Yahoo's Telco Gravy Train Coming to a Halt?

[qi:004] A few months ago we forecast that the telecom carriers, who were paying Yahoo to manage their broadband portals, would try and renegotiate their deals with the seemingly hobbled Internet company. That scenario is slowly playing out. Today, Canadian broadband provider Rogers Communications has re-tweaked its deal, and in a very public manner.

While Yahoo’s press release tries to spin it as a net positive, the truth of the matter is that the Sunnyvale, Calif.-based company is now going to have to share advertising revenues with the ISP. In a conference call following the release of its latest quarterly results, Rogers management pointed out that as per the January 2004 contract, the company paid per-sub fees to Yahoo, but under the new agreement, that is not happening, and instead it will get a piece of revenues generated by Yahoo advertising against its subscribers. According to UBS Research, Yahoo’s (YHOO) access business estimated to be worth $575 million in 2007 – large enough business to have a material impact on Yahoo’s operations.

Rogers is a smaller player; Yahoo’s other partners are Verizon (VZ), British Telecom (BT) and AT&T (T), and there were rumors that AT&T had re-negotiated its agreements with Yahoo earlier year. “While there are almost certainly already ad dollars flowing to AT&T, and perhaps the others, Yahoo has been deliberately vague about the details, making it difficult to estimate the true economic impact. Correct or not, investors may be spooked about a partner very publicly moving from paying Yahoo to getting paid by Yahoo,” writes Ben Schachter, UBS Internet analyst in a note to his clients. We kinda agree with him.

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