SBC/YAHOO INTERNET DEAl AIMS TO UNIFY ISP BUSINESSES

SBC Communications hopes to propel itself into the top ranks of ISPs with the co-branding partnership it announced last week with Yahoo. The deal creates a nationwide Web portal and Internet access brand that will pair Yahoo's top-shelf content with revenues from SBC's dial-up and DSL subscribers.

SBC will group all of its disparate Internet access operations under the new SBC/Yahoo venture, launching the service for all new dial-up customers immediately and eventually bringing its Prodigy subscribers and regional ISPs such as Ameritech.net and PacBell.net into the fold.

SBC plans to begin transitioning new and existing DSL customers to the new portal by summer.

The move represents a change in direction for SBC that will not only unify its numerous regional ISP operations but also give the regional Bell company access to the content of the world's most trafficked portal and content aggregator. SBC Vice President Jason Few, who heads up the venture's implementation, said his company has an enormous opportunity to capture millions of Yahoo customers as well as solidify its relationship with its current users.

“By partnering with Yahoo, we are in a position to deliver to our customers a world-class product offering,” Few said. “We will be able to capture a sizable portion of the marketplace.”

And SBC won't stop at offering just Internet access, whether broad or narrowband. Few said the carrier plans to package SBC Yahoo with a host of other consumer telecommunications services, a key element to the negotiations between the companies.

The partnership is a smart decision on both sides, say analysts. For Yahoo, the move will bring in cash at a time when the Web advertising market is hurting.

And SBC worked out a deal with a bigger upside than many similar partnerships, said Mike Goodman, analyst for The Yankee Group. The carrier, he said, will not only get Yahoo's substantial content and an unmatched base of potential customers, but it will retain control of its ISP operations as well, something it wouldn't have been able to do if it partnered with AOL or MSN, which run their own access businesses.

“SBC wants to prevent themselves from becoming commoditized — from becoming a bunch of dumb pipes,” Goodman said. “Here, SBC still controls the access part of its business. Yahoo and SBC are sharing the best part of each others' businesses.”

Few said many of the RBOC/content provider relationships out there are notoriously one-sided. Either the Bell company acts as a wholesaler to a national ISP — which SBC does with both AOL and MSN — or the content provider usurps the ISP business — which Few said was the nature of the deal Qwest Communications struck with MSN.

With that in mind, SBC felt it was critical to maintain control of its ISP business and customer relationships in any potential partnership, which is why the carrier investigated building up Prodigy's name and content into a nationally competitive ISP, Few said. But because of Prodigy's reputation as an outdated Internet brand, SBC decided to abandon that strategy and look for a partnership.

The carrier negotiated with both AOL and MSN, but Yahoo was the only company that agreed to allow SBC control over the customer management and billing relationships critical to its future plans, Few said.

“We originally looked at a lot of different alternatives,” Few said. “We explored relationships with MSN and AOL, and even looked into repositioning Prodigy. In the end, we were only able to work our strategic issues out with Yahoo.”

SBC's NATIONAL ISP AMBITIONS

2000

Sept. 11, 2000

SBC, Covad strike $600 million DSL deal for out-of-territory broadband offerings

2001

Sept. 12, 2001

SBC bids for all outstanding Prodigy shares

Nov. 2, 2001

SBC completes Prodigy purchase

Nov. 14, 2001

SBC, Yahoo announce strategic partnership

2002

June 3, 2002

SBC, Yahoo launch nationwide content and dial-up ISP service