Intro – 60 second guide
Here are our findings on the recent news of Apple introducing e-SIM technologies to their next generation iPad’s and iPhones. Can Apple become a force to be reckoned within the Australian market and what can they offer users in Australia with their exciting soft SIM technologies?
The key points
- Apple and Samsung are leading the way when it comes to introducing the e-SIM to their next generation smartphone and tablet devices.
- With no physical SIM card required, users can switch to different network providers when it best suits them, and this ease of choice is exactly what the device manufacturers want.
- Network carriers that don’t adapt to the looming changes will be left behind, to function as nothing more than dumb pipes allowing users to connect to their 4G networks.
- Apple may start their rollout in the new iPhone with an ‘Apple SIM’ hybrid.
- To users, that could mean much cheaper data, more convenience and a broader range of phone plans to pick from.
e-SIMs are the future of SIM cards
In the middle of last year, we predicted that Soft SIM technology would be introduced into the next generation of devices, manufactured by both Apple and Samsung. Right after we broke the news on WhatPhone, Samsung announced the e-SIM functionality in their most recent release, of the Samsung Gear S2 smart watch. Separately, Apple introduced the virtual SIM feature in their most recent generation of iPads. With the new iPhone 8 / iPhone X on the way, and industry rumours about the arrival of the new Apple SIM solution popping up everywhere, there is now little doubt it will be a feature of the smartphone.
Not wanting to be left out, Google is also rumoured to be preparing to add the soft SIM functionality to their upcoming Nexus smartphone release, set to be released later this year. Google has been quietly trialling their Google’s Project Fi, so it would make sense to see this and e-SIM tech featuring heavily in the upcoming smartphone version.
E-SIM technology has significant benefits for SIM only / prepaid plan subscribers. The technology is bound to create headaches for the national carriers here in Australia, Telstra, Vodafone and the rest, who are not fans of giving increased choice to consumers.
E-SIMs may be the primary method of attaching a phone to a network in Australia, potentially, happen as early as September 2016.
There appears to be an inexorable momentum towards the uptake of eSIMs in phones. They may soon be the primary method of attaching a phone to a network in Australia. This enormous change could, potentially, happen as early as September 2016, with the release of the new iPhone 7.
It seems every week there is a story about a failed technology company in the news. We are surrounded by the tales of behemoth corporations to which we once all looked up and which have now been superseded by a more innovative alternative. What opportunities will the eSIM create for disruption in the telco works? Who will be the winners and the losers ? And what does it mean for ordinary users ?
The steps that have been taken towards the eSIM in Australia
The major change that the new eSIM capability will allow is to let users select a phone company and plan from their phone settings.
The technical path from the presence of a full physical SIM ( what you have now ) in a phone to the potential for an eSIM ( an ‘electronic SIM ) has been trodden already. A number of different incarnations of ‘in-between’ SIM types have been trialled, experimented with and rolled out. There are a myriad of different names for each of these technologies and, from a technical perspective, a number of different ‘builds’. We will use eSIM in this article to describe any SIM type other than a full physical SIM in the phone.
To phone users, the eSIM ( or SoftSIM or Apple SIM ) will mean easier access to any phone company they want to choose. The major change that the new capability will allow is to let users select a phone company and plan from their phone settings.
SIMs have been around since the dawn of ( mobile phone ) time. I have actually been to Tampere in Finland, the town from which the fist mobile phone call was made in ‘91. At the time of the first phone call, part of the technology used to connect the call was a physical SIM card held in the mobile phone.
The system the Finns implemented to make that call went on to be employed by the rest of the world. The GSM or Global System for Mobile telecommunications – is now used by nearly 5 billion devices across the planet. A common standards and compliance body, the GSMA – the Association which runs GSM standards listens to stakeholders and agrees changes to the system.
Since 1991, old Nokias like the 3310 have given way to iPhones and Androids. Data is the first thing people consider these days when they are picking their phone plan. Entire national phone networks have been upgraded not once, in line with GSMA standards around the world, not twice but three times in the 25 years since that first phone call. Call connection and transmission technology was improved from Analogue to digital. Then 3G data speeds were rolled out. Then 4G data speeds.
