Carphone Warehouse, the mobile phone retailer and communications company which launched a ‘free’ broadband service, is to acquire the Time Warner AOL internet access business in the United Kingdom for £370 million.

Carphone Warehouse will acquire the internet access customer base of AOL in the UK, as well as the supporting management and infrastructure.

AOL will provide co-branded portal, content and audience services and manage online advertising for the combined Carphone Warehouse broadband business through a revenue-sharing agreement.

“The acquisition of AOL’s UK Internet access business is transformational for our broadband business,” said Charles Dunstone, chief executive of Carphone Warehouse. “This deal gives us significant scale to complement the rapid organic growth of our free broadband proposition. In addition, the joint development of AOL’s already successful audience platform will bring us new advertising and content revenues in a proven and low risk manner.”

The acquisition is a cash deal, with a quarter of a billion pounds paid on completion, and the balance paid over the following 18 months.

It will make Carphone Warehouse the third biggest broadband providers in the UK. The company has been building its presence in the residential telephone market through its Talk Talk brand, gaining 2.7 million voice customers in the last four years, or over 10% of the residential calls market.

In April, Carphone Warehouse launched a ‘free’ broadband offering for its voice customers, which attracted ‘unexpectedly’ high demand, although there have been complaints about the speed with which new customers have been connected. Of 625,000 applications received, around 420,000 have been connected so far.

The acquisition of the AOL access business will give Carphone Warehouse an enlarged broadband customer base of around 2 million homes.

AOL has been exiting the online access business in Europe, selling its operations in German, France and now the UK. It is part of a strategic transition from a closed subscription network to an advertiser-supported business model.

Jonathan Miller, the chairman and chief executive of AOL put a positive spin on the announcement, saying: “For a decade, AOL has played an important part in the growth of the online medium in the UK. Under the partnership announced today, AOL will expand the size of its audience in the UK as a web-services business. This is an ideal outcome for AOL, for Time Warner, and the customers we serve.”