Advisory Report

Best Practices in M2M: The Operator Perspective
July 2010

Kitty Weldon Principal Analyst, Enterprise Mobility

Contents

 Introduction  What is the Revenue Opportunity for M2M services, and How Do Operators Participate?  Vertical Markets  All M2M Connections are Not Created Equal  Cost Model for M2M  Cost Model for Wireless Data Services  Best Practices Examples  Conclusions

© 2010 Current Analysis Inc. All rights reserved. For more information, please call +1 703 404 9200, toll-free +1 877 787 8947 Europe +33 (0) 1 41 14 83 15. Or visit our Web site: www.currentanalysis.com

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operators want to be able to allow enterprises (and the enterprise’s consumer customers) to pay by the book. In spite of this. These have the potential to bring down the costs of delivery so that they are in line with revenues. remote computers and peripherals. Not only are the volumes potentially so large as to offset the low revenues/connection. to consumer electronics devices such as digital cameras. So how are wireless operators approaching the M2M market. device OEMs. the profit margins associated with M2M deployments remain a source of some confusion. transmission speed. What is the Revenue Opportunity for M2M services. which segments do they see as most viable. AT&T has stated that it expects to © 2010 Current Analysis Inc. Compared to the ARPUs of $40-50 a month that operators are used to seeing from their traditional high-end consumer and business subscribers using smartphones or laptops. bucket of photos. While wireless operators. network management. All rights reserved. For more information. and how they have chosen or internally developed platforms to streamline market entry and service delivery? There are a variety of different approaches to the M2M market. and remain optimistic that it is going to be worth their while. rather than offer a bulk unlimited data plan or data pool. telemetry devices. home healthcare devices.Best Practices in M2M: the Operator Perspective Best Practices in M2M: The Operator Perspective The market opportunity for wirelessly connecting machines. toll-free +1 877 787 8947 Europe +33 (0) 1 41 14 83 15. and aggregators and global operators are all vying to provide the most attractive rates with SIMs that provide in-country or flat rate uniform pricing. Multi-country roaming is also a prerequisite for many global M2M deployments. ranging from sensors.com 2 . billing. Or visit our Web site: www. yielding a profit margin that is acceptable or even high. module manufacturers. many operators are entering or becoming more aggressive in the M2M market. and most importantly. and customer support has an analog in the M2M world in the form of connected device platforms that streamline and automate these processes. session. but regardless of their specific go-to-market strategy. a data service for an M2M connection often generates as little as $3-4 per line per month. and they also support high volume deployments. picture frames.and How Do Operators Participate? Operators providing M2M services clearly gain revenues from incremental data subscriptions.S. ATMs/Point of Sale terminals. Just like any telecoms service. how have they organized to offer M2M services. amount of data transmitted. vehicles. Some of these platforms also allow the types of data plans associated with M2M to be adapted to better fit the applications. meter readers. the OSS/BSS stack that provides provisioning. are there solid indications of traction. e-readers and Personal Navigational Devices. and many operators have disclosed that the number of M2M SIMs they have in active deployment are already numbering in the millions. but there are other forces at play. the relatively low Average Revenue per User (ARPU) associated with many M2M deployments has led to worries as to whether these services can yield a profitable.currentanalysis. self-sustaining business. is the source of a lot of excitement and speculation in the wireless industry. trouble-shooting. the majority of operators that have entered the market are optimistic about their prospects. or on a prepaid basis. the actual revenue potential. growth rates. and M2M solution providers have reason to be optimistic. please call +1 703 404 9200. In the U. While operators are seeing a growth in activations across both business and consumer segments.

