Carphone Warehouse insists it is still in the bidding race for Tiscali

As the last great land grab of the UK broadband market gets into full swing, Carphone Warehouse yesterday denied reports that it has been pushed out of the bidding for Tiscali. The Italian internet service provider (ISP) has been officially on the market since the start of last month, and a statement issued alongside the group's first-quarter results this week acknowledged that the board has defined a shortlist and is pursuing negotiations. Some commentators even expect a deal within the next month.

But Carphone has rejected reports in the Italian press that its £550m offer for Tiscali's UK arm have been formally rejected because the company does not want to split its operations. "We have not heard anything from Tiscali, so as far as we are concerned we are still in the game," said a spokesman for Carphone yesterday. "We are regarding the reports as speculative."

The other companies rep-orted to be in the race are Vodafone, BT and BSkyB in the UK, and Fastweb and Wind in Italy. But sources close to the negotiations are keen to play down the swirl of rumours from the Italian media. One source said: "Discussions are still very much in the preliminary stages and the bankers are wanting to whip up as much creative tension as they can to force all the players to the table. It is just the usual fun and games."

Tiscali has just shy of two million customers in the UK, making it the fourth largest ISP after BT, Virgin Media – which owns the cable network – and Carphone Warehouse. The eventual winner of the race to buy the Italian group is of particular interest because it is the major independent company that focuses purely on prov-iding broadband connectivity. And as such, it is the last opportunity for massive expansion before the industry moves into the next phase.

Paul Lee, the director of telecoms research at Deloitte, said: "Broadband is becoming a mature market, so the land grab stage is coming to an end and we are entering a time for consolidation. Now the competition moves into the next phase which is connectivity plus products and services."

After a slow start, the UK is now Western Europe's most competitive market for high-speed internet access and more than 60 per cent of households have an always-on connection. But with market saturation predicted to be at around 75 per cent, consumer dem-and can no longer sustain a supply base with six major pro-viders. Six will fall to five with the sale of Tiscali, and Orange – the only one with falling subscriber levels – is tipped by many analysts to be the other vulnerable player.

But the Tiscali battle is not only an example of much-predicted consolidation in a flattening sector, it is also emblematic of the changing industry. Where once the broadband market was populated by broadband companies, high-speed internet access is now seen as a bolt-on to a wider service offering – whether it be BT's all-in-one communications package, or Carphone's plans to sell laptops on the back of free broadband, or BSkyB's pay-TV bundle.

Rupert Wood, a principal analyst at Analysys Mason, said: "The overall retail spend on broadband is not going anywhere, and price erosion and discounting means that even with an increase in subscribers it is not really a growth market – hence the triple play offers bundling in TV, Voice-over IP, laptops and so on. The idea is to use the big scale but low average revenue customer base to drive growth in the other high value area, be that mobile or pay-TV or any other."

The mobile operators are also looking to boost their own increasingly saturated voice and text market with both mobile internet offered over the 3G network and fixed-line broadband offerings. Vodafone and O2 both launched a first home broadband service in 2007, and O2 is now pushing ahead with a major marketing strategy and national coverage through a tie-up with BT.

The Tiscali sale is being handled by JPMorgan Chase and Intesa Sanpaolo's Banca IMI. Analyst predictions have put a price tag of anything from £450m to £650m on the deal.