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New year, new SIM: How the eSIM is going to shake up the industry

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January 8, 2019

From AI to digital transformation, the eSIM has over the years become one of a number of hyped technologies. However, the recent move to embed eSIM functionality in devices by U.S. manufacturer Apple may now see the eSIM hit prime time, and disrupt the telecoms industry as we know it.

The functionality, currently, is only available in Apple’s latest models, the iPhone XS and XS Max. But, now that this update has been announced, the manufacturer is likely to see its competitors quickly following suit over the coming months. And it’s not just the manufacturers who are preparing for the future, U.S. operator, Verizon, has already switched on eSIMs for owners of the latest devices, while, T-Mobile, recently previewed its eSIM activation app.

The adoption of this will initially be quite slow, as research has shown that US consumers are now holding onto their devices of an average of 2.83 years. Yet it may well eventually become the norm, and even herald the death of the SIM card. 

The question is: Have the service providers enabling eSIM capabilities thought about the consequences, when it comes to their customer relationships?

The death of the SIM

Today, the SIM card is the last piece of kit that keeps the service provider close to their customers. Realistically, if customers no longer need a new SIM when upgrading their device, they are unlikely to go into a provider’s store. Over time, the eSIM could well and truly lead to the eradication of the physical phone shop.

While this is unlikely to happen in the near term, at the same time there is an invisible force pushing customers towards SIM only contracts, and cheaper devices.  According to CCS Insight SIM-only contracts will grow to 54% by 2021. Additionally, to encourage upgrades, phone manufacturers like OnePlus are now developing high-end but lower cost handsets to entice customers out of long-term contracts. These developments could also remove the need to visit a physical store and speak to the sales person on commission. If these retail stores start to close, the savings could not only benefit the operator, but also be passed on to the consumer.

New year, new provider

While service providers like Verizon and T-Mobile are all on very different digital journeys, at different stages, they will still be very aware of how successful the likes of Netflix and Spotify are at providing a digital experience to their customers. The emergence of the eSIM could therefore pile yet more pressure on service providers to become fully digital companies.

Think of it this way: giving customers the luxury of signing up online, choosing their product, and being up and running with their chosen service in minutes all sounds great and a low-cost way of doing business for service providers. It probably sounds even better to consumers. However, this also opens up the door for potential churn. If it’s that easy for a consumer to sign up, it could be just as easy to switch to a competitor without giving the provider the opportunity to try and stop them from abandoning ship. Therefore, as well as a seamless experience, a provider’s community and loyalty programs will need to be extra special in order to incentivise customers to hang around.

Could the eSIM bring us a global service provider?

As the digital/cloud telco is starting to become a thing, and companies like Netflix are operating in around 190 countries offering a digital product, there doesn’t seem to be any reason why a large telco couldn’t start operating a global footprint.

The eSIM could yet be the enabler for the global telco, offering one brand, one head office and a product catalogue that works across many countries. This could be one to watch over the next few years. The opportunity here would be to target more digitally savvy consumers who do not have loyalty to their local operator, but rather would see this as another payment they make to a digital provider like Netflix or Spotify.

The potential for the eSIM to up-end the industry is very real, but it will very much depend on how the phone manufacturers react and roll out support on their latest devices in the next few years. While it will take time to reach a critical mass, as long as device ownership continues on its current two year (plus) cycle, we can expect to see it sooner rather than later.

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