The Apple SIM

The Apple SIM

The Delta Perspective

Disruptor or Catalyst?

Authors: Joao Sousa and Jose Maria Dot
Contributors: Javier Muñoa and Elissa Salameh
The mobile telecommunications industry undergoes constant changes and positive developments including increased smartphone penetration, growth in mobile data revenue and value added services. But is it all about to change following the recent Apple news – introduction of the Apple SIM for iPad Air 2?

There are a number of possible reasons for Apple’s move, yet the main short term objective seems to be to increase iPad sales (see Exhibit 1):

  • Make the product more attractive (mainly for the B2B market due to international roaming)
  • Improve the overall value proposition for the customer and particularly push LTE-enabled iPads as they generate higher margins for Apple1 while: 1) providing simplified purchase and activation experience. 2) increasing iPad usage while on-the-move using mobile networks and enabling international roaming at competitive fees
  •  Drive iPad sales in Apple stores
  • Use it as a bargaining power to push telecom providers to increase iPad subsidies

Exhibit 1: Apple iPad sales and tablet share evolution (Million units, %)

Notes: ¹ Includes countries in Middle East, Africa, Latam, and Central Eastern Europe, 2 Since 2012, US operators stopped subsidising tablets, 3 Includes countries in Middle East, Africa, Central & Southern Asia, Eastern Europe, Latin America and the Caribbean; Source: Barclays PC model May’14, Ovum, Pyramid Research, press clippings, Delta Partners Analysis

In addition to increasing iPad sales, the new Apple SIM launch might also be paving the way for future iPhone releases:

  • Introduce an attractive new feature for both B2C and B2B markets (offer customisation and flexibility through ‘real-Soft SIM’)...
  • …or use it as a threat for operators to maintain or even increase their iPhone subsidies (see Exhibit 2):

Exhibit 2: Apple iPhone sales and smartphone share evolution (Million units, %)

Notes: 1 Includes countries in Middle East, Africa, Latam, and Central Eastern Europe, 4 According to AT&T, the operator sold 85% of its smartphones with a subsidy in Q4 2013; Source: Apple for sales, Pyramid Research and press releases for breakdown, Delta Partners analysis

From a telco operator perspective, the launch of the Apple SIM is worrying because it looks as a first step towards the implementation of “Real Soft SIM”. However, the concept launched by Apple is far from being a “Real Soft SIM”. Just to mention some of the differences:

  • Apple SIM only works in selected devices while “Real Soft SIMs” are device agnostic
  • Apple SIM is only available for a few operators and only if customer buys the iPad from the operators retail shops
  • With the Apple SIM, service activation has to be done separately for each of the operators and using operator’s own interface
  • Service payment is done to each of the operators separately

Taking the above into consideration, operators don’t need to panic about the Apple SIM, they could even happily embrace it. With a higher number of LTE-enabled iPads, they will be able to drive short-term data offers. The operators may also be able to increase data revenue from international customers by capturing share of data traffic versus WiFi networks. However, they will need to increase focus on network quality, thus more CAPEX, as customers will have easy access to other operators’ networks.

But if the Apple SIM concept becomes a ‘Soft-SIM’ reality in smartphones (see Exhibit 3), the situation will be totally different and operators have valid reasons to be concerned. A “Real Soft SIM” scenario will push operators towards the feared “dumb pipe” situation in which customer ownership will be lost towards device manufacturers or alternatively operators will have to dramatically increase device subsidies to keep customers locked-in. The movement will make the operators more dependent on data revenues which will be under margin pressure due to increased price competition forced by on-the-go package comparison.  

Exhibit 3: Current scenario vs 'Real Soft SIM' scenario (Source: Delta Partners analysis

To sum-up, the current Apple SIM poses little impact on operators but it is a wakeup call that major device vendors may innovate towards a ‘Real Soft SIM’ model. If ‘Real Soft SIM’ takes up, the operators of the future will need to differentiate themselves by further consolidating the local market, improving network quality, enhancing its service offer beyond connectivity and mastering time to market and customer experience.

Authors’ Bios:
Joao Sousa is a Partner with almost 20 years of management consulting experience advising a multitude of clients in the TMD space in Western Europe and Latin America. Joao holds an MBA from INSEAD (France) and a Bachelor's degree in Civil Engineering from the Instituto Superior Tecnico in Lisbon.

Jose Maria Dot is a Senior Manager at Delta Partners Dubai office. His areas of specialisation include digital strategy, sales & distribution, marketing and strategic business planning. At Delta Partners, Jose Maria focuses mainly on the telecom clients in the Middle East, East Africa and Eastern Europe.

Javier Muñoa is a Partner with over 15 years of professional experience, of which more than 10 years are in the telecoms, media and digital (TMD) industry. Javier’s experience in the TMD sector spans across more than 30 countries including Europe, Latin America, Africa and the Middle East. Javier holds an MBA and a Bachelor of Science degree from ESADE (Spain), an International Management Program from New York University (USA) and a CEMS International Program from Universität St. Gallen in Switzerland.

Elissa Salameh is a Senior Analyst at Delta Partners with 2 years of experience in management consulting with a functional focus on commercial strategy development and corporate finance. Elissa holds a Bachelor degree in Computer and Communication Engineering and a Master of Engineering Management in Financial & Operations Engineering from the American University of Beirut.