Verizon Allowed to Swallow Tracfone Whole After FCC Approves $8.3 Billion Deal

Verizon Allowed to Swallow Tracfone Whole After FCC Approves $8.3 Billion Deal
Image: David Ramos, Getty Images

The slow creep of U.S. carrier consolidation continues. In this instalment, Verizon is getting ready to gobble up millions of new wireless subscribers now that the Federal Communications Commission has officially approved its acquisition of Tracfone, one of the country’s largest providers of subsidized mobile phones for low-income people. The relatively under-the-radar $US6 (A$8.3) billion-plus acquisition got moving in September 2020 but was stuck awaiting regulatory approval.

In total, Tracfone has around 20 million subscribers and 90,000 locations, making it the largest ​​prepaid, no-contract wireless provider in the country. Tracfone was itself a turducken of several smaller brands, including Straight Talk, Total Wireless, and SafeLink, some of which already operated on Verizon’s wireless network.

Advocates and lawmakers have lobbied concerns around the acquisition since it was first announced, with many fearing the deal would lead Verizon to abandon Tracfone’s Lifeline program. That subsidy program, which has been around since the 1980s, provides customers living below the poverty line a $US9.25 (A$13)/month discount on phone and broadband services and dishes out funds for each person subscribed to participating carriers. But Verizon has previously expressed interest in government alternatives to Lifeline, leading some to worry the company would pull the rug out from under subscribers and abandon the program following the acquisition. Tracfone had nearly 2 million Lifeline customers, according to Axios.

Those concerns ramped up earlier this year when a group of 16 state attorneys general sent a letter to the FCC demanding the agency request more details, particularly around the preservation of Lifeline. These concerns appear to have been addressed, according to the FCC, which released a statement saying Verizon had made several confessions and commitments around the program. Among those, Verizon committed to continue offering Tracfone’s Lifeline service over the same service areas for seven years, submit public reports on Lifeline and non-Lifeline users, and offer 5G plans and a range of cost-effective 5G devices for current and new Lifeline customers.

“After rigorous review, the Commission found that the transaction, as modified by Verizon’s enforceable commitments, will make Verizon and Tracfone stronger providers of prepaid and Lifeline service,” the FCC wrote.

The acquisition will enlarge Verizon’s subscriber base, already the industry’s largest, and enter it into an entirely new low-income market. That will put it in competition with rivals AT&T and T-Mobile, which own Cricket and MetroPCS, respectively. In a statement, Verizon praise the FCC’s decision and claimed the acquisition would lead to “more choices, better services and new features.”

Critics and advocates sceptical of carrier consolidation and large corporate acquisitions will likely see the move as a loss, especially given the Biden administration’s recent posturing hinting at increased merger and acquisition scrutiny. In reality, though, 2021 is actually on track to be the biggest year for mergers and acquisitions according to Bloomberg.

At the same time, the FCC has found itself in a holding pattern with split Democratic and Republican Commissioners and an open seat. This stalemate has made advancing any of the new administration’s more ambitious policy proposals within the agency a near non-starter. Republicans meanwhile, show no signs of confirming Biden’s new nominee — consumer advocate Gigi Sohn — anytime soon, with South Carolina Senator Lindsey Graham saying he would do “everything in my power to convince colleagues on both sides of the aisle to reject this extreme nominee.”