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Rhythms Lays Off 450 Despite Subscriber Gains

Rhythms Netconnections Inc., a leading broadband provider in the U.S., Wednesday slashed 450 jobs, despite significant gains in broadband subscribers in the fourth quarter.

The staff cuts, and a desire to refocus on its current market, will force the company to absorb a one-time charge of nearly $15 million in its first quarter 2001 figures.

The data competitive local exchange carrier has, until today, remained relatively unscathed in the face of financial difficulties that have marred the business of many high-speed Internet providers these days.

Steve Stringer, Rhythms president and chief operating officer, said the layoffs were a necessary, if difficult, decision that needed to be made.

"While a reduction in workforce is always a difficult decision, we are pleased with the operational improvements we implemented in 2000," Stringer said. "These improvements have enabled us to increase our productivity, thereby reducing our required staffing levels."

The layoffs were necessary, despite a stellar fourth quarter which saw the data competitive local exchange carrier garner 20,000 new digital subscriber line customers, an increase of 43 percent over the third quarter.

Many of those customers, to the tune of nearly 7,000, came at the expense of Flashcom Inc., a broadband provider that went out of business last month after failing to pay for DSL orders it made.

According to Clay Storer, president and chief executive officer of Denver-based provider Broadband Solutions Inc., Rhythms and the rest of the DSL community is paying for the sins of a frantic deployment rate.

"The problem with the Big Three (Covad Communications Group Inc., NorthPoint Communications Inc., and Rhythms) is their business plan, which is inherently flawed," Storer said. "It won't work unless they change the way they operate their business. The costs involved in maintaining a network the size those companies have is huge, and running out and expanding the network doesn't help. They'll never make (earnings before interest, taxes, depreciation and amortization) profits if they don't fill up the network they have with users."

To do that, Rhythms has decided to refocus its energies in the 40 markets in which it already has a presence. It's a change of pace for them and other providers who want to remain afloat; the rush to be first-to-market is now tempered with the desire to concentrate on the markets it has and acquire more customers there.

"I think what we're seeing is going to be a switch in policy to be more retail-centric," Storer said. "They are going to have to own the customer to make the money they need to survive."



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