Telecom Italia Bids for AOL Units in France, Germany

Telecom Italia has made a non-binding offer to acquire AOL’s businesses in Germany and France, as the ISP looks for a way to improve its struggling European operations.

A Telecom Italia spokesman confirmed Wednesday that the operator made the offer. An AOL spokesman could not confirm it, but did say that AOL is exploring its options for all its European businesses.

“There’s a review under way of all of AOL’s businesses in Europe,” said Phil Hale, a spokesman for AOL U.K. Citigroup is conducting the review on behalf of parent company Time Warner, he said.

AOL has struggled with declining subscriptions and revenue in Europe, which likely prompted the move to sell off some of its businesses, analysts said.

“AOL’s basic problem over the past couple of years has been that, ironically, as broadband becomes more widespread, growing revenue becomes more difficult,” said John Delaney, an analyst with Ovum.

AOL grew its revenue quickly as it migrated customers from dial-up to broadband connections, but selling additional products and services beyond broadband is difficult, Delaney said.

In the United Kingdom, AOL is looking to sell its customer base but retain its brand in order to become a business that focuses purely on content and applications, according Delaney, who cited sources at AOL’s U.K. division.

“AOL is keen to maintain a Web presence in Europe,” AOL’s Hale confirmed. “The question mark is more over what Time Warner will do with the access business.” Time Warner is likely to create partnerships, joint ventures or outright sales of AOL’s broadband businesses in Europe, he said.

The review process and any possible outcomes are likely to take months rather than weeks to complete, he said.

Decoupling AOL’s Internet access and content businesses would be a good idea, said Lars Godell, an analyst with Forrester Research.

“AOL is good at packaging content. But just look at the disastrous merger with Time Warner to see why access and content should be separate,” he said.

AOL merged with Time Warner in 2000, but many of the expected benefits from the merger never materialized. Last year, AOL cofounder Steve Case resigned from the board of directors of the combined company, and advised that AOL should be spun off.

Telecom Italia makes a good potential buyer for AOL, as would other operators looking to buy additional capabilities that let them offer bundled services.

“Any large communications service provider that doesn’t have a piece of the puzzle will be at a disadvantage because of the trend toward bundling,” Delaney said. Many communications operators are hoping to offer wireline voice, mobile, video and data services as a bundled service.

Telecom Italia already offers broadband service in France and Germany under the Alice brand. It had 1.5 million customers in those countries at the end of April. Buying AOL’s divisions would allow it to grow its user base in those countries.

-Nancy Gohring, IDG News Service (Dublin Bureau)

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