Orange is on target to reach 2 million this year. Orange Business Services. manufacturing companies. and reporting requirements. or with unique classes of service and prioritization schemes. large operators tend to offer project definition. design. that want to offer value-added services to their end customers. For more information. There are some regional differences. while European operators note that the majority of connected devices tend to be in industrial segments such as equipment monitoring. netbooks/tablets and e-readers. Verizon Wireless claims about 7.6 million SIMs in service. with consumer (B2B2C) opportunities such as home health care. please call +1 703 404 9200. auto insurance companies etc. Forecasts for the revenue opportunity vary but most operators and analysts expect that compound growth rates over the next five years will be in the 25%+ range. They do not necessarily provide end to end integration. Vodafone provides approximately 5 million M2M connections. Operators differ in their strategies to offer “beyond-data” value-added services. becoming a kind of aggregation point for third party solutions vendors. for a base of 5. reflecting the difference in the B2B and B2C segments’ distribution. All rights reserved. Telefonica and Vodafone have formed dedicated M2M organizations. and saw 40% growth in M2M connections in 2009. support. but they bring together the often fragmented M2M ecosystem participants through alliance partnerships.Best Practices in M2M: the Operator Perspective be connecting over 20 million “machines” in 2011.e.currentanalysis. Some operators have separated out consumer from business M2M. including both consumer and industrial devices. Many large operators such as AT&T. The possibility of offering tiered services for different device types. citing 1. or for bundling multiple devices associated with a single subscription are other options to grow revenues. While this is only a representative sample (many providers such as Sprint. from offering managed/hosted M2M services at their data centers. deployment and support to enterprises looking to deploy M2M applications. U. or from data mining . In Asia. and Telenor cited 1. © 2010 Current Analysis Inc. Sprint.. home energy/security. at different speeds. In Europe.4 million in 2009. Many operators are participating in RFPs from large utilities that have either been mandated to implement smart grid/metering programs (as they have in EU countries) or who see smart energy usage as a key component of “green” initiatives for conservation or for eligibility for US federal stimulus money.1 million new activations in Q1 2010. toll-free +1 877 787 8947 Europe +33 (0) 1 41 14 83 15. and consumer electronics representing the next wave of growth opportunity.3 million connections (a high percentage of which comes from its GM OnStar service.com 3 . with estimates of the numbers of devices to be connected ranging from 200 million to 1 billion world-wide by the end of 2014. operators are already seeing high demand from connected consumer electronics such as PNDs. revenue realization. and consumer electronics providers to become de facto service providers. operators can also generate M2M revenues from providing end-to-end systems integration for key applications such as smart grid deployments and asset/fleet management. T-Mobile.S. fleet management and supply chain optimization. Telefonica and KPN have not disclosed their connections) it provides a glimpse into the size of the installed base. Beyond data connection revenues. automotive telematics.i. Their role also includes empowering companies such as auto manufacturers. which may be further segmented by industry vertical. and T-Mobile claims it has had 100% growth in M2M connections every year for the last four years.8 million connections. the collection and analysis of data that can be turned into useful information for utilities. Or visit our Web site: www. NTT DoComo has stated that they have approximately 1.

home health monitoring.com 4 . All rights reserved. Or visit our Web site: www. please call +1 703 404 9200. Table 1 Vertical Markets for M2M Verticals Manufacturing M2M Apps Today Machine Diagnostics and Telemetry RFID Asset. connected home electronics.Best Practices in M2M: the Operator Perspective Vertical Markets While most operators are targeting the same verticals today including fleet management. automotive telematics. tablets/ MIDs. consumer electronics. leblanc SNCB Michelin ONAsset CCV Parkeon.m. the opportunities for future M2M applications are much more extensive.com Lok8U Securitas Direct Union Fenosa Primagaz AMS Pendum DTE Entergy BL Healthcare Vitality Cardionet Omnilink Sorin Group St Jude Medical Garmin TomTom Amazon Kindle Pandigital Apple iPad Financial/Retail Lottery Machines Loyalty/Coupon programs Smart payment cards Parking and transportation ticketing Automotive Concierge Services Industrial fleet Mgmt Remote engine diagnostics Intelligent Grid/connected car InCar Entertainment Personalized Insurance Energy and Security Meter Reading Pilots Home/Industrial security monitoring/alarms Automatic Vehicle security Comprehensive smart energy/ smart Grid initiatives Next gen video-enhanced home and industrial security and energy services Video Surveillance Healthcare Home Healthcare Monitoring Hospital patient and equipment monitoring Remote telemedicine Consumer Electronics PNDS. Electronic Billboards/digital signage © 2010 Current Analysis Inc. netbooks Cameras. pet collars.currentanalysis. Container and Cargo Mgmt/ Tracking Inventory Control POS Terminals ATMs/Kiosks Vending Machines WAN Back-up M2M Apps Future Industrial Automation and Control Real-time Monitoring Customer Examples Konica Minolta USA Technologies e. e-Reader.l. The build-out of 4G networks will also provide new opportunities for applications such as high-definition telemedicine and video surveillance. gaming devices. and smart energy/meter reading. toll-free +1 877 787 8947 Europe +33 (0) 1 41 14 83 15. The following table depicts current and future opportunities in M2M with examples of customers that have deployed solutions. For more information. Selecta VeriFone Axalto Banksys OnStar BMW Daimler Chrysler Hertz Progressive Insurance Drivecam GuidePoint Transics Ctrack/Digicore Taxameter Centrale Alarm. remote equipment/asset monitoring.

