The SIM card has been the key instrument of the mobile operator’s power for so long that it is hard to underestimate the impact of the switch to new open SIMs. But that is now on the horizon, with the GSMA forecasting that cards based on its embedded SIM specifications will be on the market next year.
The GSMA said earlier this month: “With the majority of operators on board, the plan is to finalise the technical architecture that will be used in the development of an end-to-end remote SIM solution for consumer devices, with delivery anticipated by 2016.”
Long supported by Apple, Google and others, an embedded SIM card – which allows the user to move between operators without changing cards – is now looming. That will mark the end of the main way that carriers can lock consumers into their networks. It will also deprive them of a key tool for communicating with customers, and monitoring their behaviour for big data purposes. And it will end their remaining hopes of an MNO-driven mobile payments system, based on an NFC chip embedded into a carrier-issued SIM.
The way that Apple Pay and Google Wallet have implemented NFC while bypassing operator control is an ominous portent for the wider decline of the operator’s ability to control the subscriber, and therefore the wider mobile value chain. Switching that control to the consumer itself – in terms of selection of the networks and applications – and to the mobile platform providers, has been a long-running trend. Google and Apple have colonized brand recognition, user experience and the primary customer relationship, and therefore achieved pole position in terms of revenue generation. The death of the carrier-specific SIM will just be the culmination of that trend.
Windsor Holden, an analyst at Juniper Research, commented: “This will quite dramatically change the way the mobile industry is structured. This is another step towards the greater erosion of the mobile network operator’s stranglehold on the mobile value chain.”
The long awaited eSIM is the result of a great deal of work, spearheaded by the GSMA, not just to develop the technology, but to secure industry consensus. This has often been a rocky road. While Apple and Google have led the charge, the GSMA has now secured support from many key operators, which recognize the inevitability of an embedded SIM for the vast number of devices expected in the internet of things (IoT). Deutsche Telekom, Orange, Telefonica, AT&T, Etisalat, NTT Docomo and Vodafone are among those turkeys which are now reluctantly voting for Christmas. Last fall, the GSMA also announced commitment to eSIM from a range of suppliers including Ericsson, Gemalto, Giesecke & Devrient, Morpho (Safran), Oberthur, Sierra Wireless, Telit, Jasper and Telenor Connexion.
eSIM functionality allows over-the-air provisioning and updates, enabling operators to reprogram devices remotely without having to dispatch an engineer to swap out a SIM card. If the whole embedded M2M industry adopted eSIM, it would enjoy 34% higher market growth by 2020 than it does today, generating $8.9bn in connectivity revenues for MNOs and increasing the current 2020 forecast of 479m connections up to 639m, according to a 2014 study by Beecham Research.
The research firm’s CEO Robin Duke-Woolley said: “eSIM is targeted primarily at the OEM community to make to make it easier and more streamlined to both build cellular connectivity into their products and to sell them through many more channels to market. It also considerably opens up the second-hand market in cars and other products for continued use of support services by second and subsequent owners.”
The operators have not given up their SIM control without a fight. A few years ago Apple tried to introduce an embedded SIM, which it activated rather than the carrier, but backed away when large European carriers threatened to boycott the iPhone. How times have changed, with those same MNOs now supporting the GSMA and accepting Apple’s next step towards the eSIM – last year it included that functionality in the iPad, though customers could only choose between a small number of operators, whereas the GSMA vision is for a fully open platform.
And to support a vast and diverse IoT, it is clear that a standardized approach is essential. This is an area where Apple’s habit of offering proprietary technology, even when others are harmonizing (chargers being one example) may hurt it. Demand for the iPad’s soft SIM option has been limited, according to sources of the Financial Times.
The Association has been laying the groundwork for this standardized eSIM for years, mainly to allow its MNO members to handle the signalling storms which could result from connecting millions of connected IoT devices to their networks. Last October, it devised a new set of device connection efficiency guidelines in the wake of officially launching its eSIM program. The main focus of the rules is to avoid an inefficient IoT deployment that could bring down a mobile network, in the same way that Verizon’s and NTT Docomo’s systems were famously collapsed by a storm of signalling from ‘chatty’ smartphones a couple of years ago.
IoT devices may not generally generate as much data as humans with handsets, but they often poll the network constantly, creating streams of signalling which must be efficiently handled to avoid degraded user experience or worse. In addition, operators recognize that their systems would be unable to deal with the activation and provisioning of SIM cards on the scale envisaged for the IoT. In addition, there will be new service providers coming into the IoT from non-traditional areas, which may also require SIM control – utilities, car makers, smart home ISPs and so on.
In publishing its guidelines the GSMA warned that the luxury of relatively firm control over smartphones will not be enjoyed in deployments of ‘things’, and so requires extra attention pre-deployment. It succeeded in attracting backing from AT&T, China Mobile, China Telecom, China Unicom, Deutsche Telekom, Etisalat, Jasper, 2KT Corporation, Orange, NTT Docomo, Tata Teleservices, Telefonica, Telenor Connexion Sierra Wireless, and VimpelCom.
The need for non-operators to control SIM cards will create further shifts in the competitive landscape of connected things. A good example was seen last year in Kenya, where lead operator Safaricom engaged in a battle with Equity Bank over the latter’s ‘thin SIM’, a chip embedded in a thin plastic sheet which sits on top of the conventional SIM, to make two services available at once.
The threat of non-operators providing SIM-based services, not just apps and over-the-top offerings, was clear to Safaricom, which took the matter to regulators, claiming that the technology – produced by Taiwanese firm Taisys – was unsafe and could enable fraud. This would threaten the MNO’s own very successful mobile money system, M-Pesa, the carrier argued.
But last September, after months of hearings, the Communications Authority of Kenya (CAK) gave Equity Bank approval to roll out its thin SIM cards in a year-long pilot scheme, supported by the bank’s MVNO service, Equitel. This is an example of a new but global trend for companies to set up as MVNOs in order to offer one specific service, rather than as general communications providers, as more and more aspects of daily life become always-connected. In Equity’s case, that relates to payments and other banking transactions, but in becoming an MVNO, it is also challenging the biggest source of revenue growth for Safaricom, the M-Pesa service.
Safaricom is used to dominating the market, but is now facing a serious shake-up and the threat of price wars. As Equity executives told the parliamentary committee, defending the thin SIM: “The reason why we feel some people have concern is because this is a disruptive technology that we have brought. Every time you bring disruption, it changes the status quo, and those who have been well-positioned before can really find themselves gazing to a threat of even survival.”
The same could be said for any operators which fail to make the major adjustment to a market, and a business model, in which they can no longer control the SIM.