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Flashcom cuts work force nearly 30 percent

The financially strapped high-speed Internet access provider lays off 105 employees and sells thousands of customer accounts.

Flashcom, a financially strapped high-speed Internet access provider, laid off 105 employees, or nearly 30 percent of its work force, and has sold a portion of its customer base in an attempt to continue its operations, executives confirmed Friday.

The layoffs were concentrated among sales employees and workers who install connections for new customers, according to chief executive Richard Rasmus. Huntington Beach, Calif.-based Flashcom, which had about 360 employees prior to the cutbacks, also will close its Boston office.

In addition, the privately held company has sold thousands of subscriber accounts to Rhythms NetConnections and NorthPoint Communications, two of the wholesalers that supply Flashcom with high-speed Net connections, Rasmus said. Terms of the deals were not disclosed, and Flashcom remains in talks with Covad Communications as part of a similar arrangement, Rasmus said.

The moves were necessitated by Flashcom's inability to secure additional funding. Like many other broadband ISPs and the digital subscriber line (DSL) providers who supply them, Flashcom spent heavily on advertising and promotion to expand its market share. But investment capital has become scarce, forcing many companies to cut costs by announcing layoffs or selling assets to pay off their debts.

"We knew we'd need to go back for another round of funding by the end of the year, and unfortunately the bad news in the DSL industry has been unrelenting for six months or more," Rasmus said. "Our actions today are really dictated by the lack of access to additional funding."

Flashcom, which had about 31,000 customers when it filed for an initial public offering (IPO) in May, will continue to service some of its existing subscribers, but will not seek new customers.

"Our focus is on preserving our existing relationships rather than on growing the business," Rasmus said.

The company recently agreed to sell part of its customer base back to suppliers NorthPoint and Rhythms, which acquired 7,000 lines, according to the company. Former Flashcom users on Rhythms DSL connections will be switched to Earthlink, one of the nation's largest ISPs. In NorthPoint's case, former Flashcom users will be transferred to Telocity, a competing broadband ISP.

"We decided the best way to go was to monetize these lines to fund continuing operations," Rasmus said. "We're reorganizing the company toward a much lower burn (rate) model in the future."