AT&T, Verizon under DOJ antitrust investigation for possible eSIM collusion, report says

According to a number of new reports, the U.S. Department of Justice is conducting an antitrust investigation into the nation's four largest wireless carriers, with a focus on AT&T and Verizon as well as the GSMA, about possible collusion over eSIM technology. Specifically, the agency is looking at whether the companies worked together to prevent broad adoption of the technology, which would allow customers to more easily switch carriers.

According to the reports, which cited unnamed sources familiar with the situation, the DOJ started its investigation in February after receiving complaints from at least one device maker and one wireless operator. Bloomberg reported that Apple was one of the companies that issued a complaint on the topic.

The DOJ reportedly looked into the same issue in 2016 but closed the investigation without taking action.

At issue in the investigation is whether the nation’s largest wireless operators are working together to squelch a technology that would allow customers to switch their service provider without having to insert a new SIM card into their existing phone. That’s the promise of eSIM, a technology that has been around for close to a decade.

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Interestingly, a Verizon spokesperson acknowledged the new investigation: Verizon's Rich Young told Bloomberg it was a “difference of opinion” with phone manufacturers on a standard for the switching technology. “Any good government inquiry is looked at and ultimately decided on merit,” Young said, according to the pubilcation. “That was the case in 2016 and we are very confident the government will reach the same conclusion this time.”

In a statement, the GSMA said it has stopped development of the eSIM standard and is cooperating with the DOJ on the investigation. "This standard contains a wide range of features, including the option for the eSIM to be locked. In the United States, consumers would have this option; however, they would need to explicitly consent to this under specific commercial agreements with their mobile operator, for example when purchasing a subsidised device," the GSMA said.

A number of Wall Street analysts said that it's too early to gauge what effect the investigation might have on the U.S. wireless industry, but J.P. Morgan analyst Philip Cusick warned that it might chill the DOJ's attitude toward a possible merger between Sprint and T-Mobile.

And BTIG's Walter Piecyk offered insights into why Apple might have re-ignited the issue with a complaint to the DOJ about the topic: "Apple appears to have been one of the complaining parties that precipitated the DOJ investigation. Removing the need for a SIM card from an iPhone could provide Apple with additional valuable real estate within the phone as they contemplate new designs. It could also ease the re-purposing of used locked phones from developed into emerging markets," he wrote.

However, Piecyk also noted that eSIM technology could potentially lower Apple's iPhone sales in the U.S. market by encouraging customers to keep their phones for longer periods of time before buying a new device.

To be clear, the issue of easily changing providers via SIM technology has come up before. For example, The Sunday Telegraph reported in 2010 that the world's wireless carriers shot down Apple's plans to create a virtual SIM that would allow wireless customers to pick their service provider after they purchased their iPhone.

Further, the GSMA itself began work on its "embedded" SIM initiative in 2010 with the goal of having commercial products using the technology on the market by 2012.

And there have been industry movements toward SIM cards that can switch among carriers. For example, in 2014 Apple introduced a SIM for its iPad that allowed some users—but not those from AT&T—to switch among providers. And Google’s Project Fi MVNO essentially switches dynamically among the networks of U.S. Cellular, Sprint and T-Mobile without requiring users to change SIM cards.

More recently, the IoT industry has been pushing for eSIM services with the argument that IoT devices can potentially be deployed anywhere in the world, and so therefore need to be able to remotely switch among providers—like when a connected car drives across country lines.

Nonetheless, the smartphone industry, both in the United States and abroad, has largely hardened around the practice of requiring users to physically remove a SIM card from one provider in order to switch to another. Indeed, a number of smartphone companies have begun building dual-SIM phones to allow customers to quickly switch from one provider to another.

Further, this isn’t the first time that the U.S. wireless industry has faced government concerns over practices intended to prevent customers from switching carriers. For example, local number portability rules allowed wireless customers to keep their phone number but change providers, and more recently the wireless industry agreed to procedures that allow customers to unlock a paid-off phone from one carrier’s network and take it to another.

Finally, to be clear, switching among carriers isn’t as straightforward as switching SIM cards. AT&T, Verizon, Sprint and other service providers all operate slightly different network technologies and spectrum bands, and most phones are designed for a particular set of those specifications. For example, though they are largely identical, Apple sells two different iPhone flavors for the U.S. market.

Article updated April 23 with additional details and commentary.