Amazon’s potential entry into mobile telephony heats up the battle between telecoms and big tech

The telecom sector is bracing for another upheaval, as Amazon plans to offer a low-cost cell phone service for its Prime customers in the United States, according to Bloomberg. Meanwhile, European operators are demanding that big tech companies contribute to financing the next-generation of 5G and fiber networks.

Amazon’s plans have stirred up some buzz. Observers still recall the U.S. giant’s entry in the music and video content space, and Prime is now recognized as one of the world’s leading streaming services. With its vast catalog of TV series, movies and other content, Amazon poses a genuine challenge to the dominance of Netflix.

However, an incursion into the mobile telephony market won’t be easy for Amazon to pull off. JPMorgan believes that it’s still too early for an agreement between Amazon and Dish in the U.S., because the latter doesn’t yet have a network that can compete with AT&T, Verizon and T-Mobile (a subsidiary of Deutsche Telekom). In Europe, JPMorgan notes that Amazon has fewer Prime customers than in the U.S. The bank also mentioned that European markets are highly competitive, leaving Amazon with less room to differentiate on price alone. However, JPMorgan didn’t rule out the possibility of Amazon entering the mobile telephony market. Other analysts cited by Bloomberg noted that Amazon has long had an interest in the telecommunications sector.

According to Morgan Stanley, Amazon would likely struggle to sign a wholesale deal with any major U.S. telecom companies. This has investors keeping a close eye on potential future moves that Amazon could make in the sector. Additionally, the bank raised concerns about the increased risks facing the telecom industry from large technology players that could cause further disruptions.

News of Amazon’s potential move significantly impacted the stock markets. Deutsche Telekom plunged by more than 9% on June 2, and AT&T and Verizon both experienced a drop of over 3%. On June 5, the German giant’s shares rebounded by 1.56%, while the two U.S. operators made modest gains. Dish witnessed a remarkable 16% surge in stock price on June 2, but declined slightly in the following days.

Hearings in Europe

Amazon’s move is timed close to the end of the public hearings on the future of the electronic communications and infrastructure sector in Europe. Telecom sector associations GSMA and ETNO, whose members include giants like Telefónica, Deutsche Telekom and Orange, have called for Google, Facebook and Netflix to finance the deployment of networks through special tariffs. They also want a mechanism for balanced negotiations between operators and large generators of network traffic.

The landscape is complicated. Representatives of 18 European governments have come out against network tariffs, according to Reuters, because of their unknown impacts and the risk that big tech will pass on the cost to consumers. They also warned of a possible violation of EU net neutrality rules. These countries include Germany, Austria, Belgium, the Czech Republic, Denmark, Ireland, Finland and the Netherlands, among others. Meanwhile, Italy, Hungary, Greece and France have voiced support for the telecoms. Everyone is awaiting a report by the end of June from Thierry Breton, the EU Commissioner for Internal Market, with input from big tech, telecoms and other industry players.

Differences with the Spanish market

According to the Nae telecom consulting firm, Amazon sees launching a mobile service as a great way to add value to Prime (shopping, video, music and books) by providing extra services. This move could strengthen customer loyalty. However, the American and Spanish markets are different, and Amazon needs a mobile virtual network operator (MVNO) to partner with. Although many network operators are likely to show interest, Amazon cannot expect to partner successfully with just anyone. Nae says Amazon must find a partner who is not only willing, but also suitable for the job.

In Spain, households already have a high level of bundled services. Since Amazon Prime predominantly caters to households, its mobile service may be seen as an extra that’s already included in packages from existing service providers. They also point to similar attempts to increase customer loyalty by MVNOs like Carrefour and Endesa that met with limited success.

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