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1. FCC approves Amazon’s $10B Project Kuiper broadband-internet satellites
  • On Jul 30, the FCC (Federal Communications Commission) unanimously approved Amazon’s Project Kuiper. The project, originally announced in Apr 2019, will deploy and operate a constellation of 3,236 low-Earth orbit (LEO) satellites to provide broadband internet to the United States. The FCC stipulated that Amazon must have at least 50% of satellites in operation by 2026, with all satellites fully deployed by 2029.
  • Amazon’s stated goal is to provide affordable, reliable internet access to underserved populations globally, particularly in remote areas. The plan is to provide service directly to customers, as well as high-speed “backhaul” for wireless carriers to allow them to provide LTE and 5G service in less accessible areas through 5G cell towers (rather than laying down fiber). Current speculation based on the language of the announcement is that Kuiper will focus first on the United States before expanding internationally. Morgan Stanley predicts that Project Kuiper could represent as much as a $100B opportunity for Amazon.
  • Satellite-based broadband will be a gamechanger for both underserved consumers and businesses in multiple industries. Terrestrial cellular networks only cover 20% of the planet today. Just over half of households globally are connected and part of the digital economy. Satellite connectivity will unlock enormous value for both the satellite-internet providers and businesses that use satellites to extend their offerings – from digital services to logistics to remote work. Connectivity also enhances the efficacy of IoT devices, which have an extensive set of use cases across industries. Satellite broadband holds the promise of transforming how we think about internet access globally, closing the digital divide and reversing the shift towards more fragmented realities.
Related Briefs:
  • Jul 24 2020 (3 Shifts): The push towards Mars by the UAE, China and US
  • Dec 23 2019: SpaceX’s Starlink and the push towards global satellite-based internet
2. Google invests $450M in ADT to integrate Nest into security offerings
  • Google’s current Nest portfolio includes cameras, video doorbell, alarm and safety systems, smart locks, thermostats, smart speakers, and routers. ADT’s offerings for residential and business customers, in turn, include security systems (e.g. video cameras, digital panels, motion sensors, access control); safety products (e.g. smoke and carbon monoxide detectors, flood sensors, panic buttons, medical alerts); smart automation (e.g. smart locks, smart plugs, garage controller); and associated 24/7 monitoring. 71% of ADT’s revenue comes from residential customers, while the other 29% is from business customers.
  • The shift will happen across 3 horizons: (1) Introduction of current Nest products to ADT customers in the next 12 months; (2) a fully integrated solution with Nest products and new features, no later than Jun 2022 (Google and ADT have been working together on product development for almost a year); and (3) new intelligent products and AI-powered smart-home experience, such as differentiated monitoring, video analytics, and prioritized alarm response (to reduce false alarms to the police). (The Nest Aware video-recording subscription, which will be made available to ADT customers, already has a facial-recognition feature.) Subject to milestones being met, ADT and Google will each invest another $150M in 3 tranches for co-marketing, product development, technology, and training.
  • ADT’s stock shot up 76% after the Google announcement. Despite ADT reporting losses once again just two days later in its Q2 2020 earnings, its stock remains 40% above pre-announcement levels. ADT has been the leader in the residential monitored security industry (with 30% share of the North America market at the time of IPO) but has faced growing competition. It hasn’t been profitable since going public again in Jan 2018 and its customer base has declined from 7.2M at IPO to 6.5M today. For ADT, the partnership represents the potential for a new long-term growth trajectory and opportunity to capture consumers who are “smart home-firstrather than security-first.
  • Amazon and Google continue to be locked in a largely two-man race (outside China) in the smart speaker market, a key gateway into the smart home. As of Q1 2020, Amazon had the edge with 23% of global smart speaker sales, while Google had 19%. Amazon’s Feb 2018 acquisition of connected smart-home company Ring for $1B expanded the Amazon Alexa smart home ecosystem with a bevy of surveillance and security capabilities. With this partnership with ADT, Google is looking to level up its own Assistant smart-home ecosystem to compete with Amazon.
Related Briefs:
  • Jun 12 2020 (3 Shifts): Tech firms pull back on facial recognition use by police
  • Nov 19 2019: Underdogs in the smart home – Apple, Samsung & IKEA
3. Varo Money’s banking charter opens door for fintechs
  • If a neobank can’t get its own charter or licenses, its options are to partner with a bank (the most common route), acquire a bank with a charter, or operate on a limited basis. In the US, all of the pathways for a fintech to attain approval are long and uncertain: (1) Get a national bank charter (Varo is the first fintech to receive one), (2) become a state-chartered and FDIC-supervised Industrial Bank or Industrial Loan Company (ILC) (Square’s route), or (3) collect licenses state by state. It took Varo 3 years to get approval from the OCC, 2-1/2 years for Square to get approval for its Utah Industrial Bank, and Robinhood pulled its application in Nov 2019 in the face of regulatory burden and scrutiny. An OCC effort to introduce a special-purpose national bank charter for fintechs was overruled last year by a federal judge.
  • While retail banking has traditionally been a lower-margin business than the tech sector, big tech firms and fintechs have been drawn to it by the allure and possibilities of consumer financial data. Just this week, Google announced it had partnered with 6 more banks to provide digital checking and savings accounts to Google Pay users in the US, bringing Google’s bank partner total to 8 banks. Agreements such as this are mutually beneficial – big tech firms can use customer data to offer new services (such as financial insights and budgeting tools), while retail banks gain ready access to a large pool of mobile-first consumers, their associated streams of revenue, and a low-cost source of deposits. Google has indicated it will stay out of the “financial plumbing” – helping it avoid the associated compliance and need for a banking license.
  • With 1st-party data garnering so much attention of late (amid privacy regulation and the looming death of 3rd-party cookies), the ability for a fintech to operate a bank directly becomes even more compelling. A national bank charter can be a strategic moat that differentiates a fintech from the pack.
Related Briefs:
  • Feb 7 2020: Visa’s $5.3B bet on Plaid & the pathway to open banking
  • Dec 13 2019: Tech players expand their ecosystems through payments & financial services
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