MNOs will not make 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). The IoT is an emerging sector that will be defined by, among other things, huge scale and diversity. MNOs are not set up to provide the connectivity that will make the IoT a success, Collier said, and new business models and providers are essential. 

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

“In December last year the MIT Sloan Review published a paper estimating that the Internet of Things in its industrial form could make a difference to global GDP of between $10tn and $15tn per year over the next 20 years.

To put that into context, US GDP is in the region of $17tn. Clearly this is an important sector—and we need to get it right.

There are many who believe that mobile operators are the natural providers of the connectivity and services that will be needed to make the Internet of Things a reality, and perhaps this isn’t surprising.

Cellular telephony has been a universal boon and has done much to help the world. Mobile operators have done a fantastic job in making billions of phones capable of calling one another and created a $1tn industry in the process.

And I would agree that, where it’s wireless, the Internet of Things requires a wide area network built on a cellular technology—because only cellular technologies have this nice characteristic which means that, as you shrink the cell, the capacity goes up.

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However this is a very peculiar market. It’s actually a set of niches and those niches are peculiar to location, peculiar to the customer and peculiar to sector. It is also on an altogether different scale. This market will involve at least a 1,000 per cent increase in the number of connections—and probably something closer to a 10,000 per cent increase.

There are about 25 billion microprocessors made every year, compared to about one billion mobile phones. So we’re talking about a potential constituency that is 25 times larger than the current cellular market. And that is a dilemma for the existing mobile oeprators, and a dilemma for the GSMA.

After all, mobile operators have a $1tn dollar industry with five billion connections and an annual ARPU of $200. What’s the ARPU of the Internet of Things? Perhaps $4 – 6 per year, one 50^th of the cellular industry.

If mobile operators connected 50 billion devices at an annual ARPU of $6 this M2M business might look like a 30 per cent upitck on a $1tn industry. But it would be a phyrric victory indeed if, in serving a $6 ARPU terminal, they take their existing  customers down to $194.

And while the existing Internet of Things is much smaller than 50bn today, that’s exactly the kind of cannibalisation that could really happen.

More importantly mobile operators are not set up to provide this kind of connectivity because it’s not symmetric. Phones make calls to phones while M2M is actually a misnoma. ‘M’ does not connect to ‘M’, it connects to an SAP or Oracle database belonging to a corporation. It’s really quite different from the current P2P view of the world that these operators have.

I’ve spoken to Honda, to the Delhi Integrated Mass Transit Authority, to Schneider and they don’t even know whose SIM card they should put in their products. Their problem is that this is an investment predicated on the certain and ongoing availability of a network over a 15-year period.

Do these companies want to put that investment in the hands of an operator whose motivations are not the same as theirs, an operator that may not be around at the end of that 15-year period, an operator for whom serving them is currently merely a sideline designed to fill “marginal or spare capacity”?

I don’t believe they do. And nor do they want to pay a monthly fee for a service simply on the offchance that they might use it. If you want this service because you’re trying to avoid a product recall, how are you supposed to work out which month you’re going to need to use it?

They want to pay for a service but it has to be a service that suits their needs, offered on a network designed for purpose.

We’re on the 4^th generation of cellular now. At what point are we going to get bifurcation? If we had no bifurcation we would have no trucks, milkfloats, buses and cars. And in wireless the idea that only one technology is going to have the market to itself is nonsense.

Meanwhile spectrum allocation is going to change. The model of buying spectrum to get what is effectively a government-granted monopoly for its use in a particular service in a particular area is moribund.

Should we dismiss companies like Microsoft, IBM and Google from entering this space? I don’t think so; they undesrtand big data, B2B service and they will be players.

We have a new business model, a new quantitive game, a new constituency with new drivers, new governance, new regulation and new technology but the mobile operators would have us believe that we have no room for new entrants.

Instead they insist that this $15tn sector, which has the potential to improve the lives of millions of people, has to be served by existing businesses and technologies that were never set up for the Internet of Things and do not view it as anything other than a secondary activity?

They can’t be serious.”