Money-making machines

Consolidation and the impact of mobile telephony on high growth emerging markets have wrought significant change on the league rankings of mobile operators in the last five years. Look at a list of the world’s largest players by subscriber numbers and the emphasis is on growth markets. China Mobile, America Movil, Telefónica, Bharti Airtel, China Unicom and Vimpelcom are the names that stand out. Deutsche Telekom, once at the vanguard of international expansion in the mobile market, doesn’t make the top ten.

But human beings are only one side of the story and, if you look instead at a ranking of operators in the new emerging market—the market of machine-to-machine connections— you get a very different picture. While China Mobile and Vodafone hold the first and second spots in both Informa’s World Cellular Investors ranking and its Cellular M2M tracker product, the rest of the field in the M2M space are more recognisably first-world mobile players. AT&T, Verizon, Telecom Italia, NTT DoCoMo and Deutsche Telekom all make the top ten in M2M but not in subscriber numbers.

DT’s fellow European heavyweights, Telefónica and France Telecom make the grade in each list but, in M2M, the German incumbent outranks them both. Informa placed the operator fourth in the world in its June 2012 report, a whisker behind AT&T in third. But three months later, it reported that DT had overtaken its US competitor. By the end of June 2013, Informa forecasts, it will have passed Vodafone as well, to sit second to China Mobile in the global M2M market. Such is the weight of expectation that sits on the shoulders of Jürgen Hase, head of DT’s M2M Competence Centre.

Deutsche Telekom has bought wholeheartedly into the oft-quoted Ericsson prediction that there will be 50 billion connected devices by the year 2020, Hase says, with commitment to the M2M sector visible from the board on down. In July this year that board—motivated no doubt by expectations similar to Informa’s— identified M2M as a corporate priority, voicing its belief that there is sustainable double-digit growth to be had. DT believes that its M2M play will be a “billion Euro story in the coming years,” says Hase.

The potential of M2M has been talked up for a decade or more in the wireless industry but, in the four years since Hase has been working in the space (he joined DT in 2011 from MC Technologies, a German M2M specialist and is also chairman of the M2M Alliance), he has witnessed key shifts in its activities. The focus in M2M has moved from how the technology might function to real-world use cases and return on investment, he says. The cost of modules has come down, along with the cost of connectivity, while the use of the internet as a background technology has enabled the collection of data from large numbers of machines in very short timescales.

Enterprises in a number of verticals can see the benefits of wireless connectivity and are beginning to truly exploit it, although the numbers in the sector as a whole remain small. Hase declines to give any official figures for DT, but Informa’s Cellular M2M tracker puts the operator’s M2M connections at 7.87 million at the end of the third quarter of 2012.

What Hase does say is that DT does not count tablets or e-readers as M2M connections.

The firm has identified nine key verticals for the first phase of its M2M operations, with what he calls “the Big Three”—automotive, smart grid and e-health—in line with most operators’ outlooks. The scale of these three markets makes for a relatively sedate pace of development; movement is quicker among SMEs looking at industrial automation, smart cities and transport and logistics. The remaining three sectors are security, retail and consumer electronics.

While the Big Three might be slower to develop than other sectors, they hold the most significant potential for revenue, Hase says. Automotive will be the first to bear fruit, DT expects, with mass deployment beginning in the next twelve months. This is a vertical in which you would expect a German operator to have a decent head start, with companies like BMW, Mercedes Benz, Volkswagen, Audi and Porsche as compatriots.

Early moves are being driven by regulation like the European Union e-Call initiative but the evolution of the market is based more around entertainment, telematics and remote diagnostics, Hase says. “We have to invest in sales today and the revenue will come in the following years,” he says. “It is the same for automotive, energy and health.”

Operator approaches to the M2M market fall broadly into two camps; those that partner with a third party platform provider like Jasper Wireless, and those that opt to develop a solution in-house. A platform partnership might be the quickest way to market, says Hase, but “it makes no sense to work in partnership with someone like Jasper if you’re planning on managing millions or billions of connections.” If operators are serious about M2M, which is business on a scale the like of which has not been seen before, they must have a bespoke solution, he says.

“We discussed this a lot and it’s a must to develop your own platform,” he says. “If you look at the requirements that are coming up from the automotive sector, the energy and health sectors, you’re going to have to add many additional features and you have to build them in your own way. There is no other option; especially if you’re talking about full integration with your network. If you want to add additional services around security, cloud and quality management you have to have your own solution.”

The evolution of DT’s M2M play will place even more importance on the development of in-house solutions, he says. The firm is planning to develop a middleware layer that will enable services around asset management, device management, security and QoS. Beyond that it plans to develop a series of horizontal services that can be applied to a range of markets.

Access is just one element of the solution that the German incumbent wants to offer, and Hase says the firm places great emphasis on open APIs as a means of enabling different levels of service. “We are switching more and more from a pure connectivity company to a solutions-driven company. Because we’re offering an open interface the customer can step in wherever he wants to at the different layers. So we can do pure connectivity or an end-to-end solution or every step in between. Being able to offer an all-inclusive service is really important, and it’s one of our USPs. Other players are more or less connectivity driven.”

Another key attribute for DT is its enterprise IT division T-Systems. Connectivity accounts for no more than 15 – 20 per cent of an M2M solution, Hase says, with IT representing 70 per cent. The presence of T-Systems in the group allows the firm to “offer connectivity and the IT part in a global way,” he says.

For all the importance that Hase places on in-house platforms and expertise, any operator’s M2M offering will be dependent to a degree on partnerships. These will range from collaborations with large multinationals like Ericsson or IBM, he says, to those with smaller players that have a vertical-specific focus. Using a telephony metaphor, Hase describes these players as the last mile of the service offering. “If we want to offer a solution for a vending machine operator, we will use our access platform, our middleware layer plus the experts from the vending machine space for the specific application,” he says.

“Many of these partners are small, perhaps with less than 100 employees but they have excellent solutions for their specific vertical,” he continues.

“We are the big player, with excellent sales channels and financial power and the innovation [around the application] comes from the partner. These things don’t need to be branded by us, it’s a new form of partnership,” he says.

With this in mind DT has created a developer community and M2M application store, which Hase says is unique in the market. In a recent competition for M2M innovations that attracted more than 600 entries, he says, 20 per cent of submissions came from India, suggesting a real shift in the distribution of innovation in the sector.

Operators also need to partner with one another in the M2M market for two key reasons. First, they need to offer as wide a geographical reach as possible and, second, they need backup connectivity plans in place should there be an outage on their own network. In February 2011, just as Hase joined DT, the firm announced an M2M collaboration with France Telecom focused on the development of services that would roam seamlessly across the two firm’s shared footprint. In July of that year TeliaSonera joined the initiative, expanding its reach across Northern Europe.

So far the operators have synchronised their M2M help desk solutions and their module certification, meaning that modules need only be approved by one of the carriers for use across the networks of all three. They are in the process of harmonising the APIs on their access platforms. But despite the importance of scale and reach, Hase says that the three operators are not attempting to accelerate the expansion of their partnership.

“It’s important to grow the alliance but you have to do it step by step; quantity doesn’t necessarily mean quality,” he says. “You have to really define the ways in which you’re going to work together, the propositions you can offer to the market and gradually increase the footprint and the value chain. It’s also really important that you add partners for additional services, beyond connectivity.”