As Power Shifts, AT&T May Alter Yahoo Pact

AS POWER SHIFTS, AT&T MAY ALTER YAHOO PACT
[SOURCE: Wall Street Journal, AUTHOR: Dionne Searcey dionne.searcey@wsj.com, Kevin J. Delaney and Dennis K. Berman]
In November 2001, Yahoo Inc. and AT&T Inc.'s predecessor, SBC Communications Inc., announced a partnership they touted as a "landmark strategic alliance" that would link the telecom and Internet worlds. Under the deal, the companies successfully sold Internet access together to millions of U.S. consumers. But today, the arrangement is looking like a relic of an earlier Internet era. The companies are negotiating potentially sweeping changes that could scale back their partnership, which expires in April 2008. The fraying of the alliance could be a blow to Yahoo, which gets roughly $200 million to $250 million of revenue annually from AT&T. It also shows how AT&T itself is much stronger, and less reliant on Yahoo, than during the early days of their alliance. The potential unraveling illustrates how high-profile partnerships by Internet companies to reach consumers can quickly become fragile: Big alliances can rapidly fall apart as partners' interests diverge and the Internet evolves. The shift in the relationship of AT&T and Yahoo is partly a result of changes in the economic structure of the Internet industry. Most significantly, Yahoo's rival Google Inc. has begun offering rich payments -- approaching $1 billion in some cases -- to partners, causing players such as AT&T to question their existing deals. At the same time, AT&T no longer needs Yahoo the way it did nearly six years ago, when it was struggling to coax consumers to sign up for high-speed Internet service. Today, with the huge popularity of downloading video and music and other services on the Web, broadband is in demand.
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