Verizon's Acquisition Of TracFone Gets FCC Approval

Update: The acquisition is officially complete.

In September of 2020, Verizon announced plans to acquire TracFone and its roughly 20 million subscribers. A while back, the deal was cleared by the FTC and the DOJ declined to hold back the process. The acquisition got its final green lights from the California Public Utilities Commission last Thursday and the FCC yesterday.

I expect the deal to close shortly with Verizon meeting its original goal of closing the deal in the second half of 2021. As expected, the FCC’s approval is conditional on Verizon adhering to some terms. The terms center around consumer protections. Most of the protections relate to the government’s Lifeline program which offers subsidies on phone service for low-income consumers.

Terms of Consumer Protections

Here’s my understanding of the most important and/or interesting terms based on a reading of the FCC’s press release and a skim of the 70-page Memorandum Opinion and Order:

For at least seven years, Verizon must continue to offer TracFone’s Lifeline services in the areas they’re currently offered.
For at least three years, Verizon must continue to offer existing Lifeline plans that provide service at no cost to consumers.
Verizon must maintain some of TracFone’s existing roaming agreements to serve customers in some regions where Verizon does not offer coverage (I think this requirement lasts 3 years).
Verizon must offer free devices and/or SIM cards to Lifeline subscribers that are required to transition to Verizon’s network.
Verizon must extend its usual (60 day) unlocking policy to acquired customers.
For three years, Verizon must extend agreements with MVNOs using its network without altering the terms of the agreements.

As a whole, the terms are less burdensome on Verizon than I’d expected. I previously wondered if Verizon would be required to sell competitors the almost ten million TracFone subscribers who are not currently on Verizon’s network. It looks like no one will force Verizon to do so, and I expect Verizon will transition most of these users to its network.

What Does This Mean For MVNOs?

With Verizon acquiring all of TracFone’s brands and customers, the size of the MVNO market in the U.S. will contract significantly. Further, Verizon may see reduced economic incentives to allow MVNOs to use its network. The FCC acknowledged this concern:¹

Verizon, as a result of the transaction, may have an increased incentive to raise the costs of mobile virtual network operators (MVNOs) that compete directly against TracFone for Lifeline and other low-cost prepaid customers and for which Verizon is their wholesale provider…

Commenters argue that, because post-transaction, all significant MVNOs would be vertically integrated with the nationwide facilities-based providers, the vertically integrated MVNOs could coordinate to exclude or otherwise harm competing, standalone MVNOs or adopt parallel strategies to discourage postpaid customers from migrating to lower-cost prepaid plans. Second, commenters claim that coordination would be more likely because the transaction would remove an independently-competing maverick MVNO from the market.

However, it seems the FCC doesn’t take the concern too seriously:

We find that this transaction is unlikely to significantly increase the risk of coordinated effects. Post-transaction, there will remain, in addition to the prepaid brands offered by the three nationwide MNOs, prepaid brands offered by regional MNOs and by numerous independent MVNOs, including Boost and the other MVNOs served by Verizon. These MVNOs will continue to have the incentive and ability to compete for prepaid customers, including cost-conscious customers, which will likely continue to constrain opportunities for coordination on prepaid plans by the three nationwide MNOs. Further, at the wholesale level, contracts between MNOs and MVNOs are complex and specific to the needs of the MVNO that is party to the negotiation, generally last for a period of years, and generally are subject to strict non-disclosure agreements. These features of the wholesale contracts make it difficult for MNOs to coordinate on the terms of wholesale contracts to harm rival stand-alone MVNOs, and the transaction does not affect these features of wholesale contracts except between Verizon and TracFone. Moreover, Verizon’s commitment, which we accept as a condition to our approval, to extend its existing agreements with certain MVNOs for at least three years limits its ability to coordinate to raise wholesale prices.

Here’s what Verizon is ultimately committed to:

Verizon has committed to provide those MVNOs who have current contracts with Verizon an option to extend their existing MVNO wholesale agreements, on the same terms and conditions, continuing on a month-to-month basis until three years after the transaction closes. This option does not apply to MVNOs whose agreements expire beyond three years after the transaction closes.

Reflections

My gut feeling is still that a world where this acquisition goes through will be a world with less competition and higher prices than we’d see in a world without the acquisition. However, I feel less strongly about that than I did a year ago.

Footnotes

The excerpts comes from the FCC’s Memorandum Opinion and Order.

One thought to “Verizon’s Acquisition Of TracFone Gets FCC Approval”

LORETTA JONES says:

March 8, 2022 at 5:38 pm

I have been with TracFone for over 10 yrs., recently replaced my non-smartphone with a smartphone, but can’t seem to get anyone on the phone to transfer my number and plan that I always renewed every year and I am frustrated. I’m 78 and I don’t need this. Can I go to a Verizon store and have them transfer my number and minutes?

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