Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
Mobile phones today are virtually unrecognizable from when they were first commercially released 30 years ago. Throughout this incredible period of innovation, the SIM card, the removable card placed in the mobile phone with a chip enabling operators to provide access to their network, has remained virtually unchanged.
There is now speculation in the market regarding the development potential of embedded SIMs – a chip that is directly integrated into the mobile phone, actually soldered onto the circuit board. Embedded SIMs (e-SIM) would provide some space on the circuit board for new apps, as well as enable handset makers to make thinner phones. They could also conceivably free end-users from being bound to one mobile operator; the embedded SIM could connect to whichever network offers the cheapest on-net calls. For the mobile operator, embedded SIMs offer cost savings in terms of packaging and logistics, as there is no need to supply a separate SIM card.
The number of SIM cards shipped worldwide is expected to increase dramatically over the next few years, from 4.2 billion in 2010 to 6.0 billion in 2014. Within the telecom segment, over half of the expected SIM card volume growth will stem from the Asia-Pacific region, accounting for 1 billion out of the 1.8 billion unit growth from 2010 to 2014. Most of this demand will be in emerging markets, as well as in China and India. In these markets, prepaid customers often use more than one phone or SIM card in order to get cheaper on-net calls.
Arthur D. Little interviewed more than 30 mobile executive experts throughout emerging Asia, Europe, Middle East and Africa, to determine the telecom industry’s perspective on embedded SIM cards, and the opportunities and threats they represent. Mobile operators are key decision makers when determining the future of embedded SIMs; they are currently the only customers of SIM cards, using them to provide access to their network. Thus, they can decide not to open their network to devices with an embedded SIM.
Overall, most operators fear a commoditization of their business, as they would only become a network provider for e-SIMs, and the advantages are outweighed by downsides. The primary drivers stated by operators for the adoption of embedded SIMs were:
- Process savings (68%) and ease of use (48%)
- New business models, which are important for challengers (49%)
The main barriers stated by operators include:
- The loss of customer relationship (77%), generating increased churn (27%)
- Security concerns are frequently stated (46%), yet most interviewees expect them to be resolved in the mid-term
- The loss of brand value impact (31%)
The majority (70%) of interviewed companies believe mobile operators will oppose embedded SIMs. The view is more balanced in emerging Asia, but driven primarily by smaller, challenger operators. Given potential use cases for e-SIMs, operators generally support cases with SIM lock and a need to wait and go the store to switch operators, but oppose cases with multiple operators on one SIM, and manual or automatic switching. Apple is identified as the only device manufacturer that could drive SIM card adoption.
In contrast to the operators, the majority of prepaid end-users will only embrace e-SIMs if the switch to other operators is almost immediate. Arthur D. Little carried out customer surveys in India and China that demonstrated that a majority (55% to 75%) of end-users would be willing to embrace embedded SIM if switching operators is almost immediate, but only 10% to 20% would be willing to abandon removable SIMs if there is a barrier to switch.
Given the mismatch between operators’ and end-users’ expectations, Arthur D. Little does not expect embedded SIMs to have a significant impact on the mobile industry in the next ten years. Currently, most industry players expect embedded SIMs to be used only to provide mobile broadband connectivity on non-traditional devices such as cameras, MP3 players, navigation devices and e-readers.
In 2010, Mi-Fone, a small mobile device manufacturer in Africa, launched a phone with a locked e-SIM to address the very low-end market. Operators provide higher subsidies if the SIM card is locked. e-SIMs also provide significant cost savings on SIM card packaging, and supply chain management. According to Mi-Fone, this phone was a success in Africa within its target segment, and is currently available in 15 African countries.
If embedded SIMs did become a reality, it would present a risk to market players across the value chain, and impact the strategic position of device manufacturers and challenger mobile operators around the globe. E-SIMs might enable the phone to connect to the network offering the cheapest tariff available. The mobile operators would effectively lose control of their networks; network planning would be problematic as they would not be able to estimate traffic. While currently unlikely, the implementation of embedded SIMs would be a truly disruptive event, enabling customers to choose the cheapest tariff, challenger mobile operators to shift the strategic balance in their markets and Asian device manufacturers to increase market share and challenge mobile operators.
Karim Taga                                                      Franck Herbaux
Managing Director, TIME practice        Director, TIME practice
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