AABA Altaba Inc

By Shalini Ramachandran and Douglas MacMillan 

AT&T Inc. is unwinding a 15-year partnership with Yahoo Inc. that has spanned the evolution of the Internet, from competing against AOL dial-up service to jockeying against cable companies to selling high-speed broadband.

AT&T said Wednesday that it has awarded the cogiantract to host its Web and mobile portals to Synacor Inc., a company little-known outside of telecom circles. The deal effectively moves a major chunk of AT&T's business away from Yahoo.

"We have agreed to have Synacor manage our next-generation att.net portal, AT&T-branded applications, and search," AT&T said in a statement. Yahoo will continue to host email for AT&T customers, though a person familiar with the deal said that is a fraction of its prior business with the telecom giant.

A Yahoo spokeswoman said AT&T is still a "valued partner" but declined to comment further.

The revenue-sharing alliance between a telecom giant and an Internet pioneer had lost much of its cachet over the years amid a shifting Web landscape. But the partnership's demise is ill-timed for Yahoo, which is in talks to sell itself to bidders including AT&T's fiercest rival, Verizon Communications Inc.

Sameet Sinha, an analyst at B. Riley & Co., estimates the AT&T partnership generated about $100 million in annual revenue for Yahoo.

The deal had given AT&T broadband customers access to Yahoo's search engine and other media services on the default AT&T website. AT&T and Yahoo had been splitting the search and display ad revenue from the site.

For Yahoo, the partnership brought in hundreds of millions of dollars in revenue over its life, a significant portion of which went straight to the bottom line, Mr. Sinha estimates. That is because the arrangement required minimal resources from Yahoo, leading to strong profit margins, he said.

Yahoo doesn't break out its revenue from AT&T or broadband partners, but they contributed to the company's shrinking search and display ad revenue. Search revenue, excluding commissions paid to Web partners, declined 21% in the first quarter to $347.7 million. Display revenue, excluding commissions, fell 1% to $380 million.

AT&T is backing away from Yahoo at a critical time for the struggling Internet company. A handful of potential buyers, including Verizon and private-equity firm TPG, last month submitted bids for the core Web business, people familiar with the matter have said.

The sale process is casting uncertainty around Yahoo's future, and that could deter advertisers and other business partners, said Youssef Squali, an analyst at Cantor Fitzgerald. The loss of the AT&T deal is "another indication that Yahoo is losing appeal with its partners," he said.

Any loss of revenue could, in turn, diminish interest from potential suitors or lower the price they are willing to pay. Most of Yahoo's preliminary bids came in the range of between $4 billion and $8 billion, a person familiar with the process said last month.

Another long-standing Yahoo deal is set to expire next year. Japanese tech giant SoftBank Group Corp. pays about $200 million annually in licensing fees for its Yahoo Japan unit, of which Yahoo is still a stakeholder. About half of those fees expire in August 2017, though a separate licensing agreement involving the Yahoo brand has no expiration date.

Advertisers have continued to shift budgets away from Yahoo to online-ad rivals Alphabet Inc. and Facebook Inc. This year, Yahoo will claim 1.5% of the global market for online ads, down from a 2.4% share last year, estimates eMarketer Inc.

The original purpose for the AT&T-Yahoo deal, struck in 2001, was to help AT&T better compete for high-speed Internet customers against America Online Inc., which had just merged with Time Warner Inc. Over its course, the relationship has taken many twists and turns, including with AT&T and Yahoo once contemplating jointly buying Walt Disney Co. and later choosing to simply focus on providing search and media services for AT&T's customer Web and mobile portals.

Synacor Chief Executive Himesh Bhise said the deal will bring in an additional $100 million a year for the company once it has fully deployed its services for AT&T over the next 12 months. It will help the phone giant customize its own Web and mobile portals. On Wednesday afternoon, Att.net still had a co-branded logo saying "powered by Yahoo!"

Many other cable and broadband operators have shifted to choosing white-label vendors or developing the expertise in-house for their customer Web and mobile sites, Mr. Bhise said. That is because service providers no longer want a "broad-based consumer portal" but want to "craft their own digital presence."

Synacor will split the search and advertising revenue with AT&T. Unique visitors to www.att.net has stayed fairly constant over the past three years, according to comScore Inc., though it is down from a year ago by 8.7% to 8.4 million in March.

The three-year deal is a coup for Synacor, which has struggled over the past few years under pressure from investors. "It puts the company on a trajectory to be three times its size in three years," Mr. Bhise said.

Write to Shalini Ramachandran at shalini.ramachandran@wsj.com and Douglas MacMillan at douglas.macmillan@wsj.com

(END) Dow Jones Newswires

May 04, 2016 17:48 ET (21:48 GMT)

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