4 ways Mobile operators can benefit from eSIM

For more than 25 years, SIM cards (subscriber identification module) has been the way for consumers to connect their mobile phones to mobile networks. A SIM is an integrated circuit that is intended to securely store the device international mobile subscriber identity (IMSI) number and its related key, which are used to identify and authenticate subscribers on mobile devices and provisioning in mobile networks. 

But things are about to change with the introduction of eSIM (Embedded SIM) a non-replaceable embedded chip in SON-8 package that is soldered directly onto a circuit board and provides remote provisioning and device management capabilities. eSIM were originally created for automotive industry and IoT market, where they have been quite successful in developing a more seamlessly integrated device ecosystem into operator’s network. But with the introduction of wearable devices like smart watches and VR wearables, eSIM technology is making its way into consumer devices allowing device owners to compare networks and select service at will, and transfer seamlessly between networks.

For mobile operators, this could create a major change in their business. The existing physical SIM Card has provided more stickiness to consumers and now a software based SIM will make much easier for consumers to change network providers. Nevertheless, it will also open many business opportunities including taking a lead role in the nascent IoT device market, developing digital sales channels, building new wholesale partnerships, and creating opportunities for multi-device bundling specially in the wearables segment.

Telcos need to set a clear strategy in this new landscape as other players in the value chain like device manufacturers and OTT players may also be favored by this change in technology.

1. eSIM will experiment a fast growth in the next 5 years

Ovum expects the eSIM market to grow from 4.4 million to 234 million device unit sales between 2016 and 2021. Tablets and wearables such as the iPad Pro and Samsung Galaxy Gear smart watches make up for most of eSIM device sales in 2016. But analysts expect this to change as soon as the first eSIM-compatible smartphones are introduced in 2018. 

By 2021, Smartphones will represent 66% of all eSIM device shipments. Nevertheless, this still represent less than 10% of total Smartphone expected to be sold globally that year. Interestingly, Ovum expects Asia and Oceania to be the most relevant market for eSIM by 2021 with more than 140Mn device unit sales.

Despite all the hype around eSIM technology, the adoption of this technology will not happen overnight. The over-the-air provisioning of operator profiles requires an standardized architecture to be agreed and adopted by all ecosystem participants. In this scenario, is expected that physical SIM and eSIM technology will co-exist for a long period of time. A great number of existing devices will continuously be serviced to the market, particularly in developing markets, traditional SIM phones and devices still have great market demand.

In order to introduce eSIM technology, GSMA is aligning all ecosystem participants on a standardized reference architecture and working with global network operators to develop the standardization for the implementation of eSIM technology. Consumer devices requires a more dynamic pull mode to request electronic profiles than the passive push mode of current IoT devices. Major device players like Apple and Samsung have installed eSIM in some of their mobile devices, including iPad Air/Mini and Samsung smartwatch Gears. This lays the path for consumer wearables.

2. Despite the non-Telco threat, Operators should embrace eSIM as an opportunity

Non-telcos players like device makers and OTT players expect eSIM will help them to directly manage the subscription, provisioning, and access to mobile network for their consumers. This suppose a threat for telcos because it minimizes their role in the value chain by cutting the direct billing and channel relationship with subscribers. It could also affect telcos device sales revenues, since manufacturers could prefer to use their own distribution network to sell connectivity as well. Nevertheless, Telco will still have control of who connects to their network, how much they charge and what price they offer to consumers. It is also expected that in a more data driven world, consumers will still prefer high quality data networks compared to the ones only offering low prices.

One important aspect that it is not defined in the current GSMA Phase 2 specification is the User interface. telcos need to offer a top customer experience for eSIM users provisioning online or via an app. Providing the best digital experience can create opportunities for Telcos to expand their phisycal sales channels in ways that they haven’t been able to do before.

