Telecom stocks got clobbered on Friday following a Bloomberg story that said
Amazon
was holding talks with wireless carriers—including the nascent wireless service from Dish Networks—while considering offering service to Amazon Prime subscribers for $10 or potentially free.
That would be exciting to a lot of consumers—and fear-inducing for telecom investors. But there are significant doubts about any such plan.
Amazon (ticker: AMZN), T-Mobile US (TMUS), and
Verizon Communications
(VZ) all denied on Friday that anything is happening. T-Mobile’s statement on the matter goes so far as to say “Amazon has told us they have no plans to add wireless service.” That echoes Amazon’s own statement which said they “don’t have plans to add wireless at this time.”
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.)
For one thing, 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 write.
AT&T declined to comment about the report on Friday.
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.”
Adds Moffett to Barron’s: “Kind of a cockamamie story on every level.”
Dish shares spiked 17% Friday on the news. T-Mobile shares were 8% lower, while AT&T fell 4% and Verizon was off 3%. Amazon added 2%.
Write to Eric J. Savitz at eric.savitz@barrons.com
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