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13 September 2022

Apple and T-Mobile signal ‘game over’ for physical SIM in the USA

Amid a list of mainly incremental improvements to the iPhone, the latest model – iPhone 14 – grabbed headlines for its satellite messaging service (see separate item) and its extended support for embedded SIM (eSIM). In both cases, it shared the strategy with T-Mobile USA, which separately announced its own plans to expand satellite and eSIM support, indicating two significant trends in broadening the ways that users and IoT devices can access connectivity, and be monetized by service providers.

Apple has supported eSIM technology in iPhones since 2018, but in the new iPhone 14 models, at least for the USA, it will end support for physical SIM cards altogether. The new smartphones will be able to use two eSIMs at once and store more than that. Over time, the current iPhone policy of supporting both physical SIM and eSIM will continue to apply to non-US iPhone 14 models, but this will presumably change as operators start to relax their long-standing hostility to the eSIM.

With the eSIM, it is easy for users to change operators, or move between multiple networks, because they no longer need a separate physical SIM card per network. Not only can the provisioning process be executed remotely to a single eSIM by any new operator, but the device can hold multiple SIM personalities without requiring two or more physical cards. This provides users with new capabilities, such as the ability to add data roaming separately when abroad while retaining access to the home number for voice calls.

The immediate benefit to operators is to make it easy for a customer to move onto their networks. TMO has branded its new eSIM-enabled capability ‘Easy Switch’, and says this will be available via the TMO app to users with unlocked eSIM-compatible smartphones – initially iPhones, but soon Android devices too.

Switching will take “as little as five minutes”, rather than being “an hours-long ordeal”, said the operator. CEO Mike Sievert said: “Switching is another insane artifact left over from a stupid, broken, arrogant industry … and it’s hard on purpose. The industry juggernauts in the 3G and 4G era designed switching to be difficult, keeping their hordes of customers from leaving to protect their billions in revenues”.

This ease of churn has clearly been a threat to operators as well as an opportunity to steal users. The desire to cling onto the measure of control and lock-in the physical SIM card provides has led operators to be apathetic at best, and obstructive at worst, in adapting to an embedded world. They accepted, almost a decade ago, that eSIM would be necessary for large-scale IoT deployments, in which thousands of devices might need to be provisioned – the size of those endpoints, and the numbers involved, would make physical cards and manual processes infeasible. However, despite supporting the GSMA’s development of eSIM specifications with the IoT in mind, many operators have been very slow to embrace a smartphone version.

This has seen the physical SIM take a long time to die – instead it has shrunk in size from standard to micro and then the nanoSIM. However, smartphone makers have increasingly embedded the SIM permanently on their circuit boards, enabling the device to be provisioned remotely and over-the-air – which allows a user to change to a different operator network without performing a physical SIM swap. Longer term, the eSIM will be integrated into the handset’s system-on-chip (SoC), where it will share residency with the device operating system and apps.

During an interim period, many handsets will house both the physical SIM slot and an eSIM module, catering for users that for now wish to retain their old SIMs and the contacts stored on them when moving to a new phone. Increasingly though, users are backing their contacts to the cloud, so that is becoming irrelevant and quite quickly consumers will become accustomed to migrating to new handsets transparently without having to open up their devices. In any case, retaining a physical SIM defeats the object of the eSIM, which is to miniaturize the device further.

All these factors mean the acceptance of eSIM by most operators can only be a matter of time. TMO’s announcement is the first one by a major US operator, though Google paved the way with its Google Fi service, which operated as an MVNO on multiple carrier networks, and allowed users to switch between the two dynamically.

TMO may have been proactive in embracing the new eSIM world, but its rivals in the US market will now have to follow suit. Emma Mohr-McClune, technology service director at research firm GlobalData, had predicted that Apple would go eSIM-only, but said that, even at the start of 2022, “surprisingly few global carriers wanted to think through the full competitive consequences of such a scenario”. But they should not be complacent, she believes – “For carriers outside the USA, the first eSIM-only iPhone launch in the USA is a clear signal of what’s coming to carriers everywhere, and now sooner rather than later … For carriers, nothing focuses the mind like a clear churn risk.”

“eSIM allows users to easily connect or quickly transfer their existing plans digitally, is a more secure alternative to a physical SIM card, and allows for multiple cellular plans on a single device. iPhone 14 and iPhone 14 Plus remove the SIM tray for US models, enabling users to more quickly and easily set up their devices,” Apple said in its press release.

AT&T and Verizon can support eSIM sign-up via their apps, and Dish announced eSIM support in June, initially with the Samsung Galaxy S22. So TMO’s move may not bring it significant market share gains, but is likely to have benefited it mainly as a PR exercise. But collectively, all these announcements will make eSIM-only the norm in the USA very rapidly and other markets are sure to follow.

As in other areas, including its new satellite messaging feature, Apple was not the first to go eSIM-only (Motorola launched such a model three years ago), but it will have its usual effect of legitimizing the market and driving confidence and scale into it.

Ahmed Khattak, CEO of US Mobile, an MVNO hosted on Verizon’s network, hailed Apple’s announcement as “a courageous decision that will democratize connectivity in America and around the world by giving customers more choices”. He claims the highest adoption rate of eSIM of any US operator, at 25% of his user base, and says the eSIM users have higher net promoter scores (NPS), indicating their satisfaction.