Verizon moves to prove its prepaid TracFone chops

Now that Verizon owns prepaid wireless reseller TracFone, the former can aggressively counter other prepaid rivals without cannibalizing its premium postpaid brand. Nonetheless, the onus is on Verizon to prove it really can meet the competitive challenge in prepaid.

Verizon finally acquired TracFone from América Móvil in a deal worth nearly $7 billion on November 22, 2021, more than a year after announcing the planned acquisition.

On the plus side, Verizon, already the largest US wireless operator, has gained massive scale and is now the largest US prepaid wireless provider, having added 20 million TracFone subscribers to its prepaid customer base of 4.1 million at the end of Q3 2021. About 13 million of those TracFone users are already on the Verizon network via an existing wholesale agreement, so there should be few transition issues for them.

Verizon has scaled up

Verizon is also gaining access to a network of 90,000+ retail locations where services from TracFone and its many brands are marketed. Those brands include TracFone, Straight Talk Wireless, Walmart Family Mobile, Total Wireless and others.

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Verizon has pledged to offer TracFone users more choices and features, including fixed wireless residential broadband and more international calling and roaming options, among other things. Additionally, the US Federal Communications Commission approved the transfer of control of TracFone from América Móvil to Verizon with very strict requirements to ensure low-income customers continue being served. Among other things, stipulations require that Verizon make available to existing and new customers participating in the federal government’s Lifeline telecom subsidy program a 5G service plan and a range of cost-effective 5G devices, which will complement Verizon’s ongoing efforts to build up its 5G customer base.

Still something to prove

There are concerns regarding Verizon’s path forward. GlobalData predicts that prepaid’s share of total US mobile subscriptions will slide from 16.2% this year to 11.7% in 2026. That is because operators continue to promote postpaid plans with appealing value-added services, and postpaid M2M/IoT SIMs are increasingly being adopted.

Furthermore, Verizon’s performance in prepaid has long been a roller-coaster ride due in part to the carrier’s caution over the possible cannibalization of its premium postpaid brand. It remains to be seen whether having a leading secondary brand, or brands in this case, will finally help Verizon break those marketing shackles.

However, on August 31, 2021, Verizon shut down its Yahoo Mobile prepaid service in preparation for selling the Verizon Media Group, which included Yahoo, to private equity firm Apollo Global Management for $5 million. During Q3 2021, Verizon reported a total net loss of 4,000 customers from all its prepaid operations, following two quarters of net customer gains. TracFone also suffered its own net loss of 185,000 customers during Q3, attributed primarily to the limited supply of handsets in the mid-to-low range, which likely stemmed from component shortages and supply chain issues.

Nonetheless, this major acquisition by Verizon has the potential to dramatically change the face of US prepaid wireless competition. Cricket Wireless, Metro by T-Mobile, Boost Mobile and other prepaid wireless service providers now face a direct competitor that has significant financial ballast, multiple brands, access to a broad portfolio of devices and an expanding 5G network.