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AOL, CompuServe sized up

If AOL buys CompuServe, a new study shows, the conglomerate would control half the domestic ISP market.

If America Online (AOL) decides to sink its teeth into competitor CompuServe (CSRV), the combined company would control 50 percent of the U.S. Internet service provider market, according to a study released today.

AOL holds 38 percent of the ISP market, while CompuServe has 12 percent, according to a report by market research firm Computer Intelligence. The combined company would broaden the reach of AOL's consumer-based market as it expands into its competitor's business-based arena.

That much market share should not concern the Justice Department, however, said Rick Rule. The lawyer with Washington-based Covington & Burling and former head of the Justice Department's antitrust division said the sheer number of players offering Internet access makes it unlikely that AOL could control the industry.

New kinds of access, such as cable, Net TVs, and satellite, will also affect AOL's market share. And because the industry is still evolving, it is not likely that the government will step in to make decisions based on today's market, Rule added.

"The concern of antitrust officials is what will the impact of this transaction have on prices, quality, and competition," Rule said. "It is hard to see how in the current environment how anybody could corner the market to essentially dictate prices."

The two companies also have a different market focus.

AOL holds half of the consumer market in the United States and CompuServe has seven percent of the business locations.

"If you combine AOL's marketing muscle with CompuServe's existing big business market, that could be a way for AOL to develop new marketing programs and new services, and that could really mean trouble for the ISPs that have tried to focus on the big market," a Computer Intelligence spokeswoman said.

But Rule said the proposed merger would not harm competition.

"This would have been a different transaction in 1994 or 1995, because at that point there appeared to be three major proprietary networks [AOL, CompuServe, and Prodigy], but in 1997 the world has undergone dramatic changes," Rule said. "Because the market is evolving so rapidly, it is hard to define what [it] will be like next year."