33 Comments

Summary:

Earlier this week, I reported on rumors that Apple and Gemalto were developing a SIM that Apple could integrate onto its iPhone motherboard, and through the comments pouring in, I’ve received further confirmation on the rumors and more context on what this might mean.

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Earlier this week, I reported on rumors that Apple and Gemalto were developing a SIM that Apple could integrate into its iPhone motherboard. In the emails, comments and phone calls that have poured in since then, I’ve received confirmation of the rumors, (although still no word from Apple or Gemalto) and gotten a lot more context about what this move might mean.

While the idea of Apple cutting out mobile operators by selling the device with a SIM already inside — and the ability to choose your carrier via an App Store download — is the most obvious option being discussed, there are plenty of other options that might also be on the table, from a mobile payment scheme to Apple launching its own bid to become a cell-phone company that uses other carrier networks. Let’s break it down.

The Payment Game

The idea here is that Apple would use the integrated SIM not only as the keys to the carrier kingdom, but also as the keys to the banking kingdom. After all, Gemalto has a big business in secure payments, and Apple has already filed some interesting patents when it comes to hardware that could offer payments on a cell phone. The mobile payments market is potentially huge, and Apple has the experience to get it right, and a significant interest in doing so. With iTunes, it already has the credit card information from 160 million consumers, which has enabled a frictionless app-buying experience from its handsets.

Apple clearly has an interest in expanding its payments efforts beyond digital goods and into the real world, where it could not only capture additional revenue from processing fees, but also change the device game by turning the iPhone into a mobile wallet. Integrating such a feature into the handset as opposed to the clunky dongles in use today would appeal to the Apple design aesthetic. I’m pretty sure Steve Jobs doesn’t have a few dongles dangling from his key chain so he can swipe and go at his local gas station.

Apple Becomes a Carrier (sort of)

For those who are focused on the carrier side of the equation, it seems I didn’t go far enough in my initial analysis. Several folks pointed out that the SIM card move could allow Apple to create a network of operators that provide service, and thus turn itself into a mobile virtual network operator or MVNO. MVNOs are popular in other parts of the world, where companies resell access on mobile broadband networks to certain populations. Several companies attempted that in the U.S. around demographics like sports or teens, but generally failed. Prepaid is one area where it has been successful, which could be an interesting option as a way of getting Apple’s iPads onto a network, for example.

There’s Room for Debate

The biggest debate in the comments of the original story centered around whether people would pay full price for a handset, since under such a model, consumers wouldn’t sign a data contract with a carrier. I think some people would, and some wouldn’t, but I do think there are still ways to offer a subsidy, even if Apple could offer folks access to a network directly. Carriers could still offer subsidies if users sign a contract, and even Apple could offer some kind of discount.

I don’t think those are very likely scenarios, but if Apple succeeds in changing the relationship between device sales and the mobile network, rest assured handset vendors and companies like Dell or Samsung that see huge opportunities in the mobile device space would hop on the bandwagon faster than you could swap out a SIM card. Those companies aren’t known for producing high-margin hardware as Apple is, so their devices may be less of a squeeze on consumers’ wallets, and those companies might also work out some kind of subsidy of their own.

The other big topic of discussion was around the loss of freedom that comes from having a SIM now embedded into the device as opposed to swappable by the consumer. What if only certain carriers were compatible with the iPhone (which is almost certain to be the case, given the different cellular network technologies deployed around the world and the spectrum bands used in various countries) and Apple somehow kept consumer-friendly options out of the loop? It is a company known for exerting high levels of control.

I’m not as concerned about this, possibly because there are products from other device manufacturers, and I don’t really have a problem with a gadget-maker like Apple controlling access to a network, mostly because if it wants to sell the most gadgets, it has an incentive to ensure the devices work on as many networks as possible. Meanwhile, the operators have a huge incentive to offer solid devices and contracts as a means to lure consumers onto their network for as long as possible, regardless of the network quality or customer service.

