MNOs, fear not. Embedded SIMs will open up new markets and use cases, not destroy the operators
Traditional SIM technology has been around for nearly 25 years and the operators view them as a critical control point for customer ownership. Due to the risk of losing the M2M market to competing unlicensed LPWAN technologies (and pressure from strong handset vendors), MNOs are finally beginning to embrace more modern embedded SIM solutions.
Traditional SIM cards are not fit for purpose in the IoT market. There are several reasons for this. First, M2M devices are often embedded inside other machinery and very difficult to access. An industrial M2M player with 1000s of dispersed units can not send out staff to change malfunctioning SIM cards, or replace all SIM cards if a new MNO offers a better price plan. The second reason is that wearables in the consumer space are often too small to fit a SIM reader. Think waterproof smart watches or smart jewellery. Third, tablets and laptops that only occasionally require mobile connectivity will remain an untapped market for the operators as long as the user needs to find a suitable SIM card, fiddle with it, and activate/pay for a data plan that is rarely used (for example when travelling).
For the M2M market, the operator-led standard bodies GSMA and ETSI have already developed a technical architecture for reprogrammable SIMs (termed eUICC, “embedded UICC”). The eUICC is a secure hardware module that can be permanently soldered onto the circuit board. When an eUICC is manufactured, the eUICC issuer loads the master keys of the eUICC onto the hardware chip. The eUICC issuer can be an MNO or another stakeholder such as the device maker. In the eUICC hardware, one or more operator profiles can be stored (including IMSI number, network key, and other settings). The eUICC issuer will maintain a central Subscription Manager which is a database with all available operator profiles. This gives device owners the ability to swap between operator profiles as well as download new ones.
Embedded SIMs offer advantages for M2M device vendors. They can make their products smaller and better encased and it’s possible to manufacture products with a blank eUICC (no operator profiles) for worldwide delivery.
Embedded SIMs are already in place in the M2M market and strong handset vendors such as Apple want to introduce the same technology in the smartphone market. The traditional SIM card is a control point for the MNOs’ market power and so far they have been resistant to e-SIMs. But market forces are moving fast and the operators risk being sidelined if they don’t embrace this new technology.
There are already several ways for users to bypass the operators’ SIM. For example, dual SIM handsets offer a crude version of the e-SIM functionality. The most obvious way to avoid excessive roaming charges is to switch SIM cards when travelling abroad. An existing service similar to e-SIMs is offered by MVNOs who offer multi-IMSI SIM cards for international travellers. The MVNO stores IMSI numbers and operator profiles from a number of MNOs in different countries on its SIM card. The existing multi-IMSI SIMs are hard coded into the SIM card today, but once the eUICC standard is in place it will be possible to reprogram physical SIM cards as well. Examples of MVNOs using multi-IMSI cards are WorldSIM and Truphone. They offer full international multi-IMSI based connectivity with voice and data based on SIM cards. Transatel is both a multi-IMSI MVNO and a wholesale service provider (MVNE) for other MVNOs. GigSky and Cubic Telecom offer a similar international MVNO service for data only connectivity. Apple partnered with GigSky to sideline the operators in their Apple SIM offer for iPad.
There is nothing in the eUICC specification that prevents it from being used in handsets. As of March this year GSMA has a working group for eUICC in mobile consumer devices with backing from major operators such as AT&T, Deutsche Telekom (T-Mobile), Vodafone, Orange, and Telefónica. The technical architecture is anticipated for delivery by 2016. Apple and Samsung are said to be heavily involved in the project.
However, one of issues that remains to be solved is number portability. Today this is a cumbersome and mechanical process that can take up to a day, and risks leaving the phone number unreachable during the transition time. Number portability has to be instant for users to take full advantage of the ability to swap one operator profile for another in the eUICC on their smartphone. Number portability is implemented somewhat differently in different countries and a seamless global system requires extensive systems integration. The e-SIM specification from GSMA due next year will only define first generation e-SIMs, and my guess is that this issue will only partially be solved.
But even the first generation e-SIM specification will have far-reaching consequences across the value chain. MNOs will have to compete harder for customers. However, MNOs’ concerns that they will be marginalised and end up in a cut throat price competition over every phone call and data session are exaggerated. Several factors will prevent this end state. The price of typical phone calls today is so low that most users will find it too tedious to switch providers just to find the cheapest calls. The same goes for data, except when travelling abroad. Operators can still offer bundles, triple/quad plays, extras, loyalty points, subsidised handsets etc. to combat price only competition. Most consumers actually prefer a bundle with predictable costs. In addition, operators will save on the costs of distributing physical SIM cards.
A new potentially powerful player will be the eUICC issuer that controls the initial access to the e-SIM. Only operator profiles offered in the eUICC issuer’s Subscription Manager Database will be available to the users. And the issuer can control how available profiles are displayed and which operator gets to top the list.
Candidate eUICC issuers are device makers, MNOs or managed service providers. A handset maker that controls the e-SIM could restrict users’ access to available operators. This would squeeze profit margins for the operators who are lucky enough to be allowed access to the user base. If an e-SIM equipped handset offers a restricted choice compared to the older SIM card handsets, it will be viewed as a step backwards. Even for a very strong handset maker such as Apple it is far from obvious that it will be accepted by the consumers. Users will expect almost the same freedom to select operators of their choice as with a physical SIM card. An overly restrictive e-SIM will most likely be viewed as a strong negative factor. Before the e-SIM has reached maturity I expect smartphones to be equipped with both an e-SIM and a traditional SIM card slot.
In addition to consumer resistance, regulators will most likely mandate fair and open access for all operators to the eUICC issuers’ Subscription Manager. The fear that eUICCs will move all market power to the device makers is exaggerated. And there is nothing preventing MNOs from becoming eUICC issuers themselves for devices sold through their own retail channel. Subsidised handsets could also be equipped with an eUICC issued by the MNO (for the period after the operator lock-down).
Embedded SIMs based on eUICC is a critical enabler for the IoT and wearables market. But the interesting long term potential is that e-SIMs can reinvent the way we interact with our handsets and devices. Currently, if a user wants to change handsets to go to the gym or on a night out he/she will have to fiddle with the SIM card and physically move it. If the two devices don’t accept the same size SIM card it is even more complicated.
In a fully developed system with embedded SIMs, it will be possible to easily move the active phone/data connectivity from one device to another, including cars. Users will be able to have several devices for their varying needs and use cases. In addition, they could have several active subscriptions/phone numbers in the same device. They will also be able to split connectivity between different devices. For example, have text messages, IM, and notifications diverted directly to a non-tethered smartwatch while the full mobile connectivity stays with the smartphone. Or have certain notifications sent to a piece of smart jewellery or smart clothing. It will also be possible to have more than one phone number on the same device, have disposable phone numbers, and move the subscribed numbers between the user’s devices. This flexibility will of course also apply to all communication that doesn’t rely on a phone number (such as WebRTC, Skype, WhatsApp, etc.). Even devices without full mobile connectivity will probably be equipped with e-SIMs. For example laptops, tablets, and smart home hubs. And the hardware based security from the eUICC module will be an excellent enabler for payment platforms. In this scenario the full potential of mobility, connectivity, and IoT will be unleashed. One can only hope that the working groups at the GSMA will be forward-thinking enough to see this.