Verizon has agreed to spend up to $6.9 billion to buy prepaid mobile virtual network operator Tracfone from America Movil, expanding its focus on low-cost and prepaid services and saying that it will eventually offer 5G access to Tracfone customers.
In addition to $3.125 billion in cash and $3.125 billion in Verizon common stock, the agreement also includes up to $650 million more in future cash payments based on performance metrics. Verizon said that it expects the transaction to close in the second half of next year and “drive significant benefits and network synergies” but not have material impact on capital expenditures.
Tracfone is the largest wireless reseller in the U.S. and serves about 21 million subscribers, with more than 13 million of them using Verizon’s network through an existing wholesale agreement. Its products are available in more than 90,000 retail locations across the U.S., and the company operates a number of subsidiary brands including StraightTalk, Total Wireless, Walmart Family Mobile, NET10 Wireless, SIMPLE Mobile and others.
Ronan Dunne, EVP and Group CEO for Verizon Consumer Group, said in a statement that the transaction “firmly establishes Verizon, through the Tracfone brands, as the provider of choice in the value segment, which complements our clear leadership in the premium segment.”
The move is a shift for Verizon, which has long focused on high-value postpaid customers and for which prepaid service has been somewhat of an afterthought, although it has an existing wholesale agreement with Tracfone. That may be changing in part due to the ongoing global pandemic and the economic fallout that is resulting — and to head off T-Mobile US, now the second-largest U.S. carrier after its merger with Sprint, from further capitalizing on its position as a value player.
T-Mobile US, for instance, indicated during its most recent quarterly results that it felt it was well-positioned to draw in customers who were likely to turn away from expensive postpaid options from Verizon and AT&T, due to economic belt-tightening. In May, CEO Mike Sievert said that as social distancing measures lifted around the county, T-Mobile US expected to see a wireless market with “a large pool of switchers” as users adjust their wireless plans to the emerging economic reality, with tens of millions of lost jobs.
“We’re a proven share-taker, prepaid and postpaid, in times of constrained budgets,” Sievert said.
The purchase also elevates Verizon’s competition with Dish Network, which acquired prepaid MVNOs Boost Mobile and Virgin Mobile’s customer base as part of the conditions of the Sprint/T-Mobile US merger. About 9.4 million Boost customers and 500 Boost employees, plus more than 7,000 retail storefronts, were divested to Dish. Dish’s wireless customers will have access to the New T-Mobile US network for at least seven years after the merger date, as Dish gets its own network up and running.
Verizon said that after the acquisition is finalized, it “expects to bring its award-winning 4G LTE and 5G networks and other innovative technologies to Tracfone customers, further develop Tracfone’s distribution channels, and expand Tracfone’s market opportunities.” The carrier said that the purchase “aligns with Verizon’s growth oriented Network as a Service strategy, and will provide more U.S. 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.
“The portfolio of Tracfone brands creates a platform for growth and innovation in Verizon’s support of the value and low income segments,” the carrier said. Verizon added that it will continue to offer the Lifeline service for low-income customers through Tracfone and “further develop its core brands, products and distribution channels, including StraightTalk, the vast majority of whose customers operate on the Verizon network today.”
“When Tracfone’s customers become part of our family, they will get the best of both worlds–more choices, better services, and new features thanks to Verizon’s investment–but with the flexibility and control that they have come to value with its prepaid plans. Being connected is now more important than ever, and Tracfone customers will benefit from Verizon’s innovations–-both now and in the future,” Dunne added.