Liberty Media (NYSE: L - News) is considering swapping its shareholding in Time Warner (NYSE: TWX - News) for the dial-up business of AOL, John Malone said on Monday, 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 cash-generating asset would be "attractive".

Time Warner had made no such proposal, said Greg Maffei, Liberty Media's chief executive, but "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.

A Time Warner spokesman would not comment, but Mr Malone's words 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 2000 merger 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.

The group's second-quarter earnings statement showed the extent of the challenge, with a 2 per cent rise in AOL's advertising revenues unable to make up for the 29 per cent decrease in revenues from paying subscribers.

Until Monday, 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 earlier this month that a deal for AOL's access business was something "worth aggressively pursuing".

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

However, he 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 holds a stake valued at $1.6bn at the end of June.

Mr Malone 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, down from $1bn in the second quarter of 2007, which was boosted by disposals. Group revenues increased from $2.2bn to almost $2.5bn.