Amazon Explores Offering Low-Cost or Free Mobile Phone Service to Prime Subscribers, Potentially Disrupting Wireless Market

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Amazon is reportedly engaged in discussions with major wireless carriers, including Verizon Communications Inc., T-Mobile US Inc., and Dish Network Corp., in an effort to provide affordable or potentially free nationwide mobile phone service exclusively to its Prime subscribers.

According to insiders who preferred to remain anonymous due to the confidential nature of the matter, Amazon aims to secure the most favorable wholesale prices from these carriers.

By doing so, the e-commerce giant could potentially offer wireless plans to its Prime members at a monthly cost of $10 or potentially even for free, thereby strengthening customer loyalty among its most valuable clientele.

The potential impact of Amazon’s endeavor is already making waves in the market. In premarket trading on Friday, Dish shares surged by 8.4%, while Verizon, AT&T, and T-Mobile all experienced notable declines, surpassing 5%.

These negotiations have been ongoing for a duration of six to eight weeks, with AT&T Inc. also intermittently involved in the discussions. However, it is important to note that the execution of this plan may require several more months, and there remains a possibility that the initiative could be abandoned altogether, as stated by one individual close to the matter.

“We are always exploring adding even more benefits for Prime members, but don’t have plans to add wireless at this time,” Amazon spokesperson Maggie Sivon said in a statement.

Amazon’s Prime subscription service, priced at $139 per year, has experienced a slowdown in growth in the United States. The increase in the annual fee from $119 appears to have made the subscription less appealing to consumers grappling with high inflation rates. Consumer Intelligence Research Partners reported that the number of Prime members in March remained stagnant at 167 million compared to the previous year.

To compound matters, Amazon is facing fierce competition from Walmart Inc., whose Walmart+ membership, priced at $98 per year, offers similar benefits to Prime, including free grocery delivery for orders over $35. In response, Amazon raised its free grocery delivery threshold to $150 from $35 in February.

If Amazon succeeds in striking a deal with wireless carriers, it could provide a significant boost to wholesale revenue for the wireless industry while driving traffic to the newly expanded 5G networks. However, the entry of Prime wireless into the market could pose a threat to the major carriers if it gains popularity and erodes their customer base. The big three carriers, Verizon, T-Mobile, and AT&T, currently offer unlimited plans starting at $60 to $65 per month.

By venturing into the wireless market, Amazon would establish itself as a new national brand, reselling mobile services from one of the major carriers. The retail giant could entice Prime members with an attractive pricing scheme, leading them to cancel their existing mobile services. Alternatively, Amazon could broaden its reach by offering Prime wireless to anyone willing to switch providers and become a Prime member.

Amazon’s entry into any market creates ripples within the industry, as the company has demonstrated its willingness to absorb substantial costs, such as shipping and movie production, to drive Prime membership growth. Wireless service could be another offering where Amazon is willing to incur losses if it gives the company an advantage over Walmart.

The major carriers find themselves in a challenging position to reject Amazon’s proposal. After investing billions of dollars in developing high-capacity 5G networks, they are eager to identify new applications and sales outlets that can generate a return on their investment.

A potential deal with Amazon could greatly benefit Dish, a struggling satellite-TV company that is striving to transform itself into a cloud-based wireless carrier capable of competing with Verizon and AT&T. However, Dish faces the challenge of managing its distressed debt and seeking additional funding to launch its Boost Infinite wireless service. Dish is already collaborating with Amazon’s AWS division, which provides cloud computing services for its wireless network, and plans to start selling Boost Infinite wireless service on Amazon as early as next month.

While Amazon has previously ventured into the wireless market with the ill-fated Fire Phone in 2014, the company is now adopting a reseller approach, known as a mobile virtual network operator (MVNO), to avoid the significant costs associated with building its own mobile network. The track record of MVNOs has been mixed, with brands like ESPN Mobile and Virgin Mobile failing, while Alphabet Inc.’s Google Fi, operating on T-Mobile’s network, has amassed approximately 2 million customers.

Wireless services are increasingly being bundled as a perk within comprehensive service packages. Cable companies like Charter Communications Inc., which resells Verizon’s service, foresee a future where the cable bill includes wireless service. Charter and Comcast Corp. have witnessed rapid subscriber growth by offering affordable or free wireless services as promotional bundles with their broadband offerings.

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