Digital Transformation through eSIM – Opportunities and Risks for Telecommunications Companies – An Assessment by Andreas Grote, Senior Project Manager eSIM at LionGate AG

The eSIM is coming, that’s for sure. What Apple as a pioneer has brought into the digital world with its programmable iPad SIM will fundamentally change the mobile phone market in the next 5-10 years. But the skeptics in the industry say perhaps only slightly. Surely there will be new business models, say those who want to compete with established network operators and service providers with eSIM in the future: The MVNO’s, device manufacturers, Apple’s, Google’s & Co. of the modern digital world.

The eSim is a non-exchangeable Sim card that can be programmed by the network operator with his profile and is permanently installed in the end-user device. However, the customer does not load the electronic SIM profile of the network operator from his servers onto his terminal device; the current SIM card manufacturers such as Gemalto or Giesecke & Devrient will play the central role here. Whereas physical SIM cards previously had to be replaced manually, for example in the event of a defect or a change of provider, this will become just as superfluous in the future as the associated logistics. The eSIM makes many things easier. Even going to the next shop. However, retailers also lose the possibility of customer contact and customer loyalty at the POS. The GSM Association (GSMA), which is currently negotiating the final details for the eSIM standard with network operators, OEM’s and SIM card manufacturers and is binding for hundreds of network operators worldwide, plans to configure the SIM chips, which are only a few millimetres thin, with a new profile when they are first put into operation or when there is a change of supplier.

The eSIM connects small devices such as fitness trackers or smartwatches to the Internet. Classic SIM cards have no room for this. “The eSIM is a technology that will completely change the mobile phone industry,” says Markus Meukel of the management consultancy McKinsey[i]. This concerns both the industrial use of the technology in firmly installed modules and sensor technology, often referred to as the ‘Internet of Things’, and the enormous market opportunities in the consumer environment, according to the McKinsey experts.

What does this development mean in concrete terms for the telco industry?

The eSIM will change the market in any case: Manufacturers of SIM cards, for example, will no longer have to coordinate their activities with network operators, but with device manufacturers. All providers will have to play their part in ensuring that customers with an eSIM also receive the international choice of provider with a single card.

Possible advantages and opportunities from the network operator’s and provider’s perspective:

New products and multi devices

It is predicted that other consumer electronics devices – such as wearables (smartwatches, 3D glasses, etc.), clothing, medical devices – will soon be connected directly to the mobile network via eSIM.[ii] Vodafone pioneered the eSIM Smartwatch Samsung Gear S2 in March 2016. From mid-2018, the first smartphones from Apple, Samsung and other major manufacturers will also be launched on the market with eSIM, bringing eSIM finally into the focus of the mobile operators’ core business. This results in new sales channels and new products for manufacturers, but also for mobile operators. “The possibility of networking more and more devices will create new business models for providers,” says Markus Meukel. [iii]

Savings potentials in SIM logistics

SIM cards currently have to be produced and distributed in the sales channels. All this will be eliminated with the introduction of the electronic profile on the eSIM.

Possible disadvantages and risks from the network operator and provider perspective:

Disruptive business models

Experts view the introduction of eSIM with concern, as the business models of mobile phone providers are fundamentally questioned: “This development – and the parallel standardization of the technical basis for its use – raises many strategic questions for mobile network providers. The aim is to develop a strategy for dealing with new competitors from the digital world and the hardware business and to react to changes in the value chain of the mobile communications industry.” [iv] However, it is very likely that the competition authorities will have a powerful say in this: “There will not be a kind of Uber for mobile communications, which mixes up the market with a disruptive business model, as long as the competition authorities do not open up the market between them. The eSIM will not change anything, but may even cement the existing balance of power on the market.[v] Telekom is aiming in the same direction. It wants to prevent network switching.[vi]

Loss of control and customer relationship

Access to customers via subsidized terminal devices, previously the domain of mobile communications providers, could in future be blocked by the terminal device manufacturers themselves. He could specify which providers he offers customers to choose from or even offer tariffs in his own name.

The eSIM is coming, that’s for sure. And this requires far-reaching intervention in the network operators’ IT systems. SIM sales, IT and logistics procedures must be realigned to eSIM in all processes. The opportunity presents itself to optimize many processes. Because the SIM has been a shadowy existence for many mobile phone companies so far. End devices have always been the object of desire. In conjunction with the new 5G standard, eSIM will enable a leap-frog improvement in the global networking of devices in the future. Only with the eSIM will this new wireless network contribute significantly to making the “Internet of Things” (IoT) possible.

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[i] Cf. Handelsblatt Online of 02.06.2016 “Das Übernetz und die Super SIM”

[ii] See also

[iii] See also

[iv] See also

[v] Cf. heise.de “Schluss mit Kärtchen” 05.02.2016

[vi] Cf. Pieruschka, 05.02.2016 in 4g.de “eSIM: Telekom will Netzwechsel unterbinden”