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America Online Purchases Rival Network Provider CompuServe

By Rajiv Chandrasekaran
The Washington Post

America Online Inc. reached a deal Sunday night to take over its biggest competitor, the faltering CompuServe Inc. online service that has 2.6 million customers, sources close to the negotiations said.

Under terms of the deal, which is expected to be announced Monday, CompuServe still would exist as a separate service, but would be fully operated by AOL, the sources said. AOL would have a combined customer base of more than 11 million subscribers.

Va.-based AOL intends to keep CompuServe's content focused on business and technology issues, the sources said. "AOL is going to use its scale and its resources to make it more focused and efficient in servicing the business and professional market," a source said.

AOL would acquire the service under a complex transaction also involving telecommunications giant WorldCom Inc.

As tentatively structured, WorldCom would buy CompuServe as part of a $1.2 billion stock swap, then give AOL all the content and subscribers and $175 million in exchange for AOL's ANS network service. AOL executives have said that through combined operations, the CompuServe unit could become profitable.

Gary Arlen, an independent industry analyst based in Bethesda, Md., said the deal "strengthens AOL tremendously."

The deal would give AOL, which recently has faced its own financial challenges, much-needed cash to develop new online content and expand its base of 9 million subscribers. Whether the consumer-focused company can maintain the loyalty of CompuServe customers over the long term is unclear.

Spokesmen for AOL and CompuServe refused to comment on the matter Sunday night. Executives at WorldCom did not immediately return phone calls. The CompuServe spokesman, Steve Conway, said Saturday that the company was "in active talks" to sell itself.