TracFone and the Prepaid BrandsThin moat

Verizon (VZ) — moat facet

TracFone gave Verizon a prepaid business that churns 3.59% a month, a place to keep price-sensitive customers on its network without the loyalty of the postpaid base.

Below the postpaid franchise sits a cheaper, looser business. Verizon bought TracFone from América Movil in November 2021 for "approximately $3.5 billion in cash, net of cash acquired", 57,596,544 shares "valued at approximately $3.0 billion" and up to $650 million more in contingent cash1. Prepaid customers pay in advance, month by month, with no contract and often no credit check.

Verizon monthly churn by tier, Q2 2026 (%)0.92Postpaid phone3.59Core prepaidVerizon Q2 2026 results release, churn detail
Prepaid customers leave almost four times as fast.

The unit economics are thin next to postpaid. Core prepaid ARPU, average service revenue per prepaid connection excluding the SafeLink brand, was $33.37 in the June 2026 quarter against $32.56 a year earlier2, up 2.5%3. Core prepaid churn was 3.59% a month4, about 3.9 times the postpaid phone rate of 0.92%5.

Prepaid does two jobs for Verizon. It gives a price-sensitive customer somewhere to go that is still on Verizon's network, and it is a feeder: a prepaid customer who stays and whose credit improves can be moved to a postpaid plan.

It is not a moat. Prepaid customers switch because switching is easy, and the cable companies and T-Mobile compete hardest for exactly this customer.

The prepaid tier also carries the SafeLink brand, which the company excludes from its core prepaid figures6. Consumer's prepaid connections were about 20 million at the end of 2025, some 17% of its wireless retail connections7. The contingent payment of up to $650 million in the TracFone deal8 tied part of the price to the business's performance.

The test is the ARPU gap. If core prepaid ARPU keeps rising while postpaid ARPA falls, as it did in the June 2026 quarter9, the two tiers will be converging, and some postpaid customers will be trading down.

Moat trajectory: Holding steady

Core prepaid ARPU $33.37 in Q2 2026, up 2.5%; churn 3.59%.

The number that tests this moat
Reported
Core prepaid churn, latest quarter
3.59% a month (Q2 2026), against 3.60% a year earlier

How loose the prepaid tier is; about 3.9 times postpaid phone churn.

