Amazon NOT at all likely to offer mobile service to Prime Members or anyone else!
Wireless telecom stocks were down -5% to -9% at Friday morning’s open (they closed on June 2nd -4% to -6.25% lower). That horrendous performance was due to a Bloomberg article which claimed that “Amazon has been talking with wireless carriers about offering low-cost or possibly free nationwide mobile phone service to Prime subscribers, according to people familiar with the situation….It would let it offer Prime members wireless plans for $10 a month or possibly for free and bolster loyalty among its biggest spending customers, the people said, who requested anonymity to discuss a private matter.” About 167 million Amazon shoppers had Prime memberships as of March, unchanged from a year earlier, according to Consumer Intelligence Research Partners.
The Bloomberg article made this controversial statement, subsequently denied:
“The talks have been going on for six to eight weeks and have also included AT&T Inc. at times, but the plan may take several more months to launch and could be scrapped, an Amazon person said.”
Image Credits: Nathan Stirk / Getty Images
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Nothing could be further from the truth!
Amazon, T-Mobile US, AT&T and Verizon Communications all denied on Friday that anything is happening. T-Mobile’s statement on the matter strongly states that “Amazon has told us they have no plans to add wireless service.”
That echoes Amazon’s own statement which said “We are always exploring adding even more benefits for Prime members, but don’t have plans to add wireless at this time,” said Bradley Mattinger, an Amazon spokesperson.
“AT&T is not in discussions with Amazon to resell wireless services,” a company spokesperson said. A Verizon spokesperson told TechCrunch, “Verizon is not in negotiations with Amazon regarding the resale of the nation’s best and most reliable wireless network. Our company is always open to new and potential opportunities, but we have nothing to report at this time.”
T-Mobile told Barron’sthat “Amazon is a great partner to T-Mobile in many areas, and we are always interested in working more closely with our cross-town neighbors in new ways. However, we are not in discussions about inclusion of our wireless in Prime service, and Amazon has told us they have no plans to add wireless service.”
Wall Street analysts are skeptical that there is anything actually going on. MoffettNathanson analysts Craig Moffett and Michael Morton wrote in a research note published late Friday that any deal for Amazon to start its own phone service seems highly unlikely. (Moffett covers telecom and Morton covers internet stocks.) Moffett and Morton note that while Amazon could make it happen, the cost to the company of providing even a single line would be about $240 a year—above the annual cost of an Amazon Prime membership, currently at $139. And that’s just for one line—the costs would multiply with bigger families.
Another issue, they add, is that Amazon would suddenly be subject to regulation from the FCC. They point out that customer information is more tightly regulated in telecom than in related industries. That adds more risk to Amazon’s existing regulatory worries. “Even a minimal risk like this would be a deal breaker, in our view,” they write.
From a telecom perspective, the analysts also pour cold water on any potential deal. As for Dish Network , Moffett and Morton write, “there is virtually no chance…that Amazon would allow itself to play guinea pig on a start-up Dish wireless network.” Dish did not respond to a request for comment about the report.
In an interview with Barron’s, Moffett noted that Dish only has partial coverage— the company has launched service in 120 cities so far, but not in places like New York, Chicago, Los Angeles, Washington, or San Francisco. To cover the parts of the country it can’t reach, Dish has reseller agreements with both AT&T and T-Mobile. Moffett says that T-Mobile likely’s agreement with Dish doesn’t allow it to resell access to a third party—like Amazon. And AT&T’s agreement has similar language.
“Without the ability to resell AT&T or T-Mobile service, Dish simply isn’t a credible partner,” Moffett and Morton write. “Not only is their coverage insufficient to be a viable offering, but they’ve never operated a wireless network before, let alone a large-scale MVNO. [An MVNO is a carrier that has no network but instead resells service from other carriers.]”
