SIM Archives

What is eSIM? Or RSP?

There is a lot of confusion around what eSIM actually means. While the “e” is often just assumed to stand for “embedded”, this is only half the story – and one which various people in the industry are trying to change.

In theory the term “eSIM” refers only to the functionality of “remote provisioning”; that is, the ability to download an operator profile to an in-market SIM (and also potentially switch between profiles or delete them). This contrasts with the traditional methods of pre-provisioning specific, fixed profiles into SIMs during manufacture. Most SIMs today have a particular operator’s identity and encryption credentials set at the factory. This is true of both the familiar removable SIM cards used in mobile phones, and the “soldered-in” form used in some M2M devices.

In other words, the original “e” was a poor choice – it was intended to stand for “enhanced”, “electronic” or just imply “new and online” like eCommerce or eGovernment. In fact, the first use in 2011 was for eUICC – the snappier term eSIM only emerged a couple of years later. UICCs (Universal Integrated Circuit Cards) are the smart-card chips themselves, that are used both in SIMs and other applications, for example, bank, transport and access-security cards. Embedded, solderable SIMs have existed for certain M2M uses since 2010.

In an attempt to separate out the “form factor” (removable vs. embedded) aspect from the capability (remote vs. factory provisioned), the term RSP sometimes gets used, standing for Remote SIM Provisioning. This is the title of GSMA’s current standard. But unsurprisingly, the nicer term eSIM is hard to dislodge in observers’ consciousness, so it is likely to stick around. Most now think of eSIMs as having both the remote-provisioning function and an embedded non-removable form-factor. In theory, we might even get remote-provisioning for removable SIMs (the 2014 Apple SIM was a non-standard version of this).

Figure 1: What does eSIM actually mean?

Source: Disruptive Analysis

This picture is further muddied by different sets of GSMA standards for M2M and consumer use-cases at present, where the latter involves some way for the end-user to choose which profiles to download and when to activate them – for example, linking a new cellular tablet to an existing data-plan. This is different to a connected car or an industrial M2M use-case, where the manufacturer designs in the connectivity, and perhaps needs to manage whole “fleets” of eSIMs together. The GSMA M2M version of the standards were first released in 2013, and the first consumer specifications were only released in 2016. Both are being enhanced over time, and there are intentions to develop a converged M2M/consumer specification, probably in H2 2017.

eSims vs Soft-SIM / vSims

This is another area of confusion – some people confuse eSIMs with the concept of a “soft-SIM” (also called virtual SIMs/vSIMs). These have been discussed for years as a possible option for replacing physical SIM chips entirely, whether remotely provisioned, removable/soldered or not. They use purely software-based security credentials and certificates, which could be based in the “secure zone” of some mobile processors.

However, the mobile industry has strongly pushed-back on the Soft-SIM concept and standardisation, for both security reasons and also (implicit) commercial concerns. Despite this we are aware of at least two Asian handset vendors that have recently started using virtual SIMs for roaming applications.

For now, soft-SIMs appear to be far from the standards agenda, although there is definitely renewed interest. They also require a secondary market in “profiles”, which is at a very early stage and not receiving much industry attention at the moment. STL thinks that there is a possibility that we could see a future standardised version of soft-SIMs and the associated value-chain and controls, but it will take a lot of convincing for the telco industry (and especially GSMA) to push for it. It might get another nudge from Apple (which indirectly catalysed the whole eSIM movement with a 2010 patent), but as discussed later that seems improbable in the short term.

Multi-IMSI: How does multi-IMSI work?

It should also be noted that multi-IMSI (International Mobile Subscriber Identity) SIMs are yet another category here. Already used in various niches, these allow a single operator profile to be associated with multiple phone numbers – for example in different geographies. Combined with licences in different countries or multiple MVNO arrangements, this allows various clever business models, but anchored in one central operator’s system. Multi-local operators such as Truphone exploit this, as does Google in its Fi service which blends T-Mobile US and Sprint networks together. It is theoretically possible to blend multi-IMSI functionality with eSIM remote-provisioning.

eSIMs use cases and what do stakeholders hope to gain

There are two sets of use-cases and related stakeholder groups for eSIMs:
Devices that already use cellular radios & SIMs today; This group can be sub-divided into:
- Mobile phones
- M2M uses (e.g. connected cars and industrial modules)
- Connected devices such as tablets, PC dongles and portable WiFi hotspots.
Devices that do not have cellular connectivity currently; this covers a huge potential range of IoT
devices.
Broadly speaking, it is hoped that eSIM will improve the return on investment and/or efficiency of existing cellular devices and services, or help justify and enable the inclusion of cellular connections in new ones. Replacing existing SIMs is (theoretically) made easier by scrutinising existing channels and business processes and improving them – while new markets (again theoretically) offer win-win scenarios where there is no threat of disruption to existing business models.

