FCC Made a Good Call in Approving Verizon/TracFone Merger

Hours after my November 22 blog post, the FCC released its order approving the Verizon/TracFone merger. The Commission reached a strongly supportable conclusion, which is contained in paragraph 150 of its order:

After carefully reviewing the record in this proceeding and performing a thorough and extensive analysis, we find that the transaction will lower TracFone’s costs to provide service and improve its ability to offer prepaid and Lifeline services. These benefits, combined with Verizon’s robust commitments, which we accept as conditions of our approval, ensure that the proposed transaction will serve the public interest, convenience, and necessity. Accordingly, we approve the transaction. 

Notably, Commissioner Brendan Carr concurred in the result; but his statement accompanying the Verizon/TracFone Order also pointed to the agency's 2008 "mobile telephony/broadband services" market definition that it applied in evaluating the merger. Commissioner Carr cited to his thoughtful statement accompanying the 2019 T-Mobile/Sprint Order on the need for the FCC to update its framework for assessing competition and the likely effects of mergers in today's broadband services market. Insights from that prior statement, part of which are quoted below, are even more relevant as we approach 2022 than they were in 2019:

Instead of formally updating our view of competition to reflect 5G, we conduct our initial screen using the market definition of "mobile telephony/broadband services." The Commission created that market definition in November 2008—more than two years before any of the nationwide wireless providers had deployed 4G LTE. Even at that time, we saw how faster wireless service would combine the markets for talk, text, and low-data uses on phones with the market for high-data uses on computers and non-voice devices. The new market definition recognized how "mobile broadband services" (enabled by upgraded 3G and 4G networks) would break down previously siloed industries. And so when we reviewed a transaction between wireless companies in 2008, we took the opportunity to update our market definition, "conclud[ing] that there are risks associated with defining product markets too narrowly, since doing so may thwart this and future pro-competitive deals that take place in the context of rapidly evolving markets and services."

 

The Commission shows no such prescience in defining the relevant market here. Rather, it applies the same definition that both the FCC and antitrust authorities have been using for a decade. By sticking with a pre-4G market definition, we miss an essential feature of 5G: the blurring of wired and wireless networks and the enhanced competition that results. While our legacy market definition may track FCCs and antitrust authorities past, it prevents the expert agency Congress created to regulate telecommunications from helping our sister agencies modernize their approach to this technology. 

FCC Should Finally Make a Decision on Verizon/TracFone Merger

Verizon has stepped up its commitments regarding its proposed acquisition of TracFone, and the FCC should finally make a decision on the merger. In an ex parte filing dated November 18, Verizon strengthened its pledge to participate in the Lifeline program for several years as a condition for the Commission's approval of the transaction. If approved, the Verizon/TracFone merger likely would make the wireless market more competitive. And there appears to be no drawbacks because the deal would not result in the loss of a facilities-based provider.  

Verizon first applied to the FCC for consent to acquire TracFone on September 30, 2020. But the parties have been left hanging during the Commission's slow-motion review process. The proposed merger is not a hard call, and there is no good reason for the Commission to further delay its decision.

My blog post from August 17 of this year called attention to Verizon's pledge to continue providing low-income consumers with service through the Lifeline program after its acquisition of TracFone is approved. Verizon's ex parte from November 18 actually expanded on that pledge by offering to participate in the Lifeline program for at least seven years instead of three years. Among other proposed commitments, Verizon will continue existing TracFone rate plans for at least three years after the close of the deal. And for TracFone subscribers who are required to transition to Verizon's Network, Verizon will offer them devices with comparable functionality or SIM card replacements at no cost. 

 

Verizon is a facilities-based wireless service provider, and TracFone is a popular pre-paid mobile virtual network operator (MVNO) that relies on other providers' facilities. Thus, the merger would not cause any U.S. wireless consumer to lose a choice among facilities-based providers. Instead, by carrying wireless traffic for TracFone's pre-paid service on Verizon's network, the merger likely would save costs and make Verizon a stronger competitor with AT&T, T-Mobile, and other wireless providers that cater to the pre-paid market segment. 

 

In all, the public benefits of Verizon/TracFone clearly appear to outweigh any potential downsides. It is past time for the FCC to conclude its review and vote on the merger.  

Verizon/TracFone Merger Now Has a Clearer Path to FCC Approval

Pending before the FCC is Verizon's proposed acquisition of TracFone, a mobile virtual network operator (MVNO) that had 21 million subscribers at the end of 2020. MVNOs aren't facilities-based providers. Rather, they purchase wireless network on a wholesale basis from facilities-based providers like AT&T, T-Mobile, and Verizon and then they resell those services to consumers. Prepaid wireless service offerings by MVNOs have been especially popular with cost-conscious consumers. 

On August 13, I was quoted in Communications Daily in response to news that many prior opponents of Verizon/TracFone are now supportive of the merger because of pledges Verizon has made to provide continuing services with the Lifeline program. Leaving aside the issue of whether those pledges ought to have been necessary or the merits of those pledges, it safe to conclude that the Verizon/TracFone merger would result in economic efficiencies because an acquired TracFone would save on costs of obtaining wireless network services at wholesale. And since the Verizon/TracFone merger would not result in the loss of a facilities-based provider, the FCC's approval of the merger ought to be a foregone conclusion.  Moreover, as I was quoted in saying in CommDaily: "A timely and straightforward FCC decision on Verizon/Tracfone likely would make any state PUC reviews go more smoothly, given that state regulatory assertions of authority over wireless mergers already are on thin legal ground in light of Section 332 of the Communications Act."