Last month, Sprint Nextel affirmed its reputation as a first-to-market mobile operator when it signed a massive roaming agreement with Orange Business Services (OBS), part of France Telecom, allowing it to compete for machine-to-machine (M2M) business in more than 180 countries.
Tellingly, neither partner will disclose financial details of the agreement, the first M2M partnership to bridge the Atlantic. Neither will they elaborate on the extent to which the deal might ultimately go beyond a pure roaming arrangement. And yet it is clearly of paramount strategic importance, offering Sprint a truly global platform for multinational customers tapping the potential of M2M and giving OBS a seat at the table of one of the fastest developers of M2M applications.
In sitting down to thrash out the best way to connect operations, developers from both partners are likely to cover a range of issues, from M2M device management, SLAs and application development platforms, right through to managed connectivity services.
Neither will they be alone. An M2M alliance between European giants Deutsche Telekom and France Telecom-Orange was extended last summer to include TeliaSonera. At first glance, the arrangement once again appears to be a straightforward roaming arrangement to give customers a pan-European M2M perspective (indeed the partnership covers most of Europe, with Italy being the only glaring omission at this stage).
But examined in more detail, the partnership drills considerably deeper, seeking, say the parties, to increase the service quality and interoperability of M2M communications in a profound and holistic way.
The M2M market is one of the fastest growing sectors in the telecoms arena: predictions are diverse but the general consensus suggests that device connections will grow from around 114 million connections in 2011 to anything from 300-400 million by 2014 and well in excess of 2 billion connections by the end of the decade. On that basis alone, device revenue could be worth in excess of $55 billion by 2014 and as much as $250 billion by 2020, analysts suggest. Moreover, says Harbour Research, a US-based firm specialising in M2M analytics, software and service revenues are likely to dwarf that, generating revenues of $230 billion by the end of next year. Supply chain and logistics applications are likely to account for the lion’s share of that revenue, but asset management and security applications will also feature heavily, the firm says.
Developing the right platform is therefore vital – and the reason why partnerships that are currently being forged are far from standard.
M2M doesn’t function on a comparable tariffing system to other services, nor return an investment in a timescale that carriers are accustomed to. ARPU is tiny, capex requirements are far from negligible and the market is historically fragmented between a slew of disparate verticals.
It’s not even clear where M2M services fit in a carrier business – as part of a traditional wholesale portfolio, affiliated to an enterprise division, or as something independent of both.
Yet M2M remains a pie that everybody wants a piece of. Most carriers now have a dedicated M2M investment budget, in the belief that even if revenues are small right now, they have the potential to scale to a significant proportion of overall turnover within a few years. The feeling is growing that M2M may even have the potential to be as big and as pervasive in its own right as all other markets for communications services combined.
A marriage of convenience?
The inescapable conclusion that many carriers have been coming to is that unilateral ownership of their own M2M supply chain is a weak strategy in a market that is both increasingly global in scope and more horizontal in outlook.
“M2M is quite a complex world,” says Rodolphe Fruges, VP for Internet of Things and M2M for France Telecom-Orange, which is involved with both the Europe-wide M2M collaboration with Deutsche Telekom and TeliaSonera, and the transatlantic agreement with Sprint Nextel.
“We know we can’t do it all by ourselves – and don’t plan to try in any case. We need to work with partners, and we have a number of different partners in this area. We take a very pragmatic approach to this.”
Fruges identifies the cooperation with Deutsche Telekom and TeliaSonera as not being about sales, but more about technology and services. He points to an example of how the companies are working on the development of the modules that the M2M SIM goes into: “We’re running a joint certification programme, which is good news for the module maker because they’ve only got one process to follow for all countries in the group, and it gives the customer peace of mind that the module will work anywhere.”
This granularity of integration is, says Fruges, critical for today’s buyer of M2M services: “If you have to start sending engineers across borders to repair modules, it’s very bad news,” he says. “If it’s just an iPhone that doesn’t work abroad, it’s inconvenient but not a disaster, probably. If it’s a huge machine of some sort, then it’s a big business-critical problem.”
Orange’s deal with Sprint is different in nature, says Fruges, arguing that it takes the company one step on.