The two different stakeholders want to receive different benefits from eSIMs. Mobile operators want:

Lower costs for procuring and distributing SIMs.
Increased revenue from adding more cellular devices and related services, which can be done incrementally with an eSIM, e.g. IoT connectivity and management.
Better functionality and security compared to competing non-cellular technologies.
Limited risk of disintermediation, increased churn or OEMs acting as gatekeepers.

And device manufacturers want:

To reduce their “bill of material” (BoM) costs and number of design compromises compared to existing removable SIMs
To sell more phones and other connected devices
To provide better user experience, especially compared to competing OEMs / ecosystems
To create additional revenue streams related to service connectivityTo upgrade existing embedded (but non-programmable) soldered SIMs for M2M

The truth, however, is more complex than that – there needs to be clear proof that eSIM improves existing devices’ costs or associated revenues, without introducing extra complexity or risk. And new device categories need to justify the addition of the (expensive, power-consuming) radio itself, as well as choosing SIM vs. eSIM for authentication. In both cases, the needs and benefits for cellular operators and device OEMs (plus their users and channels) must coincide.

There are also many other constituencies involved here: niche service providers of many types, network equipment and software suppliers, IoT specialists, chipset companies, enterprises and their technology suppliers, industry associations, SIM suppliers and so forth. In each case there are both incumbents, and smaller innovators/disruptors trying to find a viable commercial position.

This brings in many “ifs” and “buts” that need to be addressed.

Contents

Executive Summary
Introduction: What is eSIM? Or RSP?
Not a Soft-SIM, or multi-IMSI
What do stakeholders hope to gain?
A million practical problems So where does eSIM make sense?
Phones or just IoT?
Forecasts for eSIM
Conclusion

Figure 1: What does eSIM actually mean?
Figure 2: eSIM standardisation & industry initiatives timeline
Figure 3: eSIM shipment forecasts, by device category, 2016-2021

Introduction

In this briefing, we analyse the bewildering array of technologies being deployed in the on-going mobile marketing and commerce land-grab. With different digital commerce brokers backing different technologies, confusion reigns among merchants and consumers, holding back uptake. Moreover, the technological fragmentation is limiting economies of scale, keeping costs too high.

This paper is designed to help telcos and other digital commerce players make the right technological bets. Will bricks and mortar merchants embrace NFC or Bluetooth Low Energy or cloud-based solutions? If NFC does take off, will SIM cards or trusted execution environments be used to secure services? Should digital commerce brokers use SMS, in-app notifications or IP-based messaging services to interact with consumers?

STL defines Digital Commerce 2.0 as the use of new digital and mobile technologies to bring buyers and sellers together more efficiently and effectively (see Digital Commerce 2.0: New $Bn Disruptive Opportunities for Telcos, Banks and Technology Players). Fast growing adoption of mobile, social and local services is opening up opportunities to provide consumers with highly-relevant advertising and marketing services, underpinned by secure and easy-to-use payment services. By giving people easy access to information, vouchers, loyalty points and electronic payment services, smartphones can be used to make shopping in bricks and mortar stores as interactive as shopping through web sites and mobile apps.

This executive briefing weighs the pros and cons of the different technologies being used to enable mobile commerce and identifies the likely winners and losers.

A new dawn for digital commerce

This section explains the driving forces behind the mobile commerce land-grab and the associated technology battle.

Digital commerce is evolving fast, moving out of the home and the office and onto the street and into the store. The advent of mass-market smartphones with touchscreens, full Internet browsers and an array of feature-rich apps, is turning out to be a game changer that profoundly impacts the way in which people and businesses buy and sell. As they move around, many consumers are now using smartphones to access social, local and mobile (SoLoMo) digital services and make smarter purchase decisions. As they shop, they can easily canvas opinion via Facebook, read product reviews on Amazon or compare prices across multiple stores. In developed markets, this phenomenon is now well established. Two thirds of 400 Americans surveyed in November 2013 reported that they used smartphones in stores to compare prices, look for offers or deals, consult friends and search for product reviews.

At the same time, the combination of Internet and mobile technologies, embodied in the smartphone, is enabling businesses to adopt new forms of digital marketing, retailing and payments that could dramatically improve their efficiency and effectiveness. The smartphones and the data they generate can be used to optimise and enable every part of the entire ‘wheel of commerce’ (see Figure 4).

