Tracfone already has an agreement with Verizon and uses Verizon towers, so this is a pretty natural move on both sides. Verizon gains 20+ million new customers for a relatively minor cost in terms of cash. They lose the revenue they gained from Tracfone renting tower time but gain more customers. The T-Mobile/Sprint merger helped to force their hand a bit. Verizon's paying about $150 in cash per Tracfone customer ($3.125 billion in cash over 21 million customers) so that's kind of a bargain given the cost to acquire customers through advertising or other means. The stock cost is less of a burden for a company.
Now we get to see if they keep Tracfone separate, suck it in under the Verizon corporate label, or what happens. For Tracfone customers, it could be good as Verizon has multiple storefronts where you could, if they go under the same umbrella, get service, buy new phones, get assistance, etc. It could also speed up the introduction of higher-end phones under the Tracfone terms and conditions as Verizon sells the high-end phones anyway. In theory Verizon could keep the costs the same, or even lower them since they own the towers already and would just be using their own infrastructure instead of leasing the tower space. By using their own pre-existing distribution centers/storefronts they could bypass the "normal" retailers keeping more profit for themselves while lowering costs for consumers.
It'll be interesting to see how this all plays out. Verizon only had 4 million prepaid customers before this despite having 116 million regular monthly subscribers. They've now upped that number to 25 million prepaid subscribers in total. How do they use that new power? Better phones at a lower price? Do they raise prices? Do they try to switch Tracfone users to monthly plans? We'll have to see. The mobile marketplace is getting very condensed with these mergers. T-Mobile, Sprint, Verizon, and Tracfone have now become just two companies instead of four.
Verizon now has a total of 141 million customers (116 million monthly, 25 million prepaid) so that gives them some pretty good negotiating power with phone providers. They should be able to buy phones at well below suggested retail. How will they use that leverage? Will the savings get passed on to consumers? We'll have to see. We should be hearing fairly soon if they'll keep the Tracfone label or switch everything to Verizon Prepaid. It's going to get interesting for a bit.
Fly!!! Eagles!!! Fly!!!
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