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eSIM Disruption – What the eSIM means to Australians

How the eSIM will affect Australia

eSIMs or embedded SIMs are likely to impact future generations of smartphones, smart watches and tablet devices. With an eSIM preinstalled at the point of manufacture, phone plan changes can be completed all at the tap of a finger, using only your phone.

The patents for embedded SIMs have been around for at least the last 5 years. Within that last half decade, prototypes have been brought to market by major device manufacturers, to test how key elements of how eSIMs work. Unofficially, most of the eSIM related products (previous iPads and Samsung Galaxy Watches, for example) have performed poorly, commercially.

However, it’s been announced, recently, that both Apple and Samsung have indicated they are moving towards eSIM in the next generations of their smartphone and wearables products. This might seem like a minor shift in the direction of phone tech but the eSIM has the possibility to disrupt the telecommunication industry.

Major Australian telecoms companies have maintained the status quo (in which we buy and use physical SIMs ) for two decades. Our suggestion is that they won’t be too impressed with the eSIM. In fact, eSIMs could change most of how we research, buy and use phone company services. Much of the infrastructure which makes up and surrounds phone companies could change substantially in the next 5 years. One sector, for example, which will notice a loss in earnings is the manufacturers of the physical SIM cards, which are currently in use around the world. As of 2014 the SIM card manufacturing business globally was worth an estimated $5.4Bn.

What’s an eSIM?

The arrival of the eSIM may be a surprise. Essentially, the eSIM is a SIM card which is pre-fitted into the phone, directly on to the motherboard of your phone, before you purchase your device. The new SIM is programmable OTA or ‘Over The Air.’ Importantly, the eSIM is likely to break down traditional relationship that has been formed in the past with a carrier. It ‘used to be’ them who have traditionally provided the SIM.

It has been estimated that more than 7 billion SIM cards are being used worldwide. That’s a massive figure, equivalent, almost, to the world’s population. It equates to roughly one SIM card for every man, woman and child on the planet. That’s a bit like every single person having an extra finger nail. If you calculate the weight of all that electronic memory and the material used to make it, it’s equivalent to a whopping 30 million kilos! It’s that which is about to be changed.

Apart from the absence of a card, the capabilities of the eSIM will ultimately the same as with your current SIM

  • It keeps your identity information :
    Your eSIM is holds and compresses all your ‘subscriber information’. That includes contacts and sometimes text messages into a tiny 64 kilobytes. The ultimate purpose of the SIM card is to associate the subscriber (you) with a unique number code, known as the IMSI or (International Mobile Subscriber Identity) and those two things to the billing account your phone company has set up. Connecting these two things allows the user to access the service providers network, and for the network to track their call, SMS and data usage, so it can be billed to you further down the line. Once the eSIM becomes standard in Australia, it will be possible to associate the user and the IMSI information much more easily.
  • It connects you to the network :
    What you won’t have to worry about, when the eSIM arrivs, is rummaging through a container looking for the SIM card you use, for data or phone, and inserting it into your handse. Y ou will be able to aign up to and change your mobile network operator (MNO) when you want directly from your handset.
  • It reduces the chances of something going wrong :
    Nano and micro SIMs, used by most phone manufacturers in recent years have been about as small as SIM cards could go. They’re easy to lose and break. Additionally, the multitude of physical SIM options currently in market create problems of their own. Users, who tend not to care about these things a great deal but as thing stand, they have to know what type of SIM their phone takes before they can buy a SIM pack to get one.

What does the eSIM mean to phone companies

You will have noticed that prepaid phone plans consistently have bonus offers, cut prices and additional inclusions, all of which are designed to attract you to move from your current provider to an alternative.

Prepaid users are, by definition, not in a contract for their phone and can move easily from one provider to another or one phone plan to another. In the old, contract days, once a customer purchased a SIM card with phone call and data rights it was far too complex just to ditch an operator and move onto another one due to more favourable pricing. Doing that meant getting a new SIM card, which isn’t so easy to get one’s hands on with a limit in the number of shop fronts representing the different telcos.

In the new eSIM world, switching from one provider to other will be able to be done with only the tap of a finger, rather than requiring the removal of one SIM card and switching it out for different providers one. eSIM will also remove the need for users to bother with physical plastic SIM cards.

It’s hard to overstate the distruption that eSIMs will bring to the Australian SIM Only market.

Smaller phone companies will likely be the biggest winners from the arrival of the eSIM.

The benefits the eSIM will provide to the user are already well established. So are the impacts on big phone companies. What we haven’t see covered elsewhere is the likely impact small phone companies which will follow the arrival and adoption of the eSIM. Small telcos are called Mobile Virtual Network Operators, MVNO for short. They’re phone / SIM providers which traditionally deliver great value money for deals. It seem likely that they will be the winners in when the eSIM arrives.

