eSIM Connect 2018 – Despite Potential Threats, Operator eSIM Investment Continues

The eSIM is on its way and operators need to understand both the threats and the opportunities presented. eSIM Connect 2018 provided a chance to air some concerns and listen to potential strategies, as operators face the complex undertaking of rolling out eSIM support. I had the pleasure of moderating one of the panel session at this year’s event held in early November.

The panel session was titled: “How to deploy eSIM strategies and business models on a group-wide level, with panelist participants from China Telecom, A1 y, and Telefonica.”

I want to take this opportunity to discuss some of the answers given by the panelists, and to provide some final thoughts on an overarching theme and audience question that kept popping up related to the Embedded Subscriber Identity Module (eSIM) and its threat/opportunity status among operators, touching upon questions including:

• What does it take to deploy eSIM support on a MNO group wide level?
• What is the eSIM total cost of ownership and how does this compare to the traditional removeable SIM?
• Where does eSIM fit in terms of MNO priorities?
• How do MNOs view eSIM and does it present a significant impact to their consumer business models?

From an operator group-wide level, it was apparent that deploying eSIMs across an operator’s entire network is a massive undertaking, with three primarily pillars for consideration:

1. eSIM Ecosystem Creation: Establishing partnerships with eSIM providers, including Gemalto, IDEMIA, G&D, or Valid, to set up the required profile generation infrastructure.
2. IT Business Systems: This pertains to the review of all business processes and the development of ways to handle new subscribers, existing subscribers, and sales channels, to name but a few, and how best to support them from an eSIM angle.
3. Company Training: Including marketing, retail staff, and customer support.

The overall consensus from the panelists was that eSIM implementation is a complex undertaking, with the best approach being to stagger its rollout, targeting mature regions first, before expanding outward.

We then began to tackle a number of questions related to cost and total cost of ownership, and how the eSIM compares to the traditional removeable Subscriber Identity Module (SIM) solution from a consumer and primarily handset perspective. It was evident that the outlay and maintenance of the system can be broken down into two buckets:

1. eSIM Integration into the Consumer Device/Handset: Today’s eSIM hardware is more expensive than a traditional SIM card slot and SIM card, but it is a cost that can be passed onto the consumer via increased device Average Selling Prices (ASPs).
2. eSIM Management: This is where savings and efficiencies can be gained, cutting out the associated costs related to traditional SIM card hardware, issuance, management, and logistics, by taking advantage of Over-the-Air (OTA) services.

Hardware costs will undoubtedly decrease over time, but combined with the management benefits, the total cost of eSIM ownership is extremely similar to that of today’s traditional removeable SIM card.

Finally, and from a priorities perspective, where does the eSIM sit in terms of operator importance? Across the board, all panelists agreed that the eSIM was not their number one strategic priority, with network and coverage quality, 5G, and Low-Power Wide Area (LPWA) networks all superseding eSIM in terms of importance.

In addition to the panel session I moderated, there were a number of presentations from leading industry experts from across the mobile value chain, including operators, SIM card vendors, Mobile Virtual Network Operators (MVNOs), and secure Integrated Circuit (IC) vendors, to name but a few.

The opportunity for audience questions brought out a recurring theme, with audience members probing panelists and presenters about the potential threat that eSIM presents to operators’ traditional consumer business models. However, time and time again, the questions were not answered to attendees’ satisfaction, which ultimately led to the same question being asked multiple times: “Is the eSIM a threat to traditional operator business models as it relates to customer retention and roaming?”

There was a mixed degree of answers from an operator perspective, but clear lines divided the answers, which depended on the responsibilities within the operator’s organization and can be summarized into two categories:

1. Wholesale Connectivity: Those working within an operator’s wholesale business unit view the eSIM as a considerable opportunity.
2. Consumer Connectivity: Those working within consumer-facing business units consider the eSIM a significant threat to traditional business models.

The eSIM, from a consumer perspective, is still in a nascent phase, and because of this, no one really understands the true impact on operator business models. It is feasible to assume that gains in the wholesale connectivity sector may counterbalance any loss on the consumer side, however, this could have a knock-on effect related to customer ownership.

In addition, the continual increase in connected objects, particularly in connecting the previously unconnected, will drive new emerging opportunities to provide connectivity to devices and things that previously remained out of reach. This is an area that operators are keen to target in order to grow otherwise flattening subscriber bases.

Operators need to be very measured in their respective eSIM approaches and strategies, including adopting agile approaches and focusing and prioritizing investment within particular divisions, most notably the Internet of Things (IoT), Machine-to-Machine (M2M), and the wholesale business units in order to maximize the presented opportunity.

The eSIM is coming and there will be no room for complacency. The eSIM has the ability to transform business models, but in addition, it will transform the competitive operator landscape as we know it today. Operators need to clearly understand the potential threat it presents to their traditional consumer-driven operations, and strategic decisions and investments need to be made in order to limit any potential negative impact, which can be achieved by placing investments into technologies and services that add value and improve brand perception in order to drive increased levels of brand stickiness.