I also heard about some really interesting options for this type of SIM for the machine-to-machine market, and about services that provide virtual SIMs already such as Truphone and MaxRoam. So keep the ideas and information coming, and let’s hope that Apple can push its vision forward.

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  1. I think that they are trying to get connecting to the cellular network as easy as connecting to wifi networks. I can just imagine Steve having just come back from Europe and assembling the engineering team together “why do I have to fiddle with these cards when with wifi it just connects”

    It also leaves open the intriguing possibility of a combined CDMA/GSM/LTE (or combination of 2 out of the above 3). Especially with all the CDMA rumours
    It fits Apple’s aesthetic and philosophy well. Their one phone has all the frequencies and cellular modes of the carriers that they have agreements with. Apple ships or you go to any country around the world and the iphone will be able to connect to the local network as long as you have an account.

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  2. Basically it means you’re tied to your carrier because you can’t pop the SIM.

    That’s not a good thing, people. Just so you know.

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  3. I’m not sure there’s going to be too many fans of this approach, but your argument Stacey is still missing a few key points:

    1. Payment – right now I can choose between a prepaid SIM and a monthly account. Sure, Apple might let me activate the phone on different networks depending on where I actually live, but what if I’m a frequent traveler? How will Apple handle customers that want to go prepaid only, for short periods, and change carriers frequently as they travel? And most importantly, how does Apple plan to handle the payment for prepaid activation coming from multiple carriers with varying rates in multiple countries? The Euro zone is still only partial.

    2. EU regulations – Remember Microsoft? They got into a whole pile of trouble when they tried a similar approach putting IE on Windows. What Apple is trying to do is no different, in effect having their App Store “determine” which carrier I can use with my phone.

    3. Freedom of choice – Users today can swap SIM cards freely on unlocked phones, and with 5-band devices, use any network in the world. Notice I said “unlocked”. Apple’s devices have NEVER BEEN unlocked, and that begs the question – why does Apple HAVE TO KNOW which carrier I want to use? The whole advantage of GSM is the ability to change SIM cards (and carriers) freely. Apple’s proposed idea goes totally against this.

    4. Direct to public – If Apple really was serious about selling direct to public then why don’t they follow HTC’s example? Factory-unlocked, 5-band, works with any SIM on any network in the world, and offer it through retailers like Expansys. Charge a premium if you want, but it’s how I bought my TP2, avoiding the awful model sold by the carriers, and I couldn’t be happier!

    Convenience does not come from locking down phones. That only makes devices hard to resell and obsolete. As much as Apple would like to exert their control over HOW people use their smartphones, it’s really none of their damn business! Take away that freedom of choice from the consumer, and you have a company set up for nothing but an epic failure.

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    1. On point no 3. That’s only true in the US. In the rest of the world it’s as easy as walking into an Apple store and buying an unlocked phone. All my iphones (3) have been unlocked for free by the carrier on request as well. And iPads are not locked.

      While I agree with your argument in principal, you’re talking about the antiquated US model not what the rest of the world does. And I also don’t suffer from the other providor based restrictions. i can tether my iphone to a computer out of the box. I pay less for data than you do in the US. And I can buy an iphone on no contract and have a choice of prepaid and no contract plans available if i don’t want a subsidised phone.

      Gordon

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    2. Apple DOES sell unlocked phones and I have one. The USA is one of the few places in the world that doesn’t have unlocked phones but you have always been a laggard in all things communication.

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  4. I still don’t think this cuts out the carriers any more than iTunes cuts out the record labels.
    What I would expect Apple to build is a way to swap SIMs in software, and purchase service contracts from multiple carriers within the iTunes framework.

    The goal for Apple is product elegance – sliding little plastic things in and out of your iPhone is icky. Does selling services in iTunes commoditize them? Yes, somewhat, but given that you can buy SIMs pick-and-mix at every supermarket checkout in the UK already, that bit is done.

