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Summary:

Sources inside European carriers said Apple is working with SIM-card manufacturer Gemalto to create a special SIM card that would allow consumers in Europe to buy a phone via the web or at the Apple Store and get the phones working using the iTunes App Store.

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Sources inside European carriers have reported that Apple has been working with SIM-card manufacturer Gemalto to create a special SIM card that would allow consumers in Europe to buy a phone via the web or at the Apple Store and get the phones working using Apple’s App Store.

It’s rumored that Apple and Gemalto have created a SIM card, which is typically a chip that carries subscriber identification information for the carriers, that will be integrated into the iPhone itself. Then customers will then be able to choose their carrier at time of purchase at the Apple web site or retail store, or buy the phone and get their handset up and running through a download at the App Store as opposed to visiting a carrier store or calling the carrier. Either way, it reduces the role of the carrier in the iPhone purchase. Gemalto and Apple have not responded to requests for comment. I’m also waiting to hear back from other sources to get more details.

However, if Apple is doing an end run around the carrier by putting its own SIM inside the iPhone, it could do what Google with its NexusOne could not, which is create an easy way to sell a handset via the web without carrier involvement. Much like it helped cut operators out of the app store game, Apple could be taking them out of the device retail game. Yes, carriers will still have to allow the phone to operate on their networks, which appears to be why executives from various French carriers have been to Cupertino in recent weeks.

The Gemalto SIM, according to my sources, is embedded in a chip that has an upgradeable flash component and a ROM area. The ROM area contains data provided by Gemalto with everything related to IT and network security, except for the carrier-related information. The flash component will receive the carrier related data via a local connection which could be the PC or a dedicated device, so it can be activated on the network. Gemalto will provide the back-end infrastructure that allows service and number provisioning on the carrier network.

The model should work well in Europe, where the carriers tend to use the same networking technology and are far more competitive. It also means that customers can roam more easily with the iPhones, swapping out the carriers as needed. The iPhone has lost its exclusivity in much of Europe and other markets of the world, which makes this model a compelling one for consumers, but a nightmare for carriers. Apple could change the mobile game once again.

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  1. [Apple Rumor Mill] Is Apple looking to shaft the carriers? Wednesday, October 27, 2010

    [...] According to Stacey Higginbotham at GigaOM it is rumored that Apple is working with SIM-card manufacturer Gemalto to create a special SIM card that would allow consumers in Europe to buy their iPhone via the Apple website, or apple store, and get it working via the App Store. It is rumored that Apple and Gemalto have created a SIM card, which is typically a chip that carries subscriber identification information for the carriers, that will be integrated into the iPhone itself. Then customers will then be able to choose their carrier at purchase at the Apple web site or retail store, or buy the phone and get their handset up and running through a download at the App Store as opposed to visiting a carrier store or calling the carrier. Either way it reduces the role of the carrier in the iPhone purchase. Gemalto and Apple have not responded to requests for comment. [...]

  2. Apple to ditch carriers for future iPhone purchases? | 9 to 5 Mac Apple to ditch carriers for future iPhone purchases? | Apple Intelligence Wednesday, October 27, 2010

    [...] to a report from Gigaom, Apple may be planning to cut out their carriers in future iPhone purchases. The report claims that Apple is working with [...]

  3. Devices are cash hogging and a costly exercise for carriers. Most carriers would prefer to be out of the device game altogether but the fear is what happens when customers chose a device before the network. And with powerful and disruptive companies like Apple carries are fearful hence they contiune to wastw money on devices.

  4. Oh. Hell. Yes.

  5. This has been happening in Canada since the release of the iPhone 4.

  6. Won’t happen in the US. Americans won’t pay full price for handsets.

    1. That is the question. Because with this you would pay full price. Another question is whether or not carriers in the U.S. would feel obligated to play. But the trend is moving this way and other than the pipe, the “relationship with the subscriber” is all a carrier has. This cuts that out of the equation.

      1. US iPhone sales did not take off until ATT subsidized the phone. Apple was not selling many handsets when they were $600 (which they still are, but now ATT pays $400 of it for you).

      2. Bigger barrier to this in the US. The AT&T network is the only national network that can run the current iPhone at 3G speeds. Of course, if the rumors are true of a dual-mode iPhone, and the CDMA side could be provisioned the same way, then maybe this would work here.

      3. Erik,
        ATT always subsidized the price.
        Do you think Apple simply gave away the 2-year contract requirement for the phone?
        Why would they do that and not have several carrier options.
        No, what happened was they realized the margin was too high, and so lowered the total cost (incl subsidy) of the phone from somewhere north of $800/handset to $600ish (which is where it’s been at since).

      4. roofus.

        Nobody else would take it under apples terms. Apple gave away the 2-year contract to cingular because no one else would tolerate their requirements (re-doing VM, no bundles, apps are not through the carrier).

        Was there a subsidy at launch? Yes, but nowhere near the $425 it is now.

      5. @Erik Schwartz

        Most American phone Customers are STUPID. They (including you) think that Carriers pay for you, but the fact is that over the period of 2 years / 3 years (what ever is the contract period) you have to pay more than 4-8 times of FULL PRICE.

      6. Why would you pay the full price?
        Your device would be sponsored by Apple rather than the carrier… In Europe (and in the US, if I’m not mistaken), you do have a lot of these national roaming agreements (Tesco, Talktalk, Virgin in the UK for example). Nothing revolutionary. There’s no technological challenges there. Not sure why they have to have a specific sim card…

        The move would be a big game change only if Apple were then refusing to sell their devices to regular operators, which I can see as the next step.

