M2M to stimulate stagnating cellular penetration potential

Editor’s Note: This article originally appeared in the July Special Edition of RCR Wireless News, entitled: “Riding the Wave: The forces impacting carrier strategy.” To download a complimentary version of the 80-page magazine, click here.
In North America today, it is a real rarity to find someone who does not own a mobile phone. Indeed, according to statistics, nine out of every 10 Americans own a cellular device, making the wireless market seem more saturated than a dripping wet sponge – hardly an enticing prospect for carriers and network providers looking towards any future growth possibilities.
Faced with an ever limited pool of potential handset buyers, carriers and operators are turning their attention toward inanimate objects and, more specifically, toward the embedded space and the sci-fi sounding machine-to-machine (M2M) technology segment.
M2M allows both wireless and wired systems to communicate and exchange information with other devices using the machine language of telemetry.
Many businesses are finding the technology useful in terms of allowing for remote monitoring of operations via very low-maintenance device interconnectivity, allowing them to address service issues and restore functionality with little or no interruption to productivity.
Whereas M2M communication started out as one-to-one connection, it soon became a system of networks that transmits data to personal appliances and involves a central system that is able to connect with other systems at various locations. The connection allows the central – or “mother” – system to collect or send data to each remote location for processing.
Some figures are already projecting that the market for M2M technology could boost U.S. wireless penetration from the current 90% to a staggering 500% over the next few years, with M2M connections far outpacing handset buyers in a huge growth spurt for the telecom industry.
Indeed, at a recent conference, AT&T Mobility’s head of the emerging device segment, Glenn Lurie, noted: “There are going to be a lot more connections and a lot more customers in the emerging device space than there are today in the current space of mobility.”
Potential soaring
Not long ago, analysis outfit Berg Insight AB predicted that operator revenues for M2M would reach $12.9 billion in 2012. Fellow research firm IDC believes the cellular chipset market for non-phone applications will grow at a compound annual growth rate of 9.3% between 2009 and 2014, eventually comprising some 16% of total chipset sales by 2013.
No surprise, then, that carriers like AT&T Mobility, Verizon Wireless, Sprint Nextel Corp. and T-Mobile USA Inc. are beginning to pay significant attention to the M2M market, hoping to span verticals from oil rig monitoring to GPS dog collars.
AT&T Mobility recently announced it had more than doubled the amount of M2M connections on its network to 5.78 million in the first quarter, up from 2.8 million last year. Meanwhile Verizon Wireless reported 7.3 million M2M connections on its network in Q1.
T-Mobile USA also hopes that in the not too distant future, four times more machines will be using its GSM-based network than humans. That number may well be a conservative estimate considering the potential to embed cellular capability in anything from home automation systems, to cars, to fridges, to medical equipment, security systems and even – in true Dick Tracy fashion – wristwatches.
Potential alone, however, is not enough to give M2M the lion’s share of T-Mobile USA’s connections – yet.
“There are so many industries that could take advantage of the technology, but they need to be educated about it,” T-Mobile USA’s national director of M2M John Horn told RCR Wireless News. Some firms, he said, still can’t imagine how much M2M could help their business or improve their efficiency and organization.
Although reluctant to quantify how many M2M connections T-Mobile USA currently counted, Horn did boast that his business unit had seen 100% growth on its network consistently for the past four years – not a figure to be sniffed at by any means.
Quality of the connection
Not all connections were created equal, however, and a mobile handset connection is an entirely different beast to an M2M one, explained Horn, both in terms of data consumption and average revenue per user.
ARPU on M2M is typically very low, Horn said, but on the other hand the connections require almost no effort on T-Mobile USA’s part. The firm simply ships out SIM cards en masse, which are easily hooked up to the company’s network and sip only very tiny amounts of the carrier’s capacity. This is what makes M2M such an attractive growth prospect for operators, promising great opportunities without threatening their legacy businesses.
“M2M is a revenue-driven business with very different cost models,” Horn explained. “For example, M2M doesn’t have the ARPUs required to support device subsidies and customer care, allowing it to be very profitable at low ARPUs.”
