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Apple (NASDAQ:AAPL) has the iPhones, Google (NASDAQ:GOOG) has a whole host of Android smart phones for its Google Play store; but what does Amazon (NASDAQ:AMZN) have? Nada, Zilch, Zero. As Amazon tries to build a third content ecosystem, the lack of any smart phone has become glaring. This is especially true when one considers that a tablet can lay gathering dust while a smart phone is in daily use, literally a tap away from downloading an app, book, tune or movie.

Reports of Amazon releasing a smart phone appear every few months, the latest is that Amazon is rumored to be in talks with HTC (OTC:HTCCY) to bring out three of its own branded smart phones. A lot of commentary has been focused on the prospect of a free Amazon smart phone without any contract. This was dismissed by Amazon who said they had no intention of ever releasing a free smart phone. Unsurprising too, since it would go against Amazon's strategy of selling device hardware at cost and making profits from the content sales on that device.

Clearly, Amazon has wanted to release a smart phone for a long time. The difficulty has been finding a manufacturer willing to supply one for its own forked and closed version of Android since this violates agreements handset makers have with Google that demand all Android phones ship with Google's services onboard. Amazon and HTC have presumably found some way round this, if these reports are true.

A second difficulty has been finding a carrier for Amazon's phones. Some have suggested Amazon might buy Globalstar's (NYSEMKT:GSAT) spectrum and become its own carrier. While this is possible I think it would be unnecessary.

A much simpler alternative would be for Amazon to become a virtual mobile network operator - MVNO, in which they would lease spectrum from one of the major carriers.

One such MVNO in the U.K, called Ovivo Mobile offers free data (500mb) and calls per month without any contract. This start-up makes its money by charging users if they go over their monthly limit.

An ample allowance

Since the average monthly smart phone data usage is only a few hundred MB one can download a fair number of songs, books and apps for that amount.

I think Amazon will offer something similar with their phones. There would still need to be a monthly cap with overuse charges, the difference being that Amazon would aim to make its money from users buying and downloading Amazon's content. With Amazon's much deeper pockets it could elect to have a higher monthly data limit - 1 GB say. Remember that hardware costs and wholesale data costs are continually falling while consumer spending on content and apps rises ever higher.

Plentiful data will shake up the mobile industry

They are also likely to bundle their smart phone with Prime in some way as Amazon would love to get a new source of Prime subscribers who aren't simply heavy shoppers at Amazon already.

There are a number of possibilities, here are just two:

· Offering free data, calls and texts up to a certain amount per month, but for only those signed up with Prime.

· Offering free data, calls and texts up to a certain amount per month to anyone, but Prime subscribers would get some bonus data, or perhaps a discount off the price of the smart phone.

This would appeal to those who either don't like paying for data, or those who don't want to sign up to a long term contract. There is undoubtedly a huge untapped market for both of these.

Admittedly, these cost conscious people aren't going to be the highest spenders when it comes to content and apps, but just as with the introduction of the Kindle Fire tablet, Amazon will always try and disrupt a market from the bottom end up. Indeed the introduction of cheap and plentiful data may have the same revolutionary impact in the mobile arena as the sub $200 dollar pricing of the original Kindle Fire tablet did on the small tablet category.

Now I haven't mentioned the phones themselves yet, but I suspect the entry model will be as cheap as possible. Something similar to the well reviewed Lumia 520 - this is only $99 off contract. That isn't a great deal more than what a dumb phone costs in fact.

I also suspect one of three smart phone models will be a phablet. A larger screen makes for a better content consumption device and would address a market at the moment not served by any of Apple's phones. Interestingly, HTC has a phablet called the HTC One Max that it's just on the verge of releasing.

Conclusion

A smart phone would round out Amazon's device offerings, and providing a free data plan would help differentiate Amazon's ecosystem from Apple's iTunes and Google's Play store.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Some Free Amazon Smartphone Speculation