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Small ISPs yawn at AOL deal

Not all ISPs feel threatened by the No. 1 online company swallowing the No. 2. Some think even think that the deal might help them.

To Tom Simonds, president of a regional Internet service provider, the pending merger of America Online (AOL) and CompuServe (CSRV) is a simple matter of numbers, more for AOL and less for others.

"It's going to be bad for end users," The selling of CompuServe said Simonds, president of InterAccess, which boasts of being Chicago's largest ISP with more than 17,000 customers. "They're going to have less options, less providers to choose from. [The proposed merger] makes AOL ten times larger than their biggest competitor.

"It's the big guys consolidating with the other big guys, which isn't good," he added. "It sort of makes the Internet access business a bit top-heavy. You have a few really big guys and then you have a zillion small guys. From a strategic analysis, it's not great if your big competitors are getting bigger."

Nevertheless, not all ISPs feel their businesses are threatened by the No. 1 online company swallowing the No. 2 company. Some think the purchase will have no effect at all. Others think that it might even help them.

The variety of opinions on the pending sale of the consumer portion of CompuServe to AOL demonstrates one thing: the Internet is still so nascent that it is impossible to know how something of this magnitude will affect the total landscape.

The deal would give AOL the majority of eyeballs on the Net and therefore an arguably huge advantage when it comes to luring advertisers. But that's today. Analysts are quick to point out that there are millions of people who have yet to log on, millions who could change the face of the industry. AOL, of course, has staked its entire business on the gamble that it will be able to lure those new customers. But so have other Internet access companies.

Meanwhile, the barriers to entering this market are low enough that a new player could emerge and reshape the lay of the land. In other words, those who have covered this booming industry know that the only safe bet these days is to bet on change.

Change may be the key to understanding why some ISPs are not threatened by the deal. As far as the average consumer is concerned, if AOL stays true to its word and keeps CompuServe as a separate brand (and it has every reason to keep the brand), then people may not notice the difference.

"Who cares who owns CompuServe?" asked industry analyst Gary Arlen. "I don't care who makes my refrigerator and I use it every day."

Tom Bilan, a vice president at Technology Dimensions Incorporated (TDI), a small ISP in Michigan, felt the same way. His reaction to the pending merger? "Big whoop. That would summarize it."

The fact that AOL will become a bigger company will pretty much have no impact on TDI. "It's a major buyout, but for us it's not really going to affect us that much. People using CompuServe or AOL right now probably will still continue using them, no matter who owns them."

Then again, maybe they won't. Folks at the tiny ISP PrivateI in Colorado are hoping that CompuServe members, used to reliable access, will grow weary with AOL's style of customer service and advertising.

When they do, PrivateI and a lot of other ISPs will be waiting. "It's going to be a boon for us as well as other ISPs," said Shawn Champagne of PrivateI. "We think many of the CompuServe members are going to jump ship because many CompuServe members hate AOL."

However, some speculate that under the agreement reached among AOL, CompuServe, and WorldCom (WCOM), AOL's service will actually improve and fewer people will abandon ship, according to Kate Delhagen, an analyst at Forrester Research. In that case, ISPs that have depended on making their living off AOL's castoffs might find themselves going hungry.

Delhagen thinks that this merger indicates the industry's move toward consolidation. "We already think the consumer Internet service provider market is going to consolidate. We think this is going to accelerate the consolidation."

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