THE UK arm of AOL, Time Warner’s internet business, is to dismiss 20 per cent of its staff after its £370 million sale to Carphone Warehouse yesterday. AOL has begun to consult on the cuts, with 100 of a total 500 UK jobs expected to go by Christmas.

Carphone, which is struggling to get on top of its “free” broadband offering, paid about £133 per customer for AOL’s access business. The sum is substantially more per subscriber than the £30 the company says it pays to sign up customers directly to its own service.

BSkyB, Carphone’s rival in the auction, which was managed by Citigroup, is understood to have been bidding about £275 million. Although the deal will increase pre-tax profits at Carphone next year by only £30 million to £40 million, the group said that it would benefit from the critical mass that it secured and the efficiencies that will result in the longer term.

Despite the problems with broadband, Charles Dunstone, the chief executive of Carphone, said that he could take on the additional burden of the AOL business.

Even as the deal was unveiled, though, he confirmed that strong demand for the new service would increase its losses on the broadband service by £20 million in the year to March 2007, because it had to hire extra staff and pay to use BT products while waiting for its own high-speed access into homes to be fitted.

Carphone, which will become the UK’s third-largest broadband provider with two million customers, also gains from the deal a foothold in content, which many of its rivals regard as the key to retaining broadband customers.

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