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Summary

The eSIM is coming to consumer devices, giving rise to the usual questions that face emerging technologies: When? How? And what effect will it have? In one respect, consumer-facing eSIM technology can be seen as a Trojan horse for companies looking to further loosen network operators’ hold on their customers. However, eSIMs will lower costs for operators and enhance the user experience. They are just one part of the natural evolution to online customer self-care in a multidevice, one-contract world where changing provider will be much easier than it is now.

Standardized eSIM technology has arrived, but most operators are in no hurry to quicken its adoption in the consumer space

The Samsung Gear 2 was the first meaningful launch of a consumer device by a major manufacturer with standardized eSIM technology. Operators in Europe that have launched the device include Vodafone, Swisscom, and Telefonica. Shipments are understood to be in the low tens of thousands for each operator. But device sales are not the most important consideration for these operators at this stage; rather, they have used the early eSIM consumer launch to push forward development of their billing and IT systems for the inevitable mass-market arrival of eSIM devices.

The significant upgrade to billing and IT systems that eSIM technology requires is difficult for many operators to justify given the limited range of devices available. As a result, they can't realize the main benefits of the technology over physical SIMs: lower costs, faster provisioning, the ability to manage multiple devices from one subscription, and potential new revenues from connected things. In the IoT space, the single stock keeping unit of the eSIM opens up numerous opportunities such as global distribution at a lower cost than today’s physical SIM technology allows.

Apple’s non-standardized eSIM technology, used in its cellular-enabled iPads, has helped give rise to a concern that eSIM will make it much easier for consumers to swap service providers, causing higher churn among smartphone users. Clearly, this not something operators want to encourage.

Operators must start to prepare for eSIMs now

Transitioning to eSIM is a major project that requires upgrades to core back-end functions, including the BSS, the OTA platform, the CEM platform, the core network PCC domain, and IT systems. And the eSIM needs real-time BSS, so operators have to be able to offer a continuous service to allow users to start accessing new services and price plans. Given that consumers aren’t demanding eSIM technology, and that there are no genuine mass-market eSIM devices here today, operators can easily justify not making the transition to eSIM in a hurry.

But if a popular eSIM device comes to the market (e.g. a new Apple watch in 2017), operators that can’t offer it will of course lose out to those who can. Speakers at the recent eSIM Connect conference, held in London on November 1–2, 2016, predicted that the first eSIM-only smartphones will arrive between 2018 and 2020 (although a later date would perhaps be more in line with industry expectations).

Phase 2 of the GSMA eSIM standard, which allows for devices to be connected to the cellular network without a smartphone, will be released this month. This is an important milestone for the technology. It will make it easier for operators to connect new types of devices to the network, either as part of an existing subscription or a new one. This will generate new revenues from additional connections and traffic and make it harder for consumers paying to connect lots of devices to one operator to change to another.

Operators shouldn’t fear the eSIM, but they must be wary of the non-telco threat

Non-telcos such as manufacturers and OTT players hope eSIMs will help them directly manage subscription and network access with more and more end users. This is a threat to operators because it cuts out the direct billing relationship they have with device owners and will give additional momentum to the growth in OTT telephony. However, operators will still have the power to control who connects to their network and how much they pay, just like they do in the MVNO space. Operators with the best networks for data will remain in the same position they are in today in relation to resellers, as will the ones focused on low prices.

Operators will need to offer an online or app-based subscription management experience for all their users’ eSIM-connected devices. Offering an attractive UI (which is not defined in the GSMA Phase 2 specification) and digital customer experience is an area that operators have often struggled to deliver on, and something OTT players have excelled in. The threat from OTT players is real, but the opportunity for operators is very much there, as long as they offer best-in-class subscription management and other value-added services. Those that do will keep the most valuable users. If network operators can’t do it, the major Internet players will.

Appendix

Further reading

Google's MVNO Project Fi: A Step Closer to Launch in Europe, TE0014-000417 (July 2016)

"eSIM sets gadgets free, and will introduce long-term disruption," TE0004-001067 (February 2016)

Author

Paul Lambert, Senior Analyst, Europe

paul.lambert@ovum.com

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