Internet service provider EarthLink Inc. will lay off 1,300 employees -- about 25% of its workforce -- and shut down its entire customer support operation for dial-up customers, company officials said Tuesday.
Hardest hit will be the company’s former headquarters in Pasadena, which loses 485 jobs. The rest of the layoffs will affect employees at EarthLink facilities in Sacramento, Seattle and Dallas. Employees were told Tuesday that cuts would begin Feb. 21.
Dial-up support calls, including reports of technical problems from subscribers, will be farmed out to other companies at an estimated cost savings of $20 million a year, said spokesman Dan Greenfield.
“Dial-up is a mature part of our business,” Greenfield said. “The outsourcers have demonstrated they can maintain a high level of customer service at a cost savings.”
Calls from customers who get broadband EarthLink service through high-speed digital subscriber lines or cable modems will continue to be handled by the Atlanta-based company.
“This will help us concentrate on broadband, which is the growing part of the business,” Greenfield said.
EarthLink, the third-largest ISP, lost 100,000 dial-up customers in the third quarter of 2002 while gaining 77,000 broadband subscribers. It’s fourth-quarter earnings will be announced today.
The company, which currently has 5,100 employees, has not had a profitable quarter since late 1997, and analysts are expecting EarthLink to report that the losses continued into the fourth quarter of 2002.
The staff reduction was seen as a positive for EarthLink’s financial future, especially in the short term.
“It cuts the fat out of their operating structure, which they needed very badly,” said Youssef Squali of First Albany Corp.
“They had a bloated infrastructure relative to their subscriber size.”
But others thought there might be a downside for the firm in the long term.
“EarthLink always prided itself on putting the customer first, and frankly, I think their stock prices sometimes suffered because of that,” said Scott Kessler of Standard & Poor’s.
Kessler said he feared that support calls from dial-up customers -- many of which will be handled in foreign countries such as India, according to EarthLink officials -- would be met with a lower level of customer service.
“An EarthLink employee might not only be more familiar with the company’s procedures, they also had more at stake,” Kessler said.
“How they handled a call might save a customer from going to a competitor, and that would impact them.”
Dial-up customers are already abandoning full-price Internet service providers such as EarthLink in favor of discount providers, such as United Online Inc.'s NetZero and Juno brands.
“I think this is another sign that companies realize that people do not want to spend $22 [a month] for access when they can get it for less,” Squali of First Albany said.
Neither Squali nor Kessler own EarthLink stock and their firms don’t do business with the Internet service provider.
EarthLink shares rose 31 cents Tuesday to $5.97 in Nasdaq trading.