Indeed, when it comes to M2M, it would appear the old mantra “less is more” really sums it up, with many millions more connections taking up fewer resources and requiring a lot less effort – service and maintenance – than classic human-to- human cellular connectivity. Also, the more devices you sell, the less it matters whether the margins are small, because as the Chinese white-box market knows all too well, quantity trumps quality any day.
ABI analyst Sam Lucero agrees, noting “M2M devices have low or non-existent churn, partners generally handle customer acquisition, applications are largely self-managed by the ASP, and devices in the field don’t call customer service centers to complain.”
Capacity friendly
M2M is so low maintenance it doesn’t even yet require more 2G capacity, comfortably being able to use the GSM network without adding a hint of strain to the network, unlike modern smart phones. That’s not to say there aren’t any 4G M2M cellular modules being shipped. Indeed, ABI research predicts some 40,000 WiMAX-based units finding their way into machines by the end of this year, even if currently these are usually unnecessary except for segments like the car-infotainment industry.
While T-Mobile USA may currently only rank No. 4 in terms of its M2M business, which has been eight years in the running, the firm has a clear mission in order to push the strategy forward as much as possible.
“We’re going to be the easiest to do business with,” said Horn, promising his firm would do all it could to remove “as many barriers as possible,” to the adoption of the technology in verticals spanning security, tracking, telemedicine and more.
“We have simplified the certification, activation and SIM management processes to make it as easy as possible to enter the M2M world and to manage your business once you are there,” he said.
While T-Mobile USA’s aim may be to simplify people’s lives with wireless systems, however, Horn admits the constraints of the wireless industry can be fairly complex.
Vertical potential
“Typically, solution providers struggle with how to interface with the carrier to manage their subscribers,” he said, adding that T-Mobile USA tries to give them as much visibility as possible, as well as the ability to manage rate plans. He added, however, that “most solutions providers don’t necessarily take this into consideration before getting into the business.”
Horn says he is excited by the prospect of taking an older, more traditional industry and making it more consumer friend
ly, for example by enabling systems which can send people an SMS if something odd happens i
n their home while they’re away, or monitoring glucose levels in the telemedicine space, or even tracking children to give extra peace of mind to worried parents.
“It’s almost a sci-fi like situation,” he said, adding “things will be talking to each other that we can’t even imagine.”
Telemedicine, says Horn, will likely become the largest vertical for M2M, likening the possibilities to that of a “kid in a candy store.” It was, he said, an “exciting space to be in, right on the cutting edge.”
The embedded device market, he reiterated, would grow to be “huge.” On a worldwide scale this is significant to T-Mobile USA because around 87% of the planet uses the same GSM-based network as the firm and, like T-Mobile USA, is currently migrating towards HSPA+, said to run faster than rival Sprint Nextel’s WiMAX network.
ABI’s Lucero noted that T-Mobile USA’s biggest competitors are on home turf, by the three larger U.S. carriers, all of whom have their own M2M programs and platforms.
“To a lesser extent the U.S.-based M2M MVNOs are also a challenge for them,” he claimed.
T-Mobile USA does have advantages over the competition, however, admitted Lucero, who confirmed the firm’s claim that its super-fast certification – requiring only a PTCRB certification for devices to be put on the network- worked to its advantage. Lucero also said the roaming ability over the various international Tmobile operators would also (eventually) become an important factor.
Other options
Not everyone is enamored by the prospect of an M2M explosion, however, with some disputing the necessity for cellular connectivity in almost every instance. Sometimes a plain old Wi-Fi connection can do the same job just as well, argue critics. Even Bluetooth could manage many functions M2M is being targeted at, making it seem like overkill to route data through a base station over a cellular network unnecessarily.
There are also privacy concerns, although Horn argues these can be kept to a minimum by not storing transmitted data.
“The solution provider supports the end user customer and their data. As the network provider, T-Mobile passes that data between the end user and the solution provider without storing any content,” he said.