Quick Thoughts: AMZN and DISH talk 5G
- The WSJ reports DISH talking to AMZN about financing for a 5G network on 80MHz of open prime bandwidth spectrum, with “founding partner” benefits for AMZN
- Potential AMZN benefits: IoT connectivity for delivery vehicles/drones, low price voice/data for Prime customers, zero rated streaming for Prime Video, ubiquitous access points for Alexa, etc.
- Other internet platform players (GOOGL, AAPL, MSFT, FB, NFLX, etc.) could also be possible build partners for DISH or other carriers, in place of, in opposition to or in concert with AMZN
- The talks raise the likelihood of a 5th national 5G network, raising the outlook for CAPEX and further threatening the status quo for the cash flow rich market leading carrier duopoly
DISH CEO Charlie Ergen has been holding on to 80MHz of prime wireless spectrum licenses, passing on possible go-to-market opportunities like a cautious poker player unimpressed by a long string of shaky hands. The most recent chance for Ergen to play has him cozying up Jeff Bezos, with an offer of “founding partner” status in a brand new 5G network if AMZN’s CEO would only help to bankroll the build out. Ergen must hear the clock ticking – he has until 2021 to begin offering wireless service on his spectrum or lose his licenses. Bezos, a vigilant steward of his investors’ capital and a hard negotiator, must see real opportunity.
5G is a big step up from current wireless services – much faster, much less lag, much more capacity, much lower costs. We have written about it in depth – http://www.ssrllc.com/publication/a-5g-wireless-primer-the-final-ingredient-for-the-next-era-of-tmt/ and http://www.ssrllc.com/publication/5g-hyperscale-ai-5g-sea-change/ 5G will enable cheaper, higher resolution and more reliable streaming. It will enable better performance and availability for AI rich mobile applications. It will enable low cost, low latency connectivity for machine-to-machine connections. Amazon, like its internet platform compatriots, would see strong benefits from all of this.
An obvious start would be low priced voice and data services for Amazon’s Prime members (although it could have tried this already by offering an MVNO). Another would be no cost streaming for Prime Video – a practice known as zero rating – possibly facilitating an expansion to a broader video service that might compete more directly with traditional Pay TV. A low cost, low latency IoT network overlay could provide control connectivity for autonomous delivery vehicles – on the ground or in the air. Alexa might find itself in more places and in more applications as well. New AI applications from Amazon or its AWS customers might find better performance with mobile users on 5G. We note that much of this benefit will not require an expensive national footprint – expect Dish to cherry pick attractive urban and residential markets, a buildout strategy well suited to the demographics of Amazon’s Prime program.
As for Dish, Ergen has spent billions on spectrum licenses, while the core TV business deteriorates. Dish has lost share to rival DirecTV (now AT&T) and has seen subscriber defections to cable due to its inability to offer broadband services. Since 2008, when it acquired its first licenses in the 700MHz E Block auctions, Dish’s sub base has declined a tick – even when the 2M subscribers to its streaming SlingTV OTT service are included. Still, in the face of it, Ergen has continued to acquire wireless licenses without building a single cell site. Dish tried to acquire Sprint in 2013, but lost in bidding to Softbank. Lacking capital to build a network from the ground up and a without a compelling technological solution for fixed wireless, Ergen passed on building a 4G LTE network. 5G may be the last chance.
An Amazon partnership makes sense, but Ergen has certainly had his ear for alternative investment partners. Alphabet already operates an MVNO (Google Fi) over capacity leased from T-Mobile and Sprint. It has also invested in local fiber buildouts for residential broadband service in several communities. It has many of the same potential benefits as Amazon, and would be an obvious alternative for Dish. Conceivably, Apple, Facebook, or Netflix could see benefit in helping to secure financing for a 5th wireless competitor, but the case seems stronger for Alphabet and Amazon. Recently, Comcast and Charter signed a wireless cooperation deal that precludes them from pursuing opportunities without each other. The two have entered an exclusive negotiating window with Sprint that put that carrier’s merger discussions with T-Mobile on hold until August. Should the window close without a deal, Dish could also explore contributing its spectrum to a new network buildout with the cable giants.
In any case, it would seem very likely that Dish will begin building a 5G network with someone to offer service before that 2021 deadline. This is good news for network suppliers – we like the network test equipment and optical backhaul vendors best. It is bad news for Verizon and AT&T, who are already feeling pressure from T-Mobile’s aggressive “Uncarrier” initiatives. ARPUs are coming down and cash flows are following. Another carrier would make it worse.