AOL Could See Impact from EarthLink/Mindspring Merger

This week’s merger by independent Internet service providers Earthlink Network Inc. and Mindspring Inc. is set to serve approximately 3 million users, which, according to analysts, may give powerhouse America Online Inc. a run for its money.

Terms of the merger call for Mindspring (MSPG) and EarthLink (ELNK) to combine into a newly formed public company known as EarthLink. The new company will have approximately $3 billion in combined market capitalization and annualized revenues of nearly $650 million.

The merger will create a single No. 2 player nipping at the heels of AOL in terms of recruiting Net newbies, said Cahners In-Stat Group, a high-tech market research firm. By combining its resources, especially in infrastructure, marketing and research areas, the new Earthlink could take a sizeable chunk of business away from AOL.

“While an 18 million user cushion means that AOL is not likely ‘wetting its pants,’ (according to Mindspring’s Mike McQuary) over this announcement, it does have the potential to effect AOL’s market share and slow its phenomenal growth rates,” said Cahners.

“If Mindspring and Earthlink are able to leverage their number two spot and combined resources effectively to build a household-name brand, they may be able to capture more than just AOL graduates but the newbie market as well, as possibly loosening AOL’s stranglehold on that market.”

Other ISPs such as AT&T Worldnet and Microsoft’s MSN, which were jockeying for the number two position behind AOL, are now faced with the competition to be number three, Cahners added.

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