E-SIM: Friend or Foe?

Is Remote Provisioning a Threat to Churn?

Apple’s unveiling last week of its latest iPhone models wasn’t just business as usual. Its rhythm of product announcements tends to be unsurprising, but Apple’s implementation of e-SIM technology — although not completely unexpected — has the potential to be a shock to the system, disturbing the current chemistry between subscribers and service providers.

Traditionally, to switch wireless plans subscribers have had to buy a new physical SIM card and insert it into an unlocked phone. This isn’t an impossible barrier, but it’s an inconvenience in some cases and an expensive challenge in others. Contrast this with the process of choosing a Wi-Fi network, which simply involves adjusting some network settings and entering some credentials; no new hardware is needed, making it easy to switch from one access point to another.

At least theoretically, in a mature e-SIM environment, switching mobile operators could be similar to switching Wi-Fi networks in that there’s no need to deal with small trays and tiny cards. The change of networks is software-based, and this is certainly a convenience.

Apple’s iPhone XS, iPhone XS Max and iPhone XR are all dual-SIM phones, the first such from the company. For markets other than China, the phones support one nano-SIM card and one e-SIM, although support for the latter is currently limited to 14 operators in 10 countries (see Instant Insight: Apple Unveils Three New iPhone Models and Updated Watch).

Owners of the new iPhones would be able to have several operator accounts within one phone. A potential use is for international travellers who might, for example, want to have a local European phone number as well as an Indian one. This could be enabled by simply buying a pre-paid e-SIM using a QR code from a vending machine in an airport. Users could also have a business line and a private line in one phone, something that would affect the trend of multidevice ownership. Another example, which Apple cited on its Web site, is the use of one operator for a voice plan and one for a data plan, allowing multi-SIM iPhone owners to cut costs, optimising their spending on mobile services.

Users of the new generation of iPhones can also easily choose a new cellular plan by digging into the settings of the device. They can then scan an identifying QR code provided by the operator, perhaps in one of their stores, online or in a corner kiosk. Accounts can be activated through an app also offered by the service provider.

In theory, consumers can have several virtual SIM cards on their iPhone simultaneously, but only one e-SIM account can be active at a time. Apple has designed an interface that lets customers make the most of both SIMs, making it possible to use one account for voice calls and messages and the other for data. It’s also able to assign default accounts to individuals, so a call to a personal contact is made through a personal line and a call to a professional contact goes through the business line.

The ability to quickly jump into a new mobile service plan is an uncomfortable scenario for some operators, particularly in markets where several of them support Apple’s e-SIM implementation, such as India and the US. There’s a concern that service pricing can cause a race to the bottom. We believe this potential downward pressure on prices could hit larger operators hardest but create opportunity for disruptive providers or virtual operators.

E-SIM could also allow device makers to take greater control of the relationship with the end-customer. It risks limiting the opportunities for telecom operators to interact with and upsell to subscribers as there would be fewer reasons for them to visit a store. Encouragingly, though, e-SIM removes the need for operators to engage in costly distribution of physical SIM cards.

Apple opened a Pandora’s box for operators firstly when it added e-SIM functionality to its iPad and then when it launched its cellular-connected Apple Watch in 2017. The Watch was an introduction to e-SIM for many service providers, who knew that it was just the start of something that could be disruptive.

The latest iPhones aren’t the first smartphones to include an embedded SIM. Google implemented the feature in its Pixel 2 series released in October 2017, albeit with limited applicability. Importantly, Apple’s new iPhones support “dual SIM, dual standby” technology, whereas Google’s devices did not. Furthermore, Apple’s influence on the subscriber market is at a different level. Given its dominant market share for post-paid subscribers in many Western countries, its users’ loyalty rate of almost 100 percent and the growth in its services division, Apple could eventually intercept the relationship between operators and subscribers. If the iPhone becomes the new interface to operator services, the company could negotiate a cut of revenue from wireless services. In other words, Apple could become an agent for mobile operators.

The escalating cost of iPhones — the XS starts at $999 and goes up to $1,449 — means that subscribers are more likely to finance their devices through an operator, creating a billing relationship and the likelihood of the phones be locked to one network until fully paid. Although this is a comfort zone for operators, the unknown still looms.

Other smartphone makers will force the matter even further, as the embedded SIM becomes the norm and the venerable physical SIM disappears over the coming years, with software becoming the new subscriber identifier. The emerging environment of reprogrammable e-SIMs could be a boon to market challengers that undercut market leaders on price, but ultimately, the law of averages will kick in.

Mobile operators will need to defend their brand values and relationships with their subscribers or risk being viewed as public utilities. Preventing commoditization in an e-SIM landscape will require embedded strategies.