América Móvil's TracFone loses 318K subs in Q1, partially due to Lifeline changes

América Móvil's U.S. MVNO, TracFone Wireless, lost 318,000 total customers in the first quarter, which it blamed largely on disconnections it had to make related to its participation in the federal Lifeline phone program.

The carrier ended the first quarter with 25.688 million total customers, down from 26.006 million at the end of the fourth quarter. In a brief statement, TracFone said that it engaged in a "clean-up of our subscriber base that led us to disconnect [318,000] subscribers mostly from our Lifeline program." TracFone had added 452,000 subscribers organically in the first quarter of 2014.

The Lifeline program offers participating carriers a subsidy of up to $10 per month per subscriber, and the program is part of the FCC's Universal Service Fund, which the FCC is in the process of reforming. USF is paid for by wireless subscribers. Customers who qualify for Lifeline are often those who qualify for other federal benefit programs such as the Supplemental Nutrition Assistance Program (SNAP, or food stamps).

In 2012 the FCC instituted new rules that required carriers that received Lifeline funds to certify that their Lifeline subscribers were eligible for the program, an effort to streamline the program and reduce waste. The FCC's rules prohibit Lifeline service providers from requesting and/or receiving support for consumers who already receive Lifeline service. Additionally, the FCC requires Lifeline carriers to carefully monitor their compliance with the Lifeline rules and recently cautioned that not following the rules would result in enforcement action.

According to the Wall Street Journal, documents TracFone filed with the FCC showed that 8 percent of its Lifeline customers were deemed ineligible for 2014. Other carriers are facing stronger headwinds. For example, the Journal noted, around 62,000 people, or 62 percent of Verizon Communications' (NYSE: VZ) landline customers in New York State, who were receiving the Lifeline benefit last year were deemed ineligible as of January, according to a document Verizon filed with the FCC.

T-Mobile US (NYSE:TMUS) dropped support for Lifeline at the end of 2014 and AT&T Mobility's (NYSE: T) Cricket prepaid brand said in June 2014 that it is planning to phase out its support for the Lifeline service by around the end of 2015 or early 2016.

Meanwhile, at TracFone, the company said first-quarter revenues climbed 9.5 percent to $1.8 billion, with service revenues rising 7.3 percent. The company reported an average revenue per user of $20, up 4 percent year-over-year.

TracFone said its EBITDA was slightly down, 1.9 percent, to $214 million. The drop in EBITDA is linked to the launch of TracFone's new brand Total Wireless, the company said.

Total Wireless launched in March exclusively through Walmart, and it is likely partnering with Verizon Wireless (NYSE: VZ), though the company did not confirm it is a Verizon MVNO. What sets Total Wireless apart from some of its MVNO brethren is that it lets customers purchase data that doesn't expire after a month.

For more:
- see this release (PDF)
- see this WSJ article (sub. req.)
- see this TracFone FCC filing


Special Report: Wireless in the first quarter of 2015

Related Articles:
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AT&T's Stephenson: We're not gunning for América Móvil's assets in Mexico
TracFone to pay $40M to settle FTC complaint over data throttling practices
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