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Andrew Parkin-White, MEF Advisor on IoT, is joined by Steffen Sorrell, Chief of Research at Kaleido Intelligence, to discuss their latest report – eSIM Market Outlook, investigating how eSIM is opening up new opportunities for and presenting challenges to enterprises and service providers.

The traditional SIM has been based on a removable smartcard plugged into a phone or M2M and has served the market well for a long period as an effective distribution model for MNOs. The challenge facing the traditional SIM began in the M2M market and particularly for automotive applications with replacing SIMs and having different connectivity agreements. The eSIM is a programmable SIM that can be updated over the air.

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Two specific specifications exist – the most mature is the M2M specification, launching in 2016, and pushes an MNO profile over the air. The consumer specification is less mature and is used in phones, tablets and watches and uses pull over the air for delivering the MNO profile onto a SIM card. The M2M specification is more complex particularly for RSP (remote SIM provisioning).

In the IoT market, eSIM is supporting opportunities in enterprise and consumer applications fuelled by traditional M2M markets and consumer applications, such as smart watches, tablets and laptops. The installed base will be over 220m by 2020

The launch of eSIM compatible smartphones from Apple acted as a catalyst for the market and other vendors followed suit. By the end of 2019, there were over 200m eSIM compatible smartphones. Kaleido Intelligence expects to see 800m eSIM compatible smartphone shipments by 2025 globally – the majority will be Europe, the Americas and Asia. China and India will be significant markets. The installed base by 2025 will be around 3bn eSIM devices. One of the challenges is regulation – the Chinese regulatory authority has not approved eSIMs for smartphones nationally. IPhones are shipping with dual SIM trays.

Kaleido Intelligence expects the approval to change in 2021. The pandemic has impeded progress with eSIM market growth and more MNOs are now supporting eSIMs with simplified switching, although this could give rise to increased customer churn. Attitudes are changing as there are clear upsides for carriers.

In the IoT market, eSIM is supporting opportunities in enterprise and consumer applications fuelled by traditional M2M markets and consumer applications, such as smart watches, tablets and laptops. The installed base will be over 220m by 2020 with Asia Pacific accounting for large volumes. The IoT market has been affected by the pandemic, for example automotive eSIM shipments have fallen by 20 to 25% in 2020.

Growth will return to the market with further ecosystem simplifications and a strengthening business case for IoT. Kaleido Intelligence forecasts that by 2025, shipments of eSIMs in IoT will be over 350m by 2025.  By this time, the installed base of IoT eSIMs will be 1.8bn devices from 300m in 2020.

Automotive is still the key vertical for IoT, particularly in Europe. Outside automotive, logistics, distribution and industrial applications are now looking to eSIM as it enables global connectivity and interoperability across operators and technologies. Using a single SIM during manufacturing can enable increased simplicity in complex, multi-country deployments. Cellular IoT has been based on roaming and some countries are now requesting that data generated from an IoT application does not cross borders, requiring a local server. ESIM can help in this scenario.

Activation rates for eSIM smartphones are presently at a low proportion but will increase significantly reaching 43% by 2025, depending on increased customer awareness through MNO and MVNO marketing. The rate is higher for M2M but owing to complexities and costs, the eSIM is not always used. Market fragmentation adds to the challenge. Seamless onboarding through the discovery service enables fully digital onboarding for consumers by using an app to select the MNO. Split billing and bundled subscriptions represent an opportunity to increase customer loyalty. In the future, consumer eSIM profiles could be used for M2M to make use of a simplified system for connectivity.

Key benefits eSIM for the consumer market is the flexibility in selecting the service provider. The market is immature at present. Fully digital onboarding will increase the ease of connectivity for the consumer domestically and internationally. Downloading a local profile and data package could make significant savings on roaming costs.

On the IoT side, it is challenging to apply eSIM to LPWAN applications but typically the power consumption is too high for on air profile downloading and there is a question mark over how the market will develop. There is the prospect of a GSMA compliant iSIM which would offer the advantage of reduced bill of material, lower power and no separate hardware required. It is unlikely that commercialisation will not take place until at least 2023.

The eSIM offers new services and applets can be offered by the MNO, SIM vendor or third party and could be used for easy onboarding to cloud services to decrease complexity and integration requirements for profile switching. ESIMs offer connectivity on a global scale which is important in the M2M market. Domestic M2M customers often have international requirements and a service provider needs to be able to offer this

MNOs have a significant opportunity from eSIM. MNO connectivity revenues will be $180bn by 2025.  ESIM shipment sales will surpass $1bn by 2023 and over 320 RSP platforms are currently in use for eSIM connectivity.

The webinar video goes into greater depth on the issues raised and also contains further questions from the audience.

Andrew Parkin-White

MEF Advisor