Yahoo, BT team up on broadband

The deal, announced Monday, builds off an agreement reached in February for the companies to sell to BT Broadband customers multiple e-mail accounts, digital-photo storage, firewall security and antivirus software in an a la carte product called Yahoo UK Plus.

BT will end its alliances with some existing partners, instead offering Yahoo's Internet content and security services, such as antivirus, antispam and firewall software, as well as parental controls on Web access. Yahoo will also develop a co-branded Web browser with default links to its content.

For Yahoo, the deal highlights its efforts to bundle its content and services with broadband access. The company already has a similar agreement with telecommunications giant SBC Communications, struck in November 2001, and has publicly stated its intention to ink similar agreements with other broadband providers.

"Yahoo's strategy is revolving around growth of broadband," Yahoo co-founder Jerry Yang said during a conference call with reporters. "As more consumers are transitioning to broadband, Yahoo will be well positioned to benefit."

The companies will share access and advertising revenue, but executives would not disclose percentage breakdowns or further financial terms.

Yahoo's broadband quest
The BT agreement adds fuel to Yahoo's claim that broadband providers will need packaged content and services to attract more subscribers. These arrangements benefit both sides because Yahoo can secure consistent subscription revenue while broadband providers can differentiate themselves from competitors with Yahoo's popular services.

"Even in the U.K....clearly we had captured the low-hanging fruit, and now in order to get into further growth...we need to be capable of offering exceptional content and services for a very good price," Pierre Danon, CEO of BT Retail, said during the conference call.

However, the situation is different in the United States. Since launching its DSL (digital subscriber line) service with SBC last September, Yahoo has formed no other DSL partnerships. Many of its biggest potential partners already have portal deals. In May, MSN and Verizon launched a co-branded DSL service. Qwest currently also has a deal with MSN, leaving BellSouth as the only major telecommunications company without a portal partner.

"It is clear that Yahoo has shifted its emphasis to DSL as opposed to cable," said Derek Brown, an analyst at Pacific Growth Equities. "That by definition has narrowed its potential partners."

The sweet spot for broadband remains elusive. Cable giants such as Comcast, Time Warner Cable and Cox have largely waited in the wings in terms of portal deals. AOL Time Warner's America Online division has a distribution agreement with Comcast that has yet to launch and currently resells access to Time Warner Cable subscribers.

However, cable companies have taken matters into their own hands and remain hesitant about branding themselves with AOL, MSN or Yahoo. Cable also has greater penetration into households than DSL, giving Cable providers a lead over phone companies.

For now, Yahoo is judging itself on the depth of its deals rather than the frequency of success.

"There are not that many providers in the U.S.," said Yahoo's Yang during the call. "I think clearly the Yahoo-SBC relationship is one that's been showing real momentum and real growth."

BT's portal play
For BT, adding Yahoo is a key part of its strategy to try to keep a grip on the boom in broadband subscriptions.

"We realize that if BT's broadband targets are to be achieved, we need to offer much more compelling content and services--and to partner with a world-class content provider," Duncan Ingram, managing director of BT Openworld, said, referring to the telecom's goal of reaching 2 million wholesale ADSL (asymmetric digital subscriber line) connections by next summer, and 5 million by 2006.

"If you want an easy-to-use Internet experience that gives you rich content from one portal, you'll want this," Ingram said.

Previously, BT OpenWorld attempted to compete with rival Internet service providers by creating its own Web content. It now appears that the telecom company believes its best hope of competing with the likes of America Online is to stick to providing high-speed Internet access, customer support and billing, while leaving the content to other companies.

Ingram denied, though, that the new alliance with Yahoo shows that BT's efforts in content have failed. "It's about both organizations looking forward at how we drive the take-up of ADSL," he said.

BT Yahoo will be launched in September, with existing BT OpenWorld users being migrated across in stages over a few months. There will be no increase in the monthly subscription cost, which is about $51 (29.99 pounds) per month for broadband. Customers will keep their existing e-mail addresses.

The OpenWorld brand has had a checkered career in recent years. Dubbed Openwoe by rivals--and even some BT insiders--because of its loss-making history, the ISP boasts 330,000 broadband subscribers.

BT is now in the interesting position of having leapt into bed with both Yahoo and Microsoft, two of the Internet sector's most powerful rivals.

In November, BT and Microsoft launched an alliance to develop broadband applications for both residential and business customers. That deal, though, involved BT Broadband--the telecom's "no frills" broadband product--rather than BT OpenWorld.

Yahoo, which at one time generated almost all of its revenue from advertising, has pushed aggressively into subscription services over the last two years, in areas such as e-mail, job searching, dating and Internet access products.

Yahoo, which has a broadband access deal in parts of the United States with SBC Communications said BT Yahoo Broadband subscribers will have access to a customized browser and home page, among other features.

In February, the two sides had announced a deal to sell to BT Broadband customers multiple e-mail accounts, digital photo storage, firewall security and antivirus software in an a la carte product called Yahoo UK Plus.

ZDNet UK's Graeme Wearden reported from London.

Reuters contributed to this story.