As its incumbent rivals get bigger, Internet service provider Covad Communications Group Inc. is getting smaller with layoffs of about 8 percent of its employees this quarter.

The cuts at Covad, which had 925 employees at the end of March, are intended to make growth businesses such as small-business DSL (Digital Subscriber Line) and wireless broadband more efficient, said company spokesman Michael Doherty.

Half of the layoffs are involuntary and half took place through attrition, he said. They will be completed by the end of the second quarter on June 30, at which point the company will have about 850 employees. The cuts, announced Thursday, are across several departments and most are taking place at Covad's San Jose, California, headquarters, he said.

Covad's legacy business of selling wholesale broadband to EarthLink Inc. and other competitive ISPs, primarily for consumers, has suffered under price competition from incumbent carriers. Those established players, namely AT&T Inc. and Verizon Communications Inc., have grown through industry consolidation over the past few years. However, Covad's own retail offerings for small businesses are growing rapidly, according to Doherty. Last month, the company upgraded its network in 11 markets to offer fat DSL pipes at 8M bps (bits per second) to 15M bps downstream and 1M bps upstream.

The company will take a restructuring charge of about US$1.5 million in the quarter but expects to save approximately $4 million in the second half of the year as a result of the cutbacks. In the first quarter ended March 31, Covad lost about $14.5 million or $0.05 per share while its revenue increased about 2 percent to about $120 million. The company's stock, which has fallen more than 40 percent over the past year, was down $0.05 at $0.86 in Thursday afternoon trading on the American Stock Exchange.

The IDG News Service is a Network World affiliate.