AT&T Speaks Out Against Yahoo-Google Partnership

Congress Hears Conflicting Claims About Effects on Ad Sales

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WASHINGTON ( -- A major internet advertiser is sounding the alarm about a Yahoo-Google ad deal. AT&T publicly warned that Yahoo's deal to start replacing some of its own search ads with those supplied by Google could hurt advertisers by driving up prices.

"If this is allowed to happen, it seems obvious that some advertisers will have a diminishing ability to play Google and Yahoo against one another in a competitive marketplace," Matthew Crowley, chief marketing officer of AT&T's subsidiary, told the Senate Judiciary Committee's antitrust panel today in prepared testimony.

Feeling threatened
"The result would be less choice and higher prices for advertisers -- especially smaller-scale advertisers that do not have the heft or resources to ensure the best deal possible," he said.

Mr. Crowley said Yahoo is AT&T's partner for internet services, reaching 14 million broadband customers and 70 million wireless customers.

"If Yahoo's agreement to turn over part of its search-engine advertising business to Google were good for search-advertising competition and good for Yahoo, we would fully support it. Unfortunately, after careful consideration, AT&T has concluded that the agreement poses a significant danger not only to competition for internet search advertising and to the broader internet economy, but to Yahoo's continued viability as a strong independent competitor."

Microsoft weighs in
Microsoft has opposed the Google-Yahoo deal even as it has sought its own Yahoo deal, which at one point included acquiring the entire portal. In the Senate hearing and in a separate House Judiciary Committee antitrust panel, Brad Smith, Microsoft's senior VP-general counsel, questioned the legality of Google deal. He warned it would push up costs of search-engine ads to marketers, giving Google as much as 90% of the search-engine ad business. He also cautioned it would also give Google more information about individual users. He said the deal would create a "price floor" for Google search-engine ads.

Google and Yahoo officials, meanwhile, said the deal would make Yahoo a stronger competitor and said that the 90% figure anticipates an actual merger, when Yahoo still expects to sell most of its own search ads. They also questioned Microsoft's contention that higher prices will result.

"There is a notion that Google has high prices," said David Drummond, senior VP-corporate development and chief legal officer for Google. "This is not a commodity. It is about as far from a commodity as you can imagine." He called the speculation that the deal was being done because it would bring higher prices for search ads a "fundamental misconception. What is going on here is more relevant ads will be seen."

Up to now, few advertisers have been willing to publicly speak out against the deal, though Microsoft has said companies are supportive.

In his oral testimony, AT&T's Mr. Crowley cited concern about potential price increases as well as about Yahoo's future.

"Today Yahoo has all the incentive in the world to compete aggressively with Google to earn its share of the market. Under this proposed agreement, Yahoo will cede a significant portion of its advertising to Google. That decreases Yahoo's incentive to innovate and compete, so we see that this ultimately increases prices, decreases Yahoo as a viable competitor, and is not good for the search advertising business and not good for the small businesses that we represent as their agency."

David Sable, vice chairman and chief operating officer of direct-response agency Wunderman, which counts Microsoft as a client, also questioned the impact of the deal on search ads.

'Poor Microsoft'
While some lawmakers in the Senate expressed concerns about the deal's repercussions, others in the House had doubts that the deal would disadvantage Microsoft all that much. Some suggested that a Microsoft deal to buy Yahoo would have a more significant impact than the Yahoo/Google partnership.

"I never felt so sorry for poor Microsoft," joked House Judiciary Committee Chairman John Conyers, D-Mich. Mr. Conyers also complained that the committee had more luck prying information out of the Bush White House about the Foreign Intelligence Surveillance Act than it had in getting Google and Yahoo to turn over details of their agreement.
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