Deutsche Telekom AG (DT) Chairman Kai-Uwe Ricke has denied rumors that the group's Internet unit is in talks to acquire Time Warner Inc.'s American Online (AOL) division, although analysts expect the German telecom giant to make one or two key acquisitions in the months ahead and build its international online presence.
When asked at a news conference on Thursday morning about a newspaper report claiming that DT subsidiary T-Online International AG & Co. KG was in talks with Time Warner about AOL, Ricke declined to comment. But shortly after the conference, in an interview with the German business TV station n-tv, the executive said, "There's nothing to (the report)."
Ricke delivered the same message to analysts in a meeting on the same day, said DT spokesman Hans Ehnert.
Rumors of T-Online going shopping for ISPs (Internet service providers) have flourished since the German Internet company confirmed surplus capital of more than Euro 4 billion (US$4.7 billion) during a news conference earlier this week. Helping fuel speculation, T-Online Chief Executive Officer Thomas Holtrop said at the news conference that some of that money will be used for acquisitions in the months ahead.
"There has been quite a bit of speculation about T-Online buying up companies since this news conference," said T-Online spokesman Mark Nierwetberg.
T-Online is Europe's largest ISP, with more than 12 million customers, including 10.6 million in Germany, according to Nierwetberg. The company has operations in Austria, France and Spain.
According to one analyst, the company must acquire to expand.
"T-Online clearly dominates the German market but to grow further, the company will need to expand outside of Germany," said Olivier Beauvillain, a Paris-based analyst with Jupiter Research, an arm of Jupitermedia Corp. "That means acquisitions."
One possible acquisition is AOL, according to Beauvillain. Such an acquisition would give T-Online a strong position in the U.S. market, where DT already has established a wireless foothold with its subsidiary T-Mobile USA Inc. (formerly VoiceStream). It would also help the German ISP fill holes in other parts of Europe, he said.
AOL has nearly 30 million customers, of which the lion's share, around 24 million, are in the U.S., according to Beauvillain. The company has around 6 million in Europe.
Another possibility is acquiring Italy's Tiscali SpA, Beauvillain said. The ISP has over 7.6 million customers in 14 European countries, including Germany, and in South Africa, according to Tiscali's Web site.
"By acquiring Tiscali, T-Online would increase its European presence primarily," he said. "An AOL acquisition, though, would give the company a greater market position in both Europe and the U.S."
Asked whether T-Online might consider going after both, the analyst said such a move would be "highly unlikely." The German company, he said, "needs to focus on one thing at a time. If AOL is really on its radar screen, that's a pretty big fish to swallow."
Whether Time Warner, which recently dropped AOL from its name, is willing to unload its Internet division is another story.
After dismissing rumors of a possible sale of AOL, a Time Warner spokesman told The New York Times Thursday that the Internet division delivers over $1 billion in free cash flow to Time Warner each year and that AOL Europe is on a path to profitability.