F.J. Pollak's TracFone: The most successful wireless provider you've never heard of

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Mike Dano

It is an MVNO of all of the major nationwide wireless carriers, as well as some regional carriers. It offers a full range of products, from super low-cost voice phones to full-featured Android smartphones. It's available almost everywhere, from Walmart to Target to RadioShack. It has been guided by the same executive since it was founded almost two decades ago.

With 21.3 million subscribers, it's the nation's fifth largest wireless provider, though it spends virtually nothing on advertising.

It's TracFone Wireless, and analysts generally agree it's one of the smartest wireless players in the market.

"They were able to figure out there is a market for low-ARPU prepaid," explained Recon Analytics analyst (and FierceWireless contributor) Roger Entner. "The secret of success is that they have a maniacal focus on eliminating unnecessary expenses."

"We are taking a positive stance on TracFone Wireless, because the prepaid MVNO has continued to see moderate growth … while remaining the largest pure prepaid player in the market with over 20 million customers," Current Analysis analyst Jamie Huff wrote in a June report on the company. "While its ARPU remains one of the lowest in the industry at roughly $16, TracFone has seen a 60 percent increase in the last couple of years from its $10 ARPU reported in 2009."

Based in Miami, TracFone got its start in 1996 as Topp Telecom under the direction of Frederick J. Pollak (who also goes by F.J. Pollak). After just a few years the company managed ink wireless service deals with many of the nation's major wireless network providers, and sold its prepaid Nokia (NYSE:NOK) and Motorola phones in 15,000 retail outlets nationwide. The company then attracted the attention of billionaire Carlos Slim's Telefonos de Mexico, which purchased a controlling interest in Topp for $57.5 million in 1999. The next year Telefonos de Mexico became América Móvil and Topp became TracFone.

It's unclear exactly how much influence Slim's América Móvil wields over TracFone. Much of TracFone's management is Florida-area executives from the telecommunications or banking sectors, though América Móvil's Gustavo Blanco Villanueva held the position of TracFone CFO until relatively recently. Recon Analytics' Entner said the two companies work closely together.

"Carlos Slim is an extremely shrewd investor," Entner said. In TracFone, "he found people with a similar mindset."

Entner said the executives of both TracFone and América Móvil are laser focused on revenues, profits and the bottom line. TracFone, Entner said, is "a company run by accountants." Thus: "There was never a big culture clash" between the executives at América Móvil and TracFone.

Further, América Móvil provides TracFone with the financial base it needs to make investments, such as TracFone's recent purchase of Simple Mobile. América Móvil also can support TracFone's international calling services.

But one thing is clear: TracFone prefers to keep to itself. The company does not overtly attend major industry events like the CTIA Wireless trade show, nor does it conduct much advertising or industry-focused public relations. Attempts to reach current and former TracFone executives proved fruitless.

(Interestingly, it appears F.J. Pollak, who is still TracFone's chief executive, is becoming invested in this year's presidential election. According to a report in the Miami Herald, Pollak and his wife Abigail are "prominent Democratic fundraisers" and recently hosted a $40,000 per person fundraiser for President Barack Obama at their home.)

But how did TracFone, now a silent giant in wireless, manage to grow into the nation's No. 5 mobile operator?

"Distribution, as they're everywhere," noted one longtime industry observer. "Also, they got in the game very early. The TracFone brand is the ultimate glove box cellphone solution."

At its core TracFone sells prepaid services and phones through big-box retailers. The company's products are the definition of wireless simplicity: All users need to do is purchase the phone, activate it and then start talking.

As TracFone's primary brand continued to stamp out a position in the low-cost prepaid market, company executives decided to widen TracFone's addressable base with the addition of a new brand for a slightly wealthier crowd. TracFone's Net10 brand was an add-on to the TracFone brand that allowed the company to offer additional services without complicating its original TracFone-branded service. Today Net10 offers a range of services, including per-minute pricing and monthly unlimited talk, text and data service ranging up to $60 per month. 

