Feb 17, 2021 - Technology

The big wireless merger you've never heard of

Animated illustration of two cell phones moving towards each other and becoming one

Illustration: Annelise Capossela/Axios

Verizon's $6.2 billion bid to buy wireless company TracFone has raised concerns that the deal could cut off access to affordable mobile phone service.

The big picture: The deal has flown under the radar, but TracFone is one of the nation's largest providers of subsidized cell phone service for low income people, an especially important program during the coronavirus pandemic — and one that Verizon hasn't traditionally focused on.

Catch up quick: Verizon in September announced it would buy TracFone from billionaire Carlos Slim's America Movil.

  • TracFone is the largest pre-paid, no-contract wireless provider in the U.S., with 21 million customers.
  • TracFone pays Verizon, AT&T and T-Mobile to use their network to sell low-cost wireless service.
  • AT&T and T-Mobile own prepaid cellphone providers Cricket and MetroPCS, respectively, and Verizon says it wants to compete in the prepaid market by purchasing TracFone.

Be smart: The lines are blurring between prepaid and "postpaid" cell service, which refers to paying at the end of the monthly billing cycle based on usage. Postpaid customers are historically seen as more lucrative because they are under a contract.

  • "Prepaid customers used to consume far less data than postpaid, and they paid a lot less," New Street analyst Spencer Kurn told Axios. "Now their usage is still lower, but not that much lower, and they’re paying more. I think Verizon is looking at these prepaid subscribers as more attractive today than they would have 10 years ago."

What's happening: The Justice Department declined to dig deeper into the deal in November, signaling that it didn't raise competition concerns. But the Federal Communications Commission must also approve the deal.

  • Criticism has emerged from T-Mobile, Public Knowledge, and the Communications Workers of America.
  • Several state attorneys general urged the FCC to thoroughly examine the merger, including its impact on Lifeline, a federal program that subsidizes phone or broadband service for low-income people.

By the numbers: TracFone has roughly 1.7 million Lifeline customers, but Verizon has not been a major player in the program.

  • "The concern is Verizon will prove to be unsuccessful in its efforts to run a Lifeline company and will just abandon the market," Public Knowledge senior vice president Harold Feld told Axios. "Nothing forces Verizon to continue to offer Lifeline service is the big problem. They say that they will, but they don't say for how long."
  • The transaction would make Verizon the second big network operator to be heavily involved with Lifeline, after T-Mobile inherited a large Lifeline service through its acquisition of Sprint.

What they're saying: Verizon has previously called for the government to rethink its approach to affordable internet service, suggesting a new, permanent broadband benefit program of $20 to $50 per month for low-income consumers.

  • That's more than the $9.25 monthly subsidy provided by the Lifeline program, and Verizon's plan includes a federally funded electronic benefits card consumers could use to purchase broadband service.
  • Separately, in response to criticism of its TracFone deal, Verizon told the FCC it will continue TracFone's Lifeline supported services.
  • "When TracFone’s customers become part of Verizon, they will benefit from the enhanced choices, better services, and new features that follow from Verizon’s investment while still enjoying the flexibility and control that they have come to value with TracFone’s prepaid plans," Verizon told the agency.

What we're watching: People who are disproportionately hurt by the pandemic are the ones most likely in need of low-cost phone service to stay connected, so scrutiny will remain high even if the FCC approves the deal.

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