Original URL: https://www.theregister.com/2006/06/29/aol_bidding_continues/
AOL bidding continues
As telcos muscle in on European ISP market
Posted in Networks, 29th June 2006 14:25 GMT
Comment The AOL rumours just won't go away. In Europe it appears that the company is up for sale, in the US the management still maintains that it is expanding in Europe.
This week is the turn of Telecom Italia to be put in the headlines, believed now to be in the front running to buy AOL's German and French operations.
So why would a telco buy an ISP anyway? All the European Telcos had every chance to start and maintain their own ISPs for all of the past decade. The enlightened operators did, but many sold them off. Deutsche Telekom, for instance, separated T-Online for a sell off and changed its mind, luckily, at the last minute.
AOL has paying customers. That's the plain and simple of it, and people that have purchased broadband lines have shown themselves to be in the front running for new technology adoption. These are the crème de la crème of European customers and all ISPs are now hunted across Europe for the customer bases they have accrued in the last 10 years.
Unlike the US, where the big ISPs have market capitalisations that mean they are just as likely to buy a telco as the other way around, in Europe this is part and parcel of the telco war against cable operators and against incursion by single VoIP providers.
The power players of Deutsche Telekom, France Telecom, Telecom Italia and Telefonica, alongside part players like British Telecom and TeliaSonera, can all finally recognise the shape of the future. They will have voice revenues eroded, so they need new services, those services have to be IP based, and the more services they can send over a single line the better.
Mobile phone customers are additional and key, because they currently have the largest margins to protect, and broadband lines are essential, even where they are wholesaled from an incumbent, or unbundled at the local DSLAM.
These major telcos need to buy outside their original wireline operations as much as their mobile operations had to bid for spectrum outside of their territories. The US portals are more interested in their core activities back home, and for MSN that means Microsoft and software, for Yahoo! it means being a portal, but for AOL it means being Time Warner and running the biggest content business in the world.
AOL has one million DSL customers in Germany, but it also has dial up customers ready to convert, and so it is a prime target and of course similar sized operations in its other two territories.
Already this week, Telefonica, through its O2 subsidiary, has purchased Be Broadband, the UK local ISP, in a deal which is about more of the same. Telefonica has bought Cesky Telecom in the Czech Republic and has ISP operations in its native Spain and in Germany. It needs coverage in Italy and France for a Europe-wide service and we would expect it to move there eventually, and it too could be on the bidders list for AOL in France at least.
Be Broadband was started up with Scandinavian money, by a serial entrepreneur who had sold out to one of the incumbents and moved to the UK. The purchase price for Be was £50m, which curiously is more than double the purchase price of Bulldog, the second largest unbundled broadband operation in the UK, which was thought to be up for sale once again after being bought two years ago by Cable and Wireless.
The price shows just how much broadband operators are now highly valued and seen as part of the triple play food chain. Be has a fraction of the lines that Bulldog had, but two years on fetched double the price. Be is only halfway through building its own national broadband network focusing on high end ADSL2+ connections offering speeds up to 24Mbps and has so far only rolled out the service to 150 local exchanges.
To get a decent UK footprint it needs to be at 400, which was its stated target for the end of this year when it would reach 50 per cent of the UK population.
Rival Orange recently rebranded its Wanadoo ISP and began offering free broadband lines to its top end mobile customers. O2 is almost certain to be looking to do the same. Currently Be offers a 24 Mbps broadband line for just £24 per month.
And NTL, which is about to rename itself Virgin, after buying out MVNO Virgin Mobile, is all set to launch quadruple-play services including TV, internet, and both mobile and fixed voice.
At these transaction prices expect more and more ISPs to come to the block in the next six months, because now is the time to cash in.
AOL, of course, does not work with unbundled lines, (although in the UK AOL has installed its kit in 200 exchanges and has some 100,000 LLU lines - Ed) instead it wholesales them from incumbents like Deutsche Telekom and British Telecom, and it was rumored by the press to be up for sale in the UK to BSkyB, the leading UK satellite TV company. That may well be the case, but we would expect that many commentators are not looking at the big European picture, and any one of the major telcos could leap into the bidding for any of the AOL properties.
Versatel and smaller local operations such as freenet.de and United Internet have also been mentioned as potential AOL Germany buyers, not to mention every private equity group in Europe that thinks it can break the properties up or hold them for a year or two while they develop an even richer price.
Reuters last week reported the CEO of AOL Germany saying as much. "There are a number of bidders."
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