The much-hyped Internet of Things is set to transform the way we work and live, presenting an opportunity for telecom operators. As network owners, operators have the ability to connect all “things” in an increasingly information rich world. However, to fully exploit this nascent market, they must be nimble, develop agile alliance strategies and think beyond utility behaviours.
The much-hyped Internet of Things is set to transform the way we work and live, presenting an opportunity for telecom operators. As network owners, operators have the ability to connect all “things” in an increasingly information rich world. However, to fully exploit this nascent market, they must be nimble, develop agile alliance strategies and think beyond utility behaviours.
The Internet of Things (IoT) refers to the potential connectivity of all “things” to each other via the internet, using devices such as sensors or SIM cards. The IoT marks a shift towards the ubiquitous connectivity of physical things (from clothing to trees, cars to industrial equipment), generating data that is discoverable – publicly or privately – via the internet. According to IDC, some 30 billion things will be connected by 2020, making a dramatic impact on all sectors of society and economy.
Given this anticipated growth, many players in the technology sector want to know how to position themselves. Telcos – with their wide area fixed and wireless networks, distribution channels and established customer relationships – would seem a natural winner in this emerging market. After all, there is no IoT without connectivity. Moreover, they are already the principle enablers of machine-to-machine (M2M) communication, a well-established (and pre-existing) subset of IoT applications. Currently, they play almost exclusively in the connectivity segment of the IoT value chain (see Figure 1 above) providing relatively simple services around the provision of SIMs and data usage.
However, in spite of these advantages, telcos must confront some profound challenges in order to make the most of the opportunity:
• IoT applications will manifest in many different ways, and telcos’ existing networks will not be suited to many of these.
• The over-the-top (OTT) conundrum remains – as IoT content could easily traverse the telco network based on a solution provided by another part of the value chain. In many instances, the network of one operator can easily be substituted by another.
As a result, telcos must take four steps to limit the effects of these constraints:
1. Optimise and enhance infrastructure
2. Develop a service ecosystem
3. Target IoT offerings selectively
4. Develop new business models
Optimise and enhance infrastructure
Limitations of existing connectivity solutions require telcos to enhance their existing infrastructure, which should include the following:
• Get ready to scale. Although operators already support millions of customers, each subscriber consumes resources on the network and IT infrastructure – from authentication to billing. The emergence of millions of IoT devices will strain the infrastructure if not managed effectively. Although IPv6 has been available for some time, few operators have already deployed this technology, which will be necessary once IoT really takes off.
• Remote provisioning of embedded SIMs. Increasingly SIMs will be directly embedded in their ‘things’ during manufacturing, and configured with the operator profile when deployed.
• Protect the network from IoT traffic bursts. While individual devices are not expected to produce a high volume of data, in combination they could – if not dimensioned properly – overwhelm the network.
• ‘Thing’ security is absolutely vital to adoption. Perceived security (and privacy) risk is a key barrier to adoption – eg. the prevention of unauthorised access to personal information, either accidental or malicious. Whilst no solution can be considered 100% secure, customers will look to telcos to provide assurance of end-to-end security, appropriate privacy controls and resilience.
• 2G or 4G, or something else? Mobile operators have adopted different strategies to network technologies. Optus, in Australia, is shutting down its 2G network in 2017, and Telekom Austria has used LTE for low data rate smart mater communications, while Telefónica sees IoT (including smart metering) as a means of extending the life of its 2G network. In addition to existing cellular technologies, emerging wireless technologies such as SIGFOX, LoRA and Weightless-N can be deployed on top of existing infrastructure. Operators will need to weigh all these options in order to address the IoT market.
Develop an Ecosystem
There are many potential IoT applications across every sector. While telcos must focus on where they sell their proposition, they also need to develop a flexible ecosystem able to address multiple use cases and avoid overly specialised niche investments. Deutsche Telekom and Telefónica, for example, have deployed and developed open standards to provide an integrated service. Despite the current platform war, operators should still embrace a standard-based approach, and seek to be proactive in forming alliances, using their network and customer relationships as a springboard for the ecosystem.
This can be done in several ways:
• Deploy an IoT software platform – Several mobile operators’ plans include developing IoT platforms such as Telefonica’s “Thinking Things” and AT&T’s “M2M Application Platform” to enable software developers to deploy new applications on their networks quickly.
• Form an alliance of IoT partners – Qivicon was founded in 2011 by Deutsche Telekom with companies collaborating on a home automation solution. The platform connects and combines IoT devices made by the manufacturers in the alliance. The control unit is a home base that connects to the broadband connection in the home, and to other devices wirelessly.
• Provide frameworks and solutions – operators can either provide white label solutions that can then be branded and marketed by other organisations – much like an MVNO. These services can of course also be sold directly to operator customers.
Target IoT offerings selectively
Despite nearly ubiquitous telecom connectivity, telcos must recognise that they will not dominate IoT to the same extent. With finite resources, telcos should focus on market segments that leverage their core strengths:
- Consumers: focusing on domestic/household applications (smart home), in consumer cars or deployed over wearables, most likely using existing routers, set-top boxes and smart phones. Telcos continue to have strong brand recognition, particularly within the household context, where they already deliver value-added services.
- Local and national governments: with a particular focus on local areas (smart towns/cities) and government agencies with specific asset and application needs (such as emergency services). The size and scale of these contracts often mean that telecoms firms are uniquely positioned to meet the scale and coverage of demand. For example, the UK’s current procurement of LTE network services for emergency services could easily lend itself to many IoT applications.
- Transport & Logistics: with thousands of moving, valuable assets, this sector has always relied on technology.
- Others: selected industries often characterised by fleets of expensive mobile and/or distributed assets, applications with higher bandwidth requirements (video for surveillance/safety for example) and in regulated sectors.
- Wholesale: selling to other service providers who wish to use the ecosystem. As is the case with MVNOs, telcos must position their retail and wholesale offerings so that both parties benefit.
Develop new business models (and brands)
Much as telcos bemoan the commoditisation of their service, there is little evidence of a change in the SIM-card shifting, subscriber acquiring mindset. Existing M2M and IoT propositions are predicated on SIM rental and data consumption revenue, while business development and sales staff are incentivised along similar lines.
A new business model must emerge that contains some or all of the following elements:
- A differentiated customer charging mechanism: Telcos need to develop a different approach that could for example include revenue sharing per transaction, value share (of customer benefits) and platform charging.
- A differentiated brand (or sub-brand): In specific circumstances a large telco brand may not gain traction within specific segments, so telcos should consider separate brands to differentiate the service. In the UK, British Gas has deployed the ‘Hive’ brand for its smart metre hardware and service.
- A new organisation: In order to remove some of the incumbent cultures, telcos should consider developing a new organisation focused on sales, partner acquisition, joint software development and customer innovation.
- A value proposition based on real insight: Telcos must exploit vertical market insights, and use that data to refine and improve services.
- Invest in others: telcos should encourage innovation in the ecosystem – investing in other parts of the value chain, and actively participating in developing standards.
Conclusion
In summary, the IoT will transform our economy and society over the next 20 years. Telcos must ensure they are at the heart of that transformation, not just transporting data over their networks, but advancing a set of services that enable customers to realise its full potential. The former will add incrementally to their bottom line, while the latter will capture long-term sustainable value.
