States push for Lifeline protections in Verizon/TracFone deal

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Verizon says the proposed transaction will make a combined Verizon/TracFone a stronger competitor for prepaid customers, but consumer groups are concerned about what will happen to Lifeline services. (Pixabay)

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.

Verizon announced last fall that it plans to acquire TracFone from Mexico-based América Móvil in a deal worth up to $6.9 billion. TracFone is an MVNO using the network of Verizon and others but most of its traffic is on Verizon’s LTE network.

TracFone is one of the largest providers of Lifeline, the program that provides services for about 1.7 million low-income subscribers in 43 states and the District of Columbia. By contrast, Verizon only offers its mobile services to Lifeline customers in parts of four states, the AGs wrote in their letter to the FCC on Thursday.

“The potential for Verizon to pursue additional profits by reducing the access and/or quality of Lifeline services could shut out millions of low-income Americans from adequate communications services,” they wrote. “Considering the fundamental role that cellular telephones play in accessing modern society and the modern economy, it is imperative that Lifeline services be protected and maintained if this transaction is approved.”

The AGs want the FCC to adopt specific conditions that protect Lifeline customers, such as a commitment by Verizon to provide Lifeline services at an affordable rate and at a quality commensurate with modern standards. Alternatively, it could require that Verizon offer, for a period of years, Lifeline service packages that are at least as consumer friendly or more than TracFone’s existing lowest cost Lifeline packages.

They also point out that a merger of the leading mobile network operator and the leading MVNO in an “already concentrated mobile wireless market” would see the last significant MVNO integrated into a national facilities-based provider.

Their concerns are similar to what the Communications Workers of America (CWA) union has raised in previous FCC filings. In December, CWA filed comments demanding a commitment from Verizon to participate in the Lifeline program for a minimum of five years. CWA also demanded a commitment from Verizon to continue to market to, and provide customer services for Lifeline and prepaid customers, including non-English-speaking customers.

In addition to Virginia Attorney General Mark Herring and D.C. AG Karl Racine, the attorneys general of the following states joined in signing the letter: Colorado, Connecticut, Delaware, Iowa, Massachusetts, Michigan, Minnesota, Nevada, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont and Washington.

Verizon provided the following statement in response Fierce’s inquiry on Friday:

"Verizon's proposed acquisition will benefit existing TracFone customers, offering them access to our award-winning network and comprehensive suite of products and services. As we said when we announced the agreement in September, we will continue to offer Lifeline service through TracFone and further develop its core brands, products and distribution channels. Strengthening and growing TracFone will benefit value-conscious consumers, and we look forward to continuing to work with the FCC to obtain regulatory approval."

RELATED: Verizon gives a few more clues about Tracfone acquisition

Verizon filed reply comments with the FCC’s International Bureau in late December, saying there’s no basis to impose conditions or seek further information about the deal.

Verizon argued that a combined Verizon/Tracfone will need to earn customers’ business given the fierce competition in the prepaid segment. The vertically-integrated “flanker brands” of Verizon’s rivals – T-Mobile’s Metro and AT&T’s Cricket – enjoy integrated advantages, including lower costs and access to better equipment offerings, according to Verizon.

"As a result, these flanker brands have substantially increased their subscriber base in the last several years while standalone TracFone’s subscriber count has declined. The proposed transaction will make a combined Verizon/TracFone a stronger competitor for prepaid customers against AT&T and T-Mobile, as well as DISH,” Verizon told regulators.

'Vague' response

But the CWA says Verizon is basically avoiding its concerns and those raised by public interest groups.

“They have been incredibly vague” in their responses, saying they “intend” to continue TracFone in its current business model but haven’t made any binding commitments, said Brian Thorn, senior researcher at CWA, in a recent interview.

Verizon traditionally has not focused on the prepaid market, opting to court the higher-end postpaid market. However, its acquisition of TracFone would put it ahead of both T-Mobile and AT&T in terms of total prepaid customers. At the end of 2020, Verizon reported a prepaid base of about 4 million whereas T-Mobile had about 20.7 million and AT&T had about 18 million in total. TracFone at last check had about 21 million customers.

T-Mobile last year urged the FCC not to give Verizon’s TracFone application any streamlined treatment, and also said the commission must consider the competitive impact of the transaction and, more broadly, the potential benefits and harms. At the time, T-Mobile said it doesn’t take a position on the merits of the proposed transaction, but the application raises a number of issues that the FCC must carefully evaluate.