Verizon is confident that its proposed acquisition of TracFone will get completed before the end of the year and it expects to make the most of its foray into prepaid.
That’s the message from Ronan Dunne, EVP and Verizon Consumer Group CEO, who appeared during an online BofA Securities conference on Monday.
Verizon’s participation in prepaid has been limited thus far, but its nearly $7 billion TracFone acquisition will take it from “worst to first,” as Wave7 Research has pointed out. Consumer groups initially opposed the TracFone transaction but some withdrew their opposition after Verizon agreed to certain conditions, including adhering to certain Lifeline time commitments. It's still awaiting regulatory approval.
Verizon participates in the prepaid wholesale business – its network currently is used by the majority of TracFone customers under an MVNO arrangement – but the attraction of acquiring TracFone isn’t just about converting prepaid customers over to postpaid, according to Dunne.
“We see two opportunities,” he said, acknowledging Verizon’s relatively small prepaid base today. One is to “innovate inside the value segment itself,” so that customers don’t have to move out of prepaid to get the benefits of postpaid.
“The progress that we’ve seen to date has been good,” he said of the proposed acquisition. “We’ve had a number of people who had originally expressed concerns with the FCC who have written recently – Public Knowledge, some of the unions – actually wrote to say that the commitments that we’ve made publicly, both to the California PUC and in our filings with the FCC, have met the concerns that those parties have, so we think we’re on a good trend in that regard.”
It’s looking to acquire TracFone not simply to participate in pre- to postpaid migration. “We see an opportunity to broaden our product offering… Yes, we see the opportunity” to migrate those who are in the TracFone base but not on the Verizon network and “upgrade their network experience," he said.
However, “I think success will be growing the revenues of TracFone and its portfolio within the value segment rather than an overarching desire to migrate people” from prepaid to postpaid. “The reason people are moving pre to post is they don’t see the offerings, they don’t see the value, they don’t see the product innovation." Dunne said he believes Verizon is well positioned to "actually change that value segment” and stop some of that migration that’s going on in the industry by better serving the needs of the value segment “in situ,” and “that for me, is an exciting opportunity, and that’s where I think we can make a significant stride forward.”
It’s not just about the traditional wireless product, either. The prepaid segment is also an “exceptionally interesting base” for its fixed wireless access (FWA) products as well.
Verizon has always said that in 2021, the volumes and financial impact from its foray into FWA would be immaterial, he said.
What it has been bullish on is the ability for the C-band spectrum acquisition to significantly propel the scope of its offering, and “we continue to make good progress on that,” he said.
As part of that, Verizon brought out new hardware just in the last month or so that is capable of accessing both the existing spectrum in place, including millimeter wave (mmWave), as well as C-band as soon as that’s available. “We’re getting the tools in place,” he said.
It also will have some incremental 4G LTE capacity getting freed up and it’s opening up that where demand is high. But the real financial impact from FWA won’t come until 2022. Like FiOS, it’s a five- to seven-year cycle that involves customers switching from their current service, so it’s not like it’s going to happen immediately.
What about T-Mobile?
Quizzed about T-Mobile’s 5G headstart with mid-band spectrum in the form of 2.5 GHz that it obtained through Sprint, Dunne emphasized Verizon’s LTE network and all that brings to the table, even though T-Mobile is clearly ahead of its rivals in 5G coverage.
“Consumers don’t buy technology, they buy what the technology enables,” he said, adding that Verizon’s LTE network is the foundation of what the majority of its customers experience every day.
“As 5G comes along, it’s about enhancing the capabilities of the network,” he said. “It’s not selling 5G” as a distinct differentiator from 4G. “It’s the broad suite of capabilities. It’s that enhanced capacity. It’s improved uplink speeds that will be relevant to things like AR deployments as they go forward. It’s about low latency” that creates the opportunity for mobile gamers to be as relevant as those who are on their console at home.
As Verizon deploys C-band, “it’s fair to say that we can bring more of those currencies of 5G” to more customers, he said.
“I don’t think we’re at any competitive disadvantage at all, and I think the fact that we have the strongest network as a base layer already means that in that transition phase, we have everything we need to continue to deliver a great experience and increasingly, as the C-band rolls out, to actually provide that upgrade of experience to customers as more and more of these 5G-enabled experiences come to market,” he said.
Asked if the U.S. wireless industry, from a business standpoint, is healthier as a three-carrier market, Dunne said he believes it’s healthier now.
The deployment of mid-band spectrum across the industry “is allowing us to broaden out the proposition in a way that we are a more capable alternative to the cable industry,” he said. In addition, capabilities through content deals like that with Disney, Discovery and Apple are broadening offerings more than ever.
The flexibility that wireless provides also means people can work not just from home, but from anywhere they need to work. “It’s kind of yes, working from home,” but it’s also about “being able to work from wherever you need to be, or wherever you want to be, and I think that drives a very strong opportunity for the wireless industry.”