Rising poverty, costs dampen eSIM adoption, impact on Nigeria’s card production

• eSIM, contactless payments may cut Nigeria’s SIM, ATM cards production by 60%
• Local capacity production stands at 100m
• Telecoms operators import SIM cards at $3 each
• NATCOMS wants innovation to remain optional, raises cyber concerns
• Technology billed to dictate market needs in five years • Banks to turn eSIM as eWallet platform

Nigeria’s conventional plastic subscriber identity module (SIM) cards producers may have found succour in the dismal number of people with access to smartphones as well as to the Internet, with indications showing that it might take a longer period for embedded SIM (eSIM) to gain traction in the country.

With early adoption, transition to eSIM is expected to cut the locally produced SIMs by as much as 60 per cent, according to analysts. They equally envisaged the impact of this transition on contactless card transactions in Nigeria through card production, which is seen as a challenge equally to payment cards.

For a country where less than 50 per cent have access to smartphones and millions are multidimensionally poor, alongside inflation, many Nigerians are focusing more on spending on basic needs than on gadgets.

As the world gradually shifts from conventional plastic subscriber identity module (SIM) cards to embedded SIM (eSIM), the possible impacts of the transition are being envisaged on Nigeria’s $75 billion telecommunications sector and multi-SIM country.

While the telecommunications operators have since the telecoms revolution, connected 325 million telephone lines (SIMs) with about 227 million lines active as of February 2023, Nigeria’s capacity to produce the cards, has risen to about 100 million SIMs in the country in the last one year, according to the Nigerian Communications Commission (NCC).

Indigenous operators, including SecureID, PayPlus, among others, have been at the forefront of producing SIM cards and other payment cards locally. The Federal Government claimed to have supported the industry with local content initiatives, which could even enable players to service other markets in Africa.

Since phones have become smaller, SIM cards have followed suit. From mini-SIM to micro-SIM to nano-SIM and now eSIM. For many years now, phone makers have been doing their best to cram as much value as possible in increasingly thinner phones. The smaller the SIM card, the less space it requires and the more value phone makers can provide in terms of hardware.

From the point of knowledge, eSIM is a digital SIM that allows users to activate their tariff plan from a carrier without having to use a physical SIM. It uses a small chip to authenticate a user’s identity with their carrier, as part of a global specification developed by telecoms trade body, the Global System for Mobile Telecoms Association (GSMA).

Global eSIM market was valued at around $7.6 billion in 2020 and is expected to reach $21.5 billion by 2027 with a compound annual growth rate (CAGR) of 16.1 per cent over the forecast period. The eSIM supports the entire ordinary network like 4G/5G, similar to the customary physical SIM. eSIM discovers its applications in associated vehicles, wearables, tablets, cell phones, laptop M2M, and numerous others.

Indeed, at a technology forum in Lagos earlier in the year, it was disclosed that the Federal Government saved about $12 million from the sale of locally developed SIM cards used in the telecoms sector. The Director of Public Affairs, Nigerian Communications Commission (NCC), Reuben Muoka, who disclosed this, said the commission, which renewed its determination to promote local content development and to reduce expenditure on foreign goods, said the $12 million was saved from August 2022 to January 2023, following the ban on foreign SIM cards in the telecoms sector.

The ban, according to him, compelled telecom operators to patronise local SIM cards that are produced and sold in Nigeria, as against foreign SIM cards that were imported at the rate of $3 per SIM card.

However, with the shift towards eSIM, the fear, though not apparent yet, is what becomes of the investments that have gone into plastic SIM card manufacturing in Nigeria and other parts of the world. The threat is also envisaged in contactless solutions, as the world gradually shifts towards emerging innovation, which plans to cut physical interactions.

Indeed, according to industry insiders, who said despite progress in the availability of eSIM devices, uptake of eSIM services remains sluggish as a result of several factors, especially lack of awareness and cost of switching to high-end mobile phones.

But they believed that the arrival of eSIMs gave the mobile ecosystem a new tool to help reduce Africa’s digital divide, stressing that they offer OEMs the potential to reduce costs by creating devices that do not require space for a physical SIM and therefore make it possible to cut the price of smartphones.

