Tomorrow the world

There are now more than one hundred countries where mobile penetration has passed 100 per cent. Eastern Europe as a whole sat at 126.6 per cent at the end of 2010, with Western Europe trailing slightly at 118 per cent. The Americas, North and South, are approaching saturation and even Asia Pacific closed out last year with penetration of 68.6 per cent. The message is clear; with the exception of Africa, the untapped human market for mobile subscriptions is relatively small, and shrinking fast.

Against this backdrop, the market for machine-tomachine communications, or M2M, is being addressed with renewed vigour—reflected, as these things tend to be, in the parlance of the industry. The “internet of things” is now an established catchphrase, for example, and Ericsson has thrown so much marketing muscle behind the notion that we will soon live in a world of 50 billion connected devices, that the figure has become conversationally inescapable when M2M is under discussion.

M2M is nothing new, neither in concept nor reality. Fleet tracking systems like Qualcomm’s Omnitracs have been around for decades. And the mythical fridge that automatically orders milk when the owner runs out has long been a blue sky favourite; a latter day incarnation of the robot housemaids that were predicted in the 1950s.

Such a fridge may yet appear but, for the time being, the M2M market is progressing well enough in its absence.

That said, it remains early days. Vodafone reports that it has five million M2M connections group-wide, which is chicken feed compared to its 4Q10 global proportionate subscriber base of more than 255 million (figures from Informa’s WCIS). Telefónica claims four million across its entire footprint, and boasts a total subscriber count of 219.7 million. US carrier AT&T leads the way, reporting more than 11 million M2M connections.

Not all carriers are so keen to report their data, however.

Sprint said last year that it was withholding its numbers until the industry had settled on a standard definition for a connected device. While this may sound like a poor excuse (you can wait a long time for this industry to settle on a standard for anything, after all) it does highlight the defining complexity of the sector.

The M2M market is a writhing mass of variables. Question marks hang over every link in the chain: What is a connected device? Should operators aim to provide more than basic connectivity? If so should they develop their own service delivery platform or partner with a third party? Who is best placed to develop the applications? How should these services be priced and billed for? Very little in this market is set in stone.

One thing is clear, however: A significant number of leading mobile operators have identified this space as one in which it is essential that they play. As well as those mentioned above, KPN, Telenor, Orange, Verizon and Telstra are among those keen enough to have allocated dedicated resources to the service of the space. Sprint’s deference to the definition of the connected device, whatever its motivation, is worth exploring.

The familiar use cases of M2M services—fleet tracking, inventory management, remote monitoring and so on—are no longer the beginning and end of the market. Indeed the renewed enthusiasm for the sector has coincided with the growth in popularity of a new range of connected consumer electronics. E-readers, personal navigation devices and connected photo frames are among the products giving M2M what it always lacked; a human dimension.

This can blur the lines somewhat, with some organisations, for the sake of marketing, counting tablets as connected devices. Macario Namie, senior director for marketing at Jasper Wireless—the leading M2M service delivery platform developer whose product is used by more than 200 enterprises, offers a useful definition.

The fragile reality of mobile networks means that a single MNO cannot offer its M2M customers any real guarantees of service. This works in favour of specialist providers with no competitive barriers to offering multinetwork connectivity

“The way we think about it is that connected devices are ones where the connectivity is not the end game,” he says. “For an e-reader the act of connectivity is a means to an end—and that end is the purchase and delivery of a book. With satnav it’s the same thing.” While these kinds of consumer products are among the newest additions to the connected device or M2M sector, and significant drivers of operator enthusiasm for it, they are handy illustrators of the remove at which operators must work in this area.

The connectivity on such devices may not be their core function, but it is nonetheless vital to their performance. And should that connectivity fail, the device would be severely hampered. In such an instance, however, the end customer would contact the organisation from which they bought the device, rather than the operator that was providing the connectivity. While carriers are used to what they provide being a product, in the M2M space it is an enabler.

Exactly how an operator should approach the market depends on the operator in question, the application and the vertical sector being addressed, among others. Some operators, says Jamie Moss, senior analyst and M2M specialist at Informa Telecoms & Media, are content simply to wholesale connectivity to specialist resellers who may also develop applications, or team with third party developers. “There are some operators that believe at least one third of the M2M market can be facilitated by existing wholesale platforms,” Moss says. “They do not believe that there’s any need for them to invest in an M2Mspecific service management platform at the moment.”

