Yahoo is extending its local sales reach for its behavioral targeting-informed display ads, enlisting AT&T Interactive’s 5,000+ sales reps. They will begin selling the “APT” branded- display ads later this summer to local businesses in more than 300 categories, along with Yellowpages.com, search packages, online video and other products.

The announcement is something of a milestone for AT&T, which now moves beyond Yellow Pages advertising into display ads and other local advertising more associated with newspapers. (And AT&T joins ReachLocal and others that are selling display alongside search to SMBs.)

AT&T’s move, however, has created some uncertainty among some of the 30 newspaper companies that comprise the Yahoo Newspaper Consortium. They believed they had partnered with Yahoo to build up the local marketplace for behavioral targeting — even though, apparently, there was no guaranteed exclusivity.

To us, the reality of the situation is that most newspapers are not selling as widely as Yellow Pages. Consequently, the direct, short-term impact is likely to be minimal. At the same time, many newspaper-oriented customers (i.e., car dealers, hospitals) are unlikely to abandon ship and take an alternative package from YP sales. The deal, however, does set the stage for possible competition in the long term (assuming there is a long term).

The deal also reinforces the insecurity that many newspapers feel about Yahoo’s support for the newspaper consortium since the company’s leadership was taken over by CEO Carol Bartz — something that, to date, appears to be unfounded. To us, the complaints echo similar ones from a few months ago, when Yahoo announced that its telemarketers would target local SMBs that had been eyed by newspapers.

What is clear is that the newspapers want to continue working with Yahoo (and they’d better, because they are tied to multiyear deals with major penalties for bowing out).  Newspaper execs tell us that revenue-wise, Yahoo has helped the bottom line, especially with the healthy 200 percent boosts in pricing they sometimes see for products associated with behavioral targeting.

But the revenue contributions from selling the Yahoo products aren’t critical. Bartz even acknowledged, during a press call, that Yahoo may have overpromised results when the APT program was rolled out. Moreover, the Yahoo sales efforts have proven to be a distraction in some small to medium-sized newspapers that have been overwhelmed and aren’t able to sell other enhanced revenue products, such as special sections.

Analyst Ken Doctor has more from the newspaper POV on his blog