Buyers Circle Tiscali UK and AOL as Broadband Supplier Consolidation Continues

The winners and losers in the shake-up of the broadband market were becoming clear last night as bidders began circling Tiscali’s UK division and BSkyB and Carphone Warehouse went head-to-head in the bidding for AOL’s UK arm.

In a report in the Times yesterday it was mooted that companies including BT are believed to be eyeing the UK operations of Tiscali, the loss-making Italian internet group that is being forced by financial restraints to curtail its ambitions.

The Italian group, which has resorted to borrowing money from a hedge fund at 11 per cent, is insistent that its UK division is not up for sale. But analysts and people with knowledge of the business believe that its financial situation and fierce competition could force it into a sell-off in the UK, with the cash released funding a retrenchment in Italy.

The interest in the Milan-listed group came as it emerged that Orange has pulled out of the bidding for the UK unit of AOL, the Time Warner-owned internet business which gave many British consumers their first taste of the internet.

BSkyB, in which News Corporation, parent company of The Times, has a 38 per cent stake, and Carphone Warehouse, the high-street retailer founded by Charles Dunstone, will now compete for the unit, which analysts expect to fetch well below the £1 billion price initially sought.

AOL and Tiscali are the UK’s third and fourth-ranked internet players with 2.2 million and 1.2 million customers respectively. Both have been hit by the pricing pressure and intense competition that has come with increased demand for fast internet access and the entry into the market of heavyweight rivals.

In a bid to scoop up customers and secure a guaranteed revenue stream, Carphone and BSkyB are both marketing “free” broadband services as part of a bundled package.

Many industry observers believe that the overcrowded UK broadband market will eventually reduce to three or four big players, including BT. Earlier this week Tiscali sold it Dutch operation for 255 million Euros to telco KPN.