EarthLink to lay off 900

Internet service provider says it will lay off about half its staff in an effort to boost profits and raise its share price.

Internet service provider EarthLink said Tuesday that it would lay off approximately 900 employees as the company restructures in an attempt to boost its sagging stock price.

EarthLink will lose about half its staff in the restructuring as it shuts down operations in Orlando, Fla.; Knoxville, Tenn.; Harrisburg, Pa., and San Francisco. It will also substantially reduce its presence in Pasadena, Calif., and Atlanta, the company said in a press release Tuesday.

The reductions are expected to cost the company $60 million to $70 million. But it will save EarthLink $25 million to $35 million through the remainder of 2007, the company said.

And these cuts may only be the tip of the iceberg, according to statements made by EarthLink's new CEO, Rolla Huff.

"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 in a statement. "These changes get our cost structure in line, but there is much more to do. We expect to announce additional steps as we continue our work over the coming weeks and months."

The shake-up comes as EarthLink struggles to find ways to balance losses in its traditional Internet service provider business with the high cost of building its municipal Wi-Fi and cellular phone businesses.

The company has won several citywide Wi-Fi contracts with cities such as Anaheim, Philadelphia and San Francisco. The way these deals are structured, EarthLink builds and runs the networks in exchange for using city-owned infrastructure like utility poles.

But the Wi-Fi projects haven't gone as smoothly as EarthLink had hoped. For example, EarthLink is still in contract negotiations in San Francisco for its planned citywide Wi-Fi network. And projects in Arlington, Va., and St. Petersburg, Fla., are supposedly on hold.

The GigaOm blog has also reported that Don Berryman, head of EarthLink's Muni Wi-Fi business, left the company three weeks ago. I haven't confirmed Berryman's departure yet, but I will be talking to EarthLink's CEO later Tuesday.

EarthLink is also pouring huge amounts of money into Helio, a cellular joint venture it started with Korean cell phone provider SK Telecom. The mobile virtual network operator, or MVNO, started with $440 million from both partners. But recently, each of the partners agreed to contribute another $50 million to $100 million to the company.

And all of this comes while EarthLink continues to lose subscribers in its traditional dial-up Internet business. At the end of the day, EarthLink has some very hard choices to make as it moves forward. Look for a news analysis later Tuesday on CNET

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