eSIMs and the Disruption in Connectivity: A Threat and Opportunity Analysis for Telcos

eSIM is redefining the connectivity landscape, acting as both a double-edged sword and a golden key for telcos.

On one side, eSIM technology presents an unprecedented challenge to traditional business models, shaking the very foundations of customer loyalty and revenue streams like roaming fees.

On the other side, it opens up new vistas of opportunities, from global reach without the limitations of physical infrastructure to innovative partnerships with airlines and digital platforms. In this dynamic ecosystem, telcos find themselves at a pivotal juncture, where the actions they take today will significantly shape their market position for years to come.

Analyzing the threats and opportunities to Telcos in the context of Mckinsey’s 3 horizon’s model:

Key Threats for Telcos

1. Customer Churn: eSIMs simplify the process of changing service providers, leading to increased customer attrition.
2. Loss of Roaming Revenues: With more competitive pricing from third parties, traditional roaming fees could become obsolete.
3. Market Fragmentation: As airlines and other industries begin selling eSIMs, telcos face the risk of market dilution.

Opportunities

1. Partnerships with Airlines: Telcos have the opportunity to integrate their services directly into an airline’s booking process, potentially as a bundled package with airfare.
2. Third-Party Marketplaces: Listing on platforms like Airalo opens up an international customer base.
3. Competitive Pricing: By partnering with these new distribution channels, telcos can offer more competitive pricing, leveraging economies of scale.

The Airlines & Third-Party Marketplace Perspective

1. Ease and Convenience: Selling eSIMs directly to consumers during ticket booking captures customer attention when they’re most concerned about travel arrangements.
2. Pricing Leverage: Given that airlines and platforms like Airalo already have substantial user bases, telcos can offer eSIMs at better prices due to higher volumes.
3. Global Reach: These platforms provide the perfect channel for telcos to reach a global audience without the need for physical infrastructure.

Potential Risks or Downsides for Telcos in Forming Partnerships

While the partnerships do bring global reach & distribution, Telcos need to be cognizant of the underlying risks inherent in such partnerships:

1. Loss of Control Over Brand Experience & dilution of Brand equity

When partnering with airlines or third-party platforms like Airalo, telcos might have less control over how their services are presented and experienced by the customer.

The bundling of connectivity services with other industries (e.g., airlines) could diminish the perception of a telco as a specialized service provider, potentially diluting brand equity.

2. Revenue Sharing and Margin Squeeze

Collaborations often involve revenue-sharing agreements, which could lead to lower profit margins for the telcos, especially if the partner has strong bargaining power.

3. Regulatory and Compliance Issues

Different countries have distinct regulations concerning telecommunications services. Managing these complexities in a global marketplace could be challenging.

4. Risk of Cannibalization

Offering cheaper packages through third-party platforms or airlines might cannibalize more profitable plans that the telcos sell directly.

5. Data Security and Privacy Concerns

Partnering with external platforms might require sharing customer data, which could raise data security and privacy issues, especially under regulations like GDPR. This is particularly important as more Telcos are trying to monetize through Ads and display / push marketing campaigns on their user base.

By carefully assessing these risks and implementing mitigation strategies, telcos can form partnerships that are beneficial rather than detrimental.

In summary, eSIM technology represents a tectonic shift that will undoubtedly disrupt traditional business models. However, for those telcos that are willing to pivot, adapt, and collaborate, the eSIM revolution offers a broader canvas to paint on, turning challenges into stepping stones for future success.