Jeffrey Lindsay, an analyst at Bernstein Research, notes Wednesday morning that AT&T (NYSE:T) Tuesday at its analyst’s meeting indicated that it is close to renegotiating its contract with Yahoo (YHOO) for their co-branded DSL service. As noted in my column in this week’s print edition of Barron’s, Lindsay has been warning that Yahoo’s revenue from its per-subscriber deals with AT&T and other broadband providers is not likely to be sustainable at previous levels.
Lindsay writes that he views AT&T’s comments yesterday as “confirmation” of his pessimistic view of the future of Yahoo!’s DSL/cable deals. He notes that the current contract, which began in November 2001, is scheduled to expire in the second quarter of next year. The current deal has AT&T paying Yahoo a monthly per-subscriber fee for DSL customers. In exchange, Yahoo delivers e-mail service, storage, security and other consumer services. Lindsay estimates Yahoo had $250 million in revenue from AT&T in 2007.
As Lindsay has noted previously, Rogers Communications recently renegotiated its own deal with Yahoo, and will no longer pay per-subscriber fees to Yahoo. Instead, they will do a revenue share on advertising. Lindsay says AT&T is likely to announce a similar deal in the next week or two. He says AT&T CEO Randall Stephenson was quoted (I’m not sure where) as saying a new deal would be more “market based.” Lindsay thinks that means a deal more like the one Rogers signed.
Lindsay estimates that per-subscriber fees from AT&T, Rogers (NYSE:RCI), Verizon (NYSE:VZ) and BT (NYSE:BT) will provide $450 million of Yahoo’s 2007 revenue - 52% of its $860 million in fee revenue, and 9% of overall net revenue.
Yahoo Wednesday is up 41 cents at $24.88.