Verizon today announced it has struck a deal to buy TracFone in a further consolidation of the US cellular industry.
Verizon is one of three major carriers that operate nationwide wireless networks, along with AT&T and T-Mobile (which recently bought Sprint). TracFone is the country’s largest reseller of mobile service and already relies primarily on Verizon’s network to provide connectivity. More than 13 million of TracFone’s 21 million customers “currently rely on Verizon’s wireless network through an existing wholesale agreement,” Verizon’s announcement said.
After the sale is completed, “all TracFone customers will have access” to the Verizon network, a Verizon fact sheet on the deal said. Verizon could try to shift existing TracFone customers to Verizon plans, as Verizon said the deal will bring “enhanced access to its industry-leading wireless network and comprehensive suite of mobility products and services to a new customer base.”
The deal could also increase the number of phone models that can be purchased directly 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 today.
TracFone is a subsidiary of América Móvil, the Mexican telecom founded by Carlos Slim. TracFone had about $8.1 billion in revenue in 2019, while Verizon reported $94.2 billion in wireless revenue for the year. (Verizon’s total revenue including non-wireless business lines was $131.9 billion.)
The Verizon/TracFone merger needs regulatory approval, and Verizon said it expects to complete the deal in the second half of 2021. The sale price is potentially almost $7 billion, consisting of $3.125 billion in cash, $3.125 billion in Verizon stock, 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 other resellers generally provide cheaper data plans than facilities-based carriers like Verizon and do so via prepaid plans instead of the postpaid ones that make up the bulk of the big carriers’ businesses. The big carriers often own the prepaid-reseller brands themselves—for example, AT&T owns Cricket Wireless, T-Mobile owns the former MetroPCS brand, and Verizon owns Visible Wireless.
Dish also entered the prepaid market by purchasing Boost Mobile from T-Mobile, which agreed to sell the former Sprint division in order to win Department of Justice approval of its merger with Sprint. Cable companies have been launching their own reseller services, providing some new competition in that part of the wireless market.
Verizon to vault past AT&T and T-Mobile in prepaid
Verizon’s prepaid business had about 4 million connections as of mid-2020, down from 4.3 million a year earlier. That’s a drop in the bucket compared to Verizon’s 115.9 million retail postpaid connections and far fewer than the numbers of AT&T and T-Mobile prepaid customers.
“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 offers service under its own name and several other brands, including Straight Talk, Simple Mobile, Total Wireless, and Net10. The company has about 850 employees and over 90,000 retail locations, including at chains Walmart, Best Buy, CVS, Dollar General, and Family Dollar.
The merger, Verizon said, “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 also said the deal will help it compete for low-income customers. “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 said.
TracFone is facing a potential $6 million fine, as the Federal Communications Commission recently alleged that the company obtained FCC Lifeline funding by “enroll[ing] fictitious subscriber accounts” and that it improperly received more than $1 million in the process.