Driving lessons

Connected cars represent an exciting evolution for consumers, car manufacturers and mobile operators alike. There are already over one billion cars on the world’s roads today, according to research firm Ward’s Auto, and that number is expected to continue growing as more consumers in emerging markets get onto the roads. Automotive manufacturers have already put plans into action to ensure, that in the coming years, the majority of new cars will be equipped with broadband connectivity.

But despite the optimism being voiced throughout the connected car ecosystem, demand for vehicles with internet connectivity has been relatively sluggish to date. This is largely due to the economic downturn. With cars representing a substantial purchase for consumers, demand for new vehicles in Western Europe has been low in these difficult times. September 2012 marked the 12th consecutive month in which new car sales dropped in the EU; traditionally one of the strongest markets for new vehicles, according to the European Automobile Manufacturers’ Association.

“[Car] original equipment manufacturers (OEMs) are really suffering at the moment,” explains Sheridan Nye, senior analyst in the enterprise verticals practice of Informa Telecoms & Media.

“The European market has come to a halt; they are looking for growth in areas such as China, India and Brazil, and those are mid-range/low-end vehicle markets, so that’s going to be the sweet spot in terms of volume sales for the next few years.”

Despite the challenges facing connected cars, there are reasons for operators to be optimistic. All new cars in Europe will have to facilitate network connectivity, under plans revealed by the EU earlier this year. MEPs have mandated that new cars must be equipped with a network-connected tracking device that will automatically alert the emergency services in the event of an accident. The eCall system, which uses sensors to call the nearest emergency centre when a car crashes, will be made mandatory from 2015. The EU claims the technology could save up to 2,500 lives a year. These trends are further influenced by similar legislation being introduced in Russia and in Brazil, which will require the introduction of similar telematics hardware.

Insurers are also pushing connectivity in cars. Usagebased insurance is an area gathering momentum as insurers are interested in collecting data to have a better understanding of what is happening with driver behaviour. Today, the usage based insurance model requires the customer to take a small plug-in device that is inserted into a port in the connected car. This unit feeds data from the car back to the insurer which will reward drivers with lower rates on the provision of evidence that they do not drive their vehicles very often.

Automotive OEMs are also keen to see connected cars take off. Despite the focus on the lower-end sectors for volume shipments, at consumer car shows, manufacturers usually showcase their latest premium offerings, and the majority of these come with internet connectivity. OEMs are hoping that by tempting consumers with luxury offerings, and with economic recovery on the horizon, they can get volume sales back into the higher end of the industry. Research conducted by agency SBD on behalf of the GSMA reveals 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.

The types of apps on offer beyond usage based insurance and emergency calls are rich and vast. According to Francesca Forestieri, director of the GSMA’s mAutomotive division: “The range of connected car services is constantly expanding and only our imaginations today limit the possibilities.”

The trade association divides connected car services into three categories: Infotainment: services such as on demand real-time radio and video, cloud based in-vehicle services and news; Navigation: for parking, fuel, journey times, travel and traffic assistance; and Telematics: services such as remote diagnostics, breakdown help, stolen vehicle tracking and toll payment.

According to Toyota’s general manager for telematics and special projects, Derek Williams, the use of entertainment apps will open up the floodgates for consumers to use more sophisticated apps.

“SatNav and entertainment will drive the take-up of connected car services,” he says. “Then, I think that consumers will become used to using apps within the cars and begin using other services, such as remote locking and remote diagnostics.”

Scarlet Motors is a start-up electric and connected sports car manufacturer which is looking to pioneer connected services in its vehicles. As Julien Fourgeaud, who holds the role of CEO and chief catalyst at the firm explains, the task of deciding which apps the firm uses and even devising them is one that it has opted to open up to an online community that it has created.

“This gives a chance for people to participate in the car development process. Some of the services will be designed by the community; they will tell us what they want,” he says. “This is a key differentiator for us, there is no car company that is manufacturing a full commercial model that has opened up their product development process to complete strangers.”

In terms of the business models behind connected car services, from the outset, it appears that the largest opportunity for mobile operators is to work with car OEMs on embedded connectivity in cars. For an operator, by teaming up with a car manufacturer it stands to benefit from providing connectivity to a new stream of devices; internet-embedded vehicles.