TracFone also used this strategy to break into the ultra-low end of the market with its SafeLink Wireless brand, which leverages the government's Lifeline program to provide wireless services to low-income Americans. Though one would expect SafeLink to be a relatively small part of TracFone's overall business, fully one-sixth of all American households are on government assistance and are eligible for wireless Lifeline service, according to Entner. He said more than 18 million connections rely on the free wireless service. According to the Universal Service Administrative Company, the government's Lifeline administrator, TracFone receives more Lifeline money than any other U.S. company. In 2010, TracFone received $362 million in Lifeline funds, surpassing AT&T ($321 million) and Verizon ($123 million).

"TracFone has the cost structure to make money on that," Entner said of the Lifeline program. "They're incredibly efficient."

On the other end of the scale, TracFone in 2009 introduced its Straight Talk brand with the promise of unlimited talking and texting, and some data, for just $45 per month. (Straight Talk was also a competitive reaction to similar unlimited service offerings from the likes of Boost Mobile and others.) Straight Talk is exclusive to Walmart stores and represents TracFone's stab at the high end of the market. Today, TracFone offers a wide range of phones through Straight Talk, including the Samsung Galaxy S II and the LG Optimus Black.

TracFone does not break out subscriber counts for each of its brands.

Part of TracFone's secret sauce is that the company can play the nation's top wireless carriers against each other. Since TracFone has MVNO deals with Sprint Nextel (NYSE:S), AT&T Mobility (NYSE:T), T-Mobile USA, Verizon Wireless (NYSE:VZ) and others, the company can sell services through whichever carrier is currently offering the best rates. Most MVNOs offer service only through one carrier (Ting is an MVNO of Sprint and only Sprint, for example), but TracFone has deals with all of the top carriers and can shift its services to whichever carrier is offering the cheapest wholesale rates.

"They really are very well diversified," Entner said, adding: "And very, very smart."

Entner said TracFone's Straight Talk grew out of an overhaul of Verizon's wholesale service pricing. Then TracFone was able to add AT&T, T-Mobile and Sprint phones to the Straight Talk service as the financials fell into place.

And TracFone's multi-brand, multi-carrier approach to the market appears to work: The company has grown its revenues from $103 million in the first quarter of 2001 to $1.1 billion dollars in the first quarter of this year. During that period its subscriber count has grown from around 1.6 million to 20 million. Perhaps more importantly, some have begun to mimic TracFone's strategy: Sprint today offers prepaid services through brands stretching from Boost Mobile to Virgin Mobile to the Lifeline-focused Assurance Wireless.

Of course, the U.S. wireless market of 2001 is much different than the one today. TracFone now is facing a wide range of challenges, most notably in staying ahead of Americans' seemingly unquenchable thirst for high-end, expensive smartphones. Like most prepaid companies, TracFone's financial structure prevents it from supplying subsidized smartphones. For example, the Samsung Galaxy S II on Straight Talk costs around $350.

But some things appear to be swinging TracFone's way. According to BTIG analyst Walter Piecyk, T-Mobile USA's plan to merge with MetroPCS (NYSE:PCS) will give TracFone a boost in the market.

"The elimination of MetroPCS is good news for América Móvil's TracFone, the leading player in the U.S. pre-paid market with 21 million customers compared to MetroPCS' 9 million customers," Piecyk noted. "We expect the Straight Talk brand to continue to expand its smartphone product portfolio and for the Net10 brand to expand into the Hispanic market, where TracFone is currently under penetrated. We do not believe that MetroPCS had a large impact on AT&T or Verizon's prepaid businesses and any reduced competition is likely offset by T-Mobile gaining larger scale."

Further, TracFone isn't standing still. The company just this week introduced its new Straight Talk Wireless Home Phone, which allows users to conduct unlimited calls through their existing home phone for just $15 per month. The offering is similar to products from other wireless carriers but less expensive (Verizon's Home Phone Connect service is $19 per month) and again highlights TracFone's ability to reduce costs for consumers.

So what's next for TracFone? The company's acquisition of SIM-only MVNO Simple Mobile earlier this year indicates TracFone doesn't plan to remain silent, and could move into acquisitions to maintain its growth. +Mike Dano