No SIMple Solution for Telecom Firms

Small but deadly. Mobile telephone network operators face a new threat to their business model from handset manufacturers in the form of a new generation of SIM cards, the small chips placed in the back of phones to activate access to mobile networks.

The new SIM technology will be embedded in handsets, enabling manufacturers potentially to bypass operators and sell network access to customers directly, and making it easier for customers to switch networks. There isn't much network operators can do about it. For telecom firms, having a direct customer relationship is important. It provides them with visibility on future revenue and an opportunity to sell high-margin insurance and technical support service add-ons. The suggestion that Apple may include an embedded SIM in coming versions of its iPhone has spread panic through an industry in fear of being relegated to a utility selling network capacity. Apple, after all, already has tens of millions of direct customer relationships. Its suite of iTunes services gives it access to customer-billing information. Its stores sell and support iPhones, taking some of the customer-service burden off mobile operators. The operators have responded by launching a program to produce their own standards for embedded SIMs via their trade body, the GSMA. That makes sense. The operators can use their control of networks to make life hard for new entrants: They can set security standards prohibitively high for switching operators, ramp up prices for network access, or cut subsidies for customers choosing high-end handsets like the iPhone.