Report: AT&T may scale back Yahoo partnership

Feeling that its partnership with Yahoo yields fewer benefits than in the past, AT&T wants to trim the deal’s scope and seek more favorable conditions for itself, The Wall Street Journal reported Friday.

Specifically, AT&T seeks a revision of how the companies share ad and Internet access revenue in their years-long agreement to sell co-branded broadband services to consumers in the U.S., the Journal reported, quoting anonymous sources.

Negotiations have already begun for renewal of the pact, which ends in April 2008 and which Yahoo originally struck in 2001 with AT&T predecessor SBC Communications Inc.

Back in 2001, AT&T needed Yahoo more than it does today to market its broadband services to consumers, because broadband is now in higher demand, the article states.

Yahoo gets between $200 million and $250 million in annual revenue from the partnership, and could see its bottom line affected if those payments were reduced, according to the Journal. The profit margins on these AT&T fees are generally higher than the margins Yahoo enjoys from its other operations, the paper said.

More indirectly, traffic to Yahoo’s Web sites and usage of its services could be affected if the pact is scaled back, the Journal said. The joint customers obtain, along with the AT&T broadband connection, a suite of Internet tools from Yahoo, including e-mail accounts, PC security software, a photo management application and exclusive videos.

Industry analyst Rob Enderle of Enderle Group doesn’t find the news surprising. “I don’t think Yahoo is providing AT&T with that much value and I’m not convinced that Yahoo is getting that much value from AT&T,” he said.

In 2001, AT&T needed an Internet company to partner against the combination of the newly merged AOL and Time Warner Inc., but the once popular trend of selling Internet access along with online services has pretty much disappeared, Enderle said.

“Now AOL is nowhere near the power it once was, and people are shopping for their Internet connection separate from their [online] services. The need to have both [tied] has gone away,” he said.

Meanwhile, AT&T hasn’t helped Yahoo much to combat the rise of Google, Enderle said. “Like anything else, partnerships are formed when there is an advantage and they tend to fall apart when that advantage goes away. Here, the market conditions that created the partnership in the first place have largely evaporated,” Enderle said.

Asked for comment, AT&T sent a joint statement that says the companies have “the most successful partnership in the industry” thanks in large part to the ongoing dialogue they maintain. “Though it is not appropriate to speculate on future plans, we frequently collaborate on our existing partnership to ensure that we deliver the most innovative broadband experience to our customers now and in the future,” the statement reads.

Later, Yahoo sent another statement, blasting the Journal‘s story as being based “on rumor and speculation” and saying that this month, the companies will introduce ads on their cobranded mail service. Later this year, Yahoo services will be added to AT&T’s Internet television offering, and discussions are ongoing about expanding the partnership to the mobile space, Yahoo said.

“Both AT&T and Yahoo are constantly monitoring and evaluating the Internet landscape and have already made adjustments over the years to reflect competitive conditions and the relative benefits each party brings to the relationship,” the statement says.

This story was updated on March 9, 2007