"The Journal said Yahoo receives between $200 million and $250 million annually from its Internet partnership with AT&T, which expires in April 2008." [Forbes]
Yahoo needs the deal to keep its ad revenues up. It needs to be in front of the 12M at&t BB subs. And it would gain the old BellSouth region, which it didn't have yet.
In additional rumor news, Forbes says that Echostar will likely not be bought by at&t.
[March 14, 2007] update: at&t renewed its partnership with Yahoo. [Source]