América Móvil backtracks on US expansion with Tracfone sale
América Móvil is not planning to build on its presence in the US mobile market, despite its Tracfone business having built up a sizeable customer base.
Quite the opposite, in fact. The Mexican operator has inked a deal to sell its US MVNO to Verizon for US$6.9 billion in cash and stock. The deal, which requires regulatory approval, removes a fairly large player from the market and one that many believed had the potential to expand to become a credible competitor for the big three.
Admittedly, América Móvil itself never actually detailed ambitions to plough significant investment – and we would have been talking big sums – or effort into growing Tracfone to that extent. But with a customer base of 20.9 million as of the end of June (13 million of whom use Verizon’s network), Tracfone has some traction.
Further, with the stronger competition and tighter regulation it has faced in its home market over the past half decade, it seemed a logical move for the Mexican incumbent to look north of the border for growth. The Mexican government has worked hard to level the competitive playing field in the telecoms market, both in fixed and mobile, leaving América Móvil bearing the brunt of a range of asymmetric regulations. And the arrival of AT&T into Mexico in 2015 started to blur the borders between Mexico and the US, from a telecoms point of view, at least.
Almost exactly five years ago América Móvil followed in then market newcomer AT&T’s footsteps and launched a new mobile plan that effectively merged the US and Mexican markets, allowing its Mexican customers to call the US at local rates, and so forth. In its Q2 report from 2015, América Móvil shared its intention to “lead the integration of the Mexico and U.S.A. telecoms market,” a statement that referred to the new tariff plans launched by itself and its new rival, but naturally led to speculation that the telco could seek to build up its presence in the US as well.
It did not. In fact, since that time Tracfone’s subscriber base has been in decline (see chart), dropping by close to 5 million connections over the same number of years. However, revenues and ARPU are on the up, making Tracfone look more like an established mobile operator than a low-cost option. It is a low-cost player though, which is part of the attraction for Verizon.
“Since its launch, Tracfone has developed strong consumer brands and has established itself as a clear leader in the value mobile segment. 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,” noted Ronan Dunne, CEO of Verizon’s Consumer Group.
As Light Reading noted, the deal would make Verizon, the largest mobile operator by subscribers in the US, even larger, and would also make the market leader in prepaid, with one third of the market, according to New Street research. This could be a valuable tool for the telco as the prospect of recession looms. More from Light Reading on this story here.
Verizon said it expects to derive “significant benefits and network synergies” from the deal, which, incidentally, is made up of $3.125 billion in cash and $3.125 billion in Verizon common stock, plus an additional $650 million in cash payable based on certain performance measures. It is due to close next year, following receipt of the relevant regulatory approvals.
On completion of the deal, Verizon said it will make its 4G and 5G technologies available to Tracfone customers, further develop the MVNO’s distribution channels, and “expand Tracfone’s market opportunities.” Looks like Verizon is eyeing a turnaround of that shrinking Tracfone customer base.
Verizon already makes money from Tracfone though I’ve no idea how much off the top of my head, so making Tracfone a subsidiary is not pure gain in terms of revenue and profits. Presumably most of Tracfone’s customers are Latinos which is presumably the main attraction for Verizon. However, it does mean that the MVNO sector will virtually cease to matter in competition terms and a true three-firm market in such a large country is surely not going to go down well with the FCC. Certainly, in Europe the incumbent would be forced to hive off all sorts of stuff to satisfy the Commission and effectively allow a new operator to be set up. The FCC may be affected by the forthcoming election so who knows.
this deal is bad for consumers. while all the dopes were complaining about the t-mobile/sprint merger from the get-go, there is literally no one complaining about this one. I say this as an ex long time customer of Tracfone (I own net10 sim cards, I’ve had service with straight talk and simple mobile brands, and I’m familiar with all the other brands in the Tracfone family). Eventually, all of Tracfone customers will be forced onto Verizon’s network and customers who have had a better experience on AT&T or T-Mobile will be forced to pay for more expensive plans elsewhere. For me, that’s not good because down here in south florida AT&T and/or T-Mobile are a better option based on my own personal experience and my family as well. Verizon apparently is only doing this because the strategy they were pursuing over the past 2 years has backfired on them due to covid-19. If you go back online to look up articles in that same time frame, Verizon was not even concerned they were losing tons of pre-paid customers because of a lack of competitive plans with hardly any features and more expensive pricing. They were only more concerned with their post-paid business. This move might help Verizon if the economy doesn’t get back to normal; however, once things are on the up and up again, we won’t know if Verizon will go back to pre-2020 shady Verizon or if they have had enough humble pie. I’m going to miss Tracfone because StraightTalk (AT&T/T-Mobile) was my first smartphone cell service back in 2012 after my move from overpriced Verizon and I had a great experience on Simplemobile (T-Mobile.) It looks like some form of either Sprint, T-Mobile, Metro are only going to be my options in the near future. I like AT&T’s signal but I don’t like how they treat unlocked phones not bought directly from AT&T and how they play games with pricing and features between their own branded services and cricket which they also own.
Feel uneasy about this. I’m already on Verizon’s network as a Tracfone customer for the past 16 years. Most Tracfone customers are middle aged or older, probably, and no, most of us aren’t hispanic, just frugal. I like saving money on something I have to have for emergencies or in transit. When I want to have a long conversation, I use my home based wifi phone setup, not the mobile. Am concerned Verizon is going to be greedy, and am already shopping around for an alternative in case I have to dump TF.