In the latest example of dynamic intermodal ISP competition, Amazon announced this week that, once the satellite network launches, its Project Kuiper satellites will provide backhaul to Verizon’s fixed and mobile wireless networks in rural areas. This news is another sign of the existence of effective competition among ISPs and the growing irrelevance of distinguishing, for regulatory purposes, among various intermodal transmission platforms.
Project Kuiper is Amazon’s $10 billion low Earth orbit (LEO) satellite network that will offer high-speed broadband with a focus on rural and remote areas. The FCC approved Amazon to operate 3,236 satellites in July 2020. While these satellites are not yet deployed, Amazon is making progress towards launch. Project Kuiper likely will be the second large LEO constellation providing broadband—SpaceX’s Starlink already has launched over 1,700 satellites in LEO and is running a beta program for 100,000 broadband customers.
While LEO satellite broadband offerings could sport innovations of their own, such as faster airline Wi-Fi and service in remote areas like oceans, I want to focus on what the Verizon-Amazon deal means for the overall marketplace. ISPs compete vigorously in most places for customers. The FCC’s 2020 Communications Marketplace Report demonstrated the extent of this competition, showing improvements with respect to both speeds and choice among providers. Free State Foundation scholars stressed the strong evidence of intermodal competition between transmission methods in comments submitted in this proceeding. While the FCC hasn’t yet adopted this view regarding the extent of the existence of intermodal competition, the Verizon-Amazon deal is further proof that intermodal competition is reality.
We discussed the emerging potential of fixed wireless as an intermodal competitor back in 2017. That potential is now reality. There are 6.9 million fixed wireless customers as of 2020, up from 4 million in 2016. Fixed wireless service is now available to 45% of US customers. Verizon alone has 150,000 fixed wireless customers after gaining a 55,000 subscribers in Q3 2021, an enormous 58% quarterly increase. T-Mobile, also seeing opportunity in fixed wireless, announced a price cut for its plans earlier this month. And the Verizon-Amazon deal for rural backhaul will ensure Verizon’s fixed wireless service is faster, more reliable, and available in more areas.
Senior Fellow Seth Cooper previously noted the importance of LEO satellites to future broadband competition in 2018 before the FCC approved any LEO satellite constellations. In that blog, Seth focused mostly on how satellite ISPs would compete for customers. The Verizon-Amazon deal is an example of just how dynamic broadband competition can be. While Project Kuiper and other satellite ISPs will certainly compete for their own customers, their provision of backhaul services will improve competitiveness for other transmission modes as well.
That the Verizon-Amazon deal improves Verizon’s offerings is an important point, because it shows how ISPs of various sorts can cooperate to form competitive offerings. Amazon, as a new market entrant, will face steep customer acquisition costs. These acquisition costs include marketing and sales investments to make customers aware of Project Kuiper's broadband offerings and convince them that they’re the right option. Verizon, as an established ISP, has a strong advantage in this area because it’s made these investments, has past success, and has a recognizable brand.
But Verizon needs additional, expensive-to-build backhaul capacity for its networks in rural areas. Amazon has already made capacity investments by manufacturing its satellite constellation. Given these facts, the companies teamed up according to comparative advantage. So Amazon provides backhaul to a customer of one—Verizon—in exchange for revenues Amazon can later invest in building out its customer acquisition strategy. And as a result, new customers get access to Verizon services, existing customers get better Verizon service, and Project Kuiper moves closer to viability.
Market entry by LEO
constellations and cooperation among ISPs to create new competitive offerings are
what Free State Foundation scholars mean when we say dynamic, intermodal
competition is here. The deal between Amazon’s Project Kuiper and Verizon appears
to be welcome news for broadband customers. The FCC should take note.
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