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eSIMs and the evolution of the CSP

Podcast episode 52

The SIM card is undergoing a transformation – one that will transform the communications service provider (CSP) in the process as #IoT device growth accelerates and the enterprise outspends the consumer. Charles Reed Anderson, founder of CRA and associates and Nokia’s Thomas Hsu say the #CSP can’t fight the future, it should join it.

Below is a transcript of this podcast. Some parts have been edited for clarity.

Michael Hainsworth: Behold, the lowly SIM card. The subscriber identity module is undergoing a transformation to an onboard chip. eSIMs will eventually be replaced by iSIMs where the technology is embedded directly onto the primary chip of the device. The eSIM will do more than just save a phone company worker from swapping out sim cards. It will create new business opportunities. As service can be turned on off and updated remotely. Exploiting eSIMs requires a new approach from the communication service provider.

Charles Reed Anderson calls himself a connectivity pragmatist from his perch in Singapore he is witnessing the massive transformation that has just begun. He says the CSP will become just a spoke in a 21st century communications hub, not the hub itself. He was joined by Nokia's product manager, Thomas Hsu who concurs. Well, 2.7 billion eSIM enabled devices are expected to ship within the next four years. The majority will be IOT and non smartphone related, but the recent launch of a Windows 10 laptop with built-in eSIM failed to take off. I began by asking Charles what the industry learned from that failure to launch.

Charles Reed Anderson: Well, if you go back, when Windows did that big push with some of the laptop manufacturers, I think it was actually back in 2016. And the idea was that some of these more travel laptops were gonna have eSIM and you should be able to rock up at any airport, any in any country and just go online real quick and pick out any of the different providers to buy your connectivity. The problem they had was when they launched it. If I remember correctly, it was only about nine or 10 operators globally actually supported it. So basically you built in functionality, but the operators didn't play ball and it just sort of fizzled away. So what really needs to happen next is number one, the operators need to get this story straight. What are they going to do about eSIM? And operators, a lot of them think it's just a big risk  and they make it too easy for the consumers or enterprise to switch around.

But there is a lot of opportunities out there. So we need that to happen, the operators need to really take control of the situation and have a strategic viewpoint on it instead of just trying to defend against the existing revenues. But then also what I think you're going to see is there's a big role to play there, not only for the operators, but more of those aggregators, the people who aggregate content worldwide, where I should be able to rock up into any country in the world and buy connectivity at wholesale prices. And this is where it'll get a lot more exciting.

So I think you'll see people learn from what went wrong in the past. I know now there's a big push about  you're going to have 5G enabled laptops. They want to start putting 5G eSIMs in there as well. And now they're going to look at putting 5G on the modem and the chip set going forward. That gets a lot more interesting. So it will evolve. We tried it once made a little bit of a mess of it. So we'll learn from that and hopefully it'll evolve and become a much better experience going forward.

Thomas Hsu: Yeah, Charles, that's a great point. Since 2006, I think the industry came a long way from then a lot of service providers already supporting eSIM devices today.  The operators need to embrace this looking for new opportunities and new service that they can provide, work with maybe the integrators or, or serve the other IOT service providers to provide better services for their enterprise customers, and also maybe even help their subscribers, who's using their device.

For example, automotive - it's been taking off. And that seems to be a sector that's really going to do more, because there's so much use cases moving forward, like lost and stolen vehicles, right? They can put that as a service. Vehicle health monitoring, that could be another service. Even the rental service or per use rental service could be something at a value. It is also a combination of the use cases required by the industry and also by the society and the connectivity and the ecosystem that had to all come together. And I think now is a perfect time for this to happen, especially with more people adopting to eSIM and iSIM and actually coming out into the market too.

MH: That's a fascinating point, the idea that sure you could throw an eSIM or an iSIM into a laptop or a consumer grade device, but it sounds like the real big money will be made in this evolution to eSIM in other areas and automotive seems to be really right for the picking in that department.

