Verizon Communications is buying TracFone for more than $6 billion in a deal that will make it the largest provider of wireless prepaid services in the U.S.
TracFone, a unit of Mexico’s América Móvil SAB, is the largest reseller of wireless services in the U.S., with 21 million subscribers. It offers service for as little as $15 a month with limits on internet data as well as the number of texts and phone calls.
With the acquisition of TracFone, Verizon, which had about four million prepaid wireless customers at the end of June, would move ahead of T-Mobile, owner of the Metro service, and AT&T, owner of the Cricket brand.
“This transaction firmly establishes Verizon, through the Tracfone brands, as the provider of choice in the value segment, which complements our clear leadership in the premium segment,” Verizon consumer chief Ronan Dunne said in a news release.
He told The Wall Street Journal that TracFone would remain a distinct business and would benefit from access to a wider range of cellphones, smart devices and connected home products through Verizon’s ownership.
“It’s a business we know well but it’s not one where we’ve been driving our own destiny,” Dunne said. “They’re a winner in this segment already. We see this as a growth platform.”
TracFone doesn’t run its own physical cellphone network in the U.S., instead riding on other carriers’ systems for a fee and then reselling service under its namesake brand as well as StraightTalk, Net10, SafeLink, and Simple Mobile.
Postpaid data plans make up the bulk of the big carriers’ businesses. According to the Journal, the TracFone deal “plunges Verizon deep into the prepaid market, a sector it has largely avoided by catering to more lucrative customers who pay for wireless service after it is rendered. Customers on prepaid plans tend to switch providers more often, which operators consider a risk.”
Verizon will pay about $3.125 billion in cash and $3.125 billion in Verizon shares, with TracFone potentially getting an additional $650 million cash payment tied to performance measures and other commercial arrangements.
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