Apple’s eSIM plans would be a death blow to the carriers

Each new iPhone is usually good news for mobile network operators. The latest Apple device always comes with upgrades that make it easier to play games, watch films and download huge amounts of data, and joy oh joy, more data means bigger phone bills which is music to a carriers ears. But as the number of mesh networks increases, and as companies like Google create their own Mobile Virtual Operator Network (MNVO) programs like Google Fi which turns Google into the master carrier and reduces traditional carriers into nothing more than a dumb pipe, today's carriers have plenty to be worried about.

There’s a chance though that the next version of the famous phone might not be so welcome. And that’s because there’s a possibility that Apple could introduce so-called electronic sims, or eSIMs. But even if this doesn’t happen in the next iPhone the shift to the new technology is increasingly looking inevitable.

Speculation about eSIMs has been rife since Apple complained to the US Department of Justice that Verizon Communications and AT&T were colluding to prevent their introduction. The DoJ is investigating.

The classic SIM card is a small chip that’s inserted into the phone manually, making it more awkward to change your mobile network provider. You have to go to a shop to get a new sim or have one delivered physically. The eSIM is virtual, meaning that just changing your phone’s settings would theoretically let you switch carriers, and it’s almost certain that this would accelerate price competition, as well as opening the door for Apple to follow in Google’s footsteps and become a Mobile Virtual Network Operator (MVNO) itself, and cut the big communications companies out of the loop.

Also whenever it’s made easier to jump from one operator to another, consumers take advantage and seek better deals. “Churn,” the industry term for customer losses, spikes. That’s what happened, for example, when Spain brought in rules to cut the time it took to change network operators to less than 24 hours.

European chipmaker STMicroelectronics NV dropped a heavy hint about eSIMs at an investor day earlier this year in May, saying it expected to deploy its own device in a major mass market smartphone “soon,” and it’s hard to see how the mobile phone operators can resist this technology for long given its usefulness for consumers. Apple will certainly argue it that way. eSIM technology is already used in some iPads, and STMicro supplies an eSIM for the Apple Watch.

Apple can’t totally dismiss the concerns of the big phone carriers though, after all, they spend huge sums on marketing the iPhone, and sell it in their stores. But it’s clear that despite that the California giant is still willing to throw its weight around, as shown by the DoJ complaint.

While the eSIM might reduce some logistical costs for carriers such as Verizon and AT&T, in the longer term it will become harder to differentiate between network providers. As Northstream telecoms consultant Bengt Nordstrom says: “From a user perspective, if you ask what service they’re using, they’ll say they’re an iPhone or Samsung user, not the operator.”

It might make sense for Apple and other phone makers to keep the classic SIM port alongside an eSIM in the near term. That would give operators time to adapt, while making it harder for them to object. But the danger for carriers is that the shift to eSIMs moves them further down the path to becoming little more than utilities. Telecoms stocks are already the worst performers in Europe’s Stoxx 600 benchmark index this year.

There are very few people who don’t have a smartphone already, meaning it’s increasingly a battle for market share rather than new users, and so the prospect of a new wave of price wars, at least from the telco’s perspectives,  is not a happy one.