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Verizon faces strong pushback over TracFone merger

The logo of Verizon Wireless. (Graphic: The Desk)

A group of public interest groups sent a request to federal regulators this week urging them to closely scrutinize a proposed merger between Verizon and prepaid wireless phone provider TracFone.

In a letter sent to the Federal Communications Commission (FCC) this week, the interest groups questioned whether Verizon’s proposed acquisition of TracFone would harm low-income individuals and families who are more likely to subscribe to prepaid phone service from a brand like TracFone.

TracFone operates as a mobile virtual network operator (MVNO), a company that purchases wireless service wholesale from one of the three big wireless phone providers — Verizon, AT&T or T-Mobile, or some combination of the three — then re-sells that service on a prepaid basis.

Though prepaid service doesn’t have as many bells and whistles — prepaid wireless data is often deprioritized over those who opt for postpaid service, and data can be slowed to a crawl if a person uses too much of it — it typically offers plenty of basic features, including the ability to send and receive an unlimited amount of phone calls and text messages.

TracFone is one of the biggest providers of prepaid wireless phone service, offering it through its namesake brand and subsidiary ones like Walmart Family Mobile, Net10 Wireless, Simple Mobile and Straight Talk. Some TracFone brands lease access to T-Mobile and AT&T’s towers, while others use Verizon. Unlimited service can cost as little as $30 a month, with no contract, and phones sold through TracFone and its subsidiary brands tend to be older, cheaper — yet still very usable — models compared to ones sold by the bigger companies.

For this reason, many low-income individuals and families who face financial or credit obstacles in obtaining postpaid phone service opt for a prepaid brand. Access to prepaid phone service is found in abundance at big box retailers like Walmart and Target, supermarkets, convenience stores and gas stations.

Prepaid brands, Tracfone included, have millions of customers across the country, and the big three networks have started to take notice. In 2012, T-Mobile acquired MetroPCS (now Metro by T-Mobile), making it an in-house MVNO that offers cheap access to T-Mobile’s network. Two years later, AT&T did the same with Cricket Wireless.

Verizon, which operates the Visible and Yahoo! Mobile brands, wants in on that action. Last September, it agreed to purchase TracFone for a whopping $6 billion. If the deal goes through, TracFone’s 21 million prepaid phone customers would instantly become part of the Verizon family.

Naturally, that blockbuster deal is causing concern for some public interest groups who say TracFone, on its own, provides good competition in the prepaid industry — competition that would erode if Verizon is allowed to become a dominant player in the space.

One problem pointed out by public interest groups is a type of subsidized phone program offered to low-income families called LifeLine. Like other phone companies, TracFone participates in LifeLine, and as a participant, TracFone gets money from the government in order to provide LifeLine subscribers with a free phone and service.

In a letter sent to the FCC earlier this week, consumer advocacy groups said Verizon has so far been silent on how it would continue to support TracFone’s LifeLine efforts. That’s a problem, in part, because some of TracFone’s LifeLine subscribers use phones that connect with AT&T or T-Mobile’s towers; if Verizon’s acquisition of TracFone goes through, the company is expected to use Verizon’s towers exclusively, which could make some TracFone LifeLine devices unusable.

One group, the Communication Workers of America (CWA), said if regulators are moving toward approving the merger, Verizon should be required to provide a minimum of five years of support to TracFone’s LifeLine customers, without degrading service or other customer experiences.

The advocates also said Verizon should provide a complete transitional roadmap if they decide to move TracFone’s LifeLine customers exclusively to Verizon’s network, including information on how Verizon plans to offer upgrades to customers with incompatible phones.

Those advocacy groups are not alone in their concerns: In February, a consortium of state attorneys general sent its own letter to FCC regulators questioning whether Verizon’s merger with TracFone would complicate access to cheap wireless phone service for millions of low-income Americans who depend on it.

“We urge the FCC to put the interest of the American consumer before that of big business and request additional information before allowing this acquisition to happen,” the letter said.

At the time, a Verizon spokesperson said the company would “continue to offer Lifeline service through TracFone and further develop its core brands, products and distribution channel.”

“Strengthening and growing TracFone will benefit value-conscious consumers,” the spokesperson said.

This week, Verizon went one step further, making the unusual claim that if its merger is blocked, it could actually hurt competition in the low-income wireless phone space by emboldening its two main rivals, T-Mobile and AT&T.

“The reality is that [T-Mobile’s] Metro and [AT&T’s] Cricket have significant competitive advantages over TracFone as flanker brands of [prepaid MVNOs], including on network cost and time to market,” Verizon said.

Combined, Cricket and Metro by T-Mobile serve “75 percent of the prepaid segment,” Verizon noted. Despite operating several prepaid brands of its own, Verizon alleged that it does not actively participate in the prepaid space “in any meaningful way.”

As the trade publication Fierce Wireless noted, if Verizon is allowed to go through with its purchase of TracFone, it would go from having no meaningful presence in the prepaid space to being the dominant market leader. That’s something public interest groups noticed, too.

“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 interest groups warned.

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About the Author:

Matthew Keys

Matthew Keys is a nationally-recognized, award-winning journalist who has covered the business of media, technology, radio and television for more than 10 years. He is the publisher of The Desk and contributes to Know Techie, Digital Content Next and StreamTV Insider. He previously worked for Thomson Reuters, the Walt Disney Company, McNaughton Newspapers and Tribune Broadcasting.
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