How eSIM is disrupting the telecoms industry

The SIM (Subscriber Identity Module), a seemingly innocuous and modest piece of hardware in every mobile phone that is used to store subscriber identity and service details, has seen itself shrink from credit card size when it was created in 1991 to the Micro SIM and the Nano SIM. Now, the SIM threatens to shrink further and vanish altogether, at least in its physical form. eSIM is about to replace the ordinary SIM. An eSIM works like a regular SIM with one major difference: instead of being a physical card, the eSIM is a module built right into the mobile device. This tiny change has the potential to revolutionise the complete telecom value chain.

Google Pixel 2 became one of the first phones to sport an eSIM. Pixel 2 users don’t have to go to a store to get a new physical SIM when switching service providers. They can change providers over the air with their eSIM, making it easier than ever to switch.  

Today, the technology has been used in the Apple Watch Series 3 in a bid to preserve the size and aesthetics of the watch. We can safely expect consumer electronics and industrial equipment manufacturers to follow the trend by embedding eSIM technology into a range of devices like fitness bands, portable health care systems or drones.

Naturally, there is resistance from the telecom industry and from SIM manufacturers to these developments. The dominance of device manufacturers as the dominant stakeholders in the service value chain is being weakened. But the eSIM is, inexorably, becoming a reality. Fortunately, the new technology is also opening doors to innovation, new subscriber-centric business models and fresh opportunity for mobile network operators (MNOs), mobile virtual network operators (MVNOs), handset and device manufacturers and SIM card manufacturers.

The shape of things to come became clear in 2014 when Apple began releasing the iPad Air2 and the iPad Mini3 with embedded eSIM in the US and the UK. This allowed users the freedom to select an operator dynamically, have the changes delivered Over-the-Air and straight from the device.

A win-win for the complete ecosystem

The implications for the mobile ecosystem are significant.

Industry: With the rapid growth in IoT-enabled devices and machine-to-machine technology across industries, the value of an eSIM goes well beyond matters of size and aesthetics. Imagine a utility, a logistics provider or a manufacturer leveraging the IoT/M2M. These businesses have thousands of connected sensors and devices generating and transmitting data. When the business wants to change its network provider, it means changing physical SIM cards across thousands of sensors and devices – a harrowing and time-consuming task that can result in downtime. But eSIM technology changes that. A business can remotely send an over-the-air update to all devices and change the provider with a single keystroke.

Mobile network operators: eSIM makes every subscriber (within a geography) fair game for all MNOs. This means in large markets such as India, the concept of “local” and “regional” MNOs will become redundant. MNOs can target subscribers of any provider anywhere in the country with unique offers and packages. Subscribers on their part can choose a provider and instantly activate new services over-the-air. The change in business dynamics will force MNOs to provide innovative services with simple and engaging experiences that customers prefer.

Mobile virtual network operators: MVNOs will create new business models using the eSIM ability to instantly switch between providers. For example, an MVNO can sell a service to a subscriber committing to an SLA. The MVNO can then dynamically switch the subscriber to MNOs who satisfy the SLA. This will have the effect of creating spot markets in the industry dictated by the level of service quality an MNO offers. Based on the pricing and quality, the MVNO will switch providers. Will MVNOs dictate the future of MNOs? It is possible, but unlikely. In fact an MNO can elevate itself to the status of an MVNO and own the customer end-to-end on the back of quality of service and attractive commercial models (rather than use the physical SIM which has been the traditional means to own the customer). This will catalyse innovation and bring out new business models which do not exist today from the MNO side.

Subscriber: The key reason why subscribers are reluctant to switch providers is the inconvenience of going to a store to get a physical SIM from the new provider. This is in addition to the downtime it may imply when switching from one provider and another. The eSIM eliminates these inconveniences, allowing the subscriber to switch providers based on merit and changing needs. In the eSIM era, subscribers will be able to painlessly switch providers based on cost, quality of service, product bundling, availability of service, and responsiveness of the provider.

Handset and device manufacturers: The manufacturing process for devices will become simplified as provisions for different types of SIMs will not have to be made. In addition, the freed up real estate can be used to enhance the device – especially aspects such as battery life.

SIM manufacturers: It would appear that the biggest threat will be posed to the future of physical SIM manufacturers. However, the shift from SIM to eSIM also provides manufacturers the chance to elevate themselves into becoming software providers. They can become providers of technology that embeds and manages the eSIM. They can become the catalyst that spurs the discovery of services for subscribers and ensures continuously better features are made available to device manufacturers with whom they partner.

The exciting road ahead

While it is obvious that eSIM technology is going to be more of a boon than a bane for the telecom industry, there will be tricky questions to resolve before the gains of eSIM become real. For example, one of the principal concerns is the management of customer identity and the availability of customer details across providers. As customers switch providers, their authenticated device, personal and billing details – along with their usage history – will have to be made available across providers in real-time. The lack of a central authority with a comprehensive directory of registered users can hamper progress with eSIM adoption. This is where new technologies like blockchain steps in. Blockchain can be deployed to resolve the problem and create additional levels of innovation.

In the short term, eSIM will create major disruption. Simultaneously, it will drive innovation that will help in expanding markets and boosting service consumption. The winners in the eSIM era will be those who forge new partnerships within the ecosystem and use them to disrupt the playing field with customer-focused innovation.

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GanesanArulanandham
24 May 2018, 11:59 a.m.

Hi Krishan & Aman,
Great article highlighting the potential disruption by eSIM (Embedded SIM).

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Krishan
9 Jun 2018, 1:05 p.m.

Thanks a lot Ganesan. Appreciate your kind feedback.

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btn
24 May 2018, 9:59 p.m.

AT&T's billing system doesn't handle Apple embedded SIM for iPad well. If one resets their iPad then AT&T tries to treat the same physical, restored iPad as a new "one-time activation" along with all of the fees associated with "new" activation. The handful of Apple support people I've communicated with seem to be unaware of this scenario too.

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Krishan
9 Jun 2018, 1:15 p.m.

It is still early days for the technology. I think someone just didnt think of it as a usage scenario while designing the system. Hope this situation gets resolved quickly for you. Thanks for letting us know of this.

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Sontani
18 Jun 2018, 5:01 a.m.

The implementation will face challenge from Prepaid SIM which in many countries still dominate the market.

But offcourse from the technology prespective the possibilities to change the network carrier are still there, with Android apps or STK menus.

In this case the regulation has tobe clearly mentioned.

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