Filing Information: October 2012, IDC #AU3054108X, Volume: 1

Australia Enterprise Mobility: Insight

I N S I G H T

M 2 M i n A u s t r a l i a : G r o w i n g t h e T o p L i n e w i t h M a c h i n e s

Siow-Meng Soh Dustin Kehoe

I D C O P I N I O N

Machine to machine (M2M) will become increasingly important for mobile operators

as a source of business growth. Adoption is expected to rise, as the cost of

implementation declines. There are more use cases of M2M showing companies'

ways to improve their operations and build new business models. In the longer term,

M2M will also find its way into consumer electronics and home appliances.

The Australian M2M market size is still small, considering the large number of

machines that can potentially be M2M enabled. Besides considering cost and ROI,

there are also concerns on M2M such as data security and quality of wireless

networks inhibiting M2M adoption. However, there are several key trends around the

world that are favourable for the M2M market to grow. The rate of adoption is

expected to rise with the ongoing M2M standardisation, industry partnerships, new

applications and delivery models, as well as increasing awareness of M2M benefits.

Mobile operators can play a key role in enabling M2M as they own the network and

the billing system, and they already have existing relationships with enterprises.

Telstra is already making a push for M2M and building an ecosystem to facilitate

M2M growth. Optus and Vodafone Hutchison Australia (VHA) are likely to respond,

particularly since SingTel and Vodafone Group Enterprise (VGE) have clear

strategies to develop the M2M business on a pan-regional level.

The M2M ecosystem remains fragmented and there is a wide range of

industry-specific solutions that may require heavy customisation. From a mobile

operator perspective, it is more strategic to develop an ecosystem of partners and

provide a platform (e.g., either by building, buying, or partnering) that enables

application developers to sell their products. This will accelerate M2M adoption and

mobile operators will be able to increase the number of M2M connections.

However, for large enterprises in key industry segments (where the operator already

has several key accounts), it is crucial for operators to develop the knowledge and

expertise to provide more complex, customised solutions. Operators should focus on

key verticals and hire specialists that understand the requirements of customers in

these verticals, including the regulatory/compliance requirements. This will also

enable operators to develop differentiation as the M2M competition heightens.

Level 20, 8

-20 N

apie

r S

t, N

ort

h S

ydney

NS

W 2

060 A

ust

ralia

P

.61.2

.9925.2

298

2 #AU3054108X ©2012 IDC

I N T H I S I N S I G H T

This IDC Insight highlights major trends for machine-to-machine (M2M) services and

how these services are likely to evolve. M2M solutions have been around for several

years, but the adoption of M2M in Australia has been mostly for some specific

applications around fleet management and asset tracking. However, with devices

getting smarter and mobile networks becoming better at handling data services, M2M

looks set to move to the next level. Telecom operators are also realising the potential

to grow their revenues if they can incorporate a SIM card in any machine for

improving business operations or bringing convenience to consumers (tracking of

pets, fitness monitoring, home automation, and so forth). This Insight also looks at the

key factors that will drive M2M adoption, and how telecom operators can position

themselves to grow revenues from these services.

S I T U A T I O N O V E R V I E W

IDC defines M2M at the highest level as a technology solution that enables seamless

and autonomous (without end-user inputs) wired or wireless communications

between and among machines or "things." Whilst there are various wired and

wireless technologies (e.g., WiFi, Bluetooth, ZigBee, and Satellite), this report focuses

on the use of cellular networks, whether on the 2G networks (GSM, GPRS, and

EDGE), 3G networks (including HSPA/HSPA+), or LTE networks.

There are four main groups of players along the M2M value chain:

Modules vendors (Cinterion, Sierra Wireless, and Telit);

Connectivity providers (mobile operators and MVNOs)

Service delivery platform providers (Ericsson, Jasper Wireless, and nPhase);

Applications vendors (mostly ISVs and application platform vendors such as

Axeda and ILS Technology)

Solutions providers (Accenture, Atos Origin, IBM)

A complete M2M solution typically comprises hardware, communications, and

services. Hardware comprises physical components such as RFID tag readers, GPS

units, 2G/3G wireless module, and custom-developed hardware. Communications

include mainly the costs of data transmission typically in the form of a monthly

subscription fee paid to network operators. Services attached to an M2M solution

include business development, implementation, testing, and maintenance. Services in

the initial phases of an M2M installation include systems integration, delivery, and

installation. The maintenance services are deployed after the solution is up and

running, including monitoring, data analysis, and diagnostics, service management,

and software downloads.

