M2M device connections, developed markets’ share of connections and
fixed networks’ share of connections, worldwide, 2011–2021 [Source:
Analysys Mason, 2012]
M2M connectivity-related revenue and average ARPU, worldwide,
2011-21 [Source: Analysys Mason, 2012]
Seven of the world’s biggest operators have come together in an alliance to support a single global platform for machine-to-machine services. This alliance, announced in July 2012, is entirely different from — and potentially a rival to — another alliance, announced a year before, between three European operators.
The new alliance involves operators from North America to Europe and the Asia Pacific: KPN, NTT DoCoMo, Rogers, SingTel, Telefónica, Telstra and VimpelCom, all of which use machine-to-machine platforms provided by Jasper Wireless.
Other operators that use Jasper Wireless, including América Móvil, AT&T and Etisalat, appear not to have joined the group. However the July announcement clearly says that other operators are welcome to join.
The older alliance involves Deutsche Telekom, France Telecom-Orange and TeliaSonera, as well as Everything Everywhere, the Deutsche Telekom/France Telecom joint venture in the UK. Jürgen Hase, a vice president at Deutsche Telekom, talks about the importance of this alliance to his company’s plans in the interview on pages 26-27 of this issue.
Everything Everywhere vice president Marc Overton told Global Telecoms Business in an interview at the end of 2011 that the ownership of the joint venture means that it has close relationships with all the members of the France Telecom-Orange empire from the Caribbean to the Middle East via Africa and all the members of the Deutsche Telekom empire, from T-Mobile USA to eastern Europe.
EE has its own alliance, with a US group, Raco Wireless, aimed at allowing Raco’s customers to have access to European networks through its owners’ networks for M2M applications. That partnership builds on an existing long-term relationship between T-Mobile USA and Raco Wireless, and will allow Raco and EE to offer their customers a one-stop shop for connectivity solutions in the US, UK and continental European markets.
But all these moves show just how seriously the operators are taking the potential impact of machine-to-machine — or M2M — services to the future of the industry.
Connections growing 36% a year
According to a recent report by Analysys Mason, the number of M2M device connections worldwide will increase from 100.4 million in 2011 to 2.1 billion by 2021, implying an average annual growth rate of 36%.
A separate report by the GSM Association, in partnership with Machina Research, says that the business impact from the growth of connected devices in China will increase sixfold from $116 billion in 2012 to $707 billion in 2020 — an average annual increase of over 25%.
“China is not only the world’s largest mobile market, with more than one billion total mobile connections, but is using this to its advantage by creating new applications, products and services that can improve people’s daily lives and advance its economy,” said Michael O’Hara, chief marketing officer at the GSM Association. “China has positioned mobile technology at the centre of its expansion, from a booming car industry to the rapid development of new smart cities, creating efficiencies and consumer benefits through cross-industry collaboration.”
According to Analysys Mason, enterprises are seeking ways to constrain costs and increase revenue: M2M provides a way to do both using sensor-based technologies, communications services and applications.
“For operators, M2M will replace lost revenue from more mature communications services, and services to highly competitive segments of the market, such as consumer segments,” says Analysys Mason.
“Developed markets’ share of connections will decline from 69% to 59% over the same period as operators in emerging markets seek additional customer connections and the cost of deploying M2M solutions decreases. At present, emerging market operators rightly allocate resources to the burgeoning growth in the number of mobile handsets in their markets. Running an M2M business has a higher risk profile than a traditional mobile handset and broadband business. As such, emerging market operators are focusing on their high-growth markets, such as as traditional mobile services, mobile broadband services and enterprise fixed-line connectivity.”
According to Analysys Mason, slightly fewer than 20% of M2M connections were over fixed-line networks in 2011 and this figure will decrease to 7% by 2021. “Almost all fixed-line M2M solutions are in developed countries, because reliable, affordable fixed-line connectivity is difficult to purchase in emerging markets. However, mobile operators in developed markets are offering mobile connectivity at attractive prices,” says Analysys Mason.
