TISCALI, the loss-making Italian internet group, is in talks with Vodafone and 3 to offer a mobile service as it struggles to shore up its position in the European internet market.

The group, which has resorted to fresh funding from SilverPoint Finance, a hedge fund, at a rate of 11 per cent, is gambling on a move into triple and quadruple play services to improve its prospects in an increasingly ferocious internet market.

Tiscali said that the loan facility — set at an initial Euribor rate, or the European inter-bank borrowing rate, plus 8 percentage points — was dependent on certain conditions, but declined to reveal further details. City sources, however, said that the interest rate would increase if the internet group failed to meet set performance targets.

News of the potential mobile deal, which is likely to involve Tiscali leasing network space from an existing operator, comes after the merger at the weekend of Tiscali’s UK division with HomeChoice, the UK broadband television player.

Analysts yesterday questioned the logic of a deal under which see a company in Tiscali’s financial position would merge with a business that had been facing funding difficulties.

Tiscali’s position was further undermined yesterday when Vodafone, the world’s biggest mobile player, denied that it was contemplating the mobile joint venture. A spokesman said that it was “news to us”, with sources close to the company dismissing Tiscali’s claims as an attempt to boost its credibility.

A spokesman for 3 declined to comment on the deal, saying: “We do not comment on market rumour and speculation.” However, the group has said previously that it would explore any opportunities.

By increasing its service offerings, Tiscali hopes both to woo new customers and reduce the departure rate of existing ones.

Mary Turner, chief executive of Tiscali UK, said: “We are talking to mobile players (including) Vodafone and 3 and we exploring our options.”

She said that churn was reduced by 50 per cent when customers at the group, which has 4.5 million users worldwide, took two services instead of only one.

Tiscali, founded by Renato Soru, the president of Sardinia — still its main shareholder — has long had its ambitions curtailed by financial constraints.

In 2004 the group, which once operated in 12 countries, was forced to cut back to focus on its key European divisions including Germany, Italy and the UK, from which it draws just under half its revenues.

The linking of Tiscali and HomeChoice is the latest in a series of tie-ups taking place in the European telecoms sector as companies increase their service offerings in an effort to combat falling prices and fierce competition.

Teaming up

August 2006

• Tiscali seals £100 million deal for Video Networks, which runs HomeChoice broadband to television services
• John Caudwell agrees £1.5 billion sale of Phones4U empire to Providence Equity Partners

  June 2006

• DSG International, the owner of Currys, sells The Link, its mobile phone chain, to O2 April 2006
• NTL, which later merges with Telewest, launches £1 billion offer for Virgin Mobile February 2006
• Thus agrees £59 million deal to buy Your Communications, the telecoms unit operated by United Utilities.

  December 2005

• O2 agrees £18 billion takeover by Telefónica, its Spanish rival.
• BSkyB opens £211 million offer for Easynet

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