Tiscali link plan to save home video service - UK

[BGonaSTICK]

Video Networks, the HomeChoice video-on-demand service, is poised to merge with the UK operations of Italian internet giant Tiscali in a complex transaction thought to value it at £100m.

Media sources say a deal could be announced within days, the latest in a series of mergers and acquisitions in broadband, which has become a fierce price war.

News comes almost 10 months after HomeChoice, controlled by Microsoft co-founder Chris Larson, warned that it could run out of money within a year unless it could secure further funding.

The company, whose other shareholders include Walt Disney, Sony and Warner Bros, is trying to take on BSkyB and NTL. But at the last count it had just 45,000 customers in London and Stevenage.

Last year, it doubled the number of homes that can receive HomeChoice - which offers 80 TV channels, broadband access, video-on-demand and phone calls - to 2.5m.

However, its plans to raise about £100m to fund a national roll-out are thought to have been scrapped amid mounting competition. Sky is spending £400m over three years on its broadband launch and BT will offer on-demand TV from the autumn.

The deal will require the blessing of Mr Larson, who is thought to have splurged more than £100m on the business since he rescued it in 2003.

Tiscali has 4.5m broadband subscribers, of whom 1.1m are based in the UK. The purchase would give it access to HomeChoice's TV platform and content, plus a greater presence within BT's local exchanges.

Tiscali UK wants to install its equipment in 600 of BT's exchanges by the end of the year under local loop unbundling.

HomeChoice is advised by CSFB and Tiscali is advised by Goldman Sachs. All parties declined to comment.