With T-Mobile and Verizon having denied discussions, and Dish seeming very unlikely, that leaves only AT&T. And Moffett and Morton see little chance of that happening. “AT&T is smart enough to understand what an awful idea it would be to let Amazon into the hen house, in our view,” they wrote.
The two analysts also contend that a Prime Wireless plan wouldn’t do much to help Amazon grow its subscription business. They point out that Prime already has signed up about 80% of U.S. households and that churn rates for Prime are already “extremely low.”
Moffett and Morton conclude: “We’re skeptical that the incumbents would be willing to ink a deal with Amazon. We’re skeptical that Amazon would really want to. We’re skeptical that Amazon would be willing to do business with Dish Network. We’re skeptical about…well, all of it.”
Note also that Amazon failed dismally in 2014 with its Fire Phone, which was an attempt to compete with smart phones from Apple Inc. and Samsung Electronics Co., but it was killed a year later. MVNO brands including ESPN Mobile and Virgin Mobile both failed. Alphabet Inc. has the Google Fi service that runs on T-Mobile’s network and has only 2 million customers.
Let’s end with a question: One must consider if Bloomberg can be trusted as a reputable news source after their early morning June 2nd story?
References:
https://www.barrons.com/amp/articles/amazon-prime-phone-service-telecom-stocks-b439ae5a
https://www.barrons.com/articles/amazon-wireless-verizon-dish-stock-att-f23cad24?mod=article_inline
5 thoughts on “Amazon NOT at all likely to offer mobile service to Prime Members or anyone else!”
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Good job going beyond the headlines and fact-checking what is supposed to be a credible publication, Alan. One has to question if Bloomberg does any fact-checking?
Two things I didn’t realize; 1) GoogleFi still only has 2 million subscribers, and 2) It is now exclusively on the T-Mobile network. It used to use a couple of networks, but that was before T-Mobile acquired Sprint.
BofA Securities analyst Justin Post said in a research note Monday that because Amazon is constantly looking at expanding its Prime services and exploring multiple opportunities to attract Prime members, a report about possible discussions wasn’t surprising to him.
“However, offering subsidized wireless services at a loss seems unlikely as Amazon appears to be gaining share in U.S. online retail, Amazon is focused on retail margin improvement, and Amazon already has high Prime household penetration in the U.S.,” Post said.
HSBC Global Research analyst Adam Fox-Rumley thinks the selloff of telecom stocks following the report was overdone. He maintained Buy ratings on AT&T and T-Mobile and a Hold rating on Verizon.
https://www.barrons.com/articles/telecom-stocks-amazon-prime-mobile-f9758ba6?siteid=yhoof2
Light Reading Update:
Analysts believe that such a deal, if executed, would be bad for the mobile network operators (MNOs) and Amazon. It likely would be a big money loser for Amazon and could expose the company to unnecessary regulatory risk, they said.
Even before the naysayers chimed in, AT&T, T-Mobile and Verizon all denied that they are in talks with Amazon to resell wireless services. Those statements came after their stocks were getting drilled the day the news broke. On Friday (June 2), AT&T dropped 3.8%, Verizon fell 3.19%, and T-Mobile dropped 5.56%.
Amazon also told Bloomberg in the original story that it’s always exploring new benefits for Prime members but doesn’t have plans to add wireless to Prime for now. Dish Network, which saw its stock bounce from the report, has not commented.
Skeptics abound:
Analysts wondered if there’s any fire beneath the smoke, or if it might make any sense for such an agreement to be forged further down the road.
“Don’t bet on it,” Craig Moffett, analyst with MoffettNathanson (a unit of SVB Securities), explained in a research note (registration required) issued late last week. “To be sure, it is perfectly reasonable to imagine that Amazon would undertake the due diligence of ‘testing the waters.’ But we have a very hard time seeing this going beyond that.”
Peter Supino, analyst with Wolfe Research, said in a note issued today: “We spoke to everyone except DISH and we doubt the story. We were unsurprised by Friday’s denials by AT&T, T-Mobile, Verizon and Amazon.”
