eSIM Platforms, Roaming, and the Erosion of National Telecom Rents: Market Integration & Platform Economics in Action

For many years, international roaming provided a significant stream of income to national telecom operators. Whenever consumers would travel abroad to a foreign market, they were typically left only with the option of using their domestic carrier at astronomical prices per megabyte and often high switching costs. Recently, the rise of global eSIMs has transformed this model significantly and at an accelerated pace. Disruption within the telecom industry as far as how telecom operators collect their rental revenues from mobile connections is not only due to continued advancements in technology but also due to changed economic dynamics within the telecom industry. The overall transformation of the market for mobile connectivity through massive integration of markets, convergence of pricing, and intense competition between platforms means that telecoms are being forced to adapt quickly to new ways of earning and capturing rental revenue. Today, when looking for eSim USA services to connect to local data plans, individuals have the opportunity to purchase such services prior to boarding their flight, thus effectively eliminating the need to deal with retail constraints and costs that were previously associated with purchasing international plans through their domestic carrier.

Market Integration - From Local Monopolies to Global Choices

The traditional roaming market was like a quasi-monopoly for the roaming carrier. For example, once a traveller arrived at their destination abroad, the carrier in the traveller's home country established a roaming agreement with the carrier in the country to which the traveller has arrived. These agreements are not straightforward, and there is no standard methodology for how each carrier prices its roaming agreements, which means that travelling carriers are able to employ a large markup when charging for these services. This is demonstrated by the fact that the OECD has indicated historically roaming revenue has had profit margins over 80 per cent, particularly for pre-paid data services.

Through the use of global eSIM applications, such as Airalo, Holafly and many others, it is possible to consolidate these fragmented international roaming marketplaces into one digital marketplace. Where a consumer would previously have been limited to selecting from the plan of one carrier in one country, consumers can now access hundreds of plans via dozens of wholesale relationships in multiple countries. For example, a Brazilian traveller can purchase a data plan for a US carrier from a Singaporean eSIM application that has wholesale agreements with US carriers. Multiplying the number of international markets through these digital eSIM applications reduces the impact of national monopolies on the pricing of international roaming and therefore enables all parties to find value in this offering.

Collapse of Roaming Rents and Price Convergence Evidence

Economically speaking, because of eSIM platforms, prices are converging with marginal cost. Data transmission, in and of itself, is inexpensive, but historically high prices existed due to market segmentation and regulatory inaction. As an aggregation of global demand is provided to various carriers on the same platform, this erodes the ability for existing players to sustain price discrimination.

There is already evidence of this convergence occurring; for instance, a 5GB roaming package purchased through a home carrier may cost $40–$60, but eSIM marketplace options regularly show comparable arrangements for $10–$15. The fall in price corresponds with international economic theory, which suggests that as consumer mobility/choice has increased and markets opened, ceteris paribus, high mark-up industries should see declining rents.

The US serves as a great example of this effect, as extremely competitive international eSIM operators are generating marginally lower rates for the typical traveller entering the US than previously available pricing options. Those familiar with how to download inexpensive data using an application, prior to arriving in the US, are able to avoid the "traditional retail layer" that provided a degree of customer lock-in.

The Response of Incumbents: Lobbying v Integration

National carriers have reacted to the advent of eSIM technology through two key avenues:

Lobbying for strict regulation: Some states that have a strong interest in either security or revenue have lobbied for some type of mandatory ID verification or restrictions on eSIMs’ ability to interoperate. In India and several areas in the Middle East, for example, an actual person must physically present to verify their identity. This creates a certain amount of friction and returns limited ability to charge higher rates.

Working with eSIM intermediaries: In markets such as the U.S., where there is increased competition, many carriers have formed partnerships with eSIM intermediaries to monetize potential international demand for data that would be unavailable otherwise. Therefore, wholesale data being sold to global platforms will provide some predictability with regard to revenue generation, even though the profit from each sale will be significantly less than what the carrier would receive using the traditional roaming model.

This dynamic is analogous to traditional economics regarding platforms. Incumbents either fight against or embrace changes to the platform ecosystem created by the introduction of an intermediary that disrupts their business. Once again, history shows that joining the platform ecosystem typically is more advantageous than trying to resist becoming part of the ecosystem. The network effects support the aggregator over time.

Distribution

The previous roaming model resulted in the majority of the surplus being retained by national carriers and home-based telecom providers. The current model has a surplus distribution that is increasingly shared by three (3) parties:

• Travellers are receiving an increased surplus of significantly reduced prices.
• Platforms generate a small but expandable profit margin by matching worldwide demand to supply.
• Domestic telecom providers will experience a decrease in their profit margins but will increase their wholesale volume. Therefore, while they may generate less profit, they will realise a much higher level of throughput.

This new distribution of the surplus is indicative of a shift towards the model of pure competition, where the marginal cost becomes equal to the marginal price.

Impact – More Supply, Lower Prices & Flat Global Marketplace

The impact of global eSIM platforms extends to much more than telecommunications.

• Tourism improvements. Connectivity enhances all costs associated with transport and navigation, as well as dining out.
• Limited consumer risk. No longer do consumers face the risk of unexpected international roaming charges, or additional overages.
• Reduction in national telecom rents. For a long time, national telecom providers were able to generate revenue through roaming, which will now likely not occur.
• Increased policy debates. Governments will now need to consider how to accomplish balancing the public interest in creating a standardised regulatory structure for eSIMs (privacy/security/open).

Global eSIM platforms have created an economic endpoint to the roaming monopoly. The integration of these platforms into global marketplaces and the competition that exists among these platforms have transformed the way that value is created and captured within global markets, driving prices to the global norm and no longer allowing single telecom companies to dominate the marketplace.