©2012 IDC #AU3054108X 3

M2M is gaining attention as the mobile data networks become more mature and as

more industry-specific solutions become available, enabling enterprises to automate

processes, reduce costs, and enhance efficiency. There are clear revenue

opportunities for mobile operators in offering M2M communications services. Whilst

M2M offers lower average revenue per user (ARPU) (as low as A$3 for a simple

metering service), it can be attractive to operators due to the high volume of

connections (e.g., over 2 million smart metres in Victoria to be deployed by 2013).

Moreover, operators are facing challenges growing their revenues as the consumer

market becomes more saturated and voice revenues continue to decline. M2M is a

viable option for operators to grow their business since machines and consumer

electronics are now getting smarter, and there are more machines out there that can

be connected.

In Australia, mobile operators — Telstra, Optus, and VHA — as well as systems

integrators are already offering M2M solutions. Telstra has put in place an M2M

platform (in partnership with Jasper Wireless) and is focusing on specific areas such

as asset management, remote monitoring, utilities, and logistics and transportation.

With the recent reorganisation of SingTel/Optus, Optus is well positioned to make a

strong push for M2M solutions. Optus is able to leverage SingTel's existing

partnerships to enhance its solutions, professional services capabilities for end-to-end

solutions, and its regional assets for roaming within the region. VHA is also

supporting Vodafone Global Enterprise's global accounts in Australia and it can

leverage VGE's expertise to grow its M2M business locally.

However, it is still early days for M2M at this stage. IDC expects the number of M2M

services in operation (SIO) to reach 1.7 million by year-end 2012, which is only about

6% of the total active SIMs. The revenue opportunity for mobile operators is

estimated to be A$147 million (excluding services). IDC expects the SIO to reach 8.7

million and the revenue to reach A$684 million by 2017. About 90% of the installed

hardware is using 2G technology, but 3G modules are becoming more commonplace

as the price gap narrows. Mobile operators can also broaden the scope and add

hardware and services to provide end-to-end solutions. Facing saturation in the

consumer market and thinning margins, M2M is another revenue stream for mobile

operators to tap.

M2M Solutions for Verticals

M2M solutions have been designed to meet specific needs of a particular industry

vertical. For instance, the utilities sector in Australia is rolling out smart grids and

smart metres using M2M chips in a major way to enable greater energy efficiency.

Key market sectors that are seeing greater needs for M2M solutions include:

Transportation and logistics — fleet management, asset tracking

Utilities and energy — smart metering, smart grid

Manufacturing — remote monitoring and controlling of equipment and processes

Automotive — information and entertainment, emergency services, usage-based

insurance

Healthcare — remote monitoring,

Retail — point-of-sales, vending machines, ticketing systems

4 #AU3054108X ©2012 IDC

Security — remote monitoring, surveillance

Consumer electronics — ereaders, personal navigation devices, entertainment

M2M has been widely used in the transportation and logistics, utilities and energy,

and retail, whilst sectors such as automotive, healthcare and consumer electronics

are just beginning to take off. The interest of using M2M within the automotive

industry is keen; for example, BMW and Vodafone signed a five-year agreement in

March 2012 to fit BMW series vehicles with a Vodafone SIM chip. The M2M service

will provide customers access to its online personal concierge service and an

emergency call function. M2M can also play a key role in intelligent transportation

systems particularly in areas such as road safety and traffic management. In the

healthcare sector, M2M is expected to be used more widely for monitoring patient

conditions and alerting patients and/or doctors when a patient's health worsens.

With devices, such as Amazon's Kindle 3G (with AT&T service in the United States),

Garmin's portable navigation system (KPN), and Sony's Playstation Vita (Vodafone),

M2M in consumer electronics will see significant growth in the coming years. The

deployment of LTE will also enable a wider range of M2M applications, including

digital signage and video surveillance — but this will take some time for LTE

coverage to be pervasive and the cost of LTE modules to decline.

Going Beyond Connectivity

The M2M services market is rapidly evolving and there is a diverse range of M2M

applications. It is near impossible for a telecom operator to have full in-house

capabilities to meet different customer needs. Forming the right partnership is critical

and, under the fragmented ecosystem, mobile operators can play the role of an

enabler by providing the platform and linking up key players to deliver end-to-end

solutions to customers.

Building M2M applications. It is crucial to have a range of applications that can

meet the needs of different industries to speed up M2M adoption. Telstra

overcomes this through its Mobility Partner Program, which attracts application

providers to sell their solutions through Telstra's platform. This program is a win-

win for both application providers and Telstra. It enables Telstra to offer a wider

range of solutions to enterprise customers and application providers can

leverage Telstra's customer base, branding, and sales support to increase sales.

