 | Issue: | Europe II 2013 |
| Article no.: | 12 | |
| Topic: | Machine-to-machine (M2M) beyond the hype | |
| Author: | Frédéric Lhostte | |
| Title: | Director of M2M Integrated Solutions | |
| Organisation: | Belgacom Group | |
| PDF size: | 199KB |
About author
Frédéric Lhostte is the Director of M2M Integrated Solutions at the Belgacom Group (Belgium); he has more than 13 years experience in telecommunication. Mr Lhostte joined the Belgacom Group in Product Management. Since then, Mr Lhostte has progressively moved within the Group to different senior positions in operations, strategy and business development. Mr Lhostte created the Belgacom M2M competence centre, of which he is currently the Director for M2M Integrated Solutions. Mr Lhostte is also President of the Board of the company Mobile a wholly-owned subsidiary of the Belgacom Group, that develops innovative mobile payment solutions.
Frédéric Lhostte earned his degree in Applied Economic Sciences
Article abstract
The growth potential of machine-to-machine is driving operators to invest in this domain. To capture most of the M2M opportunity, telecom providers must step outside of their core business areas and engage a transformation to address convergence in all types of connectivity (mobile, fixed, in building LAN, short range – WiFi, ZigBee, RFID, etc.), offer end-to-end solutions in selected verticals through partnership and put a particular focus on value management. In other terms, evolve from M2M connectivity to the ‘Internet of things’
Full Article
M2M is a strategic domain not only for mobile operators, but also by a wide variety of other companies like original equipment manufacturers (OEM), application software developers, vertical solution providers, systems integrators and the like.
Mobile operators consider M2M to be a significant growth opportunity compared to traditional telecom markets currently under pressure.
At yearend 2012, M2M was growing at a 30 per cent yearly; it seems likely to reach approximately 225 million cellular connections worldwide in short order. Analysts predict 2.1 billion cellular M2M connections by 2020 (source: Machine Research). Moreover, from the enterprise perspective, companies ranging from auto manufacturers, to utility companies, retail organizations, healthcare solution providers to industrial and consumer electronics manufacturers are beginning to see use cases for M2M that reduce costs, increase business processes efficiency and enable the creation of new value-added services.
With regards to the revenues, the addressable cellular M2M connectivity revenue opportunity over the period 2012 should reach 6.2 billion € worldwide and should grow to 35 billion € by 2020 (source: Machine Research).
Today, there is one M2M cellular connection for every 30 person-to-person connections, but M2M only accounts for a modest one-half per cent of mobile operators’ revenues. Is M2M all hype?
In truth, mobile operators need to step well outside of their core business areas to capture these new revenue streams, but most operators still address M2M using their traditional methods:
M2M uses a device attached to a machine to capture an event and relay it through the mobile network to an application that translates the event into meaningful information.
This implies:
1. The use of cellular M2M connections – appropriate for many use cases and easy to report
2. Connectivity revenues only – mobile operators provide only connectivity and not value added services, devices, applications, etc
3. Connecting ‘cost saving’ applications – M2M is only viable when companies implement M2M solutions to cut costs or optimize business processes, etc.
4. Win-at-all-costs strategy – big volumes needed to survive in this low margin business
These ‘more of the same’ approaches cannot work. M2M does not answer the needs of classic telecom consumers or enterprise services, so it needs to be addressed in a different way.
Analysts predict, at least, 50 billion connected objects by 2020, but only small part of these will be connected using cellular M2M technology. So, mobile operators have to change their way of working and move from Machine-to-Machine to the ‘Internet of things’ (IoT).
M2M is a technology, but the IoT is a concept that includes a blend of devices, applications and network technologies (mobile, fixed, in building LAN, short-range technologies: WiFi, ZigBee, RFID, etc.).
IoT forecasts predict 12 billion objects connected by 2020 (source: Machina Research) including the 2.1 billion cellular point-to-point M2M connections. Operators with converged mobile and fixed networks will find it simpler to evolve from M2M and implement the IoT.
