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
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?