Operators and the Cars of the Future

Connected cars are fast becoming the topic that has the telecoms industry’s tongues wagging excitedly. This year, Ford’s chairman gave a keynote presentation at Mobile World Congress, RIM showcased a connected Porsche at its BlackBerry World 2012 event, and Google secured the first ever self-driving car licence in the US. And as the connected car market continues to evolve, mobile operators are finding that they have a key part to play in the ecosystem, and are having to invest time and resources to ensure they are not overlooked as the connected car market matures.

In-car connectivity can be enabled for a range of applications, such as navigation, safety, such as for emergency calls, usage based insurance to monitor how safe a driver you really are, entertainment and even congestion charge or toll payment.

Currently, revenues that operators are seeing from the connected car market are modest. Both 3UK and the Netherlands’ KPN told that the income they receive from their efforts in the connected car market are “negligible”. However, the telecom industry will benefit from the growth in connected cars although the size of the opportunity will depend on the type of connectivity that prevails in the car.

There are two different approaches to providing in-car connectivity; the built-in approach and the brought-in approach. The built-in approach involves the automobile-OEM embedding all of the hardware required for the connectivity into the vehicle at the point of manufacture. With the brought in approach, the user is required to bring in their own device, whether its phone to tether or a broadband dongle to plug in.

Smartphone integration and tethering will lead to greater data consumption in the car, according to industry body the GSMA, but will effectively restrict the value of telecom operators to selling more data. Embedded telematics, however, provides telecom operators with a much broader opportunity to provide more advanced M2M support to vehicle manufacturers.

Research conducted by automotive technology consultancy and research firm SBD on behalf of the GSMA concurs that today, the global total revenue for the automotive embedded telematics market stands at around €1.5bn. But the association’s research forecasts that it will grow at CAGR of 24.6 per cent over the next 15 years to reach €20bn by 2025, by which point all cars on the road are expected to have broadband connectivity.

The bulk of this revenue is expected to be from the sales of vehicle-related services and content. However, SBD also forecasts that connectivity revenues alone will increase to almost €4bn by 2025.

For the operators, this requires ensuring that geographically, their network coverage is extended.

“We’re investing in expanding our coverage,” explained KPN’s strategic partnership manager Alan Beveridge. “Covering the population is one thing, but cars go to places where people don’t live, such as motorways, so we need to ensure that we can provide coverage in these areas.”

This involves spending large volumes on infrastructure and venturing into new markets. Although KPN’s mobile business operates in Netherlands, Belgium and Germany, the operator is taking a global approach to the connected car market. Beveridge explained that, because consumers often take their cars across national borders and car manufacturers don’t always tailor their vehicles to specific markets, operators cannot be too narrow in their approach to connected cars.

“This means that we have to reach roaming agreements with operators abroad – it’s much the same way as we facilitate roaming for handsets,” he added.

Another challenge lies in the fact that operators are dealing with a new type of manufacturer, not just handset and tablet manufacturers. Automobile manufacturers are new entrants to the telecoms market, and according to Toyota’s general manager for telematics and special projects, Derek Williams, ascertaining value for money is no easy task.

“We can only pick operators to work with based on the tenders that they bring to the table. We select operators based on the offers they submit, so at this stage, we don’t really know whether we’re getting value for money.”

He added that the firm is also having to venture into unchartered territory, by agreeing SLAs with operators, using its own IT departments expertise to ensure network security in the cars and dealing with customer complaints when there are network issues.

In addition, the GSMA believes that car manufacturers will need to begin setting up app stores for the applications that will be delivered in-car. Renault is one example of a car manufacturer that has set up its own app store, R-Link.

The Android based in-dash control, communications and entertainment system can download apps for drivers to run in their cars. Initially, 50 apps have been made available and the open philosophy of Android is clearly a major feature when deciding which platform to run its future portfolio on.  

RIM too, could have a part to play in the delivery of software to cars, since its QNX platform is used in 60 per cent of the cars on the road today, the firm claims.

Regardless of the software players that take the lead in the car space, operators will still have to compete for business of car manufacturers. And while the future looks bright for operators, with the forecasted revenues suggesting that it will become a lucrative revenue stream for them, KPN’s Beveridge warns that they must act today or risk losing out to rivals.

“Although the revenues from telematics that we’re currently seeing are negligible, we have to invest today. We need to invest for the connected car market to take off. We can’t wait for customers to demand these services first, because they don’t know what capabilities will be available – there’s nothing to demand yet.”

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