Dunstone snatches £370m AOL deal

Deal with Time Warner's AOL makes Carphone Warehouse UK's third-largest broadband supplier.

The Carphone Warehouse chief executive, Charles Dunstone, has penned a £370 million deal with AOL that will see the telecoms giant become the third-largest supplier of broadband in the UK, behind BT and NTL/Telewest.

The company's purchase of AOL UK's internet access business now sees it join a heavyweight elite of so-called "triple players" including Virgin, Sky and Channel 4, and catapults it into a league of powerful media owners whose strategy is underpinned by a land grab for new territory.

For now, Carphone Warehouse's two broadband companies (it also owns Talk Talk) are set to be run as separate entities. Talk Talk will operate at the free end of the market, and AOL will offer a premium paid-for service. However, observers predict that the long-term strategy will be to bring both operations under the Talk Talk banner.

The deal is expected to herald a new-business fillip for Carphone's media and creative agencies, Matters Media and Clemmow Hornby Inge respectively. AOL's current spend, handled by Vizeum and Grey, is £25 million, according to Nielsen Media Research figures.

Although the AOL brand will continue in the UK - it is retaining its home page and content business - the company is already citing significant operating efficiencies from reduced marketing costs.

Dunstone said: "This deal gives us significant scale to complement the rapid organic growth of our free broadband proposition. In addition, the joint development of AOL's already successful audience platform will bring us new advertising and content revenues in a proven and low-risk manner."

The acquisition of AOL UK's internet business by Carphone Warehouse shows how rapidly the media world has changed. A relative new kid on the block acquiring the business of a media giant would have seemed unlikely just a few years ago. But as new players focus on exploiting modern technology, the race to establish multiple media offerings has become intense.