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Covad cuts 13 percent of work force

The beleaguered provider of high-speed Internet access says it will cut about 400 jobs, or 13 percent of its work force.

Covad Communications, a beleaguered provider of high-speed Internet access, announced Monday that it will cut about 400 jobs, or 13 percent of its work force.

The cuts are expected to result in cost savings of 20 percent to 30 percent, according to the company. Covad plans to cut workers from its facilities in Denver, Atlanta, Santa Clara, Calif., and Manassas, Va.

In mid-October, Covad reported a greater-than-expected third-quarter net loss of $189.9 million and warned that some customers were having trouble paying bills. About two weeks later chief executive Robert Knowling resigned.

Monday's announcement was made after the close of regular trading. Covad shares slipped more than 5 percent to $2.72, flirting with a new 52-week low. In the past year, the shares have traded as high as $66.63. In after-hours trading, the company's shares bounced back to $2.88, unchanged from Friday's close.

Like many smaller local phone and Internet providers, known as competitive local exchange carriers (CLECs), Covad is strapped for cash and fighting for market share and recognition in a high-growth area. The company implemented a cost-cutting program this summer.

Specifically, the company sells its digital subscriber line (DSL) connections to Internet service providers, which in turn resell them to businesses and consumers.

But as many as 14 of Covad's ISP partners have been unable to pay their bills in full and on time, forcing the company to recently restate its quarterly earnings. NorthPoint Communications, a competitor, recently faced a similar situation.

The tough times for CLECs and ISPs come as the communications sector has been hurt by the capital market downturn and perceptions that sales and demand for bandwidth could wane. ISPs such as PSINet and Flashcom, among others, have been caught in the fray. see story: Telecom downturn

Covad plans to reduce costs by consolidating several offices, cutting business and marketing expenses, and curtailing its network construction and equipment expenditures.

"Key to our success is a clear path to profitability," Chuck McMinn, chairman of Covad, said in a statement. "Getting control of our costs and headcount is imperative to meet this goal and with continued discipline around our cost structure, we expect the expense levels of the company will be significantly reduced for 2001."

Covad plans to halt expansion of its DSL network, which is in about 2,000 central office phone switching facilities and can reach nearly 50 percent of U.S. homes and businesses. The company also plans to cease construction of a new operations facility in Georgia.

Covad said it expects to report a one-time charge in its fourth quarter ending Dec. 31, 2000, to cover the costs of severance arrangements and cost reduction actions.