Will Amazon hollow out AT&T, T-Mobile, and Verizon?
Wireless stocks @AT&T, @Verizon, and @T-Mobile USA all cratered last week on reports that @Amazon is eyeing the wireless market. What are the odds that Amazon will hollow out this sector like it has done to so many others? And what are the pros of cons of such an offer?
✔️ Yes, the wireless profit pool is among the largest at over $100B and is attractive to even a company with $0.5 Trillion in sales
✔️ Wireless is indeed a utility and offering free or deeply discounted service plans will be a major boost to loyalty and potentially to reviving Prime subscriber additions
❌ However, wireless has not been friendly to companies that don’t own the network – brands like @Disney, @ESPN litter the MVNO graveyard. The largest and most successful MVNO was @Tracfone with 20 million subscribers but with EBITDA margins less than half that of tier 1 operators. The best outcome might be an acquisition by one of the incumbents like with Tracfone and @Mint Mobile
❌ More recently, deep-pocketed Comcast and Charter have spent billions of dollars over the past 5 years and have a 2% market share to show for it!
❌ 70% of net additions in wireless these days are not even phones – the growth drivers are connected vehicles, residential broadband via fixed wireless, IoT etc.
❌ While wholesaling the network to Amazon might be a lifeline for @Dish, the quality gap between Dish’s network and the hyper-dense networks of incumbents could lead to poor customer satisfaction and ultimately churn
So, what’s a better wireless strategy for Amazon?
- Look beyond the phone – launch a residential fixed wireless broadband service using one or more incumbent networks. Given the target market for this service would primarily be exurban and rural areas, the Dish network would simply not suffice. Also, given the lower penetration of Prime in these areas, this could be highly accretive
- Learn to say NO – instead of bundling more services to an already rich suite, why not launch a skinny bundle that is highly synergistic with the core business and is also most valued by consumers, i.e., expanded free shipping, including overnight and same day shipping, video, and pharmacy benefits
- Double down on @Kuiper – owning the “network” would enable Amazon to not only offer alternatives to residential broadband and mobility services profitably, but could also be the backbone of a futuristic drone delivery network
