AOL UK linked to BSkyB and BT 

AOL UK linked to BSkyB and BT

Speculation over the future of the UK arm of internet service provider AOL has continued. with recent reports suggesting that UK satellite broadcaster British Sky Broadcasting Group and former UK incumbent BT Group are leading the charge to acquire the UK operation.
However. both are thought to have reservations concerning the GBP600 million ($1.1 billion) asking price. according to an article in the Sunday Times newspaper. which did not cite sources.
The newspaper also reported that Time Warner. had appointed Citigroup to review strategic options for the UK business. and potential bidders had until Monday June 12. 2006 to indicate their interest.It is thought this strategic review is similar to the review carried out last year for the US operation of AOL. That review led to the announcement in December by search engine Google that it would pay Time Warner $1 billion for a 5% stake in America Online. The review was prompted by Time Warner's then strategy to appease shareholders concerned with what they saw as an AOL drag factor on the overall Time Warner business.It is unclear whether a review of the UK operation would lead to a complete sell-off. or a partnership with another company. An AOL UK spokesperson told Computer Business Review that the story was "rumor and speculation. and as such AOL UK had no comment."AOL is the UK's third-largest ISP with 2.2 million customers. of which 1.3 million are broadband customers and the rest dialup. The unit has previously been linked to other buyers such as Vodafone Group. and The Carphone Warehouse.However. Vodafone has already declared its intention to go "infrastructure light" to provide fixed-line services. which means it will probably resell someone else's wholesale product. O2 was recently acquired by Telefonica. and the Spanish carrier has recently committed to not to making any large acquisitions before the end of next year. despite recent comments to the contrary by O2's chief executive Peter Erskine.The Carphone Warehouse is currently being swamped by huge demand for its 'free' broadband service. and has already stated it is not interested in AOL.This leaves BT and BSkyB. BT is currently the largest ISP in the UK. with 2.6 million customers. and it is already the wholesale provider for most of AOL's 1.3 million broadband users. Strategically. the two would be a good fit because BT's customers are not wholly price conscious. but are more interested in quality of service and security. just like AOL's client base.BSkyB on the other hand is soon to launch its own broadband service in the summer thanks to its GBP211 million ($373 million) acquisition of UK broadband service provider Easynet Group last year. The UK satellite broadcaster currently has 259 unbundled exchanges and is unbundling on average 12 exchanges per week. It aims to have 379 exchanges unbundled by the end of June. which would give it roughly 7.5 million (30%) of UK homes connected to a Sky-unbundled exchange. It hopes to reach 70% of the UK population by the end of 2007.AOL. on the other hand. said in January that it was investing GBP120 million ($221 million) on local loop unbundling (LLU) in the UK. It is on target to have 300 exchanges unbundled by the end of June. and aims to have unbundled 1.000 exchanges by August next year. which will give it access to 50% of the UK population.Either BT or BSkyB stand to benefit from a purchase of AOL UK. BT would use the purchase to solidify its position as the largest ISP in the UK. while BSkyB would use the deal as a springboard to recoup its fixed-line investments. plus acquiring a substantial customer base from which it could take on its ISP rivals.Some media reports have also suggested that AOL's operations in Germany and France could also be up for sale. AOL has 5.9 million customers in Europe. including the 2.2 million in the UK. which is by far its largest European market. There is also a small operation in Spain. The mainland European operations however are moving away from an ISP model to a portal-based business.


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