rate-plan association) o Pricing/rating platform costs (including creation and publication of new rate plans) o Customer support: tech support calls. provisioning. For more information. real-time applications for monitoring medical devices. Cost Model for M2M Wireless operators offering M2M have to deal with the following costs of delivering service: • Customer Acquisition (marketing/advertising/promotion) • Implementation and Management o Device Certification costs o Subscriber provisioning costs o Customer “on-boarding” costs (account creation. on-boarding. escalation. © 2010 Current Analysis Inc.Best Practices in M2M: the Operator Perspective All M2M Connections are Not Created Equal Even when it comes to providing pure connectivity. patient location and health status. and device subsidies. please call +1 703 404 9200. and the costs associated with the radio and core network usage make up an additional 30% of costs. While polling a meter several times a day to upload a short data burst of information on energy usage to a remote server does not require high speed connections and may only yield an ARPU of $3 a month to an operator.com 5 . toll-free +1 877 787 8947 Europe +33 (0) 1 41 14 83 15. A good service delivery platform can significantly decrease the costs associated with implementation and customer management. escalation calls o Bad Debt from charge disputes • Network usage/depreciation/amortization of assets Of these elements. cat scans. if applicable) make up approximately 40% of total costs. at the high end. Telemedicine applications that require high quality images for X-rays. and it is these costs that dictate potential profits. configuration. Or visit our Web site: www. and dispute management) contribute an additional 30% of costs. the customer acquisition costs (which include marketing. the basic categories of costs to an operator for offering data connectivity to and from devices and remote servers are fairly consistent. All rights reserved. distribution. implementation and management (including device certification. and MRIs for remote diagnosis will also provide higher revenues and are likely to leverage 4G network capabilities coming on-line next year. applications such as wireless digital signage used in electronic billboards. technical/billing customer support.e. billing calls. or video surveillance for enhanced security applications may yield significantly higher ARPUs. Regardless of the application. i. the dollar per connection per month for an M2M application may vary considerably.currentanalysis. account creation and rate plan implementation.

