EarthLink to cut 900 jobs, close offices
EmptyATLANTA -- Internet service provider EarthLink Inc. said Tuesday that it would cut 900 jobs -- or about half its work force -- and close four offices in an effort to reduce operating costs. EarthLink shares climbed 7% on the news.
The moves come as the company continues struggling to generate revenues as dial-up access customers turn to high-speed alternatives from cable and phone companies.
More actions could be announced by the year's end but no more cuts are expected, said Rolla P. Huff, the Atlanta-based company's president and chief executive. As part of the plan, EarthLink also said it will repurchase $200 million of its stock.
"While we see this as an important first step in unlocking the underlying value that we believe is in our company, we are only eight weeks into the process of repositioning EarthLink for the future," he said. "These changes get our cost structure in line, but there is much more to do."
Like many other Internet service providers with roots in dial-up access, EarthLink has sought to diversify its revenue base.
EarthLink does resell some high-speed services, but phone companies in particular have been able to offer cut-rate prices, particularly as part of bundles with traditional long-distance and local calling plans.
The company had counted on the right to sell customers access to citywide wireless networks in exchange for helping cities build the networks. But amid questions about customer demand and the technology's performance, EarthLink announced in April that it was reviewing new deployments while evaluating the performance of the current rollouts in four cities.
Chicago officials said Tuesday that they will shelve a plan to blanket the city's 228 square miles with wireless broadband Internet because it is too costly and too few residents would use it. The city said its negotiations with private-sector partners, including EarthLink, have stalled because any citywide Wi-Fi system would require massive public financing.
EarthLink's municipal Wi-Fi plans also face competition from an emerging technology known as WiMax, which can blanket wider areas.
It also faced questions over disappointing results from its Helio project, a wireless joint venture with SK Telecom of South Korea. The company has already committed to invest $220 million in Helio and has said it could spend another $50 million on the project, which was blamed for quarterly losses.
In July, the company cut its fiscal year 2007 revenue estimate after reporting hefty losses related to the Helio project.
The company said Tuesday it will close offices in Orlando, Fla., Knoxville, Tenn., Harrisburg, Pa., and San Francisco and "substantially reduce its presence" in Atlanta and Pasadena, Calif.
EarthLink said it expects to save $25 million to $35 million through the rest of the year because of the restructuring. The company currently employs about 1,900 people.
Shares rose 48 cents to close at $7.34 in Tuesday trading.
The company also lowered its 2007 revenue outlook for the third time this year. EarthLink said it now expects sales of $1.19 billion to $1.21 billion -- down from its previous forecast of $1.23 billion to $1.24 billion. The company said it expects a full-year loss of $79 million to $109 million, excluding restructuring charges.
EarthLink also offered a warning for 2008, saying it expects subscriber additions to slow.
The struggles were evident in the company's earnings. EarthLink posted a $16.3 million loss last quarter.
Huff, who was appointed in June, is known by analysts for his willingness to cut loose unprofitable projects. He told reporters after he was named the company's leader that he would conduct a two-month review of the company's businesses aimed at "getting a very focused strategy."
EarthLink is hardly alone in its struggles.
Last August, Time Warner Inc.'s AOL decided to stop actively marketing Internet access and start giving away AOL.com e-mail accounts, software and other features once limited to paying customers. AOL is trying to attract more advertising dollars on its free sites by doing so.
Meanwhile, United Online Inc., the company behind NetZero and Juno, has diversified by buying properties like United Airlines' MyPoints loyalty program and Classmates.com. Parent company Classmates Media Corp. recently filed for an initial public offering, though United Online would remain the controlling stockholder.