Sprint, as a CDMA player, hasn’t been able to easily expand its M2M interests outside of the US, providing instead a set of integrated solutions to customers within that market, says Fruges: “Those customers now want to extend their M2M solutions beyond the US. They want to be able to provide a single point of contact for their customers, and through us they can deliver the whole Layer 1 of the relationship. They can access our network and processes through our portal, just as our own customers can do.”
Tom Nelson is senior manager of Sprint’s Emerging Solutions Group. He concurs that the agreement’s central aim is to provide a single point of contact for multinational customers for all their domestic and international M2M needs. “The important thing about Orange is that the company is not new to the world of M2M connectivity. We’re now able to leverage its technical expertise, processes and support capabilities,” he says.
Sprint’s multinational customers span a number of industry verticals, including manufacturing and telematics. All, however, are after simplicity and a single place to go for all their M2M connectivity. “We stitch it all together for them,” says Nelson. “By simplifying the OSS elements we reduce costs in areas like billing, giving the customer key tools to allow them to deploy M2M globally.”
Via the Orange M2M portal, Sprint’s north American customers can order and provision SIMs and services internationally, activating networks as they wish, then replanning them when the need arises.
“They can use those tools to track and monitor usage,” adds Nelson. “Orange gains too, because there’s lots of growth potential in the north American M2M market. We can work with them on connecting their customers in the US.”
Approaching “tipping point”
If Orange’s tie-in with Deutsche Telekom and Telefónica is at this stage mostly European in its focus, and that with Sprint primarily transatlantic, then the M2M alliance struck between Telefónica and China Unicom last October fits a far less predictable mould – tying together
as it does two operations with little obvious crossover.
Through its new Telefónica Digital division, the Spanish incumbent is looking to its deal with China Unicom to create a daringly global M2M footprint. Its mission furthermore is to ambitiously span development of M2M technologies beyond the cellular comfort zone of both parties, taking in technologies from RFID to GPS. The idea is to furnish customers with global strategic M2M services, having first tested and marketed an array of solutions tailored for sectors varying from consumer electronics to smart cities.
The multiplicity and scope of the various M2M alliances that are now emerging is a function both of the coming of age of the M2M market and the maturing of the technologies that underpin and enable it.
Nelson claims the market to be “at tipping point” thanks mainly to the maturity of wireless technology. “We’ve all got ease and simplicity, as well as greater network robustness. The application development space is exploding too, enriching the whole ecosystem,” he says.
Carriers, whether alone or in multi-lateral groupings, are taking an interest in more than just the networking of one machine to another, instead opting to move up the chain into the realm of managed M2M services and application development, leveraging partnerships to achieve this.
Hans Dahlberg, head of TeliaSonera Global M2M Services, part of TeliaSonera Mobility Services, agrees that the sheer variety of alliances being forged are a clear indicator that M2M is moving on from its early days when carriers believed they could handle the whole M2M supply chain – usually within a particular vertical: “That’s not the strategy we have chosen,” he says. “The problem with it is that you can potentially gain a lot of revenue in the short term by owning the whole M2M chain, but you’re taking a high risk, and assuming responsibility for everything.”
Margins, he says, will eventually deteriorate while costs and operational expenditure increase. TeliaSonera’s strategy is to provide extra services on top, like provisioning and billing, and at the high end, some SLAs. He targets 20% of the overall value chain.
Important lessons about trying to be a vertical specialist on a unilateral basis have been learned by carriers on a long and at times painful journey: “Going way back to when the internet started, lots of carriers were saying ‘we’re experts in vertical A or vertical B’, and it didn’t work out,” he points out. “I think the M2M market will follow a similar evolutionary path, but this time without carriers making the same mistakes. It will start with businesses looking at the technology and saying, ‘We can use this to streamline ourselves.’ But over time it will grow to do more than that, to allow whole new business models and new types of service.”
To be a part of this, he believes, carriers must develop a partner strategy and a solid partner programme, including not just telecoms players but also systems integrators, application companies and software companies, each with a good knowledge of their own vertical: “Then you’ve got to ask do we want to play in a global arena, or just a local arena,” he says.