Figure 4: The elements that make up the wheel of commerce

The elements that make up the wheel of commerce Feb 2014

Source: STL Partners

The extensive data being generated by smartphones can give companies’ real-time information on where their customers are and what they are doing. That data can be used to improve merchants’ marketing, advertising, stock management, fulfilment and customer care. For example, a smartphone’s sensors can detect how fast the device is moving and in what direction, so a merchant could see if a potential customer is driving or walking past their store.

Marketing that makes use of real-time smartphone data should also be more effective than other forms of digital marketing. In theory, at least, targeting marketing at consumers in the right geography at a specific time should be far more effective than simply displaying adverts to anyone who conducts an Internet search using a specific term.

Similarly, local businesses should find sending targeted vouchers, promotions and information, delivered via smartphones, to be much more effective than junk mail at engaging with customers and potential customers. Instead of paying someone to put paper-based vouchers through the letterbox of every house in the entire neighbourhood, an Indian restaurant could, for example, send digital vouchers to the handsets of anyone who has said they are interested in Indian food as they arrive at the local train station between 7pm and 9pm in the evening. As it can be precisely targeted and timed, mobile marketing should achieve a much higher return on investment (ROI) than a traditional analogue approach.

In our recent Strategy Report, STL Partners argued that the disruption in the digital commerce market has opened up two major opportunities for telcos:

Real-time commerce enablement: The use of mobile technologies and services to optimise all aspects of commerce. For example, mobile networks can deliver precisely targeted and timely marketing and advertising to consumer’s smartphones, tablets, computers and televisions.
Personal cloud: Act as a trusted custodian for individuals’ data and an intermediary between individuals and organisations, providing authentication services, digital lockers and other services that reduce the risk and friction in every day interactions. An early example of this kind of service is financial services web site Mint.com (profiled in the appendix of this report). As personal cloud services provide personalised recommendations based on individuals’ authorised data, they could potentially engage much more deeply with consumers than the generalised decision-support services, such as Google, TripAdvisor, moneysavingexpert.com and comparethemarket.com, in widespread use today.

These two opportunities are inter-related and could be combined in a single platform. In both cases, the telco is acting as a broker – matching buyers and sellers as efficiently as possible, competing with incumbent digital commerce brokers, such as Google, Amazon, eBay and Apple. The Strategy Report explains in detail how telcos could pursue these opportunities and potentially compete with the giant Internet players that dominate digital commerce today.

For most telcos, the best approach is to start with mobile commerce, where they have the strongest strategic position, and then use the resulting data, customer relationships and trusted brand to expand into personal cloud services, which will require high levels of investment. This is essentially NTT DOCOMO’s strategy.

However, in the mobile commerce market, telcos are having to compete with Internet players, banks, payment networks and other companies in land-grab mode – racing to sign up merchants and consumers for platforms that could enable them to secure a pivotal (and potentially lucrative) position in the fast growing mobile commerce market. Amazon, for example, is pursuing this market through its Amazon Local service, which emails offers from local merchants to consumers in specific geographic areas.

Moreover, a bewildering array of technologies are being used to pursue this land-grab, creating confusion for merchants and consumers, while fuelling fragmentation and limiting economies of scale.

In this paper, we weigh the pros and cons of the different technologies being used in each segment of the wheel of commerce, before identifying the most likely winners and losers. Note, the appendix of the Strategy Report profiles many of the key innovators in this space, such as Placecast, Shopkick and Square.

What’s at stake

This section considers the relative importance of the different segments of the wheel of commerce and explains why the key technological battles are taking place in the promote and transact segments.

Carving up the wheel of commerce

STL Partners’ recent Strategy Report models in detail the potential revenues telcos could earn from pursuing the real-time commerce and personal cloud opportunities. That is beyond the scope of this technology-focused paper, but suffice to say that the digital commerce market is large and is growing rapidly: Merchants and brands spend hundreds of billions of dollars across the various elements of the wheel of commerce. In the U.S., the direct marketing market alone is worth about $155 billion per annum, according to the Direct Marketing Association. In 2012, $62 billion of that total was spent on digital marketing, while about $93 billion was spent on traditional direct mail.

In the context of the STL Wheel of Commerce (see Figure 3), the promote segment (ads, direct marketing and coupons) is the most valuable of the six segments. Our analysis of middle-income markets for clients suggests that the promote segment accounts for approximately 40% of the value in the wheel of digital commerce today, while the transact segment (payments) accounts for 20% and planning (market research etc.) 16% (see Figure 5). These estimates draw on data released by WPP and American Express.

Note, that payments itself is a low margin business – American Express estimates that merchants in the U.S. spend four to five times as much on marketing activities, such as loyalty programmes and offers, as they do on payments.

Figure 5: The relative size of the segments of the wheel of commerce

The relative size of the segments of the wheel of commerce Feb 2014