SUMMARY
- Amazon.com (AMZN) stirs the telecom market with plans to offer mobile phone services via its Prime loyalty program, causing stock downturns for AT&T, Verizon, and T-Mobile.
- Bloomberg reports suggest Amazon's pursuit of minimum wholesale prices could lead to extremely low-cost or even free wireless plans for Prime members.
- UBS Analyst John Hodulik discusses potential outcomes, highlighting the risk of Amazon launching its own branded wireless service.
In the aftermath of fresh revelations about Amazon.com's (AMZN) intention to introduce mobile phone services in the US via its Prime loyalty scheme, the telecom industry experienced a significant dip in their stock prices last Friday. Among those affected were heavyweights AT&T (T), Verizon Communications (VZ), and T-Mobile US (TMUS). On the other hand, Dish Network (DISH) and Amazon's own stock were on the uptick.
Just a week ago, rumblings of a potential partnership between Amazon and satellite TV broadcaster Dish emerged. Dish, a relative newcomer to the mobile phone services scene, found itself at the center of these speculations. The novelty of the most recent reports, however, originally sourced from Bloomberg, suggests Amazon's intentions to pilot this initiative through its Prime program. Additionally, there could be collaborations with other wireless companies.
One of Amazon's significant strategies is securing the best possible wholesale prices. This pricing strategy could result in Prime members being offered wireless plans for as little as $10 per month, or potentially even free of charge, as per Bloomberg's reports.
Amid a year of lackluster wireless revenue growth, telecom stocks have taken a beating, with the exception of T-Mobile. In stark contrast, Amazon has enjoyed a stock rise of 49%. The impact of these developments on the telecommunications industry incumbents is uncertain and depends on the arrangement's exact structure.
John Hodulik, a UBS analyst, noted, "Amazon currently sells wireless services from prepaid providers like Cricket (AT&T-owned), Simple Mobile and Tracfone (Verizon-owned) where Amazon potentially takes a cut of the economics." He concluded, "We believe such a distribution agreement could help DISH drive subscribers, but it is unlikely to drive a meaningful shift in industry competition absent attractive handset promotions. We believe a bigger risk for the industry would be Amazon selling its own branded wireless service."
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