stein@opensky
Some considerations around IoT this time. The Internet of Things is something I have been frustrated about within a mobile operator (MNO) community for some years already. It is one of the great promises the industry has referred to for a decade already – also before 5G was even mentioned. In a mobile operator group I used to work for it started even several decades ago with research around M2M communication focused on tracking sheep and similar peculiar applications, however, only limited efforts have been done on a commercial basis since then. Some may disagree with this, but considering the prospects, this is my honest view. Strong and focused initiatives should have been taken a long time ago!
In the last decade IoT has been one of the great hypes at global level – and with improved battery technologies and new cellular network technologies like LTE-M, NB-IoT – and even 5G and eSIM, IoT is foreseen to be very promising. From a technical perspective, it is now possible to deploy large numbers of devices in the field which can stay there for very many years with extremely low power consumption and without changing batteries (or SIM cards). In the context of 5G, “massive IoT” is also one of the three main application areas 5G has been designed for – although it is not really available in the market yet.
So why have I been frustrated?
It is all a matter of focus and priority – and having worked for a mobile operator group, most mobile operators have throughout the years focused on consumers with smartphones and mobile broadband. This B2C market is very profitable and also a very uniform mass market, although it can be said that consumer willingness to pay for broadband is getting lower every year – and OTTs / hyperscalers and also many regulators like to see mobile broadband as a commodity or “human right”. Thus, there are such matters like Net Neutrality etc.
Without getting into regulatory matters, the two main challenges for a mobile operator are 1) that basic IoT connectivity is a very low margin business – and 2) that every vertical sector may have different solution needs – thus it is difficult to scale it in a similar way as for mobile broadband. IoT for industries often requires custom solutions and platforms for every vertical sector – or even every customer – and this is something traditional mobile operators are not very good at or used to (see also my previous articles on “5G is all around us – but who will eventually benefit?” or “5G? 6G? Hypes, geopolitics and business” where I comment that other players are probably better suited to compete in such a B2B market, like e.g. telco vendors, OTT players, IT companies, platform providers or system integrators).
IoT for industries requires a dedicated B2B focus and a dedicated B2B organization – and most likely to work with a number of solution partners. For a mobile operator it is very easy to keep focusing on its high-margin, high-scale consumer business – although many have stated intentions to go full speed on IoT. The only problem is that MNOs often don’t really walk the talk. Many MNOs also have a tendency to try to do it all alone.
Recently we have seen, however, that several of the typical “western” or “incumbent” operators like Vodafone, Orange, Deutsche Telekom, Telefonica, AT&T etc have made their bets on IoT. Other operators have made more limited efforts. It could be that some MNOs will manage to create good business on IoT – but it also seems clear that many other players will also get large portions of the pie. This is also recognized by these, probably more suitable, solution players, like e.g. Google, Amazon and Microsoft (which, by the way, announced already at MWC 2018 that they were going to “simplify IoT”, i.e. take their piece of the pie).
How to make the most of IoT?
There is no doubt that IoT will be a major part of our society going forward. GSMA forecasts that there will be 24 billion IoT “connections” in the world by 2025, i.e. based on cellular connectivity, which is 2x the number of IoT connections seen in 2019. In addition, there will also be a whole lot of IoT devices connected via other communication technologies like e.g. WiFi. Refer also my earlier article on “WiFi6 and 5G – Is 6 better than 5?”).
Industries will digitalize, there will be smart homes, smart cities and smart “everything”. Whatever the forecasts are – or whatever will actually turn out, I believe IoT will form a fundamental part of the next wave of digitalization of industries – a view also shared by regional politicians e.g. in Europe and in other parts of the world. In Europe, the EU has great ambitions around the digital society. From a company perspective, refer also my earlier article on what digitalization might mean for you.
Some key questions on IoT going forward are: Who will make the most out of IoT? … and what might be the best approaches? … and at this stage, I no longer work for an MNO – so I can make an attempt to be un-biased.
Connectivity or solutions?
