When Apple launched the iPad Air 2 with its new programmable SIM card on Thursday, I suggested Apple had all the tools necessary to become a global virtual operator, selling data (and eventually voice) services directly to its customers. It’s a move industry observers like Gigaom contributor Rudolf van der Berg have been anticipating for some time, but I still feel the likelihood of Apple becoming a flow-blown carrier is slim.
When signals go down, networks get congested and unexpected charges appear on your bill, people vent their displeasure at their carriers. That’s grief I’m sure [company]Apple[/company] doesn’t want to deal with. But Apple has plenty of other options beyond becoming a mobile virtual network operator (MVNO) if it wanted to exert more control over the mobile industry.
Apple, just like any other phone maker, has always acted as a gatekeeper to mobile networks through its hardware choices. You might recall that AT&T was the only operator in the U.S. that offered the iPhone for years because Apple didn’t want to make a version of the iPhone optimized for [company]Verizon[/company], [company]Sprint[/company] or T-Mobile’s networks. Only gradually did Apple make the iPhone available to those carriers through hardware tweaks ([company]T-Mobile[/company] only got it 18 months ago). We’ve seen the same scenario play out in countries like China and Japan.
Apple has long given up the ghost of hardware exclusivity. In fact, it’s making a big deal about the fact that there is a single hardware version of the new cellular iPad Air 2 that is designed to work on 3G and 4G networks most anywhere in the world. But that doesn’t mean Apple is giving up control over what networks its devices can connect to. It’s just moving that control from the device’s radios to this new SIM card technology it’s been developing since at least 2010 (Gigaom’s Stacey Higginbotham broke the original story).
The most obvious advantage of this is you don’t have to chose a carrier or procure a carrier’s SIM card before your buy or connect to a device. Apple lets you chose your network right out of the box and sets you up with a prepaid plan ([company]AT&T[/company], T-Mobile and Sprint are participating in the U.S. along with Everything Everywhere in the U.K.). But acting as a gatekeeper to the carriers gives Apple an enormous amount of power if it chooses to weld it.
For instance, until – or unless – Verizon gets on board, it could find itself hurting this holiday season when people unwrap their brand-spanking new iPad Airs and try to connect them to the cellular network. If Verizon isn’t an option in Apple’s pull-down menu of carrier choices, Verizon loses its chance at that initial connection.
Paying the ferryman
IHS mobile analyst Ian Fogg suggested that Apple could use that power over carriers to get better rates for its customers or pit the carriers against one another during the initial provisioning process. Sprint is already knocking $10 a month off the bill of anyone who connects an iPhone 6 to its network. What if a similar data-only deal was presented on the iPad right next T-Mobile and AT&T’s higher rate plans?
“The software-managed Apple SIM model moves Apple into a mediation position because for operators to be present on the Apple SIM, operators must negotiate terms direct with Apple, rather than offering their own carrier iPad SIM direct to any end user,” Fogg wrote in a research note.
If Apple really wanted to throw its weight around it could just demand iPhone and iPad specific rates that undercut those offered on carriers’ traditional plans. Operators who didn’t play ball would be knocked off of Apple’s connection menu. They could feasibly get customers the old fashioned way by selling them iPhones and iPads directly, but Fogg postulates Apple could even cut off that avenue.
“Apple may choose to remove the SIM card slot entirely, and embed Apple SIM in future iPhones or iPads as the sole way to connect to mobile networks,” Fogg wrote. “In this event, operators will no longer be able to offer their own SIM cards to iPad or iPhone owners.”
An embedded SIM would have big implications overseas where swapping out SIM cards between devices is far more common. Apple could basically lock mobile service into its own devices, making it more difficult to switch to an Android or Windows device.
Power is tempting, but Apple has to be careful how it uses is
I’ve just listed off a lot of ways Apple could put the screws to the mobile operators, but the big question is if Apple has any interest in wielding its newfound influence. One of the things that tends to get lost in these Apple-versus-the-mobile-industry debates is that the carriers are Apple’s biggest boosters when it comes to selling its products.
Carriers love the iPhone because of the massive amount of data revenue it drives, and they market the hell out of it to their customers. They’re now starting to do the same with the iPad. The last thing Apple wants to do is alienate them, and by backing them into a corner it just might.
If the cost of acquiring an iDevice customer becomes higher for Verizon, or if it’s forced to take a cut in profits every time it connects an iPhone, then Verizon will start promoting [company]Samsung[/company] or [company]Motorola[/company] hardware over Apple’s. When Verizon was forced to go iPhone-less for nearly four years, it didn’t just sit on the sidelines. It heavily promoted its line of Droid phones, helping build up the Android market in the U.S. in the process.
The other problem is that Apple-centric plans go against the current trend in the industry toward shared data plans. Apple will be able to sell you an iPad plan. It might even be able to sell you a shared data plan between an iPad and iPhone. But it won’t – or wouldn’t want — to sell you a plan you can share between Android and iOS devices.
Apple’s hardware is attractive to a lot of people, but few actually live solely within its wonderland of devices, and with the advent of the internet of things – where our cars and even clothing might someday have a wireless connection – that number is only going to shrink.