Is Apple Planning Another Blow To Phone Carriers? Virtual SIM Cards Are Coming

This could shift the strategic balance even further away from phone carriers, open up a truly global market in telecom services - and undermine the economic rationale for mobile operations on which the telcos depend in the post-landline world. JL

Alex Webb reports in Bloomberg:

Apple could introduce so-called electronic sims, or eSIMs. Even if this doesn’t happen this time around, the shift to the new technology looks inevitable. The eSIM is virtual, meaning that just changing your phone’s settings would theoretically allow you to switch carriers.It’s almost certain that this would accelerate price competition.

Each new iPhone is usually good news for mobile network operators. The latest Apple Inc. device always comes with upgrades that make it easier to play games, watch films and download reams of data. More data means bigger phone bills.

There’s a chance, though, that Wednesday’s arrival of the next generation of iPhones might not be so welcome. That’s because there’s a possibility that Apple could introduce so-called electronic sims, or eSIMs. Even if this doesn’t happen this time around, the shift to the new technology looks inevitable.

Speculation about eSIMs has been rife since Apple complained to the U.S. Department of Justice that Verizon Communications Inc. and AT&T Inc. were colluding to prevent their introduction. The DoJ is investigating.

The classic SIM card is a small chip that’s inserted into the phone manually — making it more awkward to change your mobile network provider. You have to go to a shop to get a new sim or have one delivered physically. The eSIM is virtual, meaning that just changing your phone’s settings would theoretically allow you to switch carriers.
It’s almost certain that this would accelerate price competition. Whenever it’s made easier to jump from one operator to another, consumers take advantage and seek better deals. “Churn,” the industry term for customer losses, spikes. That’s what happened, for example, when Spain brought in rules to cut the time it took to change network operators to less than 24 hours.

Churn, Churn, Churn

The number of Spanish mobile phone customers switching carriers spiked after it was made easier in 2012

Source: Spanish telecoms regulator

European chipmaker STMicroelectronics NV dropped a heavy hint about eSIMs at an investor day in May, saying it expected to deploy its own device in a major mass-market smartphone by the end of the year. Whether it’s talking about this year’s iPhone will become known on Wednesday, but it’s hard to see how the mobile phone operators can resist this technology for long given its usefulness for consumers. Apple will certainly argue it that way. It’s already used in some iPads, and STMicro supplies an eSIM for the Apple Watch.
Apple can’t totally dismiss the concerns of the big phone carriers. After all, they spend huge sums on marketing the iPhone, and sell it in their stores. But the California giant is willing to throw its weight around, as shown by the DoJ complaint.
While the eSIM might reduce some logistical costs for carriers such as Verizon and AT&T, in the longer term it will become harder to differentiate between network providers. As Northstream telecoms consultant Bengt Nordstrom says: “From a user perspective, if you ask what service they’re using, they’ll say they’re an iPhone or Samsung user, not the operator.”

It might make sense for Apple and other phone-makers to keep the classic SIM port alongside an eSIM in the near term. That would give operators time to adapt, while making it harder for them to object.
But the danger for carriers is that the shift to eSIMs moves them further down the path to becoming little more than utilities. Telecoms stocks are already the worst performers in Europe’s Stoxx 600 benchmark index this year.

A Little SIMpathy Please

Phone operator shares are already struggling

Source: Bloomberg

There are very few people who don’t have a smartphone already, meaning it’s increasingly a battle for market share rather than new users. The prospect of a new wave of price wars is not a happy one