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Apple's Embedded SIM Cards May Hurt Telecoms, Benefit Consumers

"Kayla Topper" (2019-09-21)


Apple's Embedded SIM Cards May Hurt Telecoms, Benefit Consumers
Stocks quotes in this article: AAPL, VZ, S, TMUS, T
Here's what I don't like about all this eSIM chatter floating around about Apple Inc.'s (AAPL) new products.
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I break phones. If I don't break them, I keep them for years upon years until they literally die. eSIMs, or embedded SIM cards, are soldered to the inside of the phone, making them permanent. It's not as easy for an old schooler like me to get all of their data out of it once my phone finally implodes.

Alas, they seem to be the way of the future. A battle is broiling between the major telecom carriers, and the product makers like Apple. However, I don't view this issue as a reason to feel any different about the stock after they unveil their new phone tomorrow.

I don't think the inclusion of an eSIM card in the new iphone will create an immediate impact in their sales figures. Samsung seems poised to implement the same changes, and I expect phone makers to largely cancel each other out by all following suit.
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Long term, I do think that this type of SIM does make the story much more complicated for the carriers. Verizon Communications Inc. (VZ) , Sprint Corp (S) , T-Mobile Us Inc (TMUS) and AT&T Inc. (T) will become much more competitive as the eSIM makes it easier for consumers to change carriers. The pricing ramifications could lead to a more hyper-competitive environment.

The new Apple will be unveiled this week. The stock will likely jump on enthusiasm. Then everyone will realize how expensive it is, and many will keep buying the old ones until the price comes down. It's the same old story year after year. Apple will keep using the cash to help finance its way into diversified product lineups like it's doing now, and that will be that. The stock will probably keep going on its merry way. I would focus on the telecoms. A move to eSIM cards on the new phone could alter the landscape and drastically change the way they operate. There was already chatter about the big names trying to avoid this eSIM pushback in May, as increased competition would further drive pricing pressure.

The pricing battle was already making waves last year as these wireless carriers battled for users. Sprint and Verizon were suffering from lower revenues per postpaid user back then. If this eSIM trend drives further pressure on Verizon to implement more incentives to keep its customer base, I think we'll see more declines in revenue per customer. It could also make the Sprint/T-Mobil merger even more exciting. If the two can successfully combine, it would drastically tip the scales in the way all these names leverage pricing.
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All in all, I am urging caution on these stocks. We need to watch closely on what happens tomorrow in terms of how much of Apple's product lineup starts pushing in this direction. They already use the technology in the iwatch, and it wouldn't shock me to see it spread everywhere. A reported leak shows the iPhone having dual SIM card ports. If that's the case, it also bodes poorly for telecoms as users will be able to switch carriers rather easily as well; and use multiple phone numbers on the same device. If they do it, competitors will quickly follow suit, and the telecom carriers could quickly be pushed even further into a world where their businesses are no longer as insulated as they once were.

History seems to show that Apple's stock price will run up with the introduction of a new iPhone. New tech might hurt telecoms in the process. It could be good for consumers who benefit from the pricing wars, but poor for shareholders who aren't paying attention.
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Keep an eye on this. It could impact a lot of what's happening in the telecom sector.

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