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MNOs cling to power in the age of eSIM; SIMalliance 5G spec aims to help

The SIM card has always been the mobile operators’ tool to keep users locked in and to monetize their connectivity. In recent years though, their grip has weakened. Dual-SIM devices, low cost SIM-only deals, and the rise of the embedded SIM have changed the rules. With eSIM, handset makers like Apple, or IoT service providers, can control the SIM and adapt it for any operator remotely. And in 5G, there will be even more changes to the landscape.

The SIMalliance has just published its technical definitions of a 5G SIM card, saying the aims is to support “optimization of 5G SIM capability beyond network access to unlock the full potential of 5G network investments”.

The organization recognizes the challenges that operators have to retain the primary customer relationship when the SIM card may be controlled by others, especially in the IoT – where it would clearly be impractical for every one of potentially millions of cards to be provisioned and managed by the MNO. But SIMalliance is firmly on the side of the MNO, and claims its definitions will help the operators to monetize 5G.

The card will “enable MNOs to provide customers with a better quality of experience and higher security, while optimizing network and device resources,” said the Alliance, and its design also addresses subscriber privacy issues, and supports capabilities such as reduced power consumption and delivery of IP services.

Remy Cricco, chair of the SIMalliance, said in a statement: “After many years of conceptualization, the reality of 5G network launches is now imminent. A SIM is the only platform which can be used to secure 5G network access according to the 5G standardization body, 3GPP.” In its document, the SIMalliance recognizes the range of SIM technology options available in 5G and outlines how they map to different use cases.

But for any use case, “SIMalliance advocates only one type of 5G SIM which promotes the highest levels of security and functionality in 5G networks”, and aims to persuade MNOs to support its technical design, and thus influence SIM card makers and device manufacturers to follow suit.

‘3GPP R15 5G SIM Card: A Definition’ –  is available for free download on the SIMalliance website. The guidance provided in the technical document relates specifically to 5G Release 15, and is backwards compatible with previous mobile generations.

Meanwhile, the GSMA took the lead in defining the eSIM (amid significant political wrangling with Apple and the operators), but now the big device platform companies are using the technology for their own ends. Google, for instance, has revived its Google Fi MVNO service in the USA (though its ability to roam across three different MNO networks appears to have been watered down). Fi was the launchpad for “the first major smartphone with eSIM”, Google’s own Pixel 2, but the Android giant has now unveiled the Pixel 3, also with eSIM, and able to run on several operators’ networks in international markets. Initial partners include Sprint in the USA, Deutsche Telekom and Vodafone in Germany, EE in the UK, and Airtel and Reliance Jio in India. Also included are Truphone and Gigsky, two MVNOs that operate in multiple markets.

Ralph Steffens, CEO of Truphone, said in a statement: “This new technology signifies a massive shift in the telecommunications industry. It’s having an impact on everyone from phone providers to chipset manufacturers to mobile network operators. But most importantly, it directly impacts businesses and consumers by offering them more flexibility over their mobile connectivity.”

Apple also included eSIM support in recent iPhone models, prompting ABI Research to increase its forecasts for the technology – it now predicts that 420m eSIM-compatible handsets will be shipped by 2022, 100 times higher than in 2017. Three of the four US operators now support eSIM iPhones, though mainly confined to prepaid services, and Sprint promises to follow suit (a claim lent credibility by its support for the Pixel 3).

Google needs to get other Android phone-makers to support its eSIM design, since its Pixel phone sales are dwarfed by those of Samsung, Huawei and others. Google said: “To enable a consistent and simple experience across the ecosystem, we’re also creating a program that allows Android device makers to build eSIM-capable smartphones. We look forward to continuing our work with our partners on the potential benefits of eSIM—whether that’s getting you connected to a phone, watch, tablet, or laptop—in the future.”

In April, the eSIM space was hit by scandal when the GSMA, and the US operators, were accused of collusion. Accusations, reported to have been initiated by Apple, claimed that AT&T and Verizon colluded with the GSMA (which represents MNOs worldwide) to force the market to adopt their preferred format for the eSIM, thus strengthening their hand against the device/app providers in the battle to control the primary relationship with the mobile user.

