Verizon to buy TracFone, expanding big carriers’ control of prepaid industry

A Verizon logo displayed along with stock prices at the New York Stock Exchange.
Enlarge / A monitor displaying a Verizon emblem and share costs on the New York Stock Exchange on September 4, 2018.

Getty Images | Bloomberg

Verizon right now announced it has struck a deal to buy TracFone in an extra consolidation of the US mobile industry.

Verizon is one of three main carriers that function nationwide wi-fi networks, together with AT&T and T-Mobile (which lately purchased Sprint). TracFone is the nation’s largest reseller of cell service and already depends totally on Verizon’s community to present connectivity. More than 13 million of TracFone’s 21 million clients “currently rely on Verizon’s wireless network through an existing wholesale agreement,” Verizon’s announcement mentioned.

After the sale is accomplished, “all TracFone customers will have access” to the Verizon community, a Verizon truth sheet on the deal mentioned. Verizon might strive to shift present TracFone clients to Verizon plans, as Verizon mentioned the deal will deliver “enhanced access to its industry-leading wireless network and comprehensive suite of mobility products and services to a new customer base.”

The deal might additionally improve the quantity of cellphone fashions that may be bought straight from TracFone. “Verizon consumer chief Ronan Dunne said TracFone will remain a distinct business that will benefit from access to a wider range of cellphones, smart devices and connected home products through the carrier’s ownership,” The Wall Street Journal wrote right now.

TracFone is a subsidiary of América Móvil, the Mexican telecom based by Carlos Slim. TracFone had about $8.1 billion in income in 2019, whereas Verizon reported $94.2 billion in wi-fi income for the yr. (Verizon’s whole income together with non-wireless enterprise strains was $131.9 billion.)

The Verizon/TracFone merger wants regulatory approval, and Verizon mentioned it expects to full the deal within the second half of 2021. The sale worth is doubtlessly nearly $7 billion, consisting of $3.125 billion in money, $3.125 billion in Verizon inventory, and “up to an additional $650 million in future cash consideration related to the achievement of certain performance measures and other commercial arrangements.”

TracFone and different resellers typically present cheaper information plans than facilities-based carriers like Verizon and achieve this through prepaid plans as a substitute of the postpaid ones that make up the majority of the big carriers’ companies. The big carriers typically personal the prepaid-reseller manufacturers themselves—for instance, AT&T owns Cricket Wireless, T-Mobile owns the previous MetroPCS model, and Verizon owns Visible Wireless.

Dish additionally entered the prepaid market by purchasing Boost Mobile from T-Mobile, which agreed to promote the previous Sprint division so as to win Department of Justice approval of its merger with Sprint. Cable corporations have been launching their very own reseller companies, offering some new competitors in that half of the wi-fi market.

Verizon to vault previous AT&T and T-Mobile in prepaid

Verizon’s prepaid enterprise had about 4 million connections as of mid-2020, down from 4.3 million a yr earlier. That’s a drop within the bucket in contrast to Verizon’s 115.9 million retail postpaid connections and much fewer than the numbers of AT&T and T-Mobile prepaid clients.

“Adding TracFone would vault [Verizon] to the top spot in the prepaid market,” The Wall Street Journal wrote. “T-Mobile, owner of the Metro service, has more than 20 million prepaid customers. AT&T serves about 18 million US prepaid customers mostly through its Cricket brand.”

TracFone affords service underneath its personal title and a number of other different manufacturers, together with Straight Talk, Simple Mobile, Total Wireless, and Net10. The firm has about 850 workers and over 90,000 retail areas, together with at chains Walmart, Best Buy, CVS, Dollar General, and Family Dollar.

The merger, Verizon mentioned, “will provide more US consumers seeking value wireless plans with improved experiences and enhanced services, including fixed wireless residential broadband solutions, 5G access and expanded international calling and roaming options.”

Verizon additionally mentioned the deal will assist it compete for low-income clients. “Verizon will continue to offer Lifeline service through TracFone and further develop its core brands, products, and distribution channels, including Straight Talk, the vast majority of whose customers operate on the Verizon network today,” the merger announcement mentioned.

TracFone is dealing with a possible $6 million high quality, because the Federal Communications Commission lately alleged that the corporate obtained FCC Lifeline funding by “enroll[ing] fictitious subscriber accounts” and that it improperly obtained greater than $1 million within the course of.

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