This little card may lead to a big dispute between Apple and wireless providers. Source: Flickr userMIKI Yoshihito
Apple's iPhone 6 and iPhone 6 Plus have powered the company to new heights. After leading Apple to a record-breaking first fiscal quarter and adding to Apple's one-year stock gain that now totals 70%, it was reported that Apple will be added to the Dow Jones Industrial Index. Ironically, Apple will replace the first telecommunications company that carried its iconic iPhone: AT&T .
So while investors are happy with the current iPhone iterations, many in the media are already speculating on the phone's next iteration -- the rumored iPhone 6s. For example, AppleInsider reports the iPhone 6s will be upgraded to 2GB of RAM -- up from the 1GB it has sported since 2012. But that's not the most intriguing rumor about Apple's new phone.
The newest rumor is Apple is looking to put its carrier-agnostic SIM card in the iPhone 6s. If so, this could be the best way for Apple to ensure its iPhone will continue to enrich shareholders for years to come.
SIM cityFor those not familiar with a SIM card, it allows your smartphone to connect with a carrier's network. Generally SIM cards only allow you to work with one carrier. You can still change carriers, of course, but that usually requires changing your own SIM card or going into a prospective wireless provider's store -- both things take time. With Apple's SIM, you no longer have to take those steps and can change your carrier by simply going into your settings.
This may sound like a minor change, but Apple lessening the friction of changing U.S-based carriers lowers the collective power of carriers by further commoditizing network coverage. And for iPhone users without a contract, this SIM allows them to quickly change carriers to the lowest-price competitor. And in my opinion, it has a hidden benefit of forcing carriers to continue the policy of device subsidies to differentiate themselves and to induce subscribers into lucrative two-year postpaid contracts.
Device subsidies and Apple: two big thoughtsThe device subsidy -- in its current form -- is under attack. After T-Mobile scrapped device subsidies in 2013, along with the standard two-year contract, major carriers have waded in the waters with offerings designed to separate the cost of the device from the cost of the network. The broad outline has been allowing consumers to pay the cost of the phone over the contract, essentially giving free phone financing, but elimination of the device subsidy that's estimated at $450. Unlike T-Mobile, however, these major telcos have continued the tradition of the two-year contract.
When it comes to how Apple will fare in a post-subsidy world, there are two main thoughts. The first is rather straight-forward: Without large device subsidies shoppers will trade down and buy lower cost smartphones, hurting Apple's iPhone growth and adoption. The second group focuses on total cost and notes that many carriers have lowered service costs to accommodate the loss of the device subsidy. In the end, they argue Apple will continue to thrive under this setup.
Apple's not taking any chances, but carriers are fighting backPersonally, I expect the answer lies in between the aforementioned choices. When the cost of the device is presented on its own, price-sensitive shoppers will trade down or slow their upgrade cycle, but the value and brand cachet of Apple should prevent any wide-scale losses.
If the report is true, it appears Apple's taking no chances and making the value proposition of phone financing less attractive. With Apple's new phone, there are now three choices: buy the phone outright with the ability to switch carriers at will, buy the phone with a $450 subsidy and lock yourself into a two-year contract, or lock yourself into a two-year contract without a device subsidy but with phone financing. The optionality to change carriers at will should probably outweigh zero interest phone financing for many shoppers.
That doesn't mean that carriers will play ball, however. After Apple put this SIM functionality in its last iPad iteration, both AT&T and T-Mobile moved to lock down Apple SIM that were activated on its network while Verizon decided to swap Apple's SIM for its own version.
This wasn't a huge issue considering iPads with cellular connections are less popular than iPhones; it will be interesting for telcos to explain to iPhone users why they are intentionally trying to make it harder for subscribers to save money. In the end, I expect they'll have to accept Apple's new SIM and continue to offer the device subsidy to customers in order to get them to sign two-year contracts. If not, expect wireless margins to continue to fall as unlocked price-sensitive customers shop for the best deals.
The article Apples iPhone 6s Rumored New Feature Is Brilliant originally appeared on Fool.com.
Jamal Carnette owns shares of Apple, AT&T, and Verizon Communications. The Motley Fool recommends Apple and Verizon Communications. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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