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Amazon is developing a smartphone, reports Bloomberg. Foxconn, the Chinese mobile-phone maker, is working with Amazon on the device, said one source, who asked not to be identified.

Amazon has sold about 5.5 million tablets since the Kindle Fire made its debut during the holiday quarter, but smartphone manufacturers, led by Samsung and Apple, have shipped nearly 400 million smartphones and other mobile devices in the first quarter, according to researcher IDC. An Amazon smartphone would help sell digital books, songs and movies.

Amazon is also seeking to complement the smartphone strategy by acquiring patents that cover wireless technology and would help it defend against allegations of infringement. Seattle-based Amazon considered buying wireless patents from InterDigital before the company sold the assets to Intel for $375 million, Bloomberg reported.

Amazon recently purchased 3D map technology from UpNext.

The UpNext app is available for Kindle Fire, Android and Apple IOS.

Amazon also beefed up its patent prowess recently by hiring Matt Gordon, formerly senior director of acquisitions at Intellectual Ventures, formed by patent-troll Nathan Myhrvold.

AdAge reported that Amazon is also exploring the possibility of acquiring a mobile advertising network, further escalating its fight with Google and Apple.

The biggest unknown, according to All Things D, is how Amazon will handle voice and data services.

With the original Kindle, Amazon bought wholesale service from Sprint (and later AT&T) and bundled it into the cost of the Kindle and of purchased books. But multi-media E-Pub3 publications, such as Apple’s textbooks, can require 2 GB downloads, more than 100 times that required by traditional ebooks.

If LTE costs $80/month for 5-10 GB/month, tablet-based services won’t sell.

The rumored 7.85 “iPad Mini” may be produced in Brazil and ramp up production starting in September. The Mini would be more expensive than its $199 competitors, Google’s Nexus 7 and Amazon’s Kindle Fire. By 2016, tablet sales are expected to surpass notebook sales for the first time, with the margin between the two increasing again in 2017.

Traditional cellular operators simply don’t offer consumers a cost/effective data package for Amazon’s expected service needs. The same could be said about Google and Apple tablets, which consume more data than cell phones and are more mobile than laptops.

By the end of 2017, it is estimated that mobile PCs will generate 8 GB per month, and a smartphone just above 1 GB, according to Ericsson. Tablets will generate 17 percent of mobile wireless data demand by 2020, according to Cisco.

Validas found that unlimited users typically use between 3.5-4 GB a month. A $199 tablet is not going to move goods and services if it costs $80/month.

Spectrum ownership is one solution. But who has spectrum to spare? Dish and Clearwire are the two obvious choices in the United States. All other cellular options are capacity constrained.

If Dish goes with T-Mobile, then Amazon could do a virtual operator deal with them. If Dish goes with AT&T, then Amazon might go with AT&T as a virtual operator. But AT&T would first have to construct a nationwide 2.1 GHz network. T-Mobile, in contrast, has a nationwide AWS system in place and operational. It might add the 40 MHz of Dish spectrum faster and more cheaply.

But devices supporting Dish’s unique 2.1 GHz frequency aren’t expected until 2014.

Clearwire has the most spectrum. They have 100 MHz available in most major cities. Their TD-LTE service, available in less than a year, will also provide device compatibility with China Mobile and Indian operators which also plan TD-LTE systems. Amazon could launch TD-LTE-based services and devices on their own leased 2.6 GHz spectrum – and provide global roaming – in less than a year.

One media-intensive E-Pub3 publication could consume an entire month’s data allotment using traditional cellular data plans. A 2 GB overage fee would be in the $20 range from most cellular operators. Netflix-like video service would be virtually unthinkable with traditional cellular operators.

Amazon needs spectrum. One could argue that Google, Apple, Microsoft and Facebook also need to have some kind of wholesale arrangement.

Let’s look at the players:

  • Apple has said it is not going to acquire spectrum.
  • Google has pulled out of their Clear investment – perhaps that indicates that they will partner with Dish.
  • A deal between Microsoft and Barnes & Noble has essentially spun off the Nook business to Microsoft. They’ll support multi-media on The Slate.

A Seattle based troika with Amazon, Microsoft & Clear might have the advantage of time to market, bandwidth and management. That leaves Facebook as the odd man out. I’ll go with Dish and T-Mobile as home to the Google and Facebook phone service. Clear’s 2.6 GHz has poorer coverage but cheaper data downloads, good for Amazon and Nook. Apple will play the field.

“When the iPhone 5 comes out, if we get it and when we get it, we’ll offer unlimited (data),” said Steve Elfman, Sprint’s president of network operations. The iPhone 5 will likely support 2.6 GHz TD-LTE in China and in the U.S. Apple’s next iPhone will be powered by a quad-core ARM processor based on Samsung’s Exynos 4 architecture, a follow-on to its A5 series, according to one report.

An Amazon Phone might utilize TI’s OMAP 4 processor (similar to the Fire), with Qualcomm’s MDM9615 baseband processor, supporting both FD/TD-LTE. It could cost between $150 and $170 to build, says BetaNews.

Global internet advertising expenditures will rise about 31.5% between 2011 and 2013, according to a July 2011 forecast from Zenith Optimedia. Internet ad spending is expected to total about $72.18 billion USD this year, and reach $94.97 billion in 2013.

Advertising and app stores can subsidize wholesale spectrum purchases. Amazon, Google, Microsoft and Apple may open the gates to cheap and ubiquitous computing.

Seattle-based Twisted Pair Solutions might add Push to Talk (PTT) for Smartphones and Tablets. A Voice Over IP app would deliver real value for voice services.

A $200 device with a $20/mo LTE data plan sounds good to me.

Carriers aren’t in this game.

The era of “walled gardens” and $3 ring tones is over — just like they feared. It will be a bloodless coup. The best kind. Thanks, Craig!

Related articles on Dailywireless include; iBooks: Cellular’s Big Bang?, Dish LTE-Advanced Called “Ollo”, AT&T Wants 2.3 GHz for LTE, “Free” Public WiFi with WiMAX Backhaul, AT&T Talks Up Content Subsidized Data Plans, Kindle Fire: Profitable, Apple Textbook App, XO-3: OLPC’s $99 Tablet, Barnes & Noble: Getting Out of Publishing?, E-Books: Banner Year , Barnes & Noble Introduces $249 Media Tablet, Nook Tablet: $249, Kindle: Ignition Point, Television 3.0, Pocket Supercomputer, New Kindle File Format, Apple Vs Amazon on Subscription Services, E-Book Judgement Day, FreedomPop: Now 500MB free/month, Sprint Brings WiMAX to Virgin and Boost Mobile, NetZero: Free WiMAX Service, Banner Ads: Google’s Next Thrust?, Free WiFi with Video Ads Expands, Free Push-To-Talk from Wave, Internet Ad Revenue Up 23%

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