Verizon Announces Acquisition of Yahoo’s Web Assets

As we have pointed out on numerous occasions, as traditional mobile services approach commodity status, operators have become aware that content is king. Content, in fact, is the key to future revenue growth, and in order to have access to that content, operators must either license it or purchase it. Very few telecom players in the world have pockets as deep as Verizon, and given its assets of US $220 billion, the U.S. giant has the ability to spend generously for the assets it needs. The price tag of nearly US $5 billion for Yahoo’s web properties may seem high, but it represents a tiny fraction of the internet company’s one-time valuation of US $125 billion. Yahoo has declined precipitously since its glory days during the first internet boom, but it still has much to offer. In particular, it should significantly bolster the video content portfolio that Verizon began building with its acquisition of AOL. Verizon CEO Lowell McAdam said, “By acquiring Yahoo’s operating business, we are scaling up to be a major competitor in mobile media. Yahoo’s operations provide a valuable portfolio of online properties and mobile applications, which attract over 1 billion monthly active consumer views.” He added, “Going forward, this acquisition will put us in a great position as a top global media company and give us a significant source of revenue growth for the future.” Both Verizon’s cable and mobile businesses can benefit significantly from this acquisition, as long as the operator deploys the content in a way that meets the ever-evolving demands of consumers. But whether the operator can truly compete with Google and Facebook in the realm of content delivery remains to be seen.

Tarifica is the global leader in monitoring and analyzing telecom pricing. Covering hundreds of operators in every region of the globe, Tarifica’s databases of mobile and fixed line data and voice tariffs are among the largest and most in-depth in the world. Tarifica is also a leading publisher of benchmark and other pricing reports, and its analysts are recognized authorities in the telecom industry, relied upon by operators and businesses worldwide for pricing insight and guidance. To learn more about Tarifica, please visit www.tarifica.com 

Redefining a Mobile Service Provider

There is a paradox at the heart of the mobile telecom industry. Despite skyrocketing data use and proliferation of connected devices, the industry is facing a structural crisis that raises serious questions about its sustainability and growth. With mobile penetration rates in almost all markets well above 100 percent, competition among MNOs has grown fiercer and more focused on price reductions. Traditional sources of revenue have been undercut by OTT services such as WhatsApp and Skype. The increase in consumer data usage has been a mixed blessing in that it has placed pressure on operators to make expensive improvements to the capacity and coverage of their networks. Finally, national regulators have become increasingly activist with regard to pricing, M&A activity and service requirements, further increasing costs for providers.

In the face of this paradox—increasingly large amounts of money flowing through the mobile industry while operator revenues grow ever flatter—we expect to see new business models, revenue drivers, pricing strategies and even leading players. Ultimately, the results of these changes could be the redefinition of the term “mobile service provider.” We have already begun to witness the first steps of this process. MNOs have worked to reevaluate their core offerings in order to find new sources of revenue or to reduce churn. The defining trait of 2014 was MNOs’ drive to acquire the infrastructure needed to offer converged packages. Operators around the world—but particularly in the hypercompetitive European markets—pushed to lock in customers and raise monthly spending by offering quad (mobile, fixed voice, broadband and cable television) packages. Further, non-core value-added elements like Spotify, Netflix and other content-driven services became increasingly important in plan construction, forcing operators to branch out into new partnerships and ventures.

A dramatic recent example of this occurred in the U.S. with Verizon’s US $4 billion acquisition of AOL—a play to secure AOL’s mobile ad software, more proprietary content and new revenue streams in an increasingly competitive market. This type of news is an illustration of how the distinction between content creators, information aggregators, device manufacturers and service providers continues to grow blurrier. Just as we expect mobile operators to be packaging more non-traditional features in with their mobile packages, we believe that there is an opportunity for other types of companies to enter the mobile services space and use these services as a way to augment their traditional packages.

