Verizon Communications announced on Monday that it would buy América Móvil’s wireless service TracFone in a $6.25 billion cash and stock deal. Verizon says it expects this deal to be completed in the second half of 2021.

The deal will be split into $3.125 billion cash and $3.125 billion Verizon common stock. In addition, following the closing of the deal, Verizon shall pay to América Móvil:

• Up to $500 million as an earn-out if TracFone continues to achieve certain performance measures during the 24 months following the closing, calculated and paid in four consecutive six-month periods
• 150 million deferred commercial consideration payable within two years following the closing

What it could mean:

• Even more consolidation: If approved, this will further consolidate the industry and catapult Verizon to the largest prepaid service operator in the US. Verizon had 4 million prepaid connections in Q2 2020 and TracFone would add 21 million subscribers.
• Retail expansion: Verizon would gain share in national retail channels, especially in Walmart via the Straight Talk brand. TracFone has had success in retail channels such as Walmart, Target, BestBuy, and even offers a limited SKU of devices and SIM cards in stores such as Kroger’s and Dollar General. TracFone is present in over 90,000 retail locations nationwide.
• Network availability: It is unclear if Verizon would switch the new TracFone network over to be 100% Verizon based. There are 13 million TracFone customers who use the Verizon network. This means 8 million customers would have to transition to the Verizon network and use a Verizon compatible device. TracFone has historically had agreements with four major carriers to run its network (Verizon, AT&T, T-Mobile, and Sprint). This created different device SKUs depending on the area subscribers live in and the coverage that was available.
• OEM opportunities: Verizon is expanding into the value segment with this deal. Verizon’s stealth MVNO Visible has ranged devices from the struggling ZTE and newcomer Hot Pepper and Verizon Prepaid’s lineup includes devices from Nokia and Wiko. These OEMs could benefit from the acquisition by potentially having more of their devices featured in TracFone and its sub-brands.
• 5G push: Lastly, this move will push Verizon’s 5G ambitions forward, especially when it begins its sub-6 GHz 5G service via dynamic spectrum sharing in 2021. However, 5G will only be truly accessible to a large swath of the US population once 5G devices get below the $200 price point. For TracFone subscribers, the ideal sweet spot would be below $100.

While the deal was just announced, a lot of regulatory hurdles still need to be overcome before it gets approved. With the T-Mobile-Sprint merger, we have seen already how long large mergers and acquisitions can take in the telecom sector. The FCC will need to be convinced that this move will truly increase competition and improve the wireless industry as a whole. More to come here and we will continue updating on this as it develops.