500 million new mobile connections are expected to be added this year which means 500 million new sims. On top of that Wireless Intelligence estimates that quarterly churn rate for the world is 3% which means annual churn rate is 12%. Taking 12% churn on existing 5 billion connections mean that additional 600 million new sims will be manufactured without any compelling reason. Because the user already had a sim card in this particular case, these new sims will not add any value to the telecom world apart from few manufacturers making money.Apart from unnecessary costs associated with manufacturing these sims, there are costs associated with either recycling the old sim card or the environment related costs if the sim just stays somewhere in the environment.
I have always struggled to understand the logic behind changing the sim card every time a user is changing the service provider. Surely there is technology available which would help the user use the same sim card with different service providers. If I have to change my electric or gas provider, I dont go about changing my meter circuitry or components inside it. I just simply call my new provider and ask them to switch it and they switch it in 10-15 days without me worrying or changing anything. This should be equivalent any post pay mobile subscriber where if he/she wishes to change the provider, a call to the new provider should be sufficient.
Similarly If I have to put petrol in my car I dont go about changing the tank everytime I am using a different petrol filling station, I just simply go to the gas station and use the same tank in the car to top it up with new petrol. Now this is like a pre paid subscriber. So everytime a subscriber needs to change the provider, all he should be doing is top up the mobile with the new service provider’s minutes and there you go.
I dont see that happening and neither do I see people talking about it. Is this because the cost attached with manufacturing these additional sims is too small and is not worth the effort or it too complex too deal with. With regards to complexity, surely if utility companies can learn something from mobile providers, mobile service providers can learn something from utilities.
Lets look at the cost implications for sim replacement. I mentioned earlier that every year close to 600 million mobile sims are being replaced. This number is going to increase rapidly as number of prepaid subscribers will increase (assuming churn is higher in pre-paid). Lets assume that cost to produce a single sim is 10 cents which gives us savings of $60 million which is actually insignificant compared to the total size of the industry. This might though become a big cost if we were to take the present value of all the future savings as well. Taking an eternal growth of 10% in the number of subscribers churning every year with the discount rate of 5% will give the net present value of all the future savings equivalent to almost a billion dollars. Now this sum is not insignificant. But that’s talking in a very long term and nobody is sure whether sims or mobile would at all be there 10 years from now. One never knows when the new technology will come into the picture. Or in fact M2M can lead to increase in this figure substantially.
But for me the bigger cost is the environment cost. As the sim cards are non-biodegradable, they are hurting our the mankind and responsible for problems which we will see in the future. So if not for short term savings, environment preservation does make a strong point to negate the case for sim replacement.
Other than that, I believe users (at least the pre pay subs) would also be more empowered if changing a service provider was as easy as buying top up time from the new provider. If changing the operator was so easy, probably flimsy short term plans to entice the users will also be short lived and operators will become more responsible.
Finally, I’ll be really glad if somebody could come up with technology like this to help the operators save costs, create value for the mankind, save the environment and empower users at the same time.
Amit Agarwal looks after market insight and strategy for Convergys IM. In this role Amit reviews market trends, threats and strategies and makes recommendations for R&D or product investments. He also looks after the Investment and Innovation Management and guide the innovation process in the organization. Amit regularly generates though leadership helping the company create vision for the future.
Amit hás more than 7 years experience in the IT, telco and management consultancy market as an experienced consultant developing marketing strategies and plans for global corporations. Prior to Convergys, Amit was an Associate with Cognizant Technology Solutions where he focused on telco industry.
Amit is a graduate of Bangalore Institute of Technology, India and has an MBA in Finance and Strategy from Imperial College, London.