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.

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