Originally Posted by SolipsismX
That's not accurate. The simple data stored on a physical SIM could be stored as printed text on a card you buy in any store and then inputted manually. This has plenty of benefits over physical SIMs, like being able to store multiple vSIMs at once and switch between them with ease.
Why isn't in legal?
First, pointing out the obvious, the Sim card is not a serial number, it's a cryptography microprocessor. Having to enter anything into the phone to activate it on the network will result in easy cloning and is highly error-prone . This is what happened with the ESN system on CDMA/TDMA/AMPS. Programming the ESN phones consisted of a long programming sequence that the average person needed to be hand-held to do. Not the case with the sim card where the customer simply relays the ICCID to the wireless provider to whitelist the sim card.
The Simcard itself is tamper-proof, and can only be emulated, not copied. This is a weakness in the GSM system that allows a MITM attack on slower larger less-complicated sim cards.
Second, when you cancel service, it removes the ICCID from the system, not the IMEI, freeing you to reuse your phone with other carriers without having to change the IMEI, by changing the physical sim card with a different ICCID. If your phone is stolen, you tell the wireless company to destroy the sim card, thus not being liable for any charges after the point of theft, and no data being recoverable. With "find my ipad" type of applications, you probably don't want to do this until you first make an effort to locate it, but if it's not recoverable, remote wipe the phone and then call the wireless company so they can't use the sim card. Stolen phones are used as burn phones by criminals, regardless of them having sim cards or not, however without being able to replace the SIM card, the phones just get garbaged or sent to africa.
The "Sim lock" or subsidy lock is used to prevent subsidized equipment from being bought and resold on the grey market, it's not terribly effective, but it ties the service to the SIM card not the device. So where as CDMA phones that are damaged requires you to buy a new phone, every time. SIM card phones you simply throw away the broken phone and buy any unlocked phone, or even sim-locked phones from the same carrier on the secondary market.
Without a sim card, the phone is tied permanently to the wireless carrier, which puts you at the whims of the carrier's poor business decisions. If the company goes bankrupt, merges or splits, you're saddled with an expensive brick. If the wireless company is hacked and all the devices are sent a "self destruct" message, your device is now unusable.
As for the size of the sim card, the actual chip's die size is about 2mmx2mm, but this is too small to physically handle, and someone could inhale it at that size. Ever try to handle screws for a watch? Apple's design is clearly meant to fit existing equipment with an adapter. The other two designs actually waste space since they just shove the contacts to the end of the card. Altogether I think all the designs don't solve the problem they're trying to solve (making it significantly smaller) and should forget about it.
Apple's design to use the tray takes up less space physically, since to use SD-like contacts requires more mechanical space to be used inside the device.
Look at the N95 that has a sim card and a microSD:
The sim card contacts takes up half the space the microSD card slot does. Given the N95 uses the regular sim card size.