Blog: Digging into Verizon move on Tracfone - Mobile World Live

Blog: Digging into Verizon move on Tracfone

27 OCT 2020

Verizon made a splash last month, announcing a surprise deal to acquire prepaid MVNO Tracfone from America Movil for $6.25 billion.

The move had some obvious benefits, netting Verizon some 20.9 million subscribers and a sprawling distribution network of 90,000 retail locations.

But now that the waves have settled a bit, it’s time to take a closer look at the implications of the transaction for Verizon and the prepaid market overall.

Analysts from MoffettNathanson and LightShed Partners pointed out in research notes from September Verizon had historically left the prepaid segment on the backburner. But, they said there are several reasons for the operator’s interest in Tracfone.

Of Tracfone’s 20.9 million subscribers, approximately 13 million already use Verizon’s network under an MVNO agreement.

LightShed Partners analysts explained bringing Tracfone users under its own roof will allow Verizon to “add tens of percentage points” to Tracfone’s margin by eliminating MVNO costs and simultaneously “strike a blow to the wholesale revenue of its competitors” by onboarding the 7.9 million subscribers which currently use rival networks.

They added Verizon faces strong post-paid competition from T-Mobile US, arguing that opening a fresh battlefront in the prepaid segment creates the opportunity for “a new and interesting narrative for Verizon”.

A stronger position in prepaid could also give Verizon a leg up in a consumer market rattled by Covid-19 (coronavirus), with MoffettNathanson analysts pointing out “historically, prepaid takes share from post-paid during periods of economic stress”.

Jeff Moore, principal analyst at Wave7 Research, told Mobile World Live (MWL) the deal moves Verizon from “worst to first” in the prepaid market, bringing its subscriber count in the segment to nearly 25 million compared with T-Mobile’s approximately 20.5 million and AT&T’s 18 million.

Beyond just subscriber figures, though, it will also bump the number of Verizon prepaid brands from three (Verizon Prepaid, Visible and Yahoo Mobile) to 12, Moore said. He noted Verizon could cull some of these, likely keeping Tracfone’s more successful brands including Straight Talk Wireless and Simple Mobile and scrapping more “worn out” offerings like NET10 Wireless, Page Plus and GoSmart Mobile.

Moore said the deal will also change the competitive landscape in prepaid, which he divided into three distinct categories: urban retail; national retail; and independent dealers. He predicted urban retail and independent dealer channels will largely go unaffected, but said the options available through national retail stores will be reduced to “a choice between AT&T brands and Verizon brands”.

He tipped this shift to be negative for prepaid pricing overall, adding any changes would disproportionately impact the low-income and young consumers who typically gravitate toward prepaid.

After the furious public debate and regulatory wrangling involved in T-Mobile’s merger with Sprint, it might seem fair to wonder whether Verizon’s Tracfone deal will pass muster.

Two prominent critics of the T-Mobile deal, digital rights group the Electronic Frontier Foundation and union Communications Workers of America (CWA), have yet to register complaints against the Verizon transaction more than a month after it was announced, though CWA told MWL it expects to share an analysis in the coming weeks.

On the regulatory front, Verizon will dodge the scrutiny from the Federal Communications Commission (FCC) T-Mobile faced since, as LightShed Partners, noted there are no spectrum licences being transferred.

The deal’s prospects at the Federal Trade Commission (FTC) and Department of Justice (DOJ), the other two regulators which typically review such transactions, are less clear.

Recon Analytics founder and lead analyst Roger Entner told MWL the key question for regulators will be whether an MVNO like “Tracfone is a competitor or not”. While the FCC isn’t reviewing the deal itself, he noted the FTC and DOJ will likely defer to its expertise on the matter.

But the FCC’s position on whether MVNOs are competitors is a bit muddled. The agency has historically “not considered MVNOs as competitors in the market because they are critically dependent” on MNOs. Entner pointed out, though, the regulator appeared to have undermined this logic when it determined Dish Network’s entrance into the mobile market would be a sufficient remedy to competition concerns raised by T-Mobile’s merger with Sprint, despite the fact Dish Network will operate as an MVNO on T-Mobile’s network for seven years.

Another factor at play is politics: Entner said an extended deal review is unlikely under a Republican administration but possible if Democrats win in an upcoming election in November.

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.



Diana Goovaerts

Diana is Mobile World Live's US Editor, reporting on infrastructure and spectrum rollouts, regulatory issues, and other carrier news from the US market. Diana came to GSMA from her former role as Editor of Wireless Week and CED Magazine, digital-only...

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