POTENTIAL MERGER ADDS QUESTIONS.

Byline: P.J. Huffstutter Daily News Staff Writer

As CompuServe Corp. confirmed Wednesday that it is talking with potential buyers, analysts on Wall Street and the Internet were quietly speculating about market rumblings that America Online would take over its main competitor.

Spokespeople for AOL and CompuServe refused to comment, as did staffers from other on-line service firms Microsoft Networks, Prodigy and Earthlink.

Here are a few questions the possible CompuServe/AOL merging have raised:

Q. Why is H&R Block, which owns 80 percent of CompuServe, looking to sell the on-line service?

A. CompuServe has weathered several financial and corporate blows within the past year. Its plan to win over mass-market consumers failed, particularly after competitors like America Online and Microsoft funneled hundreds of millions of dollars into their own networks. In February CompuServe's chief executive, Robert Massey, resigned his position at the Columbus, Ohio-based firm. A week later, the company reported a fiscal third-quarter loss of $14 million - a huge drop compared to the net income of $9 million seen during the same period last year. And the company's stock, which went public last April at 30 a share, has dropped as low as 10-1/4.

Q. Why would America Online buy CompuServe?

A. As one analyst said, ``It would mean the No. 1 fish would swallow the No. 2 fish, and AOL would have about 11 million digital eyeballs looking at the network.'' AOL could benefit from CompuServe's established presence in Europe and Japan, two markets AOL has struggled to capture.

``When the dust settles, there's probably only going to be two Internet providers that matter - Microsoft and AOL,'' said J.R. Smith, an analyst at Wall Street Strategies, a New York-based investment firm that released a report Monday about the possible AOL/CompuServe buyout. ``If this happens, it could trigger a series of transactions, where a larger company with the available capital will buy out smaller Internet service providers.''

Yet other analysts say AOL, already struggling with complaints about sluggish traffic, is unlikely to tackle such a buyout. Subscriber attrition would cut into revenues expected from the influx of new users. And some wonder whether such an acquisition would create a monopoly in the market, and therefore violate federal antitrust laws.

``They already have their hands full with a massive case of network indigestion,'' said Emily Green, an analyst with Forrester Research. ``I can't imagine that they would do this.''

Q. What does this mean to consumers?

A. Until a specific business agreement is finalized, no one knows. Analysts note that whoever does purchase the company would probably make subscribers use their service.

In addition, no one knows what would happen to CompuServe's second business - handling network services for corporations - that makes up about 30 percent of its revenues.

Q. Who else would want to buy CompuServe?

A. Microsoft, a American telecom company looking to expand its consumer base or a foreign telecom firm bent on entering the U.S. on-line service market.

Q. Does this news come as a complete surprise?

A. Not really, when you consider the continual melding between on-line services and Internet service providers, or ISP. Just look at what's been going on with CompuServe's competitors: Microsoft and its MSN on-line service reshaped the industry last year when they became a content provider on the Net and relaunched MSN under a $19.95 flat-rate pricing system; Prodigy stepped out of the competition and redefined itself as a bare-bones ISP; and AOL, after finally adopting a flat-rate fee, took steps to blend its proprietary network with the World Wide Web.