Carphone Warehouse is understood to have failed to make it on to a shortlist of second round bidders for Tiscali, the Italian broadband operator.

Vodafone and BSkyB are thought to be among about six companies who will be given access to Tiscali’s books.

After a board meeting last night, Tiscali, which has a market value of €1.43 billion (£1.13 billion), said that it had received an “unspecified number” of bids and the board had charged Mario Rosso, its chief executive, with negotiating a shortlist.

To find a buyer, Tiscali is willing to break up its two remaining businesses, Mr Rosso said last month. Bids for the UK division are thought to be upwards of £550 million.

The rejection of Carphone Warehouse will be a blow to Charles Dunstone, the company’s chief executive, who has been keen to combine Tiscali’s 1.7 million broadband customers with Carphone Warehouse’s 2.7 million customers on its TalkTalk broadband package.

The acquisition would have made it the largest UK broadband provider. BT dominates the broadband market with 4.25 million, followed by Virgin Media.

Last month Jeremy Darroch, the chief executive of BSkyB, which moved into broadband in 2006 and in which News Corporation, parent company of The Times, has a 39.1 per cent stake, voiced his interest in Tiscali.

Last year Vodafone bought internet assets in Spain and Italy as it expanded into supplying fixed line broadband to European customers. Sources close to the deal said that Vodafone had put in a bid for both the Italian and UK businesses. Virgin Media is also thought to be in the running.

Analysts have said that other potential buyers included BT and Fast-web, of Italy. The telecoms industry is rife with rumours of mergers and acquisitions, including reports that Bharti Airtel, India’s largest mobile operator, is looking at MTN, the South African mobile phone operator.

Tiscali, releasing its first-quarter results yesterday, said that higher sales had helped to narrow its first-quarter net loss by 12 per cent to €37.5 million, while sales rose 43 per cent to €276.4 million. Earnings before interest, tax, depreciation and amortisation rose 92 per cent to €48.3 million. Tiscali’s shares closed up 2.6 per cent at €2.5.

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