Liberty Media is considering swapping its shareholding in Time Warner for the dial-up business of AOL, John Malone said yesterday, raising the unexpected prospect of a competitive auction for the declining internet access operation.

Mr Malone, whose group encompasses wholly owned businesses such as the QVC home-shopping channel and stakes in DirecTV, Expedia and Sprint Nextel, said swapping the Time Warner holding for a cashgenerating asset would be "attractive".

Time Warner had made no such proposal, said Greg Maffei, Liberty Media's chief executive, but added that "I think they would come talk to us because of our ability to do a tax-efficient transaction for both parties".

Liberty Media's 103m shareholding in Time Warner was valued at $1.64bn last night, slightly above analysts' $1.5bn valuation of AOL's access business.

Time Warner would not comment. Mr Malone's comments, however, will change expectations of the options available to Jeff Bewkes as Time Warner's chief executive attempts to resolve grapples with AOL's declining revenues by unpicking the merger in 2000 that created AOL Time Warner.

Mr Bewkes said last week that the conglomerate had completed the work necessary to split AOL's declining internet access operation from the online advertising platform on which it decided two years ago to focus its efforts. Until yesterday, most analysts had seen EarthLink as the only likely strategic buyer for AOL's dial-up business. Rolla Huff, chief executive of EarthLink, told the Wall Street Journal this month that a deal for AOL's access business was something "worth aggressively pursuing".

Mr Malone played down speculation of a merger with DirecTV, in which his group's Liberty Entertainment arm holds a 49 per cent stake.

However, the billionaire media mogul held out the possibility of pursuing one or more of the businesses being spun out of IAC/Interactive Corp, Barry Diller's media holding company in which Liberty Media held a stake that was valued at $1.6bn at the end of June.

Mr Malone, who fought an unsuccessful court battle to prevent the spin-off of four IAC businesses, noted that Liberty Media had agreed to make no "aggressive" moves on any of the businesses, but faced "no limitations on private discussions" with their boards of directors.

Mr Malone's comments came as Liberty Media reported second-quarter net income of $125m, compared with $1bn in the second quarter of last year, which was boosted by asset disposals. Group revenues rose from $2.2bn to almost $2.5bn.