While smartphone integration and tethering will lead to greater data consumption in the car, according to the GSMA’s research, it will effectively restrict the value of telecom operators to selling more data. The association argues that embedded telematics, however, provides telecom operators with a much broader opportunity to provide more advanced M2M support to vehicle manufacturers. Fourgeaud says his firm has chosen to adopt the built-in approach. “We’ve seen the adoption rate of smartphones and more and more people are using smartphones every month,” he admits. “But out of the smartphone users, how many of them understand the full functionality of the phone and how to use Bluetooth? As much as you want to make things simple in the car, using the brought-in approach you must rely on other devices and you need to educate people on how to use their own phone; that’s not an experience we’re interested in. We’d rather go up front and find a good partner in the telco world.”

Peugeot is another car manufacturer taking the embedded approach. In France, it has teamed up with national operator Bouygues Telecom and is providing connectivity through a 3G USB ignition key that powers its Peugeot Connect Apps system. When the 3G key is plugged into the vehicle, it enables touch-screen access to the Peugeot Connect Apps service. “It is not necessary to buy connectivity as a factory option inside the car, instead we decided to make the connection through the 3G key, which is provided to the customer when they decide to subscribe to Peugeot Connect Apps,” says Pierre Yves Etienney, technical and product press attaché at the car manufacturer.

“Once they have the touchscreen inside the car, which is standard on 90 per cent of Peugeot 208s, the car is compliant with the service and it is possible for us to connect it.” However, vehicles roam by their nature and OEMs ship cars all over the world, so the ability to provide global coverage, without incurring roaming fees, is an important attribute that OEMs are looking for in an operator. Scarlet Motors says that for this reason, it is leaning toward teaming with an operator with global reach.

“There are two options: Teaming with an operator that has all the networks in place —such as Telefónica or Orange—which understand the project and what it can bring to them on a global scale. We’ve had some good conversations with this type of operator,” explains Fourgeaud. “Or the alternative is to partner with a small one that is really hungry and wants to make a difference.”

Vehicles Roam And Oem'S Ship Cars All Over The World, So Global Coverage Is Necessary

Sheridan Nye says that she does not really see a lot of opportunity for national operators in embedded connectivity, beyond being roaming partners. She believes that the global operators will “sew up the market” because car OEMs do not want their customers to be at risk of bill shock.

Ford is one car manufacturer that has taken a different approach to its competitors, and opted for the ‘bring-your-own’ approach. Rather than embedding a modem device for communication, the US car maker chose to allow users to use their own smartphone, iPad or MP3 player for its Sync service.

The service uses voice recognition technology from software provider Nuance to allow users to use their smartphones hands-free while driving. The smartphone interacts with Ford’s on-board computers using Bluetooth connectivity. Ford has developed its own set of APIs called App Link as part of the Sync offering and made it available to developers. “The advantage of brought-in devices is that there is no separate voice plan or data plan, you’re relying on the same plan you use with your phone on a daily basis,” explains Jim Buczkowski, a Henry Ford Technical Fellow and director in Ford’s research and innovation centre.

“We refer to it as the democratisation of technology. We say: ‘This is a great feature, something that the average person would appreciate having, so how do we make it affordable for everyone to take advantage of it?’”

He adds that the affordability of the service is not the only benefit of taking a brought in approach, it also alleviates risks associated with the evolution of technology. Customers can benefit from 2G services until they upgrade to 3G and then to LTE, at their own pace. “We insulated ourselves from those technology changes of networks by relying on the phone. We knew we could rely on people upgrading their phones and we would not have to upgrade the modem and hardware in the car,” Buczkowski adds.

Ford prices its Sync service at a $295 one-off up-front cost with the car, having seen a price drop from $395, when the service was first launched in 2007. Additional charges are paid straight to the operator in accordance with the price plan that the customer is on. However, for embedded connectivity in cars devising a pricing model is a more complex task. “Whenever you talk about consumers, you have to take into account that they’ve only got so much disposable income—and not only is that not changing in Europe, it’s coming under increasing pressure—so the revenue has got to come from somewhere else,” says Nye.

