What if eSIM replaces SIM cards? Would that be good for your industry? Change is inevitable, but change can rock your boat, and even sink your boat. In this article we look at recent developments, some history, and how the various players in the SIM card industry will be affected by the inevitable advance of eSIM.
eSIM technology has been used mainly for connecting machine-to-machine (M2M) devices, but is now appearing in ever more handsets and wearables. The Apple iPhones and Google Pixel phones launched in 2018 use the technology, as do the smart-watches from Apple and Samsung. We are likely to see a huge growth in the number of consumer electronics devices using eSIM.
Clarification of terminology
This article uses GSMA terminology, where “eSIM” refers to the GSMA specification for remote SIM provisioning of any mobile connected consumer device (smartphone, smart watch, tablet, fitness tracker, etc.), and “eUICC” refers to the physical module that replaces the SIM card and is usually embedded in a device.
History of the SIM card
The SIM card is a chip card, consisting of an integrated circuit embedded in plastic, with exposed electrical contact pads. The first patent on a chip card was filed in 1968, and chip cards were first used on a large scale in payphones in 1983.
The first SIM card was developed in 1991, and used by Finnish network operator Radiolinja.
According to GSMA Intelligence, there are currently almost 9 billion mobile connections, which includes mobile subscribers and M2M cellular connections. Each connection (also called a subscription) requires a SIM.
The size of the SIM card evolved from a full-size card (first form factor, also known as 1FF, 86mm x 54mm) to the mini-SIM (2FF), then to the micro-SIM (3FF), and then to the nano-SIM (4FF). The move to these smaller form factors was driven by handset manufacturers, such as Apple, who wanted to make more compact handsets. There are also smaller form factors, such as the M2M form factor (MFF) and the wafer level packages (WLP and WLCSP), which are soldered directly onto the circuit board of a device. The motivation behind the development of these smallest form factors was to make M2M devices more reliable and more secure.
large number of the major players in the SIM ecosystem (MNOs, chip manufacturers, equipment manufacturers, SIM vendors) reached agreement on the specifications for remote SIM provisioning, and GSMA released the first version of the technical specifications for M2M devices in December 2013. The first version of the technical specifications for remote provisioning of consumer devices was released in 2016.
The first wearable to make use of eSIM technology was the Samsung Gear S2 3G smartwatch, launched in 2016.
The first handsets to make use of eSIM technology were Google’s Pixel 2 and Pixel 2 XL smartphones, launched in October 2017. Very few mobile networks were supported.
Apple’s iPhone XR, Xs and Xs Max, launched in September 2018, and Google’s Pixel 3 and Pixel 3XL, launched in October 2018, all use eSIM, and can also take a regular nano-SIM. As of December 2018 there were fifteen mobile networks that supported eSIM.
Mobile Network Operators
Mobile Network Operators (MNOs) will see cost savings thanks to reduced procurement, storage, distribution, and technical support of removable SIM cards.
Increased churn is one of the biggest concerns of MNOs, because prepaid subscribers can more easily take advantage of better deals from other operators. Price competition is likely to increase, and this will put pressure on profitability. eSIM does include an option to be locked to a network, which makes it possible to restrict churn, but this might not be legal in some countries. Growth of subscriber numbers is slowing, with the developed world reaching saturation, so operators in these areas will have to focus on increasing market share rather than attracting first-time subscribers. They will have to differentiate themselves, and increase customer loyalty, to gain and retain subscribers. Because subscribers will not be walking into sales outlets as often, there will be fewer opportunities to influence them and upsell.
Equipment manufacturers will be able to optimise and globalise their production processes, producing just one version of a product, which is then provisioned only when deployed in the field. Devices can be made more resistant to water, dust and vibration, resulting in greater reliability.
SIM vendors will have a new product that they can produce for MNOs, the interoperable Profile Package, which is loaded and installed on compliant eUICCs.
With the high projected growth of the eSIM market (CAGR ≈ 38%), many more eUICCs will be required. Developing an in-house eUICC operating system might not be viable, so licensing one (e.g. the Kigen OS from our partner ARM) would make more sense. These eUICCs would be sold to device manufacturers, opening up a new market for SIM vendors.
Growing demand for eSIM will reduce demand for removable SIM cards from network operators. Demand is already slowing down globally due to a maturing market. This could impact SIM vendors heavily.
The SIM is evolving, and the players in the SIM ecosystem will experience some gains and some losses. Costs, time and effort throughout the supply chain will be reduced. Businesses can survive by improving customer loyalty, marketing the benefits of eSIM, and adding eSIM products and associated services to their portfolios.