AOL in drive to save £300m

INTERNET service provider AOL is aiming to save £300 million by renegotiating its phone contracts with European telecom providers.

AOL has links with all the major European telecom companies. Internet service providers (ISPs) connect customers to the internet - but at a price. Network costs make up about 80% of ISPs' total outgoings.

With losses of £600 million on revenues of £800 million, AOL is desperate to cut costs in Europe by at least £300 million.

A source within AOL told Financial Mail: 'We have recently successfully negotiated new deals at lower costs. We are always looking for better deals and that is where the cost-savings are.'

The source would not say how much the move will save the company, but it is understood to make up a substantial part of the necessary savings. AOL Europe has been under pressure to reduce costs from its parent company, AOL Time Warner, which in turn is suffering from the global slump in the telecoms market.

The parent company has lost about $200 billion (£140 billion) in market value since the merger between AOL and Time Warner was completed last year. Shares are near an all-time low after a $54 million write-down due to a revaluation of assets after the dotcom crash.

AOL Europe, which increased its European subscriber base by 40% last year to 5.5 million customers, recently paid £4.7 million to buy out the 49% stake in AOL Europe held by German media group Bertelsmann.

In another attempt to increase revenue, AOL's British operation last week increased monthly subscription charges by £1 to £15.99, following the example of Freeserve and BT Openworld, which also recently raised their flat-rate internet access fees. AOL said it had not imposed an increase for 18 months.

The company, which is the UK's largest subscription internet service provider with 1.7 million customers, denied rumours that it would slash its marketing budget. It has recently signed up tennis star Boris Becker to advertise its service in Germany.

The source confirmed that the company had considered a takeover bid for beleaguered telecoms operator NTL, but said the problems outweighed the benefits.

'A lot of players are interested,' he said, 'but it's a very problematic asset, with bondholders' claims and a bad balance sheet.'

Meanwhile, AOL Time Warner is understood to be considering other acquisitions among cable companies which would give AOL access to its own cable network.

'We're definitely looking but it's a tough regulatory situation out there,' said the spokesman.