Mobile Operators Bet On Machine-to-Machine Communications

Ever since telecommunication service providers began lamenting the commodization of their services and their dim future as “dumb pipes” they have been searching for something that would give them new significant sources of revenue. Enter machine-to-machine (M2M) communications, technology that supports wired or wireless communication between machines without human intervention. The growth potential is so huge that Ericsson is forecasting 50 billion (yes, billion with a “b”!) devices will be connected by 2020. The market is projected to be worth $1.2 trillion that year, with the number of connections rising from today’s nine billion to 24 billion, with half involving non-mobile devices such as household appliances, according to the GSMA, an industry association which represents over 800 of the world’s mobile operators.

M2M is expected to be a key topic at the Mobile World Congress, which attracts some 60,000 industry executives.“Telcos are fighting very hard and being aggressive to make sure they can take advantage of all the end-to-end possibilities because this is one of the few growth markets left for them,” says Yiru Zhong, a senior tech industry analyst at consultancy Frost & Sullivan.

The only wrinkle in this near perfect scenario is that while service providers assume new revenue from M2M is theirs for the taking, other players on the edges of the crowded industry are also in position to grab market share. Apple and Facebook, for example, could become the hardware and software interfaces used for M2M, which is also known as the Internet of Things. “The popularity of Apple’s products like the iPhone and the iPad mean these devices emerge as the primary hardware controllers for developers of home automation products,” UK consultancy CCS Insight wrote in its 2012 predictions. “In tandem, Facebook’s global reach and the increasingly rich variety of its open graph APIs see it becoming the online control panel for many connected homes.”

M2M is already being employed in transportation, utilities, health care and government. Trucks out on the road, gas meters located miles from anywhere, apparatuses linked to elderly patients on a rigorous medical regime, and devices scattered around a “smart city” can dialogue with a central command center through a multitude of wireless technologies. M2M deployments in those sectors are expected to explode in the next few years while new industries also begin taking advantage of the technology.

“This is an important year: it will be the tipping point for this technology,” says Miguel Blockstrand, head of connected devices at Ericsson. “Industries are looking for efficiencies and this is a case where if you deploy the infrastructure, customers will come.”

Industry experts agree the customers will indeed come, but the question is whose customers will they be and who will get the privilege of billing them? Ericsson is offering itself as the one-stop shop for operators that want to sell customers M2M services without having to deal with building the new infrastructure that invariably entails big capital expenditures and the constant costs associated with keeping a system functioning and up-to-date.

In early February, Ericsson said it had signed an agreement to provide Swiss telecommunications company Swisscom with the infrastructure to offer M2M services. Swisscom has already started tests with potential clients and plans to begin selling actual services by the middle of the year. Most of the bigger operators, including Vodafone, AT&T, Telefonica and Deutsche Telekom have opted to build their own systems.

Real life examples of M2M changing everyday life are proliferating. On a Facebook page set up by Ericsson called “Technology for Good” somebody recently posted a screenshot of a page listing the washing machines at his daughter’s university dormitory.  The page offers students the chance to remotely monitor the laundry room to see which of the five machines is in use and how long the wait is for those that are occupied.

Other uses for M2M will come to the fore as the technology becomes more diffused, says Ericsson’s Blockstrand. Another service already being deployed has insurance companies adjusting people’s premiums based on when and where they drive their car, thanks to tracking information provided by a M2M device.

“The number had to be ambitious, but also realistic and that is what 50 billion is,” Blockstrand says. “If you start counting the number of cars, the number of washing machines, the number of other machines out there you see how this gets to be a very big number. Anything that has software that you want to update or monitor can be connected and that is when it starts adding up.”

New regulations are also facilitating the boom in the M2M market. The European Union, for example, has stipulated that beginning in 2014 all new cars must have a SIM card on board so that the car itself can make an immediate connection to emergency services in the event of an accident. At the same time the EU’s bid to lower carbon emissions has led to a boom in smart meters as utilities seek to comply with emission regulations.

In addition to the introduction of innovative services and new regulations, a third force expected to power the growth of M2M is the drop in the price of modules, small devices that hold the microchip collecting the data that is then relayed back to a centralized system. The market may be further stimulated as governments and regulators work to make it easier and less costly to offer services that transcend national boundaries. Automobile manufacturers, for example, are making it clear that they don’t want the owners of cars with built-in SIM cards to be charged with roaming fees when they drive across national frontiers. These and other types of big corporations are pressuring carriers to offer flat rates for such uses.

Despite all the enthusiasm, barriers remain to unfettered growth in M2M and, according to consulting firm STL Partners,  include the failure to develop standards that can be used across different platforms, performance and cost issues, and low awareness by users of the technology’s potential.

Forever dogged by the commoditization of its businesses, service providers face the same uncertain future with M2M. STL Partners and other industry watchers say M2M connectivity will become highly commoditized with low margins and that enabling new services with software is the best growth opportunity.

“Of course the margins on connectivity are declining, but that doesn’t mean it is not a good business,” says Angel David Garcia Barrio, the head of global alliances and new businesses for M2M at Telefónica Digital. “Instead of great margins on a small amount of lines we will have lower margins but multiplied by millions. There are a huge number of services that can be deployed.”

Telefonica is already working with ABB, a Swiss company specializing in power and automation technologies, on an irrigation project in Spain. (see photo on Informilo’s home page) Rather than waking up at five o’clock in the morning to water their fields, farmers can use a cloud-based M2M system that helps them determine the best time to release the water and then do the watering remotely. In addition to the connectivity, Garcia Barrio sees Telefónica selling management services as well as maintenance of equipment. In some cases the company could rent the devices to customers, he says.

How well Telefónica and the other service providers handle the transition to a world dominated by M2M, and whether they manage to play a role in the actual development and application of new services, may very well determine the future of their industry.

Jennifer L. Schenker contributed reporting to this story

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