Primus snaps up AOL|7

Primus Telecom announced today it had acquired interactive services business AOL|7 from stakeholders AOL, AAPT and the Seven Network for just over $23 million.

AOL|7, which operates the AOL broadband service and offers a selection of exclusive content from Channel Seven and America Online, had been equally owned by broadcast television network Seven, America Online (AOL) and AAPT, the Australian unit of the Telecom New Zealand Group.

Under the terms of today's sale, Primus Telecom would acquire AOL|7's 90,000 customer base, but AOL|7 would operate as a standalone entity for the time being.

Seven Network said it expected to receive cash funding of more than $23 million -- slightly less than the current book value of its investment -- from the sale.

AAPT said it sold its one-third stake for $7.5 million. Also, as a result of the sale, AAPT would solely manage its 48,000 dial-up and broadband customers. Previously, AAPT's smartchat internet dial-up and broadband services were jointly managed with AOL|7.

During a teleconference held by Primus today, Greg Wilson, managing director of Primus Telecom, said the acquisition would make a strong contribution to Primus' profitability and cash flow and would help to expand iPrimus' customer base. Wilson said he was not in a position to state total profit for AOL|7, but said the company was profitable.

“We envision delivery of $2 million ongoing revenue per month for Primus [from the acquisition] with EBITDA returns of 30 percent,” Wilson told the media.

AOL|7 customers would continue to have exclusive access to certain AOL AOL|content and applications, while iPrimus customers would benefit from the Primus Telecom/AOL partnership with its access to alternative international content and technologies, Primus stated.

Wilson said AOL|7 had a good fit with iPrimus' business and there was a chance to upsell that customer base into iPrimus telephony and internet bundles such as DSL-based voice services. Similarly, Primus could provide AOL|7 services to the iPrimus customer base.

Wilson said AOL|7 would continue to operate as a standalone business out of its current Sydney location. Although there would be inevitable management changes, Primus was looking to retain as many of the current 140 AOL|7 staff as possible, he said. In the case of Seven, the network would assume direct management of its online activities. Seven said, in a statement, it had decided to focus on leveraging its content -- TV and magazine -- online, “rather than an involvement in a more far-ranging business model in online”.

Steve Wise, chairman AOL|7 and Seven CEO of New Media and Investments, said the network would continue to develop an online presence, but this would complement its core businesses -- broadcast television and magazines publishing.

Wise said each of the parties involved believed the sale of AOL|7 would better support the continued growth of each group's respective brands in the future.

Seven's current book value investment in AOL|7 comprised the initial investment as well as promotional support provided since the formation of the partnership. It also included i7, a Seven Network internet venture.

Gerald Sokol Jr, executive vice-president of AOL International, said AOL would look to collaborate with Primus in other markets outside the US, where both Primus and AOL have businesses. The transaction, subject to a regulatory process, was expected to be finalised by the end of this month.