The problem with effecting a change in the SIM card is that there are a lot of competing interests at play. What the phone manufacturers want is not necessarily what the phone companies want. All of the GSM stakeholders, however, play by the rules defined through the GSMA. For one to change they all have to. It helps if there is an incentive to change. And there is.
How the Internet Of Things is driving the move towards the eSIM
It’s the massive increase in the number of connected devices caused by commercial opportunity behind the Internet Of Things which is fueling the movement towards a different type of SIM.
Coming soon is a change which almost all independent observers believe will connect at least four times as many devices to the internet. Analysts call it the Internet Of Things. Small sensors on buildings, cars, people, cats, in fact, on everything which will report their status and assist with their management.
Most of these new connected devices will be using phone company wireless networks to connect them to the internet. Ultimately, it’s the massive increase in the number of connected devices caused by commercial opportunity behind the Internet Of Things which is fueling the movement towards a different type of SIM.
Viewed from this perspective, everything has changed. Except the SIM card. ( It has gotten slightly smaller.
Why we ‘need’ SIMs or rather, why we don’t
SIMs have always held the information required to connect the user to the network, identify them and associate them with their billing account information.
SIMs have always held the information required to connect the user to the network, identify them and associate them with their billing account information. These functions, however, can be performed without a physical SIM. It’s not even very challenging to do. We connect to WiFi with whatever device we want and a password that we can only get if we’re the right person to be using it.
How will the eSIM help people buying phones and iPhones ?
As the instigator of much of the impetus behind this change, Apple are obviously looking to benefit their users and themselves. Specifically, the eSIM is likely to improve things substantially in these regards :
- It will make it easier for people to switch carriers :
Phone users will have more choice of phone companies and plans to pick from. They will also be able to select and sign up to a plan right from their device. Compare the benefits of this fully digital process performed by you, on your sofa, compared to the current alternative of going to the shops to get a SIM card. The new eSIM process will be so easy and quick that people will be switching carriers far more regularly.
- More competition :
Apple’s user community is strong. People are likely to help each other online and in real life to find the right plan for their phone. Users will be better informed than ever as to the plans which are right for them. Online comparison sites and information forums will provide everything people need to know. It’s likely that pricing will fall as operators compete for your business. Which means there is likely to be :
- Better value – especially on data inclusions in your plan :
Acquisition offers ( on SIM only / prepaid pans ) these days are centered on data to attract people and given them the incentive they need to move.
- Better phones :
Smaller components mean smaller phones. Smaller SIMs mean more space in the phone for other components or, alternatively, a smaller device. The size of a SIM and it’s housing might seem inconsequential. However, consider the Nano SIM. That shaved millimeters off the SIM and the manufacturers still wanted it. Additionally, not having a user opened tray for the eSIM will make it easier to make the phone waterproof.
What are the negative effects of the eSIM on people buying iPhones / phones ?
There are probable very few negatives for ordinary people when it comes to the rollout of eSIM technology.
- A lack of clarity on who ‘owns’ the customer :
The physical SIM was a mental anchor which reminded users who they had their phone company agreement with. It’s absence could lead to a lack of clarity. Thee may be some confusion over who customers should call for customer service and support.
- Cultural adoption :
There is likely, as we have said, to be a lot of choice for users now. People will find themselves having to figure out how the eSIM works firs. Then they will find themselves having to pick regularly between the array of plans to ensure they are getting good value. For people who are already overwhelmed by the amount of information and choice they have and time poor, this could be a problem.
How the eSIM will positively impact phone companies
- Good for IoT engagements :
This is the driving force behind the operators’ willingness to play ball on the eSIM. They will be betting that the benefit from their, predominantly business customers’ investments in the Internet Of Things, will be worth the lack of customer ownership
- Help smaller ones compete :
The tendency is to focus just on the tier 1 phone companies – Optus, Telstra and Vodafone. However, as we will see below, the move to the eSIM could level the playing field for smaller phone companies.
The negative impacts the eSIM will impose on phone companies
The newly competitive market created by the eSIM will likely lower profits for the phone companies.
