eSIM Handsets – MNO Friend or Foe?

The eSIM remains a hot topic and one which original equipment manufacturers (OEMs), mobile network operators (MNOs), smart card and secure IC vendors continue to explore, prepare and strategize. Today, the handset market has begun to move, driven by Google’s recently launched Pixel 2 handsets with eSIM inclusion, raising expectations that other OEMs will follow suit. In addition, the rise of the eSIM has raised fears that it may be used as a platform for OEMs to directly compete with its current MNO customer base, using the eSIM as a platform from which to launch MVNO services. 

ABI Research’s latest eSIM forecasts takes into consideration the Google Pixel 2 and subsequent inclusion of eSIM as well as the potential for other OEM handset inclusion in next-generation handset devices. The table below not only outlines ABI Research’s eSIM expectations as it pertains to the handset market, but is accompanied by a list of transparent supporting forecast assumptions. 

Forecast Assumptions

• ABI Research’s expectation is that approximately 1 – 2 million Pixel 2 devices will ship before year end 2017.
• Thereafter, the Pixel 2 handsets are forecast to ship between 7 - 10 million units annually.
• It has been assumed that Apple's next iPhone will have an eSIM, increasing the 2018 forecasts to 78 million, 70 million of which will be delivered by Apple in Q4 2018.
• 2019 will be Apple's first full year of eSIM handset shipments. Apple paired with Pixel 2 handset shipments will result in approximately 225 million eSIM handsets shipping in 2019.
• In 2020 Samsung will join the fray, likely using the eSIM within flagship devices (e.g. the latest Samsung Note and Samsung Galaxy range of devices), resulting in an additional 20 million units being delivered in 2020, all of which will be delivered in Q4.
• 2021 marks the first full year where Apple, Samsung and Google all have eSIM handset variants shipping into the market, resulting in a shipment level in the 315 million range (approx. 215m for Apple, 90m for Samsung and the remainder for Google).
• In 2022 Huawei launches a range of eSIM handsets within a select number of its higher end devices (e.g., the P10).

For ABI Research, Google was always considered the dark horse and a good outside bet as the first OEM to include eSIM into its handsets. Google’s business model is very much reliant on connectivity and the inclusion of eSIM, which presents Google with the platform from which it can flesh out its Project Fi user base.

But the biggest question is whether the likes of Apple, Samsung and Google will use the eSIM to become MVNOs and directly compete with their current MNO customer base?

ABI Research does not believe this to be the case for a number of reasons:

• The dual SIM approach will likely be adopted, as is the case with the Pixel 2 devices. This will ensure ongoing global distribution, able to serve MNOs ready to support the eSIM and those unwilling to do so.
• The Pixel eSIM and Project Fi use cases are an indicator that the OEM-owned eSIM is not necessarily a platform from which to compete from a subscription or connectivity perspective, but an access point from which OEMs can offer services and products to consumers, anywhere, anytime, much in the same regard as Amazon’s cellular connected Kindle. The user is not paying a subscription, but the data used and consumed to download a digital book is covered within the purchase cost; this is where ABI Research believes the OEM focus on eSIM within handsets will initially reside. This type of strategy would suit Apple’s closed ecosystem or provide a platform from which OEMs including Samsung can flesh out their branded products and services, using the eSIM as a platform to create anytime access to their branded ecosystems, creating further consumer stickiness and brand affiliation.

In summary, it is the ability of OEMs to extend product and service reach to their connectivity platform, rather than using as an MNVO launching pad. This is where ABI Research believes the initial eSIM value resides for OEMs, at least in the short term.

For this reason, ABI Research believes that MNO traditional subscription business models will remain relatively unthreatened and may actually be a platform from which MNOs can generate further data related revenues through direct connectivity partnerships with handset OEMs, potentially able to take a piece of the revenue pie for every OEM service/product consumed, using the eSIM as the connectivity bridge between OEM product/service and user.