FCC on verge of approving Verizon's acquisition of TracFone
In September 2020, Verizon, the nation's largest carrier, announced a deal to acquire the largest MVNO in the U.S., TracFone. An MVNO is a Mobile Virtual Network Operator, or a company that doesn't own any spectrum or cell towers but still sells wireless service to the public. The MVNO buys cell service from a major carrier and sells it at a profit to the public.
TracFone buys its cell service wholesale from Verizon, AT&T, T-Mobile U.S., and U.S. Cellular and charges consumers retail prices for service. The deal was made for $3.125 billion in cash and $3.125 billion in shares of Verizon stock. If Tracfone hits certain benchmarks, TracFone owner American Movil could receive an additional $650 million.
FCC seems on the cusp of approving Verizon's acquisition of TracFone/
At the time the deal was announced, TracFone had 21 million subscribers and 90,000 retail locations in the U.S. Verizon called the company "the leading pre-paid and value mobile provider in the U.S." and said that the deal would make Verizon bigger in the value category.
Verizon could soon receive FCC approval for its purchase of TracFone
Now, Reuters reports that the FCC appears on the verge of approving the transaction as Reuters reports that on Friday chair Jessica Rosenworcel started circulating an order among the regulatory agencies commissioners to give a green light to Verizon's purchase of TracFone. On Thursday, the California Public Utilities Commission (CPUC) approved the deal after Verizon agreed to some conditions.
The deal with the CPUC requires Verizon or TracFone to participate for up to 20 years in a program that offers subsidized-wireless service for low-income customers. TracFone is one of the providers of wireless service for a government subsidized program called Lifeline that delivers wireless service to 1.7 million low-income subscribers in 43 states and the District of Columbia.
While Verizon said on Friday that it promised the FCC that it would stay involved with the Lifeline program for at least seven years, the carrier reportedly told the FCC that it will continue to offer the current Lifeline wireless plans at current costs for at least three years. It will also retain an internal company compliance officer and independent compliance officer to monitor its compliance with these commitments for more than seven years. And under the agreement with the CPUC, Verizon will need to sign up at least 200,000 Lifeline subscribers from California by the end of 2025.
Additionally, after the first year of the merger, Verizon or TracFone must offer Lifeline subscribers a free handset. Lifeline at present provides 9.1 million Americans with broadband or voice service for a reduced price or for free. Lifeline users receive as much as $9.25 a month toward their recurring monthly phone bills. The money can be used to help pay a monthly bill for phone service, or the internet, but not for both.
The money that goes to Lifeline users comes from the Universal Service Fund (USF) which is funded by fees that are paid by customers of wireless providers each month. The USF fund is managed by the FCC.
The Justice Department approved the deal last year
The USF was involved in some other news a couple of years ago when the FCC banned rural carriers from using the fund to help them pay for networking equipment gear from Chinese manufacturers Huawei and ZTE. Both firms are considered national security threats in the states but were among the top suppliers of networking equipment to the aforementioned rural carriers.
This past July, the FCC voted to allow the USF to send approximately $1.9 billion to rip out and replace the networking gear made by Huawei and ZTE that is being used on networks run by smaller rural carriers. To be eligible to receive some of the $1.9 billion to rip and replace Huawei and ZTE equipment from their network, a rural carrier must have no more than 10 million customers.
It should be pointed out that most telecom deals need approval from the FCC and the Department of Justice. The latter signed off on the deal last year.