4 Reasons Why Amazon Does Not Come After AT & T and Verizon – The Fool Motley

Amazon (NASDAQ: AMZN) would be interested in buying Sprintof (NYSE: S) Boost brand wireless prepaid mobile, according to Reuters. Sprint and T Mobile (NASDAQ: TMUS) previously promised to sell Boost if their $ 26 billion merger was approved.

Amazon would apparently need Boost to access the combined wireless network of T-Mobile and Sprint over the next six years. He is also interested in buying any wireless spectrum given to one or the other operator.

Amazon's ambitions are unclear, but the news has torpedo the actions of AT & T (NYSE: T) and Verizon (NYSE: VZ)because he suggested that the tech giant could disrupt the wireless market. However, I doubt very much that Amazon intends to compete with these telecom giants for four simple reasons.

Source of the image: Getty Images.

1. It would cost a lot d & # 39; money

AT & T, Verizon, T-Mobile and Sprint dominate the wireless market in the United States. If T-Mobile is merger with Sprint is approved, the contract will be divided into three carriers only.

If Amazon wants to become the fourth player in this market, it will have to spend huge sums for the creation of a national network. AT & T and Verizon, for example, will each have spent approximately $ 120 billion in wireless and spectrum investment spending over the past decade to maintain their leading position in the market.

Investors must remember that AlphabetGoogle had previously challenged AT & T and Verizon with its Google Fi wireless network. However, Google did not build its own network – it simply launched an MVNO (Mobile Virtual Network Operator) in addition to Sprint and T-Mobile wireless networks.

It seems more likely that if Amazon buys Boost, it will mean launching its own MVNO network instead of becoming a full-fledged mobile operator.

2. These will probably be drones and autonomous vehicles

If Amazon launches its own MVNO, it will probably not focus much on the smartphone market. Boost's access to the T-Mobile and Sprint network – as well as any additional spectrum Amazon could acquire – could be used to power its autonomous delivery vans, robots and / or drones.

Amazon has not yet launched any of these large-scale technologies, but increased use of these technologies could reduce its logistics costs over the next few years. Running these devices on its own MVNO rather than on a large carrier's network could further reduce these expenses.

3. Operating margins lower than those of AWS

Amazon supports its low-margin market activity with higher margin revenue from Amazon Web Services (AWS), the largest cloud computing platform in the world.

AWS has generated an operating margin of 29.1% in the last 12 months, compared to 5.7% for Amazon's North American trade and a loss of operation for its international unit . At the same time, AT & T, Verizon, Sprint and T-Mobile all have significantly lower operating margins than AWS:

T operating margin data (TTM) by YCharts

Trying to build a national network while competing with these operators would inevitably weigh on Amazon's total operating margins, which could hinder its ability to expand its ecommerce ecosystem with state-of-the-art loss platforms such as Amazon Premium.

4. Regulators would probably block the arrival of Amazon in the market

Finally, any major Amazon initiative on the wireless carrier market would likely be blocked by antitrust regulators, since it already dominates the e-commerce and cloud platform markets and controls large shares online advertising and streaming media markets.

The Washington Post A new partnership between the US Department of Justice and the Federal Trade Commission could also trigger new antitrust investigations against tech giants such as Amazon and Alphabet. This indicates that it is highly unlikely that Amazon suddenly declares war on AT & T and Verizon.

The bottom line

The story of Amazon-Boost looks like the reports on Amazon and whitefish last year. At the time, various outlets claimed that Amazon start selling its own white box network hardware to compete with Cisco.

However, it turned out that Amazon was only developing leading network hardware to reduce its own data center expenses, instead of challenging Cisco in the saturated routers and switches market.

Similarly, Amazon's rumored interest in wireless spectrum and Boost is likely to reduce its own long-term costs and optimize its operations – and not to disrupt a saturated market with deeply rooted leaders .