Home EuropeEurope II 2013 M2M – growth paths

M2M – growth paths

by david.nunes
Judi Gill Issue:Europe II 2013
Article no.:17
Topic:M2M – growth paths
Author:Judi Gill
Title:Director of Market Analysis & Strategy
PDF size:196KB

About author

Judi Gill is the Director of Market Analysis and Strategy at Clarity, where she is responsible for the company’s go-to-market positioning and activities. Ms Gill has worked in the telecommunications IT sector for over 20 years. Ms Gill started her career at Accenture, and has since worked at operators and software providers around the world including BT, Optus, ADC, Bharti Airtel, MTN and Telcordia.

Judi Gill holds a Bachelor of Commerce from the Australian National University, and a Diploma of Business Administration from the Australian Graduate School of Management.

Article abstract

The machine-to-machine (M2M) market will challenge communications service providers’ (CSPs), in ability to meet the demands it will make on networks, back office systems and business strategy. The M2M market is still in its early stages, trying to prepare for the future that requires full integration between CSPs, customer organizations and end users. CSPs will need all their expertise in networks and large-scale operations to deal with competition from utility companies, local authorities, insurance companies, dedicated M2M providers among others.

Full Article

It’s easy to get carried away with M2M and the vision that the Internet of things will enable every device to connect with each other to integrate all the strands of users’ lives – from their household appliances, to the transport they use and the services they consume. However, achieving that seamless environment in which every device communicates ubiquitously with everything else that can have a chip installed is complex. Add to that the burgeoning M2M applications in the business-to-business market and the management and assurance burden is increased. What is clear though is that this is a large opportunity for all involved even if the details are obscure today.

Although the business models are unknown, there will be many ways to generate revenue streams from M2M services. There are two extremes of the M2M market in its current form. At one end there are low ARPU propositions that typically involve great numbers of deployed devices but need little bandwidth, such as logistics where a vehicle can report its location every couple of hours.
Communications service providers, CSPs often facilitate such services by providing the network, but third party M2M specialists provide the service. One-stop M2M service providers handle the business from provision to activation to monetization, while the CSP derives revenue from the capacity consumed by the services. This business model is well established and the CSP and M2M service providers work together to offer simple, low cost and effective solutions. There is no reason why a CSP would seek to change that situation, although there is nothing to prevent them replicating the services offered by M2M specialists. Typically such a model is pay-per-unit, with fairly flexible payment operations and the providers have the knowledge and expertise to continue to deliver them to the satisfaction of customers and users.

At the other extreme, there are sector-specific, highly sensitive, solutions deployed, for example, to monitor oil pipelines or a person’s health. Although these types of solution may not require great bandwidth, they require an extremely high level of reliability and security across the networks of multiple CSPs. Given the critical nature of the service, it will generate premium revenues even if it won’t clog the network.
Regulations are likely to drive many M2M applications. In the EU, energy regulations now require the installation of smart meter in 80 per cent of European homes by 2020. The European Commission aims to have the automotive industry build ‘eCall’ functionality built into all new cars by 2015; eCall provides automated emergency calling service in the event of an accident. In the future, similar regulatory mandates are likely to drive the growth of M2M in the healthcare market. Regulatory mandates are likely to create a number of other markets.
Over time, many consumer devices will have integrated M2M. Whenever a consumer buys a refrigerator or an air conditioner, some party – an appliance manufacturer, a retailer or a utility – will offer an integrated device and M2M communications and service package. CSPs might, then, offer packages for a range of domestic devices, smart meters and the like, using their experience with intricate rating models that combine fixed, recurring and usage charges. Third party applications might also offer management services for multiple M2M-enabled home devices, allowing them to communicate via domestic WiFi, for example. Interestingly, a new report by Markets and Markets estimates the total European smart homes market will be worth US$3,267 million by 2015, with Northern Europe continuing to dominate the European Smart Homes Market.