MVNOs have the ability to quickly lower costs and alter their SIM Only or prepaid plans. This agility and flexibility will leave them with an advantage over the tier 1 national carriers. Further, the eSIM will lower barrier of entry into the market to be, allowing large global companies such as Google and Facebook to launch MVNOs in Australia, if they’d like. And it appears they would like to.

The effects on the existing models of the big phone companies could be very real :

  • Compartmentalisation of the service :
    One of the primary benefits of the eSIM from a user perspective may be one of the primary concerns for the phone companies. The eSIM means people can now download and make use of multiple SIM profiles in their phone at one time. Take, for example, the possibility of having a Vodafone SIM plan profile which is used when you’re in cities, because it’s cheaper than the alternatives. It will also allow you to have, on the same phone, at the same time, a Telstra SIM profile which you can automatically switch to when you’re out of the city. This movement of power to consumers is a major change for the industry. Remember, until recently people would buy a phone, tied to a contract for 2 years from a single phone company. Now users can buy their phone at JBHiFi or online from an eCommerce shop like Mobileciti. They can add cheap plans from both Vodafone and Telstra to get the best mix of coverage and cost for them. They can move regularly to better deals when they become available, easily, from their handset. The eSIM explodes the ‘bundling’ that telcos rely on, offering the chance for people to create exactly the services they want from smaller components offered by the telcos. We take this sort of facility for granted in many other areas of our lives. Think about how you configured your living room, for example. You bought the chairs from one store and the table from another. Now you can piece together the components of phone plans so you can get exactly what you need from many.
  • Increased awareness / parity of comparison :
    According to some primary research WhatPhone undertook in late 2017, most Australians think there are around 25 phone companies in the country. The reality is that there are twice that number. People don’t know where to go to get the best deals, and, as with Banks, the lack of awareness can lead to them paying higher prices for the same services. When users are signing up to eSIM plans, they will be picking from a single list of all phone plan providers. In this context, it will be a battle of ‘equals’.
  • With that increased awareness, the eSIM will favour low margin businesses :
    MVNO businesses operate without many of the costs that the major networks (Telstra et al .) have to sustain. Smaller phone companies tend to be more efficient than the big ones. They sell and service online rather than maintaining a large number of retail stores. They operate call centers overseas rather than from Tasmania which Vodafone do, for example. As margins get thinner as a result of competition, it will be harder to be a big phone company.
  • The eSIM will encourage new entrants :
    TPG are just one example of a new mobile phone company (they’ve done things like broadband for a long time) which, when it was established made a splash in the news. In the USA, Google Fi is a beta version of a new type of telco. It combines the best of WiFi and cellular access in to a single plan and, if you can believe this, refunds users at the end of the month for the data they haven’t used yet. Apple, in particular are taking the lead on pushing the eSIM forward and their track record shows the potential for a huge range of telco and wrap around services to be generated when the facility goes mainstream. As well as favouring smaller phone companies then, the eSIM will cause more to be created.
  • This will benefit the major telcos too :
    There are many phone companies in Australia, but only three phone networks. Smaller phone companies lease access to the networks they use from one of those big three network providers and charged a service fee for it. Ultimately, while revenues for the big phone companies might be lower, when the eSIM arrives, for the reasons we’ve said, much of the money from plans sold on MVNO networks will still flow to the big telcos.
  • Expensive content :
    To try and avoid or at least deter some of the commoditisation of services and pricing that the eSIM will generate, the major phone companies have started investing in exclusive content rights. These are extremely expensive to purchase and it remains to be seen how many people will value and use them.
  • 5G is coming :
    The eSIM will launch in 2017 and grow from a slow start. However, it’s not long before some of the effects we’ve outlined here start to overlap with other trends in the industry. We have raised questions before about some of the problems the next generation of super fast data services, 5G will create. We’ve also considered what will happen to telco pricing when 5G arrives and some of the things the telcos can do to fight off the problems it will create. 5G is likely to further accentuate the fragmentation of phone company services. In parallel, phone leasing options and a general movement of people away from phone contracts and towards buying their own phone and adding a SIM will make it harder still to be a big phone company. Vodafone Australia themselves revised their suite of phone plans in recognition of these changes in late 2017.

In Conclusion – Digital transformation is around the corner

The eSIM appears innocuous but it will have massive and far ranging implications for the whole of the telecommunications industry.

The movement to eSIM once launched is predicted to take from 18 months to 2 years to reach a critical mass. As users become more accustomed to the eSIM, it won’t take too long before physical SIM cards are a thing of the past.

It’s not all bad news for the tier 1 phone companies ( Vodafone etc. ) eSIM forecasts indicate that, despite the competition and innovation the eSIM will stimulate, the major Mobile Network Operators will, ultimately, get a significant amount of new Internet Of Things revenue, generated as a result of the eSIM. Car manufactures, for example have been told to incorporate an emergency call facility into new cars in the form of an eSIM that can’t be removed. This is fitted to alert emergency services if an accident has taken place. All of those cars need to be connected to the internet with a phone plan.

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