Cutting the last cord: How the "disappearing" SIM card will liberate the consumer and scramble telco roles

Executive summary

The SIM card is finally going virtual — and the world of telecommunications companies is about to be turned upside down by its “disappearance.”

SIM (subscriber identity module) cards, critical components of mobile phones and the only parts of the phone still owned by network operators, can’t get any smaller and still perform their functions — to identify and authenticate callers. The SIM card will soon be replaced by a combination of built-in software and apps, known as an electronic SIM, or eSIM. Over the next several years, this will appear in significant numbers of mobile phones and even sooner in many other connected devices.

With the physical card disappearing, the industry is entering a two- or three-year period of great flux, with large swaths of the telecommunications market potentially up for grabs. Consumers will soon be in control, choosing an operator and a price plan and connecting to telecom networks in much the same easy way as with Wi-Fi. This simple act of liberation will have complex ripple effects for device manufacturers, mobile network operators (MNOs), and mobile virtual network operators.

If MNOs aren’t agile and resourceful enough to respond to the changing dynamics, their worst fears about the new age of the eSIM will come to pass. If OEMs are flat-footed, they will miss their opening. But if both sides do what they should, a new order will form. Remaining players will find their roles to be far more overlapping than they are now. They will also find that they are vying to divide up a far bigger pie.

eSIM pioneers

The pursuit of SIM-less mobile connectivity has been moving forward for several years. Before becoming standard on any smartphone, eSIM is likely to roll out into devices that are typically not bought via mobile operators, especially products that connect machine-to-machine, including smart household appliances and automobiles; drones, cameras, and wearables, including smartwatches; and tablets, notebooks, and other personal devices. The prehistory of eSIM includes these kinds of devices:

• Amazon’s Kindle offered mobile connectivity through a Vodafone contract in many countries starting in 2013 to allow for purchases of online books “on the go” and in the absence of Wi-Fi
• In 2014, Apple’s iPad Air 2 introduced Apple SIM, a removable, multi-carrier card that lets users choose between carriers and plans — a means of configuring connectivity that served as a first step toward eSIM
• In 2016, Samsung launched the Gear S2, a smartwatch that uses the first certified eSIM

What is SIM?

SIM cards are a feature of the GSM (Global System for Mobile Communications) standard for cellular networks. Developed in 1991, GSM started to win worldwide acceptance about 20 years ago, eventually overtaking CDMA2000, a system used by some providers that worked without a SIM card.

• SIM provides the fundamental elements of identity and authentication
• The size of SIM cards has shrunk to fit into smaller or more featurepacked devices
• The Nano-SIM, introduced in 2012, is the smallest possible “traditional” version that can fulfill SIM’s core functions
• With the emphasis now on bundled products and multidevice contracts, the physical SIM card is no longer appropriate even though the card can be reprogrammed
• eSIM was introduced in 2015; the technology varies and sometimes includes hardware components as well as pure software solutions

Conclusion

For the big mobile network operators, SIM cards have served as golden handcuffs, tethering most consumers to them in lucrative, long-term ways. Now, as software starts to replace the cards, those handcuffs will be coming off. Consumers will soon get to pick and choose among an increasingly crowded field of providers — with no need, or requirement, to stay for the long term.

On its face, that is a formula for substantial growth for device manufacturers. Crowds of consumers will soon be window-shopping for new ways to connect — and if OEMs can draw their interest, manufacturers will have tapped into revenue streams that were always out of reach.

But if MNOs are the most endangered by all this change, they shouldn’t be counted out yet, either. They are still the strongest players — and if they quickly and aggressively play to their traditional strengths, they can retain the high ground even as the landscape is redrawn.

Yes, the cuffs are coming off. But there are always other ways to keep a business relationship going. The customers, if they are getting the services they want, can always choose to stay. That’s the best tethering device of all.