The Motley Fool recently reported on the acquisition talks of TracFone by wireless giant, Verizon Wireless. “Across the industry, the estimated cost to acquire a new wireless phone subscriber is at least $350 to $400 . With Verizon getting TracFone customers at $328.57, the company is starting off at a lower cost basis than if it tried to organically win these accounts.”
“With a maximum deal cost of $6.9 billion, divided by 21 million new customers, Verizon’s average cost per customer is $328.57. This math seems favorable…”
The interesting part about this is that Verizon is pricing these prepaid customers very closely to their post-paid customers. Historically, the prepaid customer has been seen as less-valuable than their post-paid counterparts.
The Motley Fool went on to give a perspective on the recent TracFone acquisition talks, “Given that Verizon already holds the lead in postpaid subscribers, regulators may be hesitant to have the same company leading in both postpaid and prepaid wireless. TracFone sells prepaid wireless under the TracFone, Straight Talk, and Simple Mobile brands. It’s possible that regulators could decide that one of these brands must be spun off or sold. While investors should keep an eye on this, it doesn’t present an immediate threat to Verizon’s stock.”
Speaking of Verizon’s stock, Barron’s observed the wireless giant’s stock “[…] did a whole lot of nothing in 2020.”
They went on to say, “[…] Verizon isn’t likely to grow much faster than the broader economy. It isn’t likely to shrink either. Even during the Covid-19 recession, phone-obsessed Americans have been loath to cancel their talk and data plans. The stock sports a dividend yield of 4.3% annually that’s easily covered by the company’s cash flows.”
We’ll keep an eye on the trend towards big wireless players betting big on prepaid. Prepaid is now the preferred option outside of the US. No contract, no credit check, no obligations. Perhaps we’ll see the same shift take place here, too.