Likewise, SingTel works with partners to target specific verticals (e.g., V3

Teletech and AGIS for logistics companies), and it is engaging M2M application

developers through its SingTel Innovation Exchange (SiX) initiative. SingTel is

also offering developers the possibility to market its M2M applications regionally

through its associates such as Optus, Globe, Bharti Airtel, AIS, and Telkomsel.

Through the partnership with Axeda, AT&T offers a cloud-based platform for

developers to design, build, and manage M2M applications more efficiently.

Besides Axeda, AT&T also works with ILS Technology, Sierra Wireless, and

SensorLogic to enable quicker turnaround for M2M application development and

deployment. Operators also need to work with hardware suppliers; for example,

VGE works with a range of suppliers including Digi International, Sierra Wireless

Cinterion, and MC Technologies. In October 2012, VGE signed up Australia-

based Netcomm Wireless as a supplier of M2M IP modem for global deployment.

©2012 IDC #AU3054108X 5

Using service delivery platform. A good service delivery platform enhances

customer experience by enabling faster service provisioning, control over the

services, and usage visibility. The right platform also helps operators lower

operational cost in managing a large number of M2M connections. Instead of

building a service delivery platform in-house, several telcos have chosen to work

with platform partners. AT&T has partnered with Jasper Wireless to enable the

AT&T Control Center service delivery platform. Similarly, through the partnership

with Jasper Wireless, Telstra has launched its Telstra Wireless M2M Control

Centre platform that allows customers to self-manage a range of M2M products

and enables customers to design, deploy, and manage M2M applications with

ease. Telenor Connexion sold its M2M service delivery platform to Ericsson, but

continues to use the platform to deliver M2M services.

Targeting verticals. Mobile operators can choose to develop strength in specific

verticals or market segments. Orange Business Services and Qualcomm Life

announced collaboration in February 2012 to incorporate M2M applications for

the healthcare industry — connecting healthcare providers and patients to enable

secure remote monitoring of chronic diseases. T-Mobile and Telit have a

strategic partnership and are targeting segments such as fleet management,

navigation, and security. Telefonica (Brazil) has also teamed up with Ericsson to

develop a smart transport solution in Curitiba with the aim of reducing fuel cost

and carbon emissions. Telstra is making a push for the utilities sector in

Australia, whilst SingTel/Optus is traditionally strong in the fleet management and

security space. As VGE covers a range of industry sectors, it is making some

headway in the automotive (BMW, TomTom), smart metering (Enexis in the

Netherlands and AMS in New Zealand), and fleet management (Ctrack/Digicore

and Isotrak). Potential verticals for Australia include utilities/smart metering,

security and remote monitoring, healthcare, automotive, and digital signage.

Offering M2M systems integration and professional services. Besides selling

connectivity, telcos can also step into systems integration and professional

services (consulting, solution design, implementation and project management,

as well as ongoing support and service management). Some enterprises require

the integration of M2M with existing systems and business processes and this is

typically in the hands of systems integrators like Accenture, IBM, and Logica.

However, Orange Business Services has developed capabilities to deliver large-

scale projects and offer end-to-end solutions, including business planning,

customer integration with back-office systems, a range of industry-specific

applications, and global service management. Instead of building internal

capabilities, Telenor Connexion has chosen to work with Logica to support large-

scale projects and provide systems integration.

6 #AU3054108X ©2012 IDC

Strengthening in-house capabilities for end-to-end solutions. There is a

need to ramp up internal capabilities to offer a broader range of M2M services,

perform device certification, and provide customer support. Operators, such as

AT&T, Orange Business Services, and Vodafone, have a team of people

dedicated to M2M. AT&T has an M2M team (part of AT&T Mobility) that is

organised into various vertical segments, whilst VGE also has a team of

specialists focusing on the development and delivery of M2M solutions. VGE also

has a Test & Innovation Centre to test and certify M2M wireless modules and

terminals. Similarly, Orange Business Service International M2M Center of

Excellence in Brussels was formed in 2009 to support M2M deployments

globally. Verizon Wireless acquired the remaining 50% of nPhase from

Qualcomm to bring the capability in-house — nPhase was a joint venture

between Verizon and Qualcomm formed in 2009 to provide M2M service delivery

platform.

Offering cross-border M2M roaming services. Some customers (e.g., global

logistics companies) require the roaming feature as part of the M2M offering. A

key strength of VGE is its ability to support M2M services in several markets in

Europe, Asia, and the United States. Mobile operators should work with partners

in regional alliances such as FreeMove, Bridge Alliance, and Conexus Mobile to

lower the data roaming charges for M2M services. In July 2012, a group of

operators, including KPN, NTT DOCOMO, Rogers, SingTel, Telstra, Telefonica,

Vimpelcom, formed an alliance to enable M2M devices to work across different

geographies.