“Most M2M solutions have fairly low bandwidth requirements, so enterprises are choosing mobile M2M rather than fixed-line M2M. Most M2M solutions in emerging markets are and will be over mobile networks. These trends account for the success of mobile M2M over fixed-line M2M during the ten-year forecast period.”
The value of machine-to-machine connectivity is already high, says Analysys Mason. It says that M2M generated $5.7 billion in revenue worldwide in 2011, and that this figure will grow at a compound annual growth rate of 25% to $50.9 billion by 2021 — a growth rate that matches the GSMA’s calculation for the Chinese market.
“Developed markets’ share of worldwide revenue will decline from 76% to 64% during the same period, because emerging markets will account for a greater share of overall M2M device connections,” says Analysys Mason. “We expect that operators in emerging markets will focus their efforts on building M2M business within the next two to three years, in order to capture the anticipated revenue growth. We would expect these operators to focus on the M2M applications with the highest ARPU and most readily understood business models, namely M2M solutions in the automotive and transport, utility and security sectors.”
Revenue from M2M connections will decline, though. Analysys Mason suggests a monthly revenue from M2M of $4.71 in 2011, an average for services across the world. “This will decrease to $1.98 in 2021 because of increasing price pressure and growth in the number of M2M device connections in emerging markets,” says Analysys Mason. “ARPU rates for M2M applications are generally lower in emerging markets than in developed markets.”
The analyst company says that the highest revenue will be earned from the financial services, government, and automotive and transport sectors. “The financial services sector generally demands high levels of security and SLAs associated with its connectivity. This allows operators to charge a premium compared with lower-quality connections.”
In the government sector, applications will involve video-based solutions that will need fixed lines, and these will generate higher revenue. “Automotive sector solutions, particularly fleet management, continue to provide healthy ARPU,” says Analysys Mason, as enterprises find strong returns on investment in reducing fuel consumption and labour-related expenses associated with fleet operations. GTB
The value of partnerships in machine to machine
Commentary by Analysys Mason: partnerships will be vital to win opportunities over the next decade
Operators must form the partnerships needed to capitalise on the high revenue and device connection opportunities in M2M. Solutions in the automotive and transport, security and utility sectors require deep partnerships and much forward planning. Operators should form device, platform and application partnerships now in order to win sales opportunities during the next ten years.
Operators must invest in technical resources — including sales engineering resources — to prepare for worldwide deployments of M2M. Some M2M opportunities are national in scope, but others are international. Operators with strong international footprints and enterprise customers must have the technical resources in place to complete M2M deployments around the world. A deficiency in these resources will hinder an operator’s ability to scale its M2M operators successfully.
Operators must offer multiple M2M value-added services to increase the revenue and margins associated with M2M opportunities. Platform enablement, application development, application hosting, application management, systems integration, logistics support, SLAs and network engineering services can all increase the effective ARPU associated with M2M opportunities. These value-added services are absolutely critical in creating profitable M2M lines-of-business for operators.
Operators must capture as many fixed-line M2M opportunities as possible. The ARPU associated with fixed-line M2M opportunities is often greater than similar mobile M2M opportunities. M2M opportunities supplied over fixed-line connections often have heightened security parameters and more SLAs. Both allow operators to charge more for the underlying connectivity.
Vendors must bring technology and sales channel resources to their operator partnerships. Worldwide opportunities for M2M abound, and while operators might have sales channel resources in their core markets, they are lacking resources outside their core markets. Vendors that can bring both top-notch technology and the technical sales resources to help operators sell these solutions will be much more viable channel partners for operators.
Vendors should assess their capabilities to sell M2M solutions directly to enterprises. Some IT and communications vendors have relevant M2M contacts in enterprise organisations. As such, these vendors should consider selling directly to enterprises and taking a leading role in the implementation of M2M solutions, particularly in the utility and energy, healthcare and government sectors.
Adapted with permission from M2M device connections, revenue and ARPU worldwide forecast 2011-2021, published by Analysys Mason
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