Others wish to be more directly involved, and have therefore opted to bring to market some specialist capabilities. These carriers that believe some kind of dedicated offering is necessary divide broadly into two categories: those that have opted to develop a bespoke service delivery platform for M2M and those that choose to outsource the provision of that functionality to a specialist third party. The arguments in favour of both options are familiar enough The development and ownership of proprietary platforms requires a greater degree of up-front investment, while outsourcing offers operators the ability to share both the cost and the risk of entering a new area of business. The specialist outsourcing partner will have experience to impart and proven expertise in the sector which could give the operator a useful leg up—and the scale of their deployments should ensure that their platform evolves more quickly and effectively than a proprietary system.

On the other hand, licensing a platform that has also been licensed by some of their fiercest competitors may give an operator concerns over its ability to differentiate its offering. Vodafone is one carrier with such concerns. “We realised a few years ago that M2M is quite different from the mobile phone business,” says Marc Sauter, head of business development for M2M at Vodafone. “This was when we decided that we needed a dedicated and specific technical solution.”

For an operator of Vodafone’s reach, the development costs are offset by scale, and by the attractiveness to enterprises of being able to access consistent services across borders. But it doesn’t follow that a large carrier will always opt for the development of an in-house platform, with Telefónica a passionate advocate of partnership; in its case with Jasper.

The choice that an operator makes between in-house and outsource can shed a good deal of light on the way they view the market. For Telefónica, says Mike Short, VP of research and development at Telefónica Europe, the decision to partner up was made in response to the sheer size of the potential M2M market.

“We believe that the growth in the M2M market will be so large that we can’t do everything ourselves. Jasper can bring some partners to the table that we wouldn’t naturally have,” he says. “So if we’re not strong in a particular geography, they might be able to help us. Also if we’re not strong in a particular sector, pharmaceutical pill box reminders, for example, they might help us move into that market.”

This willingness to work with a range of partners and specialists is not part of every carrier’s approach to the market, says Jamie Moss. Currently there are numerous service providers, of varying sizes, working to meet the connected device requirements of the wide range of enterprises and verticals. But not all carriers see their value. “Vodafone seems to think that there is very limited time remaining for these little vertical market specialists and that, ultimately, the carriers will come to take over the entire market,” he says.

Such contrasting views raise another key question in the M2M space—how far up the value chain should the operator sit. “Do they just want to be a transport provider, or have preferred partners in each vertical, or do they want to completely own the experience?” asks Jasper’s Macario Namie. “The operators are still figuring that out.”

The choice that an operator makes between in-house and outsource can shed a good deal of light on the way they view the market

Some enterprises might require only a handful of devices to be connected. Others might want a solution that can manage tens of thousands. Given the range of devices that those within the sector expect to become connected, the number of addressable enterprises is likely to be enormous. So is it really worth operators pursuing each and every one of these? Never mind desirability, is it even possible?

This in turn brings into play the issue of just how customised an M2M proposition needs to be. Because if it is possible to develop an offering that can be applied horizontally, rather than having to develop something for each vertical, or for each company within that vertical, then owning the experience might be a possibility open to the carrier. The answer, as with everything in the M2M space, is painted in many shades of grey.

Steve Pazol is chairman of nPhase, a joint venture between Qualcomm and Verizon Wireless that was established after AT&T partnered with Jasper for its big push into the connected device space. He argues that the market is moving towards a greater degree of alignment across verticals that bodes well for operators.

“Analysts suggest that 80 – 85 per cent of what the M2M enterprise customers want to do should be possible to integrate into a platform that could be deployed across all markets,” he says. “I’m talking about the plumbing; security or changing rate plans, or seeing the health of the device, or taking different kinds of sensor data and abstracting it. We’re on the way to solving that problem because, at the end of the day, this M2M stuff is all data.”

In reality operators will most likely have to adapt the depth of their participation depending on the customer. They might not judge it worth their while to provide an end to end service to a company that wants to connect 20 vending machines, preferring to allow a specialist MVNO or M2M service provider pick up the smaller deals. On the other hand, if a major international enterprise wants modules and service in the thousands, then there is value in the operator providing it. Moreover, enterprises of this size are more likely to demand that they deal with the operator rather than a reseller—they want “a throat to choke” should something go wrong, as one player puts it.

In the US AT&T Wireless has connected device deals with four different ebook providers, each with their own service proposition, explains Glenn Lurie, the firm’s president of emerging devices, resale and partnerships. He uses this to illustrate the need for operators to be as flexible as possible in approaching the market.

