Tag: Acquisition

Document getting an approval stamp

Verizon’s Acquisition Of TracFone Gets FCC Approval

Christian 1 Comment

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.

People shaking hands

Dish Plans To Acquire Gen Mobile

Christian

Today, Dish’s Boost Mobile announced its plan to acquire the MVNO Gen Mobile. While the deal hasn’t officially closed and will need regulatory approval, I don’t expect any major hurdles will get in the way.

Gen Mobile focuses on budget-friendly plans, and Dish may be hoping to use the brand to market services to customers that are eligible for subsidies through the government’s Lifeline program.

Dish has now acquired four carriers in a relatively short span of time:

  • Boost Mobile
  • Ting
  • Republic Wireless
  • Gen Mobile

While I don’t know how large Gen Mobile’s subscriber base is, I expect Gen Mobile has substantially fewer customers than any of the other carriers Dish has acquired.

Mint Mobile Rumored To Be Considering Sale To Altice USA

Christian

An article published by the New York Posts relies on an unnamed source to suggest Mint Mobile is looking for a buyer. Mint allegedly hopes to sell for the better part of a billion dollars. Altice USA, the company behind Optimum Mobile, is rumored to be the most likely acquirer:

Mint is shopping itself and could sell for as much as $600 million to $800 million, according to a source with direct knowledge of the situation. Altice USA, which owns cable, phone, internet, and wireless services, is said to be the lead buyer, although it’s unclear whether it will end up closing a deal.

I believe the rumor is true. I’m not sure it’s good news for Mint customers. There’s a lot to like about Mint’s business model and price structure. Things often change significantly when a carrier is acquired. However, given Mint’s solid growth, it’s possible an acquirer would be content to let Mint continue on its current path.

Actor Ryan Reynolds will make a good chunk of change if a deal goes through. The source behind the New York Post article suggests Reynolds owns 20-25% of the business.

Handshake

Dish Plans To Acquire Republic Wireless

Christian

Today, Dish announced plans to acquire Republic Wireless and its roughly 200,000 customers. The deal is expected to close in the second quarter of this year.

According to Dish’s press release, Republic Wireless customers won’t see any immediate changes or need to take any immediate action. I’m unsure what the outlook is for the future. Dish has already been explaining substantial churn in Boost subscribers it acquired as “shedding unprofitable customers.” We may see something similar happen as Dish takes control of the Republic Wireless customer base. Dish may also run into some troubles handling some Republic Wireless customers if T-Mobile sticks with its plan to shut down the Sprint CDMA network near the beginning of next year.

Green traffic light

Tracfone Acquisition Gets A Green Light

Christian

Earlier this year, Verizon announced plans to acquire Tracfone and its roughly 20 million subscribers. Before an acquisition like this one becomes official, companies have to notify the FTC and DOJ. Here’s how the FTC explains the process:

The Hart-Scott-Rodino Act established the federal premerger notification program, which provides the FTC and the Department of Justice with information about large mergers and acquisitions before they occur. The parties to certain proposed transactions must submit premerger notification to the FTC and DOJ. Premerger notification involves completing an HSR Form, also called a ‘Notification and Report Form for Certain Mergers and Acquisitions,’ with information about each company’s business. The parties may not close their deal until the waiting period outlined in the HSR Act has passed, or the government has granted early termination of the waiting period.

It looks like Verizon’s acquisition of Tracfone was granted an early termination of the waiting period:

Screenshot from the FTC's website

Verizon Hints At Plans For Tracfone Subscribers

Christian

Earlier this year, Verizon announced plans to acquire Tracfone and its roughly 20 million subscribers. While more than half of Tracfone’s subscribers already have service that runs over Verizon’s network, it has been unclear what might happen to the 8 to 9 million Tracfone subscribers on other networks.

In an investor event a few days ago, Ronan Dunne, a Verizon executive, hinted at how Verizon might handle those subscribers if the acquisition goes through:

Just for context, about 13 million of their [Tracfone’s] 21 million, 22 million customers ride on the Verizon network today, but there’s 8 million or 9 million thatride on competitor networks. And we have the opportunity to migrate those across to be on to Verizon.

I’m not sure how seriously I should take Dunne’s words. I still think Verizon may sell off Tracfone subscribers on other networks—selling off some subscribers may appease regulators who are reluctant to allow the acquisition.

Consumer Cellular Being Sold To A PE Firm

Christian

The private equity firm GTCR is planning to purchase a majority stake in the carrier Consumer Cellular for 2.3 billion dollars. With roughly four million subscribers, the purchase price comes out to over $500 per subscriber. The deal is expected to close in late 2020.

I don’t know what source Mike Dano of Light Reading is relying on, but he seems to have insights into the details of the sale:

After a bidding war that involved Dish Network, Altice USA, Ultra Mobile, a group led by Boost Mobile founder Peter Adderton and others, Chicago private equity company GTCR has purchased Consumer Cellular for around $2.3 billion.

A year of acquisitions

The wireless market in the U.S. has seen a lot of movement lately. Sprint, Ting, Boost, Consumer Cellular, and a whole bunch of brands owned by TracFone have either been acquired in the last year or are in the process of being acquired.