    Maybe, like iTunes has for music, it can eventually enable independents to add to the store too, but the first focus would be the big carriers.

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    1. I really like the idea of switching sims / networks in software. Virtual SIMs make a lot of sense for travel … Though like @tkanet suggests below the built in roaming ala RIM would be even nicer and something you would not have to really think about aside from signing up for the world plan.

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  5. Lucious, My Apple iPhone is unlocked legally through O2 in the UK. AT&T does not allow the iPhone to be unlocked but carriers all over the world unlock iPhones (and plenty of other phones) for their customers. I swap out SIM cards on my iPhone between O2 and AT&T when I travel between the US and UK and would hate to lose that functionality.

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    1. Yes, I’m aware of that. My HTC TP2 is an import model for the same exact reason. US iPhones sold through AT&T was what I was hinting at ;)

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  6. Well done Stacey. I did not steal this post at all..but will try to enrich on the payment game (this time).

    On the Telco game, i still believe the multi-carrier MVNO is still very credible, probably with a real-time airtime trading mechanic for selecting the right right automatically based on pre-defined criteria. By the way, this is also valid for RIM (who negotiated a roaming friendly package for its blackberry with many carriers since inception).

    Having the SIM, also allows to play in the payment game. This said, it would be interesting to explore direct bank payments via iphones (instead of the credit cards). Going through credit cards payment locks everything (just like carriers) and the interchange fees/revenue shares are already fixed since the 50’s.
    Possible option :

    “your credit card is a remote control to your bank account”. The Issue with credit cards : they are static and require a connected reader to accesss the attached bank account. To me, this is a good angle for disruption…

    iPhones are connected and would allow more sophisticated methods for accessing accessing your bank account (not just dumb debit /credit). There is a lot in such …but i will not explore here (vertical, industry specific payments, conditional payments…)
    With iTunes, Apple has 60 millions credit cards.
    The Tweak ” “simply” ask iTunes Users to update and add their bank account details….
    Targeting merchants with iPhone first, Apple can get critical mass quickly …which is the hard game in payments.
    iPhone users can directly pay at merchants with iTunes account …no more need for a card nor reader.
    Paying from direct bank account is very common in Germany, for example.

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    1. I totally get the multi-carrier mono model ala RIM. That makes total sense and would be awesome from a travel perspective.

      I’m having a bit of difficulty seeing how direct bank or even card payments work via the SIM. How do you exchange the funds? Can I pay at retail?

      I see if the SIM connects to a (bank) account, but Apple doesn’t need to do that with the options already available … You can use the iTunes stored payment method in eCommerce and P2P. For offline though we need something more physical like NFC to pay at standard POS terminals …

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      1. Yes. For offline payment, you’d have a sort of NFC terminal (may be simply the iPhone/Ipad with some add on) at merchant store but identified at iTunes (or so) via same type of SIM.
        Once the buyer shows his handset, the terminal would identify him, send the amount info and ask for validation. Just like a CC, buyer would confirm with PIN and the itunes like would simply directly wire funds from buyer to merchant (via s standard back end processor).

        iTunes plays more or less the central role of Visa or Mastercard.

        Cutting the payment network (but keeping the processor) removes the most important player (though Visa may not like this).

        iTunes, just like the RIM NOC (also a very candidate for this) knows all merchants and buyers and sends the right orders to the processsor.

        If played well, the merchant may even get the funds much more quickly.

        A more evolved option is to work with issuing banks so that they issue “itune cards” with all standard options in term of debit and credits and still do business as usual …without the payment network. So you’d have a virtual, softcard with the same financial services offered by your natural banks.

        Final point is that credits cards …most often taken as a default in payments are not perfect…and still the last disruption challenge in the industry.
        Wait and see…and someone will implement this, for sure. Apple, RIM and probably others.

