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IDT Swings Axe at Winstar

Three months after shelling out $42.5 million to gobble up bankrupt Winstar Communications, New Jersey-based telco firm IDT Corp. has outlined a cost saving plan that includes staff cuts and the scrapping of Winstar's wireline telephone business.

IDT said the Winstar subsidiary, which was acquired last December, would exit its wireline resale business entirely, exit the fixed wireless business in certain smaller markets and consolidate certain facilities and functions with IDT.

Through its wireline resale business, Winstar sold telephone and Internet service to customers using wires, which are leased from another carrier (usually the local monopoly phone company) to provide so-called 'last mile' connectivity.

"You don't have to be very smart to know that you can't stay in business by paying exorbitant fees to your competitors," said IDT boss Howard Jonas.

"Rather than losing money on a business where we have to pay the monopoly local carrier - our competitor - for access to our customer, we're going to play to our strengths by focusing our efforts on the customers who we can service on our own network. With these changes, we can compete head-to-head with the monopoly carriers utilizing our own proprietary network and bring true competition to the local service business," Jonas added.

IDT said the restructuring plan calls for Winstar to increase the overall size of its fixed wireless network by adding approximately 600 new buildings in the 22 cities in which it is maintaining these operations and to significantly expand its sales force. Once the new buildings are added, IDT said Winstar would have approximately 4,000 buildings on its network.

As expected, the move includes staff cuts, which affected about 65 percent of Winstar's staff, mostly in the non-sales departments. The company said its customer service staff would be transferred to an alternate facility.

It is a dramatic turnaround for Winstar, the New York firm created to transmits local and long-distance voice, Internet and data services over fixed wireless broadband networks. Last April, the company filed for federal Chapter 11 bankruptcy protection with more than $4 billion in debts.

As it tries to figure out how to turn Winstar into a profitable entity by the end of this year, IDT said it has worked out a strategic plan aimed at growing its facilities based communications business.

"When IDT bought Winstar in December, we expected to bring the company to profitability before the end of this year. By rationalizing our network and growing our footprint, we will have access to thousands of additional businesses in the new buildings which we will be bringing onto our network and should reach our goal of profitability even earlier than our initial expectations," according to Winstar CEO Brian Finkelstein.

He said Winstar would retain its wide area network data business (which provides frame relay and asynchronous transfer mode (ATM) services to customers) and its long distance resale business (which provides 1+ long distance service to business customers) across the U.S.