“I think the majority of customers will be global users, or at least very big regional ones. Our chosen partnership with Deutsche Telekom and Orange reflects our move to be global. It’s about interoperability too. We’ve got our own processes in place, so now we need an interface between groups. There’s lots of work to do, but it’s work we’re already doing within our operations if not between them. It’s about handling different interfaces.”
Dahlberg is looking forward to the alliance developing into new areas. Moving forwards, the company plans to involve consumer device companies and then start to develop specific roaming agreements with a number of other operators. “We have to do this or M2M will not take off. Users won’t want to be dealing with 30 different operators around the world.”
He acknowledges that of the difficulties to be jointly overcome, some are regulatory: “There are challenges even within TeliaSonera’s own region to think about. Any data processed in Finland, for example, can’t leave Finland. There’s similar regulatory difficulties in other countries. But the more operators can cooperate, the less regulatory difficulty will occur.”
The “boutique” M2M player
The M2M market certainly looks like a very different type of opportunity if you don’t share the size and diversity of an Orange or a Telefónica.
For Telekom Austria, which in September of last year entered the M2M market with the launch of a new subsidiary, Telekom Austria Group M2M, it’s a case perhaps of focussing on local expertise.
Phat Huynh, managing director for Telekom Austria Group M2M, believes there is a clear difference between carriers handling larger data volumes on a global basis and small volumes regionally. “We’re a Vodafone global roaming partner, and have other partners in particular countries of interest. We’re not global, but we do have substantial coverage involving mostly small data volumes,” says Huynh.
The new business models that M2M is forcing carriers to create don’t particularly favour one type of carrier over another, he believes: “Traditional retail and wholesale models for charging don’t really apply to M2M,” says Huynh. “Customers want us to provide network infrastructure with special availability, not just negotiated on a ‘per megabyte’ basis. Business models on both wholesale and retail sides need to be adapted.”
Huynh is upbeat that the M2M space has plenty to offer all telco types: “It’s generally a good business to be in, and we’ll be looking to grab a bigger share of the value chain. For the time being, we’re going to remain focussed on selected verticals, and not on trying to be a global M2M player across all sectors. We consider ourselves a boutique M2M provider.”
Over in north America, Canadian carrier Telus faces a similar conundrum in competing with far larger competitors. Its solution is similarly not to try to compete on a global level, but to attempt to deepen its M2M offer by means of partnerships based around technology, not coverage.
Last year it struck a deal with vendor Sierra Wireless, a designer and manufacturer of wireless communications equipment. Telus is integrating the Sierra Wireless AirVantage Services Platform into its network operations to provide M2M customers with online access to a suite of M2M service creation, delivery and management capabilities. It claims this will make it simpler and faster for Telus’s wholesale customers to bring M2M services to market, opening new service opportunities for them.
“Network operators, system integrators and M2M solution providers can rapidly develop, deploy, support and operate M2M solutions and services, gaining control over nearly every aspect of device connectivity – provisioning and subscription management, device monitoring and remote updating and control for M2M services,” says Brian DeMuy, strategic alliance director at Telus.
“Our aim is to provide a tool set for our domestic and international customers that work on other networks, using our network management platform. With better tools, there will be less need to go through an M2M middleman of some sort. We want to build something horizontal across industries, putting us in the same league as other north American carriers, like AT&T and Verizon.”
So where do M2M alliances go from here? Do they simply get bigger and broader? Will there still be room for the smaller regional specialist in the long run?
“We are open to other carriers joining our European agreement – that’s very important to understand,” says France Telecom-Orange’s Fruges. “The more we can extend the partnership, the more value we can deliver for customers. For this, we’d look inside Europe, and of course outside too. The more operators we work with the better, as M2M needs openness to be effective. We’re not restraining entry. We know we’re a leader here, and we’re working on all aspects of M2M from R&D to the development of the full chain of services required by our customers. M2M is part of our strategy to extend the traditional telco experience, which is why we are developing value-added services, building at least part of the apps and developing large IT.”
And what sort of M2M market will we be looking at years hence if this burst of partnerships reaches its logical conclusion?
“Perhaps in 10 years’ time, we’ll see just three big M2M alliances in the world,” posits TeliaSonera’s Dahlberg. “Even so, I think there will still be individual companies providing services to their regions. The main thing is we all remember what we’re good at, and it’s not healthcare or building cars.”
