A Dish-Amazon alliance could create a cutting edge IoT platform in the US

There is no let-up in the whirling dervish dance that is M&A in the US telecoms and media markets. With the leading cablecos reportedly in line to merge with one another, or Sprint, or even Verizon; and the Sprint-TMO rumors rumbling on, Dish is never far away from the action. It has tried to acquire Sprint and has been linked with TMO, Verizon and Comcast. Its latest supposed suitor is Amazon – and if that deal were to happen, it could be more disruptive than any of them, bringing another powerful web and cloud giant into the ring and possibly provoking counter-moves from Google.

The satellite TV supplier has a strong portfolio of spectrum these days, but has still not launched its long-awaited cellular network (apart from plans to keep the FCC happy with an NB-IoT roll-out). It has always said it needs a network partner to make a full deployment viable, though skeptics believe its spectrum has always been just a tradeable asset, with Dish never intending to launch services, just to boost the value before selling it on.

Whatever the true motivations of chairman Charlie Ergen, he is a dealmaker who is certainly always in talks with somebody, however exploratory. The thinking behind a tie-up with Amazon, according to reports which surfaced late last week, is that the retailer would help fund the build-out of a network in Dish’s spectrum. For Amazon, that would bring it a mobile network which could be optimized for its own ends, from internal IoT usage to supporting mobile Prime services. This would come at far lower cost than seeking its own spectrum, but with better control than an MVNO or WiFi approach. For Dish, the investment and the anchor tenant would make the economics work at last, and it could also launch mobile options to its TV customers in bundles, to make it more competitive with AT&T’s DirecTV and with cable providers.

One way in which such a venture could deliver more than the sum of its parts would be in the IoT. Dish already plans an NB-IoT roll-out, and while this looks largely designed to address FCC build-out demands associated with some of its spectrum, it could be expanded in scope to provide the first US network fully optimized for machine-to-machine purposes, rather than bolted onto a mobile broadband platform and business model.

The resulting network could be used by Amazon, as the anchor customer, for its own logistics purposes (it is an increasingly heavy user of wireless delivery and tracking, including drones); and to offer IoT services to enterprise customers. Potential uses could include support for its numerous software updates; to add new M2M services to the smart home platform it is building around the Echo smart home device; to replace the MVNO deals it has for its Kindle ereaders, some of which come with embedded, subscription-free cellular access.

Amazon has been showing rising interest in wireless, though with less attention to infrastructure than Google or Facebook. Some of this has been on the consumer side. With the original Kindle ereader, it pioneered the idea of bundling cellular connectivity into a device, invisibly to the user – which will be essential to the economics of the IoT and especially to wearables. It has had mixed fortunes with devices. The Echo smart speaker is disrupting the smart home sector, but does not require cellular connectivity. The Kindle tablets and ereaders have been valuable in driving sales of its content and media services and of the cornerstone of its consumer business model, the Prime subscription. But the Fire Phone was a flop, and showed that, if Amazon is to play in the mobile market for real, it needs partners with more experience and established reach.

More interesting are Amazon’s wireless activities when they affect its B2B, logistics and cloud businesses. Earlier this year, Amazon applied to the FCC for Special Temporary Authority to conduct tests using prototype equipment and spectrum frequencies including parts of the 700 MHz, 800 MHz and 1.9 GHz bands.

And back in 2013, it sent shivers down some providers’ spines when it was trialling TLPS (terrestrial low power service) with Globalstar. This would have run a private network, using WiFi-like technology, in the band adjacent to the 2.4 GHz spectrum. The plan foundered on FCC and mobile industry opposition, but it was an early indicator of Amazon’s desire to find a network which it could control without actually building it out single-handed. Had Globalstar succeeded, Amazon could have been an anchor tenant, with strong ability to drive the way the network was planned and deployed to suit its own applications.

