BT signs deal with Yahoo, drops OpenWorld

LONDON/LOS ANGELES: BT Group said it was merging its BT OpenWorld consumer Internet service, one of Britain's first, into a new joint venture with Web veteran Yahoo Inc. BT, the UK's dominant fixed-line carrier, hopes that Yahoo's younger, more hip brand and its base of 15 million monthly British and Irish Web visitors will boost subscriptions at its consumer broadband offering, currently known as BT OpenWorld.

The news sent shares in BT up 3.4 percent at 199 pence ($3.35) at 1420 GMT, lifting the UK telecoms sector as well. Yahoo traded at $30.22, up 5.3 percent, in morning trade.

SoundView Technology Group analyst Jordan Rohan upgraded Yahoo to "outperform" with a $35 price target on Monday. "Yahoo is in the sweet spot of the Internet right now -- benefiting from broadband adoption, increased e-commerce activity, uptick in search revenues, and a surprisingly robust spot market for online advertising," he said, though his note did not refer directly to the BT deal.

OpenWorld will be renamed in September with customers being migrated to the renamed service at that time. The more profitable OpenWorld business customer base will not be affected. Financial terms were not disclosed.

AIMING FOR BIG SPENDERS

Competition from another BT product, the no-frills BT Broadband, has put a crimp on demand for OpenWorld in the past year, analysts say, eating into margins and average revenues per user (ARPU).

BT Broadband is priced at 27 pounds, three pounds cheaper than OpenWorld. BT said the co-branded Yahoo offering would be a step up as it would feature Yahoo news headlines and other content rather than BT's more limited editorial fare.

"It's a concern for all access providers -- how can they get customers away from the low-end product to the mid-tier and premium products so they can raise ARPU?," said Ian Fogg, analyst with Jupiter Research in London.

BT said it expected the combination to reap 60,000 additional customers between September and March, 2004. It currently has 330,000 OpenWorld subscribers.

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 email, job searching, dating, and Internet access products.

California-based Yahoo, which has a broadband access deal in parts of the United States with SBC Communications Inc., said users of "BT Yahoo! Broadband" would have access to a customised browser and homepage, among other features. The company added similar deals with other Internet service providers are being explored, but declined to offer details.

In February, the two sides had announced a deal to sell to BT Broadband customers multiple email accounts, digital photo storage, firewall security and anti-virus software in an a la carte product called Yahoo! UK Plus, priced at 4.17 pounds.

It came on the heels of a similar deal to resell Microsoft 's MSN 8, a suite of Web surfing functions, for an extra seven pounds. In putting greater emphasis behind its co-branded access product, BT risks alienating its other Web software partners, observers said. BT Yahoo! Broadband, for example, carries many of the same features but is cheaper than Yahoo! UK Plus and the MSN 8 offers.

© Reuters