In-built Sim for Apple’s iPhone 5 ruled out

Apple has told European mobile operators that the next version of its iPhone will not include a technology innovation that several network providers fiercely oppose, say people familiar with the situation.

In what would amount to at least a temporary reprieve for the operators, the iPhone 5 that is scheduled for launch in mid-2011 is not expected to contain an embedded subscriber identity module, or Sim.

But people close to the operators say they do not believe Apple has given up on introducing an embedded Sim in the iPhone, which some analysts claim could be the first step in the technology company becoming a provider of network services.

Apple declined to comment.

If it did include an embedded Sim in the iPhone, customers could buy the smartphone at the technology company’s online store, and then remotely activate the handset after selecting a network provider.

There would be no need to go to operators’ high street shops to either buy the iPhone or obtain a Sim to enable the smartphone to connect to a network. Last week the Financial Times disclosed that three of Europe’s four leading mobile operators were warning they could refuse to subsidise the iPhone if Apple pressed ahead with its interest in an embedded Sim.

Vodafone of the UK, France Telecom and Spain’s Telefónica have concerns about Apple’s approach to the Sim because it could undermine the operators’ relationships with their customers.

They privately say they could end their iPhone subsidies that enable customers to buy the smartphone for much less than its $600 wholesale price so long as they sign up to network contracts lasting as long as two years.

Withdrawal of operators’ subsidies for the iPhone could reduce its sales, but Europe’s leading network providers are not united in their opposition to Apple’s Sim approach. Deutsche Telekom wants to learn more about Apple’s ideas.

Ben Wood, analyst at CCS Insight, said the Sim changes contemplated by Apple could result in customers signing up to network contracts lasting only 30 days, which would increase their propensity to switch between operators.

Higher defections between network providers would almost certainly increase operators’ costs.

Apple has shaken up the mobile industry since the iPhone’s launch in 2007, and repeatedly alarmed the operators with its unorthodox approach. For example, Apple initially demanded a share of the operators’ monthly revenue from iPhone customers, and insisted on control of the smartphone’s marketing.

The introduction of an embedded Sim could help Apple become a mobile virtual network operator.

So long as Apple could find operators willing to provide wholesale services to it, the company could then start to bill customers for network provision.

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