Millions of connections are coming online every month and the types of devices being connected extend into realms far beyond the telecoms ecosystem, including (but not limited to) energy, healthcare, transportation, retail, IT, security, banking, industrial and the connected home.
Almost all products that use electricity, from cars to white goods, now possess inherent data processing capabilities and with them the potential to become network-enabled. But in order to connect these increasingly diverse and critical assets, the reliability, security and performance of the networks used to carry this traffic takes on new level of importance. A dropped call is rarely life threatening, but loss of connectivity to a heart monitor is a different story.
An operator’s traditional portfolio of services and products tends to be horizontal and relies on price as a key differentiator, but the ecosystem for M2M applications is very focused on specific needs for vertical markets. The need for specialist capabilities is driving a diverse community of vertically-focused players and the question now is where the carriers fit in the value chain.
There are some big numbers flying around. Ericsson is predicting an Internet of Things in the region of 50 billion connections by 2020, whereas other estimations are more reserved. Informa Telecoms & Media is forecasting just over 145 million global M2M connections by the end of 2012, based on a quarterly increase of nearly five per cent and generating revenues of around $1.5bn worldwide. By the end of 2014, the number of connections is expected to grow to 217 million, with revenues of $2.5bn worldwide.
The biggest opportunities for end user services are in the long tail niche applications backed up by value added services. That’s not a territory that many operators want to get involved in, which is what makes the wholesale model so appealing.
Gösta Kallner is CTO of Net1 and Ice.net, Nordic-based operators with networks in Denmark, Norway and Sweden that specialise in M2M connectivity. In Kallner’s own words the focus is “Less about numbers and more about profitability.”
The markets Net1 and Ice.net operate in are relatively small, one with a population of ten million and two at half that. “So in general we don’t look at the potential of millions of subscribers, instead we look at getting up to a couple of hundred thousand,” Kallner says. “But we’re looking at expanding the business to other markets around the world.” Net1 doesn’t do any integration of M2M apps and services. It provides access and devices only and caters almost exclusively to nonurban markets with its CDMA450 network. Whereas other operators are focusing on smartphone and handset connectivity, Net1 focuses on M2M and portable fixed wireless broadband.
“We leave the cities to our rivals and focus exclusively on the rural areas. There’s too much competition otherwise. In urban areas we have below one per cent market share, but in rural areas we have around 30 per cent of market,” Kallner says.
“Around 70 per cent of our user base is consumers (wireless broadband) and 30 per cent is businesses, but the business side is growing faster than consumer. About 20-30,000 Swedish businesses that operate outside of cities have no alternative but to buy service from us. And about another 50,000 see the potential for getting a better service from us than from our rivals.”
As the smallest operator in a market of five licensees, Net1 has had to be pretty innovative to find its niche, but there are unique characteristics to Sweden and other Nordic markets that make the business model viable. In Sweden alone there are more than 500,000 second homes as well as 200,000 boats that act as holiday homes, 150,000 caravans and a population of around two million that live in remote and rural areas, all of which form a target audience.
The company itself is only around 60 people, outsourcing as much of its business processes as possible, so it can focus solely on connectivity. “You’ve got giants like Apple now taking lots of market share from the operators in terms of value added services. So we are probably more prepared in that we don’t have any value added services to lose. We’re already the bit pipe that many carriers are thinking about becoming in the future.”
Kallner says that what the operator actually provides to its customer segments isn’t so different. It’s the apps that run on top of the network that provide the diversity. Net1 already has about 25 different CPE devices for M2M purposes that it will lease, €4-5 per month is a typical rate, but many customers bring their own and simply require wholesale connectivity.
“We are mainly looking at quality of service and priority of traffic as the service part of our portfolio, as well as closed networks that use our transport infrastructure,” Kallner says. “There is a really strong ecosystem of companies providing services and applications on top of the access network. So if you look at the spread of different markets where we play with M2M, if you are going to learn about every different business segment and their requirements you are going to need a lot of people. R&D is the part of our operation we keep on low expenditure. I think it’s better that we are humble and provide just what we provide best.”
In Sweden about 70-75 per cent of energy meters are already ‘smart’. They are currently based on GPRS although all are about to be upgraded, because the sheer volume of devices is beginning to weigh on the network. Kallner sees this upgrade as a clear opportunity. Meanwhile in Norway, government legislation states that by 2014, all public utilities have to be ‘smart’.
Aside from the smart meters, Net1 already counts all the major utilities as customers, as typically power companies use fibre to connect up big stations with wireless as a backup, while in small stations wireless is the prime and the backup. The key benefit being that with private networks, customers can supply their own dumb end user devices, and let the modem handle all the encryption.
Forestry is a big deal in the Nordics and SCA is Net1’s biggest customer in Sweden, with over 1,000 access devices supported. The forestry firm connects everything from several hundred harvesters to a fleet of trucks, enabling employees to know where to offload, where to pick up and how much to carry. The aim is to help the SCA prevent lost timber as well as avoid under-capacity truck rolls. All of this can be achieved with less than a 1Mbps connection, and so far Net1 has helped SCA increase productivity by 25 per cent. Sweden also has around 16 large mines and, as with forestry, the mining industry connects all their machines such as big trucks to monitoring solutions. Such machines might be manufactured in Japan and the monitoring software will have a client where the end user can get remote assistance via the web direct from the manufacturer. There are also a lot of consultants going into mines during the weekday who need connectivity, as well as those workers who may be at the mine for extended periods and need to have a connection back home.
Air and sea transport also forms a large part of Net1’s user base. The company has a deal with a Norwegian ferry company worth £2m that offers wifi on board and therefore consumes a lot of data but not many subscriptions, while the Swedish coastguard has a fleet of about 50 boats equipped with QoS connectivity and VoIP. There’s also a significant helicopter fleet, of over 100 machines, with use cases ranging from weather reporting to the air ambulance.
Farmers, fishermen, broadcasters, independent petrol stations and public safety services all form the rest of Net1’s subscriber base, whereas M2M providers in other markets have carved niches in areas like healthcare and consumer telematics like the DriveCam.
As the cost of enablement falls and end-users realise new benefits from M2M applications, the market for services will grow on top of the market for connectivity. Kallner is seeing more dual mode routers, with two radios HSPA+ and CDMA Rev B to provide redundancy, in markets of critical connectivity like public safety where long time incumbent technology Tetra doesn’t provide the necessary bandwidth.
The ecosystem is then big enough to support lots of specialist companies that aggregate connectivity across devices to provide backup and failover. “We just concentrate on selling M2M connectivity modules and bit pipe access as we find that enterprises would rather have the one provider of M2M services,” he says. “We don’t need to bring the management layer or the application, other companies bring this as a value add.” And the connected world, it seems, is big enough for everyone.