The latest deal with Consumer Cellular presents interesting contrasts with the acquisition of Boost Mobile. DISH paid about 1.4 billion for roughly 9 million Boost subscribers. The cost per subscriber in the Boost acquisition came out to about $150, roughly one-fourth of the cost per subscriber in the Consumer Cellular acquisition. Consumer Cellular’s lower churn rate may explain some of the discrepancy.

Verizon To Acquire Bluegrass Cellular

Christian

Verizon is planning to acquire over 200,000 subscribers and some assets from Bluegrass Cellular, a network operator in central Kentucky. In comparison to recent mergers and acquisitions in the cellular industry, this latest acquisition is small. Bluegrass subscribers represent less than 0.1% of subscribers in the U.S. market.

Earlier this year, I was surprised to see a company as small as Bluegrass on the short list of only eight carriers that support the latest Apple Watches. I wonder if Bluegrass only made the list because an acquisition by Verizon was in the works.

The planned acquisition will have to be approved by the FCC. Verizon expects the deal to close in late 2020 or early 2021.

Verizon Plans To Acquire Tracfone

Christian

This morning, Verizon announced plans to acquire Tracfone. The planned deal will involve an acquisition of the Tracfone brand and a bunch of subsidiary brands like Total Wireless, Straight Talk, and SafeLink.

At the moment, these brands have about 21 million subscribers. The deal is slated to be worth six or seven billion dollars (or about $300 per subscriber):1

The consideration for the transaction will include $3.125 billion in cash and $3.125 billion in Verizon common stock, subject to customary adjustments, at closing. The agreement also includes up to an additional $650 million in future cash consideration related to the achievement of certain performance measures and other commercial arrangements.

Along with the subscribers and brand names, Verizon is acquiring Tracfone’s roughly 850 employees and Tracfone’s retail presence in over 90,000 locations.2 Verizon expects the deal to close in the second half of 2021.

Reflections & open questions

Tracfone and Verizon will need to pass through some regulatory hoops before the deal is official. If the acquisition goes through, it will cause a massive shift in the industry. Tracfone’s user base makes up about 5% of the U.S. wireless market and a major share of the prepaid market.3

At this time, I’m guessing Verizon will continue to operate several Tracfone brands rather than consolidate Tracfone subscribers under the Verizon brand name.4 Years ago, a Verizon executive discussing Verizon’s lackluster number of prepaid subscribers stated the following:5

“Our retail prepaid is above market. We’re really not competitive in that environment for a whole host of reasons and it’s because we have to make sure that we don’t migrate our high-quality postpaid base over to a prepaid product…Quite honestly, we use the Tracfone brand as our prepaid product.

About 13 million of Tracfone’s subscribers already have service running over Verizon’s network.6 I don’t know what will happen to the 8 million subscribers on other networks. I’m guessing Verizon will try to transition most of them to the Verizon network, but Verizon may sell the subscribers to other carriers.

When the merger between Sprint and T-Mobile closed, I wrote:

I continue to think the merger is going to be bad for consumers over the long term.
I’m guessing the merger between Sprint and T-Mobile contributed to the viability of Verizon’s Tracfone acquisition. As with the merger, I’m not optimistic about the effects this new acquisition will have on consumers in the long term.

Reflecting On Ting

Christian 6 Comments

Ting had a phenomenal reputation for its customer support. Given that lackluster support is par for the course in the cellular industry, it’s particularly impressive that Ting managed to buck the trend while offering a low-cost service.

Earlier this month, DISH acquired Ting’s subscriber base. DISH’s customer support has a lousy reputation. I’m worried that a lot of what made Ting special will disappear as subscribers gradually become integrated with DISH.

While I’m sad to see Ting changing, the recent moves were reasonable for Tucows, Ting’s parent company. Here’s a screenshot I took showing the change in Tucows’ share price in the handful of hours after the news about the acquisition of Ting’s subscribers went public:

Tucows' stock rose over 16%

Changes for Ting subscribers

I’ve found Elliot Noss, Tucows’ CEO, and many of Ting’s employees to be unusually straight talkers. While understandable, it was a bit disappointing that some of the usual candor was missing in statements and discussions related to the acquisition. Still, light was shed on important factors that could affect Ting subscribers going forward. The excerpts below come from Elliot Noss’ Reddit post.

Pricing

For those following, DISH is now becoming a fourth competitor in mobile with T-Mobile taking over Sprint. We are going to help them grow their business and try and make tens of millions of customers as happy and satisfied as you all have been. And for you, soon, DISH will be offering much improved pricing.

I have no reason to doubt that prices will come down. Ting did a great job pushing forward pay-for-what-you-use pricing, but Ting’s data charges haven’t been competitive with the rest of the market for several years. While I expect data prices will come down, I don’t know if DISH will let Ting’s customer base stick with pay-for-what-you-use pricing indefinitely.

Customer support

Our customer service people will still be the ones answering your calls, etc. for the first while and before they are not we intend to help DISH be able to provide service that has you just as happy.

In my view, Ting managed to offer far better support than any of the major carriers offer their own, postpaid customers. I seriously doubt DISH’s customer support will offer the same quality that Ting’s support agents offer.