Verizon gives a few more clues about Tracfone acquisition

cell phone
Verizon will move the remaining 8 million or so Tracfone subscribers over to its network in coming years. (Pixabay)

For years, Verizon appeared to bend over backwards to avoid the prepaid segment, where service plans traditionally targeted the cheaper end of the market and customer turnover runs higher.

But with the nearly $7 billion agreement to buy prepaid leader Tracfone from América Móvil, Verizon is jumping in with both feet. It’s a big change in strategy that certainly drew the attention of Wall Street analysts.

Speaking at a Morgan Stanley event on Wednesday, Ronan Dunne, CEO of the Consumer Group at Verizon, said it’s fair to say that prepaid has been a “relatively small focus area” for Verizon up until now. Verizon also operates Visible and Yahoo Mobile prepaid brands.

Sponsored by ADI

What if we were always connected? With the help of our advanced wireless technology, even people in the most remote places could always be in touch.

What if there were no ocean, desert, mountain or event that could ever keep us from telling our stories, sharing discoveries or asking for help? ADI’s next-gen communications technology could keep all of us connected.

Dunne, who was CEO of Telefónica UK (O2) before joining Verizon in 2016, noted that the U.K. market was more than 70% prepaid when he first started in the business. By the time he left, it was about 30% prepaid as consumers migrated to postpaid.

“What I've seen inside Verizon is that the tools that we've been able to build, not just our network tools but our distribution tools and our billing and service tools and the analytics layer that we have on top of it, allowed us to be much more efficient in both our distribution and in our base management,” he said.

At an investor event (PDF) shortly after the proposed acquisition was announced, Verizon CEO Hans Vestberg explained that the move wasn’t in reaction to recent events, like the pandemic or Dish Network’s entry into prepaid, but he brought up Verizon’s Network-as-a-Service strategy. Verizon started talks with Tracfone in the latter part of last year.

The term “value segment” is often used to describe what’s historically been considered prepaid, an area itself that has changed quite a bit in the past 10 years. During Verizon’s analyst meeting last week, Vestberg said the company hasn’t been successful in prepaid while Tracfone has been, and he reiterated that Verizon wants to be No. 1 not only in the premium market but the value market as well.

RELATED: Lowenstein: What’s the roadmap for prepaid in the United States?

Dunne at the same event said he didn’t want to overly personalize it, but he came from a market that had a successful prepay business. As he worked with Verizon CTO Kyle Malady to understand the capacity and capabilities of the network, “I was increasingly confident that we could bring more benefits to the value segment, we can enhance the product set in that space. And therefore, we could improve the opportunities there for the customers who are served in that value segment.”

Total Wireless store
Tracfone sells a number of brands, including
through 177 of its own stores. 
(Wave7 Research)

Executives like to point out that of Tracfone’s 21 million customers, about 13 million of them already use the Verizon network today under the MVNO agreement.

“But there's 8 or 9 million that ride on competitor networks and we have the opportunity to migrate those across to be on to Verizon,” Dunne said on Wednesday. “So enhance the owner's economics and with the tools as I say, the CRM and base management and distribution tools, which we believe will allow us to be highly cost-effective in that segment.”

Verizon’s acquisition of Tracfone requires regulatory approval and it’s facing pushback from consumer interest and other groups. Citing concerns about competition and Lifeline, the Communications Workers of America (CWA) filed comments (PDF) earlier this week urging the FCC to deny Verizon’s request to give the acquisition a "streamlined" review. Its filing follows another petition to deny Verizon’s request for streamlined review by public interest groups Public Knowledge, the Open Technology Institute at New America and the Benton Institute for Broadband and Society. 

RELATED: Communications Workers challenge Verizon’s purchase of Tracfone

Dunne didn’t address those groups’ concerns but talked about the desire to grow the segment. In Tracfone, “we have a partner who we know and understand. It's a business we've been working with for more than 15 years, strong management team, strong brand portfolio,” he said. “We see that as a great opportunity for us to build out Tracfone's capabilities and its brand portfolio so that it can expand the opportunity in the value segment.”

Jeff Moore, principal of Wave7 Research, notes that the deal will take Verizon from last place in prepaid among the previously four national carriers to first place. 

“It’s going to be interesting to see what they do with that asset,” he said. Just looking at prepaid, “it’s kind of like the guppy swallowing the whale” because Verizon has a total of about 4 million prepaid customers compared with Tracfone’s 21 million.

Suggested Articles

Speaking at a FierceWireless 5G event this week, a T-Mobile executive said massive MIMO technology is applicable in TDD and FDD domains.

Nokia said joint research with Telefónica confirms that 5G networks are up to 90% more energy efficient than 4G.

The Senate Commerce Committee voted 14-12 along party lines to move forward on President Trump’s nomination of Nathan Simington to the FCC.