To understand why mobile operators place so much store in the long-term potential of the Machine-to-Machine (M2M) market, you must first think the unthinkable: In as little as five years – but almost certainly before the end of the decade - the mobile industry will face a Doomsday scenario in which revenues from each of its three main pillars – voice, messaging and data access – will be in terminal decline.
The outlook for mobile voice is already well documented – voice revenues as a percentage of total revenues are falling among operators in the US, Japan and much of Europe. Revenues from messaging, meanwhile are already declining in parts of Europe and analysts are bearish on the prospects for the US market beyond the end of next year. Even the phenomenal proliferation of bandwidth hungry devices such as smart phones and tablets is not expected to fuel revenue growth in data access much beyond 2018, at least not in developed regions.
In this respect Verizon’s full-year figures for 2012 are poignant: strip out the company’s huge push to sign up new smartphone subscribers last year, and total wireless service revenues at America’s largest telecoms company, a key barometer for the North American market, edged just 2 to 3 percentage points higher each quarter.
Against this backdrop, the burgeoning M2M market represents not so much a significant opportunity as a potential lifesaver.
The good news, is that that there is more than enough growth potential within the M2M arena to take up the slack – provided that operators branch out and offer more than just simple connectivity. The precise numbers are still a little sketchy, but assuming, as many analysts already do, that the M2M sector will be worth a total of about $1 trillion a year by 2020, mobile operators might expect to share a total pot of around $50 billion. However, there could be as much as $400 billion on the table for more adventurous players willing to branch into other services such as IT integration and hardware development.
The bad news is that operators will not only face cutthroat competition from their peers, but also from increasingly aggressive Internet players such as Google and Amazon and possibly even super brands such as Apple, Sony and Microsoft.
All hail scale
Which is why mobile operators have been furiously working to exploit the one key advantage that they have over any newcomers – scale.
When it comes to many potential M2M solutions, such as digital advertising or the connected home, the world’s largest provider of mobile phone connections might not, on its own match up to the world’s largest search engine. But a handful of top tier operators, offering a footprint that covers a swathe of fast-expanding M2M regions is well positioned to give someone like Google a run for its money.
And an alliance of operators that can also offer a wide array of those all-important add-on services starts to look like a best-in-class world-beater.
Little wonder then, that the biggest drive in the M2M arena over the last few months has been in the brokering of new alliances.
Appropriately enough, the momentum is coming from the very top. Last July, seven of the telecom industry’s top standards setting organisations, including the Telecommunication Industry Association (TIA) and the Alliance for Telecommunications Industry Solutions (ATIS) formed the OneM2M Alliance in a bid to harmonise frameworks for everything from module tests and application interfaces to remote control systems. The alliance now boasts 226 members including Panasonic and Sony as well as a raft of mobile operators, research institutions and hardware manufacturers.
Most of the bigger proponents of M2M technology, such as car makers or transport companies developing a track-and-trace capability, typically want to take on the world on two fronts: Firstly, they want to roll out their connected devices globally through a single provider of connectivity. And secondly, they want a simple management system for the device itself – a so-called “application platform” spanning a whole range of areas such as how the device is developed, tested and managed on various networks, as well as how it might be repaired in the event of a breakdown.
Perhaps understandably, much of the focus among mobile operators in recent months has been around connectivity and the need to forge strategic alliances with rivals that extend way beyond traditional roaming agreements: “Clearly the market is moving towards a single operator model where a customer buys a single SIM card that can operate across multiple regions with multiple carriers”, explains Brian DeMuy, the man responsible for M2M strategy at Telus, the Canadian wireless operator.
Some of these devices may only move infrequently from region to region and may therefore require the support of nothing more than a series of robust roaming agreements, he says. But other devices will be permanently operational in a number of markets – and that will need operators to develop special partnerships, especially in areas where there are legal uncertainties over permanent roaming, or where the devices themselves are bandwidth hungry. “Right now, we are working on a number of such deals and we place great store in our ability to develop very specific arrangements with international operators”, he says.
Prioritising partnerships
Rodolphe Fruges (accent on e), vice president of the Internet of Things and M2M for France Telecom-Orange agrees: “Obviously we are seeing a number of very different alliances taking shape at the moment, but the critical ones are those between operators.”
Last year, Fruges’s firm signed a groundbreaking deal to provide Sprint Nextel with M2M connectivity in 180 countries outside the US, the first Transatlantic alliance of its type. The arrangement builds on a long standing partnership between Orange Business Services, the enterprise arm of France Telecom-Orange, Deutsche Telekom and TeliaSonera – a formidable operator partnership that covers around 85% of Europe.
In 2011, the last full year for which data is available, Orange saw a 42% surge in the number of M2M connections and it is clear that Fruges believes strategic alliances played their part: “It’s very important for Orange to foster partnerships with other operators because M2M customers demand seamless solutions at the continental, if not the global level.”
Crucial to the success of any alliance, he goes on, is the ability to establish robust quality of service levels. The problem with traditional roaming arrangements, he says, is that there is often little transparency across networks. In particular, it can be hard for a device owner to know whether a problem lies with the host operator’s network, that of a roaming partner, or whether the M2M module itself is at fault.
