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SIM card market at risk of low-costization

Week 07, 2007

The SIM card range is expanding everyday, in all directions. Memory sizes now range from a few tens of kilobytes to megabytes, the choice of cryptography algorithms have never been so wide, all sorts of additional functions are available, and cards capabilities range from basic SIMs to 3G, mobile television decoding, payment, … functionalities.

Who needs 3G after all? The whole industry has been pushing 3G for years, and it still amounts to small figures in terms of subscribers or cards. The market is becoming a lot more complex than before, with a larger variety of user profiles. So far, the mobile phone has reached 2.6 billion subscribers. The industry is now after the next billion  customers; a small part of them ask for extended functionalities such as mobile television or videoconference. Now, most of the growth in the mobile communication market come from emerging economies: China, India, Brazil, … where the mass market is asking for simple communication functions. The infrastructure suppliers and the handset manufacturers are already in an extended offer market, where low cost options compete with traditional offers coming from long-standing manufacturers. So the SIM card industry will be forced into offering low cost options too.

The poor results announced by major operators (Deutsche Telekom, Vodafone, Orange …) also push into the same direction. In a market where the ARPU (Average Revenue per User) is not growing any longer, the only way to survive for them is to put more cost pressure on suppliers.

Low-costization can also be seen as the outcome of years of struggle where all involved parties have been trying to attract more of the added value in their own part: the card industry had to face handset developers pushing for more elaborate handsets, some telcos pushing for more intelligence in the network, and payment functions out of the SIM.

In airlines, groceries, vehicles, … the arrival of low cost options has only be an expansion factor for the offer and consequentially for the market. Low cost cards may be an option for basic services especially in developing markets, when more functionality-rich cards will remain the norm for mature markets. If we consider the SIM card as a replication of what has been happening in other industries, these mass–volume SIM cards may come from different sources from the established SIM card vendors. Whatever the outcome, it will not be good news for SIM vendors net income.

Thierry Spanjaard
Chief Editor
Smart Insights