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How iPad’s soft SIM lets Apple pit carriers AGAINST each other

He who holds the SIM holds the power

Proposed new HQ for Apple, credit Cupertino Council

Analysis The SIM card is the most potent instrument of control in the mobile carrier’s hands, controlling the relationship with the customer and giving it unmatched information about how its users behave.

The humble SIM has enabled mobile operators to assert control over important areas which were not initially in their kingdom, such as security, Wi-Fi access (via EAP-SIM authentication) and possibly payments (via integrated NFC). No wonder, then, that Apple has consistently sought to seize some of that SIM-based power for itself – and now it has taken an important step in that direction, with the announcement of its own ‘Apple SIM’, which allows iPad users to switch between operators without juggling multiple SIM cards.

Announced along with the new iPad Air 2 and iPad Mini 3 tablets last week, the soft SIM may seem a matter purely of convenience for consumers, many of which are used to having multiple SIM cards, particularly to get cheaper deals when abroad. But it has a far heavier symbolism in the delicate balance of power between Apple and the operators, since the vendor is actively enabling and encouraging its customers to be carrier-neutral, switching between short term plans whenever they see a better offer.

"The new Apple SIM is pre-installed on iPad Air 2 with Wi-Fi + Cellular models," the company states. "The Apple SIM gives you the flexibility to choose from a variety of short term plans from select carriers in the US and UK right on your iPad. So whenever you need it, you can choose the plan that works best for you, with no long term commitments. And when you travel, you may also be able to choose a data plan from a local carrier for the duration of your trip."

This means that, more than ever, the consumer’s primary relationship is with Apple not the cellco. Connectivity can be viewed far more like that in public Wi-Fi – picking the best deal for a particular situation from a menu of scarcely noticed provider logos. That is even more the case, since it seems that only iPads bought from the vendor itself will sport the new SIM card (those bought from a particular operator will still have the carrier-specific SIM).

That would seem to be a way to reduce the importance of the cellco channel, by keeping a particularly attractive option exclusive to the Apple stores and websites.

With the multi-operator SIM, Apple could even start to pitch the carriers against one another, presenting special deals at the sign-up stage, suggested one analyst, Ian Fogg from IHS. “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,” he wrote in a research note.

The delicate balance between Apple and operators:

Apple and Google have both sought to reduce their reliance on operator distribution before, notably when the latter launched its first Nexus model, selling it only via a special website on which customers could choose a carrier plan.

That effort ran aground on the rocks of carrier hostility, and reminded the big two mobile powerhouses that the cellcos still have considerable power as sales channels. But the operators, especially the US ones, are more willing to sacrifice some of that power to Apple than to Google. AT&T, Sprint and T-Mobile (but not Verizon), plus UK market leader EE, have signed up so far to support the multi-operator SIM. Verizon would not comment on why it had so far not decided to participate, but if the Apple SIM option proves popular with US buyers, it may be forced to change its mind, or risk being the only major carrier absent from the drop-down menu of MNO choices.

The fear of being left out of an Apple initiative is a powerful way to get operators to swallow bitter medicine, but the iPhone maker is more cautious than it sometimes has been in the past. After all, this scheme only applies to the iPad, not the iPhone (so far), and tablets have always been more about short term data deals than handsets, and are less likely to be subsidized than handsets.

Apple’s leadership of the smartphone segment is not as assured as it once was, and it cannot afford to alienate too many operators. Indeed, it will be interesting to see how successful it is in extending the Apple SIM idea outside the US and UK. Past efforts to reduce MNO power have been resisted more strongly in other parts of the world than in the US, from the initial terms and conditions for the original iPhone (rejected by Vodafone, among others), to the first attempt at an Apple-controlled SIM, back in 2010.

That was far more aggressive than the current effort, and far more overtly political in agenda. The vendor worked with Gemalto on a bespoke SIM card, which it planned to incorporate in the iPhone 5, allowing it to activate users on different cellco networks, and effectively turning it into an MVNO which did not have to pay fees for network capacity. Apple has long been rumored to be considering a full MVNO offering, providing connectivity embedded in its devices, either for a fee or as part of the price, Amazon Kindle-style. But with the soft SIM – the 2010 incarnation or the new one – it gains almost all the brand benefits of being an operator, without having to choose a single network partner or commit to a contract.

A second chance to sideline the MNOs:

However, outside the US, Apple had underestimated the continuing resilience of the cellcos, a mistake it is not making this time around. Four years ago, it quickly backed away from the embedded SIM idea, before it had even made it official, because MNOs – especially in Europe, where the scheme was expected to appear first – produced their trump card when they threatened to withdraw subsidies and prioritise other smartphones over the Apple device in their marketing.

The following year, Orange’s CEO Stephane Richard said that the mobile operators, as a group, “told [Apple] it was a bad idea because the SIM card was a critical piece of the security and authentication process. It would be very difficult for a telco or operator to manage the customer relationship. I think that they understood this point."

“Apple has long been trying to build closer and closer relationships and cut out the operators,” a senior source at a European cellco told UK newspaper The Daily Telegraph. “But this time they have been sent back to the drawing board with their tails between their legs.” Global iPhone sales could have fallen by up to 12 per cent if European operators had refused to subsidize purchases, according to analyst firm Bernstein at the time.

When it comes to handsets, most consumers are still lured by a hefty subsidy, and are unwilling to pay $500 or more upfront for a phone – and in Europe, even high end handsets are often completely "free" with sufficiently large data contracts. MNOs rage at the impact subsidies have on their profits, but they are a powerful way to lock-in customers, and only now are carriers like T-Mobile USA coming up with payments plans and other options which still retain some customer loyalty, while being less onerous than the subsidy.

Tablets are different however – less commonly subsidized and often sold with month-by-month data plans. And Apple had set some precedent when it incorporated its own microSIM in the iPad for unlocked models.

Embedded SIMs on the horizon:

The logical next step, if Apple is brave enough, would be to embed the Apple SIM in all iPads and even iPhones, cutting out the operators’ beloved SIM card and all the business models that drives. Given past history, we would not expect this move to happen in the short term – perhaps not until embedded SIMs are becoming the norm anyway, driven by the very different needs of the internet of things (IoT).

When connected devices number billions not millions, the job of provisioning, authenticating and managing them will be very different, and most of the products will have the SIM cards embedded inside them. In that situation, it is unrealistic for every SIM to be swapped if a customer, such as a utility, changes operator, and remote management of multi-operator cards will be essential.

Truphone wins patent for flexible SIM card

"Operator without borders" Truphone has been awarded a patent by the European Patent Office, for a technology which enables SIM cards to switch identity automatically when a user goes abroad, without having to switch cards manually. Truphone offers customers SIM cards which contain multiple international numbers with flat rate pricing across 66 countries. The IMSI Broker is the latest in its family of core network technologies related to roaming.

This detects when a user has crossed outside the borders of the SIM’s home market and automatically selects a network based on criteria like speed, coverage or cost. The patent has “far-reaching” implications in both the mobile device and M2M industries, Truphone claimed.

For example, the technology will allow connected cars to cross borders without incurring roaming costs, and will ensure connected devices continue to operate optimally in other countries while complying with local regulators. James Tagg, founder and CTO of Truphone, said in a statement: “IMSI Broker is a critical component of Truphone’s network architecture. It is one of the unique technologies that differentiate us from other mobile operators. IMSI Broker allows us, and our customers, to make global connectivity simple and local.”

The Broker has been awarded separate patents in the UK, the US, Australia, Singapore, Nigeria and South Africa.

Copyright © 2014, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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