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Verizon has submitted a $6.2 billion bid to buy MVNO TracFone, but onlookers fear it may mean the end of Lifeline, a federal programme subsidising phone and broadband services, for 1.7 million customers
Back in September, Verizon announced that it would buy TracFone from America Movil for $6.2 billion. TracFone is the largest pre-paid wireless provider in the US, with around 21 million customers, and is an MVNO using the networks from all three major US players, Verizon, AT&T, and T-Mobile.
At the time, Verizon said that it was interested in competing more heavily in the prepaid market, where rivals AT&T and T-Mobile already own Cricket and MetroPCS, respectively. Prepaid (also known as Pay As You Go) is a market that is typically viewed as less profitable than postpaid (i.e., contracted), with customers typically using less data and spending less money. However, this is still a large market and pre-paid usage has increased in recent years, shrinking the gap between the pre- and postpaid revenues.
Following the announcement of the proposed merger, the Federal Trade Commission (FTC) said that it would not object to the deal, saying that it will not hamper competition. The Federal Communications Commission (FCC) still needs to approve the deal.
But despite the FTC’s lack of objections, there are more factors for the FCC to consider here. The largest issue, which has been raised by T-Mobile, Public Knowledge, and the Communications Workers of America, among others, is the threat that the move presents towards the federal Lifeline programme.
Lifeline is a government subsidy programme that subsidises phone and broadband service for low income people, providing around $9.25 a month for eligible customers. TracFone currently has roughly 1.7 million Lifeline customers and, while Verizon has said it will continue the programme, it will be under no legal obligation to do so. Onlookers suggest that the operator could cease participation in the programme, jeopardising vital connectivity for many low-income customers in the midst of a pandemic.
In the past, Verizon has argued that the government’s approach to affordable internet is inefficient, suggesting an alternative benefit programme of $20 to $50 per month, with the funds being placed on electronic benefit cards that customers could use to purchase services.
Earlier today, the FCC said it would need additional time to rule on the move, saying “it raises issues of extraordinary complexity”. The FCC has given itself a further 90 days to make a decision, denying Verizon’s request for an expedited review.
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