Tucows signs deal with Verizon, lowers 2019 guidance

Company takes big step to clean up wireless carrier problems.

Tucows (NASDAQ: TCX) has signed a new mobile service deal with Verizon, marking a big shift in its Ting mobile service.

The company offers mobile service, high-speed internet and domain names. It is the world’s second largest domain name registrar, including its OpenSRS and Enom reseller platforms.

Its mobile service is a reseller of large carriers in a relationship known as mobile virtual network operator (MVNO). Think of it kind of like a webhosting company reselling domain names — which is exactly how Tucows’ sells many of its domain names, through hosting companies and other resellers.

Last quarter Tucows noted increased issues with T-Mobile, one of the mobile providers it resells. Drawing another comparison to the domain industry, the challenges it had with T-Mobile remind me a lot of when a domain parking company faces suspect clawbacks from Google.

Tucows is dropping T-Mobile in favor of Verizon. It also has a deal with Sprint that is extended through September 2020.

T-Mobile and Sprint are merging but the merger is delayed as it goes through regulatory challenges. Tucows said it wanted to work with the combined entity but couldn’t wait any longer to resolve the issues. Also, adding Verizon insulates the company from the risks of the pending merger.

Shifting many of its customers from T-Mobile to Verizon will be expensive and adds to woes the company is experiencing with mobile. It expects to spend as much as $15 million transitioning customers over time. About $3 million of that will hit this year.

The company has lowered its 2019 cash EBITDA guidance from $62 million to $52 million to reflect the transition, overall mobile issues and carrier penalties.

It’s a big hit, but the company says it sets the Ting mobile product up for better long term success.

Shares in Tucows dropped 13% to $52.97 yesterday on the news. The stock is up in morning trading today.

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