More than the price of a Prime membership
While Moffett believes Amazon might be able to pull off an MVNO deal if it really wanted to, he argued that the annual wholesale cost of providing wireless service for even a single line, without the benefit of any cost-saving data offloading, would be more than the annual price of a Prime subscription.
“At something like $240 per year just for the traffic – before anything to do with customer acquisition, customer service, etc. – the wholesale costs alone would likely be greater than the price of a $139 per year Prime membership,” Moffett explained. “While Amazon could certainly afford to offer wireless service free with Prime if they wanted to, it would be a huge money loser if they were to give it away for free.”
He also wouldn’t expect to see a “Prime Wireless” product provide much help to Amazon’s retail business outside of reducing churn.
Meanwhile, Amazon, he argued, could expose itself to “huge regulatory risk” by getting in to the mobile market, in part because customer information is more tightly regulated in the telecom world than in some adjacent industries.
“Not only would these rules badly constrain what Amazon would be able to do with that information – if indeed they were able to capture it in an MVNO arrangement, which isn’t clear – but they would be risking regulatory ‘infection’ by having a retail Telecom business at all. Even a minimal risk like this would be a deal-breaker, in our view,” Moffett wrote.
Moffett also doesn’t see why the Big Three MNOs would be interested.
“Letting the fox into the hen house would be an awful idea,” he said. On that, he points to Verizon’s “ill-advised” deal in 2011 that enabled Comcast, Verizon and (later) Cox Communications to obtain valuable MVNO rights in exchange for the purchase of their respective Advanced Wireless Services (AWS) spectrum.
“Surely neither they, nor AT&T, would be so unwise as to make the same mistake again,” Moffett added.
Dish might be interested in working with Amazon, but analysts don’t see that happening.
“While Dish would obviously love to be a provider here, there is virtually no chance, in our view, that Amazon would allow itself to play guinea pig on a start-up Dish wireless network,” Moffett wrote. “Without the ability to resell AT&T or TMUS [T-Mobile] service, Dish simply isn’t a credible partner. Not only is their coverage insufficient to be a viable offering, but they’ve never operated a wireless network before, let alone a large-scale MVNO.”
Meanwhile, Supino pointed to Dish’s non-exclusive distributorship agreement with AT&T. While Dish may use dealers and distributors to market, sell and solicit orders, the company may not resell any services such as roaming as part of any offer or arrangement with a third party that enables the equivalent of wholesale wireless relationships, the analyst added.
https://www.lightreading.com/5g-and-beyond/more-doubt-cast-on-reported-amazon-mobile-talks/d/d-id/785187?
Amazon is unlikely to pursue a potential deal to offer steeply discounted, or even free, mobile services to its Prime members in the near term, analysts at CFRA Research have argued. The CFRA analysts said that the e-commerce giant is currently focused on boosting its retail margins, particularly as growth at its key cloud-computing division Amazon Web Services shows signs of flagging.
Amazon may subsequently be dissuaded from spending heavily on subsidizing wireless phone plans for Prime members at the current moment, they added.
Meanwhile, the deal could see wireless carriers lose direct access to customers, which may outweigh the amount of indirect consumers they gain from Amazon, the analysts said.
AT&T CFO Pascal Desroches, for one, recently downplayed the likelihood of an Amazon foray into wireless, saying: “It’s sort of like those of you who watch Seinfeld. It’s a show about nothing. This was a rumor about nothing.”
To Desroches point, many crucial details – like what effect a deal would have on the price of Prime, what infrastructure would need to be enhanced to handle a vast and unexpectedly quick subscriber increase, how device retailers would be incorporated (or wound down – Amazon is among the largest seller of mobile phones on the planet) – will have to be ironed out.
https://www.fiercewireless.com/wireless/could-dish-and-amazon-re-define-future-wireless-greenblatt