AOL’s obstacle to planned sale of its British arm

The sale of AOL's British business has hit a snag because the Internet service provider wants to retain contact with its 2.5 million customers, demanding that they continue to be routed through to its online portal - a move that has put the unit's £650m price tag in doubt.

AOL's parent, Time Warner, is due to announce its second-quarter results today and update analysts on plans for its Internet business. The merger of the two firms was announced at the height of the dotcom boom but soon became a casualty of the subsequent crash in valuations.

Time Warner is expected to give Wall Street an indication of progress in the sale of AOL's French and German operations. But the UK auction process, being run by Citigroup, has hit turbulence because of AOL's ambitions to remain in the online content business while pulling out of the capital-intensive Internet access market.

It wants AOL UK's buyer to deal with connecting customers, while their traffic goes through its online portal. Three bidders remain for the business: BSkyB, Orange and Carphone Warehouse. Sky and Orange, however, are looking to increase their online presence, creating their own portals on which they can sell advertising. They appear unwilling to pay the high price that Citigroup is looking for, unless they get full control of AOL's users.

Carphone Warehouse, the success of whose TalkTalk "free" broadband product was one of the factors that led AOL to sell up, seems most likely to accept AOL's condition. But TalkTalk is understood to be looking to launch its own broadband content portal this year as it tries to diversify away from calls and access.

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