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      2. Yes.
        For offline payment, you’d have an NFC terminal (may be simply the iPhone/Ipad with some add on) at merchant store but identified at iTunes (or so) via same type of SIM and tied to merchant’s bank account.

        Once the buyer shows his handset, the terminal would identify him, send the amount and ask for validation. Just like a CC, buyer would confirm with PIN and the itunes would simply order a wire from buyer’s account to merchant’s (via s standard processor).

        iTunes plays more or less the central role of Visa or Mastercard and know (just like the RIM NOC, also a very candidate for this) all merchants and buyers and sends the right orders to the processsor.

        If played well, the merchant may even get the funds much more quickly.

        A more evolved option is to work with issuing banks so that they issue “itune cards” with all standard options in term of debit and credits and still do business as usual …without the payment network. So you’d have a virtual, softcard with the same financial services offered by your natural banks.

        Cutting the payment network (but keeping the processor) removes the most important player .
        credits cards …most often taken as a default in payments are not perfect…and still the last disruption challenge in the industry.

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  7. @ Luscious
    I would look back to an old Apple patent for an idea of what they might do

    “This invention relates generally to the dynamic updating of carrier preference data for a mobile device. For example, carrier preference data can be updated in accordance with or to reflect bids from actual carriers as to the cost of network access (i.e., usage minutes).
    According to one embodiment of the invention, access to a wireless cellular communication network can be provided by storing a network address on a mobile device. The network address can identify a mobile virtual network operator server storing mobile network operator data for use by the mobile device. A request for network operator data can be sent from the mobile device to the mobile virtual network operator server, and, in response to the request, network operator data can be received. A network operator for the mobile device can be selected based on the received network operator data, and communications can be conducted using the selected network operator.
    Specific implementations of the invention can include one or more of the following features. The mobile device may not be associated with a particular home network operator. Bids can be received from multiple network operators for rates at which communication services using each network operator can be obtained. Preferences among the network operators can be determined using the received bids, and the preferences are used to select the network operator. Preferences may be further based on a location of the mobile device, the quality of service offered by the network operator, and/or type of communication. Bids from multiple network operators for rate information relating to rates at which communication services using each network operator can be obtained and the rate information can be sent to the mobile device for use in selecting the network operator. The rate information can be displayed on a user interface of the mobile device and a user selection of the network operator can be received from a user.

    http://www.macnn.com/blogs/2008/04/10/apple-files-mobile-virtual-network-operator-mvno-patent.html

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    1. Thanks for that info. I haven’t checked the link yet, but just reading your post I see two things jump out.

      1. Why does Apple require carriers to bid? And on what basis will Apple rule those bids? What if I want to use a carrier that doesn’t submit a bid, but I can purchase a SIM from? As I said before, Apple is effectively taking the end-user OUT OF the selection process. I smell monopoly.

      2. Preferences/QOS – Will Apple force me to use a voice and data plan even if I only need just voice? Right now I have a prepaid voice-only SIM inside my Touch Pro 2. How do I get data you ask? I use a MiFi2200 prepaid from Virgin Mobile for $40/month, and will move to a similar device on 4G by end of year. This is exactly the kind of flexibility I enjoy, and want to have. Steve jobs would probably have a heart attack if I told him I enjoyed the luxury of a voice and data plan from two different service providers using a smartphone able to tap into any network.

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      1. I suspect you under estimate SJ, the world of business contracts is not so simple when your a new player in mobile phones and you rely on the carriers to get network access for your users. As carriers around the world move to LTE all the circuit switched traffic becomes IP traffic, so voice, SMS and data are just packets like VOIP. The patent I pointed out was carrier agnostic and the way it was written. A user could use any carrier but I wouldn’t expect much change short term.

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      2. Why do you think Apple needs you as a customer?

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  8. Basically it means you’re tied to your carrier because you can’t pop the SIM.

    That’s not a good thing, people. Just so you know.