According to analysts, eSIMs also allow MNOs to speed up onboarding, eliminate distribution costs and create new sales channels.

According to checks, eight countries lead in the adoption and usage of eSIM. They are Brazil, South Korea, Italy, United States of America, the United Kingdom, France, Germany and Japan. In Africa, these include South Africa, Kenya, Nigeria, Tunisia, Rwanda, Chad among others.

Globally, eSIM cards have already been included in a wide range of newer high-end iOS and Android phone models, including Apple, Samsung, Motorola, Huawei, Oppo and Sony. However, only a handful of these are available to the local market – even though almost all the big telcos offer eSIM devices and services in Nigeria.

There are also technical complexities associated with connecting the service, which requires telcos to educate end-users and work on improving the customer experience and thus the benefit thereof.

Embedded into the hardware of a smartphone device, it allows consumers to simultaneously store multiple operator profiles on one mobile device, and switch between them remotely, though only one can be used at a time.

The new frontier in SIM technology has been touted as a game-changer in phone connectivity, with experts saying it will play an important role in accelerating the local mobile virtual network operator market.

The technology, according to experts, will eventually be adopted across all phones, to become mainstream within the next five years globally, as the traditional SIM card is slowly phased out.

However, high costs remain the key barrier to adoption, said International Data Corporation (IDC) Senior Research Analyst for mobile technologies and image printing and document solutions for SA and Sub-Saharan Africa, Arnold Ponela.

Ponela said as more vendors start supplying eSIM-supporting phones, the technology would be more affordable and more accessible to consumers.

While usage is still relatively slow in Nigeria and other parts of Africa, adoption of eSIM, according to the GSMA, in most major markets, is becoming aggressive. In places like North America, Europe and the top 30 markets, eSIM is nearly ubiquitous. In total, GSMA said as of 2021 ending, 175 mobile network operators (MNOs) have launched an eSIM service for smartphones worldwide.

GSMA Intelligence forecasts that by the end of 2025, there would be 2.4 billion eSIM smartphone connections globally. That is 33 per cent of the total number of smartphone connections. Accordingly, the report said by the end of 2022, there were half a billion eSIM smartphone connections – 10 per cent of the market.

In Nigeria, MTN, Airtel and 9mobile are operators currently offering eSIM service. MTN, actually confirmed traction of the new services on its network, though, couldn’t provide data as of press time, “but it is on course. Remember, we started with an NCC-approved trial in 2020, but since then, we have seen traffic towards that,” an official told The Guardian.

Indeed, industry experts have observed that slowly but surely, it looks like eSIMs will take over mobile devices because they provide a new level of convenience and accessibility for everyone. As long as a carrier supports the eSIMs and a customer’s phone supports them, then that may be all a customer needs to start using the new technology that will enable the subscriber to switch from one network to another, without the use of SIM cards.

While welcoming the development in the SIM card space, the Chief Executive Officer, eTranzact PLC, Niyi Toluwalope, said it will greatly reduce the cost of producing SIM cards by the telecommunications companies as these costs can be channelled to providing better data infrastructure that will make network services work better.

Toluwalope said for payment technology companies “we are big on innovation. As a key driver of innovation in the payment space, we are always quick to adapt to technological developments that will enhance the digital payment process. This has been our practice since the inception of our company.”

Toluwalope

According to him, the use of eSIM will greatly impact the payment space in various ways, saying it will offer varied payment options for the subscriber, as he doesn’t need multiple devices to carry out electronic payment transactions. He added that it will further help push the Central Bank of Nigeria (CBN) cashless initiative as the Unstructured Supplementary Service Data (USSD) channel is expected to be more stable.

The eTranzact boss said it will aid a quicker adoption of mobile/digital payments as the issues with SIM card damage and mobile network compatibility will be a thing of the past and greatly eliminate the issues of SIM cloning, which is prevalent at the moment.

He, however, noted that there would be a drastic drop in the production of plastic SIM cards, as more subscribers adopt eSIMs.