“We have developed a specific M2M incident management process that allows us to prioritise requests about the state of partner networks in the alliance”, he explains. As a result, every member can find out exactly what’s going on at any given time on any network in the partnership. “The system is so good that you can sell service level agreements off the back of it”, he quips.
Which in itself is interesting, because the revenue opportunities from operator alliances are far from easy to quantify and while it might always be tempting to use a strategic partnership to piggy back into new markets, the financial rationale might be somewhat lacking.
Test result
However, one clear area where partnerships deliver very real cost savings is in module testing. It is a non-negotiable requirement of the M2M world that new devices be thoroughly tested on every network where they are expected to deploy, in order to ensure that they cannot inadvertently bring down the system.
Deutsche Telekom, TeliaSonera and Orange Business Services have found that there is an overlap of about 60% in the tests that each carrier performs on a new device. Now, the customer-facing partner in the alliance will undertake the bulk of that testing and sub-contract out the rest of the work to each relevant partner, paying a nominal fee as appropriate. Moreover, partners undertake to prioritise sub-tests for other alliance members – a commitment that is likely to become increasingly valuable as the backlog of devices awaiting certification builds up.
But module testing aside, the financial attractions of partnerships are hard to quantify - revenue sharing agreements between partners, for example, are rare.
“Our alliance is not revenue orientated”, avows Fruges. “The point of the initiative is to give each member the tools with which to differentiate and succeed.”
App appeal
If operator alliances are all about extending global reach, then application alliances are all about stripping costs out of the M2M business. There is a growing consensus taking hold among analysts that the established benchmark for profitability in the mobile world, Average Revenue Per Unit (ARPPU), does not fit well in a typical M2M business model. If mobile firms are serious in viewing M2M as a high volume margin play, then they must drive as much costs out of their business as they possibly can.
One way to achieve that is to look for synergies with applications providers. Last year, Telefonica signed a joint venture with Telit Wireless, a US-based maker of mobile modules, to offer a raft of bolt-on services to the Spanish mobile firm’s M2M platform. The deal, which Telit claims is “unprecedented”, will level the playing field for smaller developers trying to carve out a niche in the M2M arena.
“We need more alliances between operators and companies like us”, says Alexander Bufalino, Telit’s head of marketing. “If you can combine control of the M2M module with network access, then you can start to do things that have not been possible so far. It’s a hugely valuable opportunity.”
Bufalino expects the deal to help push annual module shipments over the 10 million mark for the first time.
Partnerships go global
But the largest initiative so far, at least in terms of the number of members, was announced last July when seven operators finally emerged from under the skirts of Jasper Wireless, a private equity-backed software developer that aims to build a one-stop killer M2M platform, to launch a global partnership.
The deal confirmed one of the worst kept secrets in the mobile market as KPN, NTT DoCoMo, Rogers, SingTel, Telefonica, Telstra and VimpelCom together admitted that they were looking to form a single global platform for multi national businesses that would allow them to develop connected devices seamlessly across member countries. In the near future, the partners are planning to launch a global SIM card and design a central management system for M2M devices powered by Jasper’s cloud-based software.
The idea, explains Macario Namie, Jasper’s marketing vice president, is to create an ecosystem where big companies such as BMW or Canon can scale up their M2M requirements worldwide through a single portal.
Curiously, however, AT&T, which already works closely with Jasper, and two other key clients - America Movil and Etisalat – are missing from the current arrangement. The alliance also lacks representation in China, which is expected to be the largest M2M market in the world by 2020, and India, which is predicted to be one of the fastest growing markets over the same time frame.
The gaps have prompted some wags to dub the venture the “Gruyere Alliance”, in reference to the hole-ridden Swiss cheese of the same name. However, Namie insists that Jasper is working to fill in the missing pieces in its footprint and expects to sign up further partners in the coming months.
Namie also points out that once an enterprise customer has deployed an M2M device over the Jasper platform, it is a relatively simple affair to work with Jasper partners in new markets, whether they are signed up to the alliance or not. “Garmin, originally came to us via a single mobile operator who was working with the SatNav maker to launch an M2M solution in North America. Now, the company works with three separate operators on our platform”, he explains.
Today, 12 mobile operator groups representing 91 separate operator subsidiaries work over the Jasper platform, serving as many as 2,000 end-user customers.
Standardising the infrastructure behind the M2M market is a critical priority, Namie says. By developing a single platform for everything from device testing right through to integration and after-sales support, operators can speed up the time it takes for devices to get to the market and therefore encourage revenues to start trickling through to the bottom line earlier.
Billing is a case in point. Every application on every device with every enterprise customer marches to a different beat. ”We have developed a web-based rate plan that can be tailored to any device in a few minutes”, says Namie. Key criteria can include anything from how and when the device taps into the network, when and how often the device might need to take advantage of any specific roaming agreements and when a device might need to pull down additional capacity through pooling contracts.
This, says Namie, is where the Jasper Alliance comes in to its own: initiatives such as its rate plan may seem trivial, but the enterprise customer faces an enormous layer of additional complexities if problems such as these are not solved. Jasper acts as a catalyst, but the momentum effectively comes from the operators themselves: “We are at a point where operators really need to scale up their M2M businesses and in order to do that, they are banding together to give the customer exactly what it wants. While this remains the case, I think we will continue to see more alliances emerge.”
