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Can Amazon Become Your Internet Service Provider?

By Daniel B. Kline - Jan 30, 2020 at 7:15AM

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Comcast and other big cable companies may have something new to worry about.

While the cable television business has slowly crumbled, its big players, which include Comcast (CMCSA 1.18%) and Charter Communications (CHTR 1.76%) have made up for their pay-TV losses with broadband gains. That has happened because cutting the cord requires having an internet connection.

You can't stream without broadband and, in some markets, internet service providers (ISPs) still have monopolies. In much of the United States consumers have two choices at most, with one often being a lower-speed DSL service.

Limited competition gives ISPs pricing power and allows them to offer notoriously poor customer service. Nothing has been able to change that status quo because offering internet service requires an enormous amount of infrastructure. Now, however, (AMZN 3.58%) has a plan to become an ISP and it wants the Federal Communications Commission (FCC) to sign off on it. 

An illustration shows a network covering the globe.

Amazon wants to offer internet through more than 3,000 satellites. Image source: Getty Images.

What is Amazon hoping to do?

It's nearly impossible for any company -- even one with Amazon's resources -- to build a nationwide cable-based network. The established incumbents like Comcast and Charter have built their customer bases over multiple decades and it's simply not practical to replicate that (and, in some markets, the established players have contracts with communities that protect them from competition).

Amazon does not plan to compete in the traditional way. Instead, it wants to launch a non-geostationary-satellite orbit fixed-satellite service (NGSO FSS) system made up of 3,236 satellites.

"The Kuiper System will deliver high-throughput, low-latency satellite broadband services to tens of millions of unserved and underserved consumers and businesses in the United States and around the globe," according to an Amazon letter to the FCC. "The commission's prompt grant of U.S. launch and operating authority, with the protections and conditions ordinarily applied to NGSO FSS applicants, will ensure that Amazon can promptly start providing customers innovative new broadband services."

Cable companies are not alone in wanting to block Amazon's efforts. SpaceX and OneWeb, which both have plans to offer their own low-orbit satellite systems for offering broadband internet, also object to the online retailer's efforts to have its plan fast-tracked.

SpaceX and OneWeb say Amazon "should wait for a future frequency licensing round rather than getting a waiver from the FCC to enter the current round," GeekWire reported. SpaceX has contended that sharing spectrum with Amazon will downgrade its own Starlink internet service. In its letter to the FCC, Amazon answers the objections of its rivals.

"The Kuiper System's planned configuration can take full advantage of interference mitigation techniques such as small spot beams, satellite diversity, low orbital altitude, and frequency agility. Amazon remains committed to coordinating in good faith and to leveraging the extraordinary spectrum sharing capabilities of the Kuiper System," the company wrote.

Internet choice is coming

Space-based internet service as a true alternative to the current ISPs is coming. Amazon is at first focusing on under-served areas -- probably because doing that is a way to win government approval.

It's reasonable, however, to think that at some point, the retail giant will have a viable alternative to Comcast, Charter, and the rest of big internet. That's great news for consumers who lack choice and leverage. It's also a potentially huge new business (albeit one with a massive start-up cost) for Amazon, which could eventually provide a significant return for investors.

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