Verizon punches back in debate over TracFone ownership

Opponents to Verizon’s planned acquisition of prepaid MVNO TracFone often cite the negative impacts they believe it will have on Lifeline subscribers and the prepaid market overall. But Verizon is pitching the transaction as a means of improving TracFone’s ability to provide Lifeline-supported services and better serve the prepaid sector.  

Verizon announced last fall that it plans to acquire TracFone from Mexico-based América Móvil in a deal worth up to $6.9 billion. TracFone, currently an MVNO that uses the cellular networks of mostly Verizon but others as well, is one of the largest providers of Lifeline services, serving about 1.7 million across 43 states and the District of Columbia.

Lifeline, which is supported through the Universal Service Fund (USF), is a program that lets low-income people who qualify get reduced rates on cell phone services. Sprint was a supporter of Lifeline through the Assurance Wireless brand before it merged with T-Mobile; it also got into trouble for the way it counted those subscribers while collecting subsidies.

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In an April 7 filing with the FCC, Verizon said that TracFone, as part of Verizon, will become a stronger competitor against the flanker prepaid brands of AT&T and T-Mobile, which are Cricket and Metro, respectively.

“The reality is that Metro and Cricket have significant competitive advantages over TracFone as flanker brands of mobile network operators (MNOs), including on network cost and time to market,” Verizon wrote. “Today, 75 percent of the prepaid segment is served by Metro and Cricket, providers that benefit from owner’s economics, and Dish’s Boost, which enjoys government mandated below-market wholesale rates while Dish builds a network that will provide Boost with the benefits of owner’s economics.”

Verizon’s filing alluded to the fact it doesn’t participate in the prepaid segment in “any meaningful way,” but with the acquisition of TracFone, it would be jumping to the head of the pack. TracFone at the end of the fourth quarter had about 20.7 million customers, while Cricket has about 11 million and Metro has about 20 million, according to Wave7 Research.

RELATED: States push for Lifeline protections in Verizon/TracFone deal

Verizon also said that commenters either ignore or “fail to grasp” that the transaction will bring facilities-based competition to Lifeline service. “Today, T-Mobile is the only facilities-based provider that offers wireless service in the Lifeline program directly to consumers,” the carrier said. “Verizon’s acquisition of TracFone will introduce some much-needed facilities-based competition to this space.”

“Despite commenters’ continued efforts to conjure Lifeline concerns, Verizon has been crystal clear that it will maintain TracFone’s ETC status and continue to offer Lifeline service through TracFone,” Verizon said. “Verizon sees Lifeline as a foundational element of its commitment in the value-conscious consumer space.”

TracFone has lost nearly 20% of its customers in recent years, while Metro and Cricket have roughly doubled their subscribers, largely at the expense of TracFone, over the same timeframe, according to Verizon. “TracFone’s continuing subscriber losses and eroding share of the prepaid segment show how hard it is to compete on a standalone basis,” the company said.

“Post transaction, TracFone will enjoy expanded distribution and be able to offer more attractive service and device options for consumers, thereby becoming a stronger and more effective competitor than it is today and forcing its competitors to respond,” Verizon added. “This will benefit all consumers in the prepaid segment.”

Groups insist on further scrutiny, conditions

Common Cause and the CWA, along with over 20 other public interest and civil rights groups, filed an April 6 letter to the FCC further spelling out the potential harms the merger would trigger. They argue that if it’s approved without specific conditions, it will be bad for competition in general and low-income consumers in particular.

RELATED: Verizon’s acquisition of TracFone gets additional review time

These groups also assert that Verizon has failed to provide any real details for how it plans to participate in the Lifeline program post-transaction. For example, they say, Verizon is silent on what type of wireless coverage it will provide TracFone’s Lifeline customers and what the timeline would be for migrating subscribers who are currently receiving service on a non-Verizon network.

One of the conditions proposed by CWA is a commitment by Verizon to participate in the Lifeline program for a minimum of five years, with at least the same level of geographic and service offerings as TracFone currently provides.

“Wireless consumers, particularly those in low-income communities, including those in the Lifeline program, rely on wireless resellers for lower prices, and greater product variety to meet their connectivity needs,” the groups wrote. “These consumers are disproportionately people of color and fall into lower income brackets, while Verizon’s consumers are overwhelmingly white and make more than $25,000 a year.”

They also said that fewer independent resellers in the wireless market means fewer options for consumers. “Combining the largest independent wireless reseller with the largest facilities-based provider would give post-transaction Verizon incentives to engage in anti-competitive practices,” the groups wrote, urging the FCC to issue a Request for Information for a more in-depth inquiry.