3. eSIM brings opportunities to innovative in multidevice bundling, shared plans and IoT device sales

eSIM are expected to help expand the device ecosystem beyond smartphones. Companion devices like smart watches or wearables are examples for early implementations of eSIM, however eSIM will open opportunities for more advanced use cases where users can attach several devices seamlessly to a single shared data plan. Share data plans has been successful in several markets including USA. Verizon recently reported almost 3 mobile connection per shared account.

In UK, 3UK launched a new shared data plan named i.am+smart cuff combining zero rated music content with a shared data.

With the introduction of eSIM technology, multidevice bundling will become easier for consumers to adopt and modify. Shared data plans with split device and service fees can attract consumers who do not wish to commit to separate plans for each companion device. They can also accommodate the replacement cycles of different segments.

Despite the threat of losing control of customers, Telco should embrace the opportunity that eSIM enabled devices can bring and be fast building non-exclusive sales channels, especially for companion devices which will be the first ones to hit the market. Companion devices is a segment where Telcos have much to gain and little to risk. This will help Telco to expand their data devices from smartphone to any device. An open approach with non-exclusive retailers and attractive multidevice bundling options, can bring a whole new range of device data plans to their networks. Digital channels sales have been limited by the need of a physical SIM card.

With eSIM telcos can broaden their sales of data plans to any devices via exclusive digital stores, but also collaborate with digital players to expand their channels to a broad audience. This could also means expanding beyond their existing geographical markets as eSIM will make roaming less relevant. 

When it comes to their own stores, telco need to move beyond smartphone shops to stimulate multi-device awareness, while also developing digital sales and service delivery capabilities for IoT. There is already trend in this direction, as some telcos have realized that it is difficult to build an outstanding brand image using retail stores that look more like Samsung or Apple phone shops than a service Telco store. Telcos new exclusive stores should aim to educate consumers about what the different devices can bring to their everyday lives demonstrating a consumer-oriented IoT use cases perspective. Orange has launched Smart Stores across a number of its markets, where it organizes its stores not by device types, but by everyday life activities such as home, work, fun and well-being. AT&T has been moving its stores away from the more-traditional device shop image to include consumer IoT use cases. 

Wholesale is another area to explore, specially MVNOs, Digital partners and Non-exclusive channels. However, Telcos should be more cautious on this topic as Esim will significantly lower the barriers to entry for MVNOs, especially for those engaged in mobile device distribution. Specially for challenger telcos, wholesale opportunities will be more attractive. More specifically, mobile operators that have limited or no fixed assets in markets where converged bundles have an impact will want to focus on every possible revenue growth opportunity, and encourage disruptive business models in their mobile markets. 

4. eSIM Devices: Growing market but still lack of use cases for mass market adoption

eSIM-enabled smart watches can provide great consumers use cases. These uses cases include the gym, outdoor sports, nights out, and payments. However, the adoption of smart watches suffers from dependency of pairing with smartphones making many mobile use cases redundant if the user is carrying his/her Smartphone. This limits the amount of use cases and affect mass-market adoption of these type of devices. Nevertheless, we expect Smart watches to gain a more prominent role as secondary tool for other devices, such as connected cars and smart home components that may benefit from remote management.

Another devices that could be addressed by eSIM are tablets and laptops. These devices are most often used on Wi-Fi networks, but telco could take advantage of their occasional need for cellular connectivity specially for roaming. For these type of devices, which will have an sporadic use of telco mobile networks, telco should regard the eSIM as a tool for enabling any cellular-capable device to be added to mobile data bundles in the future.

The opportunity in the consumer market may be limited if telco take eSIM as a solution for companion device connectivity only. However, if telco consider eSIM to be the standard by which consumers can easily integrate any device to a single data plan, then telco can drive monetization and up selling of data bundles. In the industrial market, eim will be most relevant in the automotive industry that not only sells cars globally but must also contend with a use case that sees their products crossing borders. 

Sources: Ericsson, Ovum, GSMA