“We are open to any sort of business model that makes sense for our customer, for us and that ensures the end user gets a great product,” he says. “That’s how you have to be in this space—to be open to being in the background, in the foreground, in any ground. Some connected devices will be very simple, clean and easy, and others will be more complicated. As long as AT&T can make a fair margin and my partner’s successful and the customer is prepared to pay for it, we’ll do it.”

One element of the offering that the carriers alone are in a position to offer, regardless of how they play at the front end of the chain, is the connectivity itself. This creates challenges of its own, because the data being transferred in M2M environments—and its successful delivery—can have critical value to the organisation paying for its transfer.

And as even the most optimistic of operator marketing directors will have to concede, mobile networks are an awfully long way from genuine reliability.

Ian Marsden is CTO of M2M service provider Eseye. His customers, he says, need to know that the data they are sending is being received. “We have a need to be able to deliver the most reliable connection possible. But can you get that kind of SLA out of a mobile operator?” he asks. “No way. One of our biggest customers is a provider of alarm systems, so obviously we need redundancy.

We have mere minutes to decide if there is a problem with a certain network so we need to be connected to multiple networks. Our business is providing SLAs through redundancy and failover software, and our roaming interconnects across multiple networks,” he says.

The fragile reality of mobile networks means that a single MNO cannot offer its M2M customers any real guarantees of service. Glenn Lurie says, as he would, that AT&T’s network is by far the best network in the US. But, he adds, “’guarantee’ is an interesting word.” This situation would seem to work very much in favour of specialist providers that have no competitive barriers to offering multi-network connectivity.

Carriers are wise to this issue, however. In late 2010, Telefónica launched its Global SIM, which can roam onto its competitor networks within domestic markets. “It’s commonplace to use a SIM capable of roaming in M2M devices,” says O2 UK’s head of M2M, Gilli Coston. “That allows you to swap onto another network for planned and unplanned outages. It’s a new innovation that will help with SLAs.”

One factor that may yet impact on the SLA issue for M2M is the increasing consolidation of networks. In Coston’s UK market, for example, T-Mobile and 3UK have merged their 3G networks and Orange’s infrastructure is slated for integration as part of the creation of Everything Everywhere. As the number of networks dwindles, so does the capacity to provide backup.

Aside from the network, the other core expertise for mobile operators is billing. And M2M requires a level of complexity in rating and charging that goes way beyond the traditional billing activities of the carriers. Logica UK’s head of innovation, Danny Wooton, argues that carriers have yet to embrace a service-based billing proposition for M2M, which will be necessary as the market evolves.

“M2M is still very much a legacy play, the module the connection and the amount of data consumed,” he says. “But if you talk to a CIO in a large organisation who wants to roll out 20,000 devices, they’re going to get nervous because they’ll be facing an openended data charge. So really, what we need to work on is how all of the suppliers can benefit from a service revenue that the CIO can really relate to.”

Tony Jackson gives ebooks as an example. Jackson, director of telecoms solutions strategy at billing player Convergys, points out that with Amazon’s Kindle, the cost of transport is bundled into the cost of the book. So Amazon’s carrier partners are essentially taking a cut of the book sale (Glenn Lurie at AT&T, one of those partners, says this is “kind of” how it works).

But, says Jackson, this example still throws up questions: “If the operators are charging on percentage of value, they need to be careful that they’re making some profit on that, because the two aren’t necessarily related. You don’t buy books on a per-page cost, after all.”

Eseye’s Ian Marsden offers a third party view point on operator billing, and it’s nonetoo positive. “I had this illusion that operator billing would be really simple and clever,” he says. “It surprised me to find out that it isn’t. It’s a law unto itself; some CDRs come in from operators up to nine months late. How am I supposed to bill my customers using that? The big challenge for operators when it comes to billing is sheer processing capability, because of the model they have adopted, charging per byte.”

The complexity and potential variety of billing models could be viewed as the entire M2M space in microcosm. If there are to be billions of connected devices, then there will have to be thousands upon thousands of approaches to their connection. Not all of them will even connect over the cellular network, after all.

The message that sector specialists hammer home is that operators will have to find a new level of flexibility. Flexibility in how they charge, in how they partner (in some cases with competitors), in how they interface with the customer and in how they meet those customers’ requirements. This is not a world, like consumer retail, that will bend to an offering decided upon by the operator.

Far more than in traditional retail voice and data environments, in M2M, the customer is in charge.