Apple's SIM - a new business model to disrupt carriers?

Profile picture for user gonzodaddy By Den Howlett October 19, 2014
Summary:
Apple's 'soft' SIM heralds a new chapter in the development of Apple's business model. Carriers beware.

Apple's decision to turn the iPad Air 2 into

think_different_apple-wide
what amounts to a black box went almost undetected last week. Chris Ziegler took an early take:

Apple's unique place in the market gives it extraordinary power over carriers, which are notorious for being difficult to work with and, often, stuck in their ways. And with the Apple SIM, only a small number of carriers are on board so far: AT&T, T-Mobile, Sprint, and UK's EE (Verizon, perhaps the most stubborn of them all, is missing). But, as with the introduction of the micro-SIM on the original iPad, this is a tell by Apple. It's a warning that the next iPhone will be using reprogrammable SIMs — and if a carrier would like to offer that iPhone, it had better start getting ready. It's easy to imagine that Apple could just eliminate the tray altogether, leaving uncooperative carriers on the sideline.

This Tweet caused a good amount of stir:

Dan Frommer theorises:

Imagine booting up your iPhone for the first time and seeing four competing offers for your business from different operators—with short or no contract duration. Or an even deeper integration where Apple bills you as a virtual operator and constantly shops for the cheapest connection—perfect for those who travel overseas frequently.

But it was Pat Phelan, CEO Trustev and former CEO of MaxRoam (a SIM provider) who gets takes this to its logical conclusion and with his permission I reproduce most of what he says:

I think the process will be to activate the iPad in Wifi each time you move to a new country/carrier, the device will know your location from the IP address, it will then present you with a screen offering which that country's carriers offer, you sign up (Apple of course has a kick back here)

The sign up triggers an IMSI download and the iPad software switches on the radio interface and connects to the radio. Hey presto you have service

Thats stage one done.

Now lets move to iPhone 7

No sim slot?

Why would there be, Apple bring the same model as the iPad 2, now in reality no phone can ever be unlocked as there is no need to unlock it, you can have any carrier you like on it, well any carrier in the world who pays to be listed in the Apple carrier store.

Its not a big leap to paying for service though iTunes is it? Moving carriers on a monthly basis for the best deal? And of course the absolute kicker, with its balance sheet could “Apple finance” advance you the money to buy the phone which you pay monthly though iTunes, their balance sheet certainly says so plus you don't pay and its bricked, never to be used again.

The Apple finance end game?

Pat and I went back and forth on this in back channels. The implications are huge. It makes a lot of sense from Apple's position.

At its last earnings call, Apple reported $163 billion in cash, near cash and securities on its balance sheet. Apple could easily use a chunk of this money to create a new line of business designed to support the sale and finance of future devices and services without harming its financial standing.

By our reckoning, the net turn on any deal would provide an immediate 5-8% increment to bottom line profit, subject to any net costs incurred in distribution as compared to bulk shipping to third parties. This comes from the margin Apple gives away to the carriers who stock Apple kit.

Apple can also make a turn on the financing that is sufficiently competitive to ensure it pulls in wannabe buyers not able to pay Apple's full price in one go. There goes a few more points - what shall we say at today's interest rates: 10-15% for the market currently owned by the carriers? Then there is the turn they'd make on the carriers prepared to be part of the iTunes distribution system. Another 5-10% on carrier fees? They might well give that up simply to avoid the carrying cost of Apple inventory.

Apple doesn't need to do much incremental business in order to give it a huge boost to its bottom line. Why would they not offer this? Consumers win, the carriers are forced into being more consumer friendly and, of course, Apple ends up the real winner.

In the world of high finance - that's called a triple play winner.