An increase in merger and acquisition activity
The telecommunications sector has experienced a rapid rise in merger and acquisition activity, most prominently demonstrated by T-Mobile’s acquisition of Sprint Corporation (Sprint), and the Telecommunications Resellers industry in the United States is no exception. Verizon Communications Inc. (Verizon) announced that it had agreed to buy TracFone Wireless Inc. (TracFone), the largest telecommunications reseller in the industry, from América Móvil for nearly $7.0 billion; Verizon expects the transaction to close in the second half of 2021. Verizon is among the largest operators in the Wireless Telecommunications Carriers industry in the United States, signaling an increasing integration among these industries.
Tapping into the prepaid wireless market
Tracfone offers prepaid wireless services to its customers, a market which Verizon has not historically catered to. Prepaid customers pay a flat fee upfront for a fixed amount of wireless service before it is rendered, which often appeals to more budget conscious and lower-income consumers. These consumers tend to switch providers more often and plan to use a limited amount of data, which makes this market less stable and more of a risk for wireless providers. Verizon primarily provides service to postpaid customers, which includes most household wireless consumers, who purchase plans that charge them based on the amount of data used during a pay period.
However, this acquisition is a part of the larger trend among telecommunications carriers, seeking to increase their exposure to the prepaid customer base. AT&T Inc., the largest wireless carrier, provides services to 18.0 million prepaid customers in the United States through its Cricket Wireless brand. T-Mobile, the third largest carrier in the industry, also caters to prepaid customers through its Metro brand.
As the economy is currently in a recession, fueled by the COVID-19 (coronavirus) pandemic, more consumers may choose prepaid plans to save money. As a result, telecommunications companies have sought to capitalize on potential growth in this market segment, a trend that is likely to continue in the immediate future.
Reselling network bandwidth as a potential opportunity
In line with this trend, telecommunications companies in other industries have also expanded into reselling network bandwidth for prepaid customers. Comcast Corporation and Charter Communications Inc., two of the largest companies in the Internet Service Providers industry in the United States, have recently launched new wireless plans by reselling network bandwidth, which will be provided by Verizon. Therefore, these companies have effectively entered the telecommunications resellers industry, and thus, have increased competitive pressure in the prepaid market.
Overall, this merger provides a window into the increased acquisition activity in the telecommunications sector, as the largest companies fiercely compete for market share.
