Earthlink Swings the Ax

Earthlink (ELNK Quote - Cramer on ELNK - Stock Picks) swings the ax, cutting 900 workers and closing four offices.

The Atlanta Internet service provider says the cuts are part of a restructuring effort aimed at aligning costs with sales. Earthlink also lowered its third-quarter guidance, calling for a pro forma net loss of about 76 cents a share on sales of between $290 million and $300 million.

The company also expects subscriber growth to slow as it spends less money on marketing. Earthlink "will no longer add new subscribers that do not yield a positive lifetime value for our shareholders," the company said in a press release.

Observers say the company is wisely milking its long-term subscriber base and trying to avoid the high costs of acquiring new customers for short periods of time.

"While we see this as an important first step in unlocking the underlying value that we believe is in our company, we are only eight weeks into the process of repositioning EarthLink for the future," CEO Rolla Huff said in a press release.

In addition to its core ISP business, Earthlink has been one of the leading players in so-called Muni-Fi projects, building tax-supported WiFi networks for cities. But the funding of these programs has stirred political debate and undercut ongoing expansion plans.

Thanks to high-profile efforts by companies like Google (GOOG Quote - Cramer on GOOG - Stock Picks), the municipal WiFi networking trend started off with a bang two years ago. Google has wired its hometown in Mountain View, Calif., providing users free wireless Internet access. But there have been few other large city success stories.

Earthlink says it plans to close its offices in Orlando, Fla., Knoxville, Tenn., San Francisco and Harrisburg, Pa., and to cut staff in Pasadena, Calif., and Atlanta. The company expects to book restructuring costs of about $65 million associated with the plan.

Earthlink is also in a joint venture with Korea's SK Telecom (SKM Quote - Cramer on SKM - Stock Picks) in a wireless service called Helio.

The company also says it will repurchase about $200 million in stock.

Earthlink shares fell 14 cents to $6.72 in midday trading Tuesday.