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

Enlarge / A monitor displaying a Verizon logo and share prices at the New York Stock Exchange on September 4, 2018.Getty Images | Bloomberg

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.

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