InformationWeek

September 15, 1997

WorldCom To Add Networks From CompuServe And AOL

Carrier to expand Net, other services; integration a hurdle

orldCom Inc.'s agreement to buy the networking arms of CompuServe Corp. and America Online Inc. secures its position among the elite of telecom carriers that can provide comprehensive data and voice services worldwide. More complicated than cutting the three-way, $1.38 billion deal will be integrating the three networks and sales forces, analysts say.

A three-year buying spree had already made WorldCom the country's fourth-largest long-distance carrier. The a cquisition early this year of MFS Communications Co. and its UUNet Technologies unit gave WorldCom a nationwide Internet backbone, plus local fiber-optic networks for businesses in major cities. The deal last week to buy CompuServe Networking Service (CNS) and America Online's ANS Communications adds two large Internet backbones and 1,600 business accounts.

WorldCom vice chairman John Sidgmore acknowledges combining three sales forces will be the biggest challenge. Analysts agree. "WorldCom hasn't been good at integrating its acquisitions," says Eric Paulak, an analyst with Gartner Group Inc. While WorldCom's aggressive acquisition strategy has benefited shareholders, Paulak argues that innovation and service have suffered.

Customers, however, like their prospects. "Now we've got a carrier in addition to a network company," says Stevan Berardo, executive VP of sales and marketing at Vital Processing Services LLC in Tempe, Ariz. Berardo also is looking forward to WorldCom's "seamless supply" of service s. Vital Processing, which routes data between merchants and credit-card companies, processed about 1.5 billion transactions over CNS last year.

The deal also takes WorldCom into the surging market for corporate intranets and extranets, especially those secure corporate Internet links known as virtual private networks. "We are good at delivering public Internet services, but we're not so good at delivering corporate VPN services," WorldCom's Sidgmore says. CNS gives UUNet consulting, engineering, and sales support for VPN services, he says, and it will move UUNet into systems integration, electronic commerce, and managed network services.

Under the deal, WorldCom will buy all of CompuServe for $1.2 billion in stock and then hand over CompuServe's 2.6 million consumer online subscribers and $175 million in cash to America Online in exchange for ANS.

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