Verizon buys prepaid mobile provider Tracfone for $6.25 billion

A man stands next to the logo of Verizon at the Mobile World Congress in Barcelona Spain

Verizon is increasing its customer base by pushing into the low-income cellular market, by announcing an acquisition of major virtual mobile network Tracfone for more than $6 billion.

Tracfone, which serves about 21 million subscribers through more than 90,000 retail locations across the United States, said more than 13 million of its subscribers rely on Verizon's network under an existing agreement. New Street telecom analyst Jonathan Chaplin says that if Verizon were to move Tracfone's 8 million subscribers to its own networks, the carrier could save $800 million annually.

Along with 4G LTE, Verizon intends to deliver 5G networks to Tracfone customers, as well as fixed wireless home broadband solutions.

The company expects to close the transaction in 2H2021.

The acquisition of Tracfone aligns with Verizon's growth oriented Network as a Service strategy, and will provide more USA consumers seeking value wireless plans with improved experiences and enhanced services, including fixed wireless residential broadband solutions, 5G access and expanded worldwide calling and roaming options.

That said, it's not clear how Tracfone will operate once the Verizon deal is finished.

The mobile operator Tracfone isn't exactly a household name, but it does have about 21 million customers in the US. Its other brands include Total Wireless, Simple Mobile, and Walmart Family Mobile.

Most U.S. cellphone customers are "postpaid" rather than prepaid - they pay a monthly phone bill. "We are pursuing this important strategic acquisition from a position of strength given our very strong and prudent financial profile". The portfolio of Tracfone brands creates a platform for growth and innovation in Verizon's support of the value and low income segments.

The deal consists of $3.1 billion in cash, $3.1 billion in stock and up to $650 million more in cash for America Movil based on the Tracfone business hitting certain performance targets after the sale.

"Since its launch, Tracfone has developed strong consumer brands and has established itself as a clear leader in the value mobile segment", said Ronan Dunne, EVP and group CEO of Verizon's Consumer segment, in a statement. TracFone is one of the leading prepaid phone providers in the USA and its acquisition is expected to help Verizon expand its portfolio into the value segment.

Credit Suisse acted as financial advisor to Verizon and Debevoise & Plimpton acted as legal advisor.

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