Reports indicate that Amazon Inc. (NASDAQ:AMZN) may be planning to Sprint Corp’s (NYSE:S) Boost Mobile business but MoffettNathanson analyst Craig Moffet thinks that the speculation is just insane.
Sprint has already assured regulators that it will do away with the Boost Mobile business once their merger with T-Mobile (NASDAQ:TMUS) is approved. On Thursday Reuters reported that Amazon had an interest in buying Boost and any wireless spectrum that T-Mobile and Sprint may want to get rid of following the merger.
The entry of Amazon into the telecom industry economically insane
Moffet indicated that Amazon may have a great idea regarding their long term visions of the driverless delivery vehicles and wireless piloted delivery drones but thinking of operating its own network for such purposes is something that is not economically viable. He indicated that the wireless industry in its forty-year history has never had a significant return on invested capital more than the cost of capital. He added that running a network is expensive and although Amazon might afford it the analyst stated that he wasn’t sure whether the company is ready to deal with the challenges of being in the telecom sector.
According to Moffet, the hypothetical entry of Amazon into the wireless industry disregards network economics. The analyst indicates that it is unclear why the companies will allow Amazon to join the industry. The principal rationale of the merger was to have pricing power given that there will be three players in the market but going from four to three and then allowing Amazon to be a fourth competitor is an insane decision.
The acquisition has some promising potential
However, some analysts such as Citi’s Michael Rollins see some potential in the purchase of the Boost business by Amazon. He stated that there is potential in using Boost in reshaping the distribution of wireless plans as well as using it to build its Prime footprint. Another analyst Timothy Horan of Oppenheimer believes this is a promising market for Amazon considering it is among the vertically integrated industries that are remaining.
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