What’s good for phone users is, in this case, unfortunately not so good for phone companies. With a list like this ( of the negative effects to phone companies of this new tech ), it’s not hard to see why they held off for so long on allowing the eSIM in to ‘their’ markets :
- Their biggest fear is losing ‘ownership’ of the customer :
Phone companies have sought to keep the SIM in play, largely because they felt it let them ‘own’ the relationship with their customer. The SIM ( not the phone itself ) represented the contract between the phone company and the user. It was the source of the monthly billing contact cycle. But did they ever actually, really, own the customer ? Does channel 7 own you if you watch My Kitchen Rules ? If you have a Dell computer now are you going to buy Dell next time ? To a degree, the phone companies are lamenting the loss of something they never really had.
- Commoditization of their network services :
Phone companies hate to be seen as a ‘bit-pipe.’ When their product is identical to competitors’ they have less control over the price they can charge for network services. The commoditization of services that the eSIM is likely to bring about could be the motivation behind some recent ( late 2015 ) investments by, for example, Optus. Optus’ purchasing of the EPL ( English Premier League ) content differentiates them from Telstra and Vodafone at a non network level. It gives people a reason to choose Optus beyond the network.
- Incentivizes online and the online experience :
Online and creating effective Digital Experiences is really difficult at bigger phone companies. Making substantive changes to websites takes huge projects and many months. There are often multiple very old back office billing systems.
- Lower profitability :
The newly competitive market created by the eSIM will likely lower profits for the phone companies. With such a large quantity of readily available information and trivially easy methods of changing plan, phone companies are going to have to give away the kitchen sink to get new customers. Deals will requires incentives to get customers to move their phone company.
- Levels the playing field :
Smaller phone companies or MVNOs are already largely online. They are more flexible in making changes to their website sites as user needs evolve. They already offer more value and often the same network access. The move to the eSIM is likely to improve sales significantly for smaller phone companies – at the expense of sales for big phone companies.
How will the eSIM help Apple ?
Back in 211, Apple issued a request to produce an MVNO platform where MVNOs could bid to be the provider of choice. A reverse auction worth millions, cutting costs for customers, giving Apple a cut of the margin. The eSIm could help Apple :
- It will improve the end to end experience for iPhone users :
Apple like to own the customer end to end and their entire experience. They have built their business on providing an unrivaled phone experience and managing that experience for their customers.
- New revenue streams :
One suggestion has been that Apple may become a phone company itself. It is not unimaginable that they might set themselves up as a network reseller or MVNO. Alternatively, in line with their patent request, Apple could make a margin on the bids from MVNOs to provide network access to their iPhone.
- They are a device manufacturer themselves :
Apple stand to benefit from device improvements. The lack of a SIM card and the technical gubbins to read it will save space in iPhones to make them smaller, lighter and potentially more beautiful.
So, will Apple become an MVNO ( their own phone company ? )
- The eSIM is technology and if we’ve seen anything since the launch of the original mobile phone it’s that technology is always in a state of flux. But some changes are more likely than others.
- It seems unlikely to me that Apple would want to get in to the messy business of brokering for MVNO business or even setting up their own MVNO. Apple are famous for making hardware and software. They’re smart enough to know that the value is in being the platform not the player. Apple’s talk of moving in to TVs hasn’t involved talk of setting up a TV channel. Their talk of building an Apple car hasn’t involved building roads.
Will the eSIM create any problems for Apple ?
The truth is that many of the employees of the phone companies actively dislike Apple already.
Apple are playing a high stakes game. Phone companies are their most important channel ( route through which they sell things to customers. ) Phone companies package Apple’s iPhones with their plans and sell them by the millions on behalf of Apple.
The truth is that many of the employees of the phone companies actively dislike Apple already. They are seen as unreasonable bullies. Apple are renowned in the industry for their heavy handed approach to brand compliance and unhelpful last minute changes prior to the launch of a new iPhone. The phone companies pushed back on Apple when they attempted to force the eSIM on to the market in 2010. That approach didn’t work. Apple have had to wait until there was an incentive for the phone companies in the form of the Internet Of Things to get it through.
If the industry secretly does not want the eSIM, the already fractious relationship between Apple and one of it’s most important channels could be further stretched.
What can Optus, Telstra and Vodafone do about the eSIM ?