With Facebook’s acquisition of WhatsApp and Google’s ever-expanding reach across all realms of digital life—including its recently launched U.S. MVNO running on the Sprint and T-Mobile networks and its discussions with Hutchison Whampoa for international expansion—we would not be surprised to see either of these entities begin to pivot increasingly into mobile service as an add-on to their traditional offers. While projects like Google Loon/Fiber and Facebook Zero made headlines before retreating from the industry consciousness, the economic conditions that initially drove these initiatives remain—giant internet content providers that have significantly higher margins are growing impatient with mobile and broadband providers’ ability to connect their potential customers. Further, MVNOs like FreedomPop are experimenting with new business models like ad-based data sales. Finally, whether through mesh networks, ever-expanding Wi-Fi hotspots or new technology solutions, MNOs’ hegemony over mobile data is likely to be challenged in the coming years. The high and growing demand for large volumes of fast data makes the industry a prime target for disruption if an adequate alternative presents itself.

There are so many variables in play that it is impossible to make a firm prediction as to the precise long-term evolution of the industry. However, this much is certain—for MNOs to be successful in the future they will have to be adaptive and flexible in terms of developing new revenue streams and fending off non-traditional rivals. Maintaining outmoded plan structures and customer acquisition strategies will almost inevitably lead to painful disruptions. The current structural and competitive environment have the potential to change the core MNO business model in a way not seen since the launch of the iPhone in 2007 and the beginning of the mobile-data revolution. As such, strategic choices made by operators in the coming years will have an outsized impact on the future of the industry as a whole.

Tarifica is the global leader in monitoring and analyzing telecom pricing. Covering hundreds of operators in every region of the globe, Tarifica’s databases of mobile and fixed line data and voice tariffs are among the largest and most in-depth in the world. Tarifica is also a leading publisher of benchmark and other pricing reports, and its analysts are recognized authorities in the telecom industry, relied upon by operators and businesses worldwide for pricing insight and guidance. Click here to contact a Tarifica Analyst

Report: Verizon Eyes Deal With AOL

 U.S. mobile operator Verizon is in private discussions with internet service provider AOL over a potential acquisition or partnership to enable Verizon to provide more mobile video services to subscribers. That is according to two individuals with knowledge of the situation, who spoke to Bloomberg News. They also stated that Verizon is interested in pairing the video offerings with AOL’s programmatic advertising technology, which automatically buys and sells ads online, tailored to users’ preferences. If Verizon were to take over AOL, it would also gain subscribers and various internet properties including the Huffington Post, TechCrunch and Engadget. However, Verizon CEO Lowell McAdam said his company is not engaging in “significant acquisition discussions” but rather that “AOL, along with lots of other media companies, are potential for us to do partnerships.”

AOL, an internet pioneer, started declining 15 years ago, when it entered into an ill-fated US $124 billion merger with Time Warner. Since then, it has steadily lost customers to faster services. But while the company is widely seen as a has-been, it has over the past few years been developing certain businesses that are clearly attractive to a large MNO such as Verizon. Programmatic advertising technology is one of these. With the rapid worldwide growth of the mobile advertising sector—an increase of 150 percent expected in the next four years—operators see the potential for a great deal of revenue to be derived from ads they can target to their subscribers, and automation of targeting and selling will allow this business to grow exponentially.

A partnership is all that is necessary for Verizon to get access to this technology and to distribute AOL’s video content in conjunction with it. If, however, an outright acquisition were to take place, Verizon would also stand to benefit by gaining AOL’s 2.3 million members as subscribers, plus AOL’s online properties, which between them get some 200 million unique visitors each month. It would also have the opportunity to convert AOL’s legacy dial-up subscribers to its FiOS service. Finally, acquisition of a content provider would be a strong move to achieve parity with rival AT&T, whose announced acquisition of satellite provider DirecTV is likely to be approved early this year. It remains to be seen, of course, what Verizon and AOL executives have in mind—if anything. 

The above item appeared in a recent issue of Tarifica's "The Story of The Week", a weekly report that analyzes noteworthy developments in the telecoms industry from around the world. For past issues or to learn more about The Story of The Week or to contact the Tarifica Research department:  http://www.tarifica.com/contactus.aspx