Apple is working with Gemalto on an iPhone with an embedded Sim card, according to various unsourced reports. The network information would be supplied wirelessly and saved in the handset’s memory. If the rumours are true, this means a major strategy shift for Apple, opening the way for direct sales via iTunes: users first buy an iPhone and then choose a network. The current type of Sim card, which can be removed from the handset and changed, is central to the relationship between the operator and the customers, and as a result operators are not willing to let this go easily. Has the iPhone brand become so strong that Apple is able to grab the customer relationship from the operator?
The term Sim refers to two things: the Subscriber Identity Module which holds the customer and network’s unique details, and the physical case for this, the Sim card. The card is central to the operator’s relationship with the end-user; a Sim card from operator A does not work on the network of operator B.
Gemalto has developed a product for Apple that saves the information on a secure part of the phone’s memory, GigaOM reported citing sources at European operators. This type of System-on-a-Chip (SoC) includes a small operating system and memory for encrypted information, such as the user identity. There is also room for other secured applications, such as for mobile payments (Apple holds a number of patents for NFC). Gemalto will reportedly also supply a platform to manage subscriber details and support over-the-air updates. Several European operators have reportedly already spoken with Apple about the plans, but no one would confirm the talks, and Apple and Gemalto refused to comment.
The Financial Times writes that various European operators are concerned about the possible loss of control in their relationship with the subscribers. They are considering taking action against Apple, such as refusing to subsidy its handsets. One manager told the paper that Apple is risking “war”. Vodafone, France Telecom and Telefonica were named by the paper, but none of them would comment.
Apple’s plans have technical advantages. With the identity saved in the phone, the Sim and its card are no longer needed, allowing for a flatter and simpler handset to produce. The physical distribution and management of Sims is no longer needed either, saving costs. Operators and other brands will not profit directly from this, as the Sim card and its related infrastructure will likely continue for some years for other customers and handset brands.
Customer relationship
The biggest change would be in the customer relationship. Without a Sim, the sales model changes, and various other scenarios are possible. Apple could sell the iPhone directly on iTunes to the end-user, who then makes a choice among the available networks and tariff plans. The mobile phone is then registered over the air. The initial price for the iPhone is high, but competing operators will consider offering an upfront subsidy in exchange for long-term service contracts.
If a customer doesn’t want to sign up for a long contract, then the competition moves to voice minutes and data volumes. Users would be able to change networks themselves, even when abroad. It’s even imaginable that Apple buys in the minutes and data itself from the operators and handles the billing with the end-user. The phone could switch automatically to the network offering the best coverage and capacity at that moment. If an iPhone supporting both GSM and CDMA was developed, then this model could be rolled out across the entire world.
Network choice is important. In many cases, the handset brand is stronger than the operator’s brand – people choose for an iPhone, Samsung or BlackBerry. This question is even more relevant in the US than in Europe: the four largest American operators use a number of mobile standards (Wimax, GSM and CDMA) and also set up significant barriers to switching, such as clawing back phone subsidies if the customer leaves. AT&T currently has the exclusive rights to the iPhone, although rumours have been circulating since early this year about Verizon getting a CDMA version in 2011. Apple is possibly looking to break open this situation.
An iPhone without a Sim card goes against the GSMA initiatives for mobile payments. After years of promises, this is starting to gain momentum in both Europe and North America, with projects such as NFC readers in shops and a contactless public transport card in the New York area. The GSMA is developing mobile payments based on a model where the encrypted NFC applications are included in the Sim card. However, the applications could also be on a microSD card in the handset or in the phone, with little difference for the payments process. Apple seems to have a similar thinking.
Apple has always positioned itself as an outsider in the mobile world. It’s not a member of the GSMA and has forced operators in a relatively short period of time to move to the micro Sim from the normal Sim. However, operators are unlikely to agree easily to completely cutting their connection to the customer. Apple is not becoming a mobile network operator, and so in every country operators will need to be signed up, and preferably several. It will be difficult to convince them if they aren’t allowed to keep at least some of their previous advantages. That is, unless Apple is just so popular, that there’s no way of avoiding it. With iTunes, music and apps, Apple has already shown itself to be quiet successful with this.
