Resurgence of SIM: One ray of light in an otherwise depressed telecoms market are SIM cards which, despite a current fall in growth, look set to make a comeback - Smart Cards

Telecommunications International, Feb, 2002 by Philippe Vrignaud

Although SIM cards have shared in the general downturn of the telecoms market, the overall outlook remains positive for the smart card technology. The introduction of 2.5/3G and the switch to e-commerce and value-added services (VAS) via mobile internet will fuel expansion, while its security attributes sit at the heart of SIM's market resilience.

Following a run of treble and double digit growth years, the SIM card market came down to earth with a bump last year. The main causes were low levels of handset renewal, due to the perceived shortcomings of WAP and non-arrival of 2.5G technologies; handset saturation in some countries; and the fact that many operators overstocked on SIMs to meet growth predictions that did not materialise.

This resulted in a single digit growth of around eight per cent in 2001 -- a satisfactory figure for some industries but not for smart cards. This learning experience made operators and industry suppliers revise their forecasts and recognise that the 'regular replacement' forecasting models of the PC industry are no longer 'in vogue'.

For the SIM sector, the growth outlook in 2002 is modest at 16 per cent but this should increase to 26 per cent in 2003. A key factor driving this expansion is the arrival of higher bandwidth 2.5G mobile network infrastructure. This should help the market mature and lead to volume handset orders next year (Table 1).

Fuelling SIM

Two phenomena in the telecoms market in particular are driving the SIM card market and it could grow faster than some handset manufacturers are predicting themselves. First, the strong growth of SMS traffic and second, the general worldwide shift to the adoption of GSM or GSM-like technologies.

In a year of disappointment, SMS was probably the success story for operators. SMS traffic accounted for up to and around ten per cent of revenues. As the VAS that facilitate this business are heavily based on SIM ToolKit (STK) applications, this provides a healthy injection to SIM card growth. This can only be boosted with the current migration from 32kb to 64kb SIMs, heralding cards that support large numbers of VAS (commercial shipments by Schlumberger began in late 2001).

The rollout of SIM alliance compatible mini-browsers based on STK is also starting to impact shipments, further improving prospects. All these cards tend to be high-end (multi-application card) products increasing the average selling price and overall revenues for SIM suppliers.

The second factor helping SIM prospects is operators switching network technologies to GSM (such as the R-UIM card standard for CDMA) now occurring in China, Asia Pacific, North America, Latin America and Africa. The AT&T North American operation provides a high profile example.

Operators are aligning themselves with the dominant 3G infrastructure standard. As most mobile operators in the world are now linked to one of the major controlling groups, STK-based VAS 'know-how' is readily available cutting time to market for these major initiatives.

Another trend of significance is the imminent domination of Javacard compatibility in high-end SIMs. Following the release of the 2.1 specification, which provides interoperability for deploying VAS and upgrading them in the field, this technology has become a critical force. Javacards accounted for 50 per cent of (high-end) multi-application card shipments to the wireless industry in 2001. This trend is expected to consolidate rapidly leading to complete domination by 2003.

The UMTS standard with its mandated use of a USIM (universal SIM) has emerged as the heavily preferred technology for implementing 3G -- further boosting long-term prospects for the SIM card industry. However, CDMA 2000 offers cards as an option in the specification and all early indications point to proponents adopting them from the start.

Security strength

The core SIM function of network authentication to protect against fraud has been of undoubted significance to the GSM mobile communications industry. This is being enforced as we enter the UMTS era with an extension in performance through a new set of algorithms called 'milenage' (see sidebar).

This stems from the fact that the secret encryption keys are embedded inside a portable, low-cost, tamper-proof chip. The WAP Forum acknowledged this virtue when it defined the WIM (WAP identity module) application, which builds PKI security into the mobile internet model. Any future VAS that requires a high degree of security, such as m-commerce, is highly likely to utilise this or the other general security resources of SIM.

WIM addresses two fundamental security issues. The first is the security of the wireless transport layer (WTLS) between the WAP gateway server and the mobile client terminal -- the same kind of function as the secure socket layer (SSL) -- using cryptography algorithms stored inside the chip.

The application builds on the proven SIM security concept -- upgrading the level of encryption to an exceptionally high standard with 1024-bit public-key technology and dynamic session keys. The server authenticates the client through the WIM via a challenge and response mechanism based on 'secrets' that are stored and applied within the card.