As stated above, IoT connectivity is a very low margin business. The two natural approaches to this would be 1) to create scale domestically or through globalization – or 2) to make an attempt to climb up the value chain. Scale in connectivity is good, but for years I have also been saying in my MNO community that the MNOs should try to climb up the value chain through creation of “platforms” – alone or through partners. Well-aware that every vertical sector has different needs, such platforms would have to be “horizontal” to a certain degree – with vertical adaptations on top. This could be done by individual MNOs – or ideally across the industry. The state of affairs, however, is that the industry approach has missed the train – and to the degree that “horizontal” platforms exist, these are developed by individual MNOs or in cooperation with partners – or by other players alone. For MNOs, this has been (and still is) a land-grab game – and solution partners are probably taking their fair or unfair share of the value – also doing land-grab.
So what do MNOs do? They obviously focus on the connectivity technologies like LTE-M or NB-IoT (or 5G) - pushing these technologies (as Telenor Connexion does here). The same approach has been followed by the GSMA which has been promoting the rollout of these network technologies for several years – and, at their latest count by Feb 2021, there are 52 LTE-M and 103 NB-IoT networks in the world. It should be noted, however, that these two technologies are suited for somewhat different applications (including a certain technology debate). In addition, some MNOs are targeting selected verticals together with solution partners.
A wide and fragmented IoT ecosystem
While the consumer-focused broadband market has been quite uniform and dominated by handset vendors, telco equipment suppliers and MNOs (and to a more limited degree MVNOs and Service Providers), the IoT ecosystem is much broader and more complex. There is a need for a wide range of different IoT devices for different applications – and here is a need for a wide range of IoT platforms and solutions – most of which probably produced by different suppliers than those in the consumer broadband market. As the industrial IoT market also needs to integrate with legacy infrastructure, system integrators also have a large role to play. According to GSMA Intelligence, cellular IoT connectivity is expected to account for no more than 5% of the total IoT revenue by 2025 – and higher up the value chain specialized players on applications, analytics, storage, platforms and security will have great revenue opportunities. IoT security could deserve a long article in itself – but I will not dig into this here. For more interest, check out these guidelines from the GSMA.
So what can we conclude from this? I have previously stated that “every new G opens up for new entrants in the market”. This is of course from an MNO perspective – and you could say that IoT is not a G as such, however, the same is definitively true also for IoT, B2B and digitalization of society. Seen from a societal or government perspective, IoT opens up a set of new markets and opportunities – and MNOs just need to work with it.
Focus, cost structures and new approaches
IoT is a great market opportunity on its own – and cannot be purely a low-priority side activity in a consumer-oriented MNO. It needs a clear focus. In my former company Telenor, Telenor Connexion was established as a separate company in 2008, focused mainly on IoT connectivity, at the time mostly based on 2G. We also recently saw Deutsche Telekom establishing its separate company in 2020, with end-to-end responsibility for the entire IoT business at Deutsche Telekom. Focus is good, but the big question for every such company, however, is how strong the initiative is and how much funding they get. There is also a question of what they focus on. Do they focus on connectivity only? How much do they try to climb the value chain? Do they go after selected verticals? … or do they try to do it all?
With reference to cellular technologies like LTE-M or NB-IoT above, these are offered by MNOs, i.e. licensed operators with a Radio Access Network (RAN). With the low margins available for IoT connectivity, very few MNOs would want to build a RAN for IoT only – so they capitalize on existing infrastructure already built for 2G, 3G, 4G or 5G – and then sell IoT connectivity directly to industries or offer it to internal or external MVNOs, like e.g. Telenor Connexion above.
If we assume that a separate and dedicated focus on IoT aside from the consumer business of an MNO is the right approach – and that a specialized MVNO is quite suitable, then the challenges are still 1) how to scale the connectivity business domestically or through globalization – and/or 2) how to climb the value chain. In both cases, profitability and cost efficiency are also essential.
On globalization, we see IoT providers offering global roaming e.g. for the automotive or transport market, like what Telenor Connexion has done through the years, we see Telia that recently offered global IoT connectivity based on eSIM and local subscriptions – and we have seen Wireless Logic acquiring IoT players across countries (like e.g. COM4 in Norway, Arkessa in the UK, New Line Mobile BV and Datamobile AG and more).