CRA: Yeah, and the automotive side. I think it's going to be very interesting because the deals that are being done right now, where people are making money, it's about inbound eSIM. And what they're basically doing is talking to the automotive manufacturers saying, if you wanna ship in your vehicles into, in my country, I have the best networks. So a lot of the incumbents are going after this right now because it's best for them. They have the best network coverage and quality, but they do it fits for everything else as well. You've got eCall requirements in some countries. Software upgrades. It could be door locks, you name it. There's a number, different pieces of connectivity. But there's one operator in a medium sized country. And I can't tell you which one it is. They did three deals in a period of three months, about a year and a half ago.

And that was $30 million. Now why I like these types of deals for operators. They're selling pure connectivity, that's it, that's what they're good at, that's their core. And those are high margin deals because there's no real extra requirements to it. So I think that's going to be a very exciting thing to see when they realize, how do we leverage some of these big ticket inbound items? And this is the first wave. Once you start getting into iSIM, which maybe we'll talk about later, when you start integrating systems in the chips, once you start shipping every type of item in the world, born connected, whether it's a white good, your dishwasher, a washing machine, whatever it might be. If those are all coming connected, those inbound deals, they might be small per connection, but they're going to be massive when you look at the volumes coming in.

MH: I was thinking when we were talking about automotive that, oh, this would be all about, the self-driving car. And that would be, vehicle to vehicle communications and all that kind of stuff. But then, Thomas, you point out, it could be something as simple as tracking a stolen vehicle using that kind of technology. But Charles, what about some of these new business models that are going to come out of this? Yes. We can find some really neat ways to put eSIM into everything from a dishwasher to a car, but where are we not thinking that we really ought to be?

CRA: One thing that I actually worked on a couple of years ago as a partnership with a company called Omate, and they make these really cool consumer wearables, but the wearables actually for elderly care management and taking care of the elderly people that have everything from monitoring your diet personal diagnostics. But then it can remind you of when you have to take your different types of supplements or pills, medications, it also has a 4G emergency monitor. So it isn't as simple as the watch, they work with a platform provider that provides emergency services. The challenge they had is when they launched in France, it took them two and a half months to negotiate a deal, to get a SIM put in there because they couldn't guarantee the volumes, the costs went through the roof. They go to the U.S. Same exact thing again.

So I set them up with one of the providers on this that has global eSIM coverage into 600 mobile operators. They stuck that eSIM in the device. They can now launch in any single country in the world. And that device is born connected. Now that becomes a very interesting proposition for anybody who has a startup. It's one thing, if I'm a very large automotive manufacturer, and I say, I'm going to ship a 100,000 or 500,000 automobiles in, if I'm only going to make 20,000 pieces of a device to test it at the beginning, I can still use an eSIM and get very good pricing on it. So it transforms that whole model of how you take things to market globally. And it eliminates one of the big challenges you have along the way, which is negotiating contracts with carriers in each individual country.

MH: So Thomas, it sounds like what Charles is trying to tell us here is that the CSP community has an opportunity to provide a remarkable amount of service. It may be low value service on an item by item basis, but, how do we do it. Volume!

TH: Yes, that's exactly what I've been seeing in the industry too. As I'm talking to our various customers, the CSP customers, especially, they also recognize that they need to change. They need to adapt  the new direction because the IOT is here to stay? The eSIM is here to stay. The iSIM is the future, what's going out right now, is they're still using the existing SIM technology, the process and how to do end to end operations, supporting their eSIMs and iSIMs. And that's not sustainable.

So definitely the CSP need to change that. The second thing is that all the enterprises, like Charles said, they want connectivity throughout the world. As the device move, they don't want to deal with each individual CSPs to sign a contract. They want global service. They want something enabled, turned on without too much effort and just roam across various countries as the device moves through, especially with trackers, for example. The shipping companies, when they move through country to country, they don't want to deal with roaming. If you think you're going to have a little tracker on every single item, moving forward on every single crate, think how much IOT opportunities out there. And this is where the volume makes sense.

MH: Charles, you did say earlier though, that telcos do pure connectivity best that's their thing. But how do we ensure that they don't become nothing more than a commodity provider? You know, how do we avoid the CSPs becoming little more than dumb pipe 2.0.

