Verizon to Buy TracFone in Deal Worth Up to $7 Billion -- 2nd Update
September 14 2020 - 10:28AM
Dow Jones News
By Drew FitzGerald
Verizon Communications Inc. said it has agreed to buy TracFone,
a provider of wireless prepaid services, in a deal worth up to $7
billion in cash and stock, further consolidating the U.S. cellular
market.
TracFone, a unit of Mexico's América Móvil SAB, has about 21
million prepaid customers in the U.S. under its namesake brand as
well as StraightTalk and Net10. The company doesn't run its own
physical network in the U.S. and instead rides on other cellphone
carriers' systems for a fee and then resells service under its own
brands.
The move plunges Verizon deep into the prepaid market, a sector
it has largely avoided by catering to more lucrative customers who
pay for wireless service after it is rendered. Customers on prepaid
plans tend to switch providers more often, which operators consider
a risk.
Verizon is the biggest U.S. provider with about 120 million
connections, but it has been competing in a mature market that is
now dominated by three providers. T-Mobile US Inc. became the No. 2
provider by subscribers after swallowing Sprint earlier this
year.
Verizon said it served about 4 million prepaid wireless
customers at the end of June. Adding TracFone would vault it to the
top spot in the prepaid market. T-Mobile, owner of the Metro
service, has about 20 prepaid customers. AT&T serves about 18
million U.S. prepaid customers mostly through its Cricket
brand.
Verizon consumer chief Ronan Dunne said TracFone will remain a
distinct business that will benefit from access to a wider range of
cellphones, smart devices and connected home products through the
carrier's ownership.
"It's a business we know well but it's not one where we've been
driving our own destiny," Mr. Dunne said in an interview. "They're
a winner in this segment already. We see this as a growth
platform."
TracFone, backed by Mexican billionaire Carlos Slim Helu, grew
into the biggest U.S. cellphone reseller by catering to frugal
customers through Walmart Inc. stores and other independent
dealers. Its StraightTalk service offers data plans for as little
as $34 a month. TracFone offers service for as little as $15 a
month with limits on internet data as well as the number of texts
and phone calls.
About 13 million of TracFone's subscribers already use Verizon's
network through an existing wholesale agreement. Like Consumer
Cellular and Republic Wireless, these brands have wholesale deals
to rent space on existing cellular networks and then resell
services under their own brands.
The coronavirus pandemic helped boost TracFone's subscriber
numbers earlier this summer, though the company's growth has
flagged in recent years under pressure from AT&T Inc. and
T-Mobile prepaid plans.
New wireless plans from cable operators Comcast Corp. and
Charter Communications Inc., which also resell network bandwidth
provided by Verizon, have added more competition for TracFone.
After moving in lockstep for years, Verizon and AT&T have
pursued different strategies. With TracFone, Verizon is investing
in its core business of cellular connections. AT&T branched out
into the television and media business by acquiring DirecTV in 2015
and Time Warner in 2018. AT&T is now exploring a sale of the
satellite-TV business it acquired from DirecTV.
Verizon said the TracFone deal will include about $3.125 billion
of cash and $3.125 billion in Verizon shares. TracFone could get an
additional $650 million cash payment tied to performance measures
and other commercial arrangements.
Mr. Dunne said some of the added payments are tied to the
prepaid service's ability to hit revenue targets and to
successfully move more accounts to Verizon's network. TracFone
relies on T-Mobile and AT&T network infrastructure for some of
its connections.
Shares of America Movil gained about 5.1% in New York trading on
the news. Shares of Verizon were up 1% to $60.37.
The deal is subject to approval from antitrust and telecom
regulators. Federal competition enforcers have traditionally viewed
virtual-network operators like TracFone as resellers of wholesale
network capacity owned by companies like Verizon that own the
cell-tower equipment and lines that carry their traffic, so the
deal is unlikely to attract as much scrutiny as T-Mobile's Sprint
takeover did when it was announced in 2018. Verizon said it expects
its transaction to close in the second half of 2021.
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com
(END) Dow Jones Newswires
September 14, 2020 10:13 ET (14:13 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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