15 0.e.60 $1.00 13. the volume discounts they enjoy and the co-marketing relationships make these partnerships quite “sticky”. Or visit our Web site: www. All rights reserved. with sample average revenues. although the consumer may swap out devices every 12 years. For more information. an M2M connection (even one which is conservatively pegged at $3 ARPU) can yield margins of 50% after service delivery and customer management costs have been brought down. please call +1 703 404 9200. operators offering M2M services do not generally have to subsidize the cost of the end-device. Table 2 M2M and Wireless Services Margin Model Metric Average Rev per sub Customer Acquisition Cost/Additional Sub Service delivery and Customer Mgmt Cost/Sub Network Usage per sub Total Costs/sub Profit/sub* Margin* *Depreciation removed i.00 $28. although handset-oriented wireless services may yield average ARPUs of $50 and profit margins of 44%. some portion of customer acquisition costs can therefore be eliminated.50 $1. toll-free +1 877 787 8947 Europe +33 (0) 1 41 14 83 15.00 $24. on the consumer side a device OEM such as an e-reader or PND manufacturer is likely to remain with the same operator for a long time.50 50% Wireless Service $50. EBITDA Profit and Margin M2M $3. With both lack of subsidy and shared marketing. costs and margins. Price. which in the traditional wireless world are mutually exclusive.75 0. providing even higher margins for M2M services.00 10.Best Practices in M2M: the Operator Perspective Cost Model for Wireless Data Services Using a similar analysis to look at traditional wireless services. On the consumer side operators are also sharing the burden of marketing and advertising M2M solutions with the device OEM and/or the retailer or other distribution channel partner.com 6 . The churn rate associated with M2M services is also very low.00 5. On the industrial side.currentanalysis. it can be shown that it is possible to achieve high margins for M2M.00 44% In addition to cost reductions from automated service management. a SIM in a meter reader or other telemetry device tends to be in the field for many more years than within a handset. M2M providers get the benefit of low churn and simultaneous lack of device subsidy. which in the handset world historically lowers operating margins by several percentage points each quarter. costs and margins in the model are illustrative only and are not associated with a specific service provider. © 2010 Current Analysis Inc. with the use of a good platform.00 0. For example. The integration with the operator of the customer’s back-end information systems.

Their M2M organization. AT&T Organization After over a decade of participating in the M2M market. Segments and Customer Traction Within M2M. AT&T positions the platform as a competitive differentiator for its customers. large-scale wireless deployments for personal and industrial devices. AT&T is ensuring that it has the right organization in place to focus on both B2C and B2B M2M opportunities and both groups have dedicated product marketing. devoted to bringing to market a wide range of wirelessly connected devices. toll-free +1 877 787 8947 Europe +33 (0) 1 41 14 83 15. and launched the AT&T Control Center. seeing the potential to tap a larger opportunity. please call +1 703 404 9200. simplify the deployment lifecycle.currentanalysis. under the AT&T Business Solutions (ABS) group. sales and operations teams under them that can respond quickly to changing market dynamics. not only is it bringing down the cost of its internal operations. fleet management solutions. the Advanced Enterprise Mobility Solutions group was launched by ABS to drive growth and innovation in enterprise mobility. including the B2B M2M segment. but the tools it provides to the enterprise customer such as analytics reports. Or visit our Web site: www. It launched a dedicated business unit. and real-time diagnostics. In May of 2009. which provides SIM inventory management. Connected Device Platform Approach AT&T had already developed its own basic service platform. focused in particular on consumer electronics and embedded computing devices. in May 2010. and had been certifying 3rd party devices to work on its network since 2005 (with approximately 750 devices now available). and can lower time and cost barriers. and the way they view their role in the marketplace are all somewhat unique. the Emerging Devices Organization. the SIMs in deployment and projected growth rates cited by operators is encouraging. For more information. and accelerated device verification. which helps developers to kick-start their applications with test SIMs. and simplified billing. While it is still too early to say that operators are generating significant revenues or profits in M2M. All rights reserved. and enable efficient operational management and trouble-shooting of deployed devices. essentially allows the enterprise or OEM to become a service provider. access to the Control Center. support. pricing. AT&T joined forces with Jasper Wireless. flexible plan and subscription generation. service delivery automation capabilities. and are an integral component of the operator’s marketing messages. While industrial M2M initiatives are managed separately. which enables rapid.com 7 . and consumer elec- © 2010 Current Analysis Inc. self-activation. AT&T focuses on utilities. a benchmark device. Enterprise On Demand. but often going to customers indirectly through aggregators. AT&T revved up its activities in late 2008. vertical approach. highly automated. custom alerts. automated provisioning.Best Practices in M2M: the Operator Perspective Best Practices Examples Taking a look at a variety of wireless operators and how they are approaching the M2M market provides further insight into the different ways that they view the opportunity. AT&T and Jasper launched a Connection Kit for Device Developers Developer Kit at CES in January 2010.

