TheChek News Flow

Verizon, AT&T Face New Threat: eSIM Cards

New technology will make switching carriers as easy as turning on WiFi.

A very small thing could be about to cause a very big problem for the phone companies. Last week, at the biggest annual trade show for the mobile phone industry, Mobile World Congress, a good deal of buzz was generated by a new technology that’s coming to that humble piece of plastic known as the SIM card.

The SIM lives inside your cellphone, usually in a little tray that you have to pop open with a paper clip, such as when you’re getting a new phone. Your mobile phone company owns the SIM because it is the key that lets your phone onto their network.

The SIM is used not just in phones but increasingly in other devices connected to a network, including Apple’s (ticker: AAPL) iPads, and some wearable devices such as a smartwatch from Samsung Electronics (005930.Korea) called the Gear S2.

In recent years, various parties have been developing something called an embedded SIM, a version built into the phone rather than being loaded via the tray. The important thing is that the eSIM, as it’s known, can be re-programmed.

With a reprogrammable eSIM, you could switch your phone between one carrier and another as easily as changing the WiFi network you are using, without opening the phone—and, importantly, without having to ask permission from your phone company.

The eSIM, along with the traditional SIM, 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, which got its start printing money and still works closely with a number of central banks around the world, including the Federal Reserve.

At the show, which took place in Barcelona, G&D, as it calls itself, announced that its eSIM was going to be in the Gear S2, so customers can program the smartwatch to work with Telefonica (TEF), Vodafone Group (VOD), or other carriers, depending on which market they are in. The Gear S2 can send and receive phone calls, so it needs a SIM to get onto a carrier’s network.

That may not sound like much, but the implications are huge. The Gear S2 is the tip of the iceberg. Phones today don’t use the eSIM. However, the GSMA, the organization that sponsors Mobile World Congress and coordinates the activities of phone companies around the world, is finalizing guidelines that will allow for the eSIM to come to “any mobile device,” including phones.

This should strike terror in the hearts of AT&T (T), Verizon Communications (VZ), Vodafone, and all the rest. Imagine a few years from now traveling from New York to Paris with your spiffy iPhone 9. You get off the plane, go into the iPhone’s settings, and in a few steps, you sign up with a plan from any one of a number of carriers for a bundle of voice minutes and data.

You might not even have a permanent phone plan. “It is one more thing that is going to chip away at what used to be 100% control of your mobile device” by the phone companies, says Neil Mawston, an industry observer with Strategy Analytics.

To be sure, use of the eSIM will be made difficult by carriers in any number of clever ways, such as claiming you can’t do what you want because you are still paying off your phone.

But sales of phones that are unlocked are “going through the roof,” meaning phones that can take SIMs from any carrier, says Mawston. And Apple offers an installment plan for phones completely independent of the phone company.

Developments such as these will only put more and more pressure on phone companies to adapt to a world where they control the phone less and less.

IF THE ESIM WAS THE BIGGEST LITTLE THING, a lot more people at Mobile World were focused on what many think is the Next Big Thing, virtual reality.

Today, VR consists of headsets that you strap onto your face and that are connected to a personal computer. Many expect that VR will become a big hit on phones, not just with PCs. And sure enough, VR was everywhere at the show. Samsung made a big splash, announcing a camera, called the Gear 360, to create VR videos. There were constant lines to sit in chairs and try demos of the Rift headset coming from Facebook (FB). Ditto for Samsung’s own Gear VR headset.

But this incipient VR bubble is going to burst before it even inflates. It will take years for smartphone screens to gain the high-res displays that will really make VR sing. In order to download VR content wirelessly, network technology will take several years to evolve to the newest standard for speed, known as 5G.

Then, too, people in VR headsets look like idiots. It is one of the most embarrassing gadgets to have anywhere near you, much less on you. It may take several years for the goggles to evolve from today’s clunky models like the Rift into something most of us would actually be willing to wear in private, not to mention in public.

And many may still shun VR because it is intensely “immersive”—meaning, distracting. Though it may eventually find its true mass consumer moment, VR is a phenomenon that will initially flop, just like Google’s Google Glass did. VR may succeed some day, but big expectations are about to be hugely disappointed.