Source: Verizon Q2 2026 results release ↗
⚠ Threats to the moat
⚠ THREAT 01
Prepaid Churn Near Four Times Postpaid
Verizon's prepaid tier loses about 35% of its customers a year, so the $6.5 billion TracFone purchase bought traffic on the network, not loyalty.
References
  1. ReportedVerizon bought TracFone from América Movil in November 2021 for "approximately $3.5 billion in cash, net of cash acquired", 57,596,544 shares "valued at approximately $3.0 billion" and up to $650 million more in contingent cash.
    Verizon Communications Inc. Form 10-K for fiscal 2022 - the TracFone acquisition terms and 2020-2022 results. — FY2022 · publ. February 2023 · source ↗
  2. ReportedCore prepaid ARPU, average service revenue per prepaid connection excluding the SafeLink brand, was $33.37 in the June 2026 quarter against $32.56 a year earlier, up 2.5%.
    Verizon second-quarter 2026 results release, Form 8-K exhibit 99 - consolidated and segment results, operating statistics, cash flow, balance sheet and guidance - operating statistics: connections, net additions, churn, ARPA, upgrades and broadband. — Q2 2026 · publ. 24 July 2026 · source ↗
  3. ReportedCore prepaid ARPU, average service revenue per prepaid connection excluding the SafeLink brand, was $33.37 in the June 2026 quarter against $32.56 a year earlier, up 2.5%.
    Verizon second-quarter 2026 results release, Form 8-K exhibit 99 - consolidated and segment results, operating statistics, cash flow, balance sheet and guidance - operating statistics: connections, net additions, churn, ARPA, upgrades and broadband. — Q2 2026 · publ. 24 July 2026 · source ↗
  4. ReportedCore prepaid churn was 3.59% a month, about 3.9 times the postpaid phone rate of 0.92%.
    Verizon second-quarter 2026 results release, Form 8-K exhibit 99 - consolidated and segment results, operating statistics, cash flow, balance sheet and guidance - operating statistics: connections, net additions, churn, ARPA, upgrades and broadband. — Q2 2026 · publ. 24 July 2026 · source ↗
  5. Moat Explorer calcCore prepaid churn was 3.59% a month, about 3.9 times the postpaid phone rate of 0.92%.
    Moat Explorer calculation from Verizon's reported figures ($ millions unless stated; calendar years). Revenue and profit over the decade: revenue 2015-2025 (138,191 / 131,620) ^ (1/10) - 1 = about 0.5% a year; 138,191 / 131,620 - 1 = +5.0%; range 138,191 - 125,980 = about 12.2bn; 2027 revenue of 142bn would need (142 / 138.191) ^ (1/2) - 1 = about 1.4% a year; operating income 29,259 / 30,615 - 1 = -4.4%; net income 17,174 / 17,879 - 1 = -3.9%; diluted EPS 4.06 / 4.37 - 1 = -7.1%; total assets 404,258 / 244,175 - 1 = +65.6%. Segments 2025: Consumer share of segment operating income 29,628 / (29,628 + 2,532 = 32,160) = 92.1% (2024 29,484 / 31,542 = 93.5%; 2023 29,011 / 31,077 = 93.4%); Business share 2,532 / 32,160 = 7.9%; Q2 2026 Consumer 8,032 / (8,032 + 991 = 9,023) = 89.0%, Q2 2025 7,643 / (7,643 + 724 = 8,367) = 91.3%; Consumer operating margin 29,628 / 106,807 = 27.7%, Business 2,532 / 29,069 = 8.7%; Business share of segment revenue 29,069 / 135,876 = 21.4%; shared network and service costs 17,991 + 9,717 = 27,708, Business share 9,717 / 27,708 = 35.1%; Consumer share of segment EBITDA 43,801 / (43,801 + 6,644) = 86.8%; Consumer revenue 2025 106,807 / 102,904 - 1 = +3.8%, 2023-2025 106,807 / 101,626 - 1 = +5.1%; Consumer service revenue 80,617 / 77,127 - 1 = +4.5%; Consumer equipment 21,779 - 23,930 = -2,151, about 2.2bn below cost; Business revenue 29,069 / 30,122 - 1 = -3.5%; Enterprise and Public Sector 13,532 / 15,076 - 1 = -10.2%; Business Markets and Other 13,555 / 12,697 - 1 = +6.8%; Wholesale 1,953 / 2,313 - 1 = -15.6%; institutional and wholesale decline (15,076 - 13,532) + (2,313 - 1,953) = 1,904; Q2 2026 Consumer revenue 26,242 / 26,648 - 1 = -1.5%; Business revenue 7,155 / 6,973 - 1 = +2.6%; restatement 7,275 - 6,973 = 302 a quarter; mobility and broadband service revenue 2025 75,923 + 14,940 = 90,863. Customers: T-Mobile postpaid accounts 34,700 - 34,237 = 463 more than Verizon; T-Mobile 34,700 / 31,502 - 1 = +10.2%, 34,700 - 31,502 = 3,198; Verizon accounts 34,237 - 34,646 = -409, -1.2%; ARPA premium 168.35 / 152.91 - 1 = +10.1%; cable lines 10,187 + 12,540 = about 22.7 million; cable Q2 net adds 448 + 406 = 854 thousand, 854 / 184 = 4.6 times; Q2 net adds share 184 / (184 + 432 + 448 + 406 = 1,470) = 12.5%; fibre net adds 155 / 367 = 42%; annual churn at 0.92% a month 0.92 x 12 = 11.0%, about one customer in ten; 0.1 point on 94 million = about 94 thousand phones a month; prepaid churn 3.59 / 0.92 = 3.9 times; prepaid annual loss 1 - (1 - 0.0359) ^ 12 = 35.5%, average life 1 / 0.0359 = 27.9 months, a little over two years; revenue per postpaid line 170.62 / 3.67 = 46.49 (2025), 167.26 / 3.61 = 46.33 (2024); ARPA 2025 170.62 / 167.26 - 1 = +2.0%; ARPA Q2 2026 168.35 / 170.79 - 1 = -1.4%; ARPA H1 2026 167.50 / 170.30 - 1 = -1.6%; wireless service revenue 83,703 / 82,073 - 1 = +2.0%; wireless service share of revenue 83,703 / 138,191 = 60.6%; FWA revenue 2,940 / 2,139 - 1 = +37.4%; FWA revenue share 2,940 / 138,191 = 2.1%; fibre annualised 155 x 4 = 620 thousand; passings 2.0 / 30 = 6.7%; passings to fill 2,000 / 620 = 3.2 times. Spectrum and capital: C-Band 45.5 + 7.5 = 53.0bn; licences share of assets 158,159 / 410,186 = 38.6%; licences over goodwill 158,159 / 30,664 = 5.2 times; licences over equity 158,159 / 105,196 = 1.5 times; wireless service revenue per dollar of licences 83,703 / 157,039 = 0.53; spectrum bought June 2026 1.0 + 3.2 = 4.2bn; capex / revenue 17,011 / 138,191 = 12.3% (2025), 23,087 / 136,835 = 16.9% (2022); capex 17,011 / 23,087 - 1 = -26.3%; capex less depreciation 17,011 - 18,349 = -1,338; ROIC averages 2015-2019 (10.8 + 9.1 + 12.7 + 8.2 + 11.3) / 5 = 10.4%, 2021-2025 (8.7 + 7.3 + 5.0 + 7.0 + 7.1) / 5 = 7.0%; interest expense 6,694 / 5,524 - 1 = +21.2% (2023-2025); Q2 interest 1,985 / 1,639 - 1 = +21.1%; interest / operating income 6,694 / 29,259 = 22.9%. Cost, cash and capital returns: employees 89.9 / 99.6 - 1 = -9.7%; severance 533 + 1,733 + 1,715 + 397 = 4,378, about 4.4bn; adjusted EBITDA margin 49,997 / 138,191 = 36.2% (2025), 48,791 / 134,788 = 36.2% (2024); Q2 2026 operating income 7,179 / 8,172 - 1 = -12.2%; free cash flow Q2 6,426 / 5,167 - 1 = +24.4%; adjusted EPS less diluted EPS 4.71 - 4.06 = 0.65; phones sold below cost 28,976 - 25,470 = 3,506, about 3.5bn; dividends / free cash flow 11,481 / 20,126 = 57.0% (2025), 5,864 / 10,209 = 57.4% (H1 2026); dividends / net income 11,481 / 17,174 = 66.9%; dividends per share 2.735 / 2.230 - 1 = +22.6%, (2.735 / 2.230) ^ (1/10) - 1 = 2.1% a year; dividend cost a quarter 0.7075 x 4,155 = about 2,940; buyback average 3,500 / 72.047 = about $48.58 a share; shares 4,155 / 4,217 - 1 = -1.5%; free cash flow yield 21.53 / 193.94 = 11.1%; cash returned about (11.5 + 4.5) / 193.94 = 8.2% of market value; net unsecured debt 128,682 - 110,053 = 18,629; backlog 55.2 / 58.1 - 1 = -5.0%; backlog months 58.1 / 138.191 x 12 = about 5.0; device receivables 34,004 / 31,308 - 1 = +8.6%, allowance 1,628 / 1,315 - 1 = +23.8%; TracFone 3.5 + 3.0 = 6.5bn plus up to 0.65bn. Valuation: Frontier price / market value 22.3 / 193.94 = 11.5%; market value 193.94 / 253.94 - 1 = -23.6% (against end-2019), 193.94 / 188.06 - 1 = +3.1% (against end-2015); target 51.58 / 46.68 - 1 = +10.5%; year-end market value over net income 188.06 / 17.879 = 10.5 (2015), 217.61 / 13.127 = 16.6 (2016), 215.92 / 30.101 = 7.2 (2017), 232.30 / 15.528 = 15.0 (2018), 253.94 / 19.265 = 13.2 (2019), 243.11 / 17.801 = 13.7 (2020), 215.12 / 22.065 = 9.7 (2021), 165.47 / 21.256 = 7.8 (2022), 158.49 / 11.614 = 13.6 (2023), 168.34 / 17.506 = 9.6 (2024), 171.74 / 17.174 = 10.0 (2025); trailing twelve months to June 2026 revenue 138,191 - 67,989 + 68,693 = 138,895, net income 17,174 - 9,882 + 8,880 = 16,172, 193.94 / 16.172 = 12.0, 193.94 / 138.895 = 1.40 - customers, churn, ARPA and competitors. — 2015-2026 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in Verizon's Forms 10-K and 10-Q, quarterly results releases, the recast segment revenue 8-K, peer results releases (T-Mobile, AT&T, Comcast, Charter) and market data; operands shown in the source line.
  6. ReportedThe prepaid tier also carries the SafeLink brand, which the company excludes from its core prepaid figures.
    Verizon second-quarter 2026 results release, Form 8-K exhibit 99 - consolidated and segment results, operating statistics, cash flow, balance sheet and guidance - operating statistics: connections, net additions, churn, ARPA, upgrades and broadband. — Q2 2026 · publ. 24 July 2026 · source ↗
  7. ReportedConsumer's prepaid connections were about 20 million at the end of 2025, some 17% of its wireless retail connections.
    Verizon Communications Inc. Form 10-K for fiscal 2025 (year ended 31 December 2025) - segment note (Note 13) and MD&A segment results: Consumer and Business revenue, operating income and costs. — FY2025 · publ. 17 February 2026 · source ↗
  8. ReportedThe contingent payment of up to $650 million in the TracFone deal tied part of the price to the business's performance.
    Verizon Communications Inc. Form 10-K for fiscal 2022 - the TracFone acquisition terms and 2020-2022 results. — FY2022 · publ. February 2023 · source ↗
  9. ReportedIf core prepaid ARPU keeps rising while postpaid ARPA falls, as it did in the June 2026 quarter, the two tiers will be converging, and some postpaid customers will be trading down.
    Verizon second-quarter 2026 results release, Form 8-K exhibit 99 - consolidated and segment results, operating statistics, cash flow, balance sheet and guidance - operating statistics: connections, net additions, churn, ARPA, upgrades and broadband. — Q2 2026 · publ. 24 July 2026 · source ↗
Sources
Generated September 29, 2026