© 2010 Current Analysis Inc. several utility customers. and on the consumer side.currentanalysis. service delivery approach. Named AT&T M2M customers include BMW. experience and eco-system. and a number of home health care monitoring devices announced in March.1 million net additions. and vertical focus are paying off. and demoed a web-based customer portal at CEBIT. For more information. Later in the year it announced it had formed a 100 person team to focus on M2M. AT&T brands its solutions as M2M 360. Its global compact SIM (as well as traditional M2M SIM form factors) can be mounted in the factory and works anywhere within the EU 27 countries as well as some countries in AP and Africa. AT&T disclosed that its connected devices subscriptions had grown 58% from the previous quarter. Or visit our Web site: www. In February 2010.Best Practices in M2M: the Operator Perspective tronics. which will allow it and offspring Verizon Wireless to theoretically provide cost-competitive global connectivity in both the US and Europe. solar and remote patient monitoring as future vertical focus areas. toll-free +1 877 787 8947 Europe +33 (0) 1 41 14 83 15. The growth rates in Q4 2009 and Q1 2010 suggest that the operator’s organization. Hertz. with 1. for a total base of 5. Vodafone announced that it had joined the nPhase JV. All rights reserved. the Amazon Kindle (which AT&T took over from Sprint). The operator is focused on expanding to global customers and sees container. Its position as the largest wireless network operator in Europe has made it a likely go-to-provider of M2M services for European enterprises with pan-European facilities or customers. which is very competitive compared to tariffs associated with roaming agreements.8 million connections. As of Q1. 360 degree) set of capabilities. innovative service platforms. USA Technologies. Chart 1 AT&T M2M Connected Devices Growth Q2 2008 – Q1 2010 Vodafone Organization Vodafone has been on a focused M2M path since 2009 when it launched an ultra-compact SIM chip. a major security alarm monitoring provider. suggesting that its network assets.com 8 . touted attractive tariffs for international roaming. and a decade of proven achievements provide it with a complete (i. although currently the two operators’ service delivery platforms remain separate. please call +1 703 404 9200.e. offering in-country local pricing.

SMS and emergency voice. UMTS. Ctrack/Digicore a provider of ‘track and trace’ systems. Technocon. Segments and Customer Traction Vodafone is targeting automotive. toll-free +1 877 787 8947 Europe +33 (0) 1 41 14 83 15.Best Practices in M2M: the Operator Perspective Qualcomm’s Gobi chip will be used to bridge the CDMA to GSM network disparity that has made it difficult for the two operators to provide seamless global roaming. API integration with customers’ systems. its European and global coverage (in 200 countries). tracking and consumer electronics and has named wins with Garmin and Konica Minolta Europe. Connected Device Platform Approach KPN strongly positions the Jasper platform as a differentiator. For more information. Segments and Customer Traction KPN is focused on smart metering. KPN also touts its vertical solutions focus and customer support. including low-cost connectivity over its own and partners’ networks. including instant and automated provisioning. it has stated publically that it has an installed base of about 5 million SIMs. and healthcare as key verticals. The operator doesn’t position the platform as a competitive differentiator but sees it as providing essential capabilities for connectivity and remote SIM management. and CCV. while in May 2010 it formed a dedicated business unit for M2M and expanded the service to its German and Belgium operations. and on the fly tariff charge management. All rights reserved. a theft detection provider.currentanalysis. launched in March 2010. consumer electronics. (including control of provisioning states). Taxameter Centrale. Named customers include AMS.com 9 . bglobal. But most of all it touts the capabilities that the Jasper platform (branded the Control Centre) provides. reporting/alerting with usage thresholds. which provides automated SIM provisioning. Connected Device Platform Approach Vodafone has developed its own service delivery platform. enterprise management of SIMs via APIs that integrate with their applications. © 2010 Current Analysis Inc. While Vodafone does not separate out M2M net adds in its quarterly earnings. EDGE. Other key value propositions include its single SIM card. please call +1 703 404 9200. a New Zealand provider of smart metering systems. and information sharing. who provides online authorization of financial and loyalty card transactions. a provider of parking management systems. Or visit our Web site: www. real time billing statistics. and its robust cellular connectivity options including GPRS. for fleets of vehicles. trouble-shooting and diagnostics. smart metering. who implemented a smart metering program to manage energy consumption (where Vodafone itself was the customer). access. It initially deployed its M2M service (branded as the KPN M2M Corporate Service) in the Netherlands. KPN Organization KPN began to focus on M2M in 2009 when it partnered with Jasper Wireless for its connected device platform and operator go-to-market advisory and implementation services.

