M2M Challenges for the Telco

Almost all major mobile operators have announced initiatives for driving growth in the wireless M2M market over the past few years. The results are now visible with the growth of subscriptions and customers. As per Berg insight, the world’s ten largest operators by revenue had 68.2 million M2M subscribers (representing 3% of their aggregated base of total mobile subscribers) at the end of 2011, an increase of around 38 percent YoY.

China Mobile is believed to have emerged as the world’s largest provider of M2M connectivity during 2011, with an estimated 14 million subscribers at the year-end. AT&T established a clear leadership in the US with 13.1 million M2M subscribers, up 40 percent year on year. Meanwhile Verizon Wireless’ M2M subscriber base increased modestly to around 8.6 million. Vodafone held the number three spot with approximately 9 million M2M connections, ahead of T-Mobile and Telefónica, which ended the year with around 6–8 million M2M connections each. China Telecom entered the top ten with around 4.5 million M2M subscribers, racing ahead of Telenor, Sprint and Orange at 2.5–3.5 million connections each.

As per Global Information Inc. (An information service company partnering with over 300 research companies around the world), M2M is a US$ 1.2 Trillion opportunity by 2020. The M2M opportunity is definitely large for operators too and it not only promises a steady source of revenue from connected consumer devices but also offers an entry into diverse sectors where they can promote their bouquet of services. Telcos in turn need well defined directions and strategies to conquer this burgeoning market.

At the same time, M2M market development represents a very complex set of inter-related elements from the business model, to the supply chain, to vertical applications, to ongoing support challenges. Designing an M2M business involves optimizing all of these elements. In this post, I would try and assess these challenges and deduce certain critical success factors.

Lower Average Revenue per user (ARPUs): Since the amount of usage of the connected devices is significantly lower than a regular user, the realized revenue per user is much lower compared to the traditional mobile business.  The usage may vary but in most use cases, the reporting of statistics will also be done over long periods of time. Therefore, new revenue will be distributed over large numbers of subscriptions.

Note that the there are exceptions in case of video surveillance and video based use cases where the data usage will be significantly higher.

Customized products and services:  Telcos need to re-think and act differently when designing M2M solutions. Products and services should meet the exact requirements of M2M customers and include M2M tailored product and service solutions, self care support, flexible billing/tariff models, customized roaming arrangements depending on geographies of the customer, etc.

Special SIM cards: M2M imposes new future demands for SIM cards. They not only need to be flexible for personalization and profiling, they increasingly need to meet industrial grade of reliability, security and quality of service.

Solution provider positioning: Like in traditional mobile business, Telcos providing M2M connectivity are stuck in the usual dilemma - whether to act as dumb pipe or provide additional services to enhance the overall customer usage and experience.

Different operators follow different approaches to the above problem and stay closer to one of the two ends of the spectrum.  Within this, while some companies take a “defensive stance” focusing just on value-added services, certain other operators have followed a multi-sided business model, acting as a consulting partner for the end customers to resolve their key business issues at hand.

Not only is the M2M market very different from the handset market—but different M2M customers have very different requirements. An operator's ability to respond to those requirements directly affects the win rate. The idea is to develop solutions working side by side with businesses along with all the process to create and deliver specific final products to fulfill the businesses diverse needs.

In certain cases, it may not be possible for a telco to take an end-to-end approach to the entire M2M market as they do not have the full set of required skills. In such cases, partnerships with other solution providers or system integrators will be the key to success.

Alliances: With world-wide requirements hitting center stage for most global customers, an alliance between multinational operators is the logical next step to provide seamless coverage in multiple continents. This way, the companies can promote the sale of more M2M devices across various verticals such as consumer electronics, automotive and energy. In addition, the group of operators can also align to create more business models, new products and services and reduce the time to market and operational costs.

The partners also benefit from scale arguments when negotiating M2M devices, modules, API standardization and M2M platform roadmap development.

Although, a single large global alliance is missing, there are a few alliances cropping up in different parts of the globe.

KPN, NTT DoCoMo, Rogers, Singtel, Telefónica, Telstra and Vimpelcom have created one covering large parts of Asia pacific and Europe. Another one is based on deals between Vodafone and Verizon. While another large alliance covers multiple European and North American operators like Deutsche Telekom, France Telecom, TeliaSonera, Everything Everywhere and Sprint.

Critical success factors

Key success requirements for cellular network operators’ wireless building M2M businesses will include:

• A Clear Strategic intent and direction:  M2M must be on the road map for cellular operators and requires a distinct strategy. With the M2M market still in an emergent state, carriers need to act now and deliberately.

• Innovation is the key to success:  It’s hard to foster technology innovation and create new businesses at the same time. Focusing on new values - such as extended communications infrastructure for M2M, new user experiences and connected device component developments (such as new SIM cards formats for M2M) are all examples of innovation that will help the market develop faster.

• Alliances and partnerships:  The focus should remain on the complete ecosystem and not on owning everything. No single operator can achieve the R&D, implementation as well as system integration. There are several players in various layers of the ecosystem and the success can only be driven by alliances between various players.  There are also many categories of partners to work with, but determining which potential partners will be define the future success of any player.