LONDON (Reuters) – Carphone Warehouse Plc has agreed to buy Time Warner Inc.’s AOL Internet access business in the UK for 370 million pounds ($689 million) in cash to become Britain’s third-biggest broadband service provider.
Shares in Europe’s biggest mobile retailer rose as much as 7.6 percent on the deal, which it said would give it a broadband customer base of about 1.5 million and add 10 million pounds to pretax profit this fiscal year, restoring its original forecast.
Earlier on Wednesday, Carphone said a 10-million-pound rise in its forecast for underlying retail and fixed-line profits would be wiped out by an extra 20 million in broadband losses.
“We have been a victim of our own success,” Corporate Affairs Director Peregrine Riviere told Reuters in an interview, saying the cost of dealing with a flood of new customers to its broadband service had led to the reduced profit forecast.
Carphone, which sparked a fierce price war in April with a “free broadband” offering for customers signing up for its TalkTalk fixed-line service, said it would fund the purchase of the AOL Internet business by extending existing bank facilities and it expected the deal to be complete by the end of this year.
Sources close to the matter had told Reuters that Carphone and pay-TV group BSkyB Plc were in the running to buy AOL UK, which is the last of the U.S. group’s European units to be sold. It has already sold its French access business to Neuf Cegetel and its German business to Telecom Italia.
Carphone, which has made a string of acquisitions to boost its fixed-line business, said the deal should boost pretax profits by 30 to 40 million pounds in its next financial year.
“This deal gives us significant scale to complement the rapid organic growth of our free broadband proposition,” Carphone Chief Executive Charles Dunstone said in a statement.
The deal will put Carphone in third place in UK broadband provision behind BT Group Plc and NTL Inc.
At 0945 GMT, Carphone shares were up 4.4 percent at 348 pence, off an earlier high of 359p.
Carphone expects costs at its broadband arm to be 70 million pounds this year, compared with earlier guidance of 50 million.
The rise stems from hiring hundreds more customer service staff to cope with demand, and also from slow progress in local loop unbundling, which involves taking control of the lines that run from former monopoly BT’s phone exchanges to customer homes.
Until Carphone unbundles BT lines and can offer its own broadband product, it is forced to provide them BT wholesale broadband and continue making losses. Connections only become profitable when customers use Carphone’s own broadband product.
Of Carphone’s 625,000 broadband customers at the end of the second quarter, only 20,000 of them were on unbundled lines.
Under Carphone’s “free broadband” offering, customers signing up to spend about 20 pounds a month for its fixed-line service and line rental get free high-speed Internet access.
Carphone said it had seen no let up in people signing up for its offer — 15,000 a week — and would transfer “significant” volumes of users to unbundled lines in the next three months.
The company said its mainstay mobile retailing business, which accounts for most of its profits, was performing well and it reported a 34 percent rise in total mobile connections signed up on behalf of networks for the fiscal second quarter.
“Growth in Q2 mirrored Q1 with a very strong performance … versus our 21 percent forecast and consensus of around 20 percent,” noted Investec analyst Christian Maher, adding that he was reviewing his forecasts for the retail business.
Prepay connections surged 59 percent, while more lucrative subscriptions or contract connections were up 16.3 percent.
Riviere said it expected the “mid-teens” percentage growth in contract connections, which provides Carphone with recurring revenues, to continue for the rest of the year.
Fuente: Reuters, Santosh Menon