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Summary

This week the GSMA announced the long awaited specification for remote provisioning of embedded SIM (eSIM) card. This is a major milestone as it represents the first incarnation of a GSMA-standardized version of reprogrammable eSIMs to be used for consumer devices such as smartwatches, fitness devices, and tablets: The same specification will be extended to smartphones or any other mobile device in June 2016. This initiative will help mobile network operators to monetize connectivity services for secondary devices, all the previous work related to eSIM by the GSMA centers on specifications to be used in a business environment for M2M implementation.

There are already a number of bespoke and proprietary solutions for remotely managed, embedded, or virtual SIM cards for consumer devices. However, the GSMA’s specification is the only one that guarantees global interoperability which is backed by heavyweight mobile network operators, device manufacturers, and SIM vendors.

Consumer versions of reprogrammable, traditional, or “virtual” SIM cards have been carried out for some years now, mainly by device manufacturers such as Apple. Undoubtedly, these activities acted a catalyst for mobile operators to get their act together and collectively embrace SIM-related innovation which, in the short term, will provide business benefits in the form of incremental connections for new device types.

Although eSIM for consumers and eSIM for M2M are very similar from a technical point of view, the business process is in fact turned on its head: eSIM for consumer will require end users to make a conscious decision to activate a new contract (or prepaid connection) which is completely distinct from the existing contract they might already have with their existing telecommunications provider. In the long term, reprogrammable eSIMs will be featured in smartphones, making it easier for consumers to switch providers. Device manufacturers can help in the process with potentially disruptive ramifications.

It’s all about size: Smartwatches and wearable devices will get cellular connectivity

For now, the most obvious benefit of the reprogrammable eSIM is its small form factor: According to the GSMA, the eSIM can reduce the physical SIM space requirement by as much as 90% as it is already embedded in the device at the manufacturing plant and customers can activate connectivity remotely. The anticipation is that eSIMs will be used first for smartwatches with the industry expecting the first eSIM devices to be launched as early as 2016. Samsung’s smartwatches are rumored to be the first devices that will be sold to end users, but, given Apple’s support of the eSIM specification, it is seems likely that Apple’s products will also feature embedded SIMs in the very near future.

While these secondary devices will have their own “new” contract with the chosen operator, it is possible that the new eSIM-based connections will be associated with the primary devices and share the same pool of mobile data in the same way as happens today with family plans and shared-data plans. So far, eSIM offers new opportunities and represents an incremental revenue-generating development.

eSIM for smartphone has the potential to disrupt

The eSIM and the capability to remotely provision, delete, and change mobile operators is a powerful application from an end-user point of view. It can be envisaged that, in future, an end user could purchase a smartphone and then select from a list of available mobile operators and MVNOs which one is to be lit up on their eSIM-capable devices. In theory, this will allow customers to change their mobile operator when they wish, based on prices, promotion, coverage, roaming scenario, or any other factor influencing their purchase decision.

The company creating the customer-facing interface for remotely managing eSIM provisioning will surely strengthen their relationship with their end users. Naturally, mobile operators will only offer their own connectivity services but it is likely that that hardware manufacturers and retailers will offer as many alternative operators as they can. While savings in SIM card management, logistics, retail, and retail and distribution can clearly be expected, eSIM will also alter the retail and distribution dynamics of both mobile devices and connectivity services and potentially reduce the mobile operators’ own-brand retail strengths. This is something that we can call retail disintermediation.

A step further in disrupting the current ecosystem would be the case in which a device manufacturer decided to sell its own-branded connectivity services (as an MVNO) to end users and also acquire wholesale traffic from mobile operators. This is something that we can call service disintermediation.

An extremely polarized scenario could see OEMs selling connectivity via their application stores in the form of apps and charging end users either directly via carrier billing or via their accounts such as Google Play and App Store. This is a pretty scary scenario for mobile operators and surely the GSMA’s standardization activities will try and avoid this from happening. Commercial tweaking – and in some cases stiff negotiation – are sure to take place before the reprogrammable eSIM will seriously disrupt existing players in the mobile industry, but it is useful to acknowledge that, from a technology point of view, the building blocks have been laid.

Appendix

Further reading

Global Connectivity: Market Overview, TE0009-001457 (September 2015)

Global Connectivity: OEMs Become Connectivity Providers, TE0009-001452 (August 2015)

Author

Dario Talmesio, Principal Analyst and Practice Leader

dario.talmesio@ovum.com

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