Apple iPhone 5 Won't Have SIM, Apple Tells Carriers: Report

The next Apple iPhone won't have a SIM card, Apple has reportedly assured untrusting European carriers that are worried such a development would damage their bottom lines.

Apple has told several European carriers that the iPhone 5, due out in mid-2011, will not include a subscriber identity module, better known as a SIM card, the Financial Times reported Nov. 22, citing "people close to the operators."

It was first reported by GigaOm in October that Apple was working with Gemalto, a manufacturer of SIM cards, to create a SIM for the iPhone.

An iPhone with a SIM, the carriers fear, would give Apple more power and enable customers to switch between carriers more easily and frequently-instead of agreeing to the two-year service contracts that are now common. Currently, the carrier provides the SIM and activates the phone, tying the SIM to the customer's information. If the iPhone were to come directly from Apple with a SIM, it could result in a situation where customers sign much shorter service contracts and hop between carriers, or even enable Apple to act as MVNO (mobile virtual network operator).

MVNOs, such as Virgin Mobile, offer mobile phone service but don't have their own spectrum; they essentially "rent" spectrum from a carrier that they offer under their brand. While Apple has apparently worked to allay the carrier's fears, "people close to the operators say they do not believe Apple has given up on introducing an embedded SIM in the iPhone," FT reported.

Several carriers have warned Apple that if it were to include a SIM, they would refuse to subsidize the device for customers, FT reported Nov. 18. Carrier subsidies-which enable customers to pay closer to $200, instead of Apple's $600 wholesale price-have been credited with fast-paced rise of smartphone adoption and would certainly hurt sales of the iPhone.

Reportedly, the United Kingdom's Vodafone, France Telecom and Spain's Telf??nica have concerns about an Apple-provided SIM.

"Operators in mature countries that subsidize the iPhone are in a strong position to deter any potential moves by Apple to own the SIM card," analyst Neil Mawston with Strategy Analytics told eWEEK, after the Gemalto rumors.

Research firm ABI anticipates that the SIM market will grow 10 percent in 2010, approaching 3.8 billion shipments. Mobile operators, it said in an Oct. 27 report, are evaluating which services to run on SIM cards, in order to "combat the threat of third-party application stores," which could limit their data revenue.

"SIM cards offer operators a direct presence with the end-user; it makes sense that service providers will take advantage of the increased level of functionality, performance and security," John Devlin, an ABI principal analyst, said in the report. "With handset manufacturers and companies such as Google offering their own portals and services directly to end-users, operators need to be able to compete."

New business models are being proposed to carriers, in an effort to grow demand for new applications and features, states the report, adding, "SIM-based applications and browsers can give operators a branded presence and allow customers easy access to targeted services. It's not just within the smartphone sector that this is occurring; innovative services are being delivered via SIM-based browsers in many 2G and developing markets."

Were Apple to move to a SIM-based model, say analysts, it would incentivize carriers to give preference to others handset vendors, particularly those with Android-running devices.