Time Warner will provide an update early next month on its progress in selling the service provider components of its AOL divisions in Europe, a source close to the company said today.

British Sky Broadcasting Group said on Tuesday that it was in talks with Time Warner over the possible acquisition of the UK slice of the business, which has around 2.2 million dial-up and broadband subscribers.

Time Warner has been retreating from AOL's internet access business in Europe, where its subscriber numbers have been in decline. The company has about 5.9 million customers for its three European divisions, in the UK, France and Germany.

Time Warner has indicated that it plans to hold on to the AOL brand, which it will use to try to bolster its strength as a content provider and capture more online advertising.

CEO James Murdoch said BSkyB would consider buying the UK division if "it makes sense at a certain price".

"We're right in the middle, with a number of other parties, of trying to understand that business a lot better, but I think there are a lot of question marks around it," Murdoch said, according to the transcript of a conference call with analysts and investors. "We don't have an unending appetite for acquisitions," he added.

A deal would create a new pool of potential customers for BSkyB's digital TV service, which had about 8.1 million subscribers at of the end of 2005. On Tuesday, BSkyB rolled out bundled TV and broadband services packages, following the lead of other operators.

Other suitors have emerged for the AOL divisions in Europe but no deal as been completed. Last month, Telecom Italia SpA made an offer to acquire the divisions in Germany and France.

Time Warner will provide an update on the progress of its talks on 2 August , according to the source, who asked not to be identified.