There are some potential mitigating actions the phone companies could take, in light of the impending arrival of the eSIM.
- Invest in the digital arms of their owned MVNOs :
One rational view of the circumstance might be for Optus to focus on Virgin Mobile ( their own sub brand ) online. Telstra could dial up the options on Boost mobile ( an equivalently owned sub brand ) to improve. These relatively small companies could, if provided the development resources, rollout high class digital experiences and rapidly. Boost’s culture may embrace this. My experience of both Optus and Virgin is that the ( majority of the ) leadership have little to no vision and a woeful lack of an ability to drive change. Vodafone does not have an owned MVNO but has close partnerships with TPG and Lebara and could generate close to the same results as Optus and Vodafone in their management of that asset.
- Focus on the Iot :
Telcos are left picking up the left overs in the form of the internet of things and perhaps hating Apple slightly more than they did previously. If history is anything to go by, the tier 1 phone companies will focus on the negative aspects of this moment rather than looking to the net step from Apple / others. In the meantime, they might focus on garnering the revenues they can from the IOT.
- Partner with a comparison site :
They could partner with a comparison site to broker across providers and influence SIM shoppers at the point they’re shopping.
In reality, we’re already half way towards an eSIM world
There are many facilities that the eSIM will create which are replicated in real life, by users, already.
- Buying roaming SIMs :
People buy overseas SIMs when they’re roaming to avoid exorbitant costs from their domestic provider. You’ll be able to do that with an eSIM – but people are doing it already.
- Multiple SIM solutions :
Some Phones have multiple SIM slots ( admittedly, this is more common in developing countries ) so the user can choose which plan to use at which time. They might have a Telstra SIM when they need the coverage in the bush and a Vodafone SIM when they’re in the city. This will be possible with an eSIM but some are doing it now.
- The market for prepaid SIMs probably a good barometer :
Viewed in a slightly broader context, the prepaid market operates already in the way the eSIM market is likely to. All prepaid operators offer great deals to attract users in a market with almost no constraints to users moving phone company. Physical SIMs still increase the friction associated with moving prepaid operators. However, their ubiquity ( you are almost certainly never more than 200 meters from a prepaid SIM reseller in any conurbation in the civilized world ) of prepaid SIMs makes it so easy to switch that people do regularly. The tenure of a prepaid customer is almost always between 6 and 8 months, for example.
Summing up the effects of the eSIM on the Australian market
The concept of the eSIM has been around for some time. Some ( new, CDMA ) phone companies in the USA didn’t even both with SIMs of any sort until recently. We’re heading towards eSIMs for lots of reasons but common sense is the primary one. Conceptually, requiring a SIM from a customer before you will connect them to a network is similar to asking a customer to bring a walnut to Starbucks before they will connect you to the Wifi. It is a weird and unnecessary impediment to their intent.
What’s changed in the world which has brought about the advent of the eSIMs is the operators’ interests. The advance of the Internet Of Things creates such a huge new revenue opportunity that they have to consider the rollout eSIM to enable it. The Internet of things presents a logistical problem. The companies that roll out IOT solutions need way to manage the billions of things which will connect to the internet. Having to send a man in a van out to thousands of wirelessly connected sensors will be costly. That cost can be avoided with an eSIM which can be remotely provisioned – allowing operator and plan to be changed from a distance rather than a field service visit.
eSIMs are good for consumers in almost every way. The nature of eSIMs is that they favor a good online experience. Phone companies that offer it will succeed. They favor non contract agreements with phone companies. They are likely to accelerate the importance of Digital in to telco – something that a ) historically phone companies, especially the larger ones have struggled with and b ) favors smaller, more nimble MVNOs, who are almost entirely online anyway, already. People will want the flexibility to move and to pick the best deal on the market when they want to. As a result, they favor best value for users and reduce the value that telco brands have spent years and billions of dollars building.
Considered as a whole, yet again, the telcos have been outplayed on the eSIM by a more innovative company. Apple have harnessed the self interest of the Internet of things for the phone companies, trialed the eSIM in the form of the Apple SIM hybrid already and, in my view look poised to launch the facility in the iPhone 7 which will rock the industry.
