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CompuServe Announces 500 Layoffs

February 9, 1998

UPPER ARLINGTON, Ohio (AP) _ A week after America Online took it over, CompuServe Corp. said Monday it will cut 500 employees as part of the reorganization.

``Our revitalization program will enable us to take full advantage of AOL’s scale, resources and experience to improve CompuServe and make it more competitive in the U.S. market,″ said Mayo S. Stuntz Jr., president of CompuServe Interactive Services.

Kansas City, Mo.-based H&R Block announced this month it had completed a deal to sell CompuServe to WorldCom Inc. in a stock-for-stock transaction worth $1.3 billion. WorldCom, in turn, traded CompuServe’s content and subscribers to CompuServe’s rival, Chantilly, Va.-based AOL.

Company officials say the takeover brought a duplication of positions and the cuts would make CompuServe more efficient. Workers were being offered severance packages of at least six months’ salary, officials said.

Some layoffs were effective immediately, while other workers were staying on to finish projects. Most of the layoffs involve a customer service center in northwest Columbus, officials said.

CompuServe, the second-largest online service behind AOL, has been beset by financial losses, member defections and the cancellation of its family oriented WOW! service just seven months after it was started.

CompuServe pioneered the online business in the 1980s, but was overtaken by America Online in the 1990s and hammered by cheaper providers of online service and access to the World Wide Web.

Stuntz said the company plans to focus on development of its CompuServe 5.0 software, which he said will improve service to subscribers.

``To reverse CompuServe’s substantial losses and move the service toward profitability, we need to undertake this extensive reorganization,″ Stuntz said.

Analyst Alexander Paris Jr. of Barrington Research in Chicago said analysts had anticipated the cuts.

``It should make for a healthier organization going forward,″ he said. ``It wasn’t so much a revenue issue with CompuServe. It was a combination of revenue and costs.″

CompuServe’s revenue dropped as its expenses grew, he said.

``Taking out some costs should certainly help it and help the new combined America Online, CompuServe firm,″ he said.

CompuServe also said Monday that it will maintain its base in this Columbus suburb and operate as a separate service. Paris said he expects the companies to eventually operate under one name.

``There could be greater synergy obtained by combining the two,″ he said.

However, he said there could be value in continuing to promote America Online as a service for retail consumers, while CompuServe focuses on business, professional and technical users.

CompuServe said the reorganization also would include an evaluation of Sprynet, its Internet-only service, and suspending development of its Web-based service ``C.″

WorldCom, based in Jackson, Miss., operates in more than 50 countries and provides integrated local, long distance, international and Internet services.

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