F U T U R E O U T L O O K

Only a small number of devices are M2M enabled, and IDC believes that it is still

early days before M2M becomes pervasive in Australia. Whilst there are potential

benefits for deploying M2M, companies may not be aware of the M2M solutions

available or may not be ready to invest in M2M, particularly with the current economic

uncertainty. The overall cost remains high for some applications because customers

have to consider hardware investment, recurring connectivity charges, systems

integration requirements, and professional services costs. There are also concerns

around data security and reliability of the mobile networks — these are particularly

crucial considerations if the M2M devices are collecting sensitive information.

Nevertheless, there are key developments globally that will drive the adoption of M2M

services:

Mobile operators will play a key role to accelerate the adoption of M2M to

generate revenue growth. M2M is a low-ARPU, high-volume business but it can

also be profitable due to lower customer churn, marketing costs, and device

subsidies. ARPU for both voice and data services will continue to face downward

pressure so mobile operators will look at other sources such as M2M and related

value-added services for growth. Telstra has shown keen interest in M2M and it

is taking the lead in enhancing its services and growing customer base. VHA can

leverage VGE's expertise in M2M and Optus is expected to make a stronger

pitch for M2M, leveraging SingTel's regional expertise and resources. However,

VHA will have to address perennial concerns around network coverage and

performance locally to build scale with local businesses.

©2012 IDC #AU3054108X 7

Customers in different industry verticals have different sets of requirements and it

is a challenge for a single player to develop capabilities to deliver end-to-end

M2M solutions for different industries. Strategic partnerships amongst players,

telco's partnership programs for M2M application developers, as well as mergers

and acquisitions will continue, bringing about better services. Customers can

expect to have a wider range of applications and service providers that can offer

a more complete solution.

Standardisation will also give M2M services a boost. The International

Telecommunication Union (ITU) announced the formation of a Focus Group in

January 2012 to standardise M2M Service Layer, focusing on ehealth initially.

Major standards development organisations (SDOs) including ARIB (Japan),

ATIS, CCSA (China), ETSI, TIA, TTA (Korea), and TTC (Japan) also announced

around the same time an initiative to standardise M2M end-to-end specifications

with an initial focus on the Service Layer. The standardisation efforts will lower

the cost and improve the speed of M2M deployment in the future.

Increasingly, M2M vendors and service providers are offering software-as-a-

service/hardware leasing models that will enable customers to lower their total

cost of ownership. This will make it easier for customers to develop a business

case for deploying M2M and to improve ROI.

There is an increasing awareness of the benefits of M2M and, in some cases,

companies may use M2M solutions to meet industry-specific regulatory

requirements (e.g., smart metres for utilities and road safety). However,

operators and vendors could do more to promote the use of M2M solutions.

With the growth of data services and increasing data traffic, mobile network

operators have been upgrading their networks to improve performance

(3G/HSPA coverage, transmission speeds, and reliability).

In the longer term, the deployment of LTE — which has already started in

Australia — will also increase the data speeds that will enable M2M applications

that require a higher transmission speed mostly video and multimedia

applications. LTE could boost revenue for mobile operators and drive growth,

especially as it becomes embedded 4G applications.

Enterprise application enablement and business analytics will be important

drivers for M2M. A number of vendors, such as SAP, are working with carriers

with integrating apps with connected devices. "Big Data" will be important in

areas such analysing events as they occur, delivering powerful insight, and

predicting outcomes. In practice, this can mean detecting a fault in a new car

faster and fixing the problem before having to issue a recall on a large scale.

IDC expects fleet management, utilities/smart metering, and retail to continue to

drive the M2M market. In the medium term, IDC expects M2M to penetrate the

healthcare (cardiac monitoring, fetal monitoring, home health monitoring, and so

forth) and manufacturing automation.

8 #AU3054108X ©2012 IDC

C o p y r i g h t N o t i c e

This IDC research document was published as part of an IDC continuous intelligence

service, providing written research, analyst interactions, telebriefings, and

conferences. Visit www.idc.com to learn more about IDC subscription and consulting

services. To view a list of IDC offices worldwide, visit www.idc.com/offices. Please

contact the IDC Hotline at 800.343.4952, ext. 7988 (or +1.508.988.7988) or

sales@idc.com for information on applying the price of this document toward the

purchase of an IDC service or for information on additional copies or Web rights.

Copyright 2012 IDC. Reproduction is forbidden unless authorized. All rights reserved.