Telecom Italia has agreed to acquire Time Warner’s AOL Germany Internet access business for EUR 675 million ($870 million, Equity Value) in cash.
Time Warner Inc. is giving up its foothold in one of the fastest-growing markets for broadband Internet access with a deal to sell AOL Germany’s Internet access business to Telecom Italia SpA for about US$870 million.
AOL’s Germany unit has operated as an Internet service provider for more than a decade.
Dulles-based AOL, a subsidiary of Time Warner, says the transaction with Milan-based Telecom Italia is expected to close in four to six months after receiving the customary regulatory approvals.
Telecom Italia continues its strategy focused on the development of its Broadband Business.
In light of Germany’s fast-growing demand for broadband Internet access, Telecom Italia is moving to consolidate its presence in Germany, which started with its acquisition of Hansenet in 2003 and expanded with its organic growth.
“Telecom Italia is already a European leader in broadband Internet access.” Once the acquisition closes, Telecom Italia will have more than 3.2 million subscribers in Germany, including nearly 2 million broadband customers. The company will serve about 9 million broadband subscribers in Europe after this deal. It also has a presence in France and the Netherlands as well as Italy.
Under the new five-year partnership, AOL will design, host and operate audience services and content on a joint Web portal for Telecom Italia’s entire residential Internet access customer base in Germany. AOL will be responsible for all online advertising sales for the co-branded audience services.
The financial terms of the audience services partnership were not disclosed.
"This agreement to sell AOL Germany’s Internet access business marks the latest step in Time Warner’s strategy of focusing on our core assets to drive profitable growth," says Time Warner Chairman and CEO Dick Parsons in a statement.
Our partnership with Telecom Italia advances AOL’s worldwide transition from a business built primarily on providing Internet access to an advertising-supported business model. We look forward to AOL continuing to grow its online advertising business – both in the U.S. and overseas – to help create enhanced value for our shareholders."
AOL Germany has operated as an ISP for over 10 years and competes in both narrowband and broadband Internet access. As of June 2006, AOL Germany, ranked second and third among German narrowband and broadband access providers, had 1.1 million broadband subscribers and approximately 1.3 million narrowband subscribers.
The decision was expected after AOL said in August that it planed to cut 5,000 jobs, or a quarter of its global workforce, as it restructures its Internet business providing mostly free services and relying more on ad revenue, it is cutting hundreds of jobs from its global work force.
Germany’s broadband market is one of the largest in Europe, with more than 12 million subscribers by the end of June. The number of users is expected to grow by 10 million through 2009 as faster access is introduced in the country of more than 82 million residents.
Over the past two years, AOL has been making more and more of its services free, to boost advertising revenue and offset declines in its subscription-based Internet access business. The transition accelerated last month with AOL’s decision to give away AOL.com e-mail accounts and various software once reserved for paying subscribers.
"This acquisition marks a further step in Telecom Italia’s strategy of focusing on broadband services and content delivery at an international level," Telecom Italia Chief Executive Officer Riccardo Ruggiero said in a statement.
The deal will make Milan-based Telecom Italia the second-biggest provider of broadband Internet in Germany with 3.2 million customers, behind T-Online International, part of Deutsche Telekom AG.
The deal will bring to more than nine million the number of Telecom Italia subscribers in Italy, France and Germany.
Since we acquired Hansenet in 2003, our German presence has gone from strength to strength, confirming the validity of Telecom Italia’s Broadband strategy, and with the AOL co-branding agreement our content offer, as well as our customer base, grows," Ruggiero added.
AOL also is looking to shed its access business in France and the United Kingdom.
It has entered into exclusive negotiations with Neuf Cegetel for AOL France. Like the arrangement with AOL Germany, the envisioned deal with Neuf Cegetel calls for AOL to retain its French portal and handle content for Neuf Cegetel’s existing customers.
Dan Bieler, of London-based consulting and research firm Ovum, questions whether a U.S.-based company can successfully run a German portal. He said AOL Germany "has a different history and culture" than Telecom Italia, which offers broadband in Germany under the "Alice" brand.
Jon Miller, Chairman and CEO of AOL LLC, said: "AOL’s partnership with Telecom Italia highlights the value of the Internet access business we have built in Germany, as well as our programming assets and advertising network. AOL’s content and features will enhance Telecom Italia’s Internet service, and the scale of our advertising network in Germany – Europe’s second-largest online market – will increase. This continues our strong momentum in building our worldwide advertising business and serving a large and highly engaged audience."
“Whilst AOL Germany no doubt brings expertise in online advertising, we are less certain that it is in a position to operate a portal that caters to the tastes of existing Alice customers,” he said