Amazon wireless plan makes sense for almost no one
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Jennifer Saba
NEW YORK, June 7 (Reuters Breakingviews) -Some calls are best left unanswered. Amazon.com AMZN.O could be a formidable competitor in the U.S. wireless industry if it were to offer mobile subscriptions. But aside from the trouble of finding telecom partners willing to gamble that the $1.3 trillion e-commerce giant won’t destroy their business, it would simply cost too much. The only winner would be struggling wireless wannabe Dish Network DISH.O.
Amazon held talks with telecom companies AT&T T.N, Verizon Communications VZ.N, T-Mobile US TMUS.O and Dish about partnering to offer cellphone service for $10 a month or less to subscribers to its Prime service, Bloomberg reported last week. All except Dish pushed back, saying they are not in discussions.
The idea goes back at least as far as 2017. Squint, and the story makes some sense. Prime subscribers in the United States spend twice as much on Amazon’s core marketplace as non-Prime customers, according to Citi analysts. Offering them super-cheap cellphone plans could make sure they don’t ditch Prime and keep spending. Plus, it allows Amazon to bundle a new product and - if it’s successful enough - eventually establish a new near-monopoly, in theory allowing it to raise prices.
It’s not clear Amazon needs the help. JPMorgan analysts estimate that 106 million U.S. households, or about 80% of the country’s homes, already have a Prime subscription.
And the economics don’t stack up for Amazon boss Andy Jassy. The company doesn’t have its own cellular network, so it would need to pay the telecom operators to use theirs. Such an agreement could cost around $20 per month per line, or $240 a year, reckons MoffettNathanson analysts. That's 60% more than Prime’s $139-a-year subscription price. Adding a $10 surcharge would even the scales, but only if all other expenses tied to Prime, such as streaming video and free package delivery, are ignored.
Such subsidies would cut against Jassy’s recent cost-shaving to boost profit. It also would add risk for the wireless carriers, if Amazon customers cannibalize from existing subscribers who pay more.
That leaves Dish. Chairman Charlie Ergen is struggling to transform the shrinking satellite TV company, spending billions of dollars to build a wireless network. An Amazon partnership would guarantee revenue to support the construction project, but what might make sense for Ergen doesn’t for anyone else. Amazon should send his calls to voicemail.
Follow @jennifersaba on Twitter
CONTEXT NEWS
Amazon.com was negotiating with telecommunication carriers for wholesale partnerships that would allow the e-commerce company to offer wireless plans for $10 a month or less to Prime members, according to a Bloomberg report on June 2, citing unnamed sources.
Amazon said in a statement it doesn’t have plans to add wireless at this time. AT&T, T-Mobile US and Verizon Communications all issued statements saying they are not in discussions with Amazon.
Dish Network did not respond to a request for comment.
Editing by Jonathan Guilford and Streisand Neto
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