It was only about a year ago that WorldCom Inc.bought MFS Communications Co. and gained ownership of the business-focused Internet provider UUNet Technologies Inc. Now the telecommunications company's hunger to be a dominant Internet player has led it to gobble up CompuServe Inc.
The Jackson, Miss., company's swift acquisition strategy suggests it is on track to dominate the Internet space, leaving hardly any room for competitors. With access to CompuServe's Network Services and America OnLine Inc.'s ANS Communications Inc. Internet access division,
WorldCom has also filled a void in its services: network integration. At the same time, AOL obtains CompuServe's 2.6 million consumer customers while depending on WorldCom for network infrastructure needs.
In a single swoop, then, WorldCom and AOL have cornered the business and consumer Internet service markets. Now they just have to make sure they can balance the load.
"Key market drivers ... are geographic presence, breadth of service portfolio and economies of scale," said Dan Merriman, a vice president at Giga Information Group, in Cambridge, Mass. "[WorldCom] is gaining the customer base and value-added services of CompuServe plus ANS [Communications Inc.] from AOL. Now they have to avoid the indigestion of acquiring so much and trying to leverage it."
During a conference call today with members of the press, John Sidgmore, WorldCom's vice chairman and chief operating officer, outlined the company's evolving direction to provide voice, data, local
and Internet services in one package. By bringing CompuServe Network Services under its wing, WorldCom adds frame relay, x.25 and value-added networking services, as well as credit card verification to its offerings.
Similarly, ANS is positioned as a network integrator and data services provider.
"Network integration at the customer site is a missing piece from the WorldCom/UUNet story, and a major reason why we put the deal together," said Sidgmore, who is also CEO of UUNet, in Fairfax, Va.
WorldCom also picks up about 1,200 new business customers from CompuServe.
AOL, meanwhile, receives a cash infusion from German online supplier Bertelsmann AG to expand growth in the European markets. The money will help AOL offer more services, including electronic commerce and Internet access by means of asymmetric digital subscriber line, according to AOL CEO Steve Case. That's a boon for AOL customers, whose ranks will swell to about 12 million as a result of today's deal.
It should take about six months for the deal to close, officials said. In the short term, the AOL and CompuServe networks will remain separate. But ultimately the goal is to share resources in the backbone.
Although some CompuServe executives have jumped ship recently, it appears that the majority of management and staff will have jobs after the acquisitions are finalized.
"From our standpoint, the management team is the primary jewels and we don't anticipate any significant changes," said Sidgmore, referring to CompuServe Network Services.
AOL's CEO Steve Case expressed similar sentiments.
"CompuServe online employees suffered from an ill-fated attempt to go to the mass service market," he said. "[They also] recognized that CompuServe might get sold, which had a negative impact within the company. They are a group of dedicated and talented professionals, and we look forward to listening to their ideas. The benefit of the deal is getting them into the mix."