eSIMs: The Future of Cellular Communication

Smartphone subscriber identity modules (SIMs) may soon evolve into eSIMs. Smartphone manufacturers will be installing these chips into their devices at the assembly stage. This would allow users to buy devices directly from manufacturers and choose voice/data plans on the device to be provided by any participating carrier. This would lower time taken by users in registering with carriers. Users will find it much easier and cheaper to switch between carriers based on their value propositions. Certainly, carriers will need to strive to retain customers with added focus on competitive pricing and differentiated products. eSIMs are expected to carry standardized information that is accessible and rewritable by all operators. Users should be able to change carriers by selecting a new carrier on their device or with a simple phone call for activation. The switch to the new carrier should be completed seamlessly and without any delay. From a security standpoint, the eSIM will be registered to the identity of the smartphone owner, as recorded at the time of purchasing the device.   

eSIMs are already available in some smart watches, wearables, and tablets (e.g., the Apple iPad Pro). They already established a strong presence in the M2M area within the Internet of Things (IoT) sphere. eSIMs are likely to become available in smartphones very soon, possibly as early as this year. Currently, users still need to obtain and physically install a SIM card that is registered to a particular operator to access the mobile network of that operator. This makes contacting an operator to obtain a SIM card (by phone, visiting a store, or through online channels) compulsory. In order to switch operators, a user must replace the SIM card with a new one registered to the new operator. All this is about to change with the introduction of eSIMs. These offer great advantages to users, especially in terms of convenience and freedom of choice over carriers; moreover, device makers will be able to forge direct relationships with users. However, eSIMs do present a number of disadvantages for carriers that need to be evaluated. 

For users, eSIM-enabled handsets offer significant benefits. They can establish a contract of service or subscription with a carrier and change carriers without physically visiting their store to obtain a SIM card. Users will be free to select any participating carrier of their choice. Carriers will therefore focus on user retention through attractive pricing, product differentiation, and overall service excellence. Contracts will be redefined as traditional device bundles will become history. Instead, a contract will be based around a voice and data plan. Perhaps users may even be able to terminate contracts at will and move to a new carrier if they are unhappy with their present one, implying that exit barriers and switching costs may be eliminated altogether.    

Traditionally, device manufacturers sell most of their devices through telco carriers, who bundle the devices into contracts and resell them to users through a pricing plan that incorporates a tariff for voice/data consumption and an installment plan for the device itself. With the launch of eSIMs, the device manufacturer will have the opportunity to sell devices directly to users, forging stronger relationships. Additional revenue opportunities may become available to device manufacturers through extended warranties, accessories, and other support services. 

For carriers, eSIMs constitute both opportunities and threats. Carriers offering greater value will see an increase in their subscriber base and will also be able to dispense with the cost of issuing SIM cards. Carriers may also see some revenue weakness as device sales fees and roaming charges come under pressure. In addition, price-sensitive customers will be able to defect to other carriers more easily. Revenue streams earlier deemed to be more stable and predictable may be impacted, and this may influence CAPEX plans to some extent for some carriers. Conversely, there will be a strong focus among carriers on driving internal efficiency and providing greater value to users through marketing and product excellence.    

Clearly, the eSIM will gain traction in the smartphone market moving forward. According to ABI Research, total eSIM shipments are expected to reach 530 million by 2020, with 244 million being used in smartphones. While users and device manufacturers may gain from its adoption, some carriers will need to assess their position carefully to ensure they are not affected adversely by its implementation. For this reason, there may be some initial resistance from carriers and potentially a source of delay in widespread implementation of eSIMs in the smartphone market. This is the challenge that device manufacturers must overcome as they push for the adoption of eSIMs and strive to gain the support and participation of more carriers. Nevertheless, the day will come when users will no longer need to pry open their devices to insert a physical SIM card. Instead, users should be able to enjoy almost instant connectivity upon purchasing their smartphone by simply selecting a subscription plan on their device from a participating mobile network operator.