What is eSIM technology and how will it impact the telecom sector?

Apple’s latest iPhone could spell bad news for telecom companies. The upcoming iteration of the iPhone is set to debut a revolutionary SIM card technology that lets customers switch between carriers at will.

Mobile telephony could be disrupted by the eSIM, especially in the United States, where manufacturers usually team up with carriers to lease phones to users with a SIM lock. A SIM lock or network lock is a restriction built into CDMA and GSM phones to prevent their use on other networks.

However, telcos' stranglehold over customers could be easing. Given the size and reach of Apple’s global user base, carriers could face a tough task in retaining customers if the technological breakthrough makes it through to the production model. Moreover, it is only a matter of time before other handset manufacturers adopt network-switching technology for telephony.

Google’s Pixel 2 and Pixel 2 XL were the first mobile phones to use eSIM technology. But the luxury of not popping a SIM card into these devices is reserved only for subscribers of ProjectFi, Google’s in-house mobile virtual network.

What is eSIM?

Unlike the subscriber identity module (SIM) technology that is in use currently to identify customers, eSIM technology does not use a physical SIM card.

Under the present mechanism, a plastic card with metallic contacts is inserted into a dedicated slot in a handset to allow it access to the carrier’s network. SIM cards are purchased from telcos after agreeing to a contract and furnishing the requisite identification documents. To switch carriers, customers will have to acquire a new SIM card.

The eSIM technology will allow customers to migrate between carriers by switching spectrum automatically at the click of a button. This could enhance competition in the telecom sector by prompting the repeated attrition of customers to networks offering greater discounts.

What makes eSIM different is the fact that it is not a physically removable module. It is soldered onto the circuit board, thereby rendering the dedicated SIM card tray obsolete. Mobile phones of the future could also get slimmer and sleeker with the elimination of a SIM tray.

Which companies manufacture eSIM units?

Netherlands-based Gemalto and the Munich-headquartered Giesecke & Devrient are among the few companies that manufacture eSIM units. The 164-year old privately owned German company Giesecke & Devrient was incidentally the first to have made the original SIM card.

The Swiss company STMicroelectronics (STMicro) forms the final member of the triad with ties to the latest range of iPhones. Barron’s reported that the three European semiconductor manufacturers have won contracts to install eSIM technology in upcoming iPhones.

eSIM units manufactured by STMicro sell for around $1, which means a deal with Apple would generate anywhere between $80 million and $100 million. STMicro is already a component supplier for Apple’s iPhone X, providing parts for the phone’s face recognition unit.

How will eSIM affect telcos?

Phones sporting eSIM technology will make changing carriers comparable to switching between WiFi networks. By making it more convenient for users to experiment with the different service packages offered by networks, customer retention will become more challenging for telcos. Competitive pricing to draw customers could also lead to reduced margins.

Apple’s attempt at minimising the role of telcos in mobile device authentication and servicing has not gone down too well. The United States Justice Department is investigating claims that Verizon, AT&T, and the telecommunication standards organisation GSM Association, colluded to hinder the development of eSIM technology.