HarvardNet, one of the largest Internet service providers in the Northeast, announced yesterday that it is laying off 58% of its workforce and exiting the digital subscriber line (DSL) business. Two hundred eighty employees will be affected by the cutbacks—mostly in Maine, Boston, New York and Philadelphia.

“The DSL business is very capital intensive and the recent dramatic downturn in the financial markets makes it difficult to continue offering DSL services,” said Mark Washburn, president and CEO of HarvardNet. HarvardNet had provisioned “a couple of thousand” DSL lines, primarily in the Northeast, a company spokeswoman said.

The privately held company had been in need of additional funding to build out its DSL network, according to the spokeswoman. To date, HarvardNet had received $115 million in financing from M/C Venture Partners, Fidelity Ventures, the Sturm Group, and Vulcan Ventures. The company had also secured $120 million in debt financing from Cisco Systems Capital.

“For DSL you have to invest a lot upfront in building out the network and deploying the equipment in the [central offices],” the spokeswoman said. “Everybody’s in the same boat.”

Washburn said HarvardNet would be restructuring to reduce operating costs and focus on Web content hosting. While such services require the building of data centers, they are much less labor intensive and open up additional sources of revenue in the form of managed services, the spokeswoman said. “The market has huge potential,” she added.

HarvardNet’s move is the latest in a series of setbacks suffered by providers of high-speed Internet services over copper lines. Covad, DSL.Net and Zyan Communications all recently slashed headcount in an effort to curb operating expenses.