Concerns grow over Verizon’s acquisition of TracFone

Verizon
Verizon says will continue reselling services on the networks of other providers once the TracFone transaction closes.(Fierce Wireless)

Boost Mobile founder Peter Adderton is suggesting to the FCC a new condition be considered in Verizon’s acquisition of prepaid MVNO TracFone: Require the divestiture of TracFone subscribers who are currently served by third-party networks.

According to Adderton, doing so would curb the potentially costly disruptions to these consumers by allowing them to remain on the AT&T or T-Mobile networks. “Moreover, imposing such a condition would serve the public interest by allowing an independent MVNO to achieve the scale necessary to compete with the major facilities-based carriers and their affiliated prepaid brands,” he told the FCC in a March 1 filing.

TracFone is the largest wireless reseller in the U.S., with about 21 million subscribers and prepaid brands including Straight Talk and Simple Mobile. Verizon announced in September that it plans to acquire TracFone from América Móvil in a deal worth up to $6.9 billion, which still must pass regulatory approval.

At last check, about 13 million of TracFone subs already are on Verizon’s network through its MVNO arrangement with the company; TracFone also uses the networks of AT&T and T-Mobile under separate MVNO arrangements.

Adderton told Fierce that he “doesn’t believe for a second” that T-Mobile and AT&T are going to let Verizon use their networks to make money, meaning millions of customers will be looking for new services. That’s on top of all the customers who will be affected if T-Mobile shuts off the its 3G CDMA (formerly Sprint's) network early next year, as it has informed current Boost owner Dish Network it plans to do.  

RELATED: What T-Mobile 3G CDMA shutdown means for Boost Mobile

Once the TracFone transaction closes, Verizon will continue reselling services on the networks of other providers, according to Adria Tomaszewski, director of communications at Verizon.

“Over time, Verizon intends to offer promotions designed to help migrate TracFone customers on other providers’ networks to the Verizon network,” Tomaszewski told Fierce. “But we will need to compete for these consumers’ business – especially given the ease of switching providers in the prepaid market. This means that these customers will be in a great position to pick and choose what works for them and negotiate great deals as a benefit of real competition.”

RELATED: Boost founder bucks waves, fights new MVNO battle

Consumer groups and Adderton are concerned that if TracFone is out of the picture, no other big entity will remain to exert downward pricing pressure on the national facilities-based carriers. MVNOs typically don’t own their own infrastructure but ride on the networks of the mobile network operators (MNOs).

Sprint was long considered one of the more MVNO-friendly carriers, while the attitudes of other carriers ran cooler. Verizon is the MVNO partner for cable companies Comcast and Charter Communications.

Adderton shared his divestiture idea with staff from the FCC during a recent Zoom meeting, which was also attended by the Communications Workers of America (CWA) union. In its filing about the meeting, CWA doesn’t go so far as Adderton when it comes to urging a divestiture, but it shares some of the same concerns about the deal, including the control that mobile carriers exert over MVNOs.

“Dependent on their much larger MNO host, and with little room to negotiate their rates, many MVNOs much smaller than TracFone have little power in a scale- and price-based battle, forcing many into survival mode or, worse, an exit from the market,” wrote CWA Senior Researcher Brian Thorn. “Each time another MVNO exits the market is a loss in competition for consumers.”

CWA is also concerned about the status of the Lifeline program post-merger, because TracFone is one of the largest providers of Lifeline services, with about 1.7 million low-income subscribers in 42 states, while Verizon has a poor track record, offering wireless Lifeline services to customers in parts of four states.

CWA is asking the FCC to issue a Request for Information to get more answers from the companies, and they’re optimistic. “I do think that the new leadership at the commission is more concerned than the last with consumer interest and protecting Lifeline consumers,” Thorn told Fierce.

Last month, the attorneys general from 16 states and the District of Columbia sent a letter to the FCC urging the agency to request additional information from Verizon about its planned TracFone Wireless acquisition. A couple weeks later, the FCC rejected Verizon’s request for an expedited review of the deal, saying it raises issues of “extraordinary complexity” and requires an additional 90-day review period.

RELATED: Verizon’s acquisition of TracFone gets additional review time

Verizon historically has held prepaid at arm’s length. By acquiring TracFone, it would leap from the last position to the first position in terms of the number of prepaid customers compared with its wireless carrier rivals.

But contrary to what many might have expected, Covid didn’t lead to an upturn in the prepaid sector, as past recessions might have indicated. Recon Analytics’ Roger Entner said that has a lot to do with stimulus checks. But he also said on his recent podcast that it puts a question mark around Verizon’s decision to buy TracFone, which continued to lose prepaid customers (as did Verizon) in the last quarter while T-Mobile and AT&T gained prepaid customers.

Adderton, who has been working on launching a new MVNO, has advocated for regulations in the U.S. to protect MVNOs and said the MVNO market today is in the worst shape it’s ever been in. With TracFone out of the picture, the next biggest MVNO in the U.S. is Consumer Cellular, which has about 4 million customers and focuses on the over 55 crowd.

So why is he starting a new MVNO company now in Mobile X? He said he’s trying to create a platform that is disruptive and works for the consumer. “What we’re doing is something very unique,” he told Fierce. Stay tuned for the details on that.