July 20, 2015
CARRIERS, MANUFACTURERS AND THE FUTURE OF THE SIM CARD
The internet is abuzz with stories this week about a new technology called e-SIMs and the coming death of the SIM card (again). Smartphone manufacturers are in discussion with the GSMA, a trade association representing network operators from around the world, to come up with a new standard in SIM cards – the e-SIM. Instead of a physical SIM card, these new electronic SIM cards come hard-wired into the device itself. The spin behind this is that it will be far easier to switch carriers and plans in the future(in a way not dissimilar to the Apple SIM that now comes with iPad Air 2 tablets), doing away with phone locking and giving consumers more choice over which plan they choose to use. The reality is, of course, a little more complicated.
First, it’s important to understand why this is happening. A good deal of it is to do with how US phone contracts and plans have changed in the last few years. Phones used to be sold at a subsidized cost as part of an arrangement with the carrier. In return for a two-year contract that locked the phone and the user into using only that carrier’s network, networks sold phones at a lower price. This money was reclaimed by way of higher service fees throughout the life of the contract, but as the price of smartphones continued to rise, they found themselves occasionally making a loss. At the same time, a new player came onto the scene with the intention of making a lot of noise, taking customers away from the big players and changing the game completely.
In March 2013, T-Mobile started launching deals which did not subsidize the cost of the handset. Handsets were sold at their full price, with the offer of financing if it was needed. The subsequently lower rates for calls and data proved very popular, and T-Mobile’s increasing market share (gained at the expense of the bigger players) could no longer be ignored. It was not long before everyone else had followed suite. Now, there are significantly better options available in terms of smartphones. Customers can buy them as new from the carrier for the full price, or they can bring their old or second-hand handset with them. Carriers are no longer making a loss from subsidizing handsets, and are now in fact starting to turn a profit from handset sales. It is estimated that carriers will have up to $35 billion in handset financing to sell, further boosting their bottom line.
So why is it important that manufacturers such as Apple and Samsung are involving themselves in this new SIM technology? After all, on the surface, very little has changed – consumers still get their handsets from carriers, and the full cost of these handsets is still passed on to the manufacturers. But now that consumers are paying these costs themselves, the prices are too high for things to continue as they have been. A brand-new iPhone 6, for example, costs $649; a top-spec Samsung S6 without a contract costs just under $1000. Under these circumstances, people are upgrading their handsets far less frequently than they used to. They are also looking at alternatives, such as second-hand phones. Industry figures suggest that the habits of consumers have changed, leading to a rise in the period between handset upgrades from once every 15 months to once every 2 years. Shipment forecasts of handsets to the US will rise at a much lower rate for the next few years, down to 5.3% from 8.9% last year.
If people are not buying the latest handsets, they aren’t taking advantage of the latest technology and this was always one of the biggest selling points for new smartphone handsets. They are looking for a way to regain control, and they may have just found it. After all, if the SIM card is hardwired into the phone handset, then there’s really no need to purchase your phone from the carrier at all; you can just get it directly from the manufacturer, no doubt with a similar financing plan. It also gives the manufacturer the power to decide which networks they allow on their e-SIM. Given these considerations, it is no wonder that industry experts are expecting a push-back from networks. That said, many operators are already on board, including AT&T, Deutsche Telekom (who own T-Mobile), Telefonica and others have all signed up to the talks.
It paints a very bleak picture for travelers. You currently have several options while abroad – you can roam using your domestic operator, or you can swap out your SIM for a local or roaming SIM card. In the future, it is your phone handset that will dictate your choice (singular) for you. There are other potential issues. Apple is an incredibly profit-hungry business – it provides 20% of the global smartphone market, but pockets a staggering 92% of the profits - and it has never been one to play well with others. One hypothetical situation that could come about would be in a country with two providers, one bigger than the other (in the same way that AT&T is bigger than T-Mobile). Apple could decide that it is working exclusively with the larger company and, even if the smaller company is cheaper, more competitive or offers better coverage in certain areas, the iPhone user won’t have any opportunity to switch to a better service. Also, it’s entirely possible that if Apple makes a deal with one operator, Samsung will make a deal with the other. And it could be that some companies do not wish to make a deal with either, and therefore their service will not be available at all.
These new SIMs, which are expected to arrive by 2016 (and it is rumored will be in the iPhone 7) will, at the very least, add a new dimension to the current wrangling over the abolishment of international roaming within the EU Member States. Last week, European politicians only had every telecoms operator in the Union to deal with; now, at the very least, the must tackle the looming giants Samsung and Apple as well.
Meanwhile, in case you were wondering whether any of this is actually new or not, rest assured: it is not. The technology is a bit different, but the concept has been around a good while. It’s already possible to get a SIM card that works in multiple destinations, that automatically switches to the best deal or strongest connection, and with a choice of network operator in each country. There is also a place where you can find affordable, unlocked Android handsets that don’t require a finance plan to purchase. And the name of this remarkable, cutting-edge website? Telestial.com.