Verizon swoops into prepaid with $6.9B Tracfone acquisition

Verizon is getting in on the prepaid segment in a big way, today announcing plans to acquire Tracfone from Mexico-based América Móvil in a deal worth up to $6.9 billion.  

Tracfone, as the largest wireless reseller in the U.S. with prepaid brands including Straight Talk, has around 21 million subscribers. More than 13 million of those already ride on Verizon’s LTE network. In 2019, Tracfone generated about $8.1 billion in revenue.

Expected to close in the second half of 2021, the transaction includes $3.125 billion both in cash and Verizon common stock. It also includes up to $650 million in future cash consideration based on certain performance benchmarks and commercial agreements. Tracfone’s 850 employees will join Verizon as part of the deal.  

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Verizon historically has put far less emphasis on prepaid, compared to its postpaid competitors AT&T and T-Mobile, which have their respective Cricket Wireless and Metro by T-Mobile brands. In recent years Verizon’s made some quiet moves, such as backing the fledgling all-digital prepaid brand Visible. But with the Tracfone acquisition, Verizon is taking a deep dive into the prepaid space – looking to hold the position as largest provider in both the value and premium segments.

With Tracfone’s nearly 21 million subscribers, Verizon would have the largest prepaid base. That compares to the end of Q2 when Verizon had just under 4 million prepaid subscribers, versus about 18 million for AT&T, and about 20.5 million for T-Mobile. Boost Mobile, recently acquired by Dish Network for $1.4 billion, has over 9 million subscribers.

Tracfone also has an expansive retail presence and is sold at more than 90,000 locations nationwide including Walmart, Target, Best Buy, CVS, Family Dollar, and Dollar General. Its other brands include Total Wireless, Simple Mobile, and Walmart Family Mobile.

Verizon on Monday said the move aligns with its strategy for Network as a Service and creates a platform to grow Verizon’s value and low-income segments.

“We are excited about the opportunity to bring Tracfone and its brands into the Verizon family where we can put the full support of Verizon behind this business and provide exciting and compelling products into this attractive segment of the market,” said Verizon CEO Hans Vestberg in a statement. “We are pursuing this important strategic acquisition from a position of strength given our very strong and prudent financial profile.”

Along with 4G LTE, Verizon intends to deliver 5G networks to Tracfone customers, as well as fixed wireless home broadband solutions. Verizon will also keep offering Lifeline services and further develop core brands like StraightTalk and distribution channels.

While postpaid customers are usually seen as the main prize, Fierce reported in late July that prepaid had somewhat of a resurgence in the second quarter as consumers turned to more affordable choices. Tracfone led the pack, reporting 214,000 net additions for its prepaid services in the U.S. during Q2, compared to 135,000 at AT&T and 12,000 at Verizon.

Talking about the uptick in prepaid at the time, Wave7 Research pointed to Straight Talk as an early winner in a positive prepaid surge, having gained 361,000 subs in the first half of 2020. Wave7 cited factors for its success including third-party reps at Walmart, strong data plans, and the use of Verizon’s high-quality network.

“Since its launch, Tracfone has developed strong consumer brands and has established itself as a clear leader in the value mobile segment,” said Ronan Dunne, EVP and group CEO of Verizon’s Consumer segment, in a statement. “This 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.”

Verizon said it expects the deal for Tracfone to drive significant benefits and network synergies, accretive in the first full year after closing, and doesn’t anticipate the transaction to materially impact capital expenditures.

Tracfone also has had wholesale relationships with AT&T, T-Mobile and U.S. Cellular. In January, Fierce reported the provider was in the early stages of offering a nationwide SmartSIM program in the U.S., to automatically connect to the best wireless service depending on location without interruption. However, shortly after, the SmartSIM info was removed from Tracfone’s website.