Yahoo, Verizon Join To Offer Broadband Service

In a hookup that could be a glimpse at a future Web experience that includes as much streaming video as static content, Yahoo (Nasdaq: YHOO) and Verizon said they have struck a deal to offer co-branded high-speed Internet service.

Yahoo will join Microsoft's (Nasdaq: MSFT) MSN as a Verizon partner and users of the telecommunication giant's high-speed Internet access services will have a choice of using MSN or Yahoo as their home page. Yahoo will be the default choice.

The deal might reflect the desire by telecoms like Verizon to do whatever they can to protect their Internet access turf against insurgencies from companies that began as cable television providers.

Looking to the Future

The battleground is not only over eyeballs today, analysts say, but also over who controls the pipeline to a more robust Web experience in the future, one that takes full advantage of high-speed connections. That in turn could help Verizon bundle services to customers that range from voice calling over the Internet to Web-based television.

The multi-year deal will give Verizon's 3.3 million broadband customers free access to the co-branded portal, which is expected to launch before mid-summer.

Though specific financial terms were not disclosed, the companies said Yahoo, which has worked hard to diversify its revenue base to lessen its dependence on advertising dollars, will receive an undisclosed cut of each broadband subscription fee. Yahoo in turn will share advertising revenue with Verizon.

Sharing Revenue, Sharing Turf

Previously, MSN had struck an exclusive agreement with Verizon, one that recently expired, clearing the way for additional portals. Verizon said choice is important as high-speed Internet users seek to maximize the value of their online experience. Offering more than one portal option "gives Verizon a real competitive edge over offerings from other broadband companies," Bob Ingalls, president of Verizon's retail markets group, said.

For its part, Yahoo said it is always seeking new ways to reach out to Web users. The deal, COO Dan Rosensweig said, "gives us a prime opportunity to deliver to the millions of broadband customers in Verizon's territory what they want."

Telecom analyst Jeff Kagan said Verizon and other companies recognize that services and features will often tip the scales for consumers as they decide where to buy their bundle of services -- telephone, Internet, cable TV and more.

Market Convergence

"The cable television and telecommunications companies are converging on the same spot in the market," he added.

Indeed, recent developments have further blurred the lines between telecoms and cable TV providers. Comcast (Nasdaq: CMCSK), for instance, recently announced plans to offer voice over Internet protocol (VoIP) calling service over its high-speed Internet network.

SBC, which already offers a co-branded DSL service with Yahoo, unveiled a service that enables subscribers to control their TVs remotely through their personal computers. And cable giant Time Warner (NYSE: TWX) is said to be in talks with Sprint (NYSE: S) on a deal to add wireless calling services to a bundle being offered to cable customers.

Waiting for Killer App

The agreement comes as the so-called "killer application" for broadband is still being sought, Jupiter Research analyst David Card said.

Broadband usage in American homes is rapidly approaching critical mass, but early signs are that streaming video and music downloads are not enough to unlock its full potential -- from a revenue-generation standpoint.

"Broadband critical mass might be the opportunity for a new portal -- one that takes advantage of the always-on fat pipe to the home -- to eat into the Yahoo/MSN/AOL trio," Card said. That portal could be "fueled by rich media advertising."

Yahoo might be trying to foresee just such a scenario and to head it off at the pass. It became among the first portals to team with telecommunications companies when SBC Communications purchased a stake in Yahoo. The two offer a co-branded DSL service in many markets.

The announcement came just a day before Yahoo's hotly anticipated fourth quarter earnings report, which will be released when markets close today. Most analysts expect a strong quarter for the portal.