The Sunday Brief

Connecting technology, telecommunications, and the internet

Value Creation – Long-term charts, Fab Five vs. Telco Top Five (June 2)

by | Jun 3, 2023 | TSB

Post-holiday greetings from Missouri. This was another week of market disparity, with the Fab Five posting disproportional gains (+$173 billion for the week, and up $2.78 trillion year-to-date). Each Fab Five stock was higher over the previous week except for Google (down $3 billion).

Meanwhile, the Telco Top Five had their fifth consecutive weekly market cap decline (down $10 billion for the latest week, but down $67 billion over the last five weeks). The only stock in the Telco Top Five that is positive is Comcast, who also happens to have the greatest business diversity (theme parks, movies/ broadcast, international exposure, and domestic broadband). Comcast is now the clear market cap leader in US telecom.

Friday, the markets were rattled by a report by Bloomberg (here) that Amazon was in talks to offer heavily discounted (we interpret this as unlimited data/talk/text) or even free (talk/ text) unlimited plans as a part of its Prime service. Needless to say, this rattled the larger telco stocks down 3-6% and MVNO cable stocks basically unchanged (markets were higher on Friday due to a surprisingly strong May jobs report).

One of the benefits of experience (specifically, launching Whispernet for the Kindle 1 and Kindle 2 through Sprint, running a three-carrier MVNO in the US and chronicling the industry developments since 2010) is the ability to draw historical parallels. Amazon, for all of its successes, has lagged their Fab Five peers (except perhaps Microsoft) when it comes to wireless telecom.

In 2014, the company touted the Kindle Fire Phone, a hardware masterpiece that featured 3D map renderings (YouTube Video of Jezz Bezos in this Time article). That device was going to lead to Amazon’s entry into wireless service and rejuvenate the MVNO industry (note that with the Fire Phone launch, each purchase was accompanied by a free year of Amazon Prime – park that thought for next week’s Brief).

The Amazon Fire Phone was a majestic flop, not only because they launched it exclusively on one wireless carrier (AT&T), but also because they lacked developer attention to elevate the ecosystem to Android and iOS developer status. The device was on the shelves for just over a year, and Amazon wrote off $170 million in 2014 as a result.

But the Fire name lived on in the form of their forked Android release called Fire OS. Started in 2011 for the original Fire Tablet, the company has continued to modify their tablet operating system with updates. The result? According to Statcounter, Amazon has a resounding 4.2% market share of tablets globally, slightly ahead of Huawei ‘s 2.4% share. That is not a figure that attracts developer attention (or conversely, enough attention from Alexa or iOS or other alternatives). Amazon’s global market share is small.

In the US, Amazon’s share is better at 10.9%, but Samsung is at 18% and Apple at 57%. At the end of 2020, Samsung and Amazon were tied in US tablet market share at 15%. Did Fire OS transform their relative market share and entice developers to modify designs for Fire OS? The evidence is not compelling.

Finally, Amazon has attempted to distribute products and services to aid the telecom industry. They tried selling High Speed Internet (article here), and they also have had many iterations of distributing wireless devices (2018 data here – 23% of 12% = less than 3% of all smartphones sold are through Amazon). Their track record is dismal – Apple leads, and the Cupertino giant is looking to step up retail quality at a time when others are minimizing that channel (article from Bloomberg here).

Here’s what we think Amazon could do for Prime customers:

  1. Offer a discount on selected wireless plans for individuals and families (save X% as a result of being a Prime customer). This is not an MVNO. American Express already has a rebate program for selected streaming audio and video plans. Amazon could use the framework of this plan save Prime families money.
  2. Offer free data (perhaps with an annual cap) for Prime members on new Fire tablets. This is a no brainer, in our opinion and could have been done years ago when deprioritized data was first introduced to MVNOs (specifically cable). This could be assembled as a multi-carrier MVNO and be seamless to the customer (via e-SIM).
  3. Work with one or more wireless carriers to make the Amazon Prime Video app data efficient. We have long been an advocate of having one or more apps use up a multiple tens of Gigabytes of memory when it’s available. Amazon owns the entire MGM library so digital rights should be an easier hurdle to overcome. Won’t work for Thursday Night Football, but might take tonnage off of the network and improve Prime Video and Prime Music adoption (which are improving, but still far behind Apple and Google).

The bottom line is that Amazon’s entry (with presumably Dish) would impact an already competitive market (including cable MVNOs as Prime+ wireless might be a more compelling and sustainable bundle than cable + wireless). What the wireless industry should worry about are companies like Google and Apple who have intricate knowledge of hardware, radios, spectrum, and applications. Amazon would be a bad thunderstorm for the industry, but other Fab Five providers could produce a full-on Cat 5 hurricane.

More in next week’s Brief. File is below.


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