IQ News: MCI, Yahoo Try Online Service

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Taking a direct stab at America Online, Yahoo and MCI today plan to launch their co-branded Internet access service at an industry-low $14.95 monthly access charge. Already, observers are wondering: Will the power of the Web’s most recognizable brand–Yahoo–be enough to finally make the Internet service business a profitable one for telcos? And more importantly, will the deal spark further fusion between content providers and those who provide Net access?
Dubbed “Yahoo Online powered by MCI Internet,” the new venture will be promoted jointly by Yahoo and MCI. Yahoo will collect the bulk, if not all,of the ad revenue, while MCI nets subscription business, said Joe Bartlett, an analyst at Yankee Group, Boston. Yahoo will be responsible for the content; MCI will handle billing and customer service. Charter advertisers include: CDnow, Travelocity, Hallmark and Egghead.com.
While ad revenue remains a relatively untapped source of income for ISPs, reliance upon monthly subscription dollars has proved to be a low-margin business. For example, Mindspring, an Atlanta-based ISP with more subscribers than both MCI and Sprint, posted its first profit last quarter, netting less than $2 per subscriber. “It’s really a game of scale,” Bartlett said. “You have to be big to make money here.” That revelation could make traffic magnets like search engines an enticing partner for Net access providers, especially for the likes of Sprint Internet Passport, AT&T WorldNet and even Prodigy Internet, which have had little subscriber growth over the past 6 months. Prodigy struck a content deal with Excite earlier this year. –Bernhard Warne