Verizon’s nearly $7 billion acquisition of TracFone gives it the ability to claim the No. 1 position in prepaid, something that wasn’t envisioned a few years ago. That’s in part because Verizon had established a reputation of serving the high end of the market and prepaid was considered less lucrative.
But times changed and Verizon now sees prepaid as a growth opportunity where it can bring owner’s economics. The acquisition, originally opposed by consumer groups as it would remove the biggest MVNO from the industry, eventually won their approval after Verizon agreed to Lifeline and other commitments.
Now that it’s a done deal, Verizon is considering how it can offer its fixed wireless service in the prepaid space, according to CFO Matt Ellis. He didn’t go into detail but raised the idea during a Morgan Stanley investor conference Tuesday.
Of TracFone’s 20 million prepaid customers, about 13 million or so already are on the Verizon network, leaving about 6 million on the networks of other wireless carriers. “Over the course of the next 12 to 24 months, we’ll bring them onto our network,” he said. “When you combine those network access costs together with other sourcing, supply chain benefits we think we’ll get, we see about $1 billion in synergies that we’ll realize over the next 12 to 24 months.”
Certainly, by the end of 2023, “we’ll be at full run rate, if not sooner than that. So excited about the opportunity,” first on the savings side. When considering the product offerings, it’s “difficult for a TracFone to offer unlimited in the way that we do because of the way they pay per gigabit of usage. So that makes unlimited difficult for them prior to the transaction. Now it’s owner’s economics on the network,” he said.
That opens it up to get more creative and “bring fixed wireless in there as well,” he said, and “how do we do that for the value market. There’s a significant opportunity there.”
Ellis pointed to TracFone as a great example of somebody that had a long-term relationship with Verizon on the MVNO front. “It shows that we know how to be that partner of choice,” he said. That means the relationship evolves over time and putting the right pricing out there that allows the MVNO partners to be effective in the marketplace and Verizon to be successful in its retail business as well. “I think we’ve got a good track record of having that right balance,” he said.
Gas prices & prepaid
With gas prices headed up, what does that mean for the prepaid business?
“I think it puts us in a great position where we have a balance across the whole consumer segment,” from prepaid all the way up to the premium end, so irrespective of how the economic situations play out, “we’ve got more diversity there in terms of the way that we can interact with the customer base,” Ellis said.
Morgan Stanley analyst Simon Flannery noted that one of the big pushbacks on the industry is the ability to grow in the face of a fairly mature penetration curve. Ellis said they continue to see a strong level of postpaid activations and churn continues to be low. On the consumer side, the bulk of revenue is coming from customers moving up the price stack and taking new unlimited or premium unlimited plans that cost more.
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