Word: worldcom
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...last week, Steve. On Monday, AOL astonished the computer and media world with the news that it will swallow CompuServe, the nation's oldest online service, and its 2.6 million members. As part of the deal, AOL sealed a long-term pact with WorldCom, a telephone company based in Jackson, Miss., with scads of capacity, that will help AOL lock in access to phone lines at low rates for the next five years--and probably boost profits. In the three-way agreement, WorldCom bought CompuServe and then handed AOL the online company's 2.6 million subscribers in exchange...
...training wheels from which they eventually graduate by getting directly onto the Internet. Retaining customers will become even harder as phone companies, cable companies, Microsoft and Netscape make it even easier to use the Internet's open standards for browsing the Web, chatting and sending mail. AOL hopes the WorldCom deal will eventually allow it to offer higher-speed access through phone lines, but cable and wireless technologies could lure impatient users away from cumbersome dial-up services. Customers could also become turned off by the increasingly intrusive ads, upon which AOL's flat-price business model now depends...
...WorldCom-CompuServe deal certified AOL as cyberspace's first true empire, a global online service that's adding 6,000 members a day and will soon be available in more than 100 countries. Revenues have pumped up with impressive speed, even for a high-tech firm, from $53 million in fiscal 1993 to nearly $2 billion this year. And, slowly, profits are emerging. The stock price, which traded at $22 a year ago, hit a high of $80.50 this week. Even at a perilous 80 times projected 1998 earnings, it will beat the market, think Wall Street pros...
...correctly anticipating the deregulation of the telecommunications industry. Kiewit then spun off its 40 million shares of MFS to employees last year. The biggest winner was Kiewit CEO Walter Scott Jr., whose 16 million shares of MFS were worth around $750 million as a result of the WorldCom merger...
There's a party-line payout too. Just three weeks before it was acquired, MFS paid the equivalent of $60 a share in stock to acquire UUNet, an Internet-access provider that went public in 1995 for $14 a share. When WorldCom snapped up MFS last week, the former UUNet shareholders also had plenty of reason to celebrate: they found themselves holding stock worth some $98 a share. That's a nice return for a company that earned just $469,000 last year...