MNOs are already making the IoT connection!

At the Future of Wireless 2013 event staged by UK industry organisation Cambridge Wireless earlier this month, James Collier, the founder and CTO of white space solutions provider Neul, suggested that mobile operators as they stand are ill-equipped to provision the Internet of Things (IoT). Alex Sinclair, CTO of the GSMA, countered by suggesting that MNOs are already providing the connectivity that is already starting to make IoT a success. Sinclair said that the IoT opportunity is big enough for everyone, but MNOs will clearly be key players and not just for simple connectivity.

The following is an abridged transcript of Sinclair’s presentation:

The full potential of the “Internet of things” (IoT) is truly vast, both in terms of societal benefits and economic returns. However, that potential can only be unleashed by significant investments that make commercial sense. According to Machina Research the overall market opportunity in terms of revenue potential for mobile network operators (MNOs) will be around $1.3 trillion by 2020. To put that in perspective, that’s roughly the size of the mobile communications market today. If MNOs manage to capture any reasonable proportion of that addressable market, then that would clearly make them “winners” in the IOT space.

So why will operators play a significant role in the deployment of IoT? IoT is, at is heart, about connectivity, connecting “things”. Today, there are nearly 7 billion connections serving more than 3.3 billion individual subscribers. Mobile network operators have invested, and continue to invest, billions of dollars annually in increasing coverage and capacity. Indeed, the coverage provided by our 800 operator members is unrivalled by any other terrestrial technology.

However, MNOs are not simply purveyors of bits, they are trusted business partners, with sound financials. If I am a healthcare provider or an automobile manufacturer, I want to sign a long-term deal, typically ten years or more, with someone I can trust—someone that will still be around in ten years time. I also want choice, I don’t want to be locked into a single supplier – as of 2013 virtually every market in the world has at least three MNOs to choose from.

Clearly, being successful in the world of IoT is not a classical retail comms proposition. It requires MNOs to deal with a multitude of different stakeholders in a number of completely different vertical sectors (health, automotive, education, smart cities etc.) and at a wholesale level. In order to tap into this market, most of the leading operators have had to establish new business units specifically designed to meet this need, like Telefónica Digital, for example, headquartered here in the UK.

Predicting the future is perilous, analysing the past less so, so let’s take a look at last year. In 2012, 391 mobile operators in 171 countries were already providing M2M services, accounting for 212 million connections. That’s pretty modest by cellular standards, but for most operators, that represents something like 6-13 per cent of their base subscriptions and it’s growing at around 33 per cent a year.

Unlocking the full potential of IoT will take many years, but some sectors are already moving. The automotive sector is particularly active at the moment, and all of the major OEMs are signing deals with MNOs that will last for the next 10-15 years. Even regulators are helping in some markets by mandating the use of cellular modems and SIMs in all new cars (e.g. eCall, ERA-GLONASS, SIMRAV). Good progress is also being made in other sectors like health and education, but with so many stakeholders, including governments, it will take many years to fully unlock both the societal benefits and economic potential.

Incidentally, those who continually suggest that IoT average revenues per user (ARPU) will be unprofitable for MNOs don’t understand the proposition. ARPU equals revenue, not margin or profit. To take a truly trivial example, the customer acquisition cost for a 10 million smart meter wholesale contract is hardly comparable with that of 10 million smartphone users. More importantly, and on a more serious note, when we speak to the heads of the M2M business units in all our operator groups, they see very healthy margins in the M2M space.

Perhaps the most intriguing aspect of this whole debate is that although we are led to believe that MNOs, who have existing and profitable M2M businesses, will not be “winners” in IoT, it is never quite clear what the other alternatives are or who the other mysterious beneficiaries will be. Those that would suggest that players such as Google or Microsoft will become serious global players in the connectivity space need to take a serious look at the investment (ongoing, not one-off) required to provide such coverage. For the avoidance of doubt, there is plenty of space for new entrants in the IoT space and all can benefit, but to suggest that MNOs will not be significant players smacks of ideology rather than commercial sense.

MNOs will be amongst the “winners” in the world of IoT, because they are already making the investments and doing the deals required to extend the connectivity they have brought to more than 3.3 billion individuals around the world to many tens of billions of “things”. It will take decades to truly realise all the benefits, but every journey starts with the first step and MNOs are already on their way.

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