This is a very misleading situation courtesy of the new iOS, but actually, nothing to worry about.
With the iOS 16 update, iPhone now tries to connect the eSIM to the network immediately upon downloading it. If you have airplane mode on, or you are downloading a foreign eSIM connection, it may fail to connect to a network in the country you are in, and you will get this error, or it will be stuck in 'Activating...' status for a long time.
You can simply restart the phone, and keep the eSIM in OFF status until you need to use it. Then you can turn it on and complete the setup.