It comes as no surprise that Apple, Amazon, Google, Intel and many other Internet and IT industry product and service suppliers want to carry their roles forward as the direct competition between the IT and mobile industries comes head-to-head in the 5G wireless decade. The age of 5G gigabit wireless is both an amplified opportunity for innovations and economic leverage that fueled industry growth and the ushering in of more direct competition for equipment, software, and service suppliers. Having studied and worked in the field during the development phases of 3G, 4G and 5G technologies and markets, we tend to think in terms of the wireless industry. It is not so much how control these huge markets can brush up against the limits of control that can create push-back by US regulators, Congress, and the public.
This week’s news that the Justice Department has sent letters is looking into allegations that Verizon and AT&T attempted to influence GSMA eSIM standards to effective allow lock-in of the operator has sent a chill throughout the wireless industry. DOJ, as reported in Barron’s, the New York Times and the Wall Street Journal sent letters to the four leading wireless operators on the bequest of Apple and other IT/computer industry players and public advocacy groups. Verizon and AT&T may have been skirting antitrust rules: the use of eSIM, electronically alterable SIM ‘card’ that are expected to be embedded into billions of Smartphones, Home eNodeB/ngNodeB routers, data dongles/hot-spot and other devices in coming years are designed to provide lower power consumption, a higher degree of chip integration, greater application flexibility, lower device size, while making it easier for users to switch between operators more readily. Apple was a pioneer in the use of a pre-standardized version of eSIM in Apple’s phone and pad devices.
Why eSIM is a building block technology of 5G
eSIM is far from the most challenging aspect of SmartPhone and other device designs. You might think that this is a small issue and ask why the DOJ appears to be going overboard. However, this is a building block that will be essential to the building of innovations in wireless and hybrid networks going forward. Among the advances built into the 3GPP 5G New Radio standard is expanded ability to use multiple bands and sub-bands of spectra and to organize networks on a more granular and grand basis.
Among the more exciting prospects for 5G is greater use by enterprises, high rise buildings, business, ‘Smart Cities’/municipal use, and school campuses. Through both expanded use of WiFi and broadening of public access to CBRS 3.5 GHz and mmWave band spectra, participation in 5G will expand to shared-access between wide-area and local/private access network segments. eSIM is a seemingly innocuous aspect of device design that is essential to open markets.
The eSIM technology will be embedded into some applications of high volume IoT as well as mobile consumer devices. Private 5G corporate networks will be capable of operating as self-contained operators, able to authorize users and control access to the local network or extended VPN using the mechanisms that incorporate eSIM technology. It will be critical to the implementors and customers of these applications to have the flexibility to govern their network segments and develop autonomous applications without obtuse limits set by mobile operators. Many in the IT industry have come to object what has been described as ‘behind closed doors’ development of the eSIM and other standards that impact the evolution of 5G networks and applications. We have participated in industry standards groups, and our understanding is that while most meetings are not ‘closed’ the ability to influence them sometimes takes ‘diplomacy’ and dogged pursuit, particularly if you are not ‘of the industry’. However, that has been similar for IT/networking and Internet standards efforts as well. Whether there is tighter control being plied in the fashioning of the formative technologies to 5G can only be guessed at – we are sure DOJ will get to the bottom of this issue.
The focus is reportedly on Verizon and AT&T based on meetings with the GSMA standards group. Verizon and AT&T were said to have put pressure on GSMA to allow them to lock in the eSIM devices to defeat the ability inherent in the firmware/software-based design for consumers to easily change service providers. A response was that this would be a user option. Of course, sometimes ‘user options’ are placed in the fine print of the multiple page service agreements that customers must sign to receive service. DOJ and FCC often require that such attempts to subvert the intent of user choice options, in this case, the ability for users to select their suppliers within a marketplace already deemed to effectively be a duopoly, be made an ‘Opt-In” rather than “Opt Out’ user decision. The default would be to leave the option open. However, why have the option to lock eSIM devices at all? The contention that leaving eSIMs open to changing the operator opens up a security risk is very hollow — there are sufficient means such as multiple authentications including biometric to prevent unauthorized changes. If that is a risk as suggested, then one has to ask why the mobile operators and standards groups have not made mobile devices more secure by default. The means to do so are certainly available.
How does this impact the smaller wireless industry participants? On the surface locking in of devices prevents challengers from taking share away from the duopolists, Verizon and AT&T. However, the advantages of scale and mass psychology help lead to their market dominance in the first place. The way to overcome monopolistic trends is mostly for competitors to one-up them either through assembling better solutions, including innovations or taking advantage of changes in technology, markets or ‘raw inputs’ that yield an advantage that overcomes the larger MNOs scale and market advantages.
Sprint has been unable to gain back lost market share ground or fill in the debt hole despite worthwhile changes introduced by parent Softbank. T-Mobile has only marginally succeeded. Despite remarkable recent gains by T-Mobile, Verizon and AT&T hold about the same market share they had five years ago, about 68%. The DOJ looks broadly at the converging segments that are summed up as the new ICT, Internet, and Communications Technology Industry. For the field of competition to be open and for the two largest US operators not to raise the wrath of the Justice Department will require them to ‘play nice’ to an increasing degree going forward as they are now the largest and most controlling companies in the space.
Next week we will discuss how this impacts the merger of T-Mobile and Sprint.