That may also be the objective of any Dish alliance. In May, Dish was first reported to be in talks with Amazon with the aim of signing up the retailer as the “foundational customer” or cornerstone tenant of the planned NB-IoT network, which will be rolled out in AWS-4 and lower 700 MHz E-Block bands. Dish claimed in a March filing that it would not make “business sense to build out a 4G/LTE network now that would duplicate networks already offered by the wireless incumbents, and subsequently require an almost immediate upgrade in order to be competitive. Instead, Dish plans to deploy a 5G-capable network, focused on supporting IoT – the first to be deployed in these bands anywhere in the world.”

In fact, the first iteration will be firmly 4G, and one advantage of NB-IoT will be its low deployment costs, since the combination of low frequency spectrum and low IoT data rates add up to a small number of sites. However, Dish said it would continue to explore partnership opportunities, and was “open to exploring joint build partnerships” to reduce deployment costs.

If its wish comes true with an Amazon alliance, it should be a major wake-up call to established operators. The history of Amazon’s cloud business shows a company that is willing to invest huge sums in infrastructure in order to drive new business models, often well in the future. CEO Jeff Bezos has often talked about Amazon’s ability to thrive on ultra-low margins, because it has come from the retail environment, not the fat margins of telecoms.

The intensifying IoT activities of Amazon Web Services (AWS) also points to new business models which the company could layer onto a wireless network over which it had significant control. The recently launched AWS Greengrass edge cloud platform could be an effective way to address low latency IoT requirements, for instance, if integrated into the mobile network via ETSI MEC (Multi-Service Edge Computing).

Some of the IoT applications which will lend themselves most naturally to mobile and wireless connections – rather than fixed, or highly localized in personal area networks – are also those which will require very fast response times, such as vehicle safety or emergency worker alerts. The impossibility of every piece of data being carried all the way to a centralized cloud to trigger a decision has raised significant interest in edge computing in the mobile environment. Last month, AWS, never far from a network architecture shift which could enable new internet services, made its Greengrass edge computing platform generally available, enabling its cloud services to be distributed to micro-servers and other devices within a network.  Among the new partners it announced were several from the cellular world, including Nokia, and this may stimulate uptake of edge network technologies in the cellular world.

AWS Greengrass was first unveiled in December. It provides edge computing capabilities for IoT applications over fixed or mobile connections (see Wireless Watch June 14 2017). AWS hopes to insert itself into the distributed content and IoT value chains at every point with Greengrass. The CTO of AWS, Werner Vogels, said: “With AWS Greengrass, we can begin to extend AWS into customer systems—from small devices to racks of servers—in a way that makes it easy to do the things locally that are best done locally, and to amplify those workloads with the cloud.” In some scenarios, this will be done best over a cellular connection – one Amazon could even bundle into the service, if it had cost-effective access to an optimized network.

This alliance does not need to be an acquisition, though the US financial press has been excited by that prospect. In a client note, analyst Kannan Venkateshwar of Barclays wrote: “We would be very surprised if Amazon decided to buy Dish outright instead of partnering in some other form. An outright purchase would bring Amazon within the purview of the FCC, something internet companies would want to avoid for multiple reasons, in our opinion. Additionally, assuming the Whole Foods Market acquisition goes through, Amazon’s net cash position and heavy capex requirements for AWS/retail would likely limit any transaction of this size.”

In the past, the sticking point for many potential Dish mergers has reportedly been the high price it puts on its spectrum. BTIG analyst Walter Piecyk recently estimated that a cableco would have to pay at least $20bn to buy a usable amount of Dish’s spectrum, which would be more than the $13.7bn Amazon recently bid for grocery chain Whole Foods. And a network partnership would make far more sense. It would save Amazon having to take on – or sell on – the TV business. If Amazon acquired the spectrum without the rest of Dish it would still have to build the network.

However, Amazon’s investment will still have to be significant to compensate Dish for effectively taking its spectrum out of the M&A game for a while (there would be no reason why, with suitable safeguards, the resulting network should not be sold on to a third party at some stage in the future, but not until Amazon had achieved its initial aims).

If Dish is serious about having its own network this could be a powerful combination, especially if the resulting network were also used to offer IoT services to other enterprises as well as the two partners (imagine the potential deal with GE Digital and its Industrial Internet Alliance, which could squeeze AT&T’s role in that group).