In some situation, several parties might be interested in the information from a device. If your air conditioning is M2M-enabled, both you as the end user and your energy utility might want to monitor its consumption and the manufacturer might also be interested in the unit’s performance to guide new product development or trigger preventative maintenance. In the future refrigerators may be able to re-order products from retailers according to parameters set by the consumer. In that scenario, the appliance maker might offer the service as added value or retailers might pay for this functionality to drive their own sales.
These are ideas for the future, but the business models M2M will ultimately use – and who will pay – are unknown. A health provider could pay for a medical application that monitors heart rates so the patient doesn’t have to come to a clinic to have their pulse checked by a nurse. The clinics cost savings should easily offset the costs of the M2M service.

Complexity – an enemy of profitability

Higher value M2M business models are likely to involve CSPs to a greater extent because of their expertise in reliably managing high-volume mission-critical services from end-to-end. However, CSPs themselves need to prepare themselves to efficiently offer such service. CSPs will need to develop an end-to-end view of the service across the entire network, not just the M2M ‘last mile’. They must avoid the needless complexity of building another operational silo to support M2M by maximizing the use of their in-place infrastructure and processes to enable an integrated view of both CSP and third party service providers’ performance. M2M applications such as healthcare need a lot of monitoring to properly prioritise specific types of traffic.

Although most M2M communications will involve low bandwidth consumption, the proliferation of devices creates challenges for CSPs in terms of the signalling load this vast array of devices may place on the network. CSPs have the skills to reduce signalling by the refining the software and operating systems; they are accustomed to managing such issues at the great scale involved.

The stakes are high for CSPs and M2M providers. Complexity is the enemy of profitability in such a high volume, low margin sector. Margins are so low that, if anything goes wrong and a customer calls, profit from a terminal might be wiped out for the next two years or more. For that reason, M2M is an area that needs extremely close management. Operators might be able to re-use components they already have in place to support M2M, but only if those components are geared to do so and are upgraded to provide a common support platform for all the CSP’s services.
M2M SIM card provisioning should follow the same process currently used for other service activation components. Once the industry starts to address critical applications at greater scale, the infrastructure will have to be standardised to facilitate end-to-end service monitoring – services cannot be efficiently fragmented across multiple systems.

The M2M market is clearly maturing, particularly in Europe, where, according to Frost & Sullivan’s telecom analyst Yiru Zhong, the number of connected devices grew by 60 per cent over the past year. This statistic, together with Gartner’s view that the market is continuing to grow at a rate of 30-40 per cent per year, suggests that the European M2M market holds much promise, but it is still a long way from maturity.
The telecom industry is still migrating from 2G wireless to 3G and 4G and incorporating other technologies such as WiFi and WiMax. Significantly, today M2M communication is typically one way from a device to a central control or vice-versa. We can foresee, though, that as the market matures devices will communicate with each other, using predefined rules and user preferences to manage day-to-day tasks. For example, if a user places a cap on their electricity consumption, a smart meter may recognize they are approaching the limit and, since the house’s burglar alarm is armed, may power down the air conditioning system. In this scenario, three systems are communicating with each other; they might even communicate using a domestic WiFi network at negligible cost, even though the value delivered to the consumer may be significant.

Another example of how to integrate M2M applications to provide users with greater value might be in-car device communications with the car park at an airport. As the vehicle approaches it can signal the car park operator to reserve a parking space and interface with a loyalty system to award the driver with a special deal or a priority space depending on their status.
As with any immature market, business models are yet to be fully defined. CSPs will have a role to play thanks to their expertise in networks and in handling processes at great scale. However, a raft of other organizations from utility companies – many of which already have network capacity, to local authorities, insurance companies and dedicated M2M providers will all have parts to play.
As M2M matures and accelerates over the next decade there will be mass-market uptake changing the ways in which we all live. To get there, common support platforms, integration across multiple networks and technology types, a greater understanding of the value chain and all those involved as well as a continued focus on cost efficiency will need to be achieved.

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