The GSMA has been making progress towards eSIM specifications which are largely friendly to the interests of its MNO members in recent years, despite periodic efforts by Apple and others to drive the standards themselves. Pending the outcome of the investigation, the GSMA said it had suspended its eSIM activities.

The New York Times reported that the Department of Justice was investigating whether the two US carriers, and the GSMA, were trying to establish eSIM standards which would make it hard for users to switch between operators. “At least one device maker”, thought to be Apple, has complained that the proposed standards would allow devices to be locked to specific networks.

One of the hoped-for outcomes of introducing an eSIM, to replace the physical SIM cards, was that it could be remotely activated and updated. This would allow non-operators, such as device vendors or enterprise IoT administrators, to assign devices to new networks without intervention by the MNO; or for the user to swap between carriers directly from a menu on the device.

That, of course, could significantly change the balance of power between the network operator and the device supplier by severing yet another tie between the user and the MNO – a relationship which has already been weakened by the brand power of Apple and Google, but has been held together by two instruments of control for the MNO. One is the billing relationship; and the other is the MNO’s exclusive ability to assign and manage the SIM, tying the user to its network (though even that has been weakened by swappable SIMs and multi-SIM handsets).

So a lockable eSIM would help the MNOs cling to their traditional customer relationship where this suited them, while accepting a more open model where manual SIM management would be impractical (mainly with the massive device numbers that could emerge on the IoT).

In a statement, the GSMA said it was working with leading operators, device suppliers and SIM makers worldwide on global eSIM standards, and these did indeed include the “option” for the eSIM to be locked. However, it stressed that the option would be selected by the user, not the operator.

“In the United States, consumers would have this option,” the GSMA said. “However, [the consumer] would need to explicitly consent to this under specific commercial agreements with their mobile operator, for example when purchasing a subsidized device.”

Google and Apple have both been laying the groundwork for a market in which the connectivity provider is virtually invisible to the user, and can be changed at will, as in WiFi. In 2014, Apple introduced an iPad with a ‘soft SIM’, providing a choice of operators which could be selected by the user online; and Google’s Fi MVNO allows customers to switch between Sprint, T-Mobile and WiFi networks.

However, the carrier-independent iPad is reliant on operators supporting this option. T-Mobile and Sprint do so, but others in the US do not, so Apple warns users: “If you buy one of these models at a carrier, the embedded Apple SIM might be locked to that carrier or disabled.” This may not matter for the relatively small tablet market, but sets a vital precedent for smartphones, no doubt prompting the latest action.

The battle has been brewing for years, and not just in the USA. One of the first major spats was centered on Europe, in 2010, and resulted in a victory for the large MNOs. In that year, Apple tried to bulldoze an embedded SIM card into the industry before it was ready, but was forced to retreat under intense fire from European MNOs, which threatened to refuse to sell an iPhone with a SIM card that Apple could provision remotely.

By 2014, when the eSIM iPad made its debut, times had changed. Operators had accepted that eSIMs would be essential to make it workable to support huge numbers of connected devices. Soon after, many had signed up for the GSMA’s eSIM effort – no doubt hoping that the specs would, at least, have carriers’ interests at heart if they were defined by the MNOs’ own association rather than the device segment.

But there is still a big leap for MNOs, to accept an unfettered handset, rather than seeing the eSIM in devices where they have less control anyway, like tablets, wearables and even cars. These items often do not usually come with their own cellular data plan, or they may be part of a bucket deal in which the primary billing relationship still centers on the handset – that bundle itself tying the user to the particular MNO.

Even then, some operators have resisted the change – Verizon sold soft SIM iPads with its own separate SIM, disabling Apple’s, though of course this is impossible with non-removable eSIMs, which started to appear in some devices, including the iPad Pro, in 2016.

But the smartphone remains the chief source of usage, revenue and opportunity for the operator to communicate with the user and promote other offerings – and that is Apple’s next frontier. A report by Strategy Analytics said: “Short of offering its own MVNO, from a carrier perspective an eSIM iPhone would be the most destabilizing change Apple could make to their existing iPhone business model. With an eSIM equipped iPhone a customer need never directly interact with an operator again, instead provisioning service and switching from carrier to carrier at the customer’s whim. Adding an eSIM to the iPhone would be a direct shot across the bow of carriers. With eSIM, Apple’s grip on the customer will become even tighter.”

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