Agency watchers say the FCC is likely to sign off on the deal, which promises to reshape the budget phone market, with concessions from Verizon to ease concerns about how the acquisition will impact low-income Americans’ connectivity.
Boosting broadband adoption for such households is a top priority for acting agency head Jessica Rosenworcel, who is likely to take a harder line on conditions than her predecessor, Republican Ajit Pai.
“Given all the concern about the adoption part of the digital divide, I think the FCC leadership is going to want to make sure there is no reduction in current Lifeline offerings,” said Blair Levin, policy advisor at New Street Research and a former Democratic FCC official, referring to an agency broadband subsidy program.
The Federal Trade Commission and Department of Justice have already cleared Verizon’s purchase of TracFone, which serves low-income customers and is the fourth largest U.S. wireless company by subscribership.
The FCC has never blocked a deal that the FTC and DOJ have signed off on, Levin said. An agency spokesperson declined to comment.
But more than a dozen Democratic state attorneys general, as well as consumer groups, have asked the FCC to impose conditions on the deal to prevent Verizon from potentially raising prices or pulling TracFone out of Lifeline, the FCC program that gives low-income households $9.25 monthly discounts on phone and internet bills.
The California Public Utilities Commission is also reviewing the transfer of TracFone’s California business to Verizon, including how the deal could impact competition and Tracfone’s 230,000 Lifeline customers in the state. The agency is scheduled to issue a proposed decision in September.
Arizona’s utilities body is also reviewing the merger. Regulators in Louisiana and West Virginia have approved the deal.
Verizon Chief Financial Officer Matthew Ellis has said he expects the deal to close during the second half of the year. If the deal is approved, all TracFone customers would be moved over to Verizon’s network.
Verizon argues it would give those customers faster access to 5G services and more Verizon-compatible smartphones, tablets, and other devices. The wireless giant also says it plans to offer more international roaming options for TracFone plans, most of which currently lack such features.
“We’re very much of the view that we can add real value in this space,” Ronan Dunne, CEO of Verizon Consumer Group, said.
For Verizon, the acquisition would fill a major gap in its prepaid business, which lags far behind rivals
T-Mobile US Inc. has 20.7 million prepaid customers and AT&T has 18.1 million. Verizon currently has about 4 million prepaid customers.
TracFone, owned by Mexican billionaire Carlos Slim’s America Movil, has 20.7 million prepaid U.S. customers under various brands, including Straight Talk Wireless and Walmart Family Mobile. About 22% of all Lifeline subscribers are TracFone customers.
“It appears Verizon is trying to play catch up with its peers when it comes to the prepaid market,” Nicol Turner Lee, director of the Brookings Institution’s Center for Technology Innovation, said.
The deal’s critics, including 16 states, T-Mobile, and the Communications Workers of America, argue that Verizon, which now offers wireless Lifeline plans in just four states, could pull TracFone out of the program.
“The potential for Verizon to pursue additional profits by reducing the access and/or quality of Lifeline services could shut out millions of low-income Americans from adequate communications services,” the attorneys general, led by Virginia’s Mark Herring (D), wrote in a February letter to the FCC.
CWA has called on the FCC to require that Verizon offer Lifeline service of commensurate quality of TracFone’s existing offerings for at least five years, and make its 5G network and equipment available to Lifeline and prepaid customers on the same basis as its postpaid subscribers.
The FCC in February denied Verizon’s request to expedite approval of the deal, which was announced in September. It said it needed another 90 days for review because the merger “raises issues of extraordinary complexity.”
The issue of connectivity has taken on greater importance for Americans during the pandemic, as school and work have moved online.
T-Mobile’s decision to shut down its 3G network serving a majority of Boost Mobile’s 9 million prepaid customers will only “make the FCC more interested in nailing down the commitments of Verizon to continue the TracFone services,” Levin said. Boost was acquired by
“This deal is very likely to go through ultimately, but I think Verizon is going to have to agree to some significant conditions in order to protect the Lifeline subscribers,” said Harold Feld, senior vice president of public interest group Public Knowledge, which has raised concerns about the merger.
Dunne says Verizon plans to keep TracFone in the Lifeline program, and that critics’ concerns are unwarranted.
“To be crystal clear, we see Lifeline as a foundational element of our commitment in this space,” Dunne said. “And most specifically, if regulators or others would like to talk to us about specific commitments, I’m ready and willing, the sooner the better. We welcome those discussions.”
The CWA argues Verizon has failed to make a detailed commitment that it will continue to participate in Lifeline to the same extent that TracFone currently does.
“If Verizon takes the same approach to the Lifeline program that they’ve taken now — having very minimal involvement — this is going to be taking a real choice away from many many consumers,” Brian Thorn, a CWA senior researcher, said.
There are also lingering fears that the deal could undermine competition in the prepaid market, despite the FTC and DOJ approvals.
TracFone is the largest independent wireless reseller, a type of carrier that leases network capacity from facilities-based providers Verizon, AT&T, and T-Mobile.
If the merger is approved, those providers could have incentive to hike wholesale prices for independent wireless resellers, critics allege.
“That arrangement could lead to higher prices for remaining wholesale purchasers who will lose bargaining power at the loss of” TracFone, public interest group Next Century Cities said in an FCC filing.
Verizon argues the merger will not deter it from offering competitive rates to wholesale providers because otherwise, those customers would move to AT&T or T-Mobile.
“Verizon has committed itself to being the wholesale partner of choice in the U.S. market,” Dunne said. “We are setting the pace in access and availability.”