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    1. I think part of the idea is that you can change carriers more easily. You do not have to physically buy a new sim. You would just have to contact the new carrier and download some software to initialise your account, then off you go. So, if anything it should give one freedom from being locked to a carrier.

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  9. Thanks. Great post, great (unanswered) questions.

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  10. apple is certainly big enough to bulk-buy data on multiple carriers and offer much cheaper data-roaming + other features for users with this ‘virtual SIM’ approach. they may leave the voice side alone for carriers to make some money – its about time we had a mobile ISP – may as well be apple.

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  11. Tesco, the largest supermarket chain in Europe, runs a very effective and successful piggy-back arrangement with carriers. As I left the UK to drive around Europe, I was automatically connected to different local carriers (in UK, France, Spain, Italy etc). Seamless, effortless, inexpensive to me. Far, far cheaper than any carrier’s roaming plans. All this with a swappable Tesco card.
    This is THE way to bring carriers down to realistic and fair tariffs. They will never do so otherwise.

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  12. Just a little thing but if the sim is embedded then what happens if the handset needs repairing? Will you be provided another handset in the meantime and by whom, the carrier or Apple?

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  13. i only use my iphone some of the time. i have a few other phones that i like to use the same SIM card in.

    please do not prevent me from swapping SIMs!!!

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  14. What would be interesting is that you could have one SIM and mobile number that would work on one or more devices, IE and iPhone and iPad without you having to keep switching SIMs or having two separate SIMs – that makes absolutely perfect sense and would be a huge benefit to the user.

    Buying thing with your mobile device offers good flexibility and a digital wallet in a mobile device is a nice idea, currently already big in Japan.

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  15. I dont like this…it basicly means that i will be forced to use only iphone. Lets say i m going to a festival where i cannot charge my iphone but i have an old phone whos battery lasts for 6 days i will not be able to use the old phone…its not good

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  16. This has got nothing to do with circumventing carriers or NFC. It is a pure supply chain optimization exercise. Apple does not want to manage 90 diff type of SIM cards for the 90 carriers they are on, so they simply want one SIM and the download the SIM profile using the iTunes server.
    This is death for the SIM for sure, because soon they won’t need special hardware to do this. They will just segment a portion of the baseband processor, add a security algorithm to encrypt that space and store the carrier profile there (a la CDMA).
    Bye Bye SIM :)

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  17. Thanks for the details.

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  18. Sounds exactly like a CDMA phone is now……

    Anyway, sim cards already connect to nearly every GSM network on the planet automatically. It’s already just as easy (in fact easier as no paswords etc are required) to access a cell network as it is a wireless one. All that’s missing is agreements between the network providors that won’t make me sell my first born to be able to make overseas calls with my local phone number and sim. The ONLY reason I need to change sims when I travel is so I don’t get ripped off on making calls and using data while overseas.

    The only thing that a fixed sim will do is make it more difficult for consumers to change to a local carrier and make calls at the local rates. It will make it easier for carriers to have multi-tiered and discriminatory pricing for overseas visitors.

    Gordon

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  19. Thanks for the details very well.

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  20. [...] Remotely-activated SIMs would be a huge win for connected devices outside of Apple and also eliminates a means by which the carriers locked folks into their networks. I can’t see the operators coming up with this change without pressure from their end customers. According to van der Berg the move is a “complete reversal from the GSMA’s position from the past.” For more on what such integrated and remote-activated SIMS could mean, check out our story on the topic. [...]

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  21. Wrong guess. The GSMA statement says “remotely activated sim” not “remotely configured sim”.

    One of the big fears of the mobile carriers is that the handset vendors become in control of the customer relation (through app shop etc). I can not believe that all of a sudden they would now facilitate this. No they will make the link to the customer much stronger, eg by making sure that once you buy a handset you are completely locked in, see CDMA. Roaming will still work seemlessly, but you will not be able to swap sim’s anymore.

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  22. [...] For more on this topic, check out An Apple Integrated SIM: What It Could Mean. [...]

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