Amazon points profit-incinerating ray at the sky

Amazon is slower off the mark, but has advantages

  
FILE PHOTO: Small toy figures are seen in front of diplayed Amazon logo in this illustration taken March 19, 2020.

FILE PHOTO: Small toy figures are seen in front of diplayed Amazon logo in this illustration taken March 19, 2020.

REUTERS/Dado Ruvic/Illustration/File Photo

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

NEW YORK  - Amazon.com has a history of destroying rivals – and profit margins – when it enters a new market. Now Jeff Bezos’ firm is pointing its profit-incinerating ray at the sky. The $1.6 trillion internet company said on Thursday it will spend at least $10 billion to build a worldwide broadband satellite network. That puts it in competition with Tesla and SpaceX boss Elon Musk’s plan to offer similar service via roughly 12,000 satellites. Customers, especially rural ones, may eventually benefit from fast and cheap connections, but if earthbound tech is a guide, there’s no assurance either company will.

Both billionaires have big ambitions in space. Musk’s SpaceX has gone from upstart to dominant launcher of rockets. Bezos’ rocket firm, Blue Origin has been making steady progress in developing space-bound objects too. The big bonanza, however, comes from offering fast broadband that spans that globe. That would be handy in rural areas where connections are slow, and it could help existing internet providers reach new areas. Or it could supplant them. Morgan Stanley has estimated success might boost SpaceX value to $175 billion – about 5 times its last funding round. That’s why the company hopes to have Americans hooked up to Starlink – its broadband effort – by the end of the year.

Amazon is slower off the mark, but has advantages. The promised sums are still a pittance for Bezos’ colossus. Moreover, the company’s aspirations of delivering its e-commerce goods through driverless vehicles means it could be a significant customer of its own broadband services. Guiding autonomous vehicles through rural areas doesn’t really work without available-everywhere connections.

But earthbound tech provides a cautionary precedent. Satellites have high fixed costs, and customers only need one connection – so fierce rivalry is a recipe for price wars to gain customers. Think of the way duelling ride-share companies Uber Technologies and Lyft have eaten away at each other’s profitability, or the feeding frenzy in the food delivery sector. Moreover, ground-level telecoms companies won’t give up their networks without a fight. So even if they end up with thousands of satellites whizzing overhead and seamlessly handing off connections – no mean feat in itself – Amazon and SpaceX could both succeed without either of them winning.

CONTEXT NEWS

- Amazon.com said on July 30 it would invest over $10 billion in Project Kuiper, a network of more than 3,000 satellites to provide broadband service worldwide. The Federal Communication Commission approved Amazon’s plan for placing the satellites in low-earth orbit earlier in the day. The regulator said the company must launch at least half of its satellites by mid-2026 and the rest by mid-2029.

- The network would compete with SpaceX’s Starlink, which plans to offer broadband via about 12,000 satellites. It has launched over 500 and plans to offer service in the United States by the end of the year.

- Amazon said Kuiper would provide high-speed, consistent data transmission, and help wireless carriers expand their 5G service in new areas.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

(Editing by John Foley and Amanda Gomez) ((robert.cyran@thomsonreuters.com; Reuters Messaging: robert.cyran.thomsonreuters.com@reuters.net))

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