RealTime IT News

SBC, Yahoo! Set Prenuptials?

SBC Communications , the largest digital subscriber line (DSL) provider in the nation, and Yahoo! , the most popular online portal in the world, are teaming up to provide a co-branded service to customers in the Baby Bell's 13-state region.

What's more, SBC is getting ready to move all its dial-up and broadband customers over to the newly-created Yahoo! co-brand, a move that increases the likelihood of an SBC/Yahoo! merger down the road.

The terms have already been set in the possible marriage, with SBC officials pointing out that billing and customer support on the new co-brand will continue to come from the Bell company.

Yahoo!, officials said, would receive a monthly check based on the amount of customers it had in its possession. Yahoo! officials would not release the amount it would receive per subscriber.

It's a sweetheart deal for both companies, which have been struggling the past year as the high-tech sector scales back to normal levels from the "Internet bubble" of the late 1990s.

For Yahoo!, the deal means it can reach into its broad base of customers and sign them up for DSL, a monthly revenue generator that puts money in its coffers.

Terry Semel, Yahoo! chairman and chief executive officer, said monthly DSL subscribers are going to be a necessary ingredient in his company's business plan going forward.

"Access relationships will play an increasingly important role moving forward," Semel said. "As more and more customers transition to broadband in the future, this gives us a chance to provide a superior product offering. This model lets us diversify our revenues outside our premium and advertising revenues."

Semel said the Yahoo! co-branded service will feature its normal online content of news, online communities and multiplayer games, and extra online storage space for its subscribers.

For SBC, it has one of the largest content providers and portals in its corner now, providing top-notch news and online communities, a desirable quality for any access provider. The Baby Bell also gets a percentage of Yahoo!'s non-subscriber revenues (i.e., advertising dollars).

Yahoo! officials said that while it didn't sign any exclusivity contracts with SBC to broker the deal, the portal company has no intention on working with cable Internet providers in the future.

This is surprising, considering SBC has decided to slow down its DSL deployment in its coverage area due to financial difficulties and the fact that cable Internet growth far outstrips DSL around the nation, according to a recent report.

Ed Whitacre, SBC chairman and chief executive officer, said the company would start "encouraging" its current crop of Internet subscribers to switch to the Yahoo! co-branded service, a sure sign that SBC is pinning its DSL future on the Yahoo! name.

"The end game is very clear, we want to transition all of our broadband and dial-up customers to the co-branded SBC/Yahoo! world," Whitacre said. "There's obviously going to be a transition at this point, it will probably start with new customers first and then we will go back and transition the different subsets of customers from the former platform to the Yahoo! platform."

A co-branded partnership gives both companies equal standing with other high-speed Internet access/content provider giants, like AOL Time Warner and the Microsoft Network .

The largest and second-largest (respectively) dial-up Internet service providers in the country have a wide variety of content to go with their access and have been making splashes in the Internet community with their moves into high-speed services.

James Kahan, SBC senior executive vice president of corporate development, said it's all about content. The broadband provider that can bring the content with the access wins.

"The winner of the broadband war will be the company that delivers the best broadband-powered content, communication services and features to its customers," Kahan said. "Together, we'll provide SBC's Internet customers with superior information and communications services."

Both AOL and MSN, each with its own vast arsenal of online content, have been ramping up their efforts to enter the broadband world -- AOL with its large cable network and MSN with its new DSL deals with all the incumbent local exchange carriers (ILECs), SBC included.

The SBC/Yahoo! marriage positions both companies for future DSL growth, growth that Jim Brock, Yahoo! senior vice president of major initiatives, says will be accelerated with Yahoo!'s inclusion to the mix.

"Yahoo! believes the strength of this alliance will rapidly accelerate the growth of DSL in the broadband market, and we have partnered with the leading provider in the country," Brock said. "As more and more consumers transition to broadband, we believe this alliance will position us to capture market share from our competitors."

Yahoo! and SBC officials said they haven't begun looking at a price structure for the new service.