From cellular to converged technologies
Cellular M2M technology provides point-to-point connections. For convergent operators using a fixed network is appropriate for high demand M2M bandwidth connections (e.g. camera surveillance, digital signage, etc.). However, the future IoT will not only be point-to-point; it will involve one or more steps of aggregation and only some connections will be cellular or fixed point-to-point.
In the future, IoT solutions will combine a wide variety of network, device, software and application technologies to meet the user’s needs. Today, we tally M2M connections based on telecom operators’ reports of M2M cellular connections or the number of dedicated SIM cards. In the coming years, though, M2M reports will be able to detail the number of connected objects and give clearly defined performance measurements.
From connectivity to a solution-centric approach
To maximize the M2M/IoT opportunity, telecom operators need to adopt a solution-centric approach to the market. Telecom operators provide the connectivity layers central to the M2M value chain. Telecom operators are also forging worldwide alliances to extend their connectivity beyond their home regions.
Today, for each end-to-end solution sold, 15 per cent of the value is for connectivity, 30 per cent for the device and 50 per cent for the application. Moreover, market pressure and roaming regulations are pushing down the pricing and transforming connectivity into a commodity so telecom operators have to sell more than connectivity to build revenue.
Telecom operators should offer:
• smart connectivity using a web-based platform to manage and control M2M cellular connectivity;
• a reinvented pricing strategy;
• an enriched servicing platform with device management functionalities;
• an ‘easy to connect’ integration layer for applications;
• new go-to-market and partnership models, developed jointly with solution providers, to offer integrated end-to-end solutions that include device, application, connectivity capabilities, service delivery platforms, SIM/device visibility and troubleshooting.
Given the large number of M2M applications in each vertical sector (automotive, energy, healthcare, intelligent buildings, consumer electronics, security, smart cities and transportation, etc.) it will be a challenge for telecom operators to pick the right battles.
Telecom operators will be able to capture part of the application revenues through innovative partnership and business models and through a disciplined acquisition strategy in niche solution providers with a specific expertise. We have already seen different moves form telecom operators in this direction such as AT&T and Xanboo, Verizon and Hughes Telematics, and Vodafone and Zelitron. More M2M mergers and acquisitions are expected. This strategy will have to be correctly balanced with existing partnerships to avoid or manage possible conflicts with other solution providers in the same sector.
National and international channel strategies will also be a key selling point depending on the capabilities of the alliances.
Last but not least, the value is not in the transport of the data but in the data itself! Big data can drive a significant part of the new revenues. Legislation covering the usage of the data collected, though, is likely to have a significant impact not only on the way the data can be used, but upon its commercial value.
Cost saving solutions or value-added services
M2M solutions have been in use for more than a decade, helping companies to optimize their business process and reduce their costs. Most M2M solutions are in place to meet essential needs – tracking and tracing of delivery processes or transport services, vending machines refilling or technical intervention, alerts, billing data, energy metering and the like.
Cost savings will remain a key driver of M2M solutions, but it also opens a new landscape for innovative solutions that generate sources of service revenues. M2M will ease people live and change how companies operate.
Education of potential users regarding the capabilities of M2M will be essential. A good example is the ‘smart city’ concept, where great amounts of data can be collected and aggregated using different technologies to enable, for instance, traffic management, green traffic lights for ambulances, sensors to trigger public lighting networks, rain and snow detection, work-order management, service dispatching and so forth.
Value management
In the past years, telecom operators focussed only on connectivity and fought to do deals at any price. Considering the above points, and the commoditization of M2M connectivity, telecom operators will increasingly focus on effective delivery – key M2M success factor- and the profitability of end-to-end solutions. Telecom operators, though, will have to go beyond connectivity and move-up in the value chain by offering end-to-end solutions including device, smart connectivity, application and support. This will require strong partnerships and/or selected acquisitions.
M2M is a strategic necessity for telecom operators with converged networks. M2M can deliver a growing source of revenues if operators transform themselves and step outside their core business and then evolve from the machine-to-machine technology to a full-scale ‘Internet of Things’ strategy.
