AT&T Or Verizon: Who Can Integrate Yahoo's Assets Better?

With Yahoo! Inc. YHOO gearing up to shortlist its bidders, focus remains on the two U.S. telecom giants – Verizon Communications Inc. VZ and AT&T Inc. T – both of which have been keen on acquiring Yahoo’s core assets. While Verizon placed a bid of $3.5 billion, rumors are that AT&T has now involved itself directly in the bidding war for Yahoo, offering an amount much higher than Verizon. What made the two telecom behemoths so eager on taking over Yahoo? More importantly, how do they plan on managing finances given that both are actively involved in the ongoing 600MHz Incentive Spectrum Auction? Let’s take a closer look.

What’s Up at Verizon?

In order to diversify its business, Verizon has been focused on Internet-oriented growth of late and its launch of video streaming service ‘Go90’ underscores this initiative. By expanding its internet service portfolio, it will be able to attract users, which not only boost data usage but also allow the company to foray into the online advertising space. With focus on beefing up its media and advertising arm, Verizon acquired AOL, boosting its streaming services, followed by AOL’s buyout of Millennial Media, which created a source of ad-based revenues.

We believe that by acquiring Yahoo, Verizon will be able to cash in on the former’s live video streaming services and online advertising platform, BrightRoll, and expand its portfolio of internet service. This in turn, will allow Verizon to grow its online advertising base and create a platform that can compete with Facebook Inc. FB and Alphabet Inc. GOOG in the internet advertising market.

However, with other major players like rival AT&T coming forward to bid for Yahoo, we may see Verizon upping its takeover offer. This could put pressure on the company’s finances given that it is looking to invest heavily in the ongoing 600MHz Spectrum auction. However, the biggest question is whether Verizon can actually hope to compete with the likes of Facebook and Google when it comes to online advertising.

What’s Going on at AT&T?

Initially, AT&T bid for Yahoo indirectly through its chained subsidiary, Yellow Pages. While the company hasn’t been too active on the internet advertising front, it did conduct some cross-screen advertising trials through the AdWorks business recently. Seeing that mobile advertising is a rapidly growing industry at present, it comes as no surprise that AT&T is looking to use Yahoo’s capabilities to enter this segment. Notably, AT&T is focused on integrating its DIRECTV service across its mobile network and may even plan to launch the DIRECTV service through Over-the-Air (OTA) via other networks. Should it acquire Yahoo’s core assets, we expect to see synergies from leveraging the capability of Yahoo’s video streaming technologies.

The Bottom Line

Yahoo has not even been able to maintain its sales and profits, let alone grow. This is very disconcerting for a company that has been trying to turn itself around for many years now. Thus, any buyer putting the highest stakes on the bidding table will be great news for shareholders. On the other hand, Yahoo employees stand to benefit if either of the telecom giants vertically integrates yahoo’s assets more profitably. At this juncture, the odds are in favor of Verizon purchasing Yahoo. But is Verizon’s offer going to be enough to seal the deal? We leave that for time to answer.

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