Yahoo seeks ally as MCI deal collapses

Internet ISP forced to look elsewhere for partner in telecoms area.

Yahoo will have to resume its search for a potential partner after it was forced to scrap plans to create a co-branded online service with MCI Communications.

The break-up of the alliance between the search engine vendor and the telco, which was originally announced in January, comes as the Federal Communications Commission (FCC) formerly approved the merger between MCI and Worldcom. But to satisfy regulators, MCI sold off its internet access unit to Cable & Wireless.

Analysts believed that the end of the Yahoo partnership signalled a change in MCI's direction following those dispositions.

Daniel Bieler, internet and new media consultant at Ovum, claimed the merger with Worldcom had forced MCI to change its business plan and focus more heavily on the business customer base.

'MCI is rethinking its strategy,' he said. 'It will choose a new content provider, one that is more business focused. Yahoo is young and cheerful and does not offer serious business content.'

The failure of the plan was seen as a blow to Yahoo, which had hoped that by providing an integrated access and content service in conjunction with a telco, it could challenge America OnLine's dominance on the internet.

With ISPs and content providers jockeying to win customers, Bieler said Yahoo must quickly find another partner: 'It will be looking to join with another telco.'

Meanwhile, the final pieces of the Worldcom/MCI merger have been slotted into place as the FCC approved the union. Also, C&W has finalised its $1.75 billion takeover of MCI's internet arm - one of the concessions it had to make to win approval from the EC for its marriage to Worldcom.