Telcos are a decade behind internet companies in monetizing the big data troves they have. They are a decade behind the banks in the self service facilities they offer. They consistently fail to outplay their digital rivals in adjacent markets on matters like the eSIM. In each of these regards they reveal themselves as significantly underinvesting in the things which are important in the modern world : Digital at the core of their businesses and innovation.
The big phone companies can’t be surprised that they’ve lost on this one. The only question is who’s going to try and eat their lunch next. Telco strategy teams might like to broaden their horizons. One significant risk might appear to be internet giants, again in adjacent markets who are investing in building networks themselves. Facebook are filling the sky with internet laden balloons. Google doing it with project Fi and Google Fiber. Innovation and the evolution of technology still pose significant threats to the phone companies, way beyond the eSIM.
Soft SIMs are the future
As an alternative to physically changing out a plastic hard SIM card, each time you want to change provider, wait a few hours or even up to a day for your existing number to be ported, then use your phone, the e-SIM promises to make life a lot easier.
The eSIM will make changing your phone company details in real-time much easier. The technology will take care of letting your new chosen phone provider know that you want to move, automatically and over the air. ‘Remote porting’ will occur through the inbuilt soft SIM functionality allows consumers to make better decisions when it comes to the deals they wish to pay for.
This new kind of SIM card renders the existing plastic type useless and as both Apple and Samsung are demonstrating, users are demanding this new form of technology. All over the world and especially right at home here in Australia, service providers are nervous and not happy about the direction in which this new form of SIM technology is headed. For too long the old dinosaur network carriers have been calling the shots and lumping on Aussie consumers poor plans and limited choice. E-SIM virtual technologies built into the next generation of smartphones will ensure that people will always be able to make the best option when it comes to spending their hard earned money and not being forced to choose by the carriers.
The Apple SIM
Late last year Apple introduced the e-SIM to consumers via the most recent generation of iPad. Most industry experts predicted that this would be a test by the Tech Giant, to gauge the reception of the e-SIM before Apple started rolling it out on their iPhone devices. The Apple e-SIM is a pre-installed virtual feature, removing the need for a physical SIM card to be inserted into the phone. In the telecommunications industry, this is game changing and disruptive technology.
Apple no doubt intends to make things easier for their users and try to bring more fans of their products, over into their eco-system. The happier Apple product users are, the more likely they are to stick to the Apple brand and continue to purchase products from them in the future.
Google and future technologies
Google haven’t followed Apple in the e-SIM direction, instead opting to work on their own Project Fi, which is essentially a wireless carrier operating virtually. Project Fi functions as a network of WiFi hotspots and allows invited users to connect to the different networks in real-time and with no effort required on their behalf (Link to previous Google Fi article) But, that’s not to say they won’t introduce Soft SIM functionality to their upcoming Nexus smartphone.
Google as a tech leader understands that consumers love choice, the more options they have, the happier they are using one product over another. If Google wants to stay relevant with users, that can receive a virtual e-SIM choice from Apple and Samsung than you can rest assured that Google will offer it as well.
Carriers won’t be happy about e-SIMs
Programmable e-SIM technology has the potential to make Australian mobile phone users lives much easier, with the convenience afforded by this new in-built technology. The relationship between smartphone users and device manufacturers will strengthen in the future, which will end up resulting in the national carriers being nothing more than networks for users to connect to.
Telstra, Vodafone and all the other phone companies in Australia all work on traditional revenue generating business models. In their opinion it’s bad enough that the local market is being flooded with competition thanks to MVNOs and their competitive SIM-only plans, but to have e-SIM technologies built into next generation smartphones by default, might be just too much for them to swallow.
McKinsey cover the eSIM more closely and in better detail than any other strategy house : http://www.mckinsey.com/industries/telecommunications/our-insights/e-sim-for-consumers-a-game-changer-in-mobile-telecommunications
The Australian view of the Apple SIM and it’s impact is rarely covered but News.com.au noticed this time : http://www.news.com.au/technology/apple-issues-overseas-data-lifeline-to-australian-ipad-users-quietly-launches-apple-sim-plan/news-story/690023459946320345c638e1e5b0410c
We’ve covered Google;s project Fi in some detail. Here’s Google’s homepage for the subject : https://fi.google.com/about/