The past few months have been tough for broadband DSL services provider Covad Communications, which is continuing to struggle in the face of the downward trend of the overall telecommunications market.
Seeking to rein in costs, Covad said Monday it would lay off nearly 400 full-time employees, about 13 percent of its nationwide workforce. Other cost cutting efforts include holding expansion of its nationwide network to just over 2,000 central offices, relying almost exclusively on its roll out of line sharing for consumer orders received after Jan. 1, 2001, and canceling the build out of its third operations facility in Alpharetta, Ga.
The company’s stock price has been in a downward spiral since it announced a wider-than-expected third quarter loss of $189.9 million in late October, attributed mainly to late-paying ISPs. That precipitated the resignation of Chairman, President and Chief Executive Officer Robert E. Knowling and induced the company to bring back ousted Chairman and Founder Charles McMinn.
“Key to our success is a clear path to profitability,” McMinn said. “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. The reduction activities are difficult for everyone involved, but these steps are necessary to bring operational costs in line with market demands, and allow us to maintain our position as the premier national broadband DSL provider.”
Covad said the layoffs would affect Covad facilities across the country — including major offices in Santa Clara, Calif., Denver, Colo., Manassas, Va., and Atlanta, Ga. — and positions at all levels of the organization, including operations, sales, marketing and support functions.
Covad has had a cost control initiative in effect since July 2000. The company said it is targeting a cost savings of 20 to 30 percent by 2001.
The company said the measures are possible because of increased productivity in operations and back office systems. In addition, Covad said the expected benefits of implementing the FCC’s year-old line sharing mandate and soon offering a self-installation option, should eliminate many truck rolls.
Construction on the Alpharetta operating facility has been halted and the facility will be closed in the next 60 days. The company also plans to restructure its operating facilities in Manassas, Denver and Santa Clara so as to transfer Alpharetta’s work, which is currently being handled in Covad’s Atlanta office. Covad will also re-deploy about 10 percent of the Atlanta employees to those locations. The Atlanta office will keep about 75 sales, sales support and operations support positions.
However, Covad will not leave its former employees in the cold. It is providing career services and counseling through its Employee Assistance Program, as well as severance arrangements and benefits continuation.
The company expects to report a one-time charge in its fourth quarter to cover the costs of severance arrangements and cost reduction actions.
“The core operating competencies of our company have not changed and the demand for DSL is still tremendous,” McMinn said.