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Tuesday, August 01, 2006

For Sale: A Really Dumb Pipe

AOL want to keep its customers using its’ web services – this makes pretty good sense to me. According to last week’s Financial Times in a big article on Time Warner, AOL saw as key that they remained in control of the email addresses as this drives a lot of traffic (and therefore advertising revenue) to its’ portal. They also want, according to this mornings Guardian, that routing to the AOL portal remains – again this makes sense for the new advertising driven AOL. This effectively turns the customer into purely a purchaser of internet access with any upside being in the sale of telephony products. This definitely runs contrary to Sky’s content domination plans, but also France Telecom and Deutsche Telekom have similar plans. That only leaves one potential purchaser – Carphone Warehouse - unless o2 or Vodafone surprise us all and it provides an immediate solution to the lack of content on the TalkTalk offering.

I believe that these conditions of the auction would have been known a long time ago and they are now only being revealed now because the auction is going to realise a lot less money than the figure originally bandied about in the press - £650m.

Anyway, we don’t have to wait a long time to know the final price. I expect the results of the auction will be made public with the AOL results – along with the sale of the French and German auctions.

Also, if the purchaser is Carphone Warehouse, they do not have a lot of spare cash available on the balance sheet. On 1st April 2006, CPW had net debt of £273.4m – another biggish purchase (for Carphone Warehouse) would put them under a lot more pressure.