March 2013

Yiru Zhong, Senior Industry Analyst, ICT Europe

“50 Years of Growth, Innovation & Leadership”

Taking M2M to the Next Level in 2013 ICT Beat

Taking M2M to the Next Level in 2013 ICT Beat

© 2013 Frost & Sullivan Page 2

Since global telecommunications provider Ericsson announced its 50 billion connected

devices vision in 2009, the telecom industry has eagerly anticipated the tangible effects of this

substantial market opportunity. Four years on, telecom companies have made significant

progress in capturing immediate and well-defined opportunities, mostly focused on

applications:

• New cars (the result of the European Union (EU) legislation of eCall);

• Electricity meters (as required by European Commission and national government

commitments on smart metering rollout); and

• A range of other applications in consumer and professional healthcare, traditional

telemetry, security, and industrial automation.

However, despite continuous efforts to fine-tune their M2M strategies, telecom companies

will find it difficult to show marked improvements in contributions to total revenue and

profitability over the next few years. There has been a slow pace in market development and

M2M revenue performance over the past four years.

M2M Revenue Potential #1 - SMEs

Most high-profile M2M customer wins by mobile operators in the past four years involved

connectivity. Frost & Sullivan believes the slow pace of market development is reflected in a

lack of project wins that extended into additional services, such as utilising machine data for

analytics, enabling customers to develop new services or functionalities, and leveraging telcos’

unique role as an aggregator or facilitator in a connected devices future. Telecom service

companies can accelerate market development by increasing customer awareness through a

broad route-to-market strategy and further developing customer needs.

M2M offerings for small and medium enterprise (SME) customers are a priority. Widening an

M2M telecom service provider’s reach to a spectrum of customers, regardless of enterprise

size, can yield a more sustainable flow of revenue. Frost & Sullivan estimates that a broad

enterprise M2M strategy will stimulate revenue growth by 22.3 percent in the next five years

as M2M functions and customer needs evolve.

M2M Revenue Potential #2 – Business-Driven M2M Applications

M2M telecom service providers also must address customer needs outside of traditional M2M

logistics applications, and applications in smart electricity meters and connected cars for

eCall

compliance. These M2M applications with greater revenue potential lie in industries where

key business indicators, such as efficiency, productivity, and customer retention, are important

M2M servicedrivers. Frost & Sullivan predicts thatM2M opportunities lie in industrial auto-

mation, retail, and even local governments.

Revenue of between 10 and 35 percent more is achievable in the next five years, when we

expect M2M revenue to be derived from using intelligence generated from machine data or

enabling enterprises to develop new functionality or services for their customers.

A Diverging Path for M2M Telecoms Service Providers

M2M telecoms service providers can be split into three groups:

• Ambitious operators that are keen to be a one-stop shop for M2M customers. Such

providers have aggressive global or regional market expansion plans and frequently

fine-tune their strategies;

• Operators that compete in a narrower geographic scope; and

• Operators keen to emulate their mobile strategy of selling M2M capacity to specialist

M2M service providers (e.g., a telematics company or a home security company, or

simply selling straight M2M connectivity to their enterprise customers.

In the past year, mobile virtual network operators (MVNOs) have been tempted by M2M and

are considering a viable business model for market entry. A niche approach will help MVNOs

succeed for a number of reasons.

• There is sufficient competition in M2M connectivity platforms so that MVNOs can

choose from four options for providing basic M2M connectivity to their customers:

opting for M2M platform providers such as Jasper Wireless and Ericsson’s Connectivity

Platform; leasing their host’s M2M platforms; buying platforms from IT vendors, such as

Logica/CGI, Tieto and IBM; or buying from M2M modules manufacturers, such as Telit,

Sierra Wireless, and Cinterion.

• Sufficient M2M application opportunities exist in industries that have a well-defined

M2M scope that does not require international roaming. For example, we expect home

security and building automation to be M2M functions that require specialist providers;

they, in turn, are distinct customer targets for MVNOs.

• Sufficient lower-end M2M applications require only M2M connectivity. These are often

traditional telemetry applications, such as asset tracking and tracing, or vending machine

applications. These opportunities are easy to grasp without significant overhaul of

the MVNOs’ overall structure.

As such, Frost & Sullivan expects MVNOs or wholesale M2M telecom service providers to

become more vocal in 2013. This additional push will accelerate market development and

stimulate greater M2M innovation.

Taking M2M to the Next Level in 2013 ICT Beat

© 2013 Frost & Sullivan Page 3

Obstacles Remaining in 2013

The market entry of such service providers will accelerate the rate at which machines are

connected, as well as the pace at which a connected devices future is realised. While many

external obstacles to market growth remain, an internal constraint can be addressed by the

telecom industry.

M2M connectivity roaming is one of the most significant obstacles to enterprise adoption.

This opaqueness of roaming costs restricts market adoption, particularly in the SME space.

This issue could become a priority for telecom regulators to provide a coordinating hand

across national boundaries within the EU.

Another obstacle to M2M market development is the rate at which service providers target

the SME market. Deutsche Telekom’s M2M Marketplace approach, announced in 2012, is a

good starting point. Others, such as Vodafone and Telefonica, focus on this as part of their

overall enterprise strategy without explicitly simplifying the purchasing process for SMEs

M2M connectivity requirements. Without a relatively straightforward plug-and-play M2M

solution for SMEs, it is difficult to translate this opportunity into actual contracts. Our

prediction is that M2M telecom service providers might not see this as a great priority.

Instead, we expect providers with national ambitions or wholesale M2M providers to fulfill

this market need.

M2M market development also requires standardisation efforts. Many industry-led efforts aim

for a common protocol from M2M modules, M2M connectivity platforms, applications

software protocols to machines/devices. However, significant progress is unlikely since the

wider industry does not even agree on what must be standardised.

Looking forward, Frost & Sullivan expects market development to accelerate, led by more

market entry and significantly deeper and wider customer education for M2M adoption.

Taking M2M to the Next Level in 2013 ICT Beat

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