Going on an acquisition spree is probably the right thing to do to create scale fast. However, having been part of Telenor Group throughout its international expansion, I can confirm that actually creating synergies from these is a long-term process. Integrating different parts of the value chain is complex enough but integrating similar players in different local markets is another challenge. Local market dynamics and global approaches are often in conflict – and there are also personal and governance related challenges to consider.
On the profitability side, it is necessary to have a very cost-effective infrastructure. This is particularly important if low-margin IoT connectivity is the core business – and it gets more complicated the longer you have been in business. It is often easier to build a company from scratch than to change it and/or integrate it with other similar companies – e.g. when trying to establish synergies between a number of group companies. Today, lean and mean startup companies are easily developed using software and off-the-shelf solutions. Check also out e.g. my earlier article on software telcos.
Consumer or Business IoT?
Most comments in this article have been about business or enterprise IoT, i.e. IoT in a B2B perspective. On top of this, there is also a huge market on consumer IoT – with applications like smart home, wearables, home alarm systems etc. Many devices in the consumer IoT market, e.g. smart watches etc, can operate using cellular communication technology. However, in most cases WiFi and unlicensed spectrum are used, thus opening a huge market for general consumer electronics manufacturers – and hyperscalers like Google, Microsoft, Amazon etc have made their products for it, e.g. for the smart home. Examples from Google include Google Home, Google Nest etc.
Although I previously have questioned why MNOs did not really attack the smart home market, since many of them already provide set-top boxes and connectivity to the home, I will not get into this aspect now. The market might in many cases already be taken. I will not comment further on consumer IoT here – except to say that this will also be a huge market, with a whole lot of smart devices in homes – like smart refrigerators, smart alarm systems, smart heating, smart locks – and a lot more ...
Private networks
In the context of 5G, private network is another concept which is significantly hyped these days. Private networks probably require an article on its own, however, in this one it suffices to say that in some industries companies are considering automating their processes through various types of private networks. This is mostly the case for large companies in some vertical sectors. There are various options for private networks – and the regulatory situation varies by country – but private networks in IoT for industries are absolutely relevant. Such networks are not necessarily cellular ones. Also, WiFi6 is a relevant technology (see also this earlier article). The operational aspects are, however, similar.
Summary
There is no doubt that IoT will be a major part of our society going forward – but the question is who will make the most out of … and what will be the best approach. I might not have the right answers to these questions; however, some comments have been provided.
If you are a mobile operator (an MNO), you will obviously provide the cellular communication technologies for it (the RAN). Capitalizing on your existing network infrastructure offering LTE-M, NB-IoT or massive IoT over 5G are obvious options, i.e. you provide pure connectivity. If you want to do be an IoT service provider, then I would suggest that you split this out into a separate company but also ensure that the effort is properly focused and funded – as MNOs often are too pre-occupied with their consumer business, and also have a lot of complex legacy IT infrastructure.
The most promising IoT service providers are most likely MVNOs as specialized IoT service providers, i.e. not doing any networks and not doing any consumer business, but they need to create scale in their IoT connectivity offerings, e.g. through becoming a multi-national group. If you have excess cash, this may sound like a good approach, but synergy creation across a multi-national group is not so easy. What you really need is a cost-efficient and software-based core infrastructure, which is mostly common across the group. However, this is mostly not the case in practice – in particular if the group is created through acquisitions – and a long-term transition programme is needed, which requires strong technical as well as change management skills and stamina.
Potential IoT enterprise customers, whatever their specific needs are, will probably most often need some form of package solution and most often also something integrated into their legacy infrastructure. They would therefore not naturally go to an IoT service provider of connectivity in the first instance. They would rather go to a solution provider and/or system integrator that can accommodate their needs. From the perspective of an MNO or MVNO, you may want to establish some “horizontal” platforms, but to get to the verticals, it will also be necessary to secure strong partnerships with solution partners - and you will proably not be in the customer front. A challenge will of course be that you will not get all of the IoT value - but you will reach a larger market.
The ecosystem play in the area of IoT for industries will be an interesting area to watch going forward. There are many opportunities for many new and existing players – and digitalization of society is something we will see in many countries in the next years. Watch and see !