“It looks unlikely that consumers are going to want to pay more for services that they already get on their smartphones that they use in their everyday lives and then pay more because they happen to be in the vehicle. It’s going to have to be more imaginative pricing than that.” The situation becomes more complex for OEMs because charging for communication is a completely new area for them. And a challenge lies in the fact that being new entrants to the telecoms market, ascertaining value for money is no easy task.

According to Toyota’s Williams: “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.”

A further hurdle facing the future connected cars is the fact that some of the major areas that cars travel are lacking cellular coverage. Motorways, country roads and dual-carriageways are areas that often lack coverage, but are arguably some ofthe areas where connected car services will be used most prevalently. Therefore, operators need to work to extend coverage in these areas for connected car services to evolve, despite the return on investment not making it viable at this stage.

“I think you will see gaps in major roads being filled in for sure,” explains Informa’s Nye. “Cars do go into rural areas, so there will a matter of managing customer expectations around that, because at this stage we’re not talking about the kind of revenues that will make it worthwhile to deliver blanket coverage in rural areas.”

Ford’s Buczkowski agrees and admits that the car manufacturer’s brought in approach does not allow it to have much influence over how operators build their network. However, some operators have spotted the potential opportunity in connected cars.

“We’re investing in expanding our coverage,” says KPN’s strategic partnership manager Alan Beveridge. “Covering the population is one thing, but cars go to places where people don’t live and we need to ensure that we can provide coverage in these areas.” How well these services make use of an operator’s network without causing signalling problems is another concern. Considering the number of cars on the road and the amount of voice and data traffic operators are already carrying during peak times, it becomes hugely important that networks can cope with the strain without it impacting the quality of service.

While connected car services are making their way onto the market, discussions are already being held about the potential of self-driving cars. The Institute of Electrical and Electronics Engineers (IEEE) anticipates that by the year 2040, driverless cars —operated using M2M technology—will account for up to 75 per cent of cars on the road worldwide.

Driverless cars operate through use of communicating sensors to ensure safe and efficient travel. Through vehicle-to-vehicle (V2V) and vehicle-to-infrastructure (V2I) communication there may be no need for traffic lights and stop signs when all of the cars on the road are driverless. Web giant Google became the first company in the world to obtain a licence for driverless cars, after the US state of Nevada passed a law in June 2011 to allow the operation of driverless cars in the state.

However, it will take a long time for driverless cars to make an appearance on our roads. Firstly, all car manufacturers have to be on board in order to have awareness of each other for the concept to work. Linking these vehicles up with traffic systems is also going to take a very long time.

According to Sheridan Nye, there are clear benefits of driverless cars in terms of safety and convenience, but it takes a strong business model to make it worthwhile to invest in the vision.

“This is more likely to happen with ‘road trains’, or freight deliveries. You may have a fleet of trucks that carry cargo which people do not drive, you just have a driver at the front, and the others follow.”

Discussions Are Also Being Held About The Potential Of Self Driving Cars

However, Ford is one company working towards this vision for the consumer segment. The firm already incorporates tools in its vehicles such as active cruise control; using radar technology to lock in on the vehicle in front and maintain speed and the distance from it; lane keeping assistance; and traffic jam assistance, which is similar to cruise control but at low speeds.

“Gradually we are moving in a direction that provides more driver assistance to our customers,” says Buczkowski. “We refer to it as automated driving and we are keen on the vehicle to vehicle (V2V) and vehicle to infrastructure (V2I) vision; there’s an opportunity to reduce accidents,” he adds.

Scarlet’s Fourgeaud opposes the idea of driverless cars, and as perhaps would be expected from a sports car manufacturer, believes that such technology would take the fun out of driving. He says that people would not trust a completely pilotless plane, so why trust a driverless car? Those people who are not interested in driving their own car should “just take the bus”, he argues.

Informa’s Nye agrees and says that for consumers, there are all kinds of “psychological warm fuzzy feelings” that people have about their cars.

“The luxury brands and sports cars advertise about how a car is about your personal freedom, but the idea of driverless cars causes one to question, what exactly are cars? Do they need a steering wheel? Will we begin to travel around in our own personal pod? It would mark a drastic change from what the car actually is today, which is a personal, status thing. It’s all a little bit futuristic at this stage.”