        Personnally, I believe that this will take apple products to the fringe of the market again (like the Mac vs PC) where exclusivity comes at a premium. Except the phone market is very different from the desktop/laptop market with very competitive devices at very competitive prices (Android for example).

        Greed is usually a bad motivation!

      7. Notwithstanding American habits over paying full handset price, the point at issue with respect to the technology is unlocked versus locked handsets. This technology moves the onus not from the carrier to the consumer but from the carrier to Apple. The very purposes of SIM cards in a regulatory environment which prohibits locking phones such as Europe is consumer choice. Apple is seeking to manage the consumer in Europe in terms of iphone use the way they currently are here in the U.S. with locked iphone handsets.

        For those with experience travelling internationally and availing themselves of local pre-paid SIMs wherever they visit, there is little better for consumer choice and freedom than the model of unlocked handsets combined with SIM technology. To abdicate that choice and the risk of unwanted roaming charges to Apple hardly seems like an advance for the consumer to me.

    2. Dude, they won’t have to pay full price. Americans can buy the phones for full price, but whoever they open a line/contract with will offer rebates.

      At least that’s the smart way of doing it. Who knows what will ACTUALLY happen!

    3. Not the full price, but think twice: contracts in Europe start at approx. € 40/Month if you don’t want to pay for the handset. If you pay the full price, you just pay for the contract and not for the subsidized iPhone, because you already payed the full price. Another advantage could be that you’re able to quit every month and change you carried and don’t have to sign the contract for two years.

    4. I agree Americans have been trained not to pay full price. But I could see either multiple options within the app store where the user could compare/select. Alternatively, do that within the app. Also interesting to leverage the iTunes pay method (http://www.wired.com/magazine/2010/02/ff_futureofmoney_move/). Sure to be touchy for the carriers….

    5. Subsidies have nothing to do with it. That is just accounting. The cancellation fees balance out the subsidies under any model. AT&T could offer you a coupon for $375 off an iPhone at the Apple Store if you sign a $50/month contract with a $375 cancellation fee with them. Then a month later, T-Mobile could offer you a check for $375 made out to AT&T if you sign a $40/month contract with a $375 cancellation fee with them. The subsidy stops being attached to the device but remains attached to the contract. Or, you could buy your iPhone full price and sign a contract with any carrier with a $0 cancellation fee.

      Carrier choice is 100% about technology. The 4 biggest US carriers deliberately use incompatible technologies to provide vendor lock-in, to create 4 overlapping monopolies. The standard networking with SIM cards prevents that vendor lock-in. How the accounting is handled is completely academic, just numbers on spreadsheets. The phone subsidies are just a kind of credit card is all, and with only a $375 limit, very basic stuff.

      1. Exactly!!! The standard networking+SIMcards+(unlocked phones, I’d add) mitigates carrier control in favor of consumer choice. Apple however has no interest in selling unlocked phones in the U.S. and an integrated SIM card(given all of the above as in Europe) ONLY serves to garner Apple the control in Europe that typically resides with the carriers in the U.S. Apple could sell unlocked iphones today in the U.S. if operator choice was the issue to be “solved”. That’s not at all the goal of an integrated SIM.

  7. U.S. consumers will be full price for a handset if they don’t have to enter a lengthy contract. It’s a no brainer.

    1. No, they have already proven they won’t. The reason Nokia has sold almost no smartphones in the US is they were all sold unsubsidized.

      In Europe, the model works because you have multiple carriers to buy a SIM from, all competing to run your phone. In the US, there is just one standard carrier: AT&T. The other networks in the US require special phones that only run on those networks. They’re competing to sell you a phone that only runs on their network and locks you into their network for 2 years. In that case, you might as well get a $400 credit card from them that you pay off over the same 2 years.

      That is also why Google’s ridiculous experiment in carrier neutrality with Nexus One did not work. You were supposed to pay Google $600 for a phone, then choose 1 of 4 models, each of which is tied for life to 1 of the 4 big US carriers. All they did was deny the customer a $400 credit card. The customer was still going to be stuck on just 1 carrier for the life of that device. You might as well pay $200 directly to the carrier and later pay the other $400 if you want to break the contract.

      US consumers have also been trained to think a $200 phone is outrageously expensive, whereas European consumers know that is really a $600 phone. It will take a long time to change that perception. Many advantages will have to be offered and understood by US consumers. The carriers would have to change dramatically, both in technology and in business practices before it would be worthwhile to pay $600 for a phone.

      1. This is one of the areas I’m in favor of government regulation.

        Here in Brazil all carriers are obligated to use the same technology and the same frequencies. More that, no phone can be locked to any carrier and if you change carriers you can take your number with you at no cost.

        If this rumor is true, it’ll be great, because i’d rather buy an iPhone from Apple then a carrier.

      2. Haha. You must work for AT&T. Sorry the party is soon to be over for you.

  8. This is very interesting. Maybe this is a way to sidestep phone regulation, like skype. I think they can do it, especially if they make the iphone work only with the internet and not the need for a carrier.

  9. SiliconANGLE — Blog — Rumored Apple Partnership with Gemalto for iPhone SIM Chip Wednesday, October 27, 2010

    [...] to GigaOM, although still rumor, the guessed details are hardly sketchy, The Gemalto SIM, according to my sources, is embedded in a chip that has an upgradeable flash [...]

  10. Just another step to cut them out, carriers already seeing profits cannibalised by App Store, iAds and in-app payments. Good stuff I think

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