BSKYB and BT are emerging as favourites to buy the UK operations of AOL, but are balking at the £1 billion asking price for the internet business.

AOL, which is part of Time Warner, has appointed Citigroup to review the strategic options for the group. It is understood potential bidders have until tomorrow to indicate the seriousness of their interest.

One executive involved in weighing up an offer for AOL said: “There’s very little information in the document (provided by Citigroup). It’s hard to value the business.”

However, he added: “It’s not going to go for the supposed £1 billion. It might go for £200-£300 a customer.”

With AOL having about 2.2m customers in Britain, that would suggest a price of no more than £660m.

Last year BSkyB, which is 38% owned by News Corporation, ultimate owner of The Sunday Times, paid £211m for Easynet, the telecoms company, in preparation for its imminent launch of a broadband internet service. Acquiring AOL would give the satellite broadcaster a larger customer base from which to recoup its investment in network infrastructure.

BT would also be keen to add AOL customers to its existing total of 2.6m broadband users. The telecoms group is already the wholesale provider for most of AOL’s 1.3m broadband customers.

Analysts consider AOL’s customers to be a good fit with BT, since they are attracted by security and quality of service, and not just price.

Some analysts believe that BT could afford to pay £100m more than other bidders because of the savings it could make by combining call centres and from other benefits of scale.

However, the deal would attract regulatory scrutiny since it would substantially increase BT’s share of the retail broadband market.

Carphone Warehouse, Vodafone, O2 and Google are all unlikely to bid for AOL. Carphone Warehouse is concentrating on its own recently launched “free” broadband service, which has already attracted 340,000 customers.

Vodafone said it does not wish to acquire network assets to move into the broadband market, preferring to resell someone else’s wholesale product.

O2, the mobile-phone group recently taken over by Telefonica, is constrained by the Spanish company’s commitment not to make any large acquisitions before the end of next year.

Google has a close relationship with AOL but is not interested in buying AOL UK.

• The mobile-phone tycoon John Caudwell is in talks to sell his business empire to two private-equity firms for more than £1 billion.

  Caudwell has granted a period of exclusivity to Bain Capital and Doughty Hanson, the buyout firms, to conduct due diligence on Caudwell Holdings.

  The proposed deal, worth up to £1.1 billion, would see Bain Capital acquire Phones4U, the mobile-phone retailer that has nearly 400 stores.

  Doughty Hanson is expected to take control of other group businesses, including Dextra Solutions, a distributor of phone accessories, repair specialist MPRC and Cornerstone Resourcing, a recruitment firm.

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