colleagues,
I am writing today to update you on our journey to transform CenturyLink as we adapt to rapid changes in our competitive and technological landscape. One thing I have learned about this transformation is that it is never a smooth path toward success. There are days where I can clearly see that we are on track to our future as a growing business, one that is operating efficiently, exceeding expectations of our customers, and beating our competition. There are also days when it is clear that we still have significant hurdles that need to be overcome to truly transform our company. I am sure you can relate to that feeling in your own work.
We all understand the pressure caused by the decline in our legacy revenues — it creates a $600 million dollar negative impact on our business each year. While we continue to see positive growth in our strategic products, the profit margins of these strategic products and services are considerably lower than those associated with the legacy revenue we are losing. So, while I am very confident that we will continue to accelerate our revenue growth over time, I also have reached the very difficult conclusion that the loss of higher margin legacy revenue requires that, in addition to achieving our growth targets, we must also significantly realign our fundamental cost structure. It is a difficult conclusion to reach, but our long-term success requires us to adapt to the reality of the rapidly changing environment in which we are operating.
Toward this end, between now and the middle of November, we will be pursuing a number of activities to lower expenses, including, first, a significant reduction in non-employee related expenses and also a reduction of 7-8% in employee related costs. In the years ahead, we believe more of our cost savings will come through technology innovations and related efficiencies. However, in the near term, much of our required cost savings must come through lowering our headcount. We plan to approach these reductions on a voluntary basis initially, but it will probably require involuntary reductions as well. We hope to make the majority of these employee decisions in the next couple of months.
This reduction in personnel is very difficult and very personal for me. My sincere concern goes out to each employee impacted by the expense reduction steps that will be taken in the coming weeks. Each employee affected will be treated with the highest level of respect and compassion as we work through this challenging process.
Tomorrow, you will hear from Scott Trezise, our Human Resources EVP, who will be covering the next steps in these cost reduction efforts.