Tiny E-SIM Gains Big Momentum

Phones with e-SIMs are increasing. Should operators be afraid?

For over a decade, the wireless industry has been preparing for a whole host of devices armed with reprogrammable embedded SIM cards (e-SIMs). These e-SIMs would allow subscribers to jump between operators more seamlessly than they can today, as it’s all done through software.

When Apple launched its annual upgrade to its latest iPhones back in September 2018, it introduced more than just another variation of its flagship devices — it sparked a long-term and permanent change for the entire wireless industry, and operators knew it was coming. In many places, the iPhone XR, XS and XS Max were introduced  as dual-SIM devices with one e-SIM slot. This made them the first major smartphones to support e-SIM. All new iPhones have since launched with the same dual-SIM capabilities. Other hardware-makers, including Samsung, have also brought out a limited number of e-SIM-enabled smartphones.

To date, mobile operators have approached the idea of digital SIMs cautiously, realizing that this could be kicking a hornet’s nest. But the technology is inevitable in some markets, particularly given its inclusion on the iPhone.

An initiative in this area that caught my eye was announced last week. T-Mobile US introduced an app-based promotion it calls Test Drive. This allows iPhone owners with an unlocked e-SIM to test T-Mobile’s network for one month without changing carriers. Access to its network is activated using the e-SIM. The existing physical SIM still provides connectivity to the person’s current carrier. Eligible customers just need to download the Test Drive app that activates the second line, and they can then use T-Mobile’s network for 30 days to get unlimited calls and texts, and 30GB of data.

The timing of this programme isn’t coincidental — T-Mobile knows that a growing number of devices on the market are becoming unlocked as AT&T post-paid subscribers who bought flagship iPhones in late 2018 are now paying off their instalment plans. Furthermore, Verizon’s post-paid devices are only locked for 60 days. Looking at this, we believe T-Mobile’s Test Drive has a significant addressable market.

Although T-Mobile isn’t the first wireless service provider to offer app-based, e-SIM subscriber activations, this new promotion won’t be temporary, and I wouldn’t be surprised if other operators in global markets with lots of iPhone customers follow T-Mobile’s lead. Although we believe that most consumers don’t know what an e-SIM is, T-Mobile has essentially kicked off an education campaign, allowing potential customers, with minimum effort, to compare network strengths side by side.

T-Mobile’s move reflects its recent strong improvements to its network, notably its deployment of “nationwide” 5G at 600 MHz and the recent integration of valuable mid-band spectrum acquired from Sprint. After years of trailing behind Verizon and AT&T, it’s a mark of its progress that it’s confident enough to offer such a scheme. In fact, at a recent strategy update, it went as far as to lay out a vision to build the “world’s best 5G network” (see Insight Report: US Carriers Update on Strategy Following Crucial C-Band Auction).

The question now is will rivals respond, risking higher churn and driving down average revenue per user? They might be better off approaching the e-SIM environment in a business-as-usual manner. Post-paid subscriber churn, particularly in the US, has been low for several years, indicating a mature market where customers have generally found coverage and deals they’re happy with.

Nonetheless, market maturity means operators will need to lure customers away from competitors if they want to grow. We’re at the very beginning of a shift in one of the world’s largest industries. A tiny little SIM card could make a big difference down the line.