The days of the physical SIM card are numbered. Over the next few years, its digital cousin, the eSIM will rise to prominence as more and more new devices ditch the physical SIM tray. It’s expected that there will be 3.4 million eSIM enabled devices by 2025!
Instead of assigning SIMs by inserting the ubiquitous card into the device, the eSIM is activated and stored digitally. There are a lot of ways this could happen, from scanning a QR code (what many North American carriers are doing now), to using a fully integrated system that removes the manual steps. We might even see a manual process in some markets.
The first impact is an impact on the supply chain. As the need for those little plastic cards go away, so does the need to distribute and stock those cards. With less physical goods to move around, some pressure will be relieved from the supply chain, and costs will go down.
That said, I could see a scenario where activation QR codes are printed on a physical card to make scanning easier, so in that case, you may still have some inventory that needs to be managed. So how much this impacts the supply chain will depend on your market and will be revealed in time. We expect most carriers (might vary by market) to favour digital distribution of these QR codes and eSIM information.
One of the biggest changes I see is how eSIMs will streamline digital shopping experiences. If a customer wants to activate a new service online today, they have to wait for a SIM card to be mailed to them, then they have to figure out how to put it in their device. It’s not a great experience and is a real barrier to self-directed sales.
With an eSIM, that customer can activate their service as soon as they have their phone without waiting. I believe this will further drive the popularity of device and SIM purchases via e-commerce, kiosks, and other self-service journeys.
While eSIMs will make life easier in a lot of ways, I don’t see them revolutionizing traditional retail in device-dominant postpaid markets.
A lot of people over the years have talked about how the retail store is dead, and you might hear more of the same rhetoric as eSIMs become more prevalent. Why would you need to visit a store if you can active a device completely online?
While that’s true (see point 2), people will still visit stores for the same reasons that they do today – to look at and try out the devices, and to get that personal experience where you have someone right there to answer your questions. And then there’s still bundling and financing - all of that will still draw customers into physical stores.
But what about switching carriers? Now that it’s easier to swap an eSIM, won’t customers just switch providers whenever they want?
It’s a possibility, but I honestly don’t see this being a big issue in postpaid markets. Most customers don’t know what a SIM is beyond the high level, and just see it as part of the activation process. Once they have picked a carrier and a plan, most will forget about their SIM altogether. For this reason, I don’t see eSIMs radically changing device dominant markets.
Things get a bit trickier when it comes to prepaid dominant markets, as I could see how they might impact traffic to retail stores.
SIM swaps represent a sizable volume of requests in many retail stores, especially in high turnover prepaid markets. In these situations, the customer’s SIM expires, and they’ll visit a store to get a new one. It’s not the most common reason for visiting a store, but it's a significant service transaction that happens at most retail channels. eSIMs mean these transactions and revenue potentially go away. Again, the revenue may still exist (purchasing a new eSIM could have a dollar value), and not all will choose digital channels to accomplish this, but certainly an impact will be felt here.
As far as switching providers, this is more of a risk in a prepaid market. Whereas postpaid customers pick their plan and mostly forget about it, prepaid customers could easily have multiple eSIMs on their device, and simply switch between them at will. This could lead us down the path of the dreaded “dumb pipe” scenario where customers view the telco as merely a utility provider. This steers the conversation to the next impact I see – the need to differentiate.
When customers have the ability to switch providers at will digitally, especially when they can do so outside of the telco store, and without talking to a brand representative, the retail experience can no longer the main differentiator.
Carriers are going to have to find ways to differentiate themselves and entice customers to choose them over a competitor. This could be in their digital onboarding experience, offers, their eShop, or through value-added services.
One of our clients, for example, are heavily investing in content like digital TV channels and music, and their customers get access to that. Telcos will have to think of their brand experience holistically, and how to drive loyalty if someone only interacts through self-service methods.
Whether eSIMs change your third-party retail will depend on your market. In many prepaid markets, especially in Africa, telcos will sell SIMs and top-ups from mom-and-pop stores and street corner sellers. How that happens today is very manual; those resellers will purchase these items up front, and then resell them back to customers for a commission.
There are a few challenges with that. How much they can sell depends on their cash flow on a given day – maybe they can only afford to buy so many SIMs. Or if demand was higher than they anticipated, they would miss out on those extra sales if they are out of stock.
I could see this going two ways. In some markets, SIM sales could go completely digital. Maybe the reseller provisions the eSIM and provides a number to the customer and gets a commission for doing so.
In other markets, maybe eSIMs are sold by scanning a QR code on a piece of paper. So instead of plastic SIMs, you’re still managing physical inventory and the situation doesn’t change at all.
Or maybe the market for reselling SIMs completely dries up and customers manage this task completely on their own. It'll be really interesting to see what happens in different markets. I think as always, change is slow for consumer habits, and many will continue to activate/buy eSIMs from retail locations. In many markets with large indirect channels, cash is often one of the big reasons.
At one time, there was a belief that MVNOs were going to eat the world. It didn’t really play out that way. In Canada, the big carriers managed to keep a strong arm on their brand, and the MVNOs just didn’t take off. While there are some successful MVNOs around the world, it’s certainly not the market domination that was forecast.
With the rise of eSIMs, it will become easier for digital MVNOs to operate globally. Think of providers, like Flexiroam, now they don’t need to send you a physical SIM – just sign up online and get access to 580 telcos in 150 countries. Generally, you pay a little higher price overall, that’s the downside.
I see eSIMs as a lower friction way to launch a digital-only MVNO. I can also see these providers spinning up and marketing themselves to a certain niche of people. So, aligning their brand with social concerns or a much more niche market. It will be interesting to see what happens here and if eSIMs fuel an increase in growth in the MVNO space.
eSIMs will play a big role in driving IOT and other MTM (Machine to Machine) use cases. I think it will accelerate the growth of wearables and “smart home” products by simplifying the logistics of getting those items on the network now that you don’t need to put a physical SIM card in each item.
With the rise of 5G, carriers have an opportunity to sell these IOT products and brand themselves as the place the consumer goes to get all those smart products. eSIMs will further reduce that friction and make these offerings more appealing to the average person.
I also see a big revenue opportunity for carriers to create add-on plans for those IOT devices and eSIMs. On top of your base monthly plan, maybe you have a $2.00 add-on for that smart watch, so when you leave your phone at home, you can still access the network and go online. When you consider the scale of 5G and what’s possible, this could be a significant amount of incremental revenue that could change business models.
I think eSIMs will create increased competition for roaming revenue. Now, I realize roaming costs aren’t what they once were. It used to be more common to have people swap out their SIM with a local prepaid provider when they travelled. In the last few years, the big postpaid providers have started trying to fight that off by offering those $10-15 daily roaming packages. But I still think there is some revenue there for the small prepaid carrier.
With eSIMs, I can see local prepaid carriers putting together a great one-week package geared at tourists to compete for those roaming dollars. Imagine you step off a cruise ship or plane, and you get that great digital onboarding experience with an eSIM. In seconds, you’ve got your phone plan for the week that’s cheaper than your usual roaming plan. I really see that being a possibility, and it will be interesting to see if postpaid roaming offers change as a result.
eSIMs are relatively new to the scene, and we can’t underestimate the impact that this small change will have on our industry. Are there any other upcoming changes or challenges that I haven’t mentioned? How are you preparing for eSIM domination?
In Part 2, we’ve posed 4 more questions regarding supply chain resilience, the impact of COVID-19, and what the future looks like to Brad Lapin, SVP of Global Business Development at Maplewave.
Failing to have women leaders is one of the biggest missed opportunities in business today – but it’s an easy problem to fix.