According to him, when the Minister of Communications and Digital Economy, Prof. Isa Pantami, first announced the local production of plastic SIM cards, “it was much heralded. But technology dictates what the market needs. Just like in digital payments, we have to keep up with what the customer needs, and how he wants to serve. I believe the mobile networks will be glad to jettison the production of SIM cards.

“According to a recent report, the eSIM market is expected to grow from less than 10 per cent to 35 per cent, which translates to about $900 million by the end of this year. This should further boost infrastructure development in that sector. The sector is already becoming a major contributor to the nation’s GDP,” he stated.

Toluwalope explained that eSIM would play a dual role – both complementary and disruptive, saying, firstly, it will complement the already existing payment channels and provide additional options for users to quickly make payments using their devices.

Secondly, he said this will provide the mobile network operators (MNOs) with an opportunity to layer financial and other service offering directly to the subscriber’s mobile phone through the eSIM module, thereby eliminating the downloads of other payment apps directly from the App Stores. He said this might cause a slight disruption in the payment space, and complement other players. The subscriber is the ultimate winner in this case.

“I see the eSIM technology being quickly adopted as more Original Equipment Manufacturers (OEMs) produce mobile phones that solely work with the eSIM technology,” he stated.

Speaking on the likely security implication, Toluwalope said at eTranzact, they have in place measures against breaches, stressing that there is a measure against SIM cloning. He said there is an IMEI lock capability in place for such attempts.

He explained that each mobile banking or payment application downloaded is tied to a specific device, which will be a primary device, adding each time a request is going from this device to the back-end server, the request will be matched with the device token at the back-end if it matches, the request goes through, if it does not match, the request will fail.

“All these and much more have been put in place as we envisage there might be efforts from hackers and SIM cloners,” the eTranzact boss said.

The President of the National Association of Telecoms Subscribers of Nigeria (NATCOMS), Chief Deolu Ogunbanjo, said eSIM should be an option, as there would be fears around its security architecture, especially as hackers are on the prowl daily.

“Very noble innovation! But how confident are we that the network operators will get it encrypted to avoid possible hacking since it is electronically-based? Adoption should be by choice. We believe the market will respond adequately well to it and reduce the production of plastic SIMs.”

While contactless payment is expected to deepen fintech operations this year, according to the Co-founder, eMagination PR, Rarzack Olaegbe, who noted that aside from the effortlessness of using a contactless for payment, it will combat fraud in the system.

Laegbe said different technology trends are beneficial to the operators and end users, saying already; there is ChatGPT, which is disrupting different sectors across the globe. He said it is coming to journalism soon.

“So, the advent of eSIM is another technology trend. And like all new technology, eSIM will bring competition and dynamism to the card industry. It is a global trend. It is not limited to Nigeria. Some telcos have commenced trial deployment.

What this portends is that the number of printed personalised debit cards and old SIM will be reduced; the 100 million printed cards will be eroded. The card manufacturers will experience low patronage as a result of this new phenomenon. More telcos will embrace eSIM. Banks may turn to eSIM as an e-wallet,” he stated.

The eMarginations PR co-Founder, said obviously, the card manufacturers should expect a reduction in the number of the cards printed, saying it is akin to the days of the physical recharge cards before the migration to electronic recharge. He, however, said the printers would still be in business, adding the chip on the eSIM will be printed and configured either locally or abroad.

Telecoms expert, Kehinde Aluko, said consumer use cases are expected to drive growth in the eSIM market in Nigeria and other parts of Africa in the short term.

Looking further ahead, Aluko said as 5G networks begging to replace 4G networks and data speeds increase, there are several exciting possibilities that eSIMs can enable in the IoT field, which include that connected vehicles that can be authenticated and secured with over-the-air updates; smart meters for energy companies; intelligent drones for monitoring buildings and the tracking of assets, from containers to livestock.

“While the eSIM market remains in its infancy, carriers, which get on board now could benefit both themselves and their customers. Crucially, they could also play an important role in creating the digital economy that Nigeria and other African countries are building over the coming decades,” he stressed.