The endangered SIM card

APPLE revolutionised online music with the iPod and iTunes. It may be about to transform the payments business, given the successful launch last month of Apple Pay. And the next set of businesses to have their applecarts overturned may be the mobile-telecoms operators. Some of Apple’s latest iPads have a new type of SIM card that lets users switch easily between operators without replacing the card. This could seriously weaken the operators’ grip on their market, especially if Apple were to follow up by putting the new SIMs in iPhones or replacing them with software.

The job of the SIM (subscriber identity module) is to store some unique numbers and an encryption key, which are used to identify the subscriber when the device is communicating with the network. For as long as wireless networks carried mostly voice calls, SIMs worked well. Their chips are hard to hack: prying them open to get at the stored information can make them self-destruct. Since only mobile operators were allowed to issue SIMs, and were given much leeway over the terms on which they did so, they were able to create monthly payment schemes which subsidised the upfront cost of a handset. This helped mobile telephony to get going, and thereafter provided a mechanism for persuading consumers to keep on trading their old phones for ever more sophisticated new ones.

However, now that most mobile devices can connect through Wi-Fi, their SIM cards no longer seem quite so indispensable. Most tablets, even those with SIM card slots, are not bought from a mobile operator; and the cost and hassle of signing up for a SIM card, so as to use the device when there is no Wi-Fi available, is too much for many buyers. So, Apple’s new SIMs are meant to make it easier to sign up for a mobile operator—and to encourage people to choose the pricier iPad models that contain them.

Re-programmable SIMs may also help bring about the “internet of things”, in which all sorts of devices, from fridges to cars, will be connected up. Carmakers, for example, would be able to glue the cards into place so they do not shake loose, and also be able to switch to a different operator for their connected-car services without drivers having to install new cards.

Since re-programmable SIMs make it easier not just to sign up with a mobile operator but to switch away from one, the operators are wary of the innovation. They have some legitimate security concerns about the new cards. Most would need to make big changes to their billing systems and other back-office functions to adapt to a world in which customers bought their connectivity one gigabyte at a time from a variety of operators, rather than signing a long-term contract. But their biggest fear is that, as they lose control of the customer relationship, margins would surely suffer.

It was only late last year that the GSMA, an association of mobile operators, agreed on a common specification for re-programmable SIMs. Now that Apple is trying out a gadget containing such a card, the operators are watching nervously, to see how consumers react. Of the four biggest wireless carriers in America, only T-Mobile US fully supports Apple’s experiment. Verizon decided not to take part. Users of the new iPad can use its re-programmable SIM to sign up for AT&T but will have to install a new card if they want to switch operator later. And those who select Sprint will have to go through a further registration process to activate the service. In Europe only one operator, EE, has agreed to participate so far.

Whatever the outcome, re-programmable cards are bound to spread, predicts Philippe Vallée of Gemalto, the world’s biggest maker of SIMs. All sorts of new connected devices are coming along, and operators will have fewer objections to these having the new type of SIM in them. For instance, Gemalto is supplying re-programmable SIMs for a “smart watch” being made by Limmex, a Swiss firm.

The new type of card will gain further momentum if more countries follow the example of the Netherlands, which has just begun to let organisations other than operators issue SIMs, such as utilities and car companies. Germany may be next. If its giant carmakers issued their own SIMs, and rented spare capacity on the operators’ wireless infrastructure, they could together save €2 billion ($2.5 billion) a year through lower prices and more flexible contracts, estimates Rudolf van der Berg of the OECD, a think-tank based in Paris.

Going soft

The biggest question is whether re-programmable SIMs will find their way into smartphones—and in what form. Apple fans predict that the firm will soon release an iPhone with a pre-installed card that lets them switch providers. Some hope it will eventually take the next logical step, and replace the card with a softSIM, a piece of software code that does the same job.

Operators would put up stiff resistance to putting re-programmable SIMs, let alone softSIMs, into phones, says Dean Bubley of Disruptive Analysis, a consulting firm. In 2010 Apple was believed to be developing an iPhone that came with such a SIM, but it was reportedly scared off by operators threatening to stop promoting its handsets. Managing SIMs for phones that handle voice calls is much more complex than it is for data-only devices. In many countries, for instance, people have to show an identity card when signing up. The operators’ security worries about softSIMs would be even greater than those for re-programmable cards, says Mr Bubley.

Those hoping for the death of the SIM card in its current, inflexible form should be careful what they wish for, and not just for security reasons. Operators would lose control of the market, but Apple and other device-makers might gain it. They would, if regulators let them, be able to choose which operators appeared on the menu when buyers of their phones and tablets were setting them up. The risk would then be that the SIM card’s demise leads to less choice, and higher prices for users.