m. SNCB (asset tracking). please call +1 703 404 9200. Fleet management is the only vertical where it provides end-to-end integration. In 2009 Orange launched a new reinforced SIM card for M2M. which also leverages a large professional services arm. customer information).e. Sorin (healthcare). incident management (case management. security monitoring. order status. in 2009. leblanc (preventative maintenance). and traffic reporting). with 40% growth over 2009. city monitoring. Securitas Direct (remote surveillance). The platform is accessible via a web portal and provides service management (SIM ordering.and post-sales support. It is especially well organized to offer capabilities beyond connectivity (i. custom pricing. Named customers include: Union Fenosa (for smart metering trial in Spain). Or visit our Web site: www. a consultancy with a strong skill set in M2M and it was this organization that has developed OBS’ service delivery platform. security.l. invoice analysis tool. Orange acquired fleet management solutions provider Data & Mobiles in 2009. SIM life-cycle management. Orange touts that it can provide low cost M2M connectivity across its own footprint of 29 mobile networks and at attractive rates through partners’ footprints. 2010 enhancements include simplified roll outs (bulk SIM ordering. simplified operations (alerting and incident diagnostics and SIM directory). for hardware. SIM and GSM numbering). billing information (online invoices. M2M activities are split: large national and SoHos are serviced by domestic mobile networks such as Orange UK.currentanalysis. home automation. installed base management. For more information. Connected Device Platform Approach In 2005 FT acquired Silicomp. and provides end-to end service and product integration in this vertical. and customer administration (user rights. QoS and consumption reporting). fleet management. a self-service web portal and a new hardened M2M SIM card. and testing facilities). automotive networking. custom value added services). Orange launched the International M2M Center (IMC) based at Belgian subsidiary Mobistar. and health. home automation and health. automotive. (pre)-activation.com 10 .Best Practices in M2M: the Operator Perspective Orange Business Services Organization Orange Business Services (a division of France Telecom Group) has been offering M2M solutions to business customers since 2005. which is suitable for use in extreme environmental conditions and industrial processes. © 2010 Current Analysis Inc. applications or distribution) in fleet management. integration. international customers are managed by Orange Business Services. toll-free +1 877 787 8947 Europe +33 (0) 1 41 14 83 15. software. All rights reserved. responsible for supporting international M2M projects with: pre. e. Orange is on target to connect 2 million active SIMs in 2010. it also tests devices on the Orange network. and advanced management (machine monitoring. Segments and Customer Traction Orange sees opportunities for offering connectivity in many verticals including meter reading. case history. international connectivity assistance. The IMC is a 25 person team. for a total of 151 countries.

toll-free +1 877 787 8947 Europe +33 (0) 1 41 14 83 15. For more information. © 2010 Current Analysis Inc. profit margins can also stand up to those associated with handset-oriented wireless services. Even with low ARPUs assumed. It is also clear that ARPUs may well be higher than $3-4 per line.Best Practices in M2M: the Operator Perspective Conclusions So while operators differ in their approach to the market. as device subsidies are largely absent and churn is likely to be much lower for many M2M solutions. those that have launched dedicated M2M business units. Or visit our Web site: www. Hot markets include: automotive (both for telematics and fleet management). especially for operators that provide value-added services or are planning to offer high bandwidth real-time. with ehealth solutions. and manufacturing/asset management. smart grid and meter reading deployments in early deployments with tremendous upside potential. have focused on verticals which stand to gain the most from wireless connectivity. consumer electronics. locationenabled or video-enhanced applications.currentanalysis. please call +1 703 404 9200.com 11 . All rights reserved. and have invested in a connected device platform are clearly getting traction.

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