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The next model of Apple’s (AAPL) iPhone, expected this fall, may have a surprise that’s more profound than a rumored orange color option.

It may be the debut of something called the “eSIM,” which could have very big implications for AT&T (T), Verizon Communications (VZ), Sprint (S), and T-Mobile US (TMUS).

Joel Arbaje, Source Photo: courtesy of Apple

The traditional “SIM,” or “subscriber identification module,” is that little plastic card that one sticks in a little tray in the side of a smartphone, or sometimes inside a slot located under the rear panel of the phone. The SIM identifies the phone to the cell tower; without it, you can’t get service.

The eSIM is not a card, it is a chip that can be soldered to the circuit board of the phone at the factory. The most obvious advantage is that it obviates the need for a tray, which means a device can be smaller. More important is that the eSIM is designed to be programmed remotely, “over the air.”

The eSIM is made by a few companies you may not know, including Gemalto, a Dutch company (GTO.Netherlands). Another is a 164-year-old privately held company based in Munich named Giesecke & Devrient.

For the last several years, the eSIM has loomed as a big threat to telecoms. That’s because it can potentially allow a phone user to switch carriers at will, simply by signing up for deals from a variety of operators and having the phone immediately switched over, like an easier version of “prepay” cards. Apple’s cellular iPads already allow this capability, even without an eSIM.

Now the eSIM may get a big boost from being included by Apple in the iPhone. And if so, as previously written in Barron’s, it could herald the breakdown of the traditional relationship with carriers, in which they are the ones who give you the SIM to make your phone work. Instead, you buy a device and later on choose who you want to provide service.

As I mentioned earlier today, Craig-Hallum’s Anthony Stoss this morning wrote that chip giant STMicroelectronics (STM), which provides chips for eSIM, “may have won” business from Apple to put an eSIM in the upcoming iPhone models expected to be released this fall, based on his “checks."

STMicro’s chip for eSIM sells for "around $1.00,” writes Stoss, so an iPhone deal might produce "at least $80-$100 million in upside to estimates for 2H2018.” He also notes STMicro provides parts for “FaceID,” and given that it’s looking like Apple may proliferate Face ID across three new models of iPhone this fall, he expects that could also be upside for ST.

All totaled, it might bump up ST’s content per iPhone to $7 per unit from $6 last year, Stoss estimates.

RELATED READING: Apple to Hit $1 Trillion in Market Value in 2018 (Barron's, Dec. 23, 2017)

Stoss notes that "Apple is already using STM’s eSIM solution in the iWatch 3 cellular models,” referring to the latest Apple Watch model, which can connect to cellular networks without being in range of the iPhone.

Indeed, the Apple Watch is a kind of first move for Apple, as has been written here before. Apple Watch still requires a user to have an iPhone that has an existing account from a service provider.

Of course, the financing of phones has been the biggest contributor of AT&T and Verizon and the rest: You don’t pay that $700—or $1,100, in the case of iPhone X—upfront. Apple has in recent years added its own installment plan. It’s conceivable they could extend and sweeten the payment plan, if they want to get more consumers using what’s known as an “unlocked” iPhone, in which no carrier contract is required and one can move freely from one carrier to another.

For Apple, the clear incentive to do so is to lessen the relationship between Apple’s customers and their carrier, thereby enhancing Apple’s own grip on the customer. In fact, a subscription payment plan for iPhone would fit well with the company’s ongoing shift to being more of a services company and less of a “product company."

In any event, the arrival of eSIM, whether this fall, next year, or the year after, most likely means a lessening of the role of carriers in mobile device authentication and servicing, and that can only be scary for the telcos. AT&T and the rest already use eSIM for their own purposes; for example, it can be useful for things such as "telematics," remote, wireless communications with devices such as meters or vending machines.

But on the consumers side, there is already some indication that carriers are concerned.

The New York Times’s Cecilia King reported back in April that the U.S. Department of Justice is investigating whether Verizon conspired with AT&T, and with the global cellular standards-setting body, the GSM Association, to hamper eSIM.

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