CRA: What they need to do first of all, is recognize at some point it's very profitable to be a dumb pipe. So those examples, like those inbound eSIMs, the incumbents should be jumping all over this because that's going to be the easiest money they're going to make in the next few years. But when you want to start looking at the ecosystem, they really need to carve out their niche and think about where they can play in this space. And the challenge you have with a complex IOT solution, or pretty much any solution. You've got a piece of hardware that connects over a network. Then you've got a number of different platforms and an app it's got to be pulled together by an SI. You know, there's many services around, it's all got to be secured. Its multiple products from multiple vendors to get that one single solution.

So what role do they play in that? And there are certain roles where they're really going to struggle to be the person that will own the customer relationship. However, look at what someone like Telstra has done. They own the logistics market across Australia. And they know that connectivity is like the main thing you need in logistics. You have the components of it. They could buy people who do mapping software or routing software, and they pulled it all together because they knew that's a good niche to play in. So it's partly about building up your ecosystem partners. So you have people who can round out the whole solution, but find those roles. And those use cases where connectivity is the real differentiator and leverage that, and go after that portion of the market.

TH: Well, the way I'm looking at it that CSPs can extend their service to the enterprises, for example, connectivity is still core, but they can also provide remote SIM provisioning as a service,  for example, in the stack, they can also provide device management or even data management for enterprises who don’t want to spend the time and deal with all this administration in the background, even security management as a service, so it could be quite a few things, the CSPs can contribute into this ecosystem. But each CSP needs to figure out what is their niche and which market, which segment they can play in. I think that will be the future of this technology eSIM enabled environment.

CRA: What you've just brought up there. Actually, it gives me an idea about where I see this going in the next two to three years. And one of the big plays is going to be going after those MVNOs or the new style MVNOs in the future, and eSIMs play a major component, but some of the operators now are focusing about making all of their backend systems, cloud enabled and cloud native and virtualizing them. Now, once they do that, they can then basically white label their backend systems to these new MVNOs. And they can use that as a whole revenue stream. So there you're talking about doing the whole, basically Telco platform you can do as a service as well. And I do think I know of a few operators doing it, but I don't know how public it is, but this gets to be very exciting because this really can fast track. You know, these operators now can then compete against the traditional MVNEs or the mobile virtual network enablers.

MH: Why do you believe operators will never be the hub of a relationship? CSPs are accustomed to being at the top of that food chain to start mixing metaphors. How should a CSP view itself in that relationship?

CRA: It depends on the vertical you're looking at, if I look, I do a lot with industry 4.0, so if you're going to go into a manufacturing plant, the mobile operators, not at the forefront, and it really goes down vertical by vertical. When you're going to start looking at things that require connectivity at the core, like a logistics type solution or a tracking solution where connectivity is the main thing, that's where operators can be, that they can own the customer relationship. When you get into healthcare, it's highly unlikely, they're going to be talking to an operator first and not somebody who makes operational technology or the hardware, that's really the important thing. So each of the different verticals and the use cases with in it will have different requirements. There're certain things that will be horizontal and simple. Like they'll have a big role to play in 5G cameras, for instance. Why don't we stick in eSIMs in 5G cameras, rolling them out globally from one organization, because I can therefore control the cost connected in any country and that becomes a lot more exciting.

But they need to understand that there is thousands of use cases. And there is a portion of those where they can be the one that owns the customer relationship. But the fact is there's tons of them where they're not going to be anywhere close to owning the customer relationship. That's why they need their partnership models to evolve. We're in those ones where they're not going to own it anyway, at least make sure you're getting the connectivity component of it. Those are the ones where you're not going to win it. You might as well at least get your bit pipe on it, but on the other ones where they can control it, build out the models to actually go after that.

MH: So of the 2.7 billion devices that we'll expect to have eSIM in them, in the not too distant future, 1.4 billion are IOT based devices. How does the communication service provider relationship evolve? What does that look like in that vertical? Because again, they're accustomed, just consumers largely, and a very different type of relationship.

TH: The CSPs, need to evolve, like what we just discussed, they need to evolve to serve MVNOs that's one thing. Maybe provide you the entire platform, or the backend, or even the network that we're able to enable MVNOs supporting the enterprises. For example, that could be a big business moving forward. CSPs can provide different specialized services for enterprises to streamline this whole thing. They need to make things as simple as possible for enterprises to orchestrate, to onboard or inbound new devices into their network, unless they can get to that point. It's hard for them to work with enterprises too, to onboard various devices, also because each enterprise device might be different. So it's not just eSIM or iSIM is also the device and how the interoperability related to that device also plays a key role into this technology right now.

CRA: Telcos and mobile operators in particular are going to be going through a massive cultural shift, from what their businesses have been for the past 20 years to what they need to be in the future. And some of them have been trying it for years and some of them have did a good job of evolving their offerings. They're bringing in those required new skill sets. The same people who sell a mobile phone contract or a data contract aren't the same people who could sell a complex solution into a manufacturing plant or an automotive firm. So they need to bring in different skill sets. And it's difficult because it's a chicken and the egg.

You want those people in there, but they're expensive head count, and you don't have those revenues coming in for a year or two years. So they need to get around and find a way to do it. But what I really do believe is especially for the incumbent operators in each country. There's an enterprise offering you should be going after. And if the incumbent doesn't then the tier twos and tier threes, have an opportunity because businesses are going to be evolving and driving digital transformation. And if you can't get the solutions you want from a mobile operator, you're then going to go down the stack or up the stack and find somebody who can actually provide you those solutions. And if they don't create these enterprise offerings that are compelling and transparent in the pricing. They're just going to get left behind because you can always go out there and find that connectivity from somebody.

MH: What are the consumer side though? What about the consumer and the instant access to competing services without having to physically change a SIM, go down to a mall, talk to a guy at a Kiosk, all that kind of nonsense. And how does the MVNO evolve as onboarding becomes a matter of clicking a button.

This is where I think Charles and I both are thinking about there had to be new services. They need to  look at the value of, for example, they might be able to bundle services in such a way that for the consumers, they might bundle IOT devices, the white goods Charles mentioned, and maybe are connected to their auto or as part of their service. So, it's a one stop shopping for various IOT devices and transformative as a roll into one. So that could be a new way of moving forward.

CRA: I'm very excited about the MVNO model, which makes me sound boring in a way, but I'm not thinking about it from the very low cost. Let's just give the cheapest offering to a certain affinity group. I think we're going to have a whole new realm of different types of MVNOs coming out. Number one, I think what you're going to see is laptop manufacturers becoming an MVNO. I already tried to work on a deal with this with one of the big global laptop manufacturers and one of the aggregators of data to stick, eSIM into the laptops and allow them to sell connectivity. So the same model that Windows was talking about, but don't rely on the operators in each country. This laptop manufacturer could then build on a whole new revenue stream. The problem is this was two years ago and he didn't have the backend systems to do it. Now with these new MVNEs mobile virtual network enablers coming out that solve the whole back end as a service.

This is going to transform and anybody can become an MVNO. One of the thing that I get very excited about was a couple of years ago in Indonesia, this, I don't know how, but this went very much under the radar. They launched a vSIM. Now what the Indonesian regulators said was it's okay to launch a vSIM, which means you can have an app on your phone. As long as there's a modem, you can buy connectivity then at a very low price, and Indonesia allowed this to happen because they have a very low mobile penetration in a lot of their population. I think overall, they were at the time, maybe between 70% and 80% mobile penetration, this becomes transformative because now if you're talking about a vSIM or a virtual SIM, it's an app. So what can you do in that? Well, I can stick that vSIM inside of any super app.

If you've got an Uber app or in Southeast Asia, we have Grab, or Gojek why don't I stick that app inside of it. And suddenly all of these super apps become a mobile provider as well. And  that, is where it starts to evolve even further, because then why don't the big brands globally go after this? The ones who don't own carrier relationships. So think about somebody like an Amazon, for Apple, it'd be difficult. They sell too much through the carriers for Samsung they sell too much, but Amazon's got a big global brand. They could almost try to rekindle the rekindle is, probably the bad word, because we're going to talk about the Fire phone, but the idea that they could try and get that going again and take on the whole global market at the high end enterprise sector. So this whole MVNO market is going to get very interesting and very competitive because you don't have to be a telco to do it anymore. You can buy all those backend services as a service, which means the costs are just easy. It's an easy play. If you've got a brand, you can become one.

MH: And to Thomas's point of a bundling services. I wonder if we flip that script to the other side of the equation, social networks have more subscribers than large telecom companies, but unlike telecom, they do have a big churn problem. One could easily tie in say new filters or functionality that only an MVO subscriber would get. Do you expect enterprises to leverage eSIM to build this sort of low cost consumer mobile service as a means of customer retention.

TH: I think that will happen. For example, a couple of cases that might be happening pretty fast was 5G slices. The enterprise who own the slice. Streaming operators providing services on their slice, and they can roll this out as a MVNO. Like what we just talk about as a different, as a one-stop shopping service. So they can just switch over to that, just providing the data plan as included as part of their sign on service. So when you sign onto a 10 months deal or for streaming movies, they can get this type of environment.

So, and the other thing I was also looking into is like, e-bikes, this is happening in Europe over the place. So those guys can be MVNOs, as they swipe their so-called their credit card to purchase temporary, our rental or leasing for the e-bike, all those services come with it. There could be a fitness monitoring for their e-bike. So those can, could be possible services bundled as when you rent the e-bike. So, this can also go into these in cars. So there could be a lot of services or applications out there. People haven't explored yet.

CRA: What are the next steps on the path to eSIM adoption? Is it the adoption of eSIM leading to the integration of the SIM into the actual chip, the primary chip on any given device into iSIM.

TH: Yeah. The path to eSIM is pretty much here already. Everybody needs to embrace this, but while we think the next level is the path to iSIM moving forward, like Charles said, the adoption is not quite there yet. The consumer will be the first one, but we should be ready for that. There's many use cases, for example, digital identity, for M2M devices. So there could be a possible way of providing more secure connection and authentication into this space, for device to device communication. For a consumer, there could be ability to tie various applications into this digital trusted identity that service providers might able to help through this platform.

So basically you don't have to lock into every single apps or services that you might have to deal with today, this could be a centralized digital ID that with trusted environment, that service providers serve as a service moving forward. Security is another challenge, the industry is facing to deploy IOT devices moving forward, and we need to solve their problem to enable IOT use cases.

CRA: Well, my perspective on that is, I mean, the iSIM is going to go forward, but by the time they get it into the chip sets, we've got a couple of year lead leeway, so we can start working in the business models now. I honestly think the next step is, operators need to take a step back and figure out what their strategy is. And depending on whether you're the incumbent or a tier two or three tier three or MVNO, and depending on the country, you're in, this is going to be a different play for it. You know, I'll look at it from the Singapore market. I mean, obviously if I'm the leading player here, I want to start owning that enterprise market. So I should be building out the capabilities, but not from the tier two or tier three. If let's say, if I'm M1, I want to go after that space for more the consumer side and try to equate some of the, maybe the tourist revenues.

And they've already done eSIMs on that. But if I'm like an M1 and I'm owned by Capital, which is one of the biggest industrial players here, that's in Singapore. They own everything from offshore to land oil and gas, you name it, they've got everything. Why wouldn't I start working closely with them and start leveraging them for the enterprise business and then build out a whole little SI or partner with an SI and go after it. So every operator has an opportunity. It's just about building out the right ecosystem and leveraging their strengths, their weaknesses, their partners, their owners, in some case. And what I'll say, and this is like the best example you have is for me, the most fascinating operator I look at globally is actually Tru out of Thailand. Now it's only the number three ranked operator in Thailand by subscriber base. However, it's owned by a company called CP group, which is literally one of the world's biggest companies that nobody knows about. They're in the top three for pork, shrimp and poultry farming, but they're also in every single vertical except for defense.

MH: Oh, gee, I thought you were going to tell me you're going to put them in the chickens.

CRA: No, no, you don't have to put them in chickens, but they do have good industrial sensors they're using for chickens to monitor the gases in there. But the idea is that when you own this operator and you're going to be investing in solutions, why even take them to market, you own the market. You have some of the biggest companies in the world that are part of your company. They're just deploying everything internally. And they have one guy who sort of oversees corporate venture capital, the SI arm, and then he's the CTO for the whole CP group business. So he owns it all. He can just sit in and say, I want to invest in this, build this. We're going to go deploy it here. This model is fascinating. It's not possible to do it everywhere, but if you want to watch for innovation, that's one to keep an eye on.

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