Will the Amazon / AT&T Kindle Deal Herald the Arrival of 'Dumb Roaming Pipes'?

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Includes: AMZN, T
by: Dean Bubley

Reading between the lines of the Amazon (NASDAQ:AMZN) Kindle 2 announcement, it seems that Amazon may have worked out a method for solving one of mobile application and device developers' biggest problems: how to avoid hiring an army of lawyers and commercial personnel to put in place deals with 100+ mobile operators around the world, and also avoid aggregators that want to take yet another slice of revenue. It might also have enabled AT&T (NYSE:T) to invent a new business model - servicing end-users resident outside its own geographic footprint.

My understanding is that Kindle 2s (initially at least) will ship from Amazon's US website and operation - and will have AT&T-registered SIMs. This means that a UK customer will purchase the device and have it imported (including paying customs charges) and that it will work on one or more UK mobile networks automatically.

Details are still a bit opaque, but as far as I can see, Amazon seems to have persuaded AT&T to provide it with a fully-loaded cost for supporting non-US Kindle users. I would imagine that AT&T has sufficient clout to get some quite good international data wholesale rates in general, although whether it has negotiated a special arrangement for the Kindle seems less likely. Amazon has probably worked out some good compression mechanisms (one source I've read suggests foreign Kindles won't download images in newspapers, although that might be for copyright reasons).

I would also imagine that AT&T really won't want to disclose its wholesale rates that are behind this. But if somebody buys a book for $10, Amazon squeezes it down to a 1 MB of data, and the roaming cost to AT&T in the UK or Spain or wherever is $0.30, then clearly the numbers all work out nicely as long as they're kept in the background.

This approach will likely have upsides and downsides. Downsides will probably involve slightly cumbersome ordering and delivery from the US site to an overseas destination, plus issues around customer support, as well as possibly some interesting tax/VAT implications where books are bought "in the US" but delivered onto a technically-US registered device while it is "roaming" in the user's home country. I'll leave that one to the lawyers to deal with. A representative of a UK operator that I met at the ITU Forum yesterday seemed a bit annoyed with the whole thing - as if Amazon went behind their backs and came up with a non-optimal solution.

The upsides for Amazon are clear - far fewer headaches in dealing with multiple operators around the world: they've outsourced all their contractual headaches to AT&T. The prospect of working on 100 global MVNO deals must have had them tearing their hair out. Not only that, this means that the nature of roaming should mean the Kindle gets better coverage, as it can potentially use any or all of the 3G networks in a given country, as long as AT&T has a roaming relationship. This means that AT&T can first shop around for the best wholesale rate and update its preferred partner list on an ongoing basis - and second, that coverage should be much better than one provided via an in-country MVNO deal.

Now, this approach only works because the Kindle is a low data-volume device. It would be much harder to justify the bundled roaming charges for video or even hi-res colour images, so I'm not expecting to see a YouTube tablet or similar following the same model. But I can think of a whole range of "mobile narrowband" devices that can benefit from "mobile broadband" networks - falling roaming costs per MB could mean a whole host of opportunities.

It's rather ironic that while all the operators have focused on Internet "over the top" players, it might actually be their international peers that become the real threat, using ever-cheaper "roaming pipes" without paying for local infrastructure or spectrum, and taking a much greater share of customer value.

The one fly in the ointment is perhaps regulatory - will national authorities really be happy with AT&T "exporting" SIMs to users in countries in which it doesn't have a licence to operate?

[Caveat - much of this is written based on limited real information and supposition, as there's a real lack of clarity. It's possible that the situation may be clarified or change over time. I'll try & update if that happens]

One additional thought here. How does Net Neutrality and policy management apply to data roaming users, exactly? Presumably any restrictions on applications, etc, would need to be in the wholesale arrangement between the host and the visiting operators - I really don't know whether an operator can apply the same T's and C's to visitors as to domestic customers who have signed individual contracts. For example, I've never tried using VoIP on a device with an 3UK SIM while roaming on a network which blocks its own users...