January 25, 2001, 11:54 AM — JUST ONE MONTH after slashing 400 jobs, struggling broadband networking vendor Covad Communications last Friday announced plans to dismiss another 400 workers and close 200 offices in a restructuring of a division aimed at business users.
The new layoffs, which will reduce Santa Clara, Calif.-based Covad's workforce by 14 percent, are the latest in an ongoing string of cutbacks by companies that offer DSL services. Stiff competition from old-line phone companies has led to rapid decreases in monthly subscription fees, making it more difficult for DSL providers to cover their huge start-up investments.
Earlier on Friday, San Francisco-based NorthPoint Communications Group said it was withdrawing from a European joint venture as part of a wider cost-cutting effort. Also last week, Digital Broadband Communications, in Waltham, Mass., disclosed that it has filed for bankruptcy protection and will shut down its network on Jan. 12. In addition, NorthPoint and several other DSL providers have announced layoffs during the last two months.
Covad was one of the first companies to start cutting back, announcing its first round of layoffs in late November. On Friday, Covad said employees being let go in its second round of job cuts will be notified within the next 30 days. The new layoffs are part of an expense reduction plan that Covad said was being developed earlier last month, when the company also disclosed that it expects to report a fourth-quarter operating loss of as much as $190 million on revenue of about $60 million.
Covad, which is trying to cut its operating costs by a total of 20 percent to 30 percent, said the layoffs will be covered by a $20 million restructuring charge that it previously warned would be taken as part of the fourth-quarter financial results. The layoffs will hit sales, operations, marketing, and support workers throughout the eastern and central regions of the United States, it added.
The company also will close 200 so-called "central offices," in which it co-locates DSL equipment with telecommunications systems used by local telephone carriers. A Covad spokeswoman said those closures will affect only about 1 percent of the company's 270,000 or so subscribers, with another 1,800 central-office facilities remaining in place.
The direct sales and marketing staffs at Covad's business solutions division, which formerly was called BlueStar.net, will be reduced as part of the new layoffs. Direct selling of DSL services to business users "continues to be an important channel for Covad, but we needed to consolidate and streamline operations to meet our drive to profitability goals," said Chuck McMinn, the company's chairman.