Verizon Communications Inc. said it has agreed to buy TracFone, a provider of wireless prepaid services, in a deal worth nearly $7 billion in cash and stock, further consolidating the U.S. cellular market.

Tracfone, a unit of Mexico’s América Móvil SAB, has about 21 million prepaid customers in the U.S. under its namesake as well as budget brands StraightTalk, Net10, SafeLink and Simple Mobile. The company does not run its own physical network in the U.S. and instead rides on other cellphone carriers’ systems for a fee and then resells service under its own brands.

The move plunges Verizon deep into the prepaid market, a sector it has largely avoided by catering to more lucrative customers who pay for wireless service after it is rendered. Customers on prepaid plans tend to switch providers more often, which operators consider a risk.

Verizon is the biggest U.S. cellphone carrier with about 120 million connections, including tablets and other devices, but it has been competing in a mature market that is now dominated by three providers. T-Mobile US Inc. became the No. 2 provider by subscribers swallowing Sprint earlier this year.

Verizon has not historically invested in prepaid compared with its rivals, such as T-Mobile, which revamped its MetroPCS prepaid brand and bought Sprint, which had a large prepaid business. Verizon’s purchase of Tracfone comes at a time when the pandemic has ravaged the economy and Americans are cutting back on spending.

Tracfone had become popular with the lower end of the ultra-competitive US telecoms consumer market and Verizon plans to provide new products for that segment after this “strategic acquisition,” said Hans Vestberg, chairman and chief executive of Verizon. “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,” added Ronan Dunne, executive vice president and group CEO, Verizon Consumer Group.

Todd Horwitz Chief Strategist BubbaTrading.com
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Equity Portfolio Management Recording