As 2020 dawned, Verizon was in last place among the four national carriers in terms of prepaid with only four million subscribers, Verizon prepaid ranks well behind T-Mobile, Tracfone, AT&T, and even Dish Network, which operates Boost Mobile. Not only that, most carriers have been gaining prepaid customers while Verizon has been losing customers at a rapid pace.
But Verizon is set to acquire Tracfone in a deal valued at up to $6.9 billion, as detailed by FierceWireless on September 14.
Why is Verizon buying Tracfone?
Asked about Verizon being a laggard in prepaid, former Verizon CFO Fran Shammo in 2016 said “we use the Tracfone brand as our prepaid product.” Verizon monetized the prepaid market without the headaches and expenses of customer care, or at least that was Verizon’s philosophy in 2016.
Equity analysts have written that this deal with Tracfone will be financially accretive to Verizon, as margins grow sharply for the 13 million Tracfone customers on Verizon’s network, while eight million Tracfone customers using the networks of AT&T and T-Mobile are moved to Verizon’s network.
“Tracfone’s razor-thin (10%-ish) margins will immediately spike higher when those customers are put onto Verizon’s own network,” wrote MoffettNathanson Research. LightShed Partners referred to the deal as “the obvious deal that no one pursued.” I agree, the deal does make financial sense. The timing may have something to do with the closing of T-Mobile’s purchase of Sprint.
Verizon has been hemorrhaging prepaid customers. The carrier lost 1.7 million subscribers over the past 11 quarters, losing subscribers in 10 of the 11 past quarters. Verizon recently launched the Visible and Yahoo Mobile brands and even launched heavy advertising for Visible in May, but no subscriber totals for Visible or Yahoo Mobile have been disclosed. The simplest explanation is that Verizon just decided to become number one in prepaid the old-fashioned way, by writing a check.
Will Verizon keep Tracfone’s many brands?
Verizon executives have made positive comments about keeping Tracfone brands. I’m skeptical. Between nine Tracfone prepaid brands and three Verizon prepaid brands, the carrier would have 12 prepaid brands. Verizon would be foolish to shutter the Straight Talk brand, which has won 9.7 million subscribers via its robust presence at Walmart, its strong coverage via Verizon’s network, and generous allotments of data.
What’s the top brand in the multi-carrier dealer channel? Simple Mobile. As seen here, Simple Mobile wins the Wave7 Independent Prepaid Multi-Carrier Dealer Survey every quarter with ease. In addition, the Tracfone brand has appeal with older Americans with modest data needs, and it would make sense to keep that brand. Total Wireless already uses Verizon’s network and is widely sold at national retail.
Then, there’s GoSmart Mobile, which provide generous allotments of 3G data. PagePlus Cellular has been inactive and its main selling point has been usage of Verizon’s strong network. Both brands likely would be eliminated.
Walmart Family Mobile uses T-Mobile’s network and is sold alongside Straight Talk at Walmart, which would facilitate switching these customers to Straight Talk. I don’t think Verizon would miss Net10 Wireless.
In 2016 Verizon launched stores that sold nothing but Verizon prepaid. The effort was a flop. Its subsequent launch of Verizon prepaid via independent multi-carrier dealers has been more successful, but not strong enough to stop Verizon’s outward exodus of subscribers.
Verizon to gain presence via dealers and national retailers
Tracfone sells its portfolio of brands via 176 Total Wireless Stores. As Metro by T-Mobile, Cricket Wireless, and Boost Mobile close stores, Verizon would be smart to energize this channel, filling gaps where other carriers have closed stores. Tracfone also has a more flexible Tracfone Wireless Authorized Retailer Program, as well as an industry-leading presence among independent multi-carrier dealers.
Verizon prepaid has weak share at Walmart. Straight Talk, Walmart Family Mobile, Tracfone, Total Wireless and Simple Mobile all sell phones at Walmart and Verizon would control them all. Two AT&T brands – Cricket Wireless and AT&T Prepaid – are sold there and would be the primary competition. Boost Mobile is also sold at Walmart.
The situation is similar at Best Buy, as Simple Mobile, Total Wireless and Tracfone are sold there as well, in addition to Verizon prepaid. Cricket Wireless and AT&T Prepaid provide the competition, as Boost Mobile is not sold at Best Buy. GreatCall, which focuses on connectivity for older Americans, is also sold at Best Buy.
What about Visible and Yahoo Mobile?
Visible is likely to get less love from Verizon. The Tracfone acquisition was announced on September 14. Visible halted TV advertising on September 11. Coincidence? That said, Visible is different enough that Verizon could keep it around, selling online to young, savvy customers who see no need for stores. There is little apparent appeal for Yahoo Mobile.
While Sprint’s exit from the scene took the postpaid market from four to three competitors, prepaid is more complex, given MVNOs. Still, the Tracfone acquisition will have a similar impact, given the exit of a top player and the likely disappearance of several brands.
Verizon, the carrier that belittled prepaid not so long ago, will go from worst to first.
Jeff Moore is Principal of Wave7 Research, a wireless research firm that covers U.S. postpaid, prepaid, and smartphone competition. Jeff has 25 years of telecom industry experience, including 13 years of competitive intelligence work for Sprint. Follow him on Twitter @wave7jeff.
Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.