Why Verizon Is Betting Big on Prepaid Wireless

Verizon (NYSE: VZ) is betting as much as $7 billion on the prepaid wireless industry. The wireless carrier recently announced its proposed acquisition of TracFone Wireless from America Movil. The deal seems like a smart move by Verizon, as it gives the company millions of new customers at what seems like a reasonable cost. If Big Red can cross-sell these customers postpaid plans or high-speed internet, this will have been a steal.

Verizon is spending $3.1 billion in cash and $3.1 billion in stock to acquire TracFone. In addition, Verizon will pay additional $650 million to America Movil, depending on the performance of TracFone. In total, Verizon would be on the hook for $6.9 billion.

The deal will still need to go through regulatory approval, which could be a concern for investors. T-Mobile (NASDAQ: TMUS) already has over 20 million prepaid subscribers, and AT&T (NYSE: T) has about 18 million. However, 4 million existing Verizon prepaid customers, added to 21 million TracFone subscribers, means Verizon will jump into first place in the prepaid market.

Source Fool.com