Embedded SIM (eSIM): A paradigm shift in the telecommunications ecosystem (which you may not be aware of)

November 2018
By Ryan Teoh and Geoffrey Head, Directors with Strategy& Malaysia

Note: This is the second of a two part blog. Click here if you haven’t read our first blog about “eSIM: Why your experience with your Telecommunications provider may be changed forever”.

We highlighted these key points in our previous post:

Embedded SIM (eSIM) essentially allows you to download a digital SIM, removing the need to purchase a SIM card. Telecommunications providers will need to rethink how they engage new customers, as well as the role of their physical distribution network
We expect the first wave of eSIM-enabled phones to be dual-SIM phones (physical and eSIM) allowing consumers to have two active SIM cards. We expect this to be the case for new phones launched over the next 12-24 months
We expect consumers to be enticed with promotions for short term plans (hourly, daily, weekly plans) that bundle information, convenience or entertainment together with connectivity

In this blog, we’ll be reflecting on how changing consumer behaviour (with the introduction of eSIM) will impact the ecosystem of telecommunications service providers.

How will embedded SIMs change the telecommunications ecosystem?

By removing the need for physical distribution, a major barrier to entry is being lifted for new entrants that choose to innovate in price, product, and service. New entrants are likely to take on asset-light business models, choosing to rent network capacity, rather than to own it (a rise in Mobile Virtual Network Operators - MVNOs).

It’s still early days, but we foresee new entrants trying a few archetypes of business models:

The ‘Tourist’ plan of choice – MVNO offerings targeting tourists, as soon as they land. Such entrants will focus on visibility, and ease of download. Price is less of a problem, as roaming alternatives are priced at a premium
Simply ‘The Best’ Price Plan – An MVNO aggregating partnerships across telecommunications providers to always provide the best prices and promotions across carriers
Your ‘Glocal’ Partner – An MVNO that provides global roaming at a fixed, affordable price, paired with an application that seamlessly switches eSIMs for you in different countries
Content plus connectivity – Content providers could start developing hourly, half-daily, daily or weekly access plans that include connectivity and support multiple devices

When the dust has settled, we will see a significantly larger number of players in the market, all marketing solution-based services that provide information and convenience on top of connectivity.

Some telcos will attack, some telcos will defend, and all of them will feel pressured

Traditional telecommunications companies may be tempted to adopt a “wait-and-see” approach, choosing to offer just enough eSIM plans to support each major phone launch. However, we expect more aggressive MVNOs and innovative Mobile Network Operators (MNOs) to do three things:

Occupy every secondary SIM slot that comes into the market: With every new phone launch that supports two SIM cards (one traditional, one eSIM), we expect more innovative companies to begin the war for customers by engaging them via the secondary slot immediately.
Capture secondary devices: Looking beyond mobile phones, we can expect wearables, tablets, and laptops to have eSIM functionality as well. Telecommunications companies immediately need to consider the average number of devices (and hence, active plans) that they should target to register with each customer. Whilst that target has typically been one plan per individual in the past – this is likely to increase to 3-5 plans per individual in the future.
Create a Digital sub-brand: Rather than waiting for the next new entrant, some telecommunications companies will opt to take the fight to new digital-based entrants. These more aggressive telecommunications companies are likely to create Digital flanker/challenger brands with a different (but possibly associated) brand name offering pricing and service options that are more attractive to digital customers.

Our view is that a fundamental shift has happened in the telecommunications industry – and it has happened so quickly that many have still yet to realise it – but mind you, in the words of family Stark (of Game of Thrones acclaim): “Winter is Coming”. The question is, are you making preparations?

_{We would like to acknowledge the contributions from Anand Markande (Senior Associate, Strategy& Singapore), Lim Khai Wern (Senior Associate, Strategy& Malaysia), Juliyan Somasundram (Associate, Strategy& Malaysia), and Vitchawat Chan (Associate, Strategy& Thailand